UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 20192020
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)
| California | | 95-2086631 |
| (State or other jurisdiction of | | (I.R.S. Employer |
| incorporation or organization) | | Identification Number) |
| | | |
16139 Wyandotte StreetBlock 1008 Toa Payoh North | | |
Van Nuys, CaliforniaUnit 03-09 Singapore | | 91406318996 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant's Telephone Number, Including Area Code: 818-787-7000(65) 6265 3300
Securities registered pursuant to Section 12(b) of the Act:
| | Name of each exchange |
| Title of each class | Trading Symbol | on which registered |
| Common Stock, no par value | TRT | NYSE American |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”,company,” and "emerging growth company" in Rule 12b2 of the Exchange Act. (Check one):
| Large Accelerated Filer | ☐ | | Accelerated Filer | ☐ |
| | | | | |
| Non-Accelerated Filer | ☐ | | 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 ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class of registered securities | | Trading Symbol | | Name of each exchange on which registered |
Common Stock, no par value
| | TRT | | NYSE MKT
|
As of May 1, 2019,2020, there were 3,673,055 shares of the issuer’s Common Stock, no par value, outstanding.
TRIO-TECH INTERNATIONALINTERNATIONAL
INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE
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| 2019 | 2
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| | 46 47 |
| | 46 47 |
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| | 47 |
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| Item 4. | Mine Safety Disclosures | |
| Item 5. | Other Information | 47 |
| | 47 |
| | 47 |
| | 47 |
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| 48 |
FORWARD-LOOKING STATEMENTS
The discussions of Trio-Tech International’s (the “Company”) business and activities set forth in this Form 10-Q and in other past and future reports and announcements by the Company may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and assumptions regarding future activities and results of operations of the Company. In light of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the following factors, among others, could cause actual results to differ materially from those reflected in any forward-looking statements made by or on behalf of the Company: market acceptance of Company products and services; changing business conditions or technologies and volatility in the semiconductor industry, which could affect demand for the Company’s products and services; the impact of competition; problems with technology; product development schedules; delivery schedules; changes in military or commercial testing specifications which could affect the market for the Company’s products and services; difficulties in profitably integrating acquired businesses, if any, into the Company; risks associated with conducting business internationally and especially in Asia, including currency fluctuations and devaluation, currency restrictions, local laws and restrictions and possible social, political and economic instability; changes in U.S. and global financial and equity markets, including market disruptions and significant interest rate fluctuations; public health issues related to the COVID-19 pandemic; and other economic, financial and regulatory factors beyond the Company’s control. Other than statements of historical fact, all statements made in this Quarterly Report are forward-looking, including, but not limited to, statements regarding industry prospects, future results of operations or financial position, and statements of our intent, belief and current expectations about our strategic direction, prospective and future financial results and condition. In some cases, you can identify forward-looking statements by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” “believes,” “can impact,” “continue,” or the negative thereof or other comparable terminology. Forward-looking statements involve risks and uncertainties that are inherently difficult to predict, which could cause actual outcomes and results to differ materially from our expectations, forecasts and assumptions.
Unless otherwise required by law, we undertake no obligation to update forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events. You are cautioned not to place undue reliance on such forward-looking statements.
PART I. FINANCIAL INFORMATION
PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT NUMBER OF SHARES)
| | | | | |
| ASSETS | | | | |
| CURRENT ASSETS: | | |
| Cash and cash equivalents | $4,602 | $6,539 | $4,370 | $4,863 |
| Short-term deposits | 3,646 | 653 | 6,309 | 4,144 |
| Trade accounts receivable, less allowance for doubtful accounts of $256 and $259 | 7,120 | 7,747 | |
| Trade accounts receivable, less allowance for doubtful accounts of $315 and $263, respectively | | 6,397 | 7,113 |
| Other receivables | 1,034 | 881 | 1,065 | 817 |
| Inventories, less provision for obsolete inventory of $660 and $695 | 2,918 | 2,930 | |
| Inventories, less provision for obsolete inventory of $656 and $673, respectively | | 2,226 | 2,427 |
| Prepaid expