TRIO-TECH INTERNATIONAL
10-Ks and 10-Qs
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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, 2019
OR
☐
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Transition Period from ___ to ___
Commission File Number 1-14523
TRIO-TECH INTERNATIONAL
(Exact name of Registrant as specified in its Charter)
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California
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95-2086631
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification Number)
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Block 1008 Toa Payoh North
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Unit 03-09 Singapore
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318996
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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:
(65) 6265
3300
Securities
registered pursuant to Section 12(b) of the Act:
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Name of
each exchange
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Title
of each class
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Trading
Symbol
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On
which registered
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Common
Stock, no par value
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TRT
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NYSE
American
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Securities
registered pursuant to Section 12(g) of the Act: None
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 every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required
to submit and post such
files). Yes
☒
No
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a nonaccelerated
filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,”
“accelerated filer”, “smaller reporting
company”, and "emerging growth company" in Rule 12b2 of
the Exchange Act. (Check one):
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Large Accelerated Filer
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☐
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Accelerated Filer
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☐
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Non-Accelerated Filer
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☐
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Smaller reporting company
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☒
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Emerging growth company
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☐
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
As of February 1, 2020, there were 3,673,055 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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2
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4
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5
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6
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35
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51
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51
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52
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52
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52
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52
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52
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52
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52
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53
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FORWARD-LOOKING STATEMENTS
The
discussions of Trio-Tech International’s (the
“Company”) business and activities set forth in this
Form 10-Q and in other past and future reports and announcements by
the Company may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended,
and assumptions regarding future activities and results of
operations of the Company. In light of the “safe
harbor” provisions of the Private Securities Litigation
Reform Act of 1995, the following factors, among others, could
cause actual results to differ materially from those reflected in
any forward-looking statements made by or on behalf of the Company:
market acceptance of Company products and services; changing
business conditions or technologies and volatility in the
semiconductor industry, which could affect demand for the
Company’s products and services; the impact of competition;
problems with technology; product development schedules; delivery
schedules; changes in military or commercial testing specifications
which could affect the market for the Company’s products and
services; difficulties in profitably integrating acquired
businesses, if any, into the Company; risks associated with
conducting business internationally and especially in Asia,
including currency fluctuations and devaluation, currency
restrictions, local laws and restrictions and possible social,
political and economic instability; changes in U.S. and global
financial and equity markets, including market disruptions and
significant interest rate fluctuations; the trade tension between
U.S. and China;public healthy issue related to the 2019 Novel
Corona virus;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.
P
ART 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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December
31,
2019
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June
30,
2019
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ASSETS
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(Unaudited)
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CURRENT
ASSETS:
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Cash
and cash equivalents
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$
4,743
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$
4,863
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Short-term
deposits
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6,888
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4,144
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Trade
accounts receivable, less allowance for doubtful accounts of $306
and $263,
respectively
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6,937
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7,113
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Other
receivables
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752
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817
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Inventories,
less provision for obsolete inventory of $680 and $673,
respectively
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2,182
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2,427
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Prepaid
expenses and other current assets
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330
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287
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Assets
held for sale
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-
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89
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Total current assets
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21,832
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19,740
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NON-CURRENT
ASSETS:
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Deferred
tax asset
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421
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390
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Investment
properties, net
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734
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782
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Property,
plant and equipment, net
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11,651
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12,159
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Operating
lease right-of-use assets
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475
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-
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Other
assets
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1,626
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1,750
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Restricted
term deposits
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1,716
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1,706
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Total
non-current assets
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16,623
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16,787
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TOTAL ASSETS
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$
38,455
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$
36,527
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LIABILITIES
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CURRENT
LIABILITIES:
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Lines
of credit
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$
810
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$
187
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Accounts
payable
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3,565
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3,272
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Accrued
expenses
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3,176
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3,486
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Income
taxes payable
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395
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417
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Current
portion of bank loans payable
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422
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488
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Current
portion of finance leases
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286
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283
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Current
portion of operating leases
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343
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-
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Total current liabilities
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8,997
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8,133
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NON-CURRENT
LIABILITIES:
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Bank
loans payable, net of current portion
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2,127
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2,292
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Finance leases,
net of current portion
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570
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442
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Operating
leases, net of current portion
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134
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-
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Deferred
tax liabilities
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315
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327
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Income
taxes payable
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430
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439
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Other
non-current liabilities
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37
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33
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Total
non-current liabilities
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3,613
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3,533
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TOTAL LIABILITIES
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$
12,610
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$
11,666
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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; 3,673,055 shares
issued
outstanding
as at December 31 and June 30, 2019, respectively
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$
11,424
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$
11,424
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Paid-in
capital
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3,319
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3,305
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Accumulated
retained earnings
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7,769
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7,070
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Accumulated
other comprehensive gain-translation adjustments
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1,818
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1,867
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Total Trio-Tech International shareholders'
equity
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24,330
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23,666
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Non-controlling
interest
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1,515
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1,195
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TOTAL
EQUITY
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$
25,845
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$
24,861
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TOTAL LIABILITIES AND EQUITY
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$
38,455
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$
36,527
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See notes to condensed consolidated financial
statements.
-1-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
I
NCOME / (LOSS)
UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
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Three
Months Ended
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Six
Months Ended
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Dec.
31,
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Dec.
31,
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Dec.
31,
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Dec.
31,
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2019
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2018
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2019
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2018
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Revenue
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Manufacturing
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$
3,045
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$
3,352
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$
6,362
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$
6,989
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Testing
services
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3,887
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4,393
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8,277
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8,830
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Distribution
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2,014
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1,916
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4,113
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3,860
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Real
Estate
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16
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29
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33
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56
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8,962
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9,690
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18,785
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19,735
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Cost of Sales
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Cost
of manufactured products sold
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2,383
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2,646
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4,938
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5,503
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Cost
of testing services rendered
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2,918
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3,106
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6,109
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6,489
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Cost
of distribution
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1,738
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1,662
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3,545
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3,348
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Cost
of real estate
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18
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18
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36
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36
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7,057
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7,432
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14,628
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15,376
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Gross Margin
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1,905
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2,258
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4,157
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4,359
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Operating Expenses:
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General
and administrative
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1,777
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1,722
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3,565
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3,481
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Selling
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176
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187
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366
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334
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Research
and development
|
125
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122
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201
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194
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Gain
on disposal of property, plant and equipment
|
-
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-
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(24
)
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-
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Total
operating expenses
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2,078
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2,031
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4,108
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4,009
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(Loss) / Income from Operations
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(173
)
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227
|
49
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350
|
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Other Income / (Expenses)
|
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Interest
expenses
|
(55
)
|
(98
)
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(123
)
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(176
)
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Gain
on sale of asset held for sale
|
1,172
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-
|
1,172
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-
|
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Other income,
net
|
40
|
49
|
150
|
92
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Total
other income / (expenses)
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1,157
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(49
)
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1,199
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(84
)
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Income from Continuing Operations before Income
Taxes
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984
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178
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1,248
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266
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Income Tax (Expenses) / Benefits
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(120
)
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124
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(120
)
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50
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Income
from continuing operations before non-controlling interest, net of
tax
|
864
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302
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1,128
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316
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Discontinued Operations
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Income
/ (Loss) from discontinued operations, net of tax
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1
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4
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-
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(4
)
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NET INCOME
|
865
|
306
|
1,128
|
312
|
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Less:
net income / (loss) attributable to non-controlling
interest
|
439
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(42
)
|
429
|
(101
)
|
|
Net Income Attributable to Trio-Tech International Common
Shareholders
|
$
426
|
$
348
|
$
699
|
$
413
|
|
|
|
|
|
|
|
Amounts Attributable to Trio-Tech International Common
Shareholders:
|
|
|
|
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Income
from continuing operations, net of tax
|
425
|
346
|
699
|
415
|
|
Income
/ (Loss) from discontinued operations, net of tax
|
1
|
2
|
-
|
(2
)
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Net Income Attributable to Trio-Tech International Common
Shareholders
|
$
426
|
$
348
|
$
699
|
$
413
|
|
|
|
|
|
|
|
Basic Earnings per Share:
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Basic
per share from continuing operations attributable to Trio-Tech
International
|
$
0.12
|
$
0.09
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$
0.19
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$
0.11
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Basic
earnings per share from discontinued operations attributable to
Trio-Tech International
|
$
-
|
$
-
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$
-
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$
-
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|
Basic Earnings per Share from Net Income
|
|
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Attributable to Trio-Tech International
|
$
0.12
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$
0.09
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$
0.19
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$
0.11
|
|
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Diluted Earnings per Share:
|
|
|
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Diluted
earnings per share from continuing operations attributable to
Trio-Tech International
|
$
0.11
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$
0.09
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$
0.19
|
$
0.11
|
|
Diluted
earnings per share from discontinued operations attributable to
Trio-Tech International
|
$
-
|
$
-
|
$
-
|
$
-
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Diluted Earnings per Share from Net Income
|
|
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|
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Attributable to Trio-Tech International
|
$
0.11
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$
0.09
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$
0.19
|
$
0.11
|
|
|
|
|
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Weighted
average number of common shares outstanding
|
|
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|
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Basic
|
3,673
|
3,673
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3,673
|
3,673
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Dilutive
effect of stock options
|
52
|
108
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33
|
142
|
|
Number
of shares used to compute earnings per share diluted
|
3,725
|
3,781
|
3,706
|
3,815
|
See notes to condensed consolidated financial
statements.
-2-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
C
OMPREHENSIVE INCOME / (LOSS)
|
|
Three Months
Ended
|
Six Months Ended
|
||
|
|
Dec.
31,
|
Dec.
31,
|
Dec.
31,
|
Dec.
31,
|
|
Comprehensive Income Attributable to Trio-Tech
International Common Shareholders:
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
|
|
Net
income
|
$
865
|
$
306
|
$
1,128
|
$
312
|
|
Foreign
currency translation, net of tax
|
525
|
(51
)
|
(38
)
|
(590
)
|
|
Comprehensive Income / (Loss)
|
1,390
|
255
|
1,090
|
(278
)
|
|
Less:
comprehensive income / (loss) attributable to non-controlling
interest
|
431
|
(57
)
|
440
|
(192
)
|
|
Comprehensive Income / (Loss) Attributable to Trio-Tech
International Common Shareholders
|
$
959
|
$
312
|
$
650
|
$
(86
)
|
|
|
|
|
|
|
See notes to condensed consolidated financial
statements.
-3-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
E
QUITY
(IN THOUSANDS)
Six Months ended December 31, 2019
|
|
Common
Stock
|
Additional Paid-in
|
Accumulated Retained
|
Accumulated Other
Comprehensive
|
Non- Controlling
|
|
|
|
|
Shares
|
Amount
|
Capital
|
Earnings
|
Income
|
Interest
|
Total
|
|
|
$
|
$
|
$
|
$
|
$
|
$
|
|
|
Balance
at June 30, 2019
|
3,673
|
11,424
|
3,305
|
7,070
|
1,867
|
1,195
|
24,861
|
|
Stock
option expenses
|
-
|
-
|
14
|
-
|
-
|
-
|
14
|
|
Net
income
|
-
|
-
|
-
|
699
|
-
|
429
|
1,128
|
|
Dividend declared
by subsidiary
|
-
|
-
|
-
|
-
|
-
|
(120
)
|
(120
)
|
|
Exercise of stock
option
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Translation
adjustment
|
-
|
-
|
-
|
-
|
(49
)
|
11
|
(38
)
|
|
Balance
at Dec. 31, 2019
|
3,673
|
11,424
|
3,319
|
7,769
|
1,818
|
1,515
|
25,845
|
Six Months ended December 31, 2018
|
|
Common
Stock
|
Additional Paid-in
|
Accumulated Retained
|
Accumulated Other
Comprehensive
|
Non- Controlling
|
|
|
|
|
Shares
|
Amount
|
Capital
|
Earnings
|
Income
|
Interest
|
Total
|
|
|
$
|
$
|
$
|
$
|
$
|
$
|
|
|
Balance
at June 30, 2018
|
3,553
|
11,023
|
3,249
|
5,525
|
2,182
|
1,522
|
23,501
|
|
Stock
option expenses
|
-
|
-
|
9
|
-
|
-
|
-
|
9
|
|
Net
income / (loss)
|
-
|
-
|
-
|
413
|
-
|
(101
)
|
312
|
|
Dividend declared
by subsidiary
|
-
|
-
|
-
|
-
|
-
|
(122
)
|
(122
)
|
|
Exercise of stock
option
|
120
|
401
|
-
|
-
|
-
|
-
|
401
|
|
Translation
adjustment
|
-
|
-
|
-
|
-
|
(499
)
|
(91
)
|
(590
)
|
|
Balance
at Dec. 31, 2018
|
3,673
|
11,424
|
3,258
|
5,938
|
1,683
|
1,208
|
23,511
|
See notes to condensed consolidated financial
statements.
-4-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
C
ASH FLOWS (IN THOUSANDS)
|
|
Six Months
Ended
|
|
|
|
Dec.
31,
|
Dec.
31,
|
|
|
2019
|
2018
|
|
|
(Unaudited)
|
(Unaudited)
|
|
Cash Flow from Operating Activities
|
|
|
|
Net
income
|
$
1,128
|
$
312
|
|
Adjustments
to reconcile net income to net cash flow provided by operating
activities
|
|
|
|
Gain
on sale of asset held for sale
|
(1,172
)
|
-
|
|
Gain
on sale of property, plant and equipment
|
(24
)
|
-
|
|
Depreciation
and amortization
|
1,576
|
1,145
|
|
Stock
compensation
|
14
|
9
|
|
Reversal
of provision for obsolete inventory
|
(5
)
|
-
|
|
Reversal
of income tax provision
|
-
|
(145
)
|
|
Repayment
of operating leases
|
(359
)
|
-
|
|
Repayment
of interest portion of finance leases (
Note 1b
)
|
(24
)
|
(24
)
|
|
Bad
debt expenses (recovery)
|
45
|
(2
)
|
|
Accrued
interest expense, net accrued interest income
|
(20
)
|
26
|
|
Warranty
recovery, net
|
-
|
(22
)
|
|
Deferred
tax (provision) / benefit
|
(47
)
|
29
|
|
Changes
in operating assets and liabilities, net of acquisition
effects
|
|
|
|
Trade
accounts receivable
|
132
|
753
|
|
Other receivables
|
65
|
(110
)
|
|
Other assets
|
97
|
428
|
|
Inventories
|
247
|
294
|
|
Prepaid expenses and other current assets
|
(43
)
|
(71
)
|
|
Accounts payable and accrued expenses
|
(6
)
|
(287
)
|
|
Income taxes payable
|
(31
)
|
(84
)
|
|
Net Cash Provided by Operating Activities
|
1,573
|
2,251
|
|
|
|
|
|
Cash Flow from Investing Activities
|
|
|
|
Proceeds
from disposal of property, plant and
equipment
|
39
|
3
|
|
Proceeds
from sale of asset held for sale
|
1,261
|
-
|
|
Investments
in unrestricted deposits
|
(2,672
)
|
(1,461
)
|
|
Addition
to property, plant and equipment
|
(744
)
|
(2,297
)
|
|
Net Cash Used in Investing Activities
|
(2,116
)
|
(3,755
)
|
|
|
|
|
|
Cash Flow from Financing Activities
|
|
|
|
Repayment
on lines of credit
|
(729
)
|
(5,908
)
|
|
Repayment
of bank loans
|
(245
)
|
(265
)
|
|
Repayment
of principal portion of finance leases
|
(127
)
|
(121
)
|
|
Dividends
paid on non-controlling interest
|
(120
)
|
(122
)
|
|
Proceeds
from exercising stock options
|
-
|
401
|
|
Proceeds
from lines of credit
|
1,337
|
5,962
|
|
Proceeds
from bank loans
|
-
|
1,475
|
|
Proceeds
from finance leases
|
279
|
|
|
Net Cash Generated from Financing Activities
|
395
|
1,422
|
|
|
|
|
|
Effect of Changes in Exchange Rate
|
38
|
(272
)
|
|
|
|
|
|
Net decrease in cash, cash equivalents, and restricted
cash
|
$
(110
)
|
$
(354
)
|
|
Cash, cash equivalents, and restricted cash at beginning of
period
|
6,569
|
8,234
|
|
Cash, cash equivalents, and restricted cash at end of
period
|
$
6,459
|
$
7,880
|
|
|
|
|
|
Supplementary Information of Cash Flows
|
|
|
|
Cash
paid during the period for:
|
|
|
|
Interest
|
124
|
150
|
|
Income
taxes
|
$
109
|
$
104
|
|
|
|
|
|
Non-Cash Transactions
|
|
|
|
Finance lease of property, plant and equipment
|
279
|
-
|
|
Reconciliation of Cash, cash
equivalents, and restricted cash
(Note 1a)
|
|
|
|
Cash
|
4,743
|
6,192
|
|
Short-term deposits
|
6,888
|
2,121
|
|
Restricted term-deposits in non-current assets
|
1,716
|
1,688
|
|
Total Cash, cash equivalents, and restricted cash shown in
statement of cash flows
|
$
13,347
|
$
10,001
|
|
|
|
|
|
See
notes to condensed consolidated financial statements.
|
|
|
Note 1a
-Amounts reflecting
adoption of ASU 2016-18, Statement of Cash Flows, Restricted Cash
(Topic 230) beginning in the first quarter of
2019.
