Trio-Tech International 10-Q for FY2020 Q3
Trio-Tech International (TRT)
10-Q
2020-05-21
For: 2020-03-31
View Original
Added on
April 06, 2026
About this 10-Q
Trio-Tech International filed this 10-Q on May 21, 2020, covering the quarter ended March 31, 2020 (FY2020 Q3).
Headline figures
Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $8.5M
- down 3.8% from $8.84M a year earlier
- Net income
- $70K
- down 89.8% from net income of $683K a year earlier
- Diluted EPS
- $0.02
- down 89.5% from $0.19 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
☑ QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Quarterly Period Ended March 31, 2020
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 May 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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Part I.
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Financial Information
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Item
1.
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Financial
Statements
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2
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(a)
Condensed Consolidated Balance Sheets as of March 31, 2020
(Unaudited) and June 30, 2019
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2
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(b)
Condensed Consolidated Statements of Operations and Comprehensive
Income for the Three and Nine Months Ended March 31, 2020
(Unaudited) and March 31, 2019 (Unaudited)
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3
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(c)
Condensed Consolidated Statements of Shareholders Equity for the
Three and Nine Months Ended March 31, 2020 (Unaudited) and March
31, 2019 (Unaudited)
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5
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(d)
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended March 31, 2020 (Unaudited) and March 31, 2019
(Unaudited)
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6
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(e)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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7
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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31
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Item
3.
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Quantitative
and Qualitative Disclosures about Market Risk
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47
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Item
4.
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Controls
and Procedures
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47
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Part II.
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Other Information
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Item
1.
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Legal
Proceedings
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Item
1A.
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Risk
Factors
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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Item
3.
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Defaults
upon Senior Securities
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Item
4.
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Mine
Safety Disclosures
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Item
5.
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Other
Information
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47
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Item
6.
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Exhibits
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47
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Signatures
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48
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FORWARD-LOOKING STATEMENTS
The
discussions of Trio-Tech International’s (the
“Company”) business and activities set forth in this
Form 10-Q and in other past and future reports and announcements by
the Company may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended,
and assumptions regarding future activities and results of
operations of the Company. In light of the “safe
harbor” provisions of the Private Securities Litigation
Reform Act of 1995, the following factors, among others, could
cause actual results to differ materially from those reflected in
any forward-looking statements made by or on behalf of the Company:
market acceptance of Company products and services; changing
business conditions or technologies and volatility in the
semiconductor industry, which could affect demand for the
Company’s products and services; the impact of competition;
problems with technology; product development schedules; delivery
schedules; changes in military or commercial testing specifications
which could affect the market for the Company’s products and
services; difficulties in profitably integrating acquired
businesses, if any, into the Company; risks associated with
conducting business internationally and especially in 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; public health issues
related to the COVID-19 pandemic; 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.
-1-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT NUMBER
OF SHARES)
|
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March
31,
2020
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June
30,
2019
|
|
ASSETS
|
(Unaudited)
|
|
|
CURRENT
ASSETS:
|
|
|
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Cash
and cash equivalents
|
$4,370
|
$4,863
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Short-term
deposits
|
6,309
|
4,144
|
|
Trade
accounts receivable, less allowance for doubtful accounts of $315
and $263, respectively
|
6,397
|
7,113
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Other
receivables
|
1,065
|
817
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|
Inventories,
less provision for obsolete inventory of $656 and $673,
respectively
|
2,226
|
2,427
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Prepaid
expenses and other current assets
|
267
|
287
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|
Assets
held for sale
|
-
|
89
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Total current assets
|
20,634
|
19,740
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NON-CURRENT
ASSETS:
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|
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Deferred
tax asset
|
565
|
390
|
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Investment
properties, net
|
705
|
782
|
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Property,
plant and equipment, net
|
10,597
|
12,159
|
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Operating
lease right-of-use assets
|
1,073
|
-
|
|
Other
assets
|
1,595
|
1,750
|
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Restricted
term deposits
|
1,627
|
1,706
|
|
Total
non-current assets
|
16,162
|
16,787
|
|
TOTAL ASSETS
|
$36,796
|
$36,527
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LIABILITIES
|
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CURRENT
LIABILITIES:
|
|
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Lines
of credit
|
$398
|
$187
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Accounts
payable
|
3,129
|
3,272
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|
Accrued
expenses
|
3,065
|
3,486
|
|
Income
taxes payable
|
396
|
417
|
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Current
portion of bank loans payable
|
378
|
488
|
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Current
portion of finance leases
|
246
|
283
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Current
portion of operating leases
|
541
|
-
|
|
Total current liabilities
|
8,153
|
8,133
|
|
NON-CURRENT
LIABILITIES:
|
|
|
|
Bank
loans payable, net of current portion
|
1,919
|
2,292
|
|
Finance leases,
net of current portion
|
486
|
442
|
|
Operating
leases, net of current portion
|
532
|
-
|
|
Deferred
tax liabilities
|
375
|
327
|
|
Income
taxes payable
|
430
|
439
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|
Other
non-current liabilities
|
34
|
33
|
|
Total
non-current liabilities
|
3,776
|
3,533
|
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TOTAL LIABILITIES
|
$11,929
|
$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 March 31, 2020 and June 30, 2019,
respectively
|
$11,424
|
$11,424
|
|
Paid-in
capital
|
3,357
|
3,305
|
|
Accumulated
retained earnings
|
7,839
|
7,070
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Accumulated
other comprehensive gain-translation adjustments
|
796
|
1,867
|
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Total Trio-Tech International shareholders'
equity
|
23,416
|
23,666
|
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Non-controlling
interest
|
1,451
|
1,195
|
|
TOTAL EQUITY
|
$24,867
|
$24,861
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TOTAL LIABILITIES AND EQUITY
|
$36,796
|
$36,527
|
See notes to condensed consolidated financial
statements.
-2-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME / (LOSS)
UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
|
|
Three
Months Ended
|
Nine
Months Ended
|
||
|
|
Mar.
31,
|
Mar.
31,
|
Mar.
31,
|
Mar.
31,
|
|
|
2020
|
2019
|
2020
|
2019
|
|
Revenue
|
|
|
|
|
|
Manufacturing
|
$2,519
|
$3,097
|
$8,881
|
$10,086
|
|
Testing
Services
|
3,741
|
3,989
|
12,018
|
12,819
|
|
Distribution
|
2,225
|
1,727
|
6,338
|
5,587
|
|
Real
Estate
|
16
|
25
|
49
|
81
|
|
|
8,501
|
8,838
|
27,286
|
28,573
|
|
Cost of Sales
|
|
|
|
|
|
Cost
of manufactured products sold
|
1,851
|
2,303
|
6,789
|
7,806
|
|
Cost
of testing services rendered
|
2,937
|
2,862
|
9,046
|
9,351
|
|
Cost
of distribution
|
1,909
|
1,483
|
5,454
|
4,831
|
|
Cost
of real estate
|
18
|
16
|
54
|
52
|
|
|
6,715
|
6,664
|
21,343
|
22,040
|
|
|
|
|
|
|
|
Gross Margin
|
1,786
|
2,174
|
5,943
|
6,533
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
General
and administrative
|
1,754
|
1,742
|
5,319
|
5,223
|
|
Selling
|
181
|
246
|
547
|
580
|
|
Research
and development
|
79
|
76
|
280
|
270
|
|
Impairment
loss on long-lived assets
|
139
|
-
|
139
|
-
|
|
Gain
on disposal of property, plant and equipment
|
-
|
(13)
|
(24)
|
(13)
|
|
Total
operating expenses
|
2,153
|
2,051
|
6,261
|
6,060
|
|
|
|
|
|
|
|
(Loss) / Income from Operations
|
(367)
|
123
|
(318)
|
473
|
|
|
|
|
|
|
|
Other Income
|
|
|
|
|
|
Interest
expenses
|
(63)
|
(74)
|
(186)
|
(250)
|
|
Gain
on sale of asset held for sale
|
-
|
685
|
1,172
|
685
|
|
Other income,
net
|
440
|
128
|
590
|
220
|
|
Total
other income
|
377
|
739
|
1,576
|
655
|
|
|
|
|
|
|
|
Income from Continuing Operations before Income
Taxes
|
10
|
862
|
1,258
|
1,128
|
|
|
|
|
|
|
|
Income
tax benefits / (expenses)
|
8
|
(209)
|
(112)
|
(159)
|
|
|
|
|
|
|
|
Income
from continuing operations before non-controlling interest, net of
tax
|
18
|
653
|
1,146
|
969
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
|
|
|
|
(Loss)
/ Income from discontinued operations, net of tax
|
(21)
|
2
|
(21)
|
(2)
|
|
NET INCOME
|
(3)
|
655
|
1,125
|
967
|
|
|
|
|
|
|
|
Less:
net (loss) / income attributable to non-controlling
interest
|
(73)
|
(28)
|
356
|
(129)
|
|
Net Income Attributable to Trio-Tech International Common
Shareholders
|
$70
|
$683
|
$769
|
$1096
|
|
|
|
|
|
|
|
Amounts Attributable to Trio-Tech International Common
Shareholders:
|
|
|
|
|
|
Income
from continuing operations, net of tax
|
81
|
682
|
780
|
1,097
|
|
(Loss)
/ income from discontinued operations, net of tax
|
(11)
|
1
|
(11)
|
(1)
|
|
Net Income Attributable to Trio-Tech International Common
Shareholders
|
$70
|
$683
|
$769
|
$1,096
|
|
|
|
|
|
|
|
Basic Earnings per Share:
|
|
|
|
|
|
Basic
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.02
|
$0.19
|
$0.21
|
$0.30
|
|
Basic
earnings per share from discontinued operations attributable to
Trio-Tech International
|
$-
|
$-
|
$-
|
$-
|
|
Basic Earnings per Share from Net Income
|
|
|
|
|
|
Attributable to Trio-Tech International
|
$0.02
|
$0.19
|
$0.21
|
$0.30
|
|
|
|
|
|
|
|
Diluted Earnings per Share:
|
|
|
|
|
|
Diluted
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.02
|
$0.19
|
$0.21
|
$0.29
|
|
Diluted
earnings per share from discontinued operations attributable to
Trio-Tech International
|
$-
|
$-
|
$-
|
$-
|
|
Diluted Earnings per Share from Net Income
|
|
|
|
|
|
Attributable to Trio-Tech International
|
$0.02
|
$0.19
|
$0.21
|
$0.29
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
|
|
|
Basic
|
3,673
|
3,673
|
3,673
|
3,673
|
|
Dilutive
effect of stock options
|
86
|
12
|
61
|
73
|
|
Number
of shares used to compute earnings per share diluted
|
3,759
|
3,685
|
3,734
|
3,746
|
See notes to condensed consolidated financial
statements.
-3-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME /
(LOSS)
|
|
Three
Months Ended
|
Nine
Months Ended
|
||
|
|
Mar.
31,
|
Mar.
31,
|
Mar.
31,
|
Mar.
31,
|
|
|
2020
|
2019
|
2020
|
2019
|
|
Comprehensive Income Attributable to Trio-Tech
International Common Shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) / income
|
$(3)
|
$655
|
$1,125
|
$967
|
|
Foreign
currency translation, net of tax
|
(1,013)
|
401
|
(1,051)
|
(189)
|
|
Comprehensive (Loss) / Income
|
(1,016)
|
1,056
|
74
|
778
|
|
Less:
comprehensive (loss) / income attributable to non-controlling
interest
|
(64)
|
1
|
376
|
(191)
|
|
Comprehensive (Loss) / Income Attributable to Trio-Tech
International Common Shareholders
|
$(952)
|
$1,055
|
$(302)
|
$969
|
See notes to condensed consolidated financial
statements.
-4-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY
(IN THOUSANDS)
Nine Months ended March 31, 2020
|
|
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
|
-
|
-
|
52
|
-
|
-
|
|
52
|
|
Net
income
|
-
|
-
|
-
|
769
|
-
|
356
|
1,125
|
|
Dividend declared
by subsidiary
|
-
|
-
|
-
|
-
|
-
|
(120)
|
(120)
|
|
Exercise of stock
option
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Translation
adjustment
|
-
|
-
|
-
|
-
|
(1,071)
|
20
|
(1,051)
|
|
Balance
at Mar. 31, 2020
|
3,673
|
11,424
|
3,357
|
7,839
|
796
|
1,451
|
24,867
|
Nine Months ended March 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, 2018
|
3,553
|
11,023
|
3,249
|
5,525
|
2,182
|
1,522
|
23,501
|
|
Stock
option expenses
|
-
|
-
|
12
|
-
|
-
|
-
|
12
|
|
Net
income / (loss)
|
-
|
-
|
-
|
1,096
|
-
|
(129)
|
967
|
|
Dividend declared
by subsidiary
|
-
|
-
|
-
|
-
|
-
|
(125)
|
(125)
|
|
Exercise of stock
option
|
120
|
401
|
-
|
-
|
-
|
-
|
401
|
|
Translation
adjustment
|
-
|
-
|
-
|
-
|
(127)
|
(62)
|
(189)
|
|
Balance
at Mar. 31, 2019
|
3,673
|
11,424
|
3,261
|
6,621
|
2,055
|
1,206
|
24,567
|
See notes to condensed consolidated financial
statements.
