Trio-Tech International 10-K for FY2020
Trio-Tech International (TRT)
10-K
2020-09-23
For: 2020-06-30
View Original
Added on
April 06, 2026
About this 10-K
Trio-Tech International filed this 10-K on September 23, 2020, covering the fiscal year ended June 30, 2020 (FY2020).
Headline figures
Fiscal year ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $34.47M
- down 12.1% from $39.2M a year earlier
- Net income
- $966K
- down 37.5% from net income of $1.55M a year earlier
- Diluted EPS
- $0.26
- down 36.6% from $0.41 a year earlier
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
fiscal year ended June 30, 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: (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 if the registrant is a well-known seasoned issuer, as
defined in rule 405 of the Securities Act. ☐Yes ☑
No
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes
☑ No
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. ☑Yes ☐ No
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files). ☑Yes ☐
No
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definition of
“large accelerated filer,” “accelerated
filer”, “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act. Large Accelerated Filer ☐ Accelerated Filer ☐
Non-Accelerated Filer (Do not check if a smaller reporting company)
☐ Smaller Reporting Company ☑ Emerging Growth
Company ☐
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
The
aggregate market value of voting stock held by non-affiliates of
Registrant, based upon the closing price of $3.99 for shares of the
registrant’s Common Stock on December 31, 2019, the last
business day of the registrants most recently completed second
fiscal quarter as reported by the NYSE American, was approximately
$7,135,000. In calculating such aggregate market value, shares of
Common Stock held by each officer, director and holder of 5% or
more of the outstanding Common Stock (including shares with respect
to which a holder has the right to acquire beneficial ownership
within 60 days) were excluded because such persons may be deemed to
be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other
purposes.
The
number of shares of Common Stock outstanding as of September 1,
2020 was 3,673,055.
Documents
Incorporated by Reference
Part
III of this Form 10-K incorporates by reference information from
Registrant’s Proxy Statement for its 2020 Annual Meeting of
Shareholders to be filed with the Commission under Regulation 14A
within 120 days of the end of the fiscal year covered by this Form
10-K.
TRIO-TECH INTERNATIONAL
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Exhibits
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29
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F-2
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F-3
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F-6
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F-8
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TRIO-TECH INTERNATIONAL
PART I
ITEM 1 – BUSINESS (IN THOUSANDS, EXCEPT PERCENTAGES AND SHARE
AMOUNTS)
Cautionary Statement Regarding Forward-Looking
Statements
The discussions of Trio-Tech International’s (the
“Company”) business and activities set forth in this
Form 10-K and in other past and future reports and announcements by
the Company may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended,
and assumptions regarding future activities and results of
operations of the Company. In light of the “safe
harbor” provisions of the Private Securities Litigation
Reform Act of 1995, the following factors, among others, could
cause actual results to differ materially from those reflected in
any forward-looking statements made by or on behalf of the Company:
market acceptance of Company’s 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; on-going public health issues
related to the COVID-19 pandemic; credit risks in the Chinese real
estate industry; changes in macroeconomic conditions and
credit market conditions; and other
economic, financial and regulatory factors beyond the
Company’s control. In some cases, you can identify
forward-looking statements by the use of terminology such as
“may,” “will,” “expects,”
“plans,” “anticipates,”
“estimates,” “potential,”
“believes,” “can impact,”
“continue,” or the negative thereof or other comparable
terminology.
Unless
otherwise required by law, the Company undertakes no obligation to
update forward-looking statements to reflect subsequent events,
changed circumstances, or the occurrence of unanticipated events.
You are cautioned not to place undue reliance on such
forward-looking statements.
General
Trio-Tech
International was incorporated in 1958 under the laws of the State
of California. As used herein, the term "Trio-Tech" or
"Company” or “we” or “us” or
“Registrant” includes Trio-Tech International and its
subsidiaries unless the context otherwise indicates. The mailing
address and executive offices are located at Block 1008 Toa Payoh
North, Unit 03-09 Singapore 318996, Singapore, and the telephone
number is (65) 6265-3300.
We make
available through our website, free of charge, our Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, proxy statements and any amendments to those reports or
statements filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as soon as reasonably
practicable after they are electronically filed with or furnished
to the SEC. The SEC also maintains an internet site at www.sec.gov
that contains such reports and statements filed electronically with
the SEC by the Company. Additional information about Trio-Tech is
available on our website at www. triotech.com.
During
the fiscal year ended June 30, 2020, the Company operated its
business in four segments: manufacturing, testing services,
distribution and real estate. Geographically, the Company operates
in the United States (“U.S.”), Singapore, Malaysia,
Thailand and China. It operates six testing service facilities; one
in the U.S. and five in Asia. It operates two manufacturing
facilities: one in the U.S. and the other in Asia. Its real estate
segment operates in Asia and its distribution segment operates
primarily in Asia. Its major customers are concentrated in Asia and
they are either semiconductor chip manufacturers or testing
facilities that purchase testing equipment. For information
relating to revenues, profit and loss and total assets for each of
the segments, see Note 18 - Business Segments contained in the
consolidated financial statements included in this Form
10-K.
Company History – Certain Highlights for the Five Fiscal
Years Ended June 30, 2020
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2016
2017
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Trio-Tech
(Tianjin) Co., Ltd., re-certified to ISO 14001:2004 standards.
(July 2016)
Trio-Tech
(Tianjin) Co., Ltd., re-certified to OHSAS 18001:2007 standards.
(July 2016)
Trio-Tech
International Pte. Ltd., Singapore, re-certified to biz SAFE Level
3 Workplace Safety and Health standards.
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2018
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Trio-Tech
(Tianjin) Co. Ltd. re-certified to ISO 9001:2015 standards. (Apr
2018).
Trio-Tech
International Pte. Ltd. (Singapore) re-certified to ISO 9001:2015
standards. (Jun 2018)
Trio-Tech
(Malaysia) Sdn. Bhd. re-certified to ISO 9001:2015 standards. (Jun
2018)
Trio-Tech
(Bangkok) Co. Ltd. re-certified to ISO 9001:2015 standards. (Jun
2018)
Trio-Tech
International Pte. Ltd. (Singapore) re-certified to ISO 14001:2015
standards. (Jun 2018)
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2019
2020
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Trio-Tech
(Tianjin) Co. Ltd. recertified to ISO 14001:2015 standards. (July
2019)
Trio-Tech
(Tianjin) Co. Ltd. recertified to OHSAS 18001:2007 standards. (July
2019)
Trio-Tech
International certified to ISO 9001:2005 standards (March
2020)
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Overall Business Strategies
Our core business is and historically has been in the semiconductor
industry (testing services, manufacturing-assembly) manufacturing
and distribution. Revenue from the semiconductor industry accounted
for 99.8% of our total revenue for fiscal years 2020 and 2019. The
semiconductor industry has experienced periods of rapid growth, but
has also experienced downturns, often in connection with, or in
anticipation of, maturing product cycles of both semiconductor
companies’ and their customers’ products and declines
in general economic conditions. To reduce our risks
associated with sole industry focus and customer concentration, the
Company continues to put effort into expanding its line of
businesses. The Real Estate segment
contributed only 0.2% to the total revenue for fiscal 2020 and 2019
and has been an insignificant business operation since the property
market in China has slowed down due to control measures in China.
We are continuing the process of winding down our oil & gas
equipment fabrication operations, which discontinued its operations
in December 2012.
To
achieve our strategic plan for our semiconductor business, we
believe that we must pursue and win new business in the following
areas:
●
Primary markets – Capturing
additional market share within our primary markets by offering
superior products and services to address the needs of our major
customers.
●
Growing markets – Expanding our
geographic reach in areas of the world with significant growth
potential.
●
New markets
– Developing new products and
technologies that serve wholly new markets.
●
Complementary strategic relationships
– Through complementary acquisitions or
similar arrangements, we believe we can expand our markets and
strengthen our competitive position. As part of our growth
strategy, the Company continues to selectively assess opportunities
to develop strategic relationships, including acquisitions,
investments and joint development projects with key partners and
other businesses.
Business Segments
Testing Services
Our
testing services are rendered to manufacturers and purchasers of
semiconductors and other entities who either lack testing
capabilities or whose in-house screening facilities are
insufficient for testing devices in order for them to make sure
that these products meet certain commercial specifications.
Customers outsource their test services either to accommodate
fluctuations in output or to benefit from economies that can be
offered by third party service providers.
Our
laboratories perform a variety of tests, including stabilization
bake, thermal shock, temperature cycling, mechanical shock,
constant acceleration, gross and fine leak tests, electrical
testing, microprocessor equipment contract cleaning services,
static and dynamic burn-in tests, reliability lab services and
vibration testing. We also perform qualification testing,
consisting of intense tests conducted on small samples of output
from manufacturers who require qualification of their processes and
devices.
We use
our own proprietary equipment for certain burn-in, centrifugal and
leak tests, and commercially available equipment for various other
environmental tests. We conduct the majority of our testing
operations in Asia with facilities in Singapore, Malaysia, Thailand
and China, which have been certified to the relevant ISO quality
management standards.
Manufacturing
We
manufacture both front-end and back-end semiconductor test
equipment and related peripherals at our facilities in Singapore
and the U.S.
Front-End Products
Artic Temperature Controlled Wafer Chucks
Artic
Temperature Controlled Wafer Chucks are used for test,
characterization and failure analysis of semiconductor wafers and
such other components at accurately controlled cold and hot
temperatures. These systems provide excellent performance to meet
the most demanding customer applications. Several unique mechanical
design features provide excellent mechanical stability under high
probing forces and across temperature ranges.
Wet Process Stations
Wet
Process Stations are used for cleaning, rinsing and drying
semiconductor wafers, flat panel display magnetic disks, and other
microelectronic substrates. After the etching or deposition of
integrated circuits, wafers are typically sent through a series of
100 to 300 additional processing steps. At many of these processing
steps, the wafer is washed and dried using Wet Process
Stations.
Back-End Products
Autoclaves and HAST (Highly Accelerated Stress Test)
Equipment
We
manufacture autoclaves, HAST systems and specialized test fixtures.
Autoclaves provide pressurized, saturated vapor (100% relative
humidity) test environments for fast and easy monitoring of
integrated circuit manufacturing processes. HAST systems provide a
fast and cost-effective alternative to conventional non-pressurized
temperature and humidity testing.
Burn-in Equipment and Boards
We
manufacture burn-in systems, burn-in boards and burn-in board test
systems. Burn-in equipment is used to subject semiconductor devices
to elevate temperatures while testing them electrically to identify
early product failures and to assure long-term reliability. Burn-in
boards are used to mount devices during high temperature
environmental stressing tests.
We
provide integrated burn-in automation solutions to improve
products’ yield, reduce processing downtime and improve
efficiency. In addition, we develop a cooling solution, which is
used to cool or maintain the temperature of high power heat
dissipation semiconductor devices.
Component Centrifuges and Leak Detection Equipment
We
manufacture centrifuges that perform high speed constant
acceleration to test the mechanical integrity of ceramic and other
hermetically sealed semiconductor devices and electronic parts for
high reliability and aerospace applications. Leak detection
equipment is designed to detect leaks in hermetic packaging. The
bubble tester is used for gross leak detection. A visual bubble
trail will indicate when a device is defective.
Distribution
In
addition to marketing our proprietary products, we distribute
complementary products made by manufacturers mainly from the U.S.,
Europe, Taiwan, and Japan. The products include environmental
chambers, handlers, interface systems, vibration systems, shaker
systems, solderability testers and other semiconductor equipment.
Besides equipment, we also distribute a wide range of components
such as connectors, sockets, LCD display panels and touch-screen
panels. Furthermore, our range of products are mainly targeted for
industrial products, the life cycle of which can last from 3 years
to 7 years, rather than consumer products which have a shorter life
cycle.
Real Estate
Beginning in 2007, TTI invested in real estate property in
Chongqing, China, which has generated investment income from the
rental revenue and investment returns from deemed loan receivables,
which are classified as other income. The rental income is
generated from the rental properties in MaoYe and FuLi in
Chongqing, China. In the second quarter of fiscal 2015, the
investment in JiaSheng, which was deemed as loans receivable, was
transferred to down payment for purchase of investment property in
China.
Product Research and Development
We
focus our research and development activities on improving and
enhancing both product design and process technology. We conduct
product and system research and development activities for our
products in Singapore and the U.S. Research and development
expenses were $355 and $345 in fiscal years 2020 and 2019,
respectively.
Marketing, Distribution and Services
We
market our products and services worldwide, directly and through
independent sales representatives and our own marketing sales team.
We have approximately five independent sales representatives
operating in the U.S. and another twenty in various foreign
countries. All sales representatives represented the testing
services segment and the manufacturing segment for various products
and services produced and provided from our facilities in different
locations.
Dependence on Limited Number of Customers
In
fiscal years 2020 and 2019, combined sales of equipment and
services to our three largest customers accounted for approximately
60.3% and 58.3%, respectively, of our total net revenue. Of those
sales, $13,229 (38.4%) and $16,421 (41.9%) of our total net revenue
were from one major customer. Although the major customer is a U.S.
company, the revenue generated from it was from facilities located
outside of the U.S. The majority of our sales and services in
fiscal years 2020 and 2019 were to customers outside of the
U.S.
Backlog
|
The following table
sets forth the Company's backlog at the dates
indicated:
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For the Year Ended June 30,
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2020
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2019
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Manufacturing
backlog
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$5,010
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$4,210
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Testing services
backlog
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2,915
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4,292
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Distribution
backlog
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1,409
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1,494
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Real estate
backlog*
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6
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153
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$9,340
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$10,149
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*Real
estate backlog is based on the rental income from a non-cancellable
lease.
Based
on our past experience, we do not anticipate any significant
cancellations or re-negotiation of sales. The purchase orders for
the manufacturing, testing services and distribution businesses
generally require delivery within 12 months from the date of the
purchase order and certain costs are incurred before delivery. In
the event of a cancellation of a confirmed purchase order, we
require our customers to reimburse us for all costs
incurred. We do not
anticipate any difficulties in meeting delivery schedules. For
testing services, the backlog is based on estimates provided by our
customers and is not based on a customer’s purchase order, as
it is a practice that the purchase orders are provided only during
the process of delivery.
Materials and Supplies
Our
products are designed by our engineers and are assembled and tested
at our facilities in the U.S., China and Singapore. We purchase all
parts and certain components from outside vendors for assembly
purposes. We have no written contracts with any of our key
suppliers. As these parts and components are available from a
variety of sources, we believe that the loss of any one of our
suppliers would not have a material adverse effect on our results
of operations taken as a whole.
Competition
Our
ability to compete depends on our ability to develop, introduce and
sell new products or enhanced versions of existing products on a
timely basis and at competitive prices, while reducing our
costs.
There
are numerous testing laboratories in the areas where we operate
that perform a range of testing services similar to those, we
offer. However, due to severe competition in the Asia testing
and burn-in services industry there has been a reduction in the
total number of competitors. The existence of competing
laboratories and the purchase of testing equipment by semiconductor
manufacturers and users are potential threats to our future testing
services revenue and earnings. Although these laboratories and
new competitors may challenge us at any time, we believe that other
factors, including reputation, long service history and strong
customer relationships, are instrumental in determining our
position in the market.
The
distribution segment sells a wide range of equipment to be used for
testing products. As the semiconductor equipment industry is highly
competitive, we offer a one-stop service alternative to customers
by complementing our products with design consultancy and other
value-added services.
The
principal competitive factors in the manufacturing industry include
product performance, reliability, service and technical support,
product improvements, price, established relationships with
customers and product familiarity. We make every effort to compete
favorably with respect to each of these factors. Although we
have competitors for our various products, we believe that our
products compete favorably with respect to each of the above
factors. We have been in business for more than 60 years and have
operation facilities mostly located in Asia. Those factors
combined have helped us to establish and nurture long-term
relationships with customers and will allow us to continue doing
business with our existing customers upon their relocation to other
regions where we have a local presence or are able to
reach.
Patents
In
fiscal years 2020 and 2019, we did not register any patents within
the U.S.
It is
typical in the semiconductor industry to receive notices from time
to time alleging infringement of patents or other intellectual
property rights of others. We do not believe that we infringe on
the intellectual property rights of any others. However, should any
claims be brought against us, the cost of litigating such claims
and any damages could materially and adversely affect our business,
financial condition, and results of operations.
Employees
As of
June 30, 2020, we had approximately 535 full time employees and no
part time employees. Geographically, approximately 8 full time
employees were located in the U.S. and approximately 527 full time
employees in Asia. None of our employees are represented by a labor
union.
There
were approximately 60 employees in the manufacturing segment, 440
employees in the testing services segment, 4 employees in the
distribution segment, 3 employees in the real estate segment and 28
employees in general administration, logistics and
others.
ITEM 1A – RISK
FACTORS
As a
smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934, we are not required to provide the
information required by this item.
Not
applicable.
ITEM 2 – PROPERTIES
As of
the date of filing of this Form 10-K, we believe that we are
utilizing approximately 80% of our fixed property capacity. We also
believe that our existing facilities are adequate and suitable to
cover any sudden increase in our needs in the foreseeable
future.
The
following table presents the relevant information regarding the
location and general character of our principal manufacturing and
testing facilities:
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Location
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Segment
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Approx. Sq.
Ft.
Occupied
|
Owned (O) or
Leased (L) & Expiration Date
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16139 Wyandotte
Street,
Van Nuys, CA
91406,
United States of
America
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Corporate, Testing
Services / Manufacturing
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5,200
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(L) Mar
2023
|
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1004, Toa Payoh
North, Singapore
Unit No. HEX
07-01/07
|
Testing
Services
|
6,864
|
(L) Sep
2025
|
|
Unit No. HEX
07-01/07, (ancillary site)
|
Testing
Services
|
2,532
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(L) Sep
2025
|
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Unit No. HEX
03-01/02/03
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Testing Services /
Manufacturing
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2,959
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(L) Sep
2025
|
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Unit No. HEX
01-08/15
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Testing Services /
Manufacturing / Logistics Store
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6,864
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(L) Jan
2023
|
|
Unit No. HEX
01-08/15, (ancillary site)
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Testing Services /
Manufacturing
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449
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(L) Jan
2023
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Unit No. HEX
07-10/11
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Testing Services /
Manufacturing
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1,953
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(L) Dec
2021
|
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1008, Toa Payoh
North, Singapore
Unit No. HEX
03-09/17
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Manufacturing
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6,099
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(L) Jan
2023
|
|
Unit No. HEX
03-09/17, (ancillary site)
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Manufacturing
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70
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(L) Jan
2023
|
|
Unit No. HEX
01-09/10/11
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Manufacturing
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2,202
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(L) Nov
2023
|
|
Unit No. HEX
01-15/16
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Manufacturing
|
1,400
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(L) Sep
2023
|
|
Unit No. HEX
01-08
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Manufacturing
|
603
|
(L) Sep
2023
|
|
Unit No. HEX
01-12/14
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Manufacturing
|
1,664
|
(L) Jul
2022
|
|
Lot No. 11A, Jalan
SS8/2,
Sungai Way Free
Industrial Zone,
47300 Petaling
Jaya,
Selangor Darul
Ehsan, Malaysia
|
Testing
Services
|
78,706
|
(O)
|
|
4809-3-35,CBD
Perdana 2
Persiaran Flora
Cyber 12
63000
Cyberjaya
|
Manufacturing
|
2000
|
(L) May
2022
|
|
327, Chalongkrung
Road,
Lamplathew, Lat
Krabang,
Bangkok 10520,
Thailand
|
Testing
Services
|
34,433
|
(O)
|
|
No. 5, Xing Han
Street, Block A
#04-15/16, Suzhou
Industrial Park
China
215021
|
Testing
Services
|
6,200
|
(L) Jan
2021
|
|
27-05, Huang Jin Fu
Pan.
No. 26 Huang Jin
Qiao Street
Hechuan District
Chongqing
China
401520
|
Real
Estate
|
969
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(L) Aug
2021
|
|
B7-2, Xiqing
Economic Development Area International Industrial
Park
Tianjin City, China
300385
|
Testing
Services
|
45,940
|
(L) April
2021
|
ITEM 3 – LEGAL
PROCEEDINGS
The
Company is, from time to time, the subject of litigation claims and
assessments arising out of matters occurring in its normal business
operations. In the opinion of management, resolution of these
matters will not have a material adverse effect on our financial
statements.
There
are no material proceedings to which any director, officer or
affiliate of the Company, any beneficial owner of more than five
percent of the Company’s Common Stock, or any associate of
such person, is a party that is adverse to the Company or its
properties.
ITEM 4 – MINE SAFETY DISCLOSURES
Not
applicable.
PART II
ITEM 5 – MARKET FOR REGISTRANT'S COMMON EQUITY,
RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our
Common Stock is traded on the NYSE American exchange under the
symbol “TRT.”
As of
September 1, 2020, there were 3,673,055 shares of our Common Stock
issued and outstanding, and the Company had approximately 57 record
holders of Common Stock. The number of holders of record does not
include the number of persons whose stock is in nominee or
“street name” accounts through brokers.
Dividend Policy
We did
not declare any cash dividends in either fiscal year 2020 or fiscal
year 2019.
The
determination as to whether to pay any future cash dividends will
depend upon our earnings and financial position at that time and
other factors as the Board of Directors may deem appropriate. In
general, California law prohibits the payment of dividends unless
the corporation’s retained earnings prior to the dividend
equals or exceeds the dividend or, immediately after payment of the
dividends, the corporation’s assets would equal or exceed its
total liabilities. There is no assurance that dividends will be
paid to holders of Common Stock in the foreseeable
future.
ITEM 6 - SELECTED FINANCIAL DATA
As a
smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934, we are not required to provide the
information required by this item.
ITEM 7 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT
PERCENTAGES AND SHARE AMOUNTS)
The following discussion and analysis should be read in conjunction
with our disclaimer on “Forward-Looking Statements,”
“Item 1. Business,” and our Consolidated Financial
Statements, the notes to those statements and other financial
information contained elsewhere in this Annual Report on
Form 10-K.
During
fiscal years 2020 and 2019, Trio-Tech International operated in
four segments: manufacturing, testing services, distribution, and
real estate. In fiscal year 2020, revenue from the manufacturing,
testing services, distribution and real estate segments represented
33.7%, 43.0%, 23.1% and 0.2% of our revenue, respectively, as
compared to 38.0%, 42.8%, 19.0% and 0.2%, respectively, in fiscal
year 2019.
Semi-conductor testing and manufacturing (assembly) of test
equipment is our core business. We provide third-party semiconductor testing and
burn-in services primarily through our laboratories in Asia. At or
from our facilities in the U.S. and Asia, we also design,
manufacture and market equipment and systems to be used in the
testing and production of semiconductors and distribute
semiconductor processing and testing equipment manufactured by
other vendors.
Our
distribution segment operates primarily in Asia. This segment
markets and supports distributing complementary products supplied
by other manufacturers that are used by its customers and other
semiconductor and electronics manufacturers. We believe this will
help us to reduce our exposure to multiple risks arising from being
a mere distributor of manufactured products from
others.
The main revenue component for the real estate segment was rental
income.
No other investment income was recorded as “revenue” by
the real estate segment in either of fiscal years 2020 or
2019.
The rental income is generated from the rental properties acquired
from MaoYe Property Ltd. (“MaoYe”) and Chongqing FuLi
Real Estate Development Co. Ltd (“FuLi”) in Chongqing,
China. In the second quarter of fiscal 2015, the investment made
with JiaSheng Property Development Co. Ltd
(“JiaSheng”), which was deemed as loans receivable, was
transferred to down payment for purchase of investment property in
China.
Trio-Tech
Chongqing Co., Ltd. (“TTCQ”) invested RMB 5,554 in
rental properties in MaoYe during fiscal year 2008, RMB 3,600 in
rental properties from JiangHuai
Property Development Co. Ltd. (“JiangHuai”)
during fiscal year 2010 and RMB 4,025 in rental properties in FuLi
during fiscal year 2010. During fiscal year 2019, TTCQ completed
the sale of thirteen of the fifteen units constituting the MaoYe
property, which contributed a capital gain of $685. The total
investment in properties in China was RMB 9,649, in fiscal year
2020 and 2019, approximately $1,363 and $1,405 respectively. The
carrying value of these investment properties in China was RMB
4,884 and RMB 5,367, or approximately $690 and $782, in fiscal
years 2020 and 2019, respectively. These properties generated a
total rental income of $62 and $98 for fiscal years 2020 and 2019,
respectively. TTCQ’s investment in properties that generated
rental income is discussed further in this Form 10-K.
TTCQ
has yet to receive the title deed for properties purchased from
JiangHuai. TTCQ was in the legal process of obtaining the title
deed until the developer encountered cash flow difficulties in
recent years. Since then, JinagHuai company is under liquidation
and is now undergoing asset distribution. The JiangHuai property
did not generate any income during fiscal 2020 or
2019.
On October 14, 2014, TTCQ and Jun Zhou Zhi Ye entered into a
memorandum of understanding. Based on the memorandum of
understanding, both parties agreed to register a sales and purchase
agreement upon Jun Zhou Zhi Ye obtaining a license to sell the
commercial property (the Singapore Themed Resort Project) located
in Chongqing, China. The proposed agreement is for the sale of shop
lots with a total area of 1,484.55 square meters as consideration
for the outstanding amounts owed to TTCQ by Jun Zhou Zhi Ye as
follows:
a) Long term loan receivable RMB 5,000, or approximately $814, as
disclosed in Note 5, plus the interest receivable on the long-term
loan receivable of RMB 1,250;
b) Commercial units measuring 668 square meters, as mentioned
above; and
c) RMB 5,900 as part of the unrecognized cash consideration of RMB
8,000 relating to the disposal of the joint venture.
These considerations do not include the remaining outstanding
amount of RMB 2,000, or approximately $326, which will be paid to
TTCQ in cash.
The shop lots are to be delivered to TTCQ upon completion of the
construction of the shop lots in the Singapore Themed Resort
Project. The initial targeted date of completion was December 31,
2016. Based on discussions with the developer, the completion date
is 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.
Fiscal Year 2020
Highlights (in Thousands)
●
Total revenue
decreased by $4,733, or 12.1%, to $34,465 in fiscal year 2020
compared to $39,198 in fiscal year 2019.
●
Manufacturing
segment revenue decreased by $3,284, or 22.1%, to $11,605 in fiscal
year 2020 compared to $14,889 in fiscal year 2019.
●
Testing services
segment revenue was $14,840 in fiscal year 2020, a decrease of
$1,920, or 11.5%, compared to $16,760 in fiscal year
2019.
●
Distribution
segment revenue was $7,958 in fiscal year 2020, an increase of
$507, or 6.8%, compared to $7,451 in fiscal year 2019.
●
Real estate segment
revenue decreased by $36 to $62 in fiscal year 2020 compared to $98
in fiscal year 2019.
●
Overall gross
profit margin decreased by 1.9% to 21.1% in fiscal year 2020
compared to 23.0% in fiscal year 2019.
●
General and
administrative expenses decreased by $73, or 1.0%, to $6,976 in
fiscal year 2020 compared to $7,049 in fiscal year
2019.
●
Selling expenses
decreased by $147, or 17.8%, to $679 for fiscal year 2020 compared
to $826 in fiscal year 2019.
●
An impairment loss
on the long-lived assets amounted to $139 for fiscal year 2020
compared to $Nil in the fiscal year 2019.
●
Gain on disposal of
property, plant and equipment was $24 for fiscal year 2020 compared
to $13 in fiscal year 2019.
●
Loss from
operations was $859 in fiscal year 2020, a decrease of $1,653 as
compared to income from operations of $794 in fiscal year
2019.
●
The net other
income increased by $863 to $1,112 in fiscal year 2020 compared to
$249 in fiscal year 2019.
●
Gain on sale of
properties was $1,172 in fiscal year 2020, an increase of $487,
compared to $685 in fiscal year 2019.
●
Income from
continuing operations before income taxes was $1,195 in fiscal year
2020, a decrease of $214, as compared to $1,409 in fiscal year
2019.
●
Net income
attributable to Trio-Tech International for fiscal year 2020 was
$966 compared to $1,545 in fiscal year 2019.
●
Net income
attributable to non-controlling interest for fiscal year 2020 was
$238 compared to net loss of $97 in fiscal year 2019.
●
Working capital
increased by $1,350, or 11.6 %, to $12,957 as of June 30, 2020
compared to $11,607 as of June 30, 2019.
The
highlights above are intended to identify some of our most
significant events and transactions during our fiscal year 2020.
However, these highlights are not intended to be a full discussion
of our results for the year. These highlights should be read in
conjunction with the discussion on these items in Item 7 and with
our consolidated financial statements and footnotes accompanying
this Annual Report.
General Financial Information
During
the fiscal year ended June 30, 2020, total assets decreased by $867
from $36,527 in fiscal year 2019 to $35,660 in fiscal year 2020.
The decrease was primarily due to a decrease in cash and cash
equivalent, trade account receivables, inventories, assets held for
sale, investment properties, property, plant and equipment,
restricted term deposits, deferred tax assets and other assets. The
decrease was partially offset by the increase in short term
deposits, other receivables, prepaid expenses and other current
assets, short-term advances and right-of-use assets.
Cash
and cash equivalents at June 30, 2020 were $4,150, a decrease of
$713, or 14.7%, compared to $4,863 at June 30, 2019, primarily due
to the placement of term deposits in the Singapore and Malaysia
operations.
Trade
account receivables at June 30, 2020 was $5,951, representing a
decrease of $1,162, or 16.3%, compared to $7,113 at June 30, 2019.
The decrease was attributable to a decrease in sales in the
Singapore, Malaysia and China operations. The number of days’ sales outstanding in
account receivables was 68 days and 69 days for the fiscal years
ended June 30, 2020 and 2019, respectively.
As at
June 30, 2020, other receivables were $998, an increase of $181, or
22.2%, compared to $817 at June 30, 2019. The increase was
primarily due to an increase in advance payment to vendors and
government grant receivables in the Singapore
operations.
Inventories
at June 30, 2020 were $1,922, a decrease of $505, or 20.8%,
compared to $2,427 at June 30, 2019. The decrease in inventories
was mainly due to the decrease in customers’ orders amid of
the global COVID-19 pandemic. The number of days’ inventory
held was 88 days at the end of fiscal 2020, compared to 85 days at
the end of fiscal year 2019.
As of
June 30, 2020, the China operation had a short-term advance of
$141, compared to Nil at June 30, 2019.
Assets
held for sale as at June 30, 2020 were $Nil, compared to $89 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 in fiscal year 2020.
Investment
properties in China as of June 30, 2020 were $690, a decrease of
$92 from $782 at June 30, 2019. The decrease was attributable
to the depreciation charged for the year.
Property,
plant and equipment at June 30, 2020 were $10,310, a decrease of
$1,849 compared to $12,159 at June 30, 2019. This was mainly due to
depreciation charged for the period and the foreign currency
exchange movement between fiscal year 2020 and 2019, coupled with
an impairment loss of $139 recognized in the China operation in
fiscal 2020. The decrease was partially offset by the new
acquisition of plant and equipment in the Malaysia
operation.
Other
assets at June 30, 2020 were $1,609, a decrease of $141, or 8.1%,
compared to $1,750 at June 30, 2019. The decrease in other assets
was primarily due to the reclassification of down payments made for
the purchase of equipment to property, plant and equipment in the
Malaysia operation from other assets to property, plant and
equipment.
Restricted
term deposits at June 30, 2020 were $1,660, compared to $1,706 at
June 30, 2019. The decrease was mainly due to the currency translation difference between functional
currency and U.S. dollars from
June 30, 2019 to June 30, 2020.
Total
liabilities at June 30, 2020 were $10,514, a decrease of $1,152, or
9.9%, compared to $11,666 at June 30, 2019. The decrease in
liabilities was primarily due to the decrease in lines of credit,
accounts payable, accrued expenses, income taxes payable, bank loan
payable and finance leases, but partially offset by the increase in
in liabilities from the drawdown of loan amounting to $121 under
the United States Paycheck Protection Program (“PPP”)
and in our operating leases.
Account
payables as of June 30, 2020 decreased by $682 to $2,590 from
$3,272 as of June 30, 2019. The decrease was mainly due to the
decrease in purchases, which was in line with the softer demand
from the customers amid the COVID-19 pandemic.
Accrued
expenses as at June 30, 2020 decreased by $481 to $3,005 from
$3,486 as at June 30, 2019. The decrease was mainly due to a
decrease in accrued payroll liability and customer deposits in the
Singapore and China operations.
Income
Tax Payable as at June 30, 2020 decreased by $82 to $774 from $856
as at June 30, 2019. The decrease was mainly due to the repayment
made for the Repatriation Tax that arose from the introduction of
the Tax Cuts & Jobs Act 2017 in fiscal year 2020.
As of
June 30, 2020, the Company received $121 from the Paycheck Protection Program (PPP), which
was created by the United States Coronavirus Aid, Relief, and
Economic Security (CARES) Act.
Operating
lease right of use assets and the corresponding leased liability
were $944 and $944, respectively, as of June 30, 2020, after taking
into effect the new accounting standard, ASC 842
Leases.
Impact of COVID-19 on our Business
In December 2019, a novel strain of coronavirus
(“COVID-19”), was reported to have surfaced in China,
resulting in shutdowns of manufacturing and commerce in the months
that followed. Since then, the COVID-19 pandemic has spread to
multiple countries worldwide and has resulted in authorities
implementing numerous measures to try to contain the disease and
slow its spread, such as travel bans and restrictions, quarantines,
shelter-in-place orders and shutdowns. These measures have created
significant uncertainty and economic disruption, both short-term
and potentially long-term.
The health and safety of our employees and our customers are a top
priority for us. In an effort to protect our employees, we took and
continue to take proactive and aggressive actions, starting with
the earliest signs of the outbreak, to adopt social distancing
policies at our locations, including working from home and
suspending employee travel. Our operations have been classified as
part of the global supply chain and essential businesses in many
jurisdictions, and employees who are working onsite are required to
adhere to strict safety measures, including the use of masks and
sanitizer, wellness screenings prior to accessing work sites,
staggered break times to prevent congregation, prohibitions on
physical contact with co-workers or customers, restrictions on
access through only a single point of entry and exit, and utilizing
video conferencing. We have also incorporated other rules such as
restricting visitors to any of our facilities that remain open and
proactively providing employees with hand sanitizer.
The COVID-19 pandemic situation primarily contributed to a decline
in our customers’ volume of testing services in our Malaysia
and China operations. It resulted in a decrease in our testing
revenue in fiscal 2020. In certain cases, we accommodated customers
who requested to delay the supply of their orders as a result of
the travel restriction amid the pandemic, which resulted in a
decrease of our manufacturing revenue in the Singapore operation in
fiscal 2020.
The Company received the government
assistance amounted to $718 in the Singapore, Malaysia and China
operations to mitigate the adverse impact on the business from the
pandemic. The Company believes that, as with other
business entities in Singapore, Malaysia and China, it will receive
additional government assistance for a period to ease the financial
impact caused by the pandemic.
Management is continuously examining our plans and reacting to the
economic forces impacts on businesses generally. As we reported in
our Form 10-Q in the third quarter of fiscal year 2020, in order to
mitigate the negative impacts of the pandemic on our business,
operating results and financial condition, we have reviewed the
business plan and made certain adjustments in order to accommodate
expectations that revenues will be impacted in the forthcoming
fiscal year. These adjustments include the reduction of new hiring
as well as the elimination of redundant positions. In addition, we
have carefully scrutinized our capital spending and potential
business opportunities. These measures are reviewed by Management
regularly and, to date, remain in place.
As of June 30, 2020, the Company had cash and cash equivalents and
short-term deposits totaling $10,847 and an unused line of credit
of $5,343. 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.
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.
Critical Accounting Estimates & Policies
The
discussion and analysis of the Company’s financial condition
presented in this section are based upon our consolidated financial
statements, which have been prepared in accordance with generally
accepted accounting principles in the U.S. During the preparation
of the consolidated financial statements, we are required to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, we evaluate
our estimates and judgments, including those related to sales,
returns, pricing concessions, bad debts, inventories, investments,
fixed assets, intangible assets, income taxes and other
contingencies. Due to the COVID-19 pandemic, there has been
uncertainty and disruption in the global economy and financial
markets. These estimates and assumptions may change as new events
occur and additional information is obtained. Actual results may
differ from these estimates under different assumptions or
conditions.
In response to the SEC’s Release No.
33-8040, Cautionary
Advice Regarding Disclosure about Critical Accounting
Policy, we
have identified the most critical accounting policies upon
which our financial status depends. We
determined that those critical accounting policies are related to
the inventory valuation, allowance for doubtful accounts, revenue
recognition, impairment of property, plant and equipment,
investment property and income tax. These accounting policies are
discussed in the relevant sections in this management’s
discussion and analysis, including the Recently Issued Accounting
Pronouncements discussed below.
Account Receivables and Allowance for Doubtful
Accounts
During
the normal course of business, we extend unsecured credit to our
customers in all segments. Typically, credit terms require payment
to be made between 30 to 90 days from the date of the sale. We
generally do not require collateral from customers. We maintain our
cash accounts at credit-worthy financial institutions.
The
Company’s management considers the following factors when
determining the collectability of specific customer accounts:
customer credit-worthiness, past transaction history with the
customer, current economic industry trends, and changes in customer
payment terms. The Company includes any account balances that are
determined to be uncollectible, along with a general reserve, in
the overall allowance for doubtful accounts. After all attempts to
collect a receivable have failed, the receivable is written off
against the allowance. Based on the information available to
management, the Company believed that its allowance for doubtful
accounts was adequate as of June 30, 2020.
Inventory Valuation
Inventories of our manufacturing and distribution segments
consisting principally of raw materials, works in progress, and
finished goods are stated at the lower of cost, using the first-in,
first-out (“FIFO”) method, or market value. The
semiconductor industry is characterized by rapid technological
change, short-term customer commitments and swiftly changing
demand. Provisions for estimated excess and obsolete inventory are
based on regular reviews of inventory quantities on hand and the
latest forecasts of product demand and production requirements from
our customers. Inventories are written down for not saleable,
excess or obsolete raw materials, works-in-process and finished
goods by charging such write-downs to cost of sales. In addition to
write-downs based on newly introduced parts, statistics and
judgments are used for assessing provisions of the remaining
inventory based on salability and obsolescence.
Property, Plant and Equipment & Investment
Properties
Property, plant and equipment and investment properties are stated
at cost, less accumulated depreciation and amortization.
Depreciation is provided for over the estimated useful lives of the
assets using the straight-line method. Amortization of leasehold
improvements is provided for over the lease terms or the estimated
useful lives of the assets, whichever is shorter, using the
straight-line method.
Maintenance, repairs and minor renewals are charged directly to
expense as incurred. Additions and improvements to property and
equipment are capitalized. When assets are disposed of, the related
cost and accumulated depreciation thereon are removed from the
accounts and any resulting gain or loss is included in the
consolidated statements of operations and comprehensive income or
loss.
Foreign Currency Translation and Transactions
The United States dollar (“U.S. dollar”) is the
functional currency of the U.S. parent company. The Singapore
dollar, the national currency of Singapore, is the primary currency
of the economic environment in which the operations in Singapore
are conducted. We also have business entities in Malaysia,
Thailand, China and Indonesia, of which the Malaysian ringgit
(“RM”), Thai baht, Chinese renminbi (“RMB”)
and Indonesian rupiah, are the national currencies. The Company
uses the U.S. dollar for financial reporting purposes.
The Company translates assets and liabilities of its subsidiaries
outside the U.S. into U.S. dollars using the rate of exchange
prevailing at the balance sheet date, and the statement of
operations is measured using average rates in effect for the
reporting period. Adjustments resulting from the translation of the
subsidiaries’ financial statements from foreign currencies
into U.S. dollars are recorded in shareholders' equity as part of
accumulated comprehensive income or loss - translation adjustment.
Gains or losses resulting from transactions denominated in
currencies other than functional currencies of the Company’s
subsidiaries are reflected in income for the reporting
period.
Revenue Recognition
On July 1, 2018, the Company adopted Accounting Standards Update
(“ASU”) No. 2014-09, ASC Topic 606, Revenue from Contracts with
Customers (“ASC Topic
606”). This standard outlines a single comprehensive model
for entities to use in accounting for revenue arising from
contracts with customers. We adopted using the modified
retrospective method applied to all contracts that were not
completed contracts at the date of initial application (i.e. July
1, 2018). Results for reporting periods after July 1, 2018 are
presented under ASC Topic 606, while prior period amounts are not
adjusted and continue to be reported in accordance with the
Company’s historic accounting under ASC Topic
605.
We apply a five-step approach as defined in ASC Topic 606 in
determining the amount and timing of revenue to be recognized: (1)
identifying the contract with customer; (2) identifying the
performance obligations in the contracts; (3) determining the
transaction price; (4) allocating the transaction price to the
performance obligations in the contract; and (5) recognizing
revenue when the corresponding performance obligation is
satisfied.
Revenue derived from testing services is recognized when testing
services are rendered. Revenue generated from sale of products in
the manufacturing and distribution segments are recognized when
persuasive evidence of an arrangement exists, delivery of the
products has occurred, customer acceptance has been obtained (which
means the significant risks and rewards of ownership have been
transferred to the customer), the price is fixed or determinable
and collectability is reasonably assured. Certain customers can
request for installation and training services to be performed for
certain products sold in the manufacturing segment. These services
are mainly for helping customers with the test runs of the machines
sold and are considered a separate performance obligation. Such
services can be provided by other entities as well, and these do
not significantly modify the product. The Company recognizes the
revenue at the point in time when the Company has satisfied its
performance obligation.
In the real estate segment: (1) revenue from property development
is earned and recognized on the earlier of the dates when the
underlying property is sold or upon the maturity of the agreement;
if this amount is uncollectible, the agreement empowers the
repossession of the property, and (2) rental revenue is recognized
on a straight-line basis over the terms of the respective leases.
This means that, with respect to a particular lease, actual amounts
billed in accordance with the lease during any given period may be
higher or lower than the amount of rental revenue recognized for
the period. Straight-line rental revenue is commenced when the
tenant assumes possession of the leased premises. Accrued
straight-line rents receivable represents the amount by which
straight-line rental revenue exceeds rents currently billed in
accordance with lease agreements.