Note 1b-
Reclassification of repayment on interest portion
of finance lease from financing activities to operating accordance
ASC 842-20-45-5.
Amounts included in restricted deposits represent the amount of
cash pledged to secure loans payable or trade financing granted by
financial institutions and serve as collateral for public utility
agreements such as electricity and water. 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.
-5-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
N
OTES 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 2020, TTI conducted business in four business segments:
Manufacturing, Testing Services, Distribution and Real Estate. TTI
has subsidiaries in the U.S., Singapore, Malaysia, Thailand,
Indonesia 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
|
|
Trio-Tech (Malaysia) Sdn. Bhd.
(55% owned by Trio-Tech International Pte. Ltd.)
|
55%
|
Penang and Selangor, Malaysia
|
|
Trio-Tech (Kuala Lumpur) Sdn. Bhd.
|
55%
|
Selangor, Malaysia
|
|
(100% owned by Trio-Tech Malaysia Sdn. Bhd.)
|
|
|
|
Prestal Enterprise Sdn. Bhd.
|
76%
|
Selangor, Malaysia
|
|
(76% owned by Trio-Tech International Pte. Ltd.)
|
|
|
|
Trio-Tech (SIP) Co., Ltd. *
|
100%
|
Suzhou, China
|
|
Trio-Tech (Chongqing) Co. Ltd. *
|
100%
|
Chongqing, China
|
|
SHI International Pte. Ltd. (Dormant)
(55% owned by Trio-Tech International Pte. Ltd)
|
55%
|
Singapore
|
|
PT SHI Indonesia (Dormant)
(100% owned by SHI International Pte. Ltd.)
|
55%
|
Batam, Indonesia
|
|
Trio-Tech (Tianjin) Co., Ltd. *
|
100%
|
Tianjin, China
|
* 100% owned by Trio-Tech International Pte.
Ltd.
The accompanying un-audited condensed consolidated financial
statements have been prepared in accordance with United States
generally accepted accounting principles (“GAAP”) for
interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. All significant
inter-company accounts and transactions have been eliminated in
consolidation. The unaudited condensed consolidated financial
statements are presented in U.S. dollars. The accompanying
condensed consolidated financial statements do not include all the
information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary
for fair presentation have been included. Operating results for the
three and six months ended December 31, 2019 are not necessarily
indicative of the results that may be expected for the fiscal year
ending June 30, 2020. 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,
2019.
Except as otherwise specifically noted in this form 10-Q, the
Company’s operating results are presented based on the
translation of foreign currencies using the respective
quarter’s average exchange rate.
Certain
reclassifications have been made to prior period amounts to conform
to the current presentation.
-6-
Basis of Presentation and Summary of Significant Accounting
Policies
Comparability
Effective
on the first day of fiscal 2020, the company adopted Accounting
Standards Update 2016-02, Leases (“ASC 842”). Prior
periods were not retrospectively restated, and accordingly, the
consolidated balance sheet as of June 30, 2019, and the condensed
consolidated statements of operations for the six months ended
December 31, 2018 were prepared using accounting standards that
were different than those in effect for the six months ended
December 31, 2019.
Leases-Company as Lessee
Accounting Standards Codification ("ASC") Topic 842 introduced new
requirements to increase transparency and comparability among
organizations for leasing transactions for both lessees and
lessors. It requires a lessee to record a right-of-use asset and a
lease liability for all leases with terms longer than 12 months.
These leases will be either finance or operating, with
classification affecting the pattern of expense
recognition.
The standard provides an alternative modified retrospective
transition method. Under this method, the cumulative effect
adjustment to the opening balance of retained earnings is
recognized on the date of adoption (July 1, 2019). The Company
adopted ASC 842
as of July 1, 2019, and applied the alternative
modified retrospective transition method requiring application of
the new guidance to all leases existing at, or entered into on or
after, the date of adoption, i.e. July 1, 2019.
The Company applies the guidance in ASC 842 to its individual
leases of assets. When the Company receives substantially all of
the economic benefits from and directs the use of specified
property, plant and equipment, the transactions give rise to
leases. The Company’s classes of assets include real estate
leases.
Operating leases are included in operating lease right-of-use
("ROU") assets under the non-current asset portion of our
consolidated balance sheets and under this current portion and
non-current liabilities portion of our
consolidated
balance
sheets. ROU assets represent our right to use an underlying asset
for the lease term and lease liabilities represent our obligation
to make lease
payments
arising from the related lease. Finance leases are included in
property, plant and equipment under the non-current asset portion
of our consolidated balance sheets and under the current portion
and non-current liabilities portion of our consolidated balance
sheets.
The Company has elected the practical expedient within ASC 842 to
not separate lease and non-lease components within lease
transactions for all classes of assets. Additionally, the Company
has elected the short-term lease exception for all classes of
assets, does not apply the recognition requirements for leases of
12 months or less, and recognizes lease payments for short-term
leases as expense either straight-line over the lease term or as
incurred depending on whether the lease payments are fixed or
variable. These elections are applied consistently for all
leases.
As part of applying the transition method, the Company has elected
to apply the package of transition practical expedients within the
new guidance. As required by the new standard, these expedients
have been elected as a package and are consistently applied across
the Company’s lease portfolio. Given this election, the
Company need not reassess:
●
whether
any expired or existing contracts are or contain
leases
●
the
lease classification for any expired or existing
leases
●
treatment
of initial direct costs relating to any existing
leases
When discount rates implicit in leases cannot be readily
determined, the Company uses the applicable incremental borrowing
rate at lease commencement to perform lease classification tests on
lease components and to measure lease liabilities and ROU assets.
The incremental borrowing rate used by the Company was based on
baseline rates and adjusted by the credit spreads commensurate with
the Company’s secured borrowing rate, over a similar term. At
each reporting period when there is a new lease initiated, the
rates established for that quarter will be used.
In applying the alternative modified retrospective transition
method, the Company measured lease liabilities at the present value
of the sum of remaining minimum rental payments (as defined under
ASC Topic 840). The present value of lease liabilities has been
measured using the Company’s incremental borrowing rates as
of July 1, 2019 (the date of initial application). Additionally,
ROU assets for these operating leases have been measured as the
initial measurement of application lease liabilities adjusted for
reinstatement liabilities.
-7-
The adoption of this new standard at July 1, 2019, and the
application of the modified retrospective transition approach
resulted in the following changes in the Company’s financial
report:
(1)
assets
increased by $828, primarily representing the recognition of ROU
assets for operating leases
(2)
liabilities
increased by $828, primarily representing the recognition of lease
liabilities for operating leases.
Leases- Company as Lessor
All of the leases under which the Company is the lessor will
continue to be classified as operating leases under the new
standard.
The new standard did not have a material effect on
our financial statements and will not have significant change in
our leasing activities.
2. NEW ACCOUNTING
PRONOUNCEMENTS
The
amendments in ASU 2019-12 ASC Topic 740:
Income Taxes: Simplifying Accounting for
Income Taxes
removes specific exceptions to the general
principles in Topic 740 in Generally Accepted Accounting Principles
(GAAP). The amendments eliminate the need for an organization to
analyze whether the specific exceptions apply in a given period,
improve financial statement preparers’ application of income
tax-related guidance and simplify GAAP. The amendments are
effective for all entities for fiscal years beginning after
December 15, 2020, 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 2018-18 ASC Topic 808:
Collaborative Arrangements: Clarifying the
Interaction between Topic 808 and Topic 606
provide more
comparability in the presentation of revenue for certain
transactions between collaborative arrangement participants. The
amendments allow organizations to only present units of account in
collaborative arrangements that are within the scope of the revenue
recognition standard together with revenue accounted for under the
revenue recognition standard. The parts of the collaborative
arrangement that are not in the scope of the revenue recognition
standard are to be presented separately from revenue accounted for
under the revenue recognition standard. The amendments are
effective for all entities for fiscal years beginning after
December 15, 2019, 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 2018-13 ASC Topic 820:
Fair Value Measurement: Disclosure
Framework—Changes to the Disclosure Requirements for Fair
Value Measurement
modify the disclosure requirements on fair
value measurements based on the concepts in the Concepts Statement,
including the consideration of costs and benefits. The amendments
on changes in unrealized gains and losses, the range and weighted
average of significant unobservable inputs used to develop Level 3
fair value measurements, and the narrative description of
measurement uncertainty are to be applied prospectively for only
the most recent interim or annual period presented in the initial
fiscal year of adoption. All other amendments are to be applied
retrospectively to all periods presented upon their effective date.
The amendments are effective for all entities for fiscal years
beginning after December 15, 2019, 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 2017-04 ASC Topic 350 —
'
Intangibles - Goodwill and
Other
simplify the test for
goodwill impairment. For public companies, these amendments are
effective for annual periods beginning after December 15, 2019,
including interim periods within those periods. While early
application is permitted, including adoption in an interim period,
the Company has not elected to early adopt. The effectiveness of
this update is not expected to have a significant effect on the
Company’s presentation of consolidated financial position or
results of operations.
-8-
In June 2016, FASB issued ASU 2016-13 ASC Topic 326: Financial
Instruments — Credit losses (“ASC Topic 326”) 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. ASU 2019-10
defers the effective date of ASU 2016-13 as discussed below and it
also distinguishes that smaller reporting companies as defined by
the SECare considered for purposes of ASU No. 2016-13 only. In
November 2018, the amendments in ASU 2018-19 ASC Topic 326:
Codification Improvements was issued to clarify that receivables
arising from operating leases are not within the scope of the
credit losses standard, but rather, should be accounted for in
accordance with the lease’s standard. In May 2019, another
ASU 2019-05 ASC Topic 326: Targeted Transition Relief was
issued to provide an option to measure certain types of assets at
fair value which allows companies to irrevocably elect, upon
adoption of ASU 2016-13. In November 2019, ASU2019-11: Codification
improvements was issue to clarify guidance around how to report
expected recoveries and also reinforces existing guidance that
prohibits organizations from recording negative allowances for
available-for-sale debt securities. For public companies that are
SEC filers and categorized under smaller reporting companies, ASC
Topic 326 is effective for fiscal years beginning after December
15, 2022, including interim periods within those fiscal years.
While early application will be permitted for all organizations for
fiscal years and interim periods after November 26, 2019 as long as
an entity has adopted ASU 2016-13. The Company is currently
evaluating the potential impact of this accounting standard update
on its consolidated financial statements.
Other new pronouncements issued but not yet effective until after
December 31, 2019 are not expected to have a significant effect on
the Company’s consolidated financial position or results of
operations.
3.
TERM
DEPOSITS
|
|
Dec.
31,
2019
(Unaudited)
|
June
30,
2019
|
|
|
|
|
|
Short-term
deposits
|
$
6,844
|
$
4,143
|
|
Currency
translation effect on short-term deposits
|
44
|
1
|
|
Total short-term deposits
|
6,888
|
4,144
|
|
Restricted
term deposits
|
1,754
|
1,701
|
|
Currency
translation effect on restricted term deposits
|
(38
)
|
5
|
|
Total restricted term deposits
|
1,716
|
1,706
|
|
Total term deposits
|
$
8,604
|
$
5,850
|
Restricted deposits represent the amount of cash pledged to secure
loans payable to financial institutions and serve as collateral for
public utility agreements such as electricity and water and
performance bonds related to customs duty payable. Restricted
deposits are classified as non-current assets, as they relate to
long-term obligations and will become unrestricted only upon
discharge of the obligations. Short-term deposits represent bank
deposits, which do not qualify as cash equivalents.
-9-
4. TRADE ACCOUNTS RECEIVABLE AND ALLOWANCE FOR
DOUBTFUL ACCOUNTS
Accounts receivable are customer obligations due under normal trade
terms. The Company performs continuing credit evaluations of its
customers’ financial conditions, and although management
generally does not require collateral, letters of credit may be
required from the customers in certain circumstances.
Senior management reviews accounts receivable on a periodic basis
to determine if any receivables will potentially be uncollectible.
Management includes any accounts receivable balances that are
determined to be uncollectible in the allowance for doubtful
accounts. After all reasonable attempts to collect a receivable
have failed, the receivable is written off against the
allowance. Based on the information available,
management believed the allowance for doubtful accounts as of
December 31, 2019, and June 30, 2019 was
adequate.
The following table represents the changes in the allowance for
doubtful accounts:
|
|
Dec.
31,
2019
(Unaudited)
|
June
30,
2019
|
|
Beginning
|
$
263
|
$
259
|
|
Additions charged
to expenses
|
315
|
94
|
|
Recovered
|
(270
)
|
(84
)
|
|
Currency
translation effect
|
(2
)
|
(6
)
|
|
Ending
|
$
306
|
$
263
|
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, 2019. The exchange
rate is based on the historical rate published by the
Monetary Authority of Singapore as of March 31, 2015, since the net
loan receivable was “nil” as of December 31,
2019.
|
|
Loan Expiry
Date
|
Loan Amount
(RMB)
|
Loan Amount
(U.S. Dollars)
|
|
Short-term loan receivables
|
|
|
|
|
JiangHuai
(Project – Yu Jin Jiang An)
|
May
31, 2013
|
2,000
|
325
|
|
Less:
allowance for doubtful receivables
|
|
(2,000
)
|
(325
)
|
|
Net loan receivables from property development
projects
|
|
-
|
-
|
|
|
|
|
|
|
Long-term loan receivables
|
|
|
|
|
Jun
Zhou Zhi Ye
|
Oct
31, 2016
|
5,000
|
814
|
|
Less:
transfer – down-payment for purchase of investment
property
|
|
(5,000
)
|
(814
)
|
|
Net loan receivables from property development
projects
|
|
-
|
-
|
-10-
The short-term loan receivables of Renminbi (“RMB”)
2,000, or approximately $325 based on the historical rate, arose
from TTCQ entering 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 in fiscal 2011. Based on
TTI’s financial policy, a provision for doubtful receivables
of $325 on the investment in JiangHuai was recorded during fiscal
2014. TTCQ did not generate other income from JiangHuai for the
quarter ended December 31, 2019 or for the fiscal year ended June
30, 2019. TTCQ is in the legal process of recovering the
outstanding amount of $325.
The long-term loan receivable of RMB 5,000, or approximately $814
based on the historical rate, arose from TTCQ entering into a
Memorandum Agreement with JiaSheng Property Development Co. Ltd.
(“JiaSheng”) to invest in JiaSheng’s property
development projects (Project B-48 Phase 2) located in Chongqing
City, China in fiscal 2011. The loan receivable was unsecured and
repayable at the end of the term. The book value of the loan
receivable approximates its fair value. During 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 9).
6. INVENTORIES
Inventories consisted of the following:
|
|
Dec.
31,
2019
(Unaudited)
|
June
30,
2019
|
|
|
|
|
|
Raw
materials
|
$
1,326
|
$
1,190
|
|
Work
in progress
|
1,047
|
1,306
|
|
Finished
goods
|
486
|
591
|
|
Currency
translation effect
|
3
|
13
|
|
Less:
provision for obsolete inventory
|
(680
)
|
(673
)
|
|
|
$
2,182
|
$
2,427
|
The following table represents the changes in provision for
obsolete inventory:
|
|
Dec.
31,
2019
(Unaudited)
|
June
30,
2019
|
|
|
|
|
|
Beginning
|
$
673
|
$
695
|
|
Additions
charged to expenses
|
9
|
17
|
|
Usage
– disposition
|
(4
)
|
(42
)
|
|
Currency
translation effect
|
2
|
3
|
|
Ending
|
$
680
|
$
673
|
-11-
7.
ASSETS HELD FOR
SALE
Penang Property
During the fourth quarter of the fiscal year 2015, the operations
in Malaysia planned to sell its factory building in Penang,
Malaysia. In accordance with ASC Topic 360, during the fiscal year
2015, the property was reclassified from investment property, which
had a net book value of RM 371, or approximately $98 (based on the
exchange rate as of June 30, 2015 as published by the Monetary
Authority of Singapore), to assets held for sale, since there was
anintention to sell the factory building. In May 2015, Trio-Tech
Malaysia was approached by a potential buyer to purchase the
factory building. On September 14, 2015, the application to sell
the property was rejected by Penang Development Corporation
(PDC).The rejection was because the business activity of the
purchaser was not suitable for the industry that is being promoted
on 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. No further conversations with PDC have occurred since March
2016. Management entered into a Sales and Purchase Agreement with a
potential buyer in the fourth quarter of fiscal year 2019. During
the second quarter of the fiscal year 2020, the Company had
obtained approval of the sale from PDC and the local government.
The sale of the property was completed at the end of the second
quarter of the fiscal year 2020
. The sale price
was RM5,600, or $1,340. I
n
connection with the sale of the property located in Malaysia, the
Company also incurred the direct expenses of RM330, or $79 which
including professional fees, commissions, other selling related
expenses and consent fee from local government. These
expenses were directly offset against the proceeds from selling the
property as these expenses were deemed as a cost of sales.
The Company recognized a net gain of RM4,901 or $1,172 in the
second quarter of fiscal year 2020 excluding capital gain tax.
The tax on the capital gain
in Malaysia from the sale of the property was approximately $94
computed after the taxable gain was determined.
The following table presents the Company’s assets held for
sale in Malaysia as of December 31, 2019 and June 30,
2019.
|
|
|
|
Dec. 31,
2019
(Unaudited)
|
June 30,
2019
|
|
|
Reclassification
Date
/
|
Investment
Amount
|
Investment
Amount
|
Investment
Amount
|
|
|
Sale
Date
|
(RM)
|
(U.S. Dollars)
|
(U.S. Dollars)
|
|
Penang Property
|
|
|
|
|
|
Reclassification
from investment property
|
June
30, 2015
|
681
|
181
*
|
181
*
|
|
Currency
translation
|
|
-
|
-
|
(15
)
|
|
Derecognition
|
Dec
19,2019
|
(681
)
|
(181
)
|
-
|
|
|
-
|
-
|
166
|
|
|
Accumulated
depreciation on rental property
|
June
30, 2015
|
(310
)
|
(83
)*
|
(83
)*
|
|
Currency
translation
|
|
-
|
-
|
6
|
|
Derecognition
|
Dec
19,2019
|
310
|
(83
)
|
-
|
|
|
-
|
-
|
(77
)
|
|
|
Net
investment in rental property - Malaysia
|
|
-
|
-
|
89
|
*The exchange rate is based on the exchange rate as of June 30,
2015 published by the Monetary Authority of Singapore.
-12-
8.
INVESTMENT
PROPERTIES
The following table presents the Company’s investment in
properties in China as of December 31, 2019. The exchange rate is
based on the market rate as of December 31, 2019.
|
|
Investment Date /
Reclassification Date
|
Investment
Amount
(RMB)
|
Investment
Amount
(U.S. Dollars
)
|
|
Purchase
of rental property – Property I – MaoYe
Property
|
Jan
04, 2008
|
5,554
|
894
|
|
Currency
translation
|
|
-
|
(87
)
|
|
Reclassification
as “Assets held for sale”
|
July
01, 2018
|
(5,554
)
|
(807
)
|
|
Reclassification
from “Assets held for sale”
|
Mar
31, 2019
|
2,024
|
301
|
|
|
2,024
|
301
|
|
|
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
|
|
-
|
(148
)
|
|
Gross
investment in rental property
|
|
9,649
|
1,381
|
|
Accumulated
depreciation on rental property
|
Dec
31, 2019
|
(6,317
)
|
(914
)
|
|
Reclassified
as “Assets held for sale”-Mao Ye Property
|
July
01, 2018
|
2,822
|
410
|
|
Reclassification
from “Assets held for sale”-Mao Ye
Property
|
Mar
31, 2019
|
(1,029
)
|
(143
)
|
|
|
(4,524
)
|
(647
)
|
|
|
Net investment in property – China
|
|
5,125
|
734
|
The following table presents the Company’s investment in
properties in China as of June 30, 2019. The exchange rate is based
on the market rate as of June 30, 2019.
|
|
Investment Date /
Reclassification Date
|
Investment
Amount
(RMB)
|
Investment
Amount
(U.S. Dollars
)
|
|
Purchase
of rental property – Property I – MaoYe
Property
|
Jan
04, 2008
|
5,554
|
894
|
|
Currency
translation
|
|
-
|
(87
)
|
|
Reclassification
as “Assets held for sale”
|
July
01, 2018
|
(5,554
)
|
(807
)
|
|
Reclassification
from “Assets held for sale”
|
Mar
31, 2019
|
2,024
|
301
|
|
|
2,024
|
301
|
|
|
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
|
|
-
|
(124
)
|
|
Gross
investment in rental property
|
|
9,649
|
1,405
|
|
Accumulated
depreciation on rental property
|
June
30, 2019
|
(6,075
)
|
(890
)
|
|
Reclassified
as “Assets held for sale”-Mao Ye Property
|
July
01, 2018
|
2,822
|
410
|
|
Reclassification
from “Assets held for sale”-Mao Ye
Property
|
Mar
31, 2019
|
(1,029
)
|
(143
)
|
|
|
(4,282
)
|
(623
)
|
|
|
Net investment in property – China
|
|
5,367
|
782
|
-13-
Rental Property I - Mao Ye Property
In fiscal 2008, TTCQ purchased an office in Chongqing, China from
MaoYe Property Ltd. (“MaoYe”), for a total cash
purchase price of RMB 5,554, or approximately $894. TTCQ identified
a new tenant and signed a new rental agreement (653 square meters
at a monthly rent of RMB 39, or approximately $6) on August 1, 2015
which expires on July 31, 2020. On April 1, 2019, a supplementary
agreement was signed to revise the monthly rent to RMB 20, or
approximately $3 for 403 square meters for the remaining 2 unsold
units. During the fiscal year
2019
,
the Company sold thirteen of the fifteen units constituting the Mao
Ye Property. Management has decided not to sell the remaining two
units of Mao Ye properties in near future, considering the market
conditions in China.
Property purchased from MaoYe generated a rental
income of
$8 and $16
during the three and six
months ended December 31, 2019, respectively as compared to $21 and
$43 for the same period in last fiscal year.
Depreciation expense for Mao Ye was $4 and $8 for the three and six
months ended December 31, 2019, respectively and $Nil for the same
period in the last fiscal year.
Rental Property II - JiangHuai
In fiscal year 2010, TTCQ purchased eight units of commercial
property in Chongqing, China from Chongqing JiangHuai Real Estate
Development Co. Ltd. (“JiangHuai”) for a total purchase
price of RMB 3,600, or approximately $580. Although these units
were rented in the past, all eight units are currently 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. TTCQ is in the legal process to
obtain the title deed, which is dependent on JiangHuai completing
the entire project.
Property purchased from JiangHuai did not generate any rental
income during the three and six months ended December 31, 2019 or
during the same period in the prior fiscal year.
Depreciation expense for JiangHuai was $7 and $14 for the three and
six months ended December 31, 2019 and $7 and $14 for the same
period in the last fiscal year.
-14-
Rental Property III – FuLi
In fiscal 2010, TTCQ entered into a Memorandum Agreement with
Chongqing FuLi Real Estate Development Co. Ltd.
(“FuLi”) to purchase two commercial properties totaling
311.99 square meters (“office space”) located in Jiang
Bei District Chongqing. . The total purchase price committed and
paid was RMB 4,025, or approximately $648. The development was
completed and the property was handed over to TTCQ in 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 such leases provides for a
rent increase of 6% every year on May 1, commencing in 2019 until
the rental agreement expired on April 30, 2021. For the other
leased property (which lease expired on March 31, 2018), TTCQ
signed on November 1, 2018 a rental agreement to rent out the 161
square meter space at a monthly rent of RMB 10, or approximately
$2, which lease was to expire on October 31, 2019. In September
2019, TTCQ renewed the lease agreement at the same monthly rent of
RMB 10 or approximately $2 for a period of one year from November
1,2019.
Properties purchased from Fu Li generated a rental income of $8 and
$17 for the three and six months ended December 31, 2019, and $8
and $13 for the same period in the last fiscal year.
Depreciation expense for Fu Li was $6 and $12 for the three and six
months ended December 31, 2019
,
respectively
and $7 and $14 for the same period in the last
fiscal year.
Summary
Total rental income for all investment properties in China was $16
and $33 for the three and six months ended December 31,
2019
,
respectively
and $29 and $56 for the same period in the last
fiscal year.
Depreciation expenses for all investment properties in China were
$17 and $34 for the three and six months ended December 31,
2019
,
respectively
and $14 and $28 for the same period in the last
fiscal year.
-15-
9. OTHER ASSETS
Other
assets consisted of the following:
|
|
Dec.
31, 2019
(Unaudited)
|
June
30,
2019
|
|
Down
payment for purchase of investment properties *
|
$
1,645
|
$
1,645
|
|
Down
payment for purchase of property, plant and equipment
|
-
|
100
|
|
Deposits
for rental and utilities
|
169
|
169
|
|
Currency
translation effect
|
(188
)
|
(164
)
|
|
Total
|
$
1,626
|
$
1,750
|
*
Down
payment for purchase of investment properties
included:
|
|
RMB
|
US
Dollars
|
|
Original
investment (10% if Junzhou equity)
|
$
10,000
|
$
1,606
|
|
Less:
Management Fee
|
(5,000
)
|
(803
)
|
|
Net
Investment
|
5,000
|
803
|
|
Less:
Share of loss on Joint Venture
|
(137
)
|
(22
)
|
|
Net Investment as down payment(Note *a)
|
4,863
|
781
|
|
Loans
Receivable
|
5,000
|
814
|
|
Interest
Receivable
|
1,250
|
200
|
|
Less:Impairment
of Interest
|
(906
)
|
(150
)
|
|
Transferred to down payment(Note *b)
|
5,344
|
864
|
|
* Down payment for purchase of investment properties
|
10,207
|
1,645
|
a)
On
December 2, 2010, the Company signed a Joint Venture agreement
(“agreement”) with Jia Sheng Property Development Co.
Ltd. (“Developer”) to form a new company, Junzhou Co.,
Limited (“Joint Venture” or “Junzhou”) to
joint develop the “Singapore Themed Park” project (the
“project”), where the Company paid RMB10 million for
the 10% investment in the joint venture. The Developer paid the
Company a management fee of RMB 5 million in cash upon signing of
the agreement with a remaining fee of RMB5 million payable upon
fulfilment of certain conditions in accordance with the agreement.
The Company further reduced its investment by RMB 137, or
approximately $22, through the losses from operations incurred by
the Joint Venture.
On October 2, 2013, the Company disposed of its
entire 10% interest in the Joint Venture. The Company recognized
that disposal based on the recorded net book value of RMB5 million
or equivalent to US$803K, from net considerations paid, in
accordance with GAAP under ASC Topic 845
Non-monetary
Consideration
, and its
presented under “Other Assets” as non-current assets to
defer the recognition of the gain on the disposal of the 10%
interest in joint venture investment until such time that the
consideration is paid, so that the gain can be
ascertained.
b)
Amounts
of RMB 5,000 or approximately $814 as disclosed in Note 5, plus the
interest receivable on long term loan receivable of RMB 1,250 or
approximately $200 and impairment on interest of RMB 906 or
approximately $150.
The
shop lots in the Singapore Themed Resort Project being developed by
the Developer under the agreement are to be delivered to TTCQ upon
completion thereof. The initial targeted date of completion was
December 31, 2016. Based on discussion with the Developer, the
completion date is currently estimated to be December 31, 2021. The
delay was primarily due to the time needed by the developers to
work with various parties to inject sufficient funds into this
project. Based on the available information, management believes
that the Developer is capable of working with new investors to
complete certain phases of this project.
-16-
10. LINES OF CREDIT
Carrying value of the Company’s lines of credit approximates
its fair value because the interest rates associated with the lines
of credit are adjustable in accordance with market situations when
the Company borrowed funds with similar terms and remaining
maturities.
The Company’s credit rating provides it with readily and
adequate access to funds in global markets.
As of December 31, 2019, the Company had certain lines of credit
that are collateralized by restricted deposits.
|
Entity with
|
Type of
|
Interest
|
Expiration
|
Credit
|
Unused
|
|
Facility
|
Facility
|
Rate
|
Date
|
Limitation
|
Credit
|
|
|
|
|
|
|
|
|
Trio-Tech
International Pte. Ltd., Singapore
|
Lines
of Credit
|
Ranging
from 1.83% to 5.5%
and
SIBOR rate +1.25%
|
-
|
$
4,968
|
$
4,472
|
|
Trio-Tech
(Tianjin) Co., Ltd.
|
Lines
of Credit
|
5.22%
to 6.3%
|
-
|
$
1,431
|
$
1,431
|
|
Universal (Far
East) Pte. Ltd
|
Lines
of Credit
|
Ranging
from 1.85% to 5.5%
|
-
|
$
371
|
$
57
|
|
Trio-Tech
Malaysia Sdn. Bhd.
|
Revolving
Credit
|
Cost
of Funds Rate +2%
|
-
|
$
365
|
$
365
|
On
November 18, 2019, Trio-Tech International Pte. Ltd. signed an
agreement with JECC Leasing (Singapore) Pte. Ltd. for an Accounts
Receivable Financing facility for SGD 1,000, or approximately $742
based on the market exchange rate. Interest is charged at LIBOR
rate +1.3% for USD financing and SIBOR rate +1.25% for SGD
financing. The financing facility was set up to facilitate the
working capital needs for our operations in Singapore. The Company
started to use this facility in the second quarter of the fiscal
year 2020.
As of June 30, 2019, the Company had certain lines of credit that
are collateralized by restricted deposits.
|
Entity with
|
Type of
|
Interest
|
Expiration
|
Credit
|
Unused
|
|
Facility
|
Facility
|
Rate
|
Date
|
Limitation
|
Credit
|
|
|
|
|
|
|
|
|
Trio-Tech
International Pte. Ltd., Singapore
|
Lines
of Credit
|
Ranging
from 1.85% to 5.5%
|
-
|
$
4,213
|
$
4,213
|
|
Trio-Tech
(Tianjin) Co., Ltd.
|
Lines
of Credit
|
5.22%
to 6.3%
|
-
|
$
1,492
|
$
1,492
|
|
Universal (Far
East) Pte. Ltd
|
Lines
of Credit
|
Ranging
from 1.85% to 5.5%
|
-
|
$
370
|
$
183
|
|
Trio-Tech
Malaysia Sdn. Bhd.
|
Revolving
Credit
|
Cost
of Funds Rate +2%
|
-
|
$
363
|
$
363
|
-17-
11. ACCRUED EXPENSES
Accrued
expenses consisted of the following:
|
|
Dec
31,
2019
(Unaudited)
|
June
30,
2019
|
|
Payroll
and related costs
|
$
1,138
|
$
1,354
|
|
Commissions
|
73
|
107
|
|
Customer
deposits
|
42
|
46
|
|
Legal
and audit
|
334
|
299
|
|
Sales
tax
|
10
|
9
|
|
Utilities
|
106
|
120
|
|
Warranty
|
39
|
39
|
|
Accrued
purchase of materials and property, plant and
equipment
|
230
|
362
|
|
Provision
for re-instatement
|
300
|
302
|
|
Deferred
income
|
95
|
61
|
|
Contract
liabilities
|
733
|
501
|
|
Other
accrued expenses
|
81
|
293
|
|
Currency
translation effect
|
(5
)
|
(7
)
|
|
Total
|
$
3,176
|
$
3,486
|
12. WARRANTY ACCRUAL
The Company provides for the estimated costs that may be incurred
under its warranty program at the time the sale is
recorded. The warranty period of the products
manufactured by the Company is generally one year or the warranty
period agreed with the customer. The Company estimates
the warranty costs based on the historical rates of warranty
returns. The Company periodically assesses the adequacy of its
recorded warranty liability and adjusts the amounts as
necessary.
|
|
Dec.
31,
2019
(Unaudited)
|
June
30,
2019
|
|
Beginning
|
$
39
|
$
82
|
|
Additions
charged to cost and expenses
|
1
|
15
|
|
Reversal
|
(1
)
|
(58
)
|
|
Currency
translation effect
|
-
|
-
|
|
Ending
|
$
39
|
$
39
|
-18-
13. BANK LOANS PAYABLE
Bank loans payable consisted of the following:
|
|
Dec.
31, 2019
(Unaudited)
|
June
30, 2019
|
|
Note
payable denominated in RM for expansion plans in Malaysia, maturing
in August 2028, bearing interest at the bank’s prime rate
less 2.00% (4.85% and 5.00% at December 31, 2019 and June 30, 2019,
respectively) per annum, with monthly payments of principal plus
interest through August 2028, collateralized by the acquired
building with a carrying value of $2,677 and $2,683, as at December
31, 2019 and June 30, 2019, respectively.
|
2,483
|
2,638
|
|
|
|
|
|
Note
payable denominated in U.S. dollars for expansion plans in
Singapore and its subsidiaries, maturing in June 2020, bearing
interest at the bank’s lending rate (3.96% for December 31,
2019 and June 30, 2019) with monthly payments of principal plus
interest through June 2020. This note payable is secured by plant
and equipment with a carrying value of $128 and $148, as at
December 31, 2019 and June 30, 2019, respectively.
|
66
|
142
|
|
|
|
|
|
Total bank loans
payable
|
$
2,549
|
$
2,780
|
|
Current
portion of bank loan payable
|
419
|
494
|
|
Currency
translation effect on current portion of bank loan
|
3
|
(6
)
|
|
Current
portion of bank loan payable
|
422
|
488
|
|
Long
term portion of bank loan payable
|
2,116
|
2,344
|
|
Currency
translation effect on long-term portion of bank loan
|
11
|
(52
)
|
|
Long
term portion of bank loans payable
|
$
2,127
|
$
2,292
|
Future minimum payments (excluding interest) as at December 31,
2019 were as follows:
|
Remainder of fiscal
2020
|
$
304
|
|
2021
|
368
|
|
2022
|
386
|
|
2023
|
405
|
|
2024
|
413
|
|
Thereafter
|
673
|
|
Total obligations and commitments
|
$
2,549
|
Future minimum payments (excluding interest) as at June 30, 2019
were as follows:
|
2020
|
$
488
|
|
2021
|
362
|
|
2022
|
380
|
|
2023
|
399
|
|
2024
|
407
|
|
Thereafter
|
744
|
|
Total
obligations and commitments
|
$
2,780
|
-19-
14. COMMITMENTS AND CONTINGENCIES
Trio-Tech
(Malaysia) Sdn. Bhd.
has capital commitments
for the purchase of equipment and other related infrastructure
costs amounting to RM 18, or approximately $4, as at December 31,
2019, as compared to the capital commitments as at June 30, 2019
amounting to RM 18, or approximately $4.
Trio-Tech (Tianjin) Co. Ltd. in China has capital commitments for
the purchase of equipment and other related infrastructure
costs
amounting to RMB 87, or approximately $12,
as at December 31, 2019, as compared
to the capital commitments as at June 30, 2019 amounting to RMB
397, or approximately $58.
Trio-Tech (SIP) Co., Ltd. in China has capital commitments for the
purchase of equipment and other related infrastructure costs
amounting to RMB 117, or approximately $17,
as at December 31, 2019, as compared to the
capital commitments as at June 30, 2019 of RMB
Nil.
Deposits with banks in China are not insured by the local
government or agency, and are consequently exposed to risk of loss.
The Company believes the probability of a bank failure, causing
loss to the Company, is remote.
The Company is, from time to time, the subject of litigation claims
and assessments arising out of matters occurring in its normal
business operations. In the opinion of management, resolution of
these matters will not have a material adverse effect on the
Company’s financial statements.
15.
BUSINESS
SEGMENTS
The Company generates revenue primarily from three different
segments: Manufacturing, Testing and Distribution. The Company
accounts for a contract with a customer when there is approval and
commitment from both parties, the rights of the parties are
identified, payment terms are identified, the contract has
commercial substance and collectability of consideration is
probable. The Company’s revenues are measured based on
consideration stipulated in the arrangement with each customer, net
of any sales incentives and amounts collected on behalf of third
parties, such as sales taxes. The revenues are recognized as
separate performance obligations that are satisfied by transferring
control of the product or service to the customer.
In fiscal year 2020, the Company operated in four segments; the
testing service industry (which performs structural and electronic
tests of semiconductor devices), the designing and manufacturing of
equipment (which equipment tests the structural integrity of
integrated circuits and other products), distribution of various
products from other manufacturers in Singapore and 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.
Significant Judgments
The Company’s arrangements with its customers include various
combinations of products and services, which are generally capable
of being distinct and accounted for as separate performance
obligations. A product or service is considered distinct if it is
separately identifiable from other deliverables in the arrangement
and if a customer can benefit from it on its own or with other
resources that are readily available to the customer.
The Company allocates the transaction price to each performance
obligation on a relative standalone selling price basis
(“SSP”). Determining the SSP for each distinct
performance obligation and allocation of consideration from an
arrangement to the individual performance obligations and the
appropriate timing of revenue recognition are significant judgments
with respect to these arrangements. The Company typically
establishes the SSP based on observable prices of products or
services sold separately in comparable circumstances to similar
clients. The Company may estimate SSP by considering internal
costs, profit objectives and pricing practices in certain
circumstances.
Warranties, discounts and allowances are estimated using historical
and recent data trends. The Company includes estimates in the
transaction price only to the extent that a significant reversal of
revenue is not probable in subsequent periods. The Company’s
products and services are generally not sold with a right of
return, nor has the Company experienced significant returns from or
refunds to its customers.
-20-
Manufacturing
The Company primarily derives revenue from the sale of both
front-end and back-end semiconductor test equipment and related
peripherals, maintenance and support of all these products,
installation and training services and the sale of spare parts. The
Company’s revenues are measured based on consideration
stipulated in the arrangement with each customer, net of any sales
incentives and amounts collected on behalf of third parties, such
as sales taxes.
The Company recognizes revenue at a point in time when the Company
has satisfied its performance obligation by transferring control of
the product to the customer. The Company uses judgment to evaluate
whether the control has transferred by considering several
indicators, including:
●
whether
the Company has a present right to payment;
●
the
customer has legal title;
●
the
customer has physical possession;
●
the
customer has significant risk and rewards of ownership;
and
●
the
customer has accepted the product, or whether customer acceptance
is considered a formality based on history of acceptance of similar
products (for example, when the customer has previously accepted
the same equipment, with the same specifications, and when we can
objectively demonstrate that the tool meets all of the required
acceptance criteria, and when the installation of the system is
deemed perfunctory).
Not all of the indicators need to be met for the Company to
conclude that control has transferred to the customer. In
circumstances in which revenue is recognized prior to the product
acceptance, the portion of revenue associated with its performance
obligations of product installation and training services are
deferred and recognized upon acceptance.
The majority of sales under the Manufacturing segment include a
standard 12-month warranty. The Company has concluded that the
warranty provided for standard products are assurance type
warranties and are not separate performance obligations. Warranty
provided for customized products are service warranties and are
separate performance obligations. Transaction prices are allocated
to this performance obligation using cost plus method. The portion
of revenue associated with warranty service is deferred and
recognized as revenue over the warranty period, as the customer
simultaneously receives and consumes the benefits of warranty
services provided by the Company.
Testing
The Company rendered testing services to manufacturers and
purchasers of semiconductors and other entities who either lack
testing capabilities or whose in-house screening facilities are
insufficient. The Company primarily derives testing revenue from
burn-in services, manpower supply and other associated services.
SSP is directly observable from the sales orders. Revenue is
allocated to performance obligations satisfied at a point in time
depending upon terms of the sales order. Generally, there is no
other performance obligation other than what has been stated inside
the sales order for each of these sales.
Terms of contract that may indicate potential variable
consideration included warranty, late delivery penalty and
reimbursement to solve non-conformance issues for rejected
products. Based on historical and recent data trends, it is
concluded that these terms of the contract do not represent
potential variable consideration. The transaction price is not
contingent on the occurrence of any future event.
Distribution
The Company distributes complementary products particularly
equipment, industrial products and components by manufacturers
mainly from the U.S., Europe, Taiwan and Japan. The Company
recognizes revenue from product sales at a point in time when the
Company has satisfied its performance obligation by transferring
control of the product to the customer. The Company uses judgment
to evaluate whether the control has transferred by considering
several indicators discussed above. The Company recognizes the
revenue at a point in time, generally upon shipment or delivery of
the products to the customer or distributors, depending upon terms
of the sales order.
All inter-segment revenue was from the manufacturing segment to the
testing and distribution segments. Total inter-segment revenue was
$36 for the three months ended December 31, 2019, as compared to
$116 for the same period in the last fiscal
year. Corporate assets mainly consisted of cash and
prepaid expenses. Corporate expenses mainly consisted of stock
option expenses, salaries, insurance, professional expenses and
directors' fees. Corporate expenses are allocated to the four
segments. The following segment information table includes segment
operating income or loss after including the corporate expenses
allocated to the segments, which gets eliminated in the
consolidation.
-21-
The following segment information is un-audited for the six months
ended December 31, 2019 and December 31, 2018:
Business Segment Information:
|
|
Six
Months Ended
Dec.
31,
|
Net
Revenue
|
Operating
Income
/ (Loss)
|
Total
Assets
|
Depr.
and
Amort.
|
Capital
Expenditures
|
|
Manufacturing
|
2019
|
$
6,362
|
(99
)
|
10,542
|
196
|
35
|
|
|
2018
|
$
6,989
|
183
|
8,835
|
58
|
1
|
|
|
|
|
|
|
|
|
|
Testing
Services
|
2019
|
8,277
|
(93
)
|
23,314
|
1,344
|
709
|
|
|
2018
|
8,830
|
(117
)
|
23,750
|
1,059
|
2,296
|
|
|
|
|
|
|
|
|
|
Distribution
|
2019
|
4,113
|
392
|
802
|
2
|
-
|
|
|
2018
|
3,860
|
342
|
759
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Real
Estate
|
2019
|
33
|
(52
)
|
3,650
|
34
|
-
|
|
|
2018
|
56
|
(17
)
|
3,449
|
28
|
-
|
|
|
|
|
|
|
|
|
|
Fabrication
|
2019
|
-
|
-
|
27
|
-
|
-
|
|
Services
*
|
2018
|
-
|
-
|
26
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Corporate
&
|
2019
|
-
|
(99
)
|
120
|
-
|
-
|
|
Unallocated
|
2018
|
-
|
(41
)
|
76
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Total
Company
|
2019
|
$
18,785
|
49
|
38,455
|
1,576
|
744
|
|
|
2018
|
$
19,735
|
350
|
36,895
|
1,145
|
2,297
|
* Fabrication services is a discontinued operation.
The following segment information is un-audited for the three month
periods referenced below:
Business Segment Information:
|
|
Three
Months Ended
Dec.
31,
|
Net
Revenue
|
Operating
Income
/ (Loss)
|
Total
Assets
|
Depr.
and
Amort.
|
Capital
Expenditures
|
|
Manufacturing
|
2019
|
$
3,045
|
(87
)
|
10,542
|
110
|
16
|
|
|
2018
|
$
3,352
|
76
|
8,835
|
29
|
-
|
|
|
|
|
|
|
|
|
|
Testing
Services
|
2019
|
3,887
|
(161
)
|
23,314
|
663
|
189
|
|
|
2018
|
4,393
|
21
|
23,750
|
547
|
1,083
|
|
|
|
|
|
|
|
|
|
Distribution
|
2019
|
2,014
|
188
|
802
|
1
|
-
|
|
|
2018
|
1,916
|
170
|
759
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Real
Estate
|
2019
|
16
|
(35
)
|
3,650
|
17
|
-
|
|
|
2018
|
29
|
(5
)
|
3,449
|
14
|
-
|
|
|
|
|
|
|
|
|
|
Fabrication
|
2019
|
-
|
-
|
27
|
-
|
-
|
|
Services
*
|
2018
|
-
|
-
|
26
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Corporate
&
|
2019
|
-
|
(78
)
|
120
|
-
|
-
|
|
Unallocated
|
2018
|
-
|
(35
)
|
76
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Total
Company
|
2019
|
$
8,962
|
(173
)
|
38,455
|
791
|
205
|
|
|
2018
|
$
9,690
|
227
|
36,895
|
590
|
1,083
|
* Fabrication services is a discontinued operation.
-22-
16
.
OTHER
INCOME
Other income consisted of the following:
|
|
Three
Months Ended
|
Six
Months Ended
|
||
|
|
Dec.
31,
|
Dec.
31,
|
Dec.
31,
|
Dec.
31,
|
|
|
2019
|
2018
|
2019
|
2018
|
|
|
Unaudited
|
Unaudited
|
Unaudited
|
Unaudited
|
|
Interest
income
|
52
|
26
|
84
|
36
|
|
Other
rental income
|
30
|
29
|
60
|
56
|
|
Exchange
loss
|
(66
)
|
(28
)
|
(61
)
|
(67
)
|
|
Bad
debt recovery
|
-
|
-
|
11
|
2
|
|
Other
miscellaneous income
|
24
|
22
|
56
|
65
|
|
Total
|
$
40
|
$
49
|
$
150
|
$
92
|
17. INCOME TAX
The
Company is subject to income taxes in the U.S. and numerous foreign
jurisdictions. Significant judgment is required in determining the
provision for income taxes and income tax assets and liabilities,
including evaluating uncertainties in the application of accounting
principles and complex tax laws. The statute of limitations, in
general, is open for years 2014 to 2019 for tax authorities in
those jurisdictions to audit or examine income tax returns. The
Company is under annual review by the tax authorities of the
respective jurisdiction to which the subsidiaries
belong.
The Tax
Cuts and Jobs Act (the “Tax Act”) was enacted on
December 22, 2017, and reduces the U.S. federal corporate tax rate
from 35% to 21%, eliminated corporate Alternative Minimum Tax,
modified rules for expensing capital investment, and limited the
deduction of interest expense for certain companies. The Act is a
fundamental change to the taxation of multinational companies,
including a shift from a system of worldwide taxation with some
deferral elements to a territorial system, current taxation of
certain foreign income, a minimum tax on low tax foreign earnings,
and new measures to curtail base erosion and promote U.S.
production.
Due to
the enactment of Tax Act, the Company is subject to a tax on global
intangible low-taxed income (“GILTI”). GILTI
is a tax on foreign income in excess of a deemed return on tangible
assets of foreign corporations. Companies subject to GILTI have the
option to account for the GILTI tax as a period cost if and when
incurred, or to recognize deferred taxes for temporary differences
including outside basis differences expected to reverse as GILTI.
The Company has elected to account for GILTI as a period cost, and
therefore has included GILTI expense amounting to $35 for the three
and six months ended December 31, 2019, respectively.
The
Company's income tax expense was $120 for the three months ended
December 31, 2019 as compared to the income tax benefit of $124 for
the same period of last fiscal year. Our effective tax rate
(“ETR”) from continuing operations was 12% and (69%)
for the quarter ended December 31, 2019 and December 31, 2018
respectively. The following items caused the quarterly ETR is
significantly different:
1).
During
the three months ended December 31, 2018 , the Company recording a
tax reversal of $145 upon finalization of a one-time transition
tax.
2).
During the three months ended December 31, 2019, there was a
capital gain tax of $94 arising from the sale of an asset held for
sale.
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 no unrecognized tax
benefits or related accrued penalties or interest expenses at
December 31, 2019.
In
assessing the ability to realize the deferred tax assets,
management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which
those temporary differences become deductible. Management considers
the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. Based on these criteria, management believes it is more
likely than not the Company will not realize the benefits of the
federal, state, and foreign deductible differences. Accordingly, a
full valuation allowance has been established.
-23-
18. CONTRACT BALANCES
The
timing of revenue recognition, billings and collections may result
in billed accounts receivable, unbilled receivables (contract
assets), and customer advances and deposits (contract liabilities).
The Company’s payment terms and conditions vary by contract
type, although terms generally include a requirement of payment of
70% to 90% of total contract consideration within 30 to 60 days of
shipment, with the remainder payable within 30 days of acceptance.
In instances where the timing of revenue recognition differs from
the timing of invoicing, the Company has determined that its
contracts generally do not include a significant financing
component.
C
ontract assets were recorded under other receivable while
contract liabilities were recorded under accrued expenses in the
balance sheet.
The
following table is the reconciliation of contract
balances.
|
|
Dec.
31,
2019
(Unaudited)
|
Jun.
30,
2019
|
|
Trade
Accounts Receivable
|
6,937
|
7,113
|
|
Accounts
Payable
|
3,565
|
3,272
|
|
Contract
Assets
|
431
|
419
|
|
Contract
Liabilities
|
733
|
501
|
Remaining Performance Obligation
As at December 31, 2019, the Company had $900 of remaining
performance obligations, which represents our obligation to deliver
products and services.
Given
the profile of contract terms, approximately 53.3 percent of this
amount is expected to be recognized as revenue over the next two
years, remaining of the amount is expected to be recognized between
three and five years.
Refer to note 15 “Business Segments” of the
Notes to Condensed Consolidated Financial Statements
for information related to
revenue.
-24-
19. EARNINGS PER SHARE
The Company adopted ASC Topic 260,
Earnings Per Share.
Basic Earnings Per Share
(“EPS”) is computed by dividing net income available to
common shareholders (numerator) by the weighted average number of
common shares outstanding (denominator) during the
period. Diluted EPS give effect to all dilutive
potential common shares outstanding during a period. In
computing diluted EPS, the average price for the period is used in
determining the number of shares assumed to be purchased from the
exercise of stock options and warrants.
Options
to purchase 623,500 shares of Common Stock at exercise prices
ranging from $2.69 to $5.98 per share were outstanding as of
December 31, 2019. No outstanding options were excluded in the
computation of diluted EPS for fiscal year 2020 since all options
were dilutive.
Options
to purchase 533,500 shares of Common Stock at exercise prices
ranging from $2.69 to $5.98 per share were outstanding as of
December 31, 2018. No outstanding options were excluded in the
computation of diluted EPS for fiscal year 2019 since all options
were dilutive.
The following table is a reconciliation of the weighted average
shares used in the computation of basic and diluted EPS for the
period presented herein:
|
|
Three
Months Ended
|
Six
Months Ended
|
||
|
|
Dec.
31,
|
Dec.
31,
|
Dec.
31,
|
Dec.