-5-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN
THOUSANDS)
|
|
Nine
Months Ended
|
|
|
|
Mar.
31,
|
Mar.
31,
|
|
|
2020
|
2019
|
|
|
(Unaudited)
|
(Unaudited)
|
|
Cash Flow from Operating Activities
|
|
|
|
Net Income
|
$1,125
|
$967
|
|
Adjustments
to reconcile net income to net cash flow provided by operating
activities
|
|
|
|
Gain
on sale of assets held for sale
|
(1,172)
|
(685)
|
|
Depreciation
and amortization
|
2,350
|
1,777
|
|
Impairment
loss on long-lived assets
|
139
|
-
|
|
Stock
compensation
|
52
|
12
|
|
Provision
for obsolete inventory
|
5
|
(37)
|
|
Reversal
of income tax provision
|
-
|
(145)
|
|
Payment of
operating leases
|
(398)
|
-
|
|
Payment of interest
portion of finance leases (Note
1b)
|
(43)
|
(32)
|
|
Allowance for
doubtful debts
|
62
|
1
|
|
Accrued interest
expense, net accrued interest income
|
(35)
|
34
|
|
Gain on sale of
property, plant and equipment – continued
operations
|
(24)
|
(13)
|
|
Warranty recovery,
net
|
-
|
(35)
|
|
Fixed assets
written off
|
-
|
(33)
|
|
Deferred tax
benefit / (provision)
|
(132)
|
78
|
|
Changes in
operating assets and liabilities, net of acquisition
effects
|
|
|
|
Trade accounts
receivable
|
664
|
626
|
|
Other
receivables
|
(248)
|
(153)
|
|
Other
assets
|
101
|
489
|
|
Inventories
|
108
|
60
|
|
Prepaid expenses
and other current assets
|
20
|
(99)
|
|
Accounts payable
and accrued expenses
|
(449)
|
60
|
|
Income taxes
payable
|
(29)
|
58
|
|
Net
Cash Provided by Operating Activities
|
2,096
|
2,930
|
|
|
|
|
|
Cash
Flow from Investing Activities
|
|
|
|
Proceeds from sale
of assets held for sale
|
1,261
|
943
|
|
Proceeds from
disposal of property, plant and equipment
|
39
|
3
|
|
Investments in
restricted and unrestricted deposits
|
(2,393)
|
(2,939)
|
|
Addition to
property, plant and equipment
|
(848)
|
(2,576)
|
|
Net
Cash Used in Investing Activities
|
(1,941)
|
(4,569)
|
|
|
|
|
|
Cash
Flow from Financing Activities
|
|
|
|
Payment on lines of
credit
|
(1,922)
|
(7,348)
|
|
Payment of bank
loans
|
(372)
|
(421)
|
|
Payment of
principal portion of finance leases
|
(251)
|
(172)
|
|
Dividends paid on
non-controlling interest
|
(120)
|
(125)
|
|
Proceeds from
exercising stock options
|
-
|
401
|
|
Proceeds from lines
of credit
|
2,090
|
5,995
|
|
Proceeds from bank
loans
|
-
|
1,475
|
|
Proceeds from
finance leases
|
279
|
32
|
|
Net Cash Used in Financing Activities
|
(296)
|
(163)
|
|
|
|
|
|
Effect of Changes in Exchange Rate
|
(431)
|
(125)
|
|
|
|
|
|
Net Decrease in Cash, Cash Equivalents, and Restricted
Cash
|
(572)
|
(1,927)
|
|
Cash, Cash Equivalents, and Restricted Cash at Beginning of
Period
|
6,569
|
8,234
|
|
Cash, Cash Equivalents, and Restricted Cash at End of
Period
|
$5,997
|
$6,307
|
|
|
|
|
|
Supplementary Information of Cash Flows
|
|
|
|
Cash
paid during the period for:
|
|
|
|
Interest
|
$186
|
$217
|
|
Income
taxes
|
$124
|
$114
|
|
|
|
|
|
Non-Cash Transactions
|
|
|
|
Finance
lease of property, plant and equipment
|
$279
|
$32
|
|
Reconciliation of Cash, Cash Equivalents, and
Restricted Cash (Note
1a)
|
|
|
|
Cash
|
4,370
|
4,602
|
|
Short-Term
Deposits
|
6,309
|
3,646
|
|
Restricted Term-Deposits in Non-current Assets
|
1,627
|
1,705
|
|
Total Cash, Cash Equivalents, and Restricted Cash Shown in
Statement of Cash Flows
|
$12,306
|
$9,953
|
|
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 of interest portion
of finance lease from financing activities in accordance with 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.
-6-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AND NUMBER OF
SHARES)
1. ORGANIZATION AND BASIS OF PRESENTATION
Trio-Tech International (“the Company” or
“TTI” hereafter) was incorporated in fiscal year 1958
under the laws of the State of California. TTI provides third-party
semiconductor testing and burn-in services primarily through its
laboratories in Southeast Asia. In addition, TTI operates testing
facilities in the United States. The Company also designs,
develops, manufactures and markets a broad range of equipment and
systems used in the manufacturing and testing of semiconductor
devices and electronic components. In the third quarter of fiscal
year 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 nine months ended March 31, 2020 are not necessarily
indicative of the results that may be expected for the fiscal year
ending June 30, 2020. Certain accounting matters that generally
require consideration of forecasted financial information were
assessed regarding impacts from the COVID-19 pandemic as of March
31, 2020 and through the date of this Quarterly Report using
reasonably available information as of those dates. Those
accounting matters assessed included, but were not limited to,
allowance for doubtful accounts, the carrying value of long-lived
tangible assets and the valuation allowances for tax assets. While
the assessments resulted in no material impacts to the consolidated
financial statements as of and for the quarter ended March 31,
2020, the Company believes the full impact of the pandemic remains
uncertain and the Company will continue to assess if ongoing
developments related to the pandemic may cause future material
impacts to our consolidated financial statements.
As of March 31, 2020, the Company had cash and cash equivalents and
short-terms deposits totalling $10,609 and unused line of credit of
$5,897. We finance operations primarily through our existing cash
balances, cash collected from operations, bank borrowings and
capital lease financing. We believe these sources are sufficient to
fund our operations for the foreseeable future. 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.
-7-
Basis of Presentation and Summary of Significant Accounting
Policies
Comparability
Effective
as of 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 nine months ended
March 31, 2019 were prepared using accounting standards that were
different than those in effect for the nine months ended March 31,
2020.
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 effective 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 effective 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.
The adoption of this new standard as of 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 $1,073, primarily representing the recognition of ROU
assets for operating leases;
(2)
liabilities
increased by $1,073, 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 a significant change in our
leasing activities.
-8-
2. NEW ACCOUNTING
PRONOUNCEMENTS
In
March 2020, FASB issued ASU 2020-04 ASC Topic 848: Reference Rate Reform: Facilitation of the
Effects of Reference Rate Reform on Financial Reporting,
which provides optional expedients and exceptions for applying U.S.
GAAP to contracts, hedging relationships and other transactions
affected by the discontinuation of the London Interbank Offered
Rate (“LIBOR”) or by another reference rate expected to
be discontinued. The amendments are effective for all entities as
of March 12, 2020, and the Company may elect to apply the
amendments prospectively through December 31, 2022. The Company is
currently evaluating the impacts of the provisions of ASU 2020-04
on its consolidated financial statements and related
disclosures.
The
amendments in ASU 2019-12 ASC Topic 740: Income Taxes: Simplifying Accounting for
Income Taxes remove 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 consolidated financial
position or results of operations.
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. Financial institutions
and other organizations will now use forward-looking information to
better inform their credit loss estimates. Many of the loss
estimation techniques applied today will still be permitted,
although the inputs to those techniques will change to reflect the
full amount of expected credit losses. ASC Topic 326 is effective
for the Company for annual periods beginning after December 15,
2022. The Company is currently evaluating the potential
impact of this accounting standard update on its consoldiated
financial statements.
Other new pronouncements issued but not yet effective until after
March 31, 2020 are not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
-9-
3. TERM
DEPOSITS
|
|
Mar. 31,
2020
(Unaudited)
|
June 30,
2019
|
|
|
|
|
|
Short-term
deposits
|
$6,587
|
$4,143
|
|
Currency
translation effect on short-term deposits
|
(278)
|
1
|
|
Total short-term deposits
|
6,309
|
4,144
|
|
Restricted
term deposits
|
1,711
|
1,701
|
|
Currency
translation effect on restricted term deposits
|
(84)
|
5
|
|
Total restricted term deposits
|
1,627
|
1,706
|
|
Total term deposits
|
$7,936
|
$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.
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 March 31, 2020,
and June 30, 2019 was adequate.
The following table represents the changes in the allowance for
doubtful accounts:
|
|
Mar.
31,
2020
(Unaudited)
|
June
30,
2019
|
|
Beginning
|
$263
|
$259
|
|
Additions charged
to expenses
|
338
|
94
|
|
Recovered
|
(270)
|
(84)
|
|
Written
off
|
(6)
|
-
|
|
Currency
translation effect
|
(10)
|
(6)
|
|
Ending
|
$315
|
$263
|
-10-
5. LOANS RECEIVABLE FROM PROPERTY DEVELOPMENT
PROJECTS
The following table presents Trio-Tech (Chongqing) Co. Ltd
(“TTCQ”)’s loan receivable from property
development projects in China as of March 31, 2020. 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 March 31,
2020.
|
|
Loan Expiry
Date
|
|
Loan Amount
(RMB)
|
|
|
Loan Amount
(U.S. Dollars)
|
|
||
|
Short-term loan receivables
|
|
|
|
|
|
|
|
||
|
JiangHuai (Project – Yu Jin Jiang An)
|
May 31, 2013
|
|
|
2,000
|
|
|
|
325
|
|
|
Less: allowance for doubtful receivables
|
|
|
|
(2,000
|
)
|
|
|
(325
|
)
|
|
Net loan receivables from property development
projects
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term loan receivables
|
|
|
|
|
|
|
|
|
|
|
Jun Zhou Zhi Ye
|
Oct 31, 2016
|
|
|
5,000
|
|
|
|
814
|
|
|
Less: transfer – down-payment for purchase of
investment property
|
|
|
|
(5,000
|
)
|
|
|
(814
|
)
|
|
Net loan receivables from property development
projects
|
|
|
|
-
|
|
|
|
-
|
|
The 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 March 31, 2020 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:
|
|
Mar. 31,
2020
(Unaudited)
|
June 30,
2019
|
|
|
|
|
|
Raw
materials
|
$1,300
|
$1,190
|
|
Work
in progress
|
1,330
|
1,306
|
|
Finished
goods
|
360
|
591
|
|
Currency
translation effect
|
(108)
|
13
|
|
Less:
provision for obsolete inventory
|
(656)
|
(673)
|
|
|
$2,226
|
$2,427
|
The following table represents the changes in provision for
obsolete inventory:
|
|
Mar. 31,
2020
(Unaudited)
|
June 30,
2019
|
|
|
|
|
|
Beginning
|
$673
|
$695
|
|
Additions
charged to expenses
|
9
|
17
|
|
Usage
– disposition
|
(4)
|
(42)
|
|
Currency
translation effect
|
(22)
|
3
|
|
Ending
|
$656
|
$673
|
-11-
7. ASSETS HELD FOR
SALE
Penang Property
During the fourth quarter of fiscal year 2015, the operation 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 an intention
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. During the fourth quarter
of fiscal year 2019, management entered into a Sales and Purchase
Agreement with a potential buyer. During the second quarter of
fiscal year 2020, the Company 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 RM 5,600, or $1,340. In connection with the sale of the
property located in Malaysia, the Company also incurred the direct
expenses of RM 330, or $79, which included professional fees,
commissions, other selling related expenses and consent fees from
the 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 RM 4,901, 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 March 31, 2020 and June 30,
2019.
|
|
|
|
Mar. 31,
2020
(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 March 31, 2020. The exchange rate is
based on the market rate as of March 31, 2020.
|
|
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
|
|
-
|
(170)
|
|
Gross
investment in rental property
|
|
9,649
|
1,359
|
|
Accumulated
depreciation on rental property
|
Mar
31, 2020
|
(6,437)
|
(921)
|
|
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)
|
|
|
(4,644)
|
(654)
|
|
|
Net investment in property – China
|
|
5,005
|
705
|
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
the near future, considering the market conditions in
China.
Property purchased from MaoYe generated a rental income of
$8 and $24 during the three and nine
months ended March 31, 2020, respectively, as compared to $15 and
$58 for the same periods in the last fiscal
year.
Depreciation expense for Mao Ye was $4 and $12 for the three and
nine months ended March 31, 2020, respectively, and $Nil for the
same periods 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. TTCQ had yet to receive
the title deed for these properties. TTCQ was in the legal process
of obtaining the title deed until the developer encountered cash
flow difficulties in the recent years. Since then, JiangHuai
company is under liquidation and is now undergoing asset
distribution. Nonetheless, this is not expected to affect the
property’s market value but, in view of the COVID-19 pandemic
and current economic situation, it is likely to be more tedious and
time-consuming for the Court in their execution of the
sale.
Property purchased from JiangHuai did not generate any rental
income during the three and nine months ended March 31, 2020 or
during the same periods in the prior fiscal year.
Depreciation expense for JiangHuai was $6 and $20 for the three and
nine months ended March 31, 2020, respectively, and $7 and $20 for
the same periods in the last fiscal year.
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
$25 for the three and nine months ended March 31, 2020,
respectively, and $10 and $23 for the same periods in the last
fiscal year.
Depreciation expense for Fu Li was $7 and $20 for the three and
nine months ended March 31, 2020, respectively, and $7 and $20 for
the same periods in the last fiscal year.
Summary
Total rental income for all investment properties in China was $16
and $49 for the three and nine months ended March 31, 2020,
respectively, and $25 and $81 for the same periods in the last
fiscal year.
Depreciation expenses for all investment properties in China were
$17 and $52 for the three and nine months ended March 31, 2020,
respectively, and $14 and $42 for the same periods in the last
fiscal year, due in part to the reclassification of the MaoYe
property as noted above.
-14-
9. OTHER ASSETS
Other
assets consisted of the following:
|
|
Mar. 31, 2020
(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
|
168
|
169
|
|
Currency
translation effect
|
(218)
|
(164)
|
|
Total
|
$1,595
|
$1,750
|
*Down payment for purchase of investment properties
included:
|
|
RMB
|
U.S. Dollars
|
|
Original
Investment (10% of 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
jointly develop the “Singapore Themed Park” project
(the “project”). 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 RMB 5 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 but to date has not
received payment in full therefor. The Company recognized that
disposal based on the recorded net book value of RMB 5 million, or
equivalent to US $803K, from net considerations paid, in accordance
with GAAP under ASC Topic 845 Non-monetary
Consideration. It is presented
under “Other Assets” as non-current assets to defer the
recognition of the gain on the disposal of the 10% interest in the
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, 2022. The
delay was primarily due to the time needed by the developers to
work with various parties to inject sufficient funds into this
project, especially during the COVID-19 pandemic. Based on the
available information, management believes that the Developer is
capable of working with new investors to complete certain phases of
this project.
-15-
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 March 31, 2020, the Company had certain lines of credit that
are collateralized by restricted deposits.
|
|
Type of
|
Interest
|
Expiration
|
Credit
|
Unused
|
|
Entity with
|
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%
|
-
|
$4,706
|
$4,706
|
|
Trio-Tech
(Tianjin) Co., Ltd.
|
Lines
of Credit
|
5.22%
to 6.3%
|
-
|
$845
|
$845
|
|
Universal
(Far East) Pte. Ltd.
|
Lines
of Credit
|
Ranging
from 1.85% to 5.5%
|
-
|
$398
|
$-
|
|
Trio-Tech
Malaysia Sdn. Bhd.
|
Revolving
Credit
|
Cost
of Funds Rate +2%
|
-
|
$346
|
$346
|
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 in our operations in Singapore. The Company started
to use this facility in the second quarter of fiscal year
2020.
During the third quarter of fiscal year 2020, the credit limit
offered to Trio-Tech (Tianjin) Co.,Ltd. by the Fubon Bank decreased
from RMB 10,000 to RMB 6,000.
As of June 30, 2019, the Company had certain lines of credit that
are collateralized by restricted deposits.
|
|
Type of
|
Interest
|
Expiration
|
Credit
|
Unused
|
|
Entity with
|
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
|
11. ACCRUED EXPENSES
Accrued
expenses consisted of the following:
|
|
Mar. 31, 2020
(Unaudited)
|
June 30,2019
|
|
Payroll
and related costs
|
$1,132
|
$1,354
|
|
Commissions
|
76
|
107
|
|
Customer
deposits
|
20
|
46
|
|
Legal
and audit
|
268
|
299
|
|
Sales
tax
|
11
|
9
|
|
Utilities
|
92
|
120
|
|
Warranty
|
38
|
39
|
|
Accrued
purchase of materials and property, plant and
equipment
|
165
|
362
|
|
Provision
for re-instatement
|
300
|
302
|
|
Deferred
income
|
91
|
61
|
|
Contract
liabilities
|
646
|
501
|
|
Other
accrued expenses
|
123
|
293
|
|
Currency
translation effect
|
103
|
(7)
|
|
Total
|
$3,065
|
$3,486
|
-16-
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 upon with the customer. The Company
estimates the warranty costs based on the historical rates of
warranty returns. The Company periodically assesses the
adequacy of its recorded warranty liability and adjusts the amounts
as necessary.
|
|
Mar. 31,
2020
(Unaudited)
|
June 30,
2019
|
|
Beginning
|
$39
|
$82
|
|
(Utilization)
/ additions charged to cost and expenses
|
(2)
|
15
|
|
Reversal
|
-
|
(58)
|
|
Currency
translation effect
|
1
|
-
|
|
Ending
|
$38
|
$39
|
13. BANK LOANS PAYABLE
Bank loans payable consisted of the following:
|
|
Mar. 31, 2020
(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 March 31, 2020 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 $2,539 and $2,683 as at March 31,
2020 and June 30, 2019, respectively.
|
2,271
|
2,638
|
|
Note
payable denominated in U.S. dollars for expansion plans in
Singapore and its subsidiaries, maturing in April 2020, bearing
interest at the bank’s lending rate (3.96% for March 31, 2020
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 $121 and $148 as at March 31,
2020 and June 30, 2019, respectively.
|
26
|
142
|
|
Total bank loans
payable
|
$2,297
|
$2,780
|
|
Current
portion of bank loan payable
|
395
|
494
|
|
Currency
translation effect on current portion of bank loan
|
(17)
|
(6)
|
|
Current
portion of bank loan payable
|
378
|
488
|
|
Long
term portion of bank loan payable
|
2,012
|
2,344
|
|
Currency
translation effect on long-term portion of bank loan
|
(93)
|
(52)
|
|
Long
term portion of bank loans payable
|
$1,919
|
$2,292
|
Future minimum payments (excluding interest) as at March 31, 2020
were as follows:
|
Remainder of fiscal
2020
|
$288
|
|
2021
|
364
|
|
2022
|
380
|
|
2023
|
397
|
|
2024
|
282
|
|
Thereafter
|
586
|
|
Total obligations and commitments
|
$2,297
|
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
|
-17-
14. COMMITMENTS AND CONTINGENCIES
Trio-Tech
(Malaysia) Sdn. Bhd. had capital commitments
for the purchase of equipment and other related infrastructure
costs amounting to RM 18, or approximately $4, as at March 31, 2020
and June 30, 2019.
Trio-Tech (Tianjin) Co. Ltd. in China did not have capital
commitments for the purchase of equipment and other related
infrastructure costs as at March 31, 2020, 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 did not have capital commitments
for the purchase of equipment and other related infrastructure
costs as at March 31, 2020 and as at June 30, 2019.
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
Although the Company operates in four segments; the testing service
industry (which performs structural and electronic tests of
semiconductor devices), the designing and manufacturing of
equipment (which equipment tests the structural integrity of
integrated circuits and other products), distribution of various
products from other manufacturers in Singapore and Southeast Asia,
and the real estate segment in China, the Company generates revenue
primarily from the manufacturing, testing and distribution
segments. 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.
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.
-18-
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 considerations
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 March 31, 2020, as compared to $15
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.
-19-
The following segment information is un-audited for the nine months
ended March 31, 2020 and March 31, 2019:
Business Segment Information:
|
|
Nine Months Ended
Mar. 31,
|
Net
Revenue
|
Operating
Income / (Loss)
|
Total
Assets
|
Depr.and
Amort.
|
Capital
Expenditures
|
|
Manufacturing
|
2020
|
$8,881
|
(201)
|
9,871
|
297
|
124
|
|
2019
|
$10,086
|
$175
|
$9,205
|
$88
|
$40
|
|
|
|
|
|
|
|
||
|
Testing Services
|
2020
|
12,018
|
(540)
|
22,332
|
1,999
|
724
|
|
2019
|
12,819
|
(134)
|
22,842
|
1,647
|
2,535
|
|
|
|
|
|
|
|
||
|
Distribution
|
2020
|
6,338
|
599
|
869
|
3
|
-
|
|
2019
|
5,587
|
492
|
780
|
-
|
-
|
|
|
|
|
|
|
|
||
|
Real Estate
|
2020
|
49
|
(82)
|
3,584
|
51
|
|
|
2019
|
81
|
(30)
|
3,914
|
42
|
-
|
|
|
|
|
|
|
|
||
|
Fabrication
|
2020
|
-
|
-
|
23
|
-
|
-
|
|
Services *
|
2019
|
-
|
-
|
26
|
-
|
-
|
|
|
|
|
|
|
||
|
Corporate &
|
2020
|
-
|
(94)
|
117
|
-
|
-
|
|
Unallocated
|
2019
|
-
|
(30)
|
233
|
-
|
-
|
|
|
|
|
|
|
||
|
Total Company
|
2020
|
$27,286
|
$(318)
|
$36,796
|
$2,350
|
$848
|
|
|
2019
|
$28,573
|
$473
|
$37,000
|
$1,777
|
$2,575
|
* Fabrication services is a discontinued operation.
The following segment information is un-audited for the three month
ended March 31, 2020 referenced below:
Business Segment Information:
|
|
Three Months Ended
Mar. 31,
|
Net
Revenue
|
Operating
Income / (Loss)
|
Total
Assets
|
Depr. and
Amort.
|
Capital
Expenditures
|
|
Manufacturing
|
|
$2,519
|
(102)
|
9,871
|
101
|
89
|
|
2019
|
$3,097
|
$(8)
|
$9,205
|
$30
|
$39
|
|
|
|
|
|
|
|
|
|
|
Testing Services
|
2020
|
3,741
|
(447)
|
22,332
|
655
|
15
|
|
2019
|
3,989
|
(17)
|
22,842
|
588
|
239
|
|
|
|
|
|
|
|
|
|
|
Distribution
|
2020
|
2,225
|
207
|
869
|
1
|
-
|
|
2019
|
1,727
|
150
|
780
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
2020
|
16
|
(30)
|
3,584
|
17
|
|
|
2019
|
25
|
(13)
|
3,914
|
14
|
-
|
|
|
|
|
|
|
|
|
|
|
Fabrication
|
2020
|
-
|
-
|
23
|
-
|
-
|
|
Services *
|
2019
|
-
|
-
|
26
|
-
|
-
|
|
|
|
|
|
|
||
|
Corporate &
|
2020
|
-
|
5
|
117
|
-
|
-
|
|
Unallocated
|
2019
|
-
|
11
|
233
|
-
|
-
|
|
|
|
|
|
|
||
|
|
2020
|
$8,501
|
$(367)
|
$36,796
|
$774
|
$104
|
|
|
2019
|
$8,838
|
$123
|
$37,000
|
$632
|
$278
|
* Fabrication services is a discontinued operation.
-20-
16. OTHER
INCOME
Other income consisted of the following:
|
|
Three Months Ended
|
Nine Months Ended
|
||
|
|
Mar. 31,
|
Mar. 31,
|
Mar. 31,
|
Mar. 31,
|
|
|
2020
|
2019
|
2020
|
2019
|
|
|
Unaudited
|
Unaudited
|
Unaudited
|
Unaudited
|
|
Interest
income
|
46
|
31
|
130
|
67
|
|
Other
rental income
|
30
|
28
|
90
|
84
|
|
Government
grant
|
266
|
38
|
295
|
115
|
|
Exchange
loss
|
94
|
(11)
|
33
|
(78)
|
|
Bad
debt recovery
|
-
|
-
|
11
|
2
|
|
Other
miscellaneous income
|
4
|
42
|
31
|
30
|
|
Total
|
$440
|
$128
|
$590
|
$220
|
During
the third quarter of fiscal year 2020, the Company received
government grants amounting to $266, of which $263 were the
financial assistance received from the Singapore and China
governments amid the COVID-19 pandemic. The Company believes that,
as with other business entities in Singapore and China, it will
receive additional government assistance for a period to ease the
financial impact caused by the pandemic.
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 reduced 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 the 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.
The
Company's income tax benefit was $8 for the three months ended
March 31, 2020 as compared to an income tax expense of $209 for the
same period of the last fiscal year. Our effective tax rate
(“ETR”) from continuing operations was negative 80% and
24% for the quarters ended March 31, 2020 and March 31, 2019,
respectively. The following items caused the significant change in
the quarterly ETR:
1).
During
the
three months ended March 31, 2019, the Company recorded a capital
gain tax arising from sales of Maoye properties.
2).
During
the
three months ended March 31, 2020, the Company recorded a tax
reversal of $70 due to reversal of provision for the GILTI tax. The
Company incurred taxable loss from the adverse impact from
COVID-19.
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 March
31, 2020.
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.
-21-
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.
Contract assets were recorded under other receivables while
contract liabilities were recorded under accrued expenses in the
balance sheet.
The
following table is the reconciliation of contract
balances.
|
|
Mar. 31,2020
(Unaudited)
|
Jun 30,2019
(Unaudited)
|
|
Trade
Accounts Receivable
|
6,397
|
7,113
|
|
Accounts
Payable
|
3,129
|
3,272
|
|
Contract
Assets
|
392
|
419
|
|
Contract
Liabilities
|
646
|
501
|
Remaining Performance Obligation
As at March 31, 2020, the Company had $826 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, while
the remaining 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.
19. EARNINGS PER SHARE
In accordance with 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 763,500 shares of Common Stock at exercise prices
ranging from $2.53 to $5.98 per share were outstanding as of March
31, 2020. 212,500 stock options were excluded in the computation of
diluted EPS for fiscal year 2020 because they were
anti-dilutive.
Options
to purchase 517,500 shares of Common Stock at exercise prices
ranging from $2.69 to $5.98 per share were outstanding as of March
31, 2019. 110,000 stock options were excluded in the computation of
diluted EPS for fiscal year 2019 because they were
anti-dilutive.
-22-
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
|
Nine Months
Ended
|
||
|
|
Mar.
31,
|
Mar.
31,
|
Mar.
31,
|
Mar.
31,
|
|
|
2020
|
2019
|
2020
|
2019
|
|
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|
|
|
|
|
|
|
Income
attributable to Trio-Tech International common shareholders from
continuing operations, net of tax
|
$81
|
$682
|
$780
|
$1,097
|
|
(Loss)
/ Income attributable to Trio-Tech International common
shareholders from discontinued operations, net of tax
|
(11)
|
1
|
(11)
|
(1)
|
|
Net Income Attributable to Trio-Tech International Common
Shareholders
|
$70
|
$683
|
$769
|
$1,096
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic
|
3,673
|
3,673
|
3,673
|
3,673
|
|
|
|
|
|
|
|
Dilutive
effect of stock options
|
86
|
12
|
61
|
73
|
|
Number
of shares used to compute earnings per share - diluted
|
3,759
|
3,685
|
3,734
|
3,746
|
|
|
|
|
|
|
|
Basic
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.02
|
0.19
|
0.21
|
0.30
|
|
Basic earnings
per share from discontinued operations attributable to Trio-Tech
International
|
-
|
-
|
-
|
-
|
|
Basic Earnings per Share from Net Income Attributable to Trio-Tech
International
|
$0.02
|
$0.19
|
0.21
|
0.30
|
|
|
|
|
|
|
|
Diluted
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.02
|
0.19
|
0.21
|
0.29
|
|
Diluted
earnings per share from discontinued operations attributable to
Trio-Tech International
|
-
|
-
|
$-
|
$-
|
|
Diluted Earnings per Share from Net Income Attributable to
Trio-Tech International
|
$0.02
|
$0.19
|
0.21
|
0.29
|
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.
-23-
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:
|
|
Nine Months Ended
March 31,
|
|
|
|
2020
|
2019
|
|
Expected
volatility
|
45.38% to
65.49%
|
47.29%
to 97.48 %
|
|
Risk-free interest
rate
|
0.30% to
2.35%
|
0.30%
to 1.05 %
|
|
Expected life
(years)
|
2.5-3.25
|
2.50 – 3.25
|
The
expected volatilities are based on the historical volatility of the
Company’s stock. Due to higher volatility, the observation is
made on a daily basis for the three months ended March 31, 2020.
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 third quarter of fiscal year 2020, the Company granted
options to purchase 60,000 shares of its Common Stock to employees
pursuant to the 2017 Employee Plan. There were no stock options
exercised during the nine month period ended March 31, 2020. The
Company recognized $28 stock-based compensation expenses during the
nine months ended March 31, 2020.
During the third quarter of fiscal year 2019, the Company granted
options to purchase 16,000 shares of its Common Stock to employees
pursuant to the 2017 Employee Plan. There were no stock options
exercised during the nine-month period ended March 31, 2019. The
Company recognized $11 stock-based compensation expenses during the
nine months ended March 31, 2019.
As of March 31, 2020, there were vested stock options granted under
the 2017 Employee Plan covering a total of 83,000 shares of Common
Stock. The weighted-average exercise price was $4.65 and the
weighted average remaining contractual term was 3.60
years.
As of March 31, 2019, there were vested stock options granted under
the 2017 Employee Plan covering a total of 34,000 shares of Common
Stock. The weighted-average exercise price was $5.72 and the
weighted average remaining contractual term was 4.06
years.
A
summary of option activities under the 2017 Employee Plan during
the nine month period ended March 31, 2020 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
|
60,000
|
2.53
|
4.98
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding at March 31, 2020
|
196,000
|
$3.91
|
3.97
|
$10
|
|
Exercisable at March 31, 2020
|
83,000
|
$4.65
|
3.60
|
$2
|
-24-
A
summary of the status of the Company’s non-vested employee
stock options granted under the 2017 Employee Plan during the nine
months ended March 31, 2020 is presented below:
|
|
Options
|
Weighted Average
Grant-Date
Fair
Value
|
|
|
|
|
|
Non-vested
at July 1, 2019
|
87,000
|
$4.28
|
|
Granted
|
60,000
|
2.53
|
|
Vested
|
(34,000)
|
4.19
|
|
Forfeited
|
-
|
|
|
Non-vested
at March 31, 2020
|
113,000
|
$3.37
|
|
|
|
|
A
summary of option activities under the 2017 Employee Plan during
the nine month period ended March 31, 2019 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
|
4.68
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding at March 31, 2019
|
76,000
|
5.51
|
4.13
|
-
|
|
Exercisable at March 31, 2019
|
34,000
|
5.72
|
4.06
|
-
|
A
summary of the status of the Company’s non-vested employee
stock options granted under the 2017 Employee Plan during the nine
months ended March 31, 2019 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
|
(19,000)
|
(5.72)
|
|
Forfeited
|
-
|
-
|
|
Non-vested
at March 31, 2019
|
42,000
|
$5.34
|
|
|
|
|
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 nine months ended
March 31, 2020 and March 31, 2019 respectively.
There were no options exercised during the nine months ended March
31, 2020. There were 50,000 shares of options exercised during the
nine months ended March 31, 2019. The Company did not recognize any
stock-based compensation expenses during the nine months ended
March 31, 2020. The Company recognized stock-based compensation
expenses of $1 in the nine months ended March 31, 2019 under the
Employee Plan.
As of March 31, 2020, there were vested stock options granted under
the 2007 Employee Plan covering a total of 77,500 shares of Common
Stock. The weighted-average exercise price was $3.69 and the
weighted average remaining contractual term was 1.46
years.
As of March 31, 2019, there were vested employee stock options
covering a total of 68,125 shares of Common Stock. The
weighted-average exercise price was $3.62 and the weighted average
contractual term was 2.40 years.
-25-
A
summary of option activities under the 2007 Employee Plan during
the nine months ended March 31, 2020 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 March 31, 2020
|
77,500
|
3.69
|
1.46
|
-
|
|
Exercisable at March 31, 2020
|
77,500
|
$3.69
|
1.46
|
$-
|
A
summary of the status of the Company’s non-vested employee
stock options under the 2007 Employee Plan during the nine months
ended March 31, 2020 is presented below:
|
|
Options
|
Weighted
Average
Grant-Date
Fair
Value
|
|
|
|
|
|
Non-vested
at July 1, 2019
|
9,375
|
$4.14
|
|
Granted
|
-
|
-
|
|
Vested
|
(9,375)
|
-
|
|
Forfeited
|
-
|
-
|
|
Non-vested
at March 31, 2020
|
-
|
$-
|
|
|
|
|
A summary of option activities under the 2007 Employee Plan during
the nine months ended March 31, 2019 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 March 31, 2019
|
77,500
|
$3.69
|
2.47
|
$-
|
|
Exercisable
at March 31, 2019
|
68,125
|
$3.62
|
2.40
|
$-
|
A
summary of the status of the Company’s non-vested employee
stock options under the 2007 Employee Plan during the nine months
ended March 31, 2019 is presented below:
|
|
Options
|
Weighted
Average
Grant-Date
Fair
Value
|
|
|
|
|
|
Non-vested
at July 1, 2018
|
28,750
|
$3.83
|
|
Granted
|
-
|
-
|
|
Vested
|
(19,375)
|
(4.14)
|
|
Forfeited
|
-
|
-
|
|
Non-vested
at March 31, 2019
|
9,375
|
$4.14
|
|
|
|
|
-26-
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 third quarter of fiscal year 2020, the Company granted
options to purchase 80,000 shares of its Common Stock to directors
pursuant to the 2017 Directors Plan. There were no stock options
exercised during the nine months ended March 31, 2020. The Company
recognized stock-based compensation expenses of $24 in the nine
months ended March 31, 2020 under the 2017 Directors
Plan.
During the first three 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 nine months ended
March 31, 2019. The Company did not recognize any stock-based
compensation expenses during the nine months ended March 31,
2019.
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 March 31,
2020.
As of March 31, 2020, there were vested stock options granted under
the 2017 Directors Plan covering a total of 240,000 shares of
Common Stock. The weighted-average exercise price was $3.93 and the
weighted average remaining contractual term was 4
years.
As of March 31, 2019, 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 3.98
years.
A
summary of option activities under the 2017 Directors Plan during
the nine months ended March 31, 2020 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
|
80,000
|
2.53
|
4.98
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding at March 31, 2020
|
240,000
|
$3.93
|
4.00
|
$12.8
|
|
Exercisable at March 31, 2020
|
240,000
|
$3.93
|
4.00
|
$12.8
|
A
summary of option activities under the 2017 Directors Plan during
the nine months ended March 31, 2019 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 March 31, 2019
|
80,000
|
5.98
|
3.98
|
$-
|
|
Exercisable at March 31, 2019
|
80,000
|
5.98
|
3.98
|
$-
|
-27-
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 Directors Plan
permitted the issuance of options to directors.
As the
2007 Plan has terminated, the Company did not grant any options
pursuant to the 2007 Director Plan during the nine months ended
March 31, 2020 and March 31, 2019.
There were no stock options exercised during the nine months ended
March 31, 2020. The Company did not recognize any stock-based
compensation expenses during the nine months ended March 31,
2020.
There were 70,000 stock options exercised during the nine months
ended March 31, 2019. The Company did not recognize any stock-based
compensation expenses during the nine months ended March 31,
2019.
As of March 31, 2020, 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 1.08
years.
As of March 31, 2019, 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 1.83
years.
A summary of option activities under the 2007 Directors Plan during
the nine months ended March 31, 2020 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 March 31, 2020
|
250,000
|
3.32
|
1.08
|
-
|
|
Exercisable
at March 31, 2020
|
250,000
|
$3.32
|
1.08
|
$-
|
A summary of option activities under the 2007 Directors Plan during
the nine months ended March 31, 2019 is presented as
follows:
|
|
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 March 31, 2019
|
300,000
|
$3.40
|
1.83
|
$-
|
|
Exercisable
at March 31, 2019
|
300,000
|
$3.40
|
1.83
|
$-
|
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 $52 for the three
and nine months ended March 31, 2020, respectively, and $14 and $42
for the same periods in the last fiscal year.
Future
minimum rental income in China and Thailand to be received from
fiscal year 2020 to fiscal year 2021 on non-cancellable operating
leases is contractually due as follows as of March 31,
2020:
|
Remainder of fiscal
2020
|
$152
|
|
2021
|
$549
|
|
|
$701
|
Future
minimum rental income in China and Thailand 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
|
$93
|
|
2021
|
$6
|
|
|
$99
|
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):
|
|
|
March. 31,
|
|
|
|
2020
|
|
Components of Lease Balances
|
Classification
|
(Unaudited)
|
|
Assets
|
|
|
|
Operating
lease assets
|
Right-of-use
asset-operating, net
|
$1,073
|
|
Finance
lease
assets
|
Property,
plant & equipment
|
1,758
|
|
Accumulated
amortization Right-of-use asset
|
|
(663)
|
|
Assets
|
Property,
plant & equipment
|
$1,095
|
|
Total Leased Assets
|
|
$2,168
|
|
|
|
|
|
Liabilities
|
|
|
|
Operating Lease Liabilities
|
|
|
|
Current
portion
|
Current
portion of lease liability-operating
|
$541
|
|
Long-term
portion
|
Lease
liability- Operating, net of current portion
|
532
|
|
Total Operating Lease Liabilities
|
|
$1,073
|
|
Finance Lease Liabilities
|
|
|
|
Current
portion of finance leases
|
Current
portion of lease liability-finance
|
$246
|
|
Net
of current portion of finance leases
|
Lease
liability- Finance, net of current portion
|
486
|
|
Total Finance
Lease Liabilities
|
|
$732
|
|
|
|
|
|
Total
Lease Liabilities
|
|
$1,805
|
-28-
|
|
3 Months Ended
March 31,
2020
|
9 Months Ended
March 31,
2020
|
|
Lease Cost
|
|
|
|
Finance
lease cost:
|
|
|
|
Interest
on lease liability
|
$13
|
$37
|
|
Amortization
of Right-of-use asset
|
76
|
212
|
|
Total
Finance Lease Cost
|
89
|
249
|
|
|
|
|
|
Operating
Lease Costs
|
$167
|
$526
|
Other information related to leases were as follows (in thousands
except lease term and discount rate):
|
|
Mar. 31,
|
|
|
2020
|
|
|
(Unaudited)
|
|
Cash Paid for amounts included in the measurement of lease
liabilities
|
|
|
Operating
cash flows from finance leases
|
$(43)
|
|
Operating
cash flows from operating leases
|
$(398)
|
|
Finance
cash flows from finance leases
|
$(251)
|
|
Right-of-use assets obtained in exchange for new operating lease
liabilities
|
$780
|
|
|
|
|
Weighted-average remaining lease term:
|
|
|
Finance
leases
|
3.55
|
|
Operating
leases
|
1.89
|
|
Weighted-average discount rate:
|
|
|
Finance
leases
|
3.40%
|
|
Operating
leases
|
4.59%
|
As of March 31, 2020, the maturities of the Company's operating and
finance lease liabilities were as follow:
|
|
Operating Lease Liabilities
|
Finance Lease Liabilities
|
|
Fiscal Year
|
|
|
|
Remainder
of 2020
|
$244
|
$83
|
|
2021
|
442
|
262
|
|
2022
|
293
|
209
|
|
2023
|
153
|
132
|
|
2024
|
-
|
106
|
|
Thereafter
|
-
|
21
|
|
Total
future minimum lease payments
|
$1,132
|
$813
|
|
Less:
amount representing interest
|
(59)
|
(81)
|
|
Present
value of net minimum lease payments
|
1,073
|
732
|
|
|
|
|
|
Presentation
on statement of financial position
|
|
|
|
Current
|
$541
|
$246
|
|
Non-Current
|
$532
|
$486
|
-29-
As of June 30, 2019, future minimum lease payments under finance
leases and non-cancelable operating leases were as
follows:
|
Fiscal Year
|
Operating Lease Liabilities
|
Finance Lease Liabilities
|
|
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 nine
months ended March 31, 2020 and 2019.
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. OTHER SIGNIFICANT TRANSACTIONS
In accordance with the accounting guidance for property, plant and
equipment, assets are measured at the lower of the carrying value
or fair value less costs to sell. As a result of one of our
customer’s products coming to the end of its product burn-in
cycle earlier than expected, the Company determined the carrying
value of the group of assets that served the above mentioned
product is higher than the fair value less costs to sell. As a
result, an impairment charge of $139 was recorded within operating
costs during the third quarter of 2020. The Company does not expect
to record a significant gain or loss upon disposition of the
assets.
24. SUBSEQUENT EVENTS
The impact of the COVID-19 pandemic continues to evolve as of March
31, 2020. The Singapore and Malaysian governments have imposed
various measures to contain the spread of the virus, such as the
closure of non-essential businesses and social distancing. Our
operations have been classified as part of the global supply chain
and are permitted to operate with the adherence of social
distancing, including employee reduction at site. As a result,
Management expects a decrease in revenue from the Singapore and
Malaysia operations with the effort of a fewer number of
employees.
The extent of the impact of COVID-19 will depend on future
developments, which are highly uncertain and unpredictable. This
includes any new information that emerges concerning the severity
of COVID-19 and any possible actions to contain the
virus.
-30-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Overview
The following should be read in conjunction with the condensed
consolidated financial statements and notes in Item I above and
with the audited consolidated financial statements and notes, the
information under the headings “Risk Factors” and
“Management’s discussion and analysis of financial
condition and results of operations” in our Annual Report on
Form 10-K for the fiscal year ended June 30, 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 March 31, 2020.
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 there, 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.
-31-
Impairment Loss on Long-Lived Asset
During the third quarter of 2020,
our operation in China provided impairment loss of $139 for seven
pieces of equipment due to one of our customer’s products
coming to the end of its product burn-in cycle earlier than
expected. The cost of converting the seven pieces of equipment
out-weigh the benefit of utilizing said equipment. Operations do
not foresee any future usage of these assets. There will be no
future economic cash inflow generating from these assets. Based on
these events, we concluded that it was more likely than not that
value-in-use of these assets was less than their carrying value.
Full impairment of these assets had been
recorded.
While we have not identified any changes in circumstances requiring
an interim impairment test for the three months ended
March 31, 2020, we will continue to monitor impairment
indicators, such as disposition activity, stock price declines or
changes in forecasted cash flows in future periods. If the fair
value of our reporting unit declines below the carrying value in
the future, we may incur additional impairment
charges.
Impact of COVID-19 on our Business
COVID-19
began to affect our business in the three months ended March 31,
2020. During early
calendar year 2020, the Chinese
Government took emergency measures to combat the spread of the
virus, including an extension of the Lunar New Year holidays. In
the final two weeks of our third quarter, our operation in Malaysia
was curtailed by local government efforts to reduce the spread of
COVID-19, which efforts included shelter in place orders which had
the effect of reducing the number of employees available for work.
There can be no assurance as to any of our operation will return
fully to pre-COVID-19 operating levels.
Apart from the reasons disclosed in the later part of the
discussion, the COVID-19 pandemic had an adverse effect on our
results of operations during the quarter ended March 31,
2020:
The revenue in the Malaysia operation decreased 22.0% compared to
the same period of the previous fiscal year, partially due to the
movement restriction imposed by the local government.
The revenue in the manufacturing segment of the Singapore operation
decreased by 29.4% as compared to the same period of the previous
fiscal year, primarily due to the delay in orders from customers as
a result of the global economic uncertainties contributed by
COVID-19.
The gross margin in the China operations deteriorated by 9.4% as
compared to the same period of the previous fiscal year, mainly due
to the higher labor costs incurred to ramp up the testing volume
during the extended Lunar New Year holidays caused by the
pandemic.
An allowance of doubtful debts amounted to $14 in the real estate
segment of the China operations due to the heavy impact of the
COVID-19 pandemic on the business of the tenant.
The negative impact partially offset by the government stimulus
program amounted to $263 in the Singapore and China
operations.
As of March 31, 2020, the Company had cash and cash equivalents and
short-terms deposits totalling $10,679 and unused line of credit of
$5,897. We finance operations primarily through our existing cash
balances, cash collected from operations, bank borrowings and
capital lease financing. We believe these sources are sufficient to
fund our operations for the foreseeable future.
The mitigation efforts by governments around the world in an
attempt to control the spread of the virus will likely continue to
impact our operations, customers, and suppliers for an indefinite
period of time. While we have implemented safeguards and procedures
to counter the impact of the COVID-19 pandemic, the full extent to
which the pandemic has and will directly or indirectly impact us,
including our business, financial condition, and result of
operations, will depend on future developments that are highly
uncertain and cannot be accurately predicted. This may include
further mitigation efforts taken to contain the virus or treat its
impact and the economic impact on local, regional, national and
international markets. We will continue to actively monitor the
situation and may take further actions that alter our business
operations as may be required by the governments or that we
determine are in the best interests of our employees, customers,
suppliers and stockholders.
-32-
Third Quarter Fiscal Year 2020 Highlights
●
Total
revenue decreased by $337, or 3.8%, to $8,501 in the third quarter
of fiscal year 2020, compared to $8,838 for the same period in
fiscal year 2019.
●
Manufacturing
segment revenue decreased by $578, or 18.7%, to $2,519 for the
third quarter of fiscal year 2020, compared to $3,097 for the same
period in fiscal year 2019.
●
Testing
segment revenue decreased by $248, or 6.2%, to $3,741 for the third
quarter of fiscal year 2020, compared to $3,989 for the same period
in fiscal year 2019.
●
Distribution
segment revenue increased by $498, or 28.8%, to $2,225 for the
third quarter of fiscal year 2020, compared to $1,727 for the same
period in fiscal year 2019.
●
Real
estate segment rental revenue decreased by $9, or 36%, to $16 for
the third quarter of fiscal year 2020, compared to $25 for the same
period in fiscal year 2019.
●
The
overall gross profit margin decreased by 3.6% to 21.0% for the
third quarter of fiscal year 2020, from 24.6% for the same period
in fiscal year 2019.
●
Loss
from operations was $367 for the third quarter of fiscal year 2020,
a decrease of $490 as compared to an income from operations of $123
for the same period in fiscal year 2019.
●
General
and administrative expenses increased by $12, or 0.7%, to $1,754
for the third quarter of fiscal year 2020, from $1,742 for the same
period in fiscal year 2019.
●
Selling
expenses decreased by $65, or 26.4%, to $181 for the third quarter
of fiscal year 2020, from $246 for the same period in fiscal year
2019.
●
An
impairment loss on the long-lived asset amounted to $139 in the
third quarter of fiscal year 2020.
●
Other
income increased by $312 to $440 in the third quarter of fiscal
year 2020, compared to $128 in the same period in fiscal year
2019.
●
Income
tax benefit was $8 in the third quarter of fiscal year 2020, an
increase of $217 as compared to the income tax expense of $209 in
the same period in fiscal year 2019.
●
During
the third quarter of fiscal year 2020, income from continuing
operations before non-controlling interest, net of tax was $18, as
compared to $653 for the same period in fiscal year
2019.
●
Net
loss attributable to non-controlling interest for the third quarter
of fiscal year 2020 was $73, an increase of $45, as compared to net
loss attributable to non-controlling interest of $28 in the same
period in fiscal year 2019.
●
Basic
Earnings per Share for the third quarter of fiscal year 2020 were
$0.02, as compared to earnings per share of $0.19 for the same
period in fiscal year 2019.
●
Dilutive
Earnings per Share for the third quarter of fiscal year 2020 were
$0.02, as compared to earnings per share of $0.19 for the same
period in fiscal year 2019.
●
Total
assets remained at nearly the same level of $36,796 as of March 31,
2020 compared to $36,527 as of June 30, 2019.
●
Total
liabilities increased by $263, or 2.3%, to $11,929 as of March 31,
2020 compared to $11,666 as of June 30, 2019.
Results of Operations and Business Outlook
The following table sets forth our revenue components for the three
and nine months ended March 31, 2020 and 2019,
respectively.
|
Revenue
Components
|
Three
Months Ended
|
Nine
Months Ended
|
||
|
|
Mar.
31,
|
Mar.
31,
|
Mar.
31,
|
Mar.
31,
|
|
|
2020
|
2019
|
2020
|
2019
|
|
|
|
|
|
|
|
Manufacturing
|
29.6%
|
35.0%
|
32.6%
|
35.3%
|
|
Testing
Services
|
44.0
|
45.1
|
44.0
|
44.9
|
|
Distribution
|
26.2
|
19.6
|
23.2
|
19.5
|
|
Real
Estate
|
0.2
|
0.3
|
0.2
|
0.3
|
|
|
|
|
|
|
|
Total
|
100.0%
|
100.0%
|
100.0%
|
100.0%
|
Revenue for the three and nine months ended March 31, 2020 was
$8,501 and $27,286, respectively, a decrease of $337 and $1,287,
respectively, when compared to the revenue for the same period of
the prior fiscal year. As a percentage, revenue decreased by 3.8%
and 4.5% for the three and nine months ended March 31, 2020,
respectively, when compared to revenue for the same period of the
prior year.
-33-
For the three months ended March 31, 2020, the $337 decrease in
overall revenue was primarily due to
●
a
decrease in the manufacturing segments in the U.S. and Singapore
operations; and
●
a
decrease in the testing segment in the Malaysia
operations.
These decreases were partially offset by
●
an
increase in the testing segment in the Thailand operations;
and
●
an
increase in the distribution segment in the Singapore
operations.
For the nine months ended March 31, 2020, the $1,287 decrease in
overall revenue was primarily due to
●
a
decrease in the manufacturing segments in the U.S. and Singapore
operations; and
●
a
decrease in the testing segments in the China and Malaysia
operations
These decreases were partially offset by
●
an
increase in the testing segments in the Singapore and Thailand
operations; and
●
an
increase in the distribution segment in the Singapore
operations
Total revenue into and within China, the Southeast Asia regions and
other countries (except revenue into and within the United States)
decreased by $520 (or 6.0%), to $8,085 for the three months ended
March 31, 2020 and by $1,537 (or 5.6%) to $26,103 for the nine
months ended March 31, 2020, as compared with $8,605 and $27,640,
respectively, for the same periods of last fiscal
year.
Total revenue into and within the U.S. was $416 and $1,183 for the
three and nine months ended March 31, 2020, respectively. This was
an increase of $183 from $233 and an increase of $250 from $933 for
the same periods of the prior year, respectively.
Revenue within our four current segments for the three and nine
months ended March 31, 2020 is discussed below.
Manufacturing Segment
As a percentage of total revenue, revenue in the manufacturing
segment was 29.6% and 32.6% for the three and nine months ended
March 31, 2020, respectively, a decrease of 5.4% and 2.8% of total
revenue, respectively, when compared to the same periods of the
last fiscal year. The absolute amount of revenue decreased by
$578 from $3,097 to $2,519 for the three months ended March 31,
2020 and decreased by $1,205 from $10,086 to $8,881 for the nine
months ended March 31, 2020 compared to the same periods of the
last fiscal year.
Revenue in the manufacturing segment for the three months ended
March 31, 2020 decreased primarily due to the COVID-19 pandemic,
resulting in the delay of the delivery of orders in the U.S. and
Singapore operations. Our customers’ capital purchases are
being affected by the uncertainty associated with the gloomy
economic outlook as a result of the pandemic.
Revenue in the manufacturing segment from one customer accounted
for 24.3% and 27.7% of our total revenue in the manufacturing
segment for the three and nine months ended March 31, 2020 and
2019, respectively, and 35.2% and 35.5% of our total revenue in the
manufacturing segment for the nine months ended March 31, 2020 and
2019, 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 44.0% of total revenue for the
three and nine months ended March 31, 2020, a decrease of 1.1% and
0.9%, respectively, of the total revenue when compared to the same
periods of the last fiscal year. The absolute amount of
revenue decreased by $248 to $3,741 from $3,989 for the three
months ended March 31,2020 and decreased by $801 to $12,018 from
$12,819 for the nine months ended March 31, 2020 as compared to the
same periods of the last fiscal year.
-34-
The revenue in the testing segment from the one customer noted
above accounted for 56.1% and 69.7% of our revenue in the testing
segment for the three months ended March 31, 2020 and 2019,
respectively, and 61.6% and 72.8% of our total revenue in the
testing segment for the nine months ended March 31, 2020 and 2019,
respectively, due in part
to a reduction in orders from this customer. 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 26.2% and 23.2% as a
percentage of total revenue for the three and nine months ended
March 31, 2020, an increase of 6.6% and 3.7%, respectively, when
compared to the same period of the last fiscal year. The
absolute amount of revenue increased by $498 to $2,225 from $1,727
and increased by $751 to $6,338 from $5,587 for the three and nine
months ended March 31, 2020, 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
both the three and nine months ended March 31, 2020. The absolute
amount of revenue in the real estate segment decreased by $9 to $16
from $25 for the three months ended March 31, 2020, and decreased
by $32 to $49 from $81 for the nine months ended March 31, 2020
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 in the same periods of the last fiscal year, which
resulted in a decrease in rental income.
Uncertainties and Remedies
There are several influencing factors which create uncertainties
when forecasting performance, such as the speed at which technology
changes, specific requirements from the customer, changes in demand
for certain types of burn-in devices or equipment, changes in
demand for testing services and fabrication services, and other
similar factors, such as the highly competitive nature of the
semiconductor industry in general. Some customers are unable to
provide a forecast of the products required in the upcoming weeks,
making it difficult to plan for the resources needed to meet their
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 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 ERP System, as part of a
multi-year plan to integrate and upgrade our systems and processes.
The implementation of this ERP system was 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.
The operational systems in our Tianjin and Suzhou operations were
substantially transitioned to the new system during the third
quarter of fiscal 2020. This implementation effort will continue
until the financial systems of these two operations are fully
transitioned to the new system, and until the Group's consolidation
process is substantially automated using the new
system.
-35-
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.
The novel strain of the coronavirus identified in China in late
2019 has spread globally and resulted in authorities implementing
numerous measures to try to contain the virus, such as travel bans
and restrictions, quarantines, shelter in place orders, and
shutdowns. These measures have impacted and may further impact our
workforce and operations, the operations of our customers, and
those of our respective vendors and suppliers. We have significant
operations in China, Malaysia and Singapore, and each of these
countries has been affected by the pandemic and taken measures to
try to contain it. There is considerable uncertainty regarding such
measures and potential future measures, and restrictions on our
access to our facilities or on our support operations or workforce,
or similar limitations for our vendors and suppliers, and
restrictions or disruptions of transportation, such as reduced
availability of air transport, port closures, and increased border
controls or closures, could limit our capacity to meet our customer
demands and have a material adverse effect on our financial
condition and results of operations.
The pandemic has significantly increased economic and demand
uncertainty. The current pandemic has caused, and the continued
spread of COVID-19 may exacerbate, an economic slowdown, and it is
possible that it could lead to a global recession. There is a
significant risk the global economy could fall into recession
again. If economic conditions remain uncertain or deteriorate, our
business, financial condition and results of operations could be
materially adversely affected.
The spread of COVID-19 has caused us to modify our business
practices (including employee travel, employee work locations, and
cancellation of physical participation in meetings, events and
conferences), and we may take further actions as maybe required by
government authorities or that we determine are in the best
interest of our employees, customers, partners, and suppliers.
There is no certainty that such measures will be sufficient to
mitigate the risks posed by the virus and our ability to perform
critical functions could be harmed.
The degree to which COVID-19 impacts our results will depend on
future developments, which are highly uncertain and cannot be
predicted, including but not limited to, the duration and spread of
the pandemic, its severity, the action to contain the virus or
treat its impact, and how quickly and to what extent normal
economic and operating conditions can resume. Even after the
COVID-19 pandemic has subsided, we may experience material adverse
impacts on our business as a result of the global economic impact
and any recession that has occurred or may occur in the future.
There are no comparable recent events that provide guidance as to
the effect the spread of COVID-19 as a global pandemic may have,
and, as a result, the ultimate impact of the pandemic on our
operations and financial results is highly uncertain and subject to
change.
-36-
Comparison of the Three Months Ended March 31, 2020 and March 31,
2019
The following table sets forth certain consolidated statements of
income data as a percentage of revenue for the three months ended
March 31, 2020 and 2019 respectively:
|
|
Three
Months Ended
March
31,
|
|
|
|
2020
|
2019
|
|
Revenue
|
100.0%
|
100.0%
|
|
Cost
of sales
|
79.0
|
75.4
|
|
Gross Margin
|
21.0%
|
24.6%
|
|
Operating
expenses
|
|
|
|
General
and administrative
|
20.6%
|
19.7%
|
|
Selling
|
2.2
|
2.7
|
|
Research
and development
|
0.9
|
0.9
|
|
Impairment
loss on long-lived assets
|
1.6
|
-
|
|
Gain
on disposal of property, plant and equipment
|
-
|
(0.1)
|
|
Total
operating expenses
|
25.3%
|
23.2%
|
|
(Loss)/Income from Operations
|
(4.3)%
|
1.4%
|
Overall Gross Margin
Overall gross margin as a percentage of revenue decreased by 3.6%
to 21.0% for the three months ended March 31, 2020, from 24.6% for
the same period of the last fiscal year.
Gross profit margin as a percentage of revenue in the manufacturing
segment increased by 0.9% to 26.5% for the three months ended March
31, 2020, as compared to 25.6% for the same period in the last
fiscal year primarily due to a change in product mix. In absolute
dollar amounts, gross profits in the manufacturing segment
decreased by $126 to $668 for the three months ended March 31,
2020, from $794 for the same period in the last fiscal
year.
Gross profit margin as a percentage of revenue in the testing
segment decreased by 6.8% to 21.5% for the three months ended March
31, 2020, from 28.3% in the same period of the last fiscal year.
The COVID-19 pandemic negatively impacted our testing segment in
the Malaysia and China operations. Our Malaysia operation has a
limited operating level as a result of the Movement Control Order
implemented by the Malaysian government to contain the spread of
the coronavirus, coupled with a lower testing demand from the
customer. Our China operation incurred higher labor cost to ramp up
the testing volumes per the customer’s request during the
extended Lunar New Year holidays caused by the pandemic. In
absolute dollar amounts, gross profit in the testing segment
decreased by $323 to $804 for the three months ended March 31, 2020
from $1,127 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 remained at the
same level at 14.2% for the three months ended March 31, 2020, from
14.1% 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 March 31, 2020 was $316 as compared to
$244 in the same period of the last fiscal year.
In absolute dollar amounts, for the three months ended March 31,
2020, gross loss in the real estate segment was $2, as compared to
a gross profit margin of $9 for the same period of last fiscal
year. The increase in gross loss was due to lower rental income
caused by the sale of properties in the real estate segment in the
China operation after the third quarter of the last fiscal
year.
Operating Expenses
Operating expenses for the three months ended March 31, 2020 and
2019 were as follows:
|
|
Three Months
Ended
March
31,
|
|
|
(Unaudited)
|
2020
|
2019
|
|
General
and administrative
|
$1,754
|
$1,742
|
|
Selling
|
181
|
246
|
|
Research
and development
|
79
|
76
|
|
Impairment
loss on the long-lived assets
|
139
|
-
|
|
Gain
on disposal of property, plant and equipment
|
-
|
(13)
|
|
Total
|
$2,153
|
$2,051
|
-37-
General and administrative expenses increased by $12, or 0.7%, from
$1,742 to $1,754 for the three months ended March 31, 2020,
compared to the same period of last fiscal year. The increase in
general and administrative expenses was mainly attributable to an
allowance of doubtful debts made in our China
operation.
Selling expenses decreased by $65, or 26.4%, from $246 to $181 for
the three months ended March 31, 2020, compared to the same period
of the last fiscal year. The decrease was mainly due to fewer
commission expenses incurred in the manufacturing segment of the
Singapore operations.
There was an impairment loss on long-lived assets in the China
operations as a result of the end of the product life for certain
products. A detailed assessment has been carried out by management,
and this assessment indicated that these assets will not generate
any future economic benefits to the Company.
Loss/Income from Operations
Loss from operations was $367 for the three months ended March 31,
2020, a deterioration of $490 as compared to income from operations
of $123 for the three months ended March 31, 2019. 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 March 31, 2020 and 2019
was as follows:
|
|
Three
Months Ended
March
31,
|
|
|
(Unaudited)
|
2020
|
2019
|
|
Interest expenses
|
$63
|
$74
|
Interest expense was $63 for the three months ended March 31, 2020,
a decrease of $11, or 14.9%, as compared to $74 for the three
months ended March 31, 2019. The decrease was due to a decrease in
the utilization of short-term loans in the Singapore and China
operations. As of March 31, 2020, the Company had an unused
line of credit of $5,897as compared to $6,251 at June 30,
2019.
Other Income
Other income for the three months ended March 31, 2020 and 2019 was
as follows:
|
|
Three
Months Ended
March
31,
|
|
|
|
2020
|
2019
|
|
Interest
income
|
46
|
31
|
|
Other
rental income
|
30
|
28
|
|
Exchange
gain / (loss)
|
94
|
(11)
|
|
Government
grant
|
266
|
38
|
|
Other
miscellaneous income
|
4
|
42
|
|
Total
|
$440
|
$128
|
Other income increased by $312 to $440 for the three months ended
March 31, 2020, from $128 in the same period of the last fiscal
year. The increase was primarily due to an increase in exchange
gain, which resulted from the favorable foreign exchange movement
for the three months ended March 31, 2020, coupled with a
government grant of $263 received in the Singapore and China
operations as compared to the same period in the last fiscal
year.
The government grant was $266, of which $263 was related to the
financial assistance from the local government in the Singapore and
China operations to mitigate the negative impact to companies amid
the COVID-19 pandemic.
Income Tax Expenses
The
Company's income tax benefit was $8 for the three months ended
March 31, 2020, an increase of $217 as compared to income tax
expenses of $209 for the same period in the last fiscal year. The
increase was mainly due to the absence of the capital gain tax from
the sale of asset-held-for sale in the third quarter of fiscal year
2020.
-38-
Non-controlling Interest
As of March 31, 2020, 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 loss from
the subsidiaries by the non-controlling interest for the three
months ended March 31, 2020 was $73, an increase of $45 compared to
$28 for the same period of the previous fiscal year. The
increase in the net loss of the non-controlling interest in the
subsidiaries was attributable to the increase in net loss generated
by the Malaysia operation as a result of the Movement Control Order
implemented by the Malaysian government, coupled with the lower
testing demand from our customer.
Net Income Attributable to Trio-Tech International Common
Shareholders
Net income attributable to Trio-Tech International Common
Shareholders for the three months ended March 31, 2020 was $70, a
decrease of $613 as compared to a net income of $683 for the same
period last fiscal year.
Earnings per Share
Basic earnings per share from continuing operations were $0.02 for
the three months ended March 31, 2020 as compared to $0.19 for the
same period in the last fiscal year. Basic earnings per share from
discontinued operations were Nil for both the three months ended
March 31, 2020 and 2019.
Diluted earnings per share from continuing operations were $0.02
for the three months ended March 31, 2020 as compared to $0.19 for
the same period in the last fiscal year. Diluted earnings per share
from discontinued operations were $Nil for both the three months
ended March 31, 2020 and 2019.
Segment Information
The revenue, gross margin and income or loss from operations for
each segment during the third 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.
Manufacturing Segment
The revenue, gross margin and loss from operations for the
manufacturing segment for the three months ended March 31, 2020 and
2019 were as follows:
|
|
Three
Months Ended
March
31,
|
|
|
(Unaudited)
|
2020
|
2019
|
|
Revenue
|
$2,519
|
$3,097
|
|
Gross margin
|
26.5%
|
25.6%
|
|
Loss from operations
|
$(102)
|
$(8)
|
Loss from operations from the manufacturing segment for the third
quarter of fiscal 2020 was $102 as compared to $8 in the same
period of the last fiscal year, primarily due to a decrease in
gross margin of $126, offset by a decrease in operating expenses of
$32. Operating expenses for the manufacturing segment were $770 and
$802 for the three months ended March 31, 2020 and 2019,
respectively. The decrease in operating expenses was mainly due to
a decrease of $91 in selling expenses as a result of the decrease
in the commission expenses in the Singapore operation. The decrease
was partially offset by an increase of $54 in general and
administrative expenses. The increase in general and administrative
expenses was mainly attributable to an increase in payroll-related
expenses in the Singapore operations.
-39-
Testing Segment
The revenue, gross margin and loss from operations for the testing
segment for the three months ended March 31, 2020 and 2019 were as
follows:
|
|
Three
Months Ended
March
31,
|
|
|
(Unaudited)
|
2020
|
2019
|
|
Revenue
|
$3,741
|
$3,989
|
|
Gross margin
|
21.5%
|
28.3%
|
|
Loss from operations
|
$(447)
|
$(17)
|
Loss from operations in the testing segment for the three months
ended March 31, 2020 was $447, reflecting an increase of $430
compared to loss from operations of $17 in the same period of the
last fiscal year. The increase in operating loss was mainly
attributable to a decrease in gross profit margin, as discussed
earlier under “Overall gross
margin” and the increase
in operating expenses. Operating expenses were $1,251 and $1,144
for the three months ended March 31, 2020 and 2019,
respectively. The
increase of $107 in operating expenses was mainly due to the
impairment loss of long-lived asset recognized in the third quarter
of fiscal year 2020, as discussed earlier under “Operating
expenses.”
Distribution Segment
The revenue, gross margin and income from operations for the
distribution segment for the three months ended March 31, 2020 and
2019 were as follows:
|
|
Three
Months Ended
March
31,
|
|
|
(Unaudited)
|
2020
|
2019
|
|
Revenue
|
$2,225
|
$1,727
|
|
Gross margin
|
14.2%
|
14.1%
|
|
Income from operations
|
$207
|
$150
|
Income from operations in the distribution segment was $207 for the
three months ended March 31, 2020, as compared to $150 for the same
period of last fiscal year. The increase of $57 was mainly due
to an increase of $72 in the gross margin, as discussed earlier
under “Overall gross
margin,” offset by an
increase in operating expenses of $16. Operating expenses were $110
and $94 for the three months ended March 31, 2020 and 2019,
respectively. The increase in payroll-related expenses in the
Singapore operation contributed to the increase in operating
expenses.
Real Estate Segment
The revenue, gross margin and loss from operations for the real
estate segment for the three months ended March 31, 2020 and 2019
were as follows:
|
|
Three
Months Ended
March
31,
|
|
|
(Unaudited)
|
2020
|
2019
|
|
Revenue
|
$16
|
$25
|
|
Gross (loss)/margin
|
(12.5)%
|
36.0%
|
|
Loss from operations
|
$(30)
|
$(13)
|
|
Gain
on sale of assets held for sale
|
-
|
685
|
Loss from operations in the real estate segment for the three
months ended March 31, 2020 was $30 compared to a loss of $13 for
the same period of last fiscal year. The increase in
operations loss of $17 was mainly due to the decrease in gross
margin of $11 and an increase in operating expenses by $6.
Operating expenses were $28 and $22 for the three months ended
March 31, 2020 and 2019, respectively. The increase in operating
expenses was mainly due to a provision for doubtful debts made for
a tenant whose business had been heavily impacted by COVID-19 in
the third quarter of fiscal year 2020.
Corporate
The loss from operations for Corporate for the three months ended
March 31, 2020 and 2019 was as
follows:
|
|
Three
Months Ended
March
31,
|
|
|
(Unaudited)
|
2020
|
2019
|
|
Income/(loss) from operations
|
$5
|
$11
|
The decrease of income from operations amounting to $6 was mainly
due to a increase in payroll related expenses.
-40-
Comparison of the Nine Months Ended March 31, 2020 and March 31,
2019
The following table sets forth certain consolidated statements of
income data as a percentage of revenue for the nine months ended
March 31, 2020 and 2019, respectively:
|
|
Nine
Months Ended
|
|
|
|
Mar.
31,
2020
|
Mar.
31,
2019
|
|
|
|
|
|
Revenue
|
100.0%
|
100.0%
|
|
Cost
of sales
|
78.2
|
77.1
|
|
Gross Margin
|
21.8%
|
22.9%
|
|
Operating
expenses:
|
|
|
|
General
and administrative
|
19.5%
|
18.3%
|
|
Selling
|
2.0
|
2.1
|
|
Research
and development
|
1.0
|
0.9
|
|
Impairment
loss on long-lived assets
|
0.5
|
-
|
|
Gain
on disposal of plant and equipment
|
(0.1)
|
-
|
|
Total
operating expenses
|
22.9%
|
21.3%
|
|
(Loss) / Income from Operations
|
(1.1)%
|
1.6%
|
Overall Gross Margin
Overall gross margin as a percentage of revenue was 21.8% for the
nine months ended March 31, 2020, as compared to the same period of
last fiscal year. In terms of absolute dollar amounts, gross
profits decreased by $590 to $5,943 for the for the nine months
ended March 31, 2020, from $6,533 for the same period of the last
fiscal year.
Gross profit margin as a percentage of revenue in the manufacturing
segment increased by 1.0% to 23.6% for the nine months ended March
31, 2019, from 22.6% in the same period of the last fiscal year. In
absolute dollar amounts, gross profit decreased by $188 to $2,092
for the nine months ended March 31, 2020 as compared to $2,280 for
the same period in last fiscal year. The decrease in absolute
dollar amount of gross margin was primarily due to a decrease in
orders in the Singapore operations. However, the orders for the
nine months ended fiscal year 2020 had a 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 2.4% to 24.7% for the nine months ended March
31, 2020 from 27.1% in the same period of the last fiscal year.
There was a further deterioration in testing revenue in the
Malaysia and China operations where significant portions of our
cost of goods sold are fixed. As the demand for services and
factory utilization decrease, the fixed costs are spread over the
decreased output, which decreases the gross profit margin. The
higher labor cost during the extended Lunar New Year in the China
operations and the Movement Control Order implemented by the
Malaysian government to contain the spread of the COVID-19 also
resulted in a decrease of the gross profit margin. In terms of
absolute dollar amounts, gross profit in the testing segment
decreased by $496 to $2,972 for the nine months ended March 31,
2020, from $3,468 for the same period of the last fiscal
year.
Gross profit margin as a percentage of revenue in the distribution
segment increased by 0.4% to 13.9% for the nine months ended March
31, 2020, from 13.5% in the same period of the last fiscal
year. In terms of absolute dollar amounts, gross profit in the
distribution segment for the nine months ended March 31, 2020 was
$884, an increase of $128 as compared to $756 in the same period of
the last fiscal year. The increase in absolute dollar amount of
gross margin was due to an increase of distribution revenue in the
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
changed by 46% to 10.2% for the nine months ended March 31, 2020,
from a gross profit margin of 35.8% in the same period of the last
fiscal year. In terms of absolute dollar amounts, gross loss
changed by $34 to $5 for the nine months ended March 31, 2020 as
compared to gross profit of $29 for the same period in last fiscal
year. The increase in gross loss
was due to lower rental income caused by the sale of properties in
the real estate segment in the China operation after the third
quarter of the last fiscal year.
-41-
Operating Expenses
Operating expenses for the nine months ended March 31, 2020 and
2019 were as follows:
|
|
Nine
Months Ended
|
|
|
|
Mar.
31,
2020
|
Mar.
31,
2019
|
|
(Unaudited)
|
|
|
|
General
and administrative
|
$5,319
|
$5,223
|
|
Selling
|
547
|
580
|
|
Research
and development
|
280
|
270
|
|
Impairment
loss on long-lived asset
|
139
|
-
|
|
Gain
on disposal of plant and equipment
|
(24)
|
(13)
|
|
Total
|
$6,261
|
$6,060
|
General and administrative expenses increased by $96, or 1.8%, to
$5,319 for the nine months ended March 31, 2020 compared to $5,223
in 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 Singapore operations.
Selling expenses decreased by $33, or 5.7%, to $547 for the nine
months ended March 31, 2020, compared to $580 for the same period
of the last fiscal year. The decrease was mainly due to a decrease
in commission expenses in the manufacturing segment of the
Singapore operations as a result of fewer commissionable
sales.
There was an impairment loss on the long-lived assets in the China
operations as a result of the end of the product life for certain
products. A detailed assessment has been carried out by management,
and this assessment indicated that these assets will not generate
any future economic benefits to the Company.
During the nine months ended March 31, 2020, there was a gain on
disposal of plant and equipment of $24 as compared to $13 in the
same period of last fiscal year.
(Loss) / Income from Operations
Loss from operations was $318 for the nine months ended March 31,
2020 as compared to an income from operations of $473 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 nine months ended March 31, 2020 and 2019
were as follows:
|
|
Nine
Months Ended
|
|
|
|
Mar.
31,
2020
|
Mar.
31,
2019
|
|
(Unaudited)
|
|
|
|
Interest expense
|
$186
|
$250
|
Interest expense decreased by $64 to $186 for the nine months ended
March 31, 2020, as compared to $250 for 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 $483 to $2,297 for
the nine months ended March 31, 2020 as compared to $2,780 as at
June 30, 2019.
Other Income
Other income for the nine months ended March 31, 2020 and 2019 were
as follows:
|
|
Nine Months
Ended
|
|
|
|
Mar.
31,
2020
|
Mar.
31,
2019
|
|
(Unaudited)
|
|
|
|
Interest
income
|
$130
|
$67
|
|
Other
rental income
|
90
|
84
|
|
Exchange
gain / (loss)
|
33
|
(78)
|
|
Bad
debt recovery
|
11
|
2
|
|
Government
grant
|
295
|
115
|
|
Other
miscellaneous income
|
31
|
30
|
|
Total
|
$590
|
$220
|
-42-
Other income for the nine months ended March 31, 2020 was $590, an
increase of $370 as compared to $220 for the same period of last
fiscal year. This increase was mainly due to the higher interest
income earned from the placement of fixed deposits and the
government grant of $263 received in the Singapore and China
operations, coupled with the increase in exchange gain as a result
of the favorable foreign exchange movement for the nine months
ended March 31, 2020.
The government grant was $295, of which $263 was related to the
financial assistance from the local governments in the Singapore
and China operations to mitigate the negative impact to companies
amid the COVID-19 pandemic.
Income Tax Expenses
Income tax expenses for the nine months ended March 31, 2020 was
$112, a decrease of $47 as compared to $159 for the same period
last fiscal year.
Non-controlling Interest
As of March 31, 2020, 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 nine months ended March 31, 2020 was
$356, a change of $485, as compared to the loss attributable to
non-controlling interest of $129 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 assets
held for sale.
Net Income Attributable to Trio-Tech International Common
Shareholders
Net income attributable to Trio-Tech international common
shareholders was $769 for the nine months ended March 31, 2020, as
compared to $1,096 for the same period in the last fiscal year. The
increase was mainly due to the gain on sale of assets held for sale
in the Malaysia operation, coupled with the government grants
received from the Singapore and China government. However, the
increase was partially offset by a decrease in revenue and gross
margin, and an increase in operating expenses, as discussed
earlier.
Earnings per Share
Basic earnings per share from continuing operations was $0.21 for
the nine months ended March 31, 2020 as compared to $0.30 for the
same period in the last fiscal year. Basic earnings per share from
discontinued operations were nil for both the nine months ended
March 31, 2020 and 2019.