Joint Venture
The Company analyzes its investments in joint ventures to determine
if the joint venture is a variable interest entity (a
“VIE”) and would require consolidation. The Company (a)
evaluates the sufficiency of the total equity at risk, (b) reviews
the voting rights and decision-making authority of the equity
investment holders as a group, and whether there are any guaranteed
returns, protection against losses, or capping of residual returns
within the group and (c) establishes whether activities within the
venture are on behalf of an investor with disproportionately few
voting rights in making this VIE determination. The Company would
consolidate a venture that is determined to be a VIE if it was the
primary beneficiary. Beginning January 1, 2010, a new accounting
standard became effective and changed the method by which the
primary beneficiary of a VIE is determined. Through a primarily
qualitative approach, the variable interest holder, if any, who has
the power to direct the VIE’s most significant activities is
the primary beneficiary. To the extent that the joint venture does
not qualify as VIE, the Company further assesses the existence of a
controlling financial interest under a voting interest model to
determine whether the venture should be consolidated.
Equity Method
The Company analyzes its investments in joint ventures to determine
if the joint venture should be accounted for using the equity
method. Management evaluates both Common Stock and in-substance
Common Stock as to whether they give the Company the ability to
exercise significant influence over operating and financial
policies of the joint venture even though the Company holds less
than 50% of the Common Stock and in-substance Common Stock. If so,
the net income of the joint venture will be reported as
“Equity in earnings of unconsolidated joint ventures, net of
tax” in the Company’s consolidated statements of
operations and comprehensive income or loss.
Cost Method
Investee
companies not accounted for under the consolidation or the equity
method of accounting are accounted for under the cost method of
accounting. Under this method, the Company’s share of the
earnings or losses of such investee companies is not included in
the consolidated balance sheet or consolidated statements of
operations and comprehensive income or loss. However, impairment
charges are recognized in the consolidated statements of operations
and comprehensive income or loss. If circumstances suggest that the
value of the investee company has subsequently recovered, such
recovery is not recorded.
Long-Lived Assets & Impairment
Our business requires heavy investment in manufacturing facilities
and equipment that are technologically advanced but can quickly
become significantly under-utilized or rendered obsolete by rapid
changes in demand. We have recorded intangible assets with finite
lives related to our acquisitions.
We evaluate our long-lived assets with finite lives for impairment
whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. Factors
considered important that could result in an impairment review
include significant underperformance relative to expected
historical or projected future operating results, significant
changes in the manner of use of the assets or the strategy for our
business, significant negative industry or economic trends, and a
significant decline in our stock price for a sustained period of
time. Impairment is recognized based on the difference between the
fair value of the asset and its carrying value, and fair value is
generally measured based on discounted cash flow analysis, if there
is significant adverse change.
During the third quarter of 2020, our operation in China provided
impairment loss of $139 for seven pieces of equipment because one
of our customer’s products came to the end of its product
burn-in cycle earlier than expected. The cost of converting the
seven pieces of equipment out-weighed the benefit of utilizing said
equipment. Operations did not foresee any future usage of these
assets. There will be no future economic cash inflow generated 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
further impairment test in fiscal year 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. There was no impairment in fiscal year
2019.
Fair Value Measurements
Under the standard ASC Topic 820, Fair Value
Measurements and Disclosures
(“ASC Topic
820”), fair value refers to the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between participants in the market in which the
reporting entity transacts its business. ASC Topic 820 clarifies
the principle that fair value should be based on the assumptions
market participants would use when pricing the asset or liability.
In support of this principle, ASC Topic 820 establishes a fair
value hierarchy that prioritizes the information used to develop
those assumptions. Under the standard, fair value measurements
would be separately disclosed by level within the fair value
hierarchy.
Income Tax
We account for income taxes using the liability method in
accordance with the provisions of ASC Topic 740, Accounting for Income
Taxes (“ASC Topic 740”), which requires an entity to
recognize deferred tax liabilities and assets. Deferred tax assets
and liabilities are recognized for the future tax consequence
attributable to the difference between the tax bases of assets and
liabilities and their reported amounts in the financial statements,
which will result in taxable or deductible amounts in future years.
Further, the effects of enacted tax laws or rate changes are
included as part of deferred tax expenses or benefits in the period
that covers the enactment date. Management believed it was more
likely than not that the future benefits from these timing
differences would not be realized. Accordingly, a full allowance
was provided as of June 30, 2020 and 2019.
The calculation of tax liabilities involves dealing with
uncertainties in the application of complex global tax regulations.
We recognize potential liabilities for anticipated tax audit issues
in the U.S. and other tax jurisdictions based on our estimate of
whether, and the extent to which, additional taxes will be due. If
the estimate of tax liabilities proves to be less than the ultimate
assessment, a further charge to expense would result.
Stock Based Compensation
Under ASC Topic 718, Compensation – Stock
Compensation (“ASC Topic
718”), stock-based compensation cost is measured at the grant
date, based on the estimated fair value of the award using an
option pricing model for stock options (Black-Scholes) and market
price for restricted stock units, and is recognized as expense over
the employee’s requisite service period.
Non-controlling Interests in Consolidated Financial
Statements
We adopted ASC Topic 810, Consolidation
(“ASC Topic 810”). This
guidance establishes accounting and reporting standards for the
non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. This guidance requires that
non-controlling interests in subsidiaries be reported in the equity
section of the controlling company’s balance sheet. It also
changes the manner in which the net income of the subsidiary is
reported and disclosed in the controlling company’s income
statement.
Loan Receivables
The loan receivables are classified as current assets carried at
face value and are individually evaluated for impairment. The
allowance for loan losses reflects management’s best estimate
of probable losses determined principally on the basis of
historical experience and specific allowances for known loan
accounts. All loans or portions thereof deemed to be uncollectible
or to require an excessive collection cost are written off to the
allowance for losses.
Interest Income
Interest income on loans is recognized on an accrual basis.
Discounts and premiums on loans are amortized to income using the
interest method over the remaining period to contractual maturity.
The amortization of discounts into income is discontinued on loans
that are contractually 90 days past due or when collection of
interest appears doubtful.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06: Debt – Debt with Conversion and Other
options (Subtopic 470-20) and Derivative and Hedging –
Contracts in Entity’s Own Equity (Subtopic 815-40).
This ASU reduces number of accounting models for convertible debt
instruments and convertible preferred stock. As well as amend the
guidance for the derivatives scope exception for contracts in an
entity’s own equity to reduce form-over-substance-based
accounting conclusion. In addition, this ASU improves and amends
the related EPS guidance. This amendments are effective for the
Company for fiscal years beginning after December 15, 2023,
including interim period within those fiscal years. Early adoption
is permitted, but no earlier than fiscal years beginning after
December 15, 2020, including interim periods within those fiscal
years. Adoption is either a modified retrospective method or a
fully retrospective method of transition. The Company is currently
evaluating the impacts of the provisions of ASU 2020-06 on its
consolidated financial statements and related
disclosures.
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. The Company has
completed its assessment and concluded that this update has no
significant impact to the Company’s financial
statements.
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. The Company has completed the assessment and
concluded that this update has no significant impact to the
Company’s consolidated statements of operations and
comprehensive income.
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.
The Company has completed its assessment and concluded that this
update has no significant impact to the Company’s
presentation of 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 consolidated financial
statements.
Other new pronouncements issued but not yet effective until after
June 30, 2020 are not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
Comparison of Operating Results
The
following table presents certain data from the consolidated
statements of operating income as a percentage of net sales for the
fiscal years ended June 30, 2020 and 2019:
|
|
For the Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
Revenue
|
100.0%
|
100.0%
|
|
Cost
of sales
|
78.9
|
77.0
|
|
Gross Margin
|
21.1%
|
23.0%
|
|
Operating
expenses:
|
|
|
|
General
and administrative
|
20.2%
|
18.0%
|
|
Selling
|
2.0
|
2.1
|
|
Research
and development
|
1.0
|
0.9
|
|
Impairment
loss on long-lived assets
|
0.4
|
-
|
|
Total
operating expenses
|
23.6%
|
21.0%
|
|
(Loss)/Income from Operations
|
(2.5)%
|
2.0%
|
Overall Revenue
The
overall revenue is composed of the revenues from the manufacturing,
testing services, distribution and real estate segments. The
following table presents the components of the overall revenue
realized in fiscal years 2020 and 2019 in percentage
format.
|
|
For the Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
Manufacturing
|
33.7%
|
38.0%
|
|
Testing
|
43.0
|
42.8
|
|
Distribution
|
23.1
|
19.0
|
|
Real
estate
|
0.2
|
0.2
|
|
Total
|
100.0%
|
100.0%
|
|
|
|
|
Revenue
in fiscal year 2020 was $34,465, a decrease of $4,733, or 12.1%,
compared to $39,198 in fiscal year 2019. The decrease in revenue
was due to a decrease in sales across all segments amid the
COVID-19 pandemic except the distribution segment.
As a
percentage of total revenue, the revenue generated by the
manufacturing segment in fiscal year 2020 accounted for 33.7%, a
decrease of 4.3%, as compared to 38.0% in fiscal year 2019. In
terms of dollar amount, the revenue generated by the manufacturing
segment in fiscal year 2020 was $11,605, reflecting a decrease of
$3,284, or 22.1%, compared to $14,889 in fiscal year 2019. The
decrease in revenue generated by the manufacturing segment was due
to a decrease in the manufacturing segment in the Singapore
operation as a result of softer demand for capital expenditure by
our customers amid the global pandemic. The decreases were
partially offset by an increase in the manufacturing segment in the
U.S. operation.
Backlog
in the manufacturing segment was $5,010 as of June 30, 2020,
representing an increase of $800 from $4,210 as of June 30, 2019.
We expect the demand for our products to increase at a slower pace
in fiscal year 2021 as compared to fiscal year 2020, depending on
the recovery speed of the global market for testing equipment and
systems from the pandemic.
As a
percentage of total revenue, the revenue generated by the testing
services segment in fiscal year 2020 accounted for 43.0% of total
sales compared to 42.8% in fiscal year 2019. In terms of dollar
amounts, the revenue generated by the testing services segment for
fiscal year 2020 was $14,840, reflecting a decrease of $1,920,
compared to $16,760 for fiscal year 2019. The decrease in revenue
generated by the testing segment was primarily attributable to
a decrease in revenue in the Malaysia and China operations. The
decrease was attributable to a decrease in the volume of testing
services requested by our customers in these operations amid of the
global pandemic. These decreases were partially offset by the
increase in revenue as a result of higher volume in the Singapore
and Thailand operations during fiscal year 2020. Demand for testing
services varies from country to country, depending on changes
taking place in the market and our customers’ forecasts.
Because it is difficult to accurately forecast fluctuations in the
market, we believe that it is necessary to maintain testing
facilities in close proximity to our customers in order to make it
convenient for them to send us their newly manufactured parts for
testing and to enable us to maintain a share of the
market.
Backlog
in the testing services segment as of June 30, 2020 was $2,915, a
decrease of $1,377 as compared to $4,292 at June 30, 2019. The
decrease in backlog was mainly from the Malaysia and China
operations. The backlog depends on the estimates volume provided by
customers, which are in turn dependent upon the customers’
inventory levels and demand.
As a
percentage of total revenue, the revenue generated by the
distribution segment in fiscal year 2020 accounted for 23.1% of
total sales, an increase of 4.1% compared to 19.0% in fiscal year
2019. In terms of dollar amounts, revenue for fiscal year 2020 was
$7,958, an increase of $507, or 6.8%, compared to $7,451 for fiscal
year 2019. The increase in revenue in our distribution segment was
due to the increase in orders for certain products from customers
in our Singapore and China operations.
Backlog
in the distribution segment as of June 30, 2020 was $1,409,
reflecting a decrease of $85 compared to the backlog of $1,494 at
June 30, 2019. The decrease in backlog was mainly due to a decrease
in demands from customers as a result of the slowing economic
environment. We believe that our competitive advantage in the
distribution segment is our design and engineering capabilities in
components and touch screen products, which allow customization to
meet the specific requirement of our customers. Product volume for
the distribution segment depends on sales activities such as
placing orders and queries for products and backlog. Equipment and
electronic component sales are very competitive, as the products
are readily available in the market.
As a
percentage of total revenue, the revenue generated by the real
estate segment was 0.2% of total sales in fiscal year 2020 and
2019. In terms of dollar value, revenue generated by the real
estate segment for fiscal years 2020 was $62, a decrease of $36, or
36.7%, compared to $98 for fiscal year 2019. Our real estate
segment saw a decrease in rental income due to the sale of a
majority of the MaoYe properties in fiscal year 2019, coupled with
the tenant’s withdrawal from the tenancy agreement amid of
the adverse impact of the pandemic.
Backlog
in the real estate segment as of June 30, 2020 was $6, a decrease
of $147 as compared to $153 at June 30, 2019.
Overall Gross Margin
Overall
gross margin as a percentage of revenue was 21.1% in fiscal year
2020, a decrease of 1.9% compared to 23.0% in fiscal year 2019. The
decrease in gross margin as a percentage of revenue was mainly
attributable to the testing segments. In terms of dollar value, the
overall gross profit for fiscal year 2020 was $7,266, a decrease of
$1,735, or 19.3%, compared to $9,001 for fiscal year 2019. The
decrease in the dollar value of the overall gross margin was mainly
due to a decrease of sales in the manufacturing and testing
segments, which was partially offset by an increase in sales in the
distribution segment.
The
gross margin as a percentage of revenue in the manufacturing
segment was 23.1% in fiscal year 2020, comparable with 23.5% in
fiscal year 2019. In terms of dollar amounts, the gross profit for
the manufacturing segment in fiscal year 2020 was $2,678, a
decrease of $818, or 23.4%, compared to $3,496 in fiscal year 2019.
The decrease in the absolute dollar amount of gross margin was
mainly due to a decrease in revenue in our Singapore operations
amid the pandemic.
The
gross margin as a percentage of revenue in the testing services
segment was 23.5% in fiscal year 2020, a decrease of 3.7% compared
to 27.2% in fiscal year 2019. In terms of dollar amounts, gross
profit in the testing services segment in fiscal year 2020 was
$3,487, a decrease of $1,071, or 23.5%, compared to $4,558 in
fiscal year 2019. The
decrease in gross profit margin was primarily due to the decrease
in revenue brought about by a decrease in orders in the China and
Malaysia operations. A significant portion of our cost of goods
sold is fixed in the testing segment. Thus, as the demand for
services and factory utilization decreases, the fixed costs are
spread over the decreased output, which decreases the gross profit
margin. The negative impact on gross profit margin was partially
offset by the continuous effort of cost savings in the China and
Malaysia operations.
The
gross margin as a percentage of revenue in the distribution segment
was 14.0% in fiscal year 2020, an increase of 1.3% compared to
12.7% in fiscal year 2019. The increase in gross margin
percentage was due to an increase in sales and a change in the
product mix. The distribution segment had more sales of products
with a higher profit margin compared to the same period of last
fiscal year. In terms of dollar amounts, gross profit in the
distribution segment was $1,111, an increase of $165, or 17.4%,
compared to $946 in fiscal year 2019. The gross margin of the
distribution segment was not only affected by the market price of
our products, but also our product mix, which changed frequently as
a result of the changes in market demand.
The
gross margin as a percentage of revenue in the real estate segment
was a negative of 16.1% in fiscal year 2020, a deterioration of
17.1% compared to a gross margin of 1.0% in fiscal year 2019. In
absolute dollar amount, gross margin in the real estate segment was
a loss of $10 in fiscal year 2020, a decrease of $11 as compared to
a gross margin of $1 in fiscal year 2019. The increase in gross
loss was due to lower rental income caused by the sales of
properties in fiscal year 2019, coupled with the adverse impact of
the pandemic to our tenants.
Operating Expenses
Operating
expenses for the fiscal years ended June 30, 2020 and 2019 were as
follows:
|
|
For the Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
General
and administrative
|
$6,976
|
$7,049
|
|
Selling
|
679
|
826
|
|
Research
and development
|
355
|
345
|
|
Impairment
loss on long-lived assets
|
139
|
-
|
|
Gain
on disposal of property, plant and equipment
|
(24)
|
(13)
|
|
Total
|
$8,125
|
$8,207
|
General
and administrative expenses decreased by $73, or 1.0%, from $7,049
in fiscal year 2019 to $6,976 in fiscal year 2020. The decrease was mainly attributable to a decrease
in payroll-related expenses in the China operation, and a decrease
in medical expenses in the Singapore operation. These decreases
were partially offset by an increase in payroll expenses in the
Singapore operations.
Selling
expenses decreased by $147, or 17.8%, to $679 in fiscal year 2020,
compared to $826 in fiscal year 2019. The decrease in selling
expenses was primarily attributable to a decrease in commission
expenses in the manufacturing segment of the Singapore operations
as a result of fewer commissionable sales, coupled with lower
traveling expenses due to the worldwide travel restrictions imposed
to contain the spread of the pandemic.
There
was an impairment loss on long-lived assets in the China operation
as a result of the end of the product life for certain products. A
detailed assessment was carried out by Management, and this
assessment indicated that these assets would not generate future
economic benefits to the Company.
During
fiscal year 2020, there was a gain in disposal of property, plant
and equipment of $24, as compared to a gain on disposal of $13 in
fiscal year 2019.
(Loss) / Income from Operations
Loss
from operations was $859 in fiscal year 2020, a deterioration of
$1,653, as compared to an income from operations of $794 in fiscal
year 2019. The decrease was mainly due to a decrease in revenue,
resulting in a decrease in the gross margin, which was partially
offset by the decrease in operating expenses, as discussed
earlier.
Interest Expenses
The
interest expenses for fiscal years 2020 and 2019 were as
follows:
|
|
For the Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
Interest expenses
|
$230
|
$319
|
Interest
expenses decreased by $89, or 27.9%, to $230 in fiscal year 2020
from $319 in fiscal year 2019. The decrease in interest expenses was mainly
due to lower utilization of short-term loans in the Singapore and
China operations. Additionally, the bank loan payable decreased by
$574 to $2,206 in fiscal year 2020, as compared to $2,780 in fiscal
year 2019.
Other
Income, Net
Other
income, net for fiscal years 2020 and 2019 was as
follows:
|
|
For the
Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
Interest
income
|
$177
|
$100
|
|
Other
rental income
|
110
|
113
|
|
Exchange
loss
|
(35)
|
(135)
|
|
Government
grants
|
778
|
77
|
|
Bad
debt recovery
|
59
|
2
|
|
Other
miscellaneous income
|
23
|
92
|
|
Total
|
$1,112
|
$249
|
Other
income increased by $863 to $1,112 for fiscal year 2020 as compared
to $249 for fiscal year 2019. The increase in other income in
fiscal year 2020 was mainly due to a decrease in exchange loss,
which resulted from the favorable exchange movement in fiscal year
2020, coupled with an increase in interest income. Additionally,
the Company received government grants of $718 from the local
government in the Singapore, China, and Malaysia operations to
mitigate the negative impact on the businesses amid the pandemic.
The
Company believes that, as with other business entities in
Singapore, Malaysia and China, it will receive additional
government assistance for a period to ease the financial impact
caused by the pandemic.
Gain on Sale of Properties
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 2020, the Company obtained approval of the sale
from Penang Development Corporation and the local government. The
Company completed the sale and recognized a net gain of RM4,901 or
$1,172 in the same period, excluding capital gain tax.
During
the third quarter of 2019, TTCQ completed the sale of thirteen of
the fifteen units constituting the MaoYe property, which resulted
in a gain of $685.
Income Tax Benefits
Income
tax benefits for fiscal year 2020 were $12, as compared to $42 for
fiscal year 2019.
At June
30, 2020, the Company had no federal net operating loss
carry-forwards, and a state net operating loss carry forward of
$1,236, which expires in 2033. These carryovers may be subject to
limitations under I.R.C. Section 382. Management of the Company is
uncertain whether it is more likely than not that these future
benefits will be realized. Accordingly, a full valuation allowance
was established.
Loss from Discontinued Operations
Loss
from discontinued operations was $3 in fiscal years 2020 and 2019.
We discontinued our fabrication segment in fiscal year
2013.
Non-controlling Interest
As of
June 30, 2020, we held an indirect 55% interest each in Trio-Tech
(Malaysia) Sdn. Bhd. (“TTM”), Trio-Tech (Kuala Lumpur)
Sdn. Bhd. (“TTKL”), SHI and PT SHI, and a 76% interest
in Prestal Enterprise Sdn. Bhd. (“Prestal”).
The non-controlling interest for
fiscal year 2020, in the net income of subsidiaries, was $238, a
change of $335 compared to a non-controlling interest in the net
loss of $97 for the previous fiscal year. The change in the
non-controlling interest was primarily attributable to the net
income generated by the Malaysia operations from the sales of
assets held for sale in fiscal year 2020, as compared to net loss
generated by the Malaysia operation in the previous fiscal
year.
Net Income Attributable to Trio-Tech International Common
Shareholders
Net
income for fiscal year 2020 was $966, a decrease of $579, as
compared to $1,545 for fiscal year 2019. The decrease in net income
during fiscal year 2020 was mainly due to the decrease in gross
profit, as discussed earlier. This was partially offset by the gain
on the sale of assets held for sale and the receipt of government
grants in response to the adverse impact brought by the
pandemic.
Earnings per Share
Basic
earnings per share from continuing operations was $0.26 in fiscal
year 2020, as compared to $0.42 in fiscal year 2019. Basic loss per
share from discontinued operations was $nil for fiscal year 2020
and $nil for fiscal year 2019.
Diluted
earnings per share from continuing operations was $0.26 in fiscal
year 2020, as compared to $0.41 in fiscal year 2019. Diluted loss
per share from discontinued operations was $nil for fiscal year
2020 and $nil for fiscal year 2019.
Segment Information
The
revenue, gross margin and income or loss from each segment for
fiscal years 2020 and 2019 are presented below. As the segment
revenue and gross margin have been discussed in previous sections,
only the comparison of income or loss from operations is discussed
below.