31,
|
|
|
2019
|
2018
|
2019
|
2018
|
|
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|
|
|
|
|
|
|
Income
attributable to Trio-Tech International common shareholders from
continuing operations, net of tax
|
$
425
|
$
346
|
$
699
|
$
415
|
|
Income
/ (loss) attributable to Trio-Tech International common
shareholders from discontinued operations, net of tax
|
1
|
2
|
-
|
(2
)
|
|
Net Income Attributable to Trio-Tech International Common
Shareholders
|
$
426
|
$
348
|
$
699
|
$
413
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic
|
3,673
|
3,673
|
3,673
|
3,673
|
|
|
|
|
|
|
|
Dilutive
effect of stock options
|
52
|
108
|
33
|
142
|
|
Number
of shares used to compute earnings per share - diluted
|
3,725
|
3,781
|
3,706
|
3,815
|
|
|
|
|
|
|
|
Basic
earnings per share from continuing operations attributable to
Trio-Tech International
|
$
0.12
|
0.09
|
0.19
|
0.11
|
|
Basic earnings
per share from discontinued operations attributable to Trio-Tech
International
|
-
|
-
|
-
|
-
|
|
Basic earnings per share from net income attributable to Trio-Tech
International
|
$
0.12
|
$
0.09
|
$
0.19
|
$
0.11
|
|
|
|
|
|
|
|
Diluted
earnings per share from continuing operations attributable to
Trio-Tech International
|
$
0.11
|
0.09
|
0.19
|
0.11
|
|
Diluted
earnings per share from discontinued operations attributable to
Trio-Tech International
|
-
|
-
|
-
|
-
|
|
Diluted earnings per share from net income attributable to
Trio-Tech International
|
$
0.11
|
$
0.09
|
$
0.19
|
$
0.11
|
-25-
20. STOCK OPTIONS
On September 24, 2007, the Company’s Board of Directors
unanimously adopted the 2007 Employee Stock Option Plan (the
“2007 Employee Plan”) and the 2007 Directors Equity
Incentive Plan (the “2007 Directors Plan”) each of
which was approved by the shareholders on December 3, 2007. Each of
those plans was amended during the term of such plan to increase
the number of shares covered thereby. As of the last amendment
thereof, the 2007 Employee Plan covered an aggregate of 600,000
shares of the Company’s Common Stock and the 2007 Directors
Plan covered an aggregate of 500,000 shares of the Company’s
Common Stock. Each of those plans terminated by its respective
terms on September 24, 2017. These two plans were administered by
the Board, which also established the terms of the
awards.
On September 14, 2017, the Company’s Board of Directors
unanimously adopted the 2017 Employee Stock Option Plan (the
“2017 Employee Plan”) and the 2017 Directors Equity
Incentive Plan (the “2017 Directors Plan”) each of
which was approved by the shareholders on December 4, 2017. Each of
these plans is administered by the Board of Directors of the
Company.
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,
|
|
|
|
2019
|
2018
|
|
Expected
volatility
|
45.38%to
97.48%
|
47.29%
to 104.94 %
|
|
Risk-free interest
rate
|
0.30% to
2.35%
|
0.30%
to 0.78 %
|
|
Expected life
(years)
|
2.5 -3.25
|
2.50
|
The
expected volatilities are based on the historical volatility of the
Company’s stock. Due to higher volatility, the observation is
made on a daily basis for the three months ended December 31, 2019.
The observation period covered is consistent with the expected life
of options. The expected life of the options granted to employees
has been determined utilizing the “simplified” method
as prescribed by ASC Topic 718
Stock Based Compensation
, which,
among other provisions, allows companies without access to adequate
historical data about employee exercise behavior to use a
simplified approach for estimating the expected life of a
"plain vanilla" option grant. The simplified rule for estimating
the expected life of such an option is the average of the time to
vesting and the full term of the option. The risk-free rate is
consistent with the expected life of the stock options and is based
on the United States Treasury yield curve in effect at the time of
grant.
2017 Employee Stock Option Plan
The
Company’s 2017 Employee Plan permits the grant of stock
options to its employees covering up to an aggregate of 300,000
shares of Common Stock. Under the 2017 Employee Plan, all options
must be granted with an exercise price of not less than fair value
as of the grant date and the options granted must be exercisable
within a maximum of ten years after the date of grant, or such
lesser period of time as is set forth in the stock option
agreements. The options may be exercisable (a) immediately as of
the effective date of the stock option agreement granting the
option, or (b) in accordance with a schedule related to the date of
the grant of the option, the date of first employment, or such
other date as may be set by the Compensation Committee. Generally,
options granted under the 2017 Employee Plan are exercisable within
five years after the date of grant, and vest over the period as
follows: 25% vesting on the grant date and the remaining balance
vesting in equal installments on the next three succeeding
anniversaries of the grant date. The share-based compensation will
be recognized in terms of the grade method on a straight-line basis
for each separately vesting portion of the award. Certain option
awards provide for accelerated vesting if there is a change in
control (as defined in the 2017 Employee Plan).
During the second quarter of fiscal year 2020, the Company did not
grant any options pursuant to the 2017 Employee Plan. There were no
stock options exercised during the six-month period ended December
31, 2019. The Company recognized $14 stock-based compensation
expenses during the six months ended December 31,
2019.
During the second quarter of fiscal year 2019, the Company did not
grant any options pursuant to the 2017 Employee Plan. There were no
stock options exercised during the six-month period ended December
31, 2018. The Company recognized $8 stock-based compensation
expenses during the three months ended December 31,
2018.
-26-
As of December 31, 2019, there were vested stock options granted
under the 2017 Employee Plan covering a total of 53,000 shares of
Common Stock. The weighted-average exercise price was $4.88 and the
weighted average remaining contractual term was 3.63
years.
As of December 31, 2018, there were vested stock options granted
under the 2017 Employee Plan covering a total of 19,000 shares of
Common Stock. The weighted-average exercise price was $5.51 and the
weighted average remaining contractual term was 4.37
years.
A
summary of option activities under the 2017 Employee Plan during
the six months period ended December 31, 2019 is presented as
follows:
|
|
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
Outstanding
at July 1, 2019
|
136,000
|
$
4.53
|
4.28
|
$
-
|
|
Granted
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding at
December 31,
2019
|
136,000
|
$
4.53
|
3.77
|
$
46.44
|
|
Exercisable at
December 31,
2019
|
53,000
|
$
4.88
|
3.63
|
$
12.57
|
A
summary of the status of the Company’s non-vested employee
stock options granted under the 2017 Employee Plan during the six
months ended December 31, 2019 is presented below:
|
|
Options
|
Weighted
Average
Grant-Date
Fair
Value
|
|
|
|
|
|
Non-vested
at July 1, 2019
|
87,000
|
$
4.28
|
|
Granted
|
-
|
-
|
|
Vested
|
(4,000
)
|
-
|
|
Forfeited
|
-
|
-
|
|
Non-vested
at December 31, 2019
|
83,000
|
$
4.30
|
|
|
|
|
A
summary of option activities under the 2017 Employee Plan during
the six months period ended December 31, 2018 is presented as
follows:
|
|
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
Outstanding
at July 1, 2018
|
60,000
|
$
5.98
|
4.73
|
$
-
|
|
Granted
|
16,000
|
3.75
|
4.93
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding at Dec
ember 31,
2018
|
76,000
|
$
5.51
|
4.37
|
$
-
|
|
Exercisable at Dec
ember 31,
2018
|
19,000
|
$
5.51
|
4.37
|
$
-
|
-27-
A
summary of the status of the Company’s non-vested employee
stock options granted under the 2017 Employee Plan during the six
months ended December 31, 2018 is presented below:
|
|
Options
|
Weighted
Average
Grant-Date
Fair
Value
|
|
|
|
|
|
Non-vested
at July 1, 2018
|
45,000
|
$
5.98
|
|
Granted
|
16,000
|
3.75
|
|
Vested
|
(4,000
)
|
(5.51
)
|
|
Forfeited
|
-
|
-
|
|
Non-vested
at December 31, 2018
|
57,000
|
$
5.51
|
2007 Employee Stock Option Plan
The
2007 Employee Plan terminated by its terms on September 24, 2017
and no further options may be granted thereunder. However, the
options outstanding thereunder continue to remain outstanding and
in effect in accordance with their terms. The 2007 Employee Plan
permitted the issuance of options to employees.
As the
2007 Plan has terminated, the Company did not grant any options
pursuant to the 2007 Employee Plan during the six months ended
December 31, 2019 and December 31, 2018 respectively.
There were no options exercised during the six months ended
December 31, 2019. There were 50,000 of options exercised during
the six months ended December 31, 2018. The Company did not
recognize any stock-based compensation expenses during the six
months ended December 31, 2019. The Company recognized stock-based
compensation expenses of $1 in the six months ended December 31,
2018 under the Employee Plan.
As of December 31, 2019, there were vested stock options granted
under the 2007 Employee Plan covering a total of 68,125 shares of
Common Stock. The weighted-average exercise price was $3.62 and the
weighted average remaining contractual term was 1.64
years.
As of December 31, 2018, there were vested employee stock options
covering a total of 48,750 shares of Common Stock. The
weighted-average exercise price was $3.59 and the weighted average
contractual term was 2.61 years.
A
summary of option activities under the 2007 Employee Plan during
the six months ended December 31, 2019 is presented as
follows:
|
|
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
Outstanding
at July 1, 2019
|
77,500
|
$
3.69
|
2.22
|
$
-
|
|
Granted
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding at Dec
ember 31,
2019
|
77,500
|
3.69
|
1.71
|
29.20
|
|
Exercisable at Dec
ember 31,
2019
|
68,125
|
$
3.62
|
1.64
|
$
29.20
|
-28-
A
summary of the status of the Company’s non-vested employee
stock options under the 2007 Employee Plan during the six months
ended December 31, 2019 is presented below:
|
|
Options
|
Weighted
Average
Grant-Date
Fair
Value
|
|
|
|
|
|
Non-vested
at July 1, 2019
|
9,375
|
$
4.14
|
|
Granted
|
-
|
-
|
|
Vested
|
-
|
-
|
|
Forfeited
|
-
|
-
|
|
Non-vested
at December 31, 2019
|
9,375
|
$
4.14
|
A
summary of option activities under the 2007 Employee Plan during
the six months ended December 31, 2018 is presented as
follows:
|
|
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at July 1, 2018
|
127,500
|
$
3.52
|
2.10
|
$
121
|
|
Granted
|
-
|
-
|
-
|
-
|
|
Exercised
|
(50,000
)
|
3.25
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding
at December 31, 2018
|
77,500
|
$
3.68
|
2.71
|
$
-
|
|
Exercisable
at December 31, 2018
|
48,750
|
$
3.59
|
2.61
|
$
-
|
A summary of the status of the Company’s
non-vested employee stock options under the 2007 Employee Plan
during the three months ended December 31, 2018 is presented
below:
|
|
Options
|
Weighted
Average
Grant-Date
Fair
Value
|
|
|
|
|
|
Non-vested
at July 1, 2018
|
28,750
|
$
3.83
|
|
Granted
|
-
|
-
|
|
Vested
|
-
|
-
|
|
Forfeited
|
-
|
-
|
|
Non-vested
at December 31, 2018
|
28,750
|
$
3.83
|
2017 Directors Equity Incentive Plan
The
2017 Directors Plan permits the grant of options covering up to an
aggregate of 300,000 shares of Common Stock to its directors in the
form of non-qualified options and restricted stock. The exercise
price of the non-qualified options is 100% of the fair value of the
underlying shares on the grant date. The options have five-year
contractual terms and are exercisable immediately as of the grant
date.
During the first two quarters of fiscal year 2020, the Company did
not grant any options pursuant to the 2017 Directors Plan. There
were no stock options exercised during the six months ended
December 31, 2019. The Company did not recognize any stock-based
compensation expenses during the six months ended December 31,
2019.
-29-
During the first two quarters of fiscal year 2019, the Company did
not grant any options pursuant to the 2017 Directors Plan. There
were no stock options exercised during the six months ended
December 31, 2018. The Company did not recognize any stock-based
compensation expenses during the six months ended December 31,
2018.
As all of the stock options granted under the 2017 Directors Plan
vest immediately on the date of grant, there were no unvested stock
options granted under the 2017 Directors Plan as of December 31,
2019.
As of December 31, 2019, there were vested stock options granted
under the 2017 Directors Plan covering a total of 160,000 shares of
Common Stock. The weighted-average exercise price was $4.63 and the
weighted average remaining contractual term was 3.75
years.
As of December 31, 2018, there were vested stock options granted
under the 2017 Directors Plan covering a total of 80,000 shares of
Common Stock. The weighted-average exercise price was $5.98 and the
weighted average remaining contractual term was 4.22
years.
A
summary of option activities under the 2017 Directors Plan during
the six months ended December 31, 2019 is presented as
follows:
|
|
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
Outstanding
at July 1, 2019
|
160,000
|
$
4.63
|
4.25
|
$
-
|
|
Granted
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding at
December 31,
2019
|
160,000
|
$
4.63
|
3.75
|
$
56.80
|
|
Exercisable at
December 31,
2019
|
160,000
|
$
4.63
|
3.75
|
$
56.80
|
A
summary of option activities under the 2017 Directors Plan during
the six months ended December 31, 2018 is presented as
follows:
|
|
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
Outstanding
at July 1, 2018
|
80,000
|
$
5.98
|
4.73
|
$
-
|
|
Granted
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding at
December 31,
2018
|
80,000
|
$
5.98
|
4.22
|
$
-
|
|
Exercisable at Dece
mber 31,
2018
|
80,000
|
$
5.98
|
4.22
|
$
-
|
-30-
2007 Directors Equity Incentive Plan
The
2007 Directors Plan terminated by its terms on September 24, 2017
and no further options may be granted thereunder. However, the
options outstanding thereunder continue to remain outstanding and
in effect in accordance with their terms. The 2007 Employee Plan
permitted the issuance of options to employees.
As the
2007 Plan has terminated, the Company did not grant any options
pursuant to the 2007 Employee Plan during the six months ended
December 31, 2019 and December 31, 2018.
There were no stock options exercised during the six months ended
December 31, 2019. The Company did not recognize any stock-based
compensation expenses during the six months ended December 31,
2019.
There were no stock options exercised during the six months ended
December 31, 2018. The Company did not recognize any stock-based
compensation expenses during the six months ended December 31,
2018.
As of December 31, 2019, there were vested stock options granted
under the 2007 Directors Plan covering a total of 250,000 shares of
Common Stock. The weighted-average exercise price was $3.32 and the
weighted average remaining contractual term was 1.33
years.
As of December 31, 2018, there were vested stock options granted
under the 2007 Directors Plan covering a total of 300,000 shares of
Common Stock. The weighted-average exercise price was $3.40 and the
weighted average remaining contractual term was 2.08
years.
A summary of option activities under the 2007 Directors Plan during
the six months ended December 31, 2019 is presented as
follows:
|
|
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
Outstanding
at July 1, 2019
|
300,000
|
$
3.40
|
1.58
|
$
9
|
|
Granted
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
(50,000
)
|
(3.81
)
|
-
|
-
|
|
Outstanding
at December 31, 2019
|
250,000
|
3.32
|
1.33
|
174.50
|
|
Exercisable
at December 31, 2019
|
250,000
|
$
3.32
|
1.33
|
$
174.50
|
|
|
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
Outstanding
at July 1, 2018
|
390,000
|
$
3.41
|
2.05
|
$
412
|
|
Granted
|
-
|
-
|
-
|
-
|
|
Exercised
|
(70,000
)
|
3.39
|
-
|
-
|
|
Forfeited
or expired
|
(20,000
)
|
(3.62
)
|
-
|
-
|
|
Outstanding
at December 31, 2018
|
300,000
|
3.40
|
2.08
|
-
|
|
Exercisable
at December 31, 2018
|
300,000
|
$
3.40
|
2.08
|
-
|
-31-
21. LEASES
Company As Lessor
Operating
leases under which the Company is the lessor arise from the leasing
of the Company’s commercial real estate investment property
to third parties. Initial lease terms generally range from 12 to 60
months. Depreciation expense for assets subject to operating leases
is taken into account primarily on the straight-line method over a
period of twenty years in amounts necessary to reduce the carrying
amount of the asset to its estimated residual value. Depreciation
expenses relating to the property held as investments in operating
leases
were $17 and $34 for the three
and six months ended December 31, 2019 and $14 and $28 for the same
period in the last fiscal year.
Future
minimum rental income in China to be received from fiscal year 2020
to fiscal year 2021 on non-cancellable operating leases is
contractually due as follows as of December 31, 2019:
|
Remainder of fiscal
2020
|
$
34
|
|
2021
|
$
20
|
|
|
$
54
|
Future
minimum rental income in China to be received from fiscal year 2020
to fiscal year 2021 on non-cancellable operating leases is
contractually due as follows as of June 30, 2019:
|
2020
|
$
72
|
|
2021
|
$
6
|
|
|
$
78
|
Company As Lessee
The Company has operating leases for corporate offices and research
and development facilities with remaining lease terms of 1 year to
3 years and finance leases for plant and equipment.
Supplemental balance sheet information related to leases is as
follows (in thousands):
|
|
|
Dec.
31,
|
|
|
|
2019
|
|
Components of Lease Balances
|
Classification
|
(Unaudited)
|
|
Assets
|
|
|
|
Operating
Lease Assets
|
Right-of-use
asset-operating, net
|
$
475
|
|
Finance
Lease Assets
|
Property,
plant & equipment
|
1,998
|
|
Accumulated
Amortization ROU
|
|
751
|
|
Assets
|
Property,
plant & equipment
|
$
1,247
|
|
Total leased assets
|
|
$
1,722
|
|
|
|
|
|
Liabilities
|
|
|
|
Operating Lease Liabilities
|
|
|
|
Current
Portion
|
Current
portion of lease liability-operating
|
$
343
|
|
Long-term
portion
|
Lease
liability- Operating, net of Current portion
|
134
|
|
Total operating lease
liabilities
|
|
$
477
|
|
Finance Lease Liabilities
|
|
|
|
Current
portion of finance leases
|
Current
portion of lease liability-finance
|
$
286
|
|
Net
of current portion of finance leases
|
Lease
liability- Finance, net of Current portion
|
570
|
|
Total finance lease
liabilities
|
|
$
856
|
|
|
|
|
|
Total lease liabilities
|
|
$
1,333
|
-32-
|
|
3 Months Ended
|
6 Months Ended
|
|
|
Dec. 31, 2019
|
|
|
Lease Cost
|
|
|
|
Finance
Lease Cost:
|
|
|
|
Interest
on Lease Liability
|
3
|
$
24
|
|
Amortisation
of Right-of-use Asset
|
69
|
136
|
|
Total
Finance Lease Cost
|
72
|
150
|
|
|
|
|
|
Operating
Lease Costs $
|
184
|
$
359
|
|
|
|
|
Other information related to leases were as follows (in thousands
except lease term and discount rate):
|
|
Dec.