Diluted earnings per share from continuing operations was $0.21 for
the nine months ended March 31, 2020 as compared to $0.29 for the
same period in the last fiscal year. Diluted earnings per share
from discontinued operations were nil for both the nine months
ended March 31, 2020 and 2019.
Segment Information
The revenue, gross profit margin, and income or loss from
operations in each segment for the nine months ended March 31, 2020
and 2019, 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 nine months ended March 31, 2020 and
2019 were as follows:
|
|
Nine
Months Ended
|
|
|
|
Mar.
31,
2020
|
Mar.
31,
2019
|
|
(Unaudited)
|
|
|
|
Revenue
|
$8,881
|
$10,086
|
|
Gross margin
|
23.6%
|
22.6%
|
|
(Loss)/income from operations
|
$(201)
|
$175
|
Loss from operations from the manufacturing segment was $201
for the nine months ended March 31, 2020, a change of $376 as
compared to income from operations of $175 in the same period of
the last fiscal year, due to a decrease in the absolute amount of
gross margin and an increase in operating expenses. Operating
expenses for the manufacturing segment were $2,293 and $2,105 for
the nine months ended March 31, 2020 and 2019, respectively. The
increase in operating expenses of $188 was mainly due to an
increase in general and administrative expenses of $200, an
increase in corporate overhead of $10 and an increase in research
and development expenses of $10 as compared to the same period of
last fiscal year. The increase was partially offset by a decrease
in selling expenses of $32. The increase in general and
administrative expenses was mainly attributable to an increase in
payroll-related expenses and a provision of doubtful debt in the
Singapore operations. The decrease in selling expenses was
primarily due to fewer commission expenses incurred for the nine
months ended March 31, 2020 as a result of fewer commissionable
sales.
-43-
Testing Segment
The revenue, gross margin and loss from operations for the testing
segment for the nine months ended March 31, 2020 and 2019 were as
follows:
|
|
Nine
Months Ended
|
|
|
|
Mar.
31,
2020
|
Mar.
31,
2019
|
|
(Unaudited)
|
|
|
|
Revenue
|
$12,018
|
$12,819
|
|
Gross margin
|
24.7%
|
27.1%
|
|
Loss from operations
|
$(540)
|
$(134)
|
Loss from operations in the testing segment for the nine months
ended March 31, 2020 was $540, a further deterioration of $406
compared to loss from operations of $134 in the same period of the
last fiscal year. The deterioration in the operation loss was
attributable to a decrease in gross margin of $496. The
deterioration was partially offset by a decrease in corporate
overhead expenses of $87. 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 nine months ended March 31, 2020 and
2019 were as follows:
|
|
Nine
Months Ended
|
|
|
|
Mar.
31,
2020
|
Mar.
31,
2019
|
|
(Unaudited)
|
|
|
|
Revenue
|
$6,338
|
$5,587
|
|
Gross margin
|
13.9%
|
13.5%
|
|
Income from operations
|
$599
|
$492
|
Income from operations in the distribution segment for the nine
months ended March 31, 2020 was $599, an increase of $107 as
compared to $492 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 $22. Operating
expenses were $286 and $264 for the nine months ended March 31,
2020 and 2019, respectively. The increase in payroll-related
expenses in the Singapore operations contributed to the increase in
operating expenses.
Real Estate Segment
The revenue, gross margin and loss from operations for the real
estate segment for the nine months ended March 31, 2020 and 2019
were as follows:
|
|
Nine
Months Ended
|
|
|
|
Mar.
31,
2020
|
Mar.
31,
2019
|
|
(Unaudited)
|
|
|
|
Revenue
|
$49
|
$81
|
|
Gross (loss) / margin
|
(10.2)%
|
35.8%
|
|
Loss from operations
|
$(82)
|
$(30)
|
Loss from operations in the real estate segment for the nine months
ended March 31, 2020 was $82, a further deterioration of $52 as
compared to a loss from operations of $30 for the same period of
the last fiscal year. The increase in operating loss was
mainly due to a decrease in gross margin and an increase in
operating expenses of $18, as discussed earlier. Operating expenses
were $77 and $59 for the nine months ended March 31, 2020 and 2019,
respectively. A provision of doubtful debts was made due to the
adverse impact of COVID-19 on one of our tenants.
-44-
Corporate
The loss from operations for corporate for the nine months ended
March 31, 2020 and 2019 were as
follows:
|
|
Nine
Months Ended
|
|
|
|
Mar.
31,
2020
|
Mar.
31,
2019
|
|
(Unaudited)
|
|
|
|
Loss from operations
|
$(94)
|
$(30)
|
The change of $64 was mainly due to an increase in payroll related
expenses as compared to the same period of last fiscal
year.
Financial Condition
During the nine months ended March 31, 2020 total assets increased
by $269 from $36,527 as at June 30, 2019 to $36,796. The increase
in total assets was due to an increase in short term deposits,
other receivables, deferred tax assets and operating lease
right-of-use assets, which was partially offset by a decrease in
cash and cash equivalents, trade accounts receivable, inventory,
prepaid expenses and other current assets, assets held for sale,
investment properties, property, plant and equipment, other assets
and restricted term deposits.
Cash and cash equivalents were $4,370 as at March 31, 2020,
reflecting a decrease of $493 from $4,863 as at June 30, 2019,
primarily due to further placement made into fixed deposits in the
Singapore and Malaysia operations.
Short term deposits were $6,309 as at March 31, 2020,
reflecting an increase of $2,165 from $4,144 as at June 30,
2019, primarily due to an increase in deposits in the Singapore and
Malaysia operations. The short-term deposits include proceeds
received from the sale of assets held for sale.
As at March 31, 2020, the trade accounts receivable balance
decreased by $716 to $6,397, from $7,113 as at June 30, 2019,
primarily due to a decrease in revenue for the nine months ended
March 31, 2020 in the Singapore, Malaysia and China operations. The
number of days’ sales outstanding in accounts receivables for
the Group was 67 days at the end of the third quarter of fiscal
year 2020, and 70 days at the end of the third quarter of fiscal
year 2019.
As at March 31, 2020, other receivables were $1,065, reflecting an
increase of $248 from $817 as at June 30, 2019. The increase was
primarily due to an increase in government grant receivables in the
Singapore operation.
Inventories as at March 31, 2020 were $2,226, a decrease of $201,
as compared to $2,427 as at June 30, 2019. The decrease in
inventories was mainly due to a decrease in purchases due to fewer
orders in the manufacturing segment of the Singapore operations, as
well as an impact from currency translation.
Investment properties, net in China were $705 as at March 31, 2020
and $782 as at June 30, 2019. The decrease was primarily due
to the depreciation expenses charged for the period, as well as the
foreign currency exchange movement between June 30, 2019 and March
31, 2020.
Assets held for sales were $nil as at March 31, 2020 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 $1,562 from $12,159 as
at June 30, 2019, to $10,597 as at March 31, 2020. This was mainly
due to depreciation charged for the period and the foreign currency
exchange movement between June 30, 2019 and March 31, 2020, coupled
with an impairment loss of $139 recognized in the China
operation. The decrease was partially offset by the new
acquisition of plant and equipment in the Malaysia
operation.
Other assets decreased by $155 to $1,595 as at March 31, 2020, 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.
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Accounts payable decreased by $143 to $3,129 as at March 31, 2020,
as compared to $3,272 as at June 30, 2019. This was due to a
decrease in purchases due to fewer orders in the manufacturing
segment of the Singapore operation.
Accrued expenses decreased by $421 to $3,065 as at March 31, 2020,
as compared to $3,486 as at June 30, 2019. The decrease in accrued
expenses was mainly due to a decrease in both accrued purchases and
accrued payroll liability in the Singapore operations.
Bank loans payable decreased by $483 to $2,297 as at March 31,
2020, 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 nine months ended March 31, 2020.
Operating lease right of use assets and the corresponding leased
liability were $1,073 and $1,073, respectively, as of March 31,
2020, after taking into effect the new accounting standard,
ASC 842
Leases.
Liquidity Comparison
Net cash provided by operating activities decreased by $834 to an
inflow of $2,096 for the nine months ended March 31, 2020 from an
inflow of $2,930 for the same period of the last fiscal year. The
decrease in net cash inflow provided by operating activities was
primarily due to an increase of cash outflow of $398 from repayment
of operating leases, a decrease in cash inflow of $388 from other
assets and an increase in cash outflow of $509 from account
payables and accrued expenses. These were partially offset by an
increase in depreciation and amortization of $573.
Net cash used in investing activities decreased by $2,628 to an
outflow of $1,941 for the nine months ended March 31, 2020 from an
outflow of $4,569 for the same period of the last fiscal year. The
decrease in cash outflow was primarily due to an increase in
proceeds from the sale of assets held for sale of $318 and a
decrease in capital expenditure of $1,728.
Net cash used in financing activities for the nine months ended
March 31, 2020 was $296, representing an increase of $133, as
compared to $163 during the nine months ended March 31, 2019. The
increase in cash outflow was mainly attributable to a decrease in
cash inflow by $3,905 from proceeds of lines of credit, a decrease
of $1,475 from bank loans and a decrease of $401 from the exercise
of stock options. These were partially offset by a decrease in cash
outflow of $5,426 from repayment of lines of credit and an increase
of cash inflow of $247 from the proceeds from financial
leases.
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 the 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was carried out by the Company’s Chief
Executive Officer and Chief Financial Officer of the effectiveness
of the Company’s disclosure controls and procedures (as
defined in Rule 13a-15(e) or 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of March 31, 2020, 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
Due to the COVID-19 pandemic, a significant portion of our
employees are working from home. The design of our processes and
controls allows for remote execution with accessibility to secure
data.
Except as discussed below, there has been no change in the
Company’s internal control over financial reporting during
the fiscal quarter ended March 31, 2020, that has materially
affected, or is 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 was scheduled to occur in
phases over a few years, and began with the migration of certain
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.
The operational systems in our Tianjin and Suzhou operations were
substantially transitioned to the new system during the third
quarter of fiscal 2020. This implementation effort will continue
until the financial systems of these two operations are fully
transitioned to the new system, and until the Group's consolidation
process is substantially automated using the new
system.
As a phased implementation of this system occurs, we are
experiencing certain changes to our processes and procedures which,
in turn, result in changes to our internal control over financial
reporting. While we expect the new ERP system to strengthen our
internal financial controls by automating certain manual processes
and standardizing business processes and reporting across our
organization, management will continue to evaluate and monitor our
internal controls as processes and procedures in each of the
affected areas evolve.
ITEM 5. OTHER
INFORMATION
Not applicable.
ITEM 6.
EXHIBITS
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Rule 13a-14(a) Certification of Principal Executive Officer of
Registrant
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Rule 13a-14(a) Certification of Principal Financial Officer of
Registrant
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Section 1350 Certification
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
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101.LAB
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XBRL Taxonomy Extension Label Linkbase
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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-47-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly
authorized.
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TRIO-TECH INTERNATIONAL
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By:
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/s/
Victor H.M. Ting
VICTOR H.M. TING
Vice President and Chief Financial Officer
(Principal Financial Officer)
Dated: May 21, 2020
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Exhibit 31.1
CERTIFICATIONS
I, S. W. Yong, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Trio-Tech
International, a California corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a–15(e)
and 15d–15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a–15(f) and
15d–15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(d)
Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information;
and
(b)
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Dated: May 21, 2020
/s/ S. W. Yong
S.
W. Yong, Chief Executive Officer
and
President (Principal Executive Officer)
Exhibit 31.2
I, Victor H.M. Ting, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Trio-Tech
International, a California corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a–15(e)
and 15d–15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a–15(f) and
15d–15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(d)
Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information;
and
(b)
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Dated: May 21, 2020
/s/ Victor H.M. Ting
Victor
H.M. Ting, Chief Financial Officer
and
Vice President (Principal Financial Officer)
Exhibit 32
SECTION 1350 CERTIFICATION
Each of the undersigned, S.W. Yong, President and Chief Executive
Officer of Trio-Tech International, a California corporation (the
“Company”), and Victor H.M. Ting, Vice President and
Chief Financial Officer of the Company, do hereby certify, pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of his knowledge (1)
the quarterly report on Form 10-Q of the Company for the three
months ended March 31, 2020, as filed with the Securities and
Exchange Commission on the date hereof (the “Report”),
fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended, and (2) the
information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
/s/ S. W. Yong
Name:
S. W. Yong
Title:
President and Chief Executive Officer
Dated:
May 21, 2020
/s/ Victor H.M. Ting
Name:
Victor H.M. Ting
Title:
Vice President and Chief Financial Officer
Dated:
May 21, 2020
A signed original of this written statement required by Section
906, or other document authenticating, acknowledging, or otherwise
adopting the signature that appears in typed form within the
electronic version of this written statement required by Section
906, has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or
its staff upon request.