Manufacturing Segment
The
revenue, gross margin and (loss)/income from operations for the
manufacturing segment for fiscal years 2020 and 2019 were as
follows:
|
|
For the
Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
Revenue
|
$11,605
|
$14,889
|
|
Gross
margin
|
23.1%
|
23.5%
|
|
Loss/Income
from operations
|
$(326)
|
$575
|
Loss
from operations in the manufacturing segment was $326 in fiscal
year 2020, a deterioration of $901 as compared to an income from
operations of $575 in fiscal year 2019. The net loss was
attributable to a decrease in the absolute amount of gross margin
amounting to $818 and an increase in operating expenses of $83.
Operating expenses were $3,004 and $2,921 for fiscal years 2020 and
2019, respectively. The increase in
operating expenses was mainly due to an increase in general and
administrative expenses of $159, an increase in research and
development of $10 and an increase in corporate overhead allocation
of $10. The increase was partially offset by the decrease in
selling expenses of $96.
The increase in general and administrative expenses was mainly
attributable to an increase in payroll-related expenses and a
provision of doubtful debts in the Singapore operation. The
decrease in selling expenses was primarily due to fewer commission
expenses incurred in fiscal year 2020 as a result of fewer
commissionable sales, coupled with lower traveling expenses amid
the pandemic.
Testing Services Segment
The
revenue, gross margin and loss from operations for the testing
services segment for fiscal years 2020 and 2019 were as
follows:
|
|
For the
Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
Revenue
|
$14,840
|
$16,760
|
|
Gross
margin
|
23.5%
|
27.2%
|
|
Loss
from operations
|
$(1,040)
|
$(164)
|
Loss
from operations in the testing services segment in fiscal year 2020
was $1,040, an increase of $876 compared to $164 in fiscal year
2019. The increase in operating loss was attributable to a decrease
in gross margin of $1,071, partially offset by a decrease in
operating expense of $195. Operating expenses were $4,527 and
$4,722 for fiscal years 2020 and 2019, respectively. The decrease
in operating expenses was mainly attributable to a decrease in selling expenses, general and
administrative expenses and corporate
overheads.
Selling expenses decreased due to fewer traveling expenses incurred
in the Singapore operations amid the pandemic. The decrease in
general and administrative expenses was primarily due to further
cost-saving measures implemented in the China operation to mitigate
a further drop in the customer’s estimated demands amid the
pandemic. The decrease in corporate overhead expenses was due to a
decrease in the corporate overhead allocation, which is allocated
on a predetermined fixed charge basis. Impairment on the long-lived
asset partially offset these decreases.
Distribution Segment
The
revenue, gross margin and income from operations for the
distribution segment for fiscal years 2020 and 2019 were as
follows:
|
|
For the Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
Revenue
|
$7,958
|
$7,451
|
|
Gross
margin
|
14.0%
|
12.7%
|
|
Income
from operations
|
$751
|
$598
|
Income
from operations in the distribution segment was $751 in fiscal year
2020 as compared to $598 in fiscal year 2019. The increase was
mainly due to the increase in gross margin of $165, as discussed
earlier. These increases were partly offset by an increase in
operating expenses. Operating expenses were $362 and $348 for
fiscal years 2020 and 2019, respectively.
Real Estate
The
revenue, gross margin and loss from operations for the real estate
segment for fiscal years 2020 and 2019 were as
follows:
|
|
For the Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
Revenue
|
$62
|
$98
|
|
Gross
margin
|
(16.1)%
|
1%
|
|
Loss
from operations
|
$(97)
|
$(92)
|
|
Gain
on sale of properties
|
-
|
685
|
Loss
from operations in the real estate segment was $97 in fiscal year
2020 as compared to $92 in fiscal year 2019. The increase in
operating loss was primarily due to the decrease in gross margin of
$11, as discussed earlier. Operating expenses were $87 and $92 in
fiscal years 2020 and 2019, respectively. There was other income
arising from gain on sale of properties amounting to $685 in fiscal
year 2019.
Corporate
The
following table presents the loss from operations for Corporate for
fiscal years 2020 and 2019, respectively:
|
|
For the Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
Loss
from operations
|
$(147)
|
$(123)
|
In
fiscal year 2020, corporate operating loss was $147, an increase of
$24 compared to an operating loss of $123 in fiscal year
2019.
Liquidity
The
Company’s core businesses testing services, manufacturing and
distribution, operate in a volatile industry, in which its average
selling prices and product costs are influenced by competitive
factors. These factors create pressures on sales, costs, earnings
and cash flows, which impact liquidity.
Net
cash provided by operating activities decreased by $1,443 to $3,011
for the twelve months ended June 30, 2020 from $4,454 in the same
period of last fiscal year. The decrease in net cash provided by
operating activities was primarily due to a decrease in net income
of $244, an increase of $727 in repayment of operating leases, and
an increase in cash outflow of $900 from accounts payables and
accrued expenses. The decrease was partially offset by an increase
in depreciation and amortization of $650.
Net
cash used in investing activities decreased by $2,723 to an outflow
of $2,617 for the twelve months ended June 30, 2020 from an outflow
of $5,340 for the same period of last fiscal year. The
decrease in net cash used in investing activities was primarily due
to a decrease of $780 for investments in restricted and
unrestricted deposits and a decrease of $1,824 for the acquisition
of plant and equipment.
Net
cash used in financing activities for the twelve months ended June
30, 2020 was $732, representing an increase of $142 compared
to $590 in net cash used in financing activities during the twelve
months ended June 30, 2019. Cash outflow increased mainly due to a
decrease in a cash inflow of $401, $1,475 and $5,900 from proceeds
from exercising stock options, bank loans, and lines of credit,
respectively. The increase in cash outflow was partially offset by
a decrease in repayment on lines of credit by $7,700.
We
believe that our projected cash flows from operations, borrowing
availability under our revolving lines of credit, cash on hand,
trade credit and the secured bank loans will provide the necessary
financial resources to meet our projected cash requirements for at
least the next 12 months. Should we find an attractive capital
investment, we may seek additional debt or equity financing in
order to fund the transaction, in the form of bank financing,
convertible debt, or the issuance of Common Stock.
Capital Resources
Our working capital (defined as current assets minus current
liabilities) has historically been generated primarily from the
following sources: operating cash flow, availability under our
revolving line of credit, and short-term loans. The working capital
was $12,957 as of June 30, 2020, representing an increase of
$1,350, or 11.6%, compared to working capital of $11,607 as of June
30, 2019. The increase in working capital was mainly due to
increases in current assets such as short-term deposits, other
receivable, prepaid expenses other current assets and short-term
advances, and decreases in current liabilities such as lines of
credit, accounts payable, accrued expenses, income taxes payable
and finance leases. Such fluctuations were partially offset by
decreases in current assets such as cash and cash equivalents,
account receivables, inventories and assets held for sale, and
increases in current liabilities such as operating lease payable,
as discussed above.
The majority of our capital expenditures are based on demands from
our customers, as we are operating in a capital-intensive
industry. Our capital expenditures were $1,017 and $2,841 for
fiscal year 2020 and fiscal year 2019, respectively. The capital
expenditures in fiscal year 2020 were mainly in the Malaysia and
Thailand operations, which provide testing services to our
customers. We financed our capital expenditures and other operating
expenses through operating cash flows, PPP loan and long-term
debts.
Our
credit rating provides us with ready and adequate access to funds
in the global market. At June 30, 2020, the Company had certain lines of credit that are
collateralized by restricted deposits.
|
Entity
with
|
Type
of
|
Interest
|
Expiration
|
Credit
|
Unused
|
|
Facility
|
Facility
|
Rate
|
Date
|
Limitation
|
Credit
|
|
Trio-Tech International Pte. Ltd., Singapore
|
Lines
of Credit
|
Ranging from 1.85% to 5.5%,
SIBOR rate +1.25%
and LIBOR rate +1.30%
|
-
|
$4,806
|
$
4,806
|
|
Universal (Far East) Pte. Ltd.
|
Lines
of Credit
|
Ranging
from 1.85% to 5.5%
|
-
|
$359
|
$187
|
|
Trio-Tech Malaysia Sdn. Bhd.
|
Revolving
Credit
|
Cost
of Funds Rate +2%
|
-
|
$350
|
$350
|
On November 18, 2019, Trio-Tech International Pte. Ltd. signed an
agreement with JECC Leasing (Singapore) Pte. Ltd. for an Account
Receivables 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.
As of June 30, 2019, the Company had certain lines of credit that
are collateralized by restricted deposits.
|
Entity
with
|
Type
of
|
Interest
|
Expiration
|
Credit
|
Unused
|
|
Facility
|
Facility
|
Rate
|
Date
|
Limitation
|
Credit
|
|
Trio-Tech
International Pte. Ltd., Singapore
|
Lines
of Credit
|
Ranging
from 1.85% to 5.5%,
SIBOR
rate +1.25%
and
LIBOR rate +1.30%
|
-
|
$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
|
Off-Balance Sheet Arrangements
We do
not consider the Company to have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
ITEM 7A – QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a
smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934, we are not required to provide the
information required by this item.
ITEM
8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
information called for by this item is included in the Company's
consolidated financial statements beginning on page F-2 of this
Annual Report on Form 10-K.
ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A – CONTROLS AND
PROCEDURES
An
evaluation was carried out by the Company’s Chief Executive
Officer and Chief Financial Officer (the principal executive and
principal financial officers, respectively, of the Company) of the
effectiveness of the Company’s disclosure controls and
procedures (as defined in Rule 13a-15(e) or 15d-15(e) promulgated
under the Securities Exchange Act of 1934, as amended) as of June
30, 2020, the end of the period covered by this Form 10-K. Based
upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company’s disclosure
controls and procedures were effective as of June 30,
2020.
Additionally,
Management has the responsibility for establishing and maintaining
adequate internal control over financial reporting for the Company,
and thus also assessed the effectiveness of our internal controls
over financial reporting as of June 30, 2020. Management used the
framework set forth in the report entitled “Internal Control
– Integrated Framework” published by the Committee of
Sponsoring Organizations of the Treadway Commission in 2013 to
evaluate the effectiveness of the Company’s internal control
over financial reporting.
Internal
control over financial reporting refers to the process designed by,
or under the supervision of, our Chief Executive Officer and Chief
Financial Officer, and effected by our Board of Directors,
management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purpose in
accordance with U.S. generally accepted accounting principles, and
includes those policies and procedures that:
1.
Pertain to the
maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of
the Company;
2.
Provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S.
generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorization of management and directors of the Company;
and
3.
Provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, and use or disposition of the Company’s assets
that could have a material effect on the financial
statements.
Internal
control over financial reporting cannot provide absolute assurance
of achieving financial reporting objectives because of its inherent
limitations. Internal control over financial reporting is a process
that involves human diligence and compliance and is subject to
lapses in judgment and breakdowns resulting from human failures.
Internal control over financial reporting also can be circumvented
by collusion or improper management override. Because of such
limitations, there is a risk that material misstatements may not be
prevented or detected on a timely basis by internal control over
financial reporting. However, these inherent limitations are known
features of the financial reporting process. Therefore, it is
possible to design into the process safeguards to reduce, though
not eliminate, the risk.
Based
on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company’s internal controls over
financial reporting were effective as of June 30,
2020.
Changes in Internal Control Over Financial Reporting
Except as discussed below, there have been no changes in the
Company’s internal control over financial reporting
during the fourth quarter of fiscal 2020 which were identified in
connection with management’s evaluation required by paragraph
(d) of rules 13a-15 and 15d-15 under the Exchange Act, that
have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial
reporting.
Enterprise Resource Planning (ERP) Implementation
We are in the process of implementing an ERP System as part of a
multi-year plan to integrate and upgrade our systems and processes.
The implementation of this ERP system was scheduled to occur in
phases over a few years. The operational and financial systems in
our Singapore and Malaysia operations were transitioned to the new
system in fiscal 2018 and fiscal 2019, respectively.
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 9B – OTHER INFORMATION
None.
PART
III
The
information required by Items 10 through 14 of Part III of this
Form 10-K (information regarding our directors and executive
officers, executive compensation, security ownership of certain
beneficial owners, management, related stockholder matters, and
certain relationships and related transactions and principal
accountant fees and services) is hereby incorporated by reference
from the Company's Proxy Statement to be filed with the Securities
and Exchange Commission within 120 days after the end of fiscal
year 2020.
PART IV
ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
(a) (1 and 2)
FINANCIAL STATEMENTS AND SCHEDULES:
The
following financial statements, including notes thereto and the
independent auditors' report with respect thereto, are filed as
part of this Annual Report on Form 10-K, starting on page 34
hereof:
1.
Report of
Independent Registered Public Accounting Firm
2.
Consolidated
Balance Sheets
3.
Consolidated
Statements of Operations and Comprehensive Income
(Loss)
4.
Consolidated
Statements of Shareholders' Equity
5.
Consolidated
Statements of Cash Flows
6.
Notes to
Consolidated Financial Statements
(b)
The
exhibits filed as part of this Annual Report on Form 10K are set
forth on the Exhibit Index immediately preceding such exhibits, and
are incorporated herein by reference.
ITEM 16 – FORM 10-K SUMMARY
Not
applicable.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
|
TRIO-TECH
INTERNATIONAL
By:
/s/ Victor H.M.
Ting
VICTOR
H.M. TING
Vice
President and Chief Financial Officer
September
23, 2020
|
Pursuant
to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the Registrant and in the capacity and on the dates
indicated.
|
|
/s/ A. Charles
Wilson
A. Charles
Wilson, Director
Chairman
of the Board
September
23, 2020
/s/ S.W.Yong
S. W.
Yong, Director
President,
Chief Executive Officer
(Principal
Executive Officer)
September
23, 2020
/s/ Victor H. M.
Ting
Victor
H.M. Ting, Director
Vice President, and
Chief Financial Officer
Principal Financial
Officer)
September 23,
2020
/s/ Jason T.
Adelman
Jason T.
Adelman, Director
September 23,
2020
/s/ Richard M.
Horowitz
Richard M. Horowitz,
Director
September 23,
2020
|
EXHIBITS:
|
Number
|
|
Description
|
|
|
|
|
|
3.1
|
|
Articles
of Incorporation, as currently in effect. [Incorporated by
reference to Exhibit 3.1 to the Registrant’s Annual Report on
Form 10-K for June 30, 1988.]
|
|
3.2
|
|
Bylaws,
as currently in effect. [Incorporated by reference to Exhibit 3.2
to the Registrant’s Annual Report on Form 10-K for June 30,
1988.]
|
|
|
Amendment
to 2007 Employee Stock Option Plan [Incorporated by reference to
Exhibit A to the Registrant’s Proxy Statement for its Annual
Meeting held December 14, 2010.]**
|
|
|
|
Amendment
to 2007 Directors Equity Incentive Plan [Incorporated by reference
to Exhibit B to the Registrant’s Proxy Statement for its
Annual Meeting held December 14, 2010.]**
|
|
|
|
Amendment
to 2007 Directors Equity Incentive Plan [Incorporated by reference
to Appendix A to the Registrant’s Proxy Statement for its
Annual Meeting held December 9, 2013.]**
|
|
|
10.4
|
|
2017
Employee Stock Option Plan [Incorporated by reference to Appendix 1
to the Registrant’s Proxy Statement for its Annual Meeting
held December 4, 2017.]**
|
|
10.5
|
|
2017
Directors Equity Incentive Plan [Incorporated by reference to
Appendix 2 to the Registrant’s Proxy Statement for its Annual
Meeting held December 4, 2017.]**
|
|
21.1
|
|
Subsidiaries
of the Registrant (100% owned by the Registrant except as otherwise
stated)
|
|
|
|
Express
Test Corporation (Dormant), a California Corporation
|
|
|
|
Trio-Tech
Reliability Services (Dormant), a California
Corporation
|
|
|
|
KTS
Incorporated, dba Universal Systems (Dormant), a California
Corporation
|
|
|
|
European Electronic
Test Center. Ltd., a Cayman Islands Corporation (Operation ceased
on November 1, 2005)
|
|
|
|
Trio-Tech
International Pte. Ltd., a Singapore Corporation
|
|
|
|
Universal (Far
East) Pte. Ltd., a Singapore Corporation
|
|
|
|
Trio-Tech
International (Thailand) Co., Ltd., a Thailand
Corporation
|
|
|
|
Trio-Tech (Bangkok)
Co., Ltd., a Thailand Corporation
|
|
|
|
Trio-Tech
(Malaysia) Sdn Bhd., a Malaysia Corporation (55% owned by the
subsidiary of Registrant)
|
|
|
|
Trio-Tech (Kuala
Lumpur) Sdn Bhd., a Malaysia Corporation (100% owned by Trio-Tech
Malaysia)
|
|
|
|
Prestal
Enterprise Sdn. Bhd., a Malaysia Corporation (76% owned by
Trio-Tech International Pte. Ltd., a Singapore
Corporation)
|
|
|
|
Trio-Tech (SIP)
Co., Ltd., a China Corporation
|
|
|
|
Trio-Tech
(Shanghai) Co., Ltd., a China Corporation (Windup in March 30,
2017)
|
|
|
|
Trio-Tech
(Chongqing) Co. Ltd., (100% owned by Trio-Tech International Pte.
Ltd., a Singapore Corporation)
|
|
|
|
SHI
International Pte. Ltd, a Singapore Corporation (55% owned
Trio-Tech International Pte. Ltd., a Singapore
Corporation)
|
|
|
|
PT SHI
Indonesia, an Indonesia Corporation (100% owned by SHI
International Pte. Ltd., a Singapore Corporation)
|
|
|
|
Trio-Tech (Tianjin)
Co., Ltd., a China Corporation (100% owned by Trio-Tech
International Pte. Ltd., a Singapore Corporation)
|
|
|
Consent
of Independent Registered Public Accounting Firm*
|
|
|
|
Rule
13a-14(a) Certification of Principal Executive Officer of
Registrant*
|
|
|
|
Rule
13a-14(a) Certification of Principal Financial Officer of
Registrant*
|
|
|
|
Section
1350 Certification. *
|
|
|
|
|
|
|
101.INS*
|
|
XBRL Instance Document
|
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema
|
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase
|
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
*
Filed
electronically herewith.
**
Indicates
management contracts or compensatory plans or arrangements required
to be filed as an exhibit to this report.
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Trio-Tech International
Van Nuys, California
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
Trio-Tech International and Subsidiaries (the
“Company”) as of June 30, 2020 and 2019, and the
related consolidated statements of operations and comprehensive
income (loss), shareholders’ equity and cash flows for each
of the two years in the period ended June 30, 2020, and the related
notes (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the
consolidated financial position of the Company as of June 30, 2020
and 2019, and the consolidated results of its operations and its
cash flows for each of the two years in the period ended June 30,
2020, in conformity with accounting principles generally accepted
in the United States of America.
Change in Accounting Principle
As
discussed in Note 1 to the consolidated financial statements, the
Company changed the manner in which it accounts for leases in
fiscal year 2020.
Basis for Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Mazars LLP
PUBLIC ACCOUNTANTS AND
CHARTERED ACCOUNTANTS
We have served as the company’s auditors since
2009
/s/ Mazars
LLP
Singapore
September
23, 2020
PART I. FINANCIAL
INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
AUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
|
|
June
30,
2020
|
June
30,
2019
|
|
ASSETS
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
Cash
and cash equivalents
|
$4,150
|
$4,863
|
|
Short-term
deposits
|
6,697
|
4,144
|
|
Trade
account receivables, less allowance for doubtful accounts of $314
and $263, respectively
|
5,951
|
7,113
|
|
Other
receivables
|
998
|
817
|
|
Inventories,
less provision for obsolete inventories of $678 and $673,
respectively
|
1,922
|
2,427
|
|
Prepaid
expenses and other current assets
|
341
|
287
|
|
Short-term
advances
|
141
|
-
|
|
Assets
held for sale
|
-
|
89
|
|
Total current assets
|
20,200
|
19,740
|
|
NON-CURRENT
ASSETS:
|
|
|
|
Deferred
tax assets
|
247
|
390
|
|
Investment
properties, net
|
690
|
782
|
|
Property,
plant and equipment, net
|
10,310
|
12,159
|
|
Operating
lease right-of-use assets
|
944
|
-
|
|
Other
assets
|
1,609
|
1,750
|
|
Restricted
term deposits
|
1,660
|
1,706
|
|
Total
non-current assets
|
15,460
|
16,787
|
|
TOTAL ASSETS
|
$35,660
|
$36,527
|
|
|
|
|
|
LIABILITIES
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
Lines
of credit
|
$172
|
$187
|
|
Accounts
payable
|
2,590
|
3,272
|
|
Accrued
expenses
|
3,005
|
3,486
|
|
Income
taxes payable
|
344
|
417
|
|
Current
portion of bank loans payable
|
370
|
488
|
|
Current
portion of finance leases
|
231
|
283
|
|
Current
portion of operating leases
|
477
|
-
|
|
Current portion of PPP loan
|
54
|
-
|
|
Total current liabilities
|
7,243
|
8,133
|
|
NON-CURRENT
LIABILITIES:
|
|
|
|
Bank
loans payable, net of current portion
|
1,836
|
2,292
|
|
Finance leases,
net of current portion
|
435
|
442
|
|
Operating
leases, net of current portion
|
467
|
-
|
|
Deferred
tax liabilities
|
-
|
327
|
|
Income
taxes payable
|
430
|
439
|
|
PPP
loan, net of current portion
|
67
|
-
|
|
Other
non-current liabilities
|
36
|
33
|
|
Total
non-current liabilities
|
3,271
|
3,533
|
|
TOTAL LIABILITIES
|
$10,514
|
$11,666
|
|
|
|
|
|
EQUITY
|
|
|
|
TRIO-TECH
INTERNATIONAL’S SHAREHOLDERS' EQUITY:
|
|
|
|
Common
stock, no par value, 15,000,000 shares authorized; 3,673,055 shares
issued
outstanding
as at June 30, 2020 and June 30, 2019, respectively
|
$11,424
|
$11,424
|
|
Paid-in
capital
|
3,363
|
3,305
|
|
Accumulated
retained earnings
|
8,036
|
7,070
|
|
Accumulated
other comprehensive gain-translation adjustments
|
1,143
|
1,867
|
|
Total Trio-Tech International shareholders'
equity
|
23,966
|
23,666
|
|
Non-controlling
interest
|
1,180
|
1,195
|
|
TOTAL EQUITY
|
$25,146
|
$24,861
|
|
TOTAL LIABILITIES AND EQUITY
|
$35,660
|
$36,527
|
See notes to consolidated financial
statements.