31,
|
|
|
2019
|
|
|
(Unaudited)
|
|
Cash Paid for amounts included in the measurement of lease
liabilities
|
|
|
Operating
cash flows from finance leases
|
$
24
|
|
Operating
cash flows from operating leases
|
$
359
|
|
Finance
cash flows from finance leases
|
$
127
|
|
Right-of-use assets obtained in exchange for new operating lease
liabilities
|
|
|
|
|
|
Weighted-average remaining lease term:
|
|
|
Finance
leases
|
3.67
|
|
Operating
leases
|
0.97
|
|
Weighted-average Discount Rate:
|
|
|
Finance
leases
|
3.43
%
|
|
Operating
leases
|
3.25
%
|
As of December 31, 2019, the maturities of the Company's operating
and finance lease liabilities are as follow:
|
|
Operating lease Liabilities
|
Finance Lease Liabilities
|
|
Fiscal Year
|
|
|
|
Remainder
of 2020
|
$
309
|
$
199
|
|
2021
|
155
|
276
|
|
2022
|
29
|
220
|
|
2023
|
-
|
139
|
|
2024
|
-
|
99
|
|
Thereafter
|
|
22
|
|
Total
future minimum lease payments
|
$
493
|
$
955
|
|
Less:
amount representing interest
|
(16
)
|
(99
)
|
|
Present
value of net minimum lease payments
|
477
|
856
|
|
|
|
|
|
Presentation
on statement of financial position
|
|
|
|
Current
|
$
343
|
$
286
|
|
Non
Current
|
$
134
|
$
570
|
-33-
As of Jun 30, 2019, future minimum lease payments under finance
leases and non-cancelable operating leases were as
follows:
|
|
Operating lease Liabilities
|
Finance Lease Liabilities
|
|
Fiscal Year
|
|
|
|
2020
|
$
620
|
$
283
|
|
2021
|
216
|
187
|
|
2022
|
47
|
143
|
|
2023
|
1
|
68
|
|
2024
|
-
|
44
|
|
Total
future minimum lease payments
|
$
884
|
$
725
|
22. FAIR VALUE OF FINANCIAL INSTRUMENTS APPROXIMATE
CARRYING VALUE
In accordance with ASC Topics 825 and 820, the following presents
assets and liabilities measured and carried at fair value and
classified by level of fair value measurement
hierarchy:
There were no transfers between Levels 1 and 2 during the six
months ended December 31, 2019 and 2018.
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.
23. SUBSEQUENT EVENTS
The Company’s operations in Tianjin, China which is a
significant operation to the Company, encountered numerous
limitations due to the outbreak of the Novel Coronavirus in China,
named Covid-19 during early 2020. The Chinese government had taken
emergency measures to combat the spread of the virus, including an
extension of the Lunar New Year holidays. Management is currently
assessing the impact of the outbreak on the Tianjin, China
operation, which is likely to be material. Nonetheless, Management
continues to explore various options to minimize the financial
impact.
Numerous variables and uncertainties related to this outbreak has
restricted the ability of the Management to calculate the impact on
the Tianjin operations in the third quarter of fiscal year 2020. It
is expected that the extended Lunar New Year Holidays and the
shortage of manpower due to travel restrictions will limit ability
of the Company to generate the same level of revenue under normal
circumstances.
-34-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 2.
M
ANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Overview
The following should be read in conjunction with the condensed
consolidated financial statements and notes in Item I above and
with the audited consolidated financial statements and notes, the
information under the headings “Risk Factors” and
“Management’s discussion and analysis of financial
condition and results of operations” in our Annual Report on
Form 10-K for the fiscal year ended June 30, 2019.
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 Block 1008 Toa Payoh North, Unit 03-09
Singapore 318996, and our telephone number is (65) 6265
3300.
The Company primarily 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 99.8% 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, 2019.
The Real Estate segment contributed only 0.2% to the total revenue
and was immaterial to the overall business.
Manufacturing
TTI develops and manufactures an extensive range of test equipment
used in the "front end" and the "back end" manufacturing processes
of semiconductors. Our equipment includes leak detectors,
autoclaves, centrifuges, burn-in systems and boards, HAST testers,
temperature controlled chucks, wet benches and more.
Testing
TTI provides comprehensive electrical, environmental, and burn-in
testing services to semiconductor manufacturers in our testing
laboratories in Asia and the U.S. Our customers include both
manufacturers and end-users of semiconductor and electronic
components, who look to us when they do not want to establish their
own facilities. The independent tests are performed to industry and
customer specific standards.
Distribution
In addition to marketing our proprietary products, we distribute
complementary products made by manufacturers mainly from the U.S.,
Europe, Taiwan and Japan. The products include environmental
chambers, handlers, interface systems, vibration systems, shaker
systems, solderability testers and other semiconductor equipment.
Besides equipment, we also distribute a wide range of components
such as connectors, sockets, LCD display panels and touch-screen
panels. Furthermore, our range of products are mainly targeted for
industrial products rather than consumer products whereby the life
cycle of the industrial products can last from 3 years to 7
years.
Real Estate
Beginning in 2007, TTI has invested in real estate property in
Chongqing, China, which has generated investment income from the
rental revenue from real estate we purchased in Chongqing, China,
and investment returns from deemed loan receivables, which are
classified as other income. The rental income is generated from the
rental properties in MaoYe and FuLi in Chongqing, China. In the
second quarter of fiscal 2015, the investment in JiaSheng, which
was deemed as loans receivable, was transferred to down payment for
purchase of investment property in China.
-35-
Second Quarter Fiscal Year 2020 Highlights
●
Total
revenue decreased by $728 or 7.5%, to $8,962 in the second quarter
of fiscal year 2020, compared to $9,690 for the same period in
fiscal year 2019.
●
Manufacturing
segment revenue decreased by $307, or 9.2%, to $3,045 for the
second quarter of fiscal year 2020, compared to $3,352 for the same
period in fiscal year 2019.
●
Testing
segment revenue decreased by $506, or 11.5%, to $3,887 for the
second quarter of fiscal year 2020, compared to $4,393 for the same
period in fiscal year 2019.
●
Distribution
segment revenue increased by $98, or 5.1%, to $2,014 for the second
quarter of fiscal year 2020, compared to $1,916 for the same period
in fiscal year 2019.
●
Real
estate segment rental revenue decreased by $13 or 44.8% to $16 for
the second quarter of fiscal year 2020 compared to $29 for the same
period in fiscal year 2019.
●
The
overall gross profit margin decreased by 2.0% to 21.3% for the
second quarter of fiscal year 2020, from 23.3% for the same period
in fiscal year 2019.
●
Loss
from operations was $173 for the second quarter of fiscal year
2020, a decrease of $400, as compared to the income from operations
of $227 for the same period in fiscal year 2019.
●
General
and administrative expenses increased by $55, or 3.2%, to $1,777
for the second quarter of fiscal year 2020, from $1,722 for the
same period in fiscal year 2019.
●
Selling
expenses decreased by $11, or 5.9%, to $176 for the second quarter
of fiscal year 2020, from $187 for the same period in fiscal year
2019.
●
Other
income decreased by $9 to $40 in the second quarter of fiscal year
2020 compared to $49 in the same period in fiscal year
2019.
●
There
was a gain of sale of asset held for sale amounted to $1,172 in the
second quarter of fiscal year 2020.
●
Income
tax expense was $120 in the second quarter of fiscal year 2020, a
change of $244 as compared to the income tax benefits of $124 in
the same period in fiscal year 2019.
●
During
the second quarter of fiscal year 2020, income from continuing
operations before non-controlling interest, net of tax was $864, as
compared to $302 for the same period in fiscal year
2019.
●
Net
profit attributable to non-controlling interest for the second
quarter of fiscal year 2020 was $439, an increase of $481, as
compared to net loss attributable to non-controlling interest of
$42 in the same period in fiscal year 2019.
●
Basic
Earnings per share for the second quarter of fiscal year 2020 were
$0.12, as compared to earnings per share of $0.09 for the same
period in fiscal year 2019.
●
Dilutive
Earnings per share for the second quarter of fiscal year 2020 were
$0.11, as compared to earnings per share of $0.09 for the same
period in fiscal year 2019.
●
Total
assets increased by $1,928, or 5.3% to $38,455 as of December 31,
2019 compared to $36,527 as of June 30, 2019.
●
Total
liabilities increased by $944, or 8.1% to $12,610 as of December
31, 2019 compared to $11,666 as of June 30, 2019.
-36-
Results of Operations and Business Outlook
The following table sets forth our revenue components for the three
and six months ended December 31, 2019 and 2018,
respectively.
|
Revenue
Components
|
Three
Months Ended
|
Six
Months Ended
|
||
|
|
Dec.
31,
|
Dec.
31,
|
Dec.
31,
|
Dec.
31,
|
|
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
|
|
Manufacturing
|
34.0
%
|
34.6
%
|
33.9
%
|
35.4
%
|
|
Testing
Services
|
43.4
|
45.3
|
44.1
|
44.7
|
|
Distribution
|
22.4
|
19.8
|
21.8
|
19.6
|
|
Real
Estate
|
0.2
|
0.3
|
0.2
|
0.3
|
|
|
|
|
|
|
|
Total
|
100.0
%
|
100.0
%
|
100.0
%
|
100.0
%
|
Revenue for the three and six months ended December 31, 2019 was
$8,962 and $18,785, respectively, a decrease of $728 and $950,
respectively, when compared to the revenue for the same period of
the prior fiscal year. As a percentage, revenue decreased by 7.5%
and 4.8% for the three and six months ended December 31, 2019,
respectively, when compared to revenue for the same period of the
prior year.
For the three months ended December 31, 2019, the $728 decrease in
overall revenue was primarily due to
●
decrease
in the manufacturing segment in the U.S. and Singapore operations;
and
●
decrease
in the testing segment in the Malaysia and China
operations
These decreases were partially offset by the
●
an
increase in the distribution segment in the Singapore operations;
and
●
an
increase in the testing segment in the Singapore and Thailand
operations
For the six months ended December 31, 2019, the $950 decrease in
overall revenue was primarily due to
●
decrease
in the manufacturing segment in the Singapore operations;
and
●
decrease
in the testing segment in the Malaysia and China
operations
These decreases were partially offset by the
●
an
increase in the testing segment in the Singapore and Thailand
operations; and
●
an
increase in the distribution segment in the Singapore and China
operations
Total revenue into and within China, the Southeast Asia regions and
other countries (except revenue into and within the United States)
decreased by $629 (or 6.7%), to $8,831 and by $1,017 (or 5.3%) to
$18,018 for the three and six months ended December 31, 2019
respectively, as compared with $9,460 and $19,035, respectively,
for the same period of last fiscal year.
Total revenue into and within the U.S. was $131 and $767 for the
three and six months ended December 31, 2019, respectively, a
decrease of $99 and an increase of $67 from $230 and $700 for the
same period of the prior year.
Revenue within our four current segments for the three and six
months ended December 31, 2019 is discussed below.
-37-
Manufacturing Segment
Revenue in the manufacturing segment was 34.0% and 33.9% as a
percentage of total revenue for the three and six months ended
December 31, 2019, respectively, a decrease of 0.6% and 1.5% of
total revenue, respectively, when compared to the same period of
the last fiscal year. The absolute amount of revenue decreased
by $307 to $3,045 from $3,352 and decreased by $627 to $6,362 from
$6,989 for the three and six months ended December 31, 2019,
respectively, compared to the same period of the last fiscal
year.
Revenue in the manufacturing segment for the three months ended
December 31, 2019 decreased primarily due to a decrease in orders
by customers in the Singapore operations in the second quarter. The
decrease was mainly due to our customers’ capital purchases
were being affected by the uncertainty associated with the trade
disputes between the U.S. and China. In addition, the
customers’ requests to delay the delivery of the orders in
the U.S. operation also contributed to the decrease.
Revenue in the manufacturing segment from one customer accounted
for 39.7% and 39.0% of our total revenue in the manufacturing
segment for the three and six months ended December 31, 2019 and
2018, respectively, and 39.5% and 39.4% of our total revenue in the
manufacturing segment for the six months ended December 31, 2019,
and 2018, respectively.
The future revenue in our manufacturing segment will be affected by
the purchase and capital expenditure plans of this one customer if
the customer base cannot be increased.
Testing Services Segment
Revenue in the testing segment was 43.4% and 44.1% as a percentage
of total revenue for the three and six months ended December 31,
2019, respectively, a decrease of 1.9% and 0.6% of the total
revenue when compared to the same period of the last fiscal
year. The absolute amount of revenue decreased by $506 to
$3,887 from $4,393 and decreased by $553 to $8,277 from $8,830 for
the three and six months ended December 31, 2019, respectively, as
compared to the same period of the last fiscal
year.
The revenue in the testing segment from the one customer noted
above accounted for 61.6% and 73.3% of our revenue in the testing
segment for the three months ended December 31, 2019 and 2018,
respectively, and 64.1% and 74.6% of our total revenue in the
testing segment for the six months ended December 31, 2019 and
2018, respectively. The future revenue in the testing segment will
be affected by the demands of this customer if the customer base
cannot be increased. Demand for testing services varies from
country to country, depending on any changes taking place in the
market and our customers’ forecasts. As it is difficult
to forecast fluctuations in the market accurately, management
believes it is necessary to maintain testing facilities in close
proximity to the 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 was 22.4% and 21.8% as a
percentage of total revenue
for
the three and six months ended December 31, 2019, an increase of
2.6% and 2.2%, respectively, when compared to the same period of
the last fiscal year. The absolute amount of revenue increased
by $98 to $2,014 from $1,916 and increased by $253 to $4,113 from
$3,860 for the three and six months ended December 31, 2019,
respectively, compared to the same period of the last fiscal
year.
Demand for the distribution segment varies depending on the demand
for our customers’ products, the changes taking place in the
market and our customers’ forecasts. Hence it is
difficult to forecast fluctuations in the market
accurately.
Real Estate Segment
The real estate segment accounted for 0.2% of total revenue for the
three and six months ended December 31, 2019, respectively. The
absolute amount of revenue in the real estate segment decreased by
$13 to $16 from $29 and decreased by $23 to $33 from $56 for the
three and six months ended December 31, 2019, respectively,
compared to the same periods of the last fiscal year. This was due
to the sales of properties in the real estate segment in the China
operation after the third quarter of the last fiscal year, which
resulted in a decrease in rental income.
-38-
Uncertainties and Remedies
There are several influencing factors which create uncertainties
when forecasting performance, such as the constantly changing
nature of technology, specific requirements from the customer,
decline in demand for certain types of burn-in devices or
equipment, decline in demand for testing services and fabrication
services, and other similar factors. One factor that influences
uncertainty is the highly competitive nature of the semiconductor
industry. Another is that some customers are unable to provide a
forecast of the products required in the upcoming weeks; hence it
is difficult to plan for the resources needed to meet these
customers’ requirements due to short lead time and last
minute order confirmation. This will normally result in a lower
margin for these products, as it is more expensive to purchase
materials in a short time frame. However, the Company has taken
certain actions and formulated certain plans to deal with and to
help mitigate these unpredictable factors. For example, in order to
meet manufacturing customers’ demands upon short notice, the
Company maintains higher inventories, but continues to work closely
with its customers to avoid stock piling. We believe that we have
improved customer service from staff through our efforts to keep
our staff up to date on the newest technology and stressing the
importance of understanding and meeting the stringent requirements
of our customers. Finally, the Company is exploring new markets and
products, looking for new customers, and upgrading and improving
burn-in technology while at the same time searching for improved
testing methods for higher technology chips.
We are in the process of implementing an Enterprise Resource
Planning (“ERP”) system, as part of a multi-year plan
to integrate and upgrade our systems and processes. The
implementation of this ERP system is scheduled to occur in phases
over next few years, and began with the migration of certain of our
operational and financial systems in our Singapore operations to
the new ERP system during the second quarter of fiscal
2017.
During the third quarter of fiscal 2018, the operational and
financial systems in Singapore were substantially transitioned to
the new system. The operational and financial systems in our
Malaysia operation were substantially transitioned to the new
system during the first quarter of fiscal 2019.
This implementation effort will continue in fiscal 2020, when the
operational and financial system in our Tianjin and Suzhou
operations 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.
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.
Our
operation in Tianjin, China, encountered numerous limitations due
to the outbreak of the Novel Coronavirus, named Covid-19 in China
during early 2020. The Chinese government had taken emergency
measures to combat the spread of the virus, including an extension
of the Lunar New Year holidays. Management is currently assessing
the impact of the outbreak on our Tianjin, China operation, and
exploring various options to minimize the financial
impact.