TRIO-TECH INTERNATIONAL AND
SUBSIDIARIES
AUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
|
|
For the Year Ended
|
|
|
|
June 30,
|
June 30,
|
|
|
2020
|
2019
|
|
Revenue
|
|
|
|
Manufacturing
|
$11,605
|
$14,889
|
|
Testing services
|
14,840
|
16,760
|
|
Distribution
|
7,958
|
7,451
|
|
Real estate
|
62
|
98
|
|
|
34,465
|
39,198
|
|
Cost of Sales
|
|
|
|
Cost
of manufactured products sold
|
8,927
|
11,393
|
|
Cost
of testing services rendered
|
11,353
|
12,202
|
|
Cost
of distribution
|
6,847
|
6,505
|
|
Cost
of real estate
|
72
|
97
|
|
|
27,199
|
30,197
|
|
|
|
|
|
Gross Margin
|
7,266
|
9,001
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
General and administrative
|
6,976
|
7,049
|
|
Selling
|
679
|
826
|
|
Research and development
|
355
|
345
|
|
Impairment loss on long-lived assets
|
139
|
-
|
|
Gain on disposal of property, plant and equipment
|
(24)
|
(13)
|
|
Total
operating expenses
|
8,125
|
8,207
|
|
|
|
|
|
(Loss) / Income from Operations
|
(859)
|
794
|
|
|
|
|
|
Other Income
|
|
|
|
Interest expenses
|
(230)
|
(319)
|
|
Other income, net
|
1,112
|
249
|
|
Gain on sale of properties
|
1,172
|
685
|
|
Total other income
|
2,054
|
615
|
|
|
|
|
|
Income from Continuing Operations before Income
Taxes
|
1,195
|
1,409
|
|
|
|
|
|
Income Tax Benefits
|
12
|
42
|
|
|
|
|
|
Income
from continuing operations before non-controlling interests, net of
tax
|
1,207
|
1,451
|
|
|
|
|
|
Discontinued Operations
|
|
|
|
Loss
from discontinued operations, net of tax
|
(3)
|
(3)
|
|
NET INCOME
|
1,204
|
1,448
|
|
|
|
|
|
Less:
net income/(loss) attributable to non-controlling
interests
|
238
|
(97)
|
|
Net Income Attributable to Trio-Tech International Common
Shareholders
|
$966
|
$1,545
|
|
|
|
|
|
Amounts Attributable to Trio-Tech International Common
Shareholders:
|
|
|
|
Income
from continuing operations, net of tax
|
967
|
1,548
|
|
Loss
from discontinued operations, net of tax
|
(1)
|
(3)
|
|
Net Income Attributable to Trio-Tech International Common
Shareholders
|
$966
|
$1,545
|
|
|
|
|
|
Basic Earnings per Share:
|
|
|
|
Basic
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.26
|
$0.42
|
|
Basic
loss per share from discontinued operations attributable to
Trio-Tech International
|
$-
|
$-
|
|
Basic Earnings per Share from Net Income
|
|
|
|
Attributable to Trio-Tech International
|
$0.26
|
$0.42
|
|
|
|
|
|
Diluted Earnings per Share:
|
|
|
|
Diluted
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.26
|
$0.41
|
|
Diluted
loss per share from discontinued operations attributable to
Trio-Tech International
|
-
|
-
|
|
Diluted Earnings per Share from Net Income
|
|
|
|
Attributable to Trio-Tech International
|
$0.26
|
$0.41
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
|
Basic
|
3,673
|
3,673
|
|
Dilutive
effect of stock options
|
49
|
89
|
|
Number
of shares used to compute earnings per share diluted
|
3,722
|
3,762
|
See notes to consolidated financial statements.
TRIO-TECH INTERNATIONAL AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
|
For the Year Ended
|
|
|
|
June 30,
|
June 30,
|
|
|
2020
|
2019
|
|
Comprehensive Income Attributable to Trio-Tech
International Common Shareholders:
|
|
|
|
|
|
|
|
Net
income
|
1,204
|
1,448
|
|
Foreign
currency translation, net of tax
|
(742)
|
(420)
|
|
Comprehensive Income
|
462
|
1,028
|
|
Less:
comprehensive income / (loss) attributable to the non-controlling
interests
|
220
|
(202)
|
|
Comprehensive Income Attributable to Trio-Tech International Common
Shareholders
|
$242
|
$1,230
|
|
|
|
|
See notes to consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
|
|
Common Stock
|
Paid-in
|
Accumulated
Retained
|
Accumulated Other
Comprehensive
|
Non- Controlling
|
|
|
|
|
No. of Shares
|
Amount
|
Capital
|
Earnings
|
Income
|
Interests
|
Total
|
|
|
$
|
$
|
$
|
$
|
$
|
$
|
|
|
Balance
at June 30, 2018
|
3,553
|
11,023
|
3,249
|
5,525
|
2,182
|
1,522
|
23,501
|
|
|
|
|
|
|
|
|
|
|
Stock
option expenses
|
-
|
-
|
56
|
-
|
-
|
-
|
56
|
|
Net
income
|
-
|
-
|
-
|
1,545
|
-
|
(97)
|
1,448
|
|
Dividend
declared by subsidiary
|
-
|
-
|
-
|
-
|
-
|
(125)
|
(125)
|
|
Exercise
of options
|
120
|
401
|
-
|
-
|
-
|
-
|
401
|
|
Issue
of restricted shares to consultant
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Translation
adjustment
|
-
|
-
|
-
|
-
|
(315)
|
(105)
|
(420)
|
|
Balance
at June 30, 2019
|
3,673
|
11,424
|
3,305
|
7,070
|
1,867
|
1,195
|
24,861
|
|
|
|
|
|
|
|
|
|
|
Stock
option expenses
|
-
|
-
|
58
|
-
|
-
|
-
|
58
|
|
Net
income
|
-
|
-
|
-
|
966
|
-
|
238
|
1,204
|
|
Dividend
declared by subsidiary
|
-
|
-
|
-
|
-
|
-
|
(235)
|
(235)
|
|
Exercise
of options
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Translation
adjustment
|
-
|
-
|
-
|
-
|
(724)
|
(18)
|
(742)
|
|
Balance
at June 30, 2020
|
3,673
|
11,424
|
3,363
|
8,036
|
1,143
|
1,180
|
25,146
|
See accompanying notes to consolidated financial
statements.
TRIO-TECH INTERNATIONAL AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
|
|
Year Ended
|
|
|
|
June 30,
|
June 30,
|
|
|
2020
|
2019
|
|
|
|
|
|
Cash Flow from Operating Activities
|
|
|
|
Net
income
|
$1,204
|
$1,448
|
|
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
|
3,100
|
2,450
|
|
Impairment
loss on long-lived assets
|
139
|
-
|
|
Stock
compensation
|
58
|
56
|
|
Provision
for obsolete inventories
|
18
|
(25)
|
|
Reversal
of income tax provision
|
-
|
(299)
|
|
Payment of interest
portion of finance leases (Note
1b)
|
(61)
|
-
|
|
Bad
debt recovery
|
59
|
10
|
|
Accrued
interest expense, net accrued interest income
|
(69)
|
(9)
|
|
Gain
on sale of property, plant and equipment – continued
operations
|
(24)
|
1
|
|
Warranty
recovery, net
|
(26)
|
(43)
|
|
Fixed
assets written off
|
-
|
(33)
|
|
Deferred
tax benefit
|
63
|
5
|
|
Changes
in operating assets and liabilities, net of acquisition
effects
|
|
|
|
Trade
account receivables
|
1,110
|
630
|
|
Other receivables
|
(181)
|
64
|
|
Other assets
|
100
|
432
|
|
Inventories
|
430
|
539
|
|
Prepaid expenses and other current assets
|
(54)
|
(79)
|
|
Accounts payable and accrued expenses
|
(968)
|
(68)
|
|
Income taxes payable
|
12
|
60
|
|
Payment
of operating leases
|
(727)
|
-
|
|
Net Cash Provided by Operating Activities
|
3,011
|
4,454
|
|
|
|
|
|
Cash Flow from Investing Activities
|
|
|
|
Proceeds
from sale of assets held for sale
|
1,167
|
943
|
|
Proceeds
from disposal of property, plant and equipment
|
39
|
3
|
|
Investments
in restricted and unrestricted deposits
|
(2,665)
|
(3,445)
|
|
Addition
to property, plant and equipment
|
(1,017)
|
(2,841)
|
|
Investments
in short-term advances
|
(141)
|
-
|
|
Net Cash Used in Investing Activities
|
(2,617)
|
(5,340)
|
|
|
|
|
|
Cash Flow from Financing Activities
|
|
|
|
Payment
on lines of credit
|
(2,437)
|
(10,137)
|
|
Payment
of bank loans
|
(486)
|
(440)
|
|
Payment of
principal portion of finance leases
|
(344)
|
(247)
|
|
Dividends
paid on non-controlling interest
|
(235)
|
(125)
|
|
Proceeds
from exercising stock options
|
-
|
401
|
|
Proceeds from lines
of credit
|
2,370
|
8,270
|
|
Proceeds
from bank loans
|
-
|
1,475
|
|
Proceeds from
finance leases
|
279
|
213
|
|
Proceeds from PPP
loan
|
121
|
-
|
|
Net Cash Used in Financing Activities
|
(732)
|
(590)
|
|
|
|
|
|
Effect of Changes in Exchange Rate
|
(421)
|
(189)
|
|
|
|
|
|
Net Decrease in Cash, Cash Equivalents, and Restricted
Cash
|
(759)
|
(1,665)
|
|
Cash, Cash Equivalents, and Restricted Cash at Beginning of
Period
|
6,569
|
8,234
|
|
Cash, Cash Equivalents, and Restricted Cash at End of
Period
|
$5,810
|
$6,569
|
|
|
|
|
|
Supplementary Information of Cash Flows
|
|
|
|
Cash
paid during the period for:
|
|
|
|
Interest
|
$229
|
$284
|
|
Income
taxes
|
$126
|
$106
|
|
|
|
|
|
Non-Cash Transactions
|
|
|
|
Finance
lease of property, plant and equipment
|
$279
|
$214
|
See accompanying notes to consolidated financial
statements.
|
Reconciliation of Cash, Cash Equivalents, and Restricted
Cash
|
|
|
|
Cash
|
4,150
|
4,863
|
|
Short-Term
Deposits
|
6,697
|
4,144
|
|
Restricted Term-Deposits
|
1,660
|
1,706
|
|
Total Cash, Cash Equivalents, and Restricted Cash Shown in
Statement of Cash Flows
|
$12,507
|
$10,713
|
See
notes to 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.
TRIO-TECH INTERNATIONAL AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2020 AND 2019
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
1.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES.
Basis of Presentation and Principles of Consolidation
- Trio-Tech International (the “Company”
or “TTI” hereafter) was incorporated in fiscal 1958
under the laws of the State of California. TTI provides
third-party semiconductor testing and burn-in services primarily
through its laboratories in 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 fiscal 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,
Ireland 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.
(100%
owned by Trio-Tech Malaysia Sdn. Bhd.)
|
55%
|
|
Selangor,
Malaysia
|
|
Prestal
Enterprise Sdn. Bhd.
(76%
owned by Trio-Tech International Pte. Ltd.)
|
76%
|
|
Selangor,
Malaysia
|
|
Trio-Tech
(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
consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of
America (“U.S. GAAP’’). The basis of accounting
differs from that used in the statutory financial statements of the
Company’s subsidiaries and equity investee companies, which
are prepared in accordance with the accounting principles generally
accepted in their respective countries of incorporation. In the
opinion of management, the consolidated financial statements have
reflected all costs incurred by the Company and its subsidiaries in
operating the business.
All
dollar amounts in the financial statements and in the notes herein
are presented in thousands of United States dollars (US$’000)
unless otherwise designated.
Liquidity – The Company
earned net income attributable to common shareholders of $966 and
$1,545 for fiscal years 2020 and 2019, respectively.
The
Company’s core businesses - testing services, manufacturing
and distribution - operate in a volatile industry, whereby its
average selling prices and product costs are influenced by
competitive factors. These factors create pressures on sales,
costs, earnings and cash flows, which will impact liquidity.
Foreign Currency Translation and Transactions —
The U.S. dollar is the functional
currency of the U.S. parent company. The Singapore dollar, the
national currency of Singapore, is the primary currency of the
economic environment in which the operations in Singapore are
conducted. The Company also has business entities in Malaysia,
Thailand, China and Indonesia of which the Malaysian ringgit
(“RM”), Thai baht, Chinese renminbi (“RMB”)
and Indonesian rupiah, are the national currencies. The Company
uses the U.S. dollar for financial reporting
purposes.
The Company translates assets and liabilities of its subsidiaries
outside the U.S. into U.S. dollars using the rate of exchange
prevailing at the fiscal year end, and the consolidated statements
of operations and comprehensive income or loss is translated at
average rates during the reporting period. Adjustments resulting
from the translation of the subsidiaries’ financial
statements from foreign currencies into U.S. dollars are recorded
in shareholders' equity as part of accumulated other comprehensive
gain - translation adjustments. Gains or losses resulting from
transactions denominated in currencies other than functional
currencies of the Company’s subsidiaries are reflected in
income for the reporting period.
Use of Estimates — The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Among the more significant estimates included
in these financial statements are the estimated allowance for
doubtful account receivables, reserve for obsolete inventory,
reserve for warranty, impairments and the deferred income tax asset
allowance. Actual results could materially differ from those
estimates.
Revenue Recognition — On July 1, 2018, the Company adopted ASU
No. 2014-09, ASC Topic 606, Revenue from Contracts with
Customers (“ASC Topic
606”). This standard update outlines a single comprehensive
model for entities to use in accounting for revenue arising from
contracts with customers. We adopted using the modified
retrospective method applied to all contracts that were not
completed contracts at the date of initial application (i.e. July
1, 2019). Results for reporting periods after July 1, 2019 are
presented under ASC Topic 606, while prior period amounts are not
adjusted and continue to be reported in accordance with the
Company’s historic accounting under ASC Topic
605.
We apply a five-step approach as defined in ASC Topic 606 in
determining the amount and timing of revenue to be recognized: (1)
identifying the contract with customer; (2) identifying the
performance obligations in the contracts; (3) determining the
transaction price; (4) allocating the transaction price to the
performance obligations in the contract; and (5) recognizing
revenue when the corresponding performance obligation is
satisfied.
Revenue derived from testing services is recognized when testing
services are rendered. Revenue generated from sale of products in
the manufacturing and distribution segments are recognized when
persuasive evidence of an arrangement exists, delivery of the
products has occurred, customer acceptance has been obtained (which
means the significant risks and rewards of ownership have been
transferred to the customer), the price is fixed or determinable
and collectability is reasonably assured. Certain customers can
request for installation and training services to be performed for
certain products sold in the manufacturing segment. These services
are mainly for helping customers with the test runs of the machines
sold and are considered a separate performance obligation. Such
services can be provided by other entities as well and these do not
significantly modify the product. The Company recognizes the
revenue at point in time when the Company has satisfied its
performance obligation.
In the real estate segment: (1) revenue from property development
is earned and recognized on the earlier of the dates when the
underlying property is sold or upon the maturity of the agreement;
if this amount is uncollectible, the agreement empowers the
repossession of the property, and (2) rental revenue is recognized
on a straight-line basis over the terms of the respective leases.
This means that, with respect to a particular lease, actual amounts
billed in accordance with the lease during any given period may be
higher or lower than the amount of rental revenue recognized for
the period. Straight-line rental revenue is commenced when the
tenant assumes possession of the leased premises. Accrued
straight-line rents receivable represents the amount by which
straight-line rental revenue exceeds rents currently billed in
accordance with lease agreements.
GST / Indirect Taxes — The Company’s policy is to
present taxes collected from customers and remitted to governmental
authorities on a net basis. The Company records the amounts
collected as a current liability and relieves such liability upon
remittance to the taxing authority without impacting revenues or
expenses.
Trade Account Receivables and Allowance for Doubtful Accounts
— During the normal course of business, the Company
extends unsecured credit to its customers in all segments.
Typically, credit terms require payment to be made between 30 to 90
days from the date of the sale. The Company generally does not
require collateral from our customers.
The
Company’s management considers the following factors when
determining the collectability of specific customer accounts:
customer credit-worthiness, past transaction history with the
customer, current economic industry trends, and changes in customer
payment terms. The Company includes any account balances that are
determined to be uncollectible, along with a general reserve, in
the overall allowance for doubtful accounts. After all attempts to
collect a receivable have failed, the receivable is written off
against the allowance. Based on the information available to
management, the Company believed that its allowance for doubtful
accounts was adequate as of June 30, 2020 and 2019.
Warranty Costs — The Company provides for the
estimated costs that may be incurred under its warranty program at
the time the sale is recorded in its manufacturing segment. The
Company estimates warranty costs based on the historical rates of
warranty returns. The Company periodically assesses the adequacy of
its recorded warranty liability and adjusts the amounts as
necessary.
Cash and Cash Equivalents — The Company considers all
highly liquid investments with an original maturity of three months
or less when purchased to be cash equivalents.
Term Deposits — Term deposits consist of bank
balances and interest-bearing deposits having maturities of 3 to 6
months. As of June 30, 2020,
the Company held approximately $3,226 of
unrestricted term deposits in the Company’s 55% Malaysia
subsidiary which were denominated in RM; $2,481 of unrestricted
term deposits in the Company’s 100% owned Trio-Tech
International Pte. Ltd., which were denominated in Singapore
dollars; and $990 of unrestricted term deposits in the
Company’s 100% owned China subsidiary, which were denominated
in RMB. As of June 30, 2019, the Company held approximately
$1,426 of unrestricted term deposits in the Company’s
Malaysia subsidiary which were denominated in RM; $113 of
unrestricted term deposits in the Company’s 100% owned
Thailand subsidiary, which were denominated in Thai Baht; $1,876 of
unrestricted term deposits in the Company’s 100% owned
Trio-Tech International Pte. Ltd., which were denominated in
Singapore dollars; and $728 of unrestricted term deposits in the
Company’s 100% owned China subsidiary, which were denominated
in RMB.
Restricted Term Deposits — The Company held certain term
deposits in the Singapore and Malaysia operations which were
considered restricted, as they were held as security against
certain facilities granted by the financial institutions. As of
June 30, 2020 the
Company held approximately $1,434 of restricted term deposits in
the Company’s 100% owned Trio-Tech International Pte. Ltd.,
which were denominated in Singapore dollars, and $226 of restricted
term deposits in the Company’s 55% owned Malaysian
subsidiary, which were denominated in RM. Whereas at June 30, 2019,
the Company held approximately $1,478 of restricted term deposits
in the Company’s 100% owned Trio-Tech International Pte.
Ltd., which were denominated in Singapore dollars, and $228 of
restricted term deposits in the Company’s 55% owned Malaysian
subsidiary, which were denominated in the currency of
Malaysia.
Short-term advances
— The Company held a
short-term bank financial products of $141 with maturity period of
182 days, of which the principal amount is secured. Its interest
rate is not fixed and based on a floating interest rate upon the
maturity date. This financial product was classified into other
current assets as short-term advances, recognized at amortized
cost.
Inventories — Inventories in the Company’s
manufacturing and distribution segments consisting principally of
raw materials, works in progress, and finished goods, are stated at
the lower of cost, using the first-in, first-out
(“FIFO”) method, or market value. The semiconductor
industry is characterized by rapid technological change, short-term
customer commitments and rapid fluctuations in demand. Provisions
for estimated excess and obsolete inventory are based on our
regular reviews of inventory quantities on hand and the latest
forecasts of product demand and production requirements from our
customers. Inventories are written down for not saleable, excess or
obsolete raw materials, works-in-process and finished goods by
charging such write-downs to cost of sales. In addition to
write-downs based on newly introduced parts, statistics and
judgments are used for assessing provisions of the remaining
inventory based on salability and obsolescence.
Property, Plant and Equipment and Investment Properties
— Property, plant and equipment, and investment properties
are stated at cost, less accumulated depreciation and amortization.
Depreciation is provided for over the estimated useful lives of the
assets using the straight-line method. Amortization of leasehold
improvements is provided for over the lease terms or the estimated
useful lives of the assets, whichever is shorter, using the
straight-line method.
Maintenance,
repairs and minor renewals are charged directly to expense as
incurred. Additions and improvements to the assets are capitalized.
When assets are disposed of, the related cost and accumulated
depreciation thereon are removed from the accounts and any
resulting gain or loss is included in the consolidated statements
of operations and comprehensive income or loss.
Long-Lived Assets and Impairment – The Company’s
business requires heavy investment in manufacturing facilities and
equipment that are technologically advanced but can quickly become
significantly under-utilized or rendered obsolete by rapid changes
in demand.
The
Company evaluates the long-lived assets, including property, plant
and equipment and investment property, for impairment whenever
events or changes in circumstances indicate that the carrying value
of such assets may not be recoverable. Factors considered important
that could result in an impairment review include significant
underperformance relative to expected historical or projected
future operating results, significant changes in the manner of use
of the assets or the strategy for our business, significant
negative industry or economic trends, and a significant decline in
the stock price for a sustained period of time. Impairment is
recognized based on the difference between the fair value of the
asset and its carrying value, and fair value is generally measured
based on discounted cash flow analysis, if there is significant
adverse change.
The
Company applies the provisions of ASC Topic 360, Accounting for the Impairment or Disposal of
Long-Lived Assets (“ASC Topic 360”), to
property, plant and equipment. ASC Topic 360 requires that
long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable through the estimated undiscounted
cash flows expected to result from the use and eventual disposition
of the assets. Whenever any such impairment exists, an impairment
loss will be recognized for the amount by which the carrying value
exceeds the fair value.
Leases - Company as Lessee
Accounting Standards Codification Topic 842 (("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 Topic 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 Topic 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 Topic
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.
Comprehensive Income or Loss — ASC Topic 220, Reporting Comprehensive
Income, (“ASC Topic
220”), establishes standards for reporting and
presentation of comprehensive income or loss and its components in
a full set of general-purpose financial statements. The Company has
chosen to report comprehensive income or loss in the statements of
operations. Comprehensive income or loss is comprised of net income
or loss and all changes to shareholders’ equity except those
due to investments by owners and distributions to
owners.
Income Taxes — The
Company accounts for income taxes using the liability method in
accordance with ASC Topic 740, Accounting for Income
Taxes (“ASC Topic
740”). ASC Topic 740 requires an entity to recognize
deferred tax liabilities and assets. Deferred tax assets and
liabilities are recognized for the future tax consequence
attributable to the difference between the tax bases of assets and
liabilities and their reported amounts in the financial statements,
which will result in taxable or deductible amounts in future years.
Further, the effects of enacted tax laws or rate changes are
included as part of deferred tax expenses or benefits in the period
that covers the enactment date.
The
calculation of tax liabilities involves dealing with uncertainties
in the application of complex global tax regulations. The Company
recognizes potential liabilities for anticipated tax audit issues
in the U.S. and other tax jurisdictions based on its estimate of
whether, and the extent to which, additional taxes will be due. If
payment of these amounts ultimately proves to be unnecessary, the
reversal of the liabilities would result in tax benefits being
recognized in the period when the Company determines the
liabilities are no longer necessary. If the estimate of tax
liabilities proves to be less than the ultimate assessment, a
further charge to expense would result.
Retained Earnings — It is
the intention of the Company to reinvest earnings of its foreign
subsidiaries in the operations of those subsidiaries. These taxes
are undeterminable at this time. The amount of earnings retained in
subsidiaries was $15,585 and $14,019 at June 30, 2020 and 2019,
respectively.
Research and Development Costs — The Company incurred research and development
costs of $355 and $345 in fiscal year 2020 and in fiscal year 2019,
respectively, which were charged to operating expenses as
incurred.
Stock Based Compensation — Under ASC Topic 718, Compensation – Stock
Compensation (“ASC Topic
718”), stock-based compensation cost is measured at the grant
date, based on the estimated fair value of the award using an
option pricing model for stock options (Black-Scholes) and market
price for restricted stock units, and is recognized as expense over
the employee’s requisite service period.
Earnings per Share — Computation of basic earnings per share is
conducted by dividing net income available to common shares
(numerator) by the weighted average number of common shares
outstanding (denominator) during a reporting period. Computation of
diluted earnings per share gives effect to all dilutive potential
common shares outstanding during a reporting period. In computing
diluted earnings per share, the average market price of common
shares for a reporting period is used in determining the number of
shares assumed to be purchased from the exercise of stock
options.
Fair Values of Financial Instruments — Carrying values of trade account
receivables, accounts payable, accrued expenses, and term deposits
approximate their fair value due to their short-term maturities.
Carrying values of the Company’s lines of credit and
long-term debt are considered to approximate their fair value
because the interest rates associated with the lines of credit and
long-term debt are adjustable in accordance with market situations
when the Company tries to borrow funds with similar terms and
remaining maturities. See Note 16 for detailed discussion of the
fair value measurement of financial
instruments.
ASC
Topic 820 defines fair value as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The financial assets and financial liabilities that require
recognition under the guidance include available-for-sale
investments, employee deferred compensation plan and foreign
currency derivatives. The guidance establishes a hierarchy for
inputs used in measuring fair value that maximizes the use of
observable inputs and minimizes the use of unobservable inputs by
requiring that the observable inputs be used when available.
Observable inputs are inputs that market participants would use in
pricing the asset or liability developed based on market data
obtained from sources independent of us. Unobservable inputs are
inputs that reflect our assumptions about the assumptions market
participants would use in pricing the asset or liability developed
based on the best information available under the circumstances. As
such, fair value is a market-based measure considered from the
perspective of a market participant who holds the asset or owes the
liability rather than an entity-specific measure. The hierarchy is
broken down into three levels based on the reliability of inputs as
follows:
●
Level
1—Valuations based on quoted prices in active markets for
identical assets or liabilities that we have the ability to access.
Since valuations are based on quoted prices that are readily and
regularly available in an active market, valuation of these
products does not entail a significant degree of judgment.
Financial assets utilizing Level 1 inputs include U.S. treasuries,
most money market funds, marketable equity securities and our
employee deferred compensation plan;
●
Level
2—Valuations based on quoted prices in markets that are not
active or for which all significant inputs are observable, directly
or indirectly. Financial assets and liabilities utilizing Level 2
inputs include foreign currency forward exchange contracts, most
commercial paper and corporate notes and bonds; and
●
Level
3—Valuations based on inputs that are unobservable and
significant to the overall fair value
measurement.
Concentration of Credit Risk — Financial instruments that subject the
Company to credit risk compose trade account receivables. The
Company performs ongoing credit evaluations of its customers for
potential credit losses. The Company generally does not require
collateral. The Company believes that its credit policies do not
result in significant adverse risk and historically it has not
experienced significant credit related losses.
Investments — The
Company analyzes its investments to determine if it is a variable
interest entity (a “VIE”) and would require
consolidation. The Company (a) evaluates the sufficiency of the
total equity at risk, (b) reviews the voting rights and
decision-making authority of the equity investment holders as a
group, and whether there are any guaranteed returns, protection
against losses, or capping of residual returns within the group,
and (c) establishes whether activities within the venture are on
behalf of an investor with disproportionately few voting rights in
making this VIE determination. The Company would consolidate an
investment that is determined to be a VIE if it was the primary
beneficiary. The primary beneficiary of a VIE is determined by a
primarily qualitative approach, whereby the variable interest
holder, if any, has the power to direct the VIE’s most
significant activities and is the primary beneficiary. A new
accounting standard became effective and changed the method by
which the primary beneficiary of a VIE is determined. Through a
primarily qualitative approach, the variable interest holder, who
has the power to direct the VIE’s most significant activities
is determined to be the primary beneficiary. To the extent that the
investment does not qualify as VIE, the Company further assesses
the existence of a controlling financial interest under a voting
interest model to determine whether the investment should be
consolidated.
Equity Method —
The Company analyzes its investments to determine if they should be
accounted for using the equity method. Management evaluates both
Common Stock and in-substance Common Stock to determine whether
they give the Company the ability to exercise significant influence
over operating and financial policies of the investment even though
the Company holds less than 50% of the Common Stock and
in-substance Common Stock. The net income of the investment, if
any, will be reported as “Equity in earnings of
unconsolidated joint ventures, net of tax” in the
Company’s consolidated statements of operations and
comprehensive income.
Cost Method — Investee companies not accounted
for under the consolidation or the equity method of accounting are
accounted for under the cost method of accounting. Under this
method, the Company’s share of the earnings or losses of such
Investee companies is not included in the consolidated balance
sheet or statements of operations and comprehensive income or loss.
However, impairment charges are recognized in the consolidated
statements of operations and comprehensive income or loss. If
circumstances suggest that the value of the investee Company has
subsequently recovered, such recovery is not recorded.
Loan Receivables from Property Development Projects
— The loan receivables
from property development projects are classified as current asset,
carried at face value, and are individually evaluated for
impairment. The allowance for loan losses reflects
management’s best estimate of probable losses determined
principally on the basis of historical experience and specific
allowances for known loan accounts. All loans or portions thereof
deemed to be uncollectible or to require an excessive collection
cost are written off to the allowance for losses.
Interest
income on the loan receivables from property development projects
are recognized on an accrual basis. Discounts and premiums on loans
are amortized to income using the interest method over the
remaining period to contractual maturity. The amortization of
discounts into income is discontinued on loans that are
contractually 90 days past due or when collection of interest
appears doubtful.
Contingent Liabilities — Certain conditions may exist as of
the date the financial statements are issued, which may result in a
loss to the Company, but which will only be resolved when one or
more future events occur or fail to occur. The Company’s
management and its legal counsel assess such contingent
liabilities, and such assessment inherently involves an exercise of
judgment. In assessing loss contingencies related to legal
proceedings that are pending against the Company or un-asserted
claims that may result in such proceedings, the Company’s
legal counsel evaluates the perceived merits of any legal
proceedings or un-asserted claims, as well as the perceived merits
of the amount of relief sought or expected to be sought
therein.
If the
assessment of a contingency indicates that it is probable that a
material loss has been incurred and the amount of the liability can
be estimated, then the estimated liability would be accrued in the
Company’s financial statements. If the assessment indicates
that a potentially material loss contingency is not probable, but
is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an
estimate of the range of possible loss if determinable and
material, would be disclosed.
Loss
contingencies considered remote are generally not disclosed unless
they involve guarantees, in which case the nature of the guarantee
would be disclosed.
2. NEW ACCOUNTING PRONOUNCEMENTS
In August 2020, the FASB issued ASU 2020-06: Debt – Debt with Conversion and Other
options (Subtopic 470-20) and Derivative and Hedging –
Contracts in Entity’s Own Equity (Subtopic 815-40).
This ASU reduces number of accounting models for convertible debt
instruments and convertible preferred stock. As well as amend the
guidance for the derivatives scope exception for contracts in an
entity’s own equity to reduce form-over-substance-based
accounting conclusion. In addition, this ASU improves and amends
the related EPS guidance. This amendments are effective for the
Company for fiscal years beginning after December 15, 2023,
including interim period within those fiscal years. Early adoption
is permitted, but no earlier than fiscal years beginning after
December 15, 2020, including interim periods within those fiscal
years. Adoption is either a modified retrospective method or a
fully retrospective method of transition. The Company is currently
evaluating the impacts of the provisions of ASU 2020-06 on its
consolidated financial statements and related
disclosures.
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. The Company has
completed its assessment and concluded that this update has no
significant impact to the Company’s financial
statements.
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. The Company has completed the assessment and
concluded that this update has no significant impact to the
Company’s consolidated statements of operations and
comprehensive income.
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. The Company has
completed its assessment and concluded that this update would have
no significant impact to the Company’s presentation of
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 consolidated financial
statements.
Other new pronouncements issued but not yet effective until after
June 30, 2020 are not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
3. TERM DEPOSITS
|
|
June 30,
2020
|
June 30,
2019
|
|
|
|
|
|
Short-term
deposits
|
$6,887
|
$4,143
|
|
Currency
translation effect on short-term deposits
|
(190)
|
1
|
|
Total short-term deposits
|
6,697
|
4,144
|
|
Restricted
term deposits
|
1,712
|
1,701
|
|
Currency
translation effect on restricted term deposits
|
(52)
|
5
|
|
Total restricted term deposits
|
1,660
|
1,706
|
|
Total term deposits
|
$8,357
|
$5,850
|
Restricted deposits represent the amount of cash pledged to secure
loans payable granted by financial institutions and serve as
collateral for public utility agreements such as electricity and
water and performance bonds related to customs duty payable.
Restricted deposits are classified as non-current assets, as they
relate to long-term obligations and will become unrestricted only
upon discharge of the obligations. Short-term deposits represent
bank deposits, which do not qualify as cash
equivalents.
4. TRADE ACCOUNT RECEIVABLES
AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Account
receivables are customer obligations due under normal trade terms.
The Company performs continuing credit evaluations of its
customers’ financial conditions, and although management
generally does not require collateral, letters of credit may be
required from its customers in certain circumstances.
Senior
management reviews trade account receivables on a periodic basis to
determine if any receivables will potentially be uncollectible.
Management includes any trade account receivables balances that are
determined to be uncollectible in the allowance for doubtful
accounts. After all attempts to collect a receivable have failed,
the receivable is written off against the allowance. Based on
the information available to us, management believed the allowance
for doubtful accounts as of June 30, 2020 and June 30, 2019 was
adequate.
The
following table represents the changes in the allowance for
doubtful accounts:
|
|
For the
Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
Beginning
|
$263
|
$259
|
|
Additions charged
to expenses
|
351
|
94
|
|
Recovered
|
(284)
|
(84)
|
|
Write-off
|
(9)
|
-
|
|
Currency
translation effect
|
(7)
|
(6)
|
|
Ending
|
$314
|
$263
|
5. LOANS RECEIVABLE FROM PROPERTY DEVELOPMENT PROJECTS
The
following table presents TTCQ’s loans receivable from
property development projects in China as of June 30, 2020 and as
of June 30, 2019. The exchange rate is based on the historical
rate published by the Monetary Authority of Singapore as on
March 31, 2015, since the net loan receivable was “nil”
as at June 30, 2020 and as at June 30, 2019.
|
|
Loan Expiry
|
Loan Amount
|
Loan Amount
|
|
|
Date
|
(RMB)
|
(U.S. Dollars)
|
|
Short-term loan receivables
|
|
|
|
|
JiangHuai
(Project - Yu Jin Jiang An)
|
May
31, 2013
|
2,000
|
326
|
|
Less:
allowance for doubtful receivables
|
|
(2,000)
|
(326)
|
|
Net loan receivable from property development projects
|
|
-
|
-
|
|
|
|
|
|
|
Long-term loan receivables
|
|
|
|
|
Jun
Zhou Zhi Ye
|
Oct
31, 2016
|
5,000
|
814
|
|
Less:
transfer – down-payment for purchase of investment
property
|
|
(5,000)
|
(814)
|
|
Net loan receivable from property development projects
|
|
-
|
-
|
The short-term loan receivables of renminbi (“RMB”)
2,000, or approximately $326 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 $326 on the investment in JiangHuai was recorded during fiscal
2014. TTCQ did not generate other income from JiangHuai for the
fiscal year ended June 30, 2020 and June 30, 2019. TTCQ is in the
legal process of recovering the outstanding amount of
$326.
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 10).
6. INVENTORIES
Inventories
consisted of the following:
|
|
For the Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Raw
materials
|
$1,281
|
$1,190
|
|
Work in
progress
|
968
|
1,306
|
|
Finished
goods
|
422
|
591
|
|
Less: provision for
obsolete inventory
|
(678)
|
(673)
|
|
Currency
translation effect
|
(71)
|
13
|
|
|
$1,922
|
$2,427
|
The
following table represents the changes in provision for obsolete
inventory:
|
|
For the Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Beginning
|
$673
|
$695
|
|
Additions charged
to expenses
|
26
|
17
|
|
Usage -
disposition
|
(8)
|
(42)
|
|
Currency
translation effect
|
(13)
|
3
|
|
Ending
|
$678
|
$673
|
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 was 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 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 June 30, 2020 and June 30,
2019.
|
|
|
|
June 30,
2020
|
June 30,
2019
|
|
|
Reclassification
|
Investment
Amount
|
Investment
Amount
|
Investment
Amount
|
|
|
Date/ 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.
8. INVESTMENT
PROPERTIES
The following table presents the Company’s investment in
properties in China as of June 30, 2020. The exchange rate is based
on the market rate as of June 30, 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
|
|
-
|
(166)
|
|
Gross
investment in rental property
|
|
9,649
|
1,363
|
|
Accumulated
depreciation on rental property
|
June
30, 2020
|
(6,558)
|
(940)
|
|
Reclassified
as “Assets held for sale”
|
July
01, 2018
|
2,822
|
410
|
|
Reclassification
from “Assets held for sale”
|
Mar
31, 2019
|
(1,029)
|
(143)
|
|
|
(4,765)
|
(673)
|
|
|
Net investment in property – China
|
|
4,884
|
690
|
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
|
Rental Property I - MaoYe 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. 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
$32 and $66 for the years ended June 30, 2020 and 2019,
respectively.
Depreciation expense for MaoYe was $13 and $30 for the years ended
June 30, 2020 and 2019, respectively.
Rental Property II - JiangHuai
In fiscal year 2010, TTCQ purchased eight units of commercial
property in Chongqing, China from Chongqing JiangHuai Real Estate
Development Co. Ltd. (“JiangHuai”) for a total purchase
price of RMB 3,600, or approximately $580. TTCQ 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 for both the years ended June 30, 2020 and
2019.
Depreciation expense for JiangHuai was $26 and $26 for the years
ended June 30, 2020 and 2019, respectively.
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 expires on April 30, 2021. The agreement was
terminated in April 2020 due to the current slow and cautious
market rental conditions. Management is still actively looking for
a tenant.
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 $30
and $32 for the years ended June 30, 2020 and 2019,
respectively.
Depreciation expense for Fu Li was $28 and $30 for the years ended
June 30, 2020 and 2019, respectively.
Summary
Total
rental income for all investment properties in China was $62 for
the year ended June 30, 2020, and $98 for the same period in the
prior fiscal year.
Depreciation
expenses for all investment properties in China were $67 and $86
for the years ended June 30, 2020 and 2019,
respectively.
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and
equipment consisted of the following:
|
|
Estimated Useful Life
|
June 30, |
|
|
|
in
Years
|
2020
|
2019
|
|
Building
and improvements
|
3-20
|
$5,102
|
$5,082
|
|
Leasehold
improvements
|
3-27
|
6,170
|
6,150
|
|
Machinery
and equipment
|
3-7
|
26,578
|
26,140
|
|
Furniture
and fixtures
|
3-5
|
1,134
|
1,111
|
|
Equipment
under capital leases
|
3-5
|
1,066
|
928
|
|
Property, plant and
equipment, gross
|
|
$40,050
|
$39,411
|
|
Less:
accumulated depreciation
|
|
(27,148)
|
(25,083)
|
|
Accumulated
amortization on equipment under capital leases
|
|
(719)
|
(808)
|
|
Total
accumulated depreciation
|
|
$(27,867)
|
$(25,891)
|
|
Property,
plant and equipment before currency translation effect, net
|
|
12,183
|
13,520
|
|
Currency
translation effect
|
|
(1,873)
|
(1,361)
|
|
Property, plant and equipment, net
|
|
$10,310
|
$12,159
|
Depreciation
and amortization expenses for property, plant and equipment during
fiscal years 2020 and 2019 were $2,341 and $2,364,
respectively.
10. OTHER ASSETS
|
|
June 30,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Down
payment for purchase of investment properties*
|
$1,645
|
$1,645
|
|
Down
payment for purchase of property, plant and equipment
|
8
|
100
|
|
Deposits
for rental and utilities
|
171
|
169
|
|
Currency
translation effect
|
(215)
|
(164)
|
|
Total
|
$1,609
|
$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 $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 developer 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.
11. LINES OF CREDIT
The carrying value of the Company’s lines of credit
approximates its fair value, because the interest rates associated
with the lines of credit are adjustable in accordance with market
situations when the Company borrowed funds with similar terms and
remaining maturities.
The Company’s credit rating provides it with readily and
adequate access to funds in global markets.
As of June 30, 2020, the Company had certain lines of credit that
are collateralized by restricted deposits.
|
Entity with
|
Type of
|
Interest
|
Expiration
|
Credit
|
Unused
|
|
Facility
|
Facility
|
Rate
|
Date
|
Limitation
|
Credit
|
|
Trio-Tech
International Pte. Ltd., Singapore
|
Lines
of Credit
|
Ranging
from 1.85% to 5.5%, SIBOR rate +1.25% and LIBOR rate
+1.30%
|
-
|
$4,806
|
$4,806
|
|
Universal
(Far East) Pte. Ltd.
|
Lines
of Credit
|
Ranging
from 1.85% to 5.5%
|
-
|
$359
|
$187
|
|
Trio-Tech
Malaysia Sdn. Bhd.
|
Revolving
Credit
|
Cost
of Funds Rate +2%
|
-
|
$350
|
$350
|
On November 18, 2019, Trio-Tech International Pte. Ltd. signed an
agreement with JECC Leasing (Singapore) Pte. Ltd. for an Account
Receivables 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.