Numerous variables and uncertainties related to this outbreak has
restricted our ability to calculate the impact on the Tianjin
operation in the third quarter of fiscal year 2020. We expect that
the extended Lunar New Year Holidays and the shortage of manpower
due to travel restriction will limit our ability to generate the
same level of revenue under normal
circumstances.
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.
-39-
Comparison of the Three Months Ended December 31, 2019 and December
31, 2018
The following table sets forth certain consolidated statements of
income data as a percentage of revenue for the three months ended
December 31, 2019 and 2018 respectively:
|
|
Three
Months Ended
December
31,
|
|
|
|
2019
|
2018
|
|
Revenue
|
100.0
%
|
100.0
%
|
|
Cost
of sales
|
78.7
|
76.7
|
|
Gross Margin
|
21.3
%
|
23.3
%
|
|
Operating
expenses
|
|
|
|
General
and administrative
|
19.8
%
|
17.8
%
|
|
Selling
|
2.0
|
1.9
|
|
Research
and development
|
1.4
|
1.3
|
|
Total
operating expenses
|
23.2
%
|
21.0
%
|
|
(Loss)/Income from Operations
|
(1.9
)%
|
2.3
%
|
Overall Gross Margin
Overall gross margin as a percentage of revenue decreased by 2.0%
to 21.3% for the three months ended December 31, 2019, from 23.3%
for the same period of the last fiscal year.
Gross profit margin as a percentage of revenue in the manufacturing
segment increased by 0.6% to 21.7% for the three months ended
December 31, 2019, as compared to 21.1% for the same period in the
last fiscal year. In absolute dollar amounts, gross profits in the
manufacturing segment decreased by $44 to $662 for the three months
ended December 31, 2019, from $706 for the same period in the last
fiscal year.
Gross profit margin as a percentage of revenue in the testing
segment decreased by 4.4% to 24.9% for the three months ended
December 31, 2019, from 29.3% in the same period of the last fiscal
year. The further deterioration of the testing revenue in Malaysia
and China operations resulted in a decrease in gross profit margin
in the testing segment where significant portions of the cost of
goods sold are fixed in the testing segment. Thus,
as the demand for services and factory utilization decreases, the
fixed costs are spread over the decreased output, which decreases
the gross profit margin. However, the negative impact was mitigated
by the management’s effort in cost-saving measure. In
absolute dollar amounts, gross profit in the testing segment
decreased by $318 to $969 for the three months ended December 31,
2019 from $1,287 for the same period of the last fiscal
year.
Gross profit margin of the distribution segment is not only
affected by the market price of the products we distribute, but
also the mix of products we distribute, which frequently changes as
a result of changes in market demand. Gross profit margin as a
percentage of revenue in the distribution segment increased by 0.4%
to 13.7% for the three months ended December 31, 2019, from 13.3%
in the same period of the last fiscal year. In terms of
absolute dollar amounts, gross profit in the distribution segment
for the three months ended December 31, 2019 was $276 as compared
to $254 in the same period of the last fiscal
year.
In absolute dollar amounts, for the three months ended December 31,
2019, gross loss in the real estate segment was $2, as compared to
the gross profit margin of $11 for the same period of last fiscal
year. The increase in gross loss was mainly due to the sales of
properties in the real estate segment after the third quarter of
the last fiscal year, which resulted in a decrease in rental
income.
-40-
Operating Expenses
Operating expenses for the three months ended December 31, 2019 and
2018 were as follows:
|
|
Three Months
Ended
December
31,
|
|
|
(Unaudited)
|
2019
|
2018
|
|
General
and administrative
|
$
1,777
|
$
1,722
|
|
Selling
|
176
|
187
|
|
Research
and development
|
125
|
122
|
|
Total
|
$
2,078
|
$
2,031
|
General and administrative expenses increased by $55, or 3.1%, from
$1,722 to $1,777 for the three months ended December 31, 2019
compared to the same period of last fiscal year. The increase in
general and administrative expenses was mainly attributable to the
increase in payroll-related expenses and a provision of doubtful
debt in the manufacturing segment of the Singapore
operations.
Selling expenses decreased by $11, or 5.9%, from $187 to $176 for
the three months ended December 31, 2019, compared to the same
period of the last fiscal year. The decrease was mainly due to the
lower of traveling and entertainment expenses incurred in the
Singapore operations.
Loss/Income from Operations
Loss from operations was $173 for the three months ended December
31, 2019, a decrease of $400, as compared to income from operations
of $227 for the three months ended December 31, 2018. The result
was mainly due to the decrease in gross profit and the increase in
operating expenses, as previously discussed.
Interest Expense
Interest expense for the three months ended December 31, 2019 and
2018 were as follows:
|
|
Three
Months Ended
December
31,
|
|
|
(Unaudited)
|
2019
|
2018
|
|
Interest expenses
|
$
55
|
$
98
|
Interest expense was $55 for the three months ended December 31,
2019, a decrease of $43, or 44% as compared to $98 for the three
months ended December 31, 2018. The decrease was due to a decrease
in the utilization of short-term loans in the Singapore and China
operations. As of December 31, 2019, the Company had an unused
line of credit of $6,325 as compared to $6,251 at June 30,
2019.
-41-
Other Income
Other income for the three months ended December 31, 2019 and 2018
were as follows:
|
|
Three
Months Ended December 31,
|
|
|
|
2019
|
2018
|
|
Interest
income
|
52
|
26
|
|
Other
rental income
|
30
|
29
|
|
Exchange
loss
|
(66
)
|
(28
)
|
|
Other
miscellaneous income
|
24
|
22
|
|
Total
|
$
40
|
$
49
|
Other income decreased by $9 to $40 for the three months ended
December 31, 2019 from $49 as compared to the same period of last
fiscal year. The decrease was primarily due to an increase in
exchange loss, which was resulted by the unfavorable foreign
exchange movement for the three months ended December 31, 2019 as
compared to same period in the last fiscal year. The decrease was
partially offset by the increase from interest income, which
resulted from the increase of fixed deposit placement.
Income Tax Expenses/Benefits
The
Company's income tax expense was $120 for the three months ended
December 31, 2019, a change of $224 as compared to income tax
benefit of $124 for the same period in the last fiscal year. The
change was mainly due to the reversal of $145 from provision of
income tax, which was arising from the One-Time Mandatory
Repatriation Tax in last fiscal year.
In addition, there was provision for GILTI of $35
and a capital gain tax of $94 incurred from the sale of asset held
for sale in the Malaysia operation for the three months ended
December 31, 2019.
Non-controlling Interest
As of December 31, 2019, we held a 55% interest in Trio-Tech
(Malaysia) Sdn. Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI
International Pte. Ltd., and PT. SHI Indonesia. We also held a 76%
interest in Prestal Enterprise Sdn. Bhd. The share of net income
from the subsidiaries by the non-controlling interest for the three
months ended December 31, 2019 was $439, an increase of $481
compared to the net loss of $42 for the same period of the previous
fiscal year. The increase in the net income of the
non-controlling interest in the subsidiaries was attributable to
the increase in net income generated by the Malaysia operation from
the sale of the asset held for sale.
Net Income
Net income for the three months ended December 31, 2019 was $426,
an increase of $78, as compared to a net income of $348 for the
same period last fiscal year.
Earnings per Share
Basic earnings per share from continuing operations were $0.12 for
the three months ended December 31, 2019 as compared to $0.09 for
the same period in the last fiscal year. Basic earnings per share
from discontinued operations were Nil for both the three months
ended December 31, 2019 and 2018.
Diluted earnings per share from continuing operations were $0.11
for the three months ended December 31, 2019 as compared to $0.09
for the same period in the last fiscal year. Diluted earnings per
share from discontinued operations were $Nil for both the three
months ended December 31, 2019 and 2018.
Segment Information
The revenue, gross margin and income or loss from operations for
each segment during the second quarter of fiscal year 2020 and
fiscal year 2019 are presented below. As the revenue and gross
margin for each segment have been discussed in the previous
section, only the comparison of income or loss from operations is
discussed below.
-42-
Manufacturing Segment
The revenue, gross margin and (loss)/income from operations for the
manufacturing segment for the three months ended December 31, 2019
and 2018 were as follows:
|
|
Three
Months Ended
December
31,
|
|
|
(Unaudited)
|
2019
|
2018
|
|
Revenue
|
$
3,045
|
$
3,352
|
|
Gross margin
|
21.7
%
|
21.1
%
|
|
(Loss)/Income from operations
|
$
(87
)
|
$
76
|
Loss from operations from the manufacturing segment was $87 as
compared to income from operation of $76 in the same period of the
last fiscal year, primarily due to a decrease in gross margin of
$44 and an increase in operating expenses of $119. Operating
expenses for the manufacturing segment were $749 and $630 for the
three months ended December 31, 2019 and 2018, respectively. The
increase in operating expenses was mainly due to an increase of $86
in general and administrative expenses and an increase of $27 in
corporate overhead expenses. The increase in general and
administrative expenses was mainly attributable to an increase in
payroll-related expenses and a provision of doubtful debt in
Singapore operations. The increase in corporate overhead expenses
was due to a change in the corporate overhead allocation 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 (loss)/income from operations for the
testing segment for the three months ended December 31, 2019 and
2018 were as follows:
|
|
Three
Months Ended
December
31,
|
|
|
(Unaudited)
|
2019
|
2018
|
|
Revenue
|
$
3,887
|
$
4,393
|
|
Gross margin
|
24.9
%
|
29.3
%
|
|
(Loss)/Income from operations
|
$
(161
)
|
$
21
|
Loss from operations in the testing segment for the three months
ended December 31, 2019 was $161, reflecting a net decrease of $182
compared to income from operations of $21 in the same period of the
last fiscal year. The decrease in operating income were mainly
attributable to a decrease in gross profit margin, as discussed
earlier. The decreases in the operating income were partially
offset with a decrease in operating expenses. Operating expenses
were $1,130 and $1,266 for the three months ended December 31, 2019
and 2018, respectively.
The decrease of $136 in operating expenses was
mainly due to a decrease in general and administrative expenses,
which was mainly due to lower payroll-related expenses incurred in
the Malaysia and China operations as part of the cost-saving
measures, as discussed earlier.
Distribution Segment
The revenue, gross margin and income from operations for the
distribution segment for the three months ended December 31, 2019
and 2018 were as follows:
|
|
Three
Months Ended
December
31,
|
|
|
(Unaudited)
|
2019
|
2018
|
|
Revenue
|
$
2,014
|
$
1,916
|
|
Gross margin
|
13.7
%
|
13.3
%
|
|
Income from operations
|
$
188
|
$
170
|
Income from operations in the distribution segment was $188, for
the three months ended December 31, 2019, as compared to $170 for
the same period of last fiscal year. The increase in income
from operations of $18 was mainly due to an increase of $22 in the
gross margin, as discussed earlier. Operating expenses were $88 and
$84 for the three months ended December 31, 2019 and 2018,
respectively.
-43-
Real Estate Segment
The revenue, gross margin and loss from operations for the real
estate segment for the three months ended December 31, 2019 and
2018 were as follows:
|
|
Three
Months Ended
December
31,
|
|
|
(Unaudited)
|
2019
|
2018
|
|
Revenue
|
$
16
|
$
29
|
|
Gross (loss)/margin
|
(12.5
)%
|
37.9
%
|
|
Loss from operations
|
$
(35
)
|
$
(5
)
|
Loss from operations in the real estate segment for the three
months ended December 31, 2019 was $35 compared to a loss $5 for
the same period of last fiscal year. The increase in
operations loss of $30 was mainly due to the decrease in gross
margin of $13 and the increase in operating expenses by $17.
Operating expenses were $33 and $16 for the three months ended
December 31, 2019 and 2018, respectively. The increase in operating
expenses was mainly due to one-off payroll-related expenses made
during the three months ended December 31, 2019.
Corporate
The loss from operations for Corporate for the three months ended
December 31, 2019 and 2018 was as
follows:
|
|
Three
Months Ended
December
31,
|
|
|
(Unaudited)
|
2019
|
2018
|
|
Loss from operations
|
$
(78
)
|
$
(35
)
|
The increase in loss from operations of $43 was mainly due to a
change in the corporate overhead allocation as compared to the same
period last fiscal year. Corporate charges are allocated on a
pre-determined fixed charge basis.
Comparison of the Six Months Ended December 31, 2019 and December
31, 2018
The following table sets forth certain consolidated statements of
income data as a percentage of revenue for the six months ended
December 31, 2019 and 2018, respectively:
|
|
Six
Months Ended
|
|
|
|
Dec.
31,
2019
|
Dec.
31,
2018
|
|
|
|
|
|
Revenue
|
100.0
%
|
100.0
%
|
|
Cost
of sales
|
77.9
|
77.9
|
|
Gross Margin
|
22.1
%
|
22.1
%
|
|
Operating
expenses:
|
|
|
|
General
and administrative
|
19.0
%
|
17.6
%
|
|
Selling
|
1.9
|
1.7
|
|
Research
and development
|
1.0
|
1.0
|
|
Gain
on disposal of plant and equipment
|
(0.1
)
|
-
|
|
Total
operating expenses
|
21.8
%
|
20.3
%
|
|
Income from Operations
|
0.3
%
|
1.8
%
|
-44-
Overall Gross Margin
Overall gross margin as a percentage of revenue remained consistent
as 22.1% for the six months ended December 31, 2019, as compared to
the same period of the last fiscal year. In terms of absolute
dollar amounts, gross profits decreased by $202 to $4,157 for the
six months ended December 31, 2019, from $4,359 for the same period
of the last fiscal year.
Gross profit margin as a percentage of revenue in the manufacturing
segment increased by 1.1% to 22.4% for the six months ended
December 31, 2019, from 21.3% in the same period of the last fiscal
year. In absolute dollar amounts, gross profit decreased by $62 to
$1,424 for the six months ended December 31, 2019 as compared to
$1,486 for the same period in last fiscal year. The decrease in
absolute dollar amount of gross margin was primarily due to the
decrease in orders in the Singapore operation. However, the orders
in the second quarter of fiscal year had the higher margin as
compared to the same period of the last fiscal year, which
contributed to an increase in the gross margin as a percentage of
revenue.
Gross profit margin as a percentage of revenue in the testing
segment decreased by 0.3% to 26.2% for the six months ended
December 31, 2019 from 26.5% in the same period of the last fiscal
year. There was a further deterioration in testing revenue in
Malaysia and Chinas operation where significant portions of our
cost of goods sold are fixed. As the demand of services and factory
utilization decrease, the fixed costs are spread over the decreased
output, which decreases the gross profit margin. However, this
negative impact was partially mitigated by the management’s
effort in reducing the cost in Malaysia and China operations. In
terms of absolute dollar amounts, gross profit in the testing
segment decreased by $173 to $2,168 for the six months ended
December 31, 2019, from $2,341 for the same
period of the last fiscal
year.
Gross profit margin as a percentage of revenue in the distribution
segment increased by 0.5% to 13.8% for the six months ended
December 31, 2019, from 13.3% in the same period of the last fiscal
year. In terms of absolute dollar amounts, gross profit in the
distribution segment for the six months ended December 31, 2019 was
$568, an increase of $56 as compared to $512 in the same period of
the last fiscal year. The increase in absolute dollar amount of
gross margin was due to the increase of distribution revenue
in Singapore Operation. 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
loss margin as a percentage of revenue in the real estate segment
increased by 44.8% to 9.1% for the six months ended December 31,
2019, from the gross profit margin of 35.7% in the same period of
the last fiscal year. In terms of absolute dollar amounts, gross
loss increased by $23 to $3 for the six months ended December 31,
2019 as compared to gross profit of $20 for the same period of the
last fiscal year.
The increase in
gross loss was mainly due to the sales of properties in the real
estate segment in the China operation after the third quarter of
the last fiscal year, which resulted in a decrease in rental
income.
Operating Expenses
Operating expenses for the six months ended December 31, 2019 and
2018 were as follows:
|
|
Six
Months Ended
|
|
|
|
Dec.
31,
2019
|
Dec.
31,
2018
|
|
(Unaudited)
|
|
|
|
General
and administrative
|
$
3,565
|
$
3,481
|
|
Selling
|
366
|
334
|
|
Research
and development
|
201
|
194
|
|
Gain
on disposal of plant and equipment
|
(24
)
|
-
|
|
Total
|
$
4,108
|
$
4,009
|
General and administrative expenses increased by $84, or 2.4%, from
$3,481 to $3,565 for the six months ended December 31, 2019
compared to the same period of the last fiscal year. The increase
in general and administrative expenses was primarily due to the
increase in payroll-related expenses in the U.S. and Singapore
operations.
Selling expenses increased by $32, or 9.6%, for the six months
ended December 31, 2019, from $334 to $366 compared to the same
period of the last fiscal year. The increase was mainly due to an
increase in commission expenses in the manufacturing segment of the
Singapore operations.
Research and development expenses increased by $7, for the six
months ended December 31, 2019, from $194 to $201, as compared to
the same period of the last fiscal year.
During the six months ended December 31, 2019, there was a gain on
disposal of plant and equipment of $24 as compared to $nil in the
same period of last fiscal year.
-45-
Income from Operations
Income from operations was $49 for the six months ended December
31, 2019 as compared to $350 for the same period of the last fiscal
year. The decrease was mainly due to the decrease in gross profit
margin and an increase in operating expenses, as discussed
earlier.