As of June 30, 2019, the Company had certain lines of credit that
are collateralized by restricted deposits.
|
Entity
with
|
Type
of
|
Interest
|
Expiration
|
Credit
|
Unused
|
|
Facility
|
Facility
|
Rate
|
Date
|
Limitation
|
Credit
|
|
Trio-Tech
International Pte. Ltd., Singapore
|
Lines
of Credit
|
Ranging
from 1.85% to 5.5%
|
-
|
$4,213
|
$4,213
|
|
Trio-Tech (Tianjin) Co., Ltd.
|
Lines
of Credit
|
5.22%
to 6.3%
|
|
$1,492
|
$1,492
|
|
Universal
(Far East) Pte. Ltd.
|
Lines
of Credit
|
Ranging
from 1.85% to 5.5%
|
-
|
$370
|
$183
|
|
Trio-Tech
Malaysia Sdn. Bhd.
|
Revolving
Credit
|
Cost
of Funds Rate +2%
|
-
|
$363
|
$363
|
12. ACCRUED
EXPENSES
|
Accrued expenses
consisted of the following:
|
For the Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Payroll
and related costs
|
1,185
|
1,354
|
|
Commissions
|
104
|
107
|
|
Customer
deposits
|
30
|
46
|
|
Legal
and audit
|
315
|
299
|
|
Sales
tax
|
19
|
9
|
|
Utilities
|
80
|
120
|
|
Warranty
|
12
|
39
|
|
Accrued
purchase of materials and property, plant and
equipment
|
186
|
362
|
|
Provision
for re-instatement
|
300
|
302
|
|
Deferred
income
|
88
|
61
|
|
Contract
liabilities
|
476
|
501
|
|
Other
accrued expenses
|
287
|
293
|
|
Currency
translation effect
|
(77)
|
(7)
|
|
Total
|
$3,005
|
$3,486
|
13. WARRANTY ACCRUAL
The Company provides for the estimated costs that may be incurred
under its warranty program at the time the sale is recorded. The
warranty period for products manufactured by the Company is
generally one year or the warranty period agreed with the
customer. The Company estimates the warranty costs based on
the historical rates of warranty returns. The Company
periodically assesses the adequacy of its recorded warranty
liability and adjusts the amounts as necessary.
|
|
For the Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
Beginning
|
$39
|
$82
|
|
Additions
charged to cost and expenses
|
1
|
15
|
|
Utilization
/ reversal
|
(27)
|
(58)
|
|
Currency
translation effect
|
(1)
|
-
|
|
Ending
|
$12
|
$39
|
14. BANK LOANS PAYABLE
Bank
loans payable consisted of the following:
|
|
June 30, 2020
|
June 30, 2019
|
|
Note payable denominated in RM for expansion plans
in Malaysia, maturing in August 2024, bearing interest rates at
3.85% and 4.80% at June 30, 2020 and June 30, 2019 per annum,
respectively, with monthly payments of principal plus interest
through August 2024, collateralized by the acquired building with a
carrying value of $2,543 and
$2,683, as at June 30, 2020 and
June 30, 2019, respectively.
|
$2,295
|
$2 ,696
|
|
|
|
|
|
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 both June 30,
2020 and June 30, 2019) with monthly payments of principal plus
interest through April 2017. This note payable is secured by plant
and equipment with a carrying value of $nil as of June 30,2020 and
$187 as of June 30, 2019. The loans were fully repaid in June
2020.
|
-
|
142
|
|
|
|
|
|
Total bank loans payable
|
2,295
|
2,838
|
|
|
|
|
|
Current
portion of bank loan payable
|
384
|
494
|
|
Currency
translation effect on current portion of bank loan
|
(14)
|
(6)
|
|
Current
portion of bank loan payable
|
370
|
488
|
|
Long
term portion of bank loan payable
|
1,911
|
2,344
|
|
Currency
translation effect on long-term portion of bank loan
|
(75)
|
(52)
|
|
Long
term portion of bank loans payable
|
$1,836
|
$2,292
|
Future
minimum payments (excluding interest) as of June 30, 2020 were as
follows:
|
2021
|
$370
|
|
2022
|
384
|
|
2023
|
400
|
|
2024
|
403
|
|
2025
|
158
|
|
Thereafter
|
491
|
|
Total
obligations and commitments
|
$2,206
|
Future
minimum payments (excluding interest) as of June 30, 2019 were as
follows:
|
2020
|
$488
|
|
2021
|
362
|
|
2022
|
380
|
|
2023
|
399
|
|
2024
|
407
|
|
Thereafter
|
744
|
|
Total
obligations and commitments
|
$2,780
|
15. COMMITMENTS AND CONTINGENCIES
Trio-Tech
(Malaysia) Sdn. Bhd. in Malaysia did not have capital commitments as at
June 30, 2020, as compared to capital commitments for the purchase
of equipment and other related infrastructure costs as at June 30,
2019 amounting to RM 18, or approximately $4.
Trio-Tech (Tianjin) Co. Ltd. in China did not have capital
commitments as at June 30, 2020, as compared to capital commitments
for the purchase of equipment and other related infrastructure
costs as at June 30, 2019 amounting to RMB 397, or approximately
$58.
Trio-Tech (SIP) Co., Ltd. in China did not have capital commitments
as at June 30, 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.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS APPROXIMATE CARRYING
VALUE
In accordance with ASC Topic 825 and 820, the following presents
assets and liabilities measured and carried at fair value and
classified by level of fair value measurement
hierarchy:
There were no transfers between Levels 1 and 2 during the fiscal
year ended June 30, 2020 or for the same period in the prior fiscal
year.
Term deposits (Level 2) – The carrying amount approximates
fair value because of the short maturity of these
instruments.
Restricted term deposits (Level 2) – The carrying amount
approximates fair value because of the short maturity of these
instruments.
PPP Loan (Level
2) – The carrying amount approximates its fair value
based on similar long-term debt issues available to the
Company.
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.
17. CONCENTRATION OF CUSTOMERS
The
Company had one major customer that accounted for the following
revenue and trade account receivables:
|
|
For the Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
Revenue
|
|
|
|
Customer
A
|
38.4%
|
41.9%
|
|
Customer
B
|
17.6%
|
11.4%
|
|
|
|
|
|
Trade Account
Receivables
|
|
|
|
Customer
A
|
40.6%
|
41.3%
|
|
Customer
B
|
6.3%
|
3.3%
|
18. BUSINESS SEGMENTS
In fiscal year 2020, the Company operated in four segments; the
testing service industry (which performs structural and electronic
tests of semiconductor devices), the designing and manufacturing of
equipment (assembly of equipment tests the structural integrity of
integrated circuits and other products), distribution of various
products from other manufacturers in Singapore and Asia and the
real estate segment in China.
The revenue allocated to individual countries was based on where
the customers were located. The allocation of the cost of
equipment, the current year investment in new equipment and
depreciation expense have been made on the basis of the primary
purpose for which the equipment was acquired.
All
inter-segment sales were sales from the manufacturing segment to
the testing and distribution segment. Total inter-segment sales
were $816 in fiscal year 2020 and $484 in fiscal year 2019.
Corporate assets mainly consisted of
cash and prepaid expenses. Corporate expenses mainly consisted of
stock option expenses, salaries, insurance, professional expenses
and directors' fees. Corporate expenses are allocated to the four
segments on a pre-determined fixed amount calculated based on the
annual budgeted sales, except the Malaysia operation, which is
calculated based on actual sales. The following segment information
table includes segment operating income or loss after including
corporate expenses allocated to the segments, which gets eliminated
in the consolidation.
|
Business Segment Information:
|
Year Ended June 30,
|
Net Revenue
|
Operating Income (Loss)
|
Total Assets
|
Depr. and Amort.
|
Capital Expenditures
|
|
Manufacturing
|
2020
|
$11,605
|
$(326)
|
$9,807
|
$346
|
$183
|
|
|
2019
|
$14,889
|
$575
|
$9,576
|
$120
|
$52
|
|
|
|
|
|
|
|
|
|
Testing
Services
|
2020
|
14,840
|
(1,040)
|
21,086
|
2,578
|
834
|
|
|
2019
|
16,760
|
(164)
|
22,182
|
2,244
|
2,789
|
|
|
|
|
|
|
|
|
|
Distribution
|
2020
|
7,958
|
751
|
875
|
100
|
-
|
|
|
2019
|
7,451
|
598
|
785
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Real
Estate
|
2020
|
62
|
(97)
|
3,587
|
76
|
|
|
|
2019
|
98
|
(92)
|
3,826
|
86
|
-
|
|
|
|
|
|
|
|
|
|
Fabrication
|
2020
|
-
|
-
|
27
|
-
|
-
|
|
Services*
|
2019
|
-
|
-
|
27
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Corporate
&
|
2020
|
-
|
(147)
|
278
|
-
|
|
|
Unallocated
|
2019
|
-
|
(123)
|
131
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Total
Company
|
2020
|
$34,465
|
$(859)
|
$35,660
|
$3,100
|
$1,017
|
|
|
2019
|
$39,198
|
$794
|
$36,527
|
$2,450
|
$2,841
|
*
Fabrication services is a discontinued
operation.
19. OTHER INCOME, NET
Other
income, net consisted of the following:
|
|
For the Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
Interest
income
|
177
|
100
|
|
Other
rental income
|
110
|
113
|
|
Exchange
gain / (loss)
|
(35)
|
(135)
|
|
Government
grants
|
778
|
77
|
|
Bad
debt recovery
|
59
|
2
|
|
Other
miscellaneous income
|
23
|
92
|
|
Total
|
$1,112
|
$249
|
During
fiscal year 2020, the Company received government grants amounting
to $778, of which $718 were the financial assistance received from
the Singapore, Malaysia and China governments amid the COVID-19
pandemic.
20. INCOME TAXES
(Loss)/Income
before provision for income taxes consists of the
following:
|
|
For the Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
United
States
|
(662)
|
(308)
|
|
International
|
1,857
|
1,717
|
|
Total
|
$1,195
|
$1,409
|
The
components of the provision for income taxes are as
follows:
|
|
For the Year Ended June 30, |
|
|
|
2020
|
2019
|
|
Current:
|
|
|
|
Federal
|
$(1)
|
$(337)
|
|
State
|
2
|
2
|
|
Foreign
|
212
|
289
|
|
|
$213
|
$(46)
|
|
Deferred:
|
|
|
|
Federal
|
$-
|
$-
|
|
State
|
-
|
-
|
|
Foreign
|
(225)
|
4
|
|
|
(225)
|
4
|
|
Total
provisions
|
$(12)
|
$(42)
|
A
reconciliation of income tax benefit compared to the amount of
income tax benefit that would result by applying the U.S. federal
statutory income tax rate to pre-tax income is as
follows:
|
|
For the Year
Ended June 30,
|
|
|
|
2020
|
2019
|
|
Statutory federal
tax rate
|
21.00%
|
21.00%
|
|
State taxes, net of
federal benefit
|
(0.50)
|
(0.22)
|
|
Permanent items and
credits
|
13.95
|
11.23
|
|
Foreign rate
differential
|
(33.86)
|
(4.76)
|
|
Other
|
2.14
|
4.71
|
|
Changes in
valuation allowance
|
(3.73)
|
(11.11)
|
|
Tax reform related
to one-time repatriation tax
|
-
|
(23.83)
|
|
Effective
rate
|
(1.00)%
|
(2.98)%
|
The
provision for income taxes has been determined based upon the tax
laws and rates in the countries in which we operate. 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.
Due to
the enactment of Tax Cuts and Jobs Act, the Company is subject to a
tax on global intangible low-taxed income
(“GILTI”). GILTI is a tax on foreign income
in excess of a deemed return on tangible assets of foreign
corporations. Companies subject to GILTI have the option to account
for the GILTI tax as a period cost if and when incurred, or to
recognize deferred taxes for temporary differences including
outside basis differences expected to reverse as GILTI. The Company
has elected to account for GILTI as a period cost, and therefore
has included GILTI expense in its effective tax rate calculation
for the year ended June 30, 2020.
On
March 27, 2020, The Coronavirus Aid, Relief, and Economic Security
Act (CARES Act) was enacted by the US Government in response to the
COVID-19 pandemic. The CARES Act, among other things, includes
provisions relating to refundable payroll tax credits, deferment of
employer side social security payments, net operating loss
carryback periods, alternative minimum tax credit refunds,
modifications to the net interest deduction limitations and
technical corrections to tax depreciation methods for qualified
improvement property. The CARES Act did not have a materially
impact to the financial statements as of June 30,
2020.
The
Company has maintained an indefinite reinvestment assertion as of
June 30, 2020. Accordingly, no deferred taxes related to
withholding taxes or unrealized foreign currency gains or losses
have been recorded.
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.
Temporary
differences that give rise to a significant portion of deferred tax
assets and deferred tax liabilities is as follows for the year
ended June 30:
|
|
For the Year Ended June 30,
|
|
|
Deferred
tax assets:
|
2020
|
2019
|
|
Net operating
losses and credits
|
$487
|
$363
|
|
Inventory
valuation
|
121
|
64
|
|
Provision for bad
debts
|
785
|
296
|
|
Accrued
vacation
|
37
|
94
|
|
Accrued
expenses
|
188
|
325
|
|
Fixed asset
basis
|
1
|
23
|
|
Investment in
subsidiaries
|
277
|
-
|
|
Unrealized
gain
|
24
|
55
|
|
Other
|
51
|
73
|
|
Total deferred tax
assets
|
$1,971
|
$1,293
|
|
Deferred tax
liabilities:
|
|
|
|
Depreciation
|
(359)
|
(390)
|
|
Others
|
(76)
|
(78)
|
|
Total deferred
income tax liabilities
|
$(435)
|
$(468)
|
|
|
|
|
|
Subtotal
|
1,536
|
825
|
|
Valuation
allowance
|
(1,289)
|
(762)
|
|
Net
deferred tax assets
|
$247
|
$63
|
|
|
|
|
|
Presented
as follows in the balance sheets:
|
|
|
|
Deferred tax
assets
|
247
|
390
|
|
Deferred tax
liabilities
|
-
|
(327)
|
|
Net
deferred tax assets
|
$247
|
$63
|
The valuation allowance increased by $527 and decreased by $355 in fiscal years 2020 and
2019, respectively.
At June 30, 2020, the Company had federal net operating loss
carry-forwards and state net operating loss carryforward of $1,236,
which expire through 2033. These carryovers may be subject to
limitations under I.R.C. Section 382. Management of the Company is
uncertain whether it is more likely than not that these future
benefits will be realized. Accordingly, a full valuation allowance
was established.
Generally,
U.S. federal, state, and foreign authorities may examine the
Company’s tax returns for three years, four years, and five
years, respectively, from the date an income tax return is filed.
However, the taxing authorities may continue to adjust the
Company’s net operating loss carryforwards until the statute
of limitations closes on the tax years in which the net operating
losses are utilized.
21. UNRECOGNIZED TAX
BENEFITS
The Company adopted ASC Topic 740, Accounting for Income
Taxes - Interpretation of Topic
740.
A reconciliation of the beginning and ending amount of unrecognized
tax benefits is as follows:
|
|
For the Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
Unrecognized tax benefits
|
$(250)
|
$(250)
|
The Company accrues penalties and interest on unrecognized tax
benefits as a component of penalties and interest expenses,
respectively. The Company has not accrued any penalties or interest
expense relating to the unrecognized benefits at June 30, 2020 and
June 30, 2019.
The major tax jurisdictions in which the Company files income tax
returns are the U.S., Singapore, China and Malaysia. The statute of
limitations, in general, is open for years 2013 to 2019 for tax
authorities in those jurisdictions to audit or examine income tax
returns. The Company is under annual review by the governments of
Singapore, Malaysia, China, and Thailand. However, the Company is
not currently under tax examination in any other jurisdiction,
including the United States.
22. REVENUE
The
Company generates revenue primarily from 3 different segments:
Manufacturing, Testing and Distribution. The Company accounts for a
contract with a customer when there is approval and commitment from
both parties, the rights of the parties are identified, payment
terms are identified, the contract has commercial substance and
collectability of consideration is probable. The Company’s
revenues are measured based on consideration stipulated in the
arrangement with each customer, net of any sales incentives and
amounts collected on behalf of third parties, such as sales taxes.
The revenues are recognized as separate performance obligations
that are satisfied by transferring control of the product or
service to the customer.
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.
Manufacturing
The
Company primarily derives revenue from the sale of both front-end
and back-end semiconductor test equipment and related peripherals,
maintenance and support of all these products, installation and
training services and the sale of spare parts. The Company’s
revenues are measured based on consideration stipulated in the
arrangement with each customer, net of any sales incentives and
amounts collected on behalf of third parties, such as sales
taxes.
The
Company recognizes revenue at a point in time when the Company has
satisfied its performance obligation by transferring control of the
product to the customer. The Company uses judgment to evaluate
whether the control has transferred by considering several
indicators, including:
●
whether the
Company has a present right to payment;
●
the customer
has legal title;
●
the customer
has physical possession;
●
the customer
has significant risk and rewards of ownership; and
●
the customer
has accepted the product, or whether customer acceptance is
considered a formality based on history of acceptance of similar
products (for example, when the customer has previously accepted
the same equipment, with the same specifications, and when we can
objectively demonstrate that the tool meets all of the required
acceptance criteria, and when the installation of the system is
deemed perfunctory).
Not all
of the indicators need to be met for the Company to conclude that
control has transferred to the customer. In circumstances in which
revenue is recognized prior to the product acceptance, the portion
of revenue associated with its performance obligations of product
installation and training services are deferred and recognized upon
acceptance.
The
majority of sales under the Manufacturing segment include a
standard 12-month warranty. The Company has concluded that the
warranty provided for standard products are assurance type
warranties and are not separate performance obligations. Warranty
provided for customized products are service warranties and are
separate performance obligations. Transaction prices are allocated
to this performance obligation using cost plus method. The portion
of revenue associated with warranty service is deferred and
recognized as revenue over the warranty period, as the customer
simultaneously receives and consumes the benefits of warranty
services provided by the Company.
Testing
The
Company renders 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.
Method and Impact of Adoption
Effective
as of July 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic
606), and its related amendments using the modified
retrospective transition method. This method was applied to
contracts that were not complete as of the date of adoption. Under
the modified retrospective transition approach, periods prior to
the adoption date were not adjusted and continue to be reported in
accordance with ASC Topic 605.
An
assessment was made on the impact of all existing arrangements as
at the date of adoption, under ASC Topic 606, to identify the
cumulative effect of applying ASC Topic 606 on the beginning
retained earnings. The Company quantified the impact of the
adoption on its financial position, results of operations
and cash flow, and the impact was insignificant to the
Company.
The
impact is primarily driven by the changes related to the accounting
of standard warranty. Prior to adoption of ASC Topic 606, the
Company accounted for the estimated warranty cost as a charge to
costs of sales when revenue was recognized. Upon adoption of ASC
Topic 606, the standard warranty for customized products is
recognized as a separate performance obligation.
The
Company has completed its adoption and implemented policies,
processes and controls to support the standard’s measurement
and disclosure requirements. The Company recognizes net product
revenue when it satisfies the obligations as evidenced by the
transfer of control of its products and services to customers. The
guidance did not have material impact on the Company’s
consolidated financial results.
Contract Balances
The
timing of revenue recognition, billings and collections may result
in billed account receivables, 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 receivable while
contract liabilities were recorded under accrued expenses in the
balance sheet.
The
following table is the reconciliation of contract
balances.
|
|
June 30,
|
|
|
|
2020
|
2019
|
|
Trade
Accounts Receivables
|
5,951
|
7,113
|
|
Accounts
Payable
|
2,590
|
3,272
|
|
Contract
Assets
|
216
|
419
|
|
Contract
Liabilities
|
476
|
501
|
Remaining Performance Obligation
As at June 30, 2020, the Company had $505 of remaining performance
obligations, which represents our obligation to deliver products
and services. Given the profile
of contract terms, approximately 62.1% 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 18 “Business Segments” of the
Notes to Consolidated Financial Statements for information related to
revenue.
The Company applies the following practical
expedients:
●
The
Company accounts for shipping and handling costs as activities to
fulfil the promise to transfer the goods, instead of a promised
service to its customer.
●
The
Company has not elected to adjust the promised amount of
consideration for the effects of a significant financing component
as the Company expects, at contract inception, that the period
between when the entity transfers a promised good or service to a
customer and when the customer pays for that good or service will
generally be one year or less.
●
The
Company has elected to adopt the practical expedient for contract
costs, specifically in relation to incremental costs of obtaining a
contract.
Costs to obtain a contract are not material, and the Company
generally expenses such costs as incurred because the amortization
period is one year or less.
23. EARNINGS PER SHARE
The Company adopted ASC Topic 260, Earnings Per Share.
Basic earnings per share
(“EPS”) are computed by dividing net income available
to common shareholders (numerator) by the weighted average number
of common shares outstanding (denominator) during the period.
Diluted EPS give effect to all dilutive potential common shares
outstanding during a period. In computing diluted EPS, the average
price for the period is used in determining the number of shares
assumed to be purchased from the exercise of stock options and
warrants.
Options
to purchase 763,500 shares of Common Stock at exercise prices
ranging from $2.53 to $5.98 per share were outstanding as of June
30, 2020. 220,500 stock options were excluded in the computation of
diluted EPS for fiscal year 2020 because they were
anti-dilutive.
Options
to purchase 673,500 shares of Common Stock at exercise prices
ranging from $2.69 to $5.98 per share were outstanding as of June
30, 2019. 110,000 options were excluded in the computation of
diluted EPS for fiscal year 2019 because they were
anti-dilutive.
The following table is a reconciliation of the weighted average
shares used in the computation of basic and diluted EPS for the
years presented herein:
|
|
For the Year Ended June 30,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Income
attributable to Trio-Tech International common shareholders from
continuing operations, net of tax
|
$967
|
$1,548
|
|
Loss
attributable to Trio-Tech International common shareholders from
discontinued operations, net of tax
|
$(1)
|
$(3)
|
|
Net income attributable to Trio-tech International common
shareholders
|
966
|
1,545
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic
|
3,673
|
3,673
|
|
Dilutive
effect of stock options
|
49
|
89
|
|
Number of shares used to compute earnings per share -
diluted
|
3,722
|
3,762
|
|
|
|
|
|
Basic Earnings per Share:
|
|
|
|
Basic
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.26
|
$0.42
|
|
Basic
loss per share from discontinued operations attributable to
Trio-Tech International
|
$-
|
$-
|
|
Basic Earnings per Share from net income attributable to Trio-Tech
International
|
$0.26
|
$0.42
|
|
|
|
|
|
Diluted Earnings per Share:
|
|
|
|
Diluted
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.26
|
$0.41
|
|
Diluted
loss per share from discontinued operations attributable to
Trio-Tech International
|
-
|
-
|
|
Diluted Earnings per Share from net income attributable to
Trio-Tech International
|
$0.26
|
$0.41
|
24. STOCK OPTIONS
On September 24, 2007, the Company’s Board of Directors
unanimously adopted the 2007 Employee Stock Option Plan (the
“2007 Employee Plan”) and the 2007 Directors Equity
Incentive Plan (the “2007 Directors Plan”), each of
which was approved by the shareholders on December 3, 2007. Each of
those plans was amended during the term of such plan to increase
the number of shares covered thereby. As of the last amendment
thereof, the 2007 Employee Plan covered an aggregate of 600,000
shares of the Company’s Common Stock and the 2007 Directors
Plan covered an aggregate of 500,000 shares of the Company’s
Common Stock. Each of those plans terminated by its respective
terms on September 24, 2017. These two plans were administered by
the Board, which also established the terms of the
awards.
On September 14, 2017, the Company’s Board of Directors
unanimously adopted the 2017 Employee Stock Option Plan (the
“2017 Employee Plan”) and the 2017 Directors Equity
Incentive Plan (the “2017 Directors Plan”) each of
which was approved by the shareholders on December 4, 2017. Each of
these plans is administered by the Board of Directors of the
Company.
Assumptions
The
fair value for the options granted were estimated using the
Black-Scholes option pricing model with the following weighted
average assumptions, assuming no expected dividends:
|
|
For the Year Ended June
30,
|
|
|
|
2020
|
2019
|
|
Expected
volatility
|
45.38% to 65.49%
|
45.38% to 97.48%
|
|
Risk-free interest
rate
|
0.30% to 2.35%
|
0.30% to 2.35%
|
|
Exepected life
(years)
|
2.5-3.25
|
2.5-3.25
|
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 twelve months ended June 30, 2020.
The observation period covered is consistent with the expected life
of the 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 no 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).
The
Company granted options to purchase 60,000 shares of its Common
Stock to employees pursuant to the 2017 Employee Plan during the
twelve months ended June 30, 2020.
There
were no stock options exercised during the twelve months ended June
30, 2020. The Company recognized stock-based compensation expenses
of $6 and $34 in the three and twelve months ended June 30, 2020,
respectively under the 2017 Employee Plan. The balance of
unamortized stock-based compensation of $29 based on fair value on
the grant date related to options granted under the 2017 Employee
Plan is to be recognized over a period of three years. The
weighted-average remaining contractual term for non-vested options
was 2.03 years.
As of June 30, 2020, there were vested employee stock options
granted under the 2017 Employee Plan covering a total of 98,000
shares of Common Stock. The weighted-average exercise price was
$4.44, and the weighted average contractual term was 3.41
years. The total fair value of vested employee stock options
as of June 30, 2020 was $435.
The
Company granted options to purchase 76,000 shares of its Common
Stock to employees pursuant to the 2017 Employee Plan during the
twelve months ended June 30, 2019. There were no stock options
exercised during the twelve months ended June 30, 2019. The Company
recognized stock-based compensation expenses of $18 and $29 in the
three and twelve months ended June 30, 2019, respectively, under
the 2017 Employee Plan. The balance of unamortized stock-based
compensation of $14 based on fair value on the grant date related
to options granted under the 2017 Employee Plan is to be recognized
over a period of three years. The weighted-average remaining
contractual term for non-vested options was 2.37
years.
As of June 30, 2019, there were vested employee stock options
granted under the 2017 Employee Plan covering a total of 49,000
shares of Common Stock. The weighted-average exercise price was
$4.97, and the weighted average contractual term was 4.11
years. The total fair value of vested employee stock options
as of June 30, 2019 was $244.
A
summary of option activities under the 2017 Employee Plan during
the twelve-month period ended June 30, 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
|
2.73
|
36
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding at June 30, 2020
|
196,000
|
3.92
|
3.72
|
36
|
|
Exercisable at June 30, 2020
|
98,000
|
4.44
|
3.41
|
9
|
|
|
Options
|
Weighted
Average
Grant-Date
Fair
Value
|
|
|
|
|
|
Non-vested
at July 1, 2019
|
87,000
|
$4.28
|
|
Granted
|
60,000
|
2.53
|
|
Vested
|
(49,000)
|
(4.44)
|
|
Forfeited
|
-
|
-
|
|
Non-vested
at June 30, 2020
|
98,000
|
$3.39
|
|
|
|
|
A
summary of option activities under the 2017 Employee Plan during
the twelve-month period ended June 30, 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
|
76,000
|
3.38
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding at June 30, 2019
|
136,000
|
4.53
|
4.28
|
-
|
|
Exercisable at June 30, 2019
|
49,000
|
4.97
|
4.11
|
-
|
|
|
Options
|
Weighted
Average
Grant-Date
Fair
Value
|
|
|
|
|
|
Non-vested
at July 1, 2018
|
45,000
|
$5.98
|
|
Granted
|
76,000
|
3.38
|
|
Vested
|
(34,000)
|
(4.53)
|
|
Forfeited
|
-
|
-
|
|
Non-vested
at June 30, 2019
|
87,000
|
$4.28
|
|
|
|
|
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.
There
was no option exercised during the twelve months ended June 30,
2020. The Company recognized stock-based compensation expenses of
$Nil in the twelve months ended June 30, 2020 under the 2007
Employee Plan.
There
were 50,000 options exercised during the twelve months ended June
30, 2019. The Company recognized stock-based compensation expenses
of $1 in the twelve months ended June 30, 2019 under the 2007
Employee Plan.
As of
June 30, 2020, there were vested employee stock options that were
exercisable covering a total of 77,500 shares of Common Stock. The
weighted-average exercise price was $3.69 and the weighted average
contractual term was 1.22 years. The total fair value of vested
employee stock options as of June 30, 2019 was $286.
As of
June 30, 2019, there were vested employee stock options that were
exercisable 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 2.15 years. The total fair value of vested
employee stock options as of June 30, 2020 was $247.
A
summary of option activities under the 2007 Employee Plan during
the twelve-month period ended June 30, 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 June
30, 2020
|
77,500
|
$3.69
|
1.22
|
$-
|
|
Exercisable at June
30, 2020
|
77,500
|
$3.69
|
1.22
|
$-
|
A
summary of option activities under the 2007 Employee Plan during
the twelve-month period ended June 30, 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)
|
3.26
|
-
|
-
|
|
Forfeited or
expired
|
-
|
-
|
-
|
-
|
|
Outstanding at June
30, 2019
|
77,500
|
$3.69
|
2.22
|
$-
|
|
Exercisable at June
30, 2019
|
68,125
|
$3.62
|
2.15
|
$-
|
A
summary of the status of the Company’s non-vested employee
stock options during the twelve months ended June 30, 2020 is
presented below:
|
|
|
Weighted
Average
Grant-Date
|
|
|
Options
|
Fair
Value
|
|
Non-vested at July
1, 2019
|
9,375
|
$4.14
|
|
Granted
|
-
|
-
|
|
Vested
|
(9,375)
|
(3.69)
|
|
Forfeited
|
-
|
-
|
|
Non-vested at June
30, 2020
|
-
|
$-
|
A
summary of the status of the Company’s non-vested employee
stock options during the twelve months ended June 30, 2019 is
presented below:
|
|
|
Weighted
Average
Grant-Date
|
|
|
Options
|
Fair
Value
|
|
Non-vested at July
1, 2018
|
28,750
|
$3.83
|
|
Granted
|
-
|
-
|
|
Vested
|
(19,375)
|
(3.69)
|
|
Forfeited
|
-
|
-
|
|
Non-vested at June
30, 2019
|
9,375
|
$4.14
|
2017 Directors Equity Incentive Plan
The
2017 Directors Plan permits the grant of options covering up to an
aggregate of 300,000 shares of Common Stock to its directors in the
form of non-qualified options and restricted stock. The exercise
price of the non-qualified options is 100% of the fair value of the
underlying shares on the grant date. The options have five-year
contractual terms and are generally exercisable immediately as of
the grant date.
In the
fiscal year ended June 30, 2020, the Company granted options to
purchase 80,000 shares of its Common Stock to directors pursuant to
the 2017 Directors Plan with an exercise price equal to the fair
market value of Common Stock (as defined under the 2017 Directors
Plan in conformity with Regulation 409A or the Internal Revenue
Code of 1986, as amended) at the date of grant. The fair value of
the options granted to purchase 80,000 shares of the
Company’s Common Stock was approximately $202 based on the
fair value of $2.53 per share determined by the Black Scholes
option pricing model. As all of the stock options granted under the
2017 Directors Plan vest immediately at the date of grant, there
were no unvested stock options granted under the 2017 Directors
Plan as of June 30, 2020. There were no options exercised during
the twelve months ended June 30,
2020. The Company recognized stock-based compensation
expenses of $24 in the twelve months ended June 30, 2020 under the
2017 Directors Plan.
In the
fiscal year ended June 30, 2019, the Company granted options to
purchase 80,000 shares of its Common Stock to directors pursuant to
the 2017 Directors Plan with an exercise price equal to the fair
market value of Common Stock (as defined under the 2017 Directors
Plan in conformity with Regulation 409A or the Internal Revenue
Code of 1986, as amended) at the date of grant. The fair value of
the options granted to purchase 80,000 shares of the
Company’s Common Stock was approximately $262 based on the
fair value of $3.28 per share determined by the Black Scholes
option pricing model. As all of the stock options granted under the
2017 Directors Plan vest immediately at the date of grant, there
were no unvested stock options granted under the 2017 Directors
Plan as of June 30, 2019. There were no options exercised during
the twelve months ended June 30,
2019. The Company recognized stock-based compensation
expenses of $26 in the twelve months ended June 30, 2019 under the
2017 Directors Plan.
A
summary of option activities under the 2017 Directors Plan during
the twelve months ended June 30, 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
|
4.73
|
48
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding at June 30, 2020
|
240,000
|
3.93
|
3.75
|
48
|
|
Exercisable at June 30, 2020
|
240,000
|
3.93
|
3.75
|
48
|
A
summary of option activities under the 2017 Directors Plan during
the twelve months ended June 30, 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
|
80,000
|
3.28
|
4.78
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding at June 30, 2019
|
160,000
|
4.63
|
4.25
|
-
|
|
Exercisable at June 30, 2019
|
160,000
|
4.63
|
4.25
|
-
|
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 grant of options covering up to an aggregate of
500,000 shares of Common Stock to its directors in the form of
non-qualified options and restricted stock. The exercise price of
the non-qualified options is 100% of the fair value of the
underlying shares on the grant date. The options have five-year
contractual terms and are generally exercisable immediately as of
the grant date.
There
were 50,000 stock options expired, while no stock options were
exercised during the twelve month period ended June 30, 2020. The
Company did not recognize any stock-based compensation expenses
during the twelve month ended June 30, 2020.
As the
2007 Directors plan terminated in fiscal 2018, the Company did not
grant any options pursuant to the 2007 Director Plan during the
twelve months ended June 30, 2019. There were 70,000 worth of stock
options exercised during the twelve month period ended June 30,
2019. The Company did not recognize any stock-based compensation
expenses during the twelve months ended June 30, 2019.
As of
June 30, 2020, there were vested director stock options 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 0.83 years. The total fair value of vested
directors' stock options as of June 30, 2020 was $831. All director
stock options vest immediately at the date of grant. There were no
unvested director stock options as of June 30, 2020.
As of
June 30, 2019, there were vested director stock options 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 1.58 years. The total fair value of vested
directors' stock options as of June 30, 2019 was $1,021. All of our
director stock options vest immediately at the date of grant. There
were no unvested director stock options as of June 30,
2019.
A
summary of option activities under the 2007 Directors Plan during
the twelve months ended June 30, 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 June
30, 2020
|
250,000
|
3.32
|
0.83
|
22
|
|
Exercisable at June
30, 2020
|
250,000
|
3.32
|
0.83
|
22
|
|
|
|
|
|
|
A
summary of option activities under the 2007 Directors Plan during
the twelve months ended June 30, 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)
|
3.40
|
-
|
-
|
|
Forfeited or
expired
|
(20,000)
|
3.62
|
-
|
-
|
|
Outstanding at June
30, 2019
|
300,000
|
3.40
|
1.58
|
9
|
|
Exercisable at June
30, 2019
|
300,000
|
3.40
|
1.58
|
9
|
25. LEASES
Company as Lessor
Operating
leases under which the Company is the lessor arise from leasing 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 $67 and $86 for the years
ended June 30, 2020 and 2019, respectively.
Future
minimum rental income in China and Thailand to be received from
fiscal year 2021 to fiscal year 2022 on non-cancellable operating
leases is contractually due as of June 30, 2020 as
follows:
|
2021
|
$120
|
|
2022
|
$114
|
|
|
$234
|
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 of June 30, 2019 as
follows:
|
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):
|
|
|
June 30,
|
|
Components of Lease Balances
|
Classification
|
2020
|
|
Assets
|
|
|
|
Operating
lease assets
|
Right-of-use
asset-operating, net
|
$944
|
|
Finance
lease assets
|
Property,
plant & equipment
|
1,372
|
|
Accumulated
amortization
Right-of-use
asset
|
|
(526)
|
|
Assets
|
Property,
plant & equipment
|
$846
|
|
Total Leased Assets
|
|
$1,790
|
|
|
|
|
|
Liabilities
|
|
|
|
Operating Lease Liabilities
|
|
|
|
Current
portion
|
Current
portion of lease liability- operating
|
$477
|
|
Long-term
portion
|
Lease
liability- operating, net of current portion
|
467
|
|
Total Operating Lease
Liabilities
|
|
$944
|
|
Finance Lease Liabilities
|
|
|
|
Current
portion of finance leases
|
Current
portion of lease liability- finance
|
$231
|
|
Net
of current portion of finance leases
|
Lease
liability- finance, net of current portion
|
435
|
|
Total Finance Lease
Liabilities
|
|
$666
|
|
|
|
|
|
Total Lease Liabilities
|
|
$1,610
|
|
|
3 Months Ended
|
12 Months Ended
|
|
|
June 30, 2020
|
|
|
Lease Cost
|
|
|
|
Finance
lease cost:
|
|
|
|
Interest
on lease liability
|
11
|
$48
|
|
Amortization
of right-of-use asset
|
60
|
272
|
|
Total
Finance Lease Cost
|
71
|
320
|
|
|
|
|
|
Operating
Lease Costs $
|
185
|
$727
|
|
|
|
|
Other information related to leases were as follows (in thousands
except lease term and discount rate):
|
|
June
30,
|
|
|
2020
|
|
Cash paid for amounts included in the measurement of lease
liabilities
|
|
|
Operating
cash flows from finance leases
|
$(61)
|
|
Operating
cash flows from operating leases
|
$(727)
|
|
Finance
cash flows from finance leases
|
$279
|
|
Right-of-use assets obtained in exchange for new operating lease
liabilities
|
$944
|
|
|
|
|
Weighted-average remaining lease term:
|
|
|
Finance
leases
|
3.40
|
|
Operating
leases
|
1.88
|
|
Weighted-average discount rate:
|
|
|
Finance
leases
|
3.36
|
|
Operating
leases
|
4.5
|
As of June 30, 2020, the maturities of the Company's operating and
finance lease liabilities were as follow:
|
|
Operating Lease Liabilities
|
Finance Lease
Liabilities
|
|
Fiscal Year
|
|
|
|
2021
|
509
|
265
|
|
2022
|
317
|
211
|
|
2023
|
168
|
133
|
|
2024
|
-
|
107
|
|
Thereafter
|
-
|
20
|
|
Total
future minimum lease payments
|
$994
|
$736
|
|
Less:
amount representing interest
|
(50)
|
(70)
|
|
Present
value of net minimum lease payments
|
944
|
666
|
|
|
|
|
|
Presentation
on statement of financial position
|
|
|
|
Current
|
$477
|
$231
|
|
Non-Current
|
$467
|
$435
|
As of June 30, 2019, future minimum lease payments under finance
leases and non-cancellable operating leases were as
follows:
|
Fiscal Year
|
Operating Lease Liabilities
|
Finance Lease Liabilities
|
|
2020
|
$646
|
$283
|
|
2021
|
216
|
187
|
|
2022
|
47
|
143
|
|
2023
|
1
|
68
|
|
2024
|
-
|
44
|
|
Total
future minimum lease payments
|
$910
|
$725
|
26. NON-CONTROLLING INTEREST
In accordance with the provisions of ASC Topic 810, the Company has
classified the non-controlling interest as a component of
stockholders’ equity in the accompanying consolidated balance
sheets. Additionally, the Company has presented the net income
attributable to the Company and the non-controlling ownership
interests separately in the accompanying consolidated
financial statements.
Non-controlling interest represents the minority
stockholders’ share of 45% of the equity of Trio-Tech
Malaysia Sdn. Bhd., 45% interest in SHI International Pte.
Ltd., and 24% interest in Prestal Enterprise Sdn. Bhd., which are
subsidiaries of the Company.
The table below reflects a reconciliation of the equity
attributable to non-controlling interest:
|
|
For the Year Ended June 30,
|
|
|
Non-controlling
interest
|
2020
|
2019
|
|
Beginning
balance
|
$1,195
|
$1,522
|
|
Net
income
|
238
|
(97)
|
|
Dividend declared
by a subsidiary
|
(235)
|
(125)
|
|
Translation
adjustment
|
(18)
|
(105)
|
|
Ending
balance
|
$1,180
|
$1,195
|
27. PAYCHECK PROTECTION PROGRAM LOAN
The Coronavirus Aid, Relief, and Economic Security (CARES) Act
created the Paycheck Protection Program (PPP) to provide
certain small businesses with liquidity to support their operations
during the COVID-19 pandemic. The PPP is a loan program
designed to provide a direct incentive for small businesses to keep
their employees on payroll.
The
loans have a 1% fixed interest rate and are due in two years with
payment deferred for the first six months. However, they are
eligible for forgiveness (in full or in part, including any accrued
interest) under certain conditions and are subject to audit by the
U.S. government. The loans will be
forgiven if the loan proceeds were used for eligible
purposes, including payroll, benefits, rent and utilities, and the
Company maintained its payroll levels for eight weeks.
In May
2020, the Company received loan proceeds in the amount of
approximately $121 under the PPP. The Company accounted for the PPP
loan as a financial liability in accordance with Accounting
Standards Codification (ASC) 470 Debt after considering the
following aspects: (1) the legal form of a PPP loan is debt,
regardless of whether the Company expects the loan to be forgiven
(2) given the degree of uncertainty and complexity surrounding the
PPP loan forgiveness process, this may impact a Company’s
initial assessment.
Under
ASC 470, the Company recognizes a liability for the full amount of
PPP proceeds received and accrues interest over the term of the
loan. No additional interest was imputed at a market rate because
the guidance on imputing interest in ASC 835-30 excludes
transactions where interest rates are prescribed by a government
agency. If any amount is ultimately forgiven (i.e., the Company is
legally released from being the loan’s primary obligor in
accordance with ASC 405-20), income from the extinguishment of the
liability would be recognized in the income statement as a gain on
loan extinguishment. The Company intends to use the proceeds for
purposes consistent with the PPP. Hence, the Company expects that
its use of the loan proceeds will meet the conditions for
forgiveness of the loan. In considering the term of the loan and
payment deferred portion, the Company determined that the loan
would be presented as a curent portion of $54 and non current
portion of $67 in the balance sheet.
28. 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 was 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. The Company did not have similar transactions in the
previous fiscal year.
F - 43
Exhibit
23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
Trio-Tech
International
Van Nuys, California
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-3 No. 333-38082, Form S-8 No.
333-222920, Form S-8 No. 333-193515, Form S-8 No. 171569 and Form
S-8 No. 333-14781 of Trio-Tech International of our report dated
September 23, 2020, relating to the consolidated financial
statements which appear in this Form 10-K.
Mazars LLP
PUBLIC ACCOUNTANTS
AND CHARTERED ACCOUNTANTS
/s/
Mazars
LLP
Singapore
September
23, 2020
CERTIFICATIONS
Exhibit 31.1
I, S.
W. Yong, certify that:
1.
I have reviewed
this Annual Report on Form 10-K 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 15(d)-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 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 year quarter (the registrant's fourth fiscal year
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.
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.
Date:
September 23, 2020
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 Annual Report on Form 10-K 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 15(d)-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
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 year quarter (the registrant's
fourth fiscal year 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.
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.
Date:
September 23, 2020
/s/
Victor H. M. Ting
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 annual report on Form 10-K of the Company for the year ended
June 30, 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
Date:
September 23, 2020
/s/ Victor H. M. Ting
Name:
Victor
H. M. Ting
Title:
Vice President and Chief Financial Officer
Date:
September 23, 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.