Interest Expense
Interest expense for the six months ended December 31, 2019 and
2018 were as follows:
|
|
Six
Months Ended
|
|
|
|
Dec.
31,
2019
|
Dec.
31,
2018
|
|
(Unaudited)
|
|
|
|
Interest expense
|
$
123
|
$
176
|
Interest expense decreased by $53 to $123 from $176 for the six
months ended December 31, 2019 as compared to the same period of
the last fiscal year. The decrease was mainly due to lower
utilization of short-term loans in the Singapore and China
Operations. Additionally, the bank loan payable decreased by $231
to $2,549 as of December 31, 2019 as compared to $2,780 as at June
30, 2019.
Other Income
Other income for the six months ended December 31, 2019 and 2018
were as follows:
|
|
Six Months
Ended
|
|
|
|
Dec.
31,
2019
|
Dec.
31,
2018
|
|
(Unaudited)
|
|
|
|
Interest
income
|
$
84
|
$
36
|
|
Other
rental income
|
60
|
56
|
|
Exchange
loss
|
(61
)
|
(67
)
|
|
Bad
debt recovery
|
11
|
2
|
|
Other
miscellaneous income
|
56
|
65
|
|
Total
|
$
150
|
$
92
|
Other income for the six months ended December 31, 2019 was $150,
an increase of $58 as compared to $92 for the same period of last
fiscal year. This increase mainly due to the higher interest income
earned from the placement of fixed deposits during the six months
ended December 31, 2019.
Income Tax Expenses
Income tax expenses for the six months ended December 31, 2019 was
$120, a change of $170 as compared to income tax benefits of $50
for the same period last fiscal year. This change was mainly due to
the reversal
from provision of One-Time Mandatory
Repatriation Tax for the six months ended December 31, 2018. The
provisions for the six months ended December 31, 2019 was primarily
due to provision for GILTI and the capital gain tax incurred from
the sale of asset held for sale in the Malaysia operation, offset
by the tax refund in the China operation.
Non-controlling Interest
As of December 31, 2019, 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 the
non-controlling interest in these subsidiaries for the six months
ended December 31, 2019 was $429, a change of $530, as compared to
net loss of $101 for the same period of last fiscal year. The
increase was attributable to the increase in net income generated
by the Malaysia operation from the sale of asset held for
sale.
-46-
Net Income
Net income was $699 for the six months ended December 31, 2019, an
increase of $286, as compared to $413 for the same period of the
last fiscal year. The increase was mainly due to the gain on sale
of asset held for sale in the Malaysia operation. However, the
increase was partially offset by a decrease in revenue, gross
margin and increase in operating expenses, as discussed
earlier.
Earnings per Share
Basic earnings per share from continuing operations was $0.19 for
the six months ended December 31, 2019 as compared to $0.11 for the
same period of the last fiscal year. Basic earnings per share from
discontinued operations were nil for both the six months ended
December 31, 2019 and 2018.
Diluted earnings per share from continuing operations was $0.19 for
the six months ended December 31, 2019 as compared to $0.11 for the
same period of the last fiscal year. Diluted earnings per share
from discontinued operations were nil for both the six months ended
December 31, 2019 and 2018.
Segment Information
The revenue, gross profit margin, and income or loss from
operations in each segment for the six months ended December 31,
2019 and 2018, 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 (loss)/income from operations for the
manufacturing segment for the six months ended December 31, 2019
and 2018 were as follows:
|
|
Six
Months Ended
|
|
|
|
Dec.
31,
2019
|
Dec.
31,
2018
|
|
(Unaudited)
|
|
|
|
Revenue
|
$
6,362
|
$
6,989
|
|
Gross margin
|
22.4
%
|
21.3
%
|
|
(Loss)/Income from operations
|
$
(99
)
|
$
183
|
Loss from operations from the manufacturing segment was $99
for the six months ended December 31, 2019, a change of $282 as
compared to income from operations $183 in the same period of the
last fiscal year, due to a decrease in gross margin and an increase
in operating expenses. Operating expenses for the manufacturing
segment were $1,523 and $1,303 for the six months ended December
31, 2019 and 2018, respectively. The increase in operating expenses
of $220 was mainly due to an increase in general and administrative
expenses by $146, increased in selling expenses by $58, increase in
corporate overhead by $8 and increase in research and development
expenses by $8 as compared to the same period of last fiscal year.
The increase in general and administrative expenses was mainly
attributable to an increase in payroll-related expenses and a
provision of doubtful debt in Singapore operations. The increase in
selling expenses was primarily due to higher commission expenses
incurred for the six months ended December 31, 2019.
Testing Segment
The revenue, gross margin and loss from operations for the testing
segment for the six months ended December 31, 2019 and 2018 were as
follows:
|
|
Six
Months Ended
|
|
|
|
Dec.
31,
2019
|
Dec.
31,
2018
|
|
(Unaudited)
|
|
|
|
Revenue
|
$
8,277
|
$
8,830
|
|
Gross margin
|
26.2
%
|
26.5
%
|
|
Loss from operations
|
$
93
|
$
117
|
-47-
Loss from operations in the testing segment for the six months
ended December 31, 2019 was $93, an improvement of $24 compared to
loss from operation of $117 in the same period of the last fiscal
year. The improvement was attributable to management’s
efforts in cost savings although there was deterioration of the
revenue. The decrease in gross margin of $173 offset with a further
decrease in operating expenses of $197, also contributable to the
decrease in operating loss. Operating expenses were $2,261 and
$2,458 for the six months ended December 31, 2019 and 2018,
respectively. The lower operating expenses were mainly attributable
to a decrease in general and administrative expenses by $96 and a
decrease in corporate overheads by $55. The decrease in general and
administrative expenses was due to decrease in payroll-related
expenses in the Malaysia and China operations as part of the cost
savings measures, as discussed earlier. The decrease in corporate
overhead expenses was due to a change in the corporate overhead
allocation as compared to the same period last fiscal year.
Corporate charges are allocated on a pre-determined fixed charge
basis.
Distribution Segment
The revenue, gross margin and income from operations for the
distribution segment for the six months ended December 31, 2019 and
2018 were as follows:
|
|
Six
Months Ended
|
|
|
|
Dec.
31,
2019
|
Dec.
31,
2018
|
|
(Unaudited)
|
|
|
|
Revenue
|
$
4,113
|
$
3,860
|
|
Gross margin
|
13.8
%
|
13.3
%
|
|
Income from operations
|
$
392
|
$
342
|
Income from operations in the distribution segment for the six
months ended December 31, 2019 was $392, an increase by $50 as
compared to $342 in the same period of the last fiscal
year. The increase in operating income was primarily due to an
increase in gross margin as discussed earlier which was partially
offset by the increase of operating expenses of $6. Operating
expenses were $176 and $170 for the six months ended December 31,
2019 and 2018, respectively.
Real Estate Segment
The revenue, gross margin and loss from operations for the real
estate segment for the six months ended December 31, 2019 and 2018
were as follows:
|
|
Six
Months Ended
|
|
|
|
Dec.
31,
2019
|
Dec.
31,
2018
|
|
(Unaudited)
|
|
|
|
Revenue
|
$
33
|
$
56
|
|
Gross margin
|
(9.1
)%
|
35.7
%
|
|
Loss from operations
|
$
(52
)
|
$
(17
)
|
Loss from operations in the real estate segment for the six months
ended December 31, 2019 was $52, a further deterioration of $35 as
compared to a loss from operations of $17 for the same period of
the last fiscal year. The increase in operating loss was
mainly due to a decrease in gross margin, as discussed earlier.
Operating expenses were $49 and $37 for the six months ended
December 31, 2019 and 2018, respectively. The increase in operating
expenses was mainly due to one-off payroll-related expenses made
during the six months ended December 31, 2019.
-48-
Corporate
The loss from operations for corporate for the six months ended
December 31, 2019 and 2018 were as
follows:
|
|
Six
Months Ended
|
|
|
|
Dec.
31,
2019
|
Dec.
31,
2018
|
|
(Unaudited)
|
|
|
|
Loss from operations
|
$
(99
)
|
$
(41
)
|
The increase of $58 was mainly due to a change in the corporate
overhead allocation as compared to the same period of last fiscal
year. Corporate charges are allocated on a pre-determined fixed
charge basis.
Financial Condition
During the six months ended December 31, 2019 total assets
increased by $1,928 from $36,527 as at June 30, 2019 to $38,455.
The increase in total assets was due to an increase in short term
deposits, prepaid expenses and other current assets, deferred tax
assets, operating lease right-of-use assets and restricted term
deposits, which was partially offset by a decrease in cash and cash
equivalents, trade account receivable, other receivables,
inventory, asset held for sale, investment properties, property,
plant and equipment and other assets.
Cash and cash equivalents were $4,743 as at December 31, 2019,
reflecting a decrease of $120 from $4,863 as at June 30, 2019,
primarily due to further placement made into fixed deposits in the
Singapore and China operations.
Short term deposits were $6,888 as at December 31, 2019,
reflecting an increase of $2,744 from $4,144 as at June 30,
2019, primarily due to an increase in deposits in the Singapore and
China operations. The short term deposits include proceeds received
from the sale of assets held for sale.
As at December 31, 2019, the trade accounts receivable balance
decreased by $176 to $6,937, from $7,113 as at June 30, 2019,
primarily due to the decrease in revenue for the six months ended
December 31, 2019 in the Singapore, Malaysia and U.S. operations.
The number of days’ sales outstanding in accounts receivables
for the Group was 67 and 74 days at the end of the second quarter
of fiscal year 2020 and for the end of fiscal year of 2019,
respectively.
As at December 31, 2019, other receivables were $752, reflecting a
decrease of $65 from $817 as at June 30, 2019. The decrease was
primarily due to a decrease in advance payments made to suppliers
in the Singapore operation and a decrease in contract asset,
recognized in accordance to the
ASC 606 Revenue from contracts
with customers
in the China
entity.
Inventories as at December 31, 2019 were $2,182, a decrease of
$245, as compared to $2,427 as at June 30, 2019. The decrease in
inventories was in line with a decrease in orders by customers in
the manufacturing segment of Singapore operations
Prepaid expenses were $330 as at December 31, 2019 compared to $287
as at June 30, 2019. The increase of $43 was primarily due to the
prepaid insurance and accounting software expenses in the Singapore
operation.
Investment properties, net in China were $734 as at December 31,
2019 and $782 as at June 30, 2019. The decrease was primarily
due to the depreciation charged for the period and the foreign
currency exchange movement between June 30, 2019 and December 31,
2019.
Assets held for sales were $nil as at December 31, 2019 and $89 as
at June 30, 2019. Management entered into a Sales and Purchase
Agreement with a potential buyer during fiscal year 2019 and the
sale was completed during the second quarter of fiscal
2020.
Property, plant and equipment decreased by $508 from $12,159 as at
June 30, 2019, to $11,651 as at December 31, 2019, mainly due to
depreciation charged for the period and the foreign currency
exchange movement between June 30, 2019 to December 31,
2019. The decrease was partially offset by the new acquisition
of plant and equipment in the Malaysia operation.
-49-
Other assets decreased by $124 to $1,626 as at December 31, 2019,
as compared to $1,750 as at June 30, 2019. This was
mainly due to the reclassification of down payments made for the
purchase of equipment to property, plant and equipment in the
Malaysia operation.
Accounts payable increased by $293 to $3,565 as at December 31,
2019, as compared to $3,272 as at June 30, 2019. This was due to
less payments made in the second quarter of the fiscal year
2020.
Accrued expenses decreased by $310 to $3,176 as at December 31,
2019, as compared to $3,486 as at June 30, 2019. The decrease in
accrued expenses was mainly due to a decrease in the accrued
purchase in the Singapore operation and a decrease in accrued
payroll liability in the Singapore and China operations during the
six months ended December 31, 2019.
Bank loans payable decreased by $231 to $2,549 as at December 31,
2019, as compared to $2,780 as at June 30, 2019. This was due to
the repayments made in the Singapore and Malaysia operations during
the six months ended December 31, 2019.
Finance leases increased by $131 to $856 as at December 31, 2019,
as compared to $725 as at June 30, 2019. This was due to the
increase of finance leases in the Singapore and Malaysia
operation.
Operating lease right of use assets and the corresponding leased
liability were $475 and $477 as of December 31, 2019 and June 30,
2019 respectively, after taking into effect the new accounting
standard,
ASC 842
leases
.
Liquidity Comparison
Net cash provided by operating activities decreased by $678 to an
inflow of $1,573 for the six months ended December 31, 2019 from an
inflow of $2,251 for the same period of the last fiscal year. The
decrease in net cash inflow provided by operating activities was
primarily due to a decrease in cash inflow of $621 from account
receivable, a decrease in cash inflow of $331 from other assets and
increase of cash outflow of $ 359 from repayment of operating
leases. These were partially offset by an increase in depreciation
and amortization of $431, an increase in cash inflow of $175 from
other receivable and also absent of reversal of income tax
provision of $145.
Net cash used in investing activities decreased by $1,639 to an
outflow of $2,116 for the six months ended December 31, 2019 from
an outflow of $3,755 for the same period of the last fiscal year.
The decrease in cash outflow was primarily due to an increase in
proceeds from sale of asset held for sale of $1,261 and also
decrease in capital expenditure of $1,553. These were partially
offset by a increase of $1,211 from the investment in unrestricted
deposits.
Net cash generated in financing activities for the six months ended
December 31, 2019 was $395, representing a decrease of $1,027, as
compared to net cash generated in financing activities of $1,422
during the six months ended December 31, 2018. The decrease in cash
inflow was mainly attributable to a decrease in cash inflow by
$4,625 from proceeds of lines of credit and a decrease of $1,475
from bank loans. These were partially offset by a decrease in cash
outflow of $5,179 from repayment of lines of credit.
We believe that our projected cash flows from operations, borrowing
availability under our revolving lines of credit, cash on hand,
trade credit and the secured bank loan will provide the necessary
financial resources to meet our projected cash requirements for at
least the next 12 months.
Critical Accounting Estimates & Policies
Effective
as of July 1, 2019, the Company has adopted
ASU 2016-02, Leases (Topic 842)
, and
its related amendments using modified retrospective transition
method. We have completed our adoption and implemented policies,
processes and controls to support the standard’s measurement
and disclosure requirements
as
described in note 1 to the financial statements included in item 1
of this Form 10-Q.
-50-
ITEM 3.
Q
UANTITATIVE 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, 2019, 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.
Changes in Internal Control Over Financial Reporting
Except as discussed below, there has been no change in the
Company’s internal control over financial reporting during
the fiscal quarter ended December 31, 2019, that have materially
affected, or are reasonably likely to materially affect, the
Company’s internal control over financial
reporting.
Enterprise Resource Planning (ERP) Implementation
We are in the process of implementing an ERP System, as part of a
multi-year plan to integrate and upgrade our systems and processes.
The implementation of this ERP system is scheduled to occur in
phases over a few years, and began with the migration of certain of
our operational and financial systems in our Singapore operations
to the new ERP system during the second quarter of fiscal
2017.
During the third quarter of fiscal 2018, the operational and
financial systems in Singapore were substantially transitioned to
the new system. The operational and financial systems in our
Malaysia operation were substantially transitioned to the new
system during the first quarter of fiscal 2019.
This implementation effort will continue in fiscal 2020, when the
operational and financial systems in our Tianjin and Suzhou
operations 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.
-51-
TRIO-TECH INTERNATIONAL
PART II. OTHER INFORMATION
Item 1.
L
egal Proceedings
Not applicable.
Item 1A. Risk
Factors
Not applicable
Item 2.
U
nregistered 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.
D
efaults Upon Senior
Securities
Not applicable.
Item 4. Mine
Safety Disclosures
Not applicable.
Item 5. Other
Information
On
June 12, 2019, Trio-Tech Malaysia Sdn. Bhd., a subsidiary of the
Company (“TTM”), and Cortex Robotics Sdn. Bhd, entered
into a sales and purchase agreement for the sale of for TTM’s
Penang Property. The agreement provided for, among other things,
a purchase price for the Penang Property of RM5,600,000,
approximately $1,340,000. The sale was subject to certain
conditions. The conditions to the consummation of the
transaction were satisfied and the sale was completed on December
20, 2019. The foregoing description of the sale and purchase
agreement is a summary and is qualified in its entirety by
reference to the complete text of the sales and purchase agreement
attached as Exhibit 10.1 hereto and incorporated by reference
into this Form 10-Q.
Item 6.
E
xhibits
| 10.1 |
|
The
Sale and Purchase agreement between Trio-tech Malaysia Sdn Bhd and
Cortex Robotics Sdn Bhd
|
|
|
Rule 13a-14(a) Certification of Principal Executive Officer of
Registrant
|
|
|
|
Rule 13a-14(a) Certification of Principal Financial Officer of
Registrant
|
|
|
|
Section 1350 Certification
|
|
|
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
-52-
S
IGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly
authorized.
|
|
TRIO-TECH INTERNATIONAL
|
|
|
|
By:
|
/s/
Victor H.M. Ting
VICTOR H.M. TING
Vice President and Chief Financial Officer
(Principal Financial Officer)
Dated: February 13, 2020
|
-53-
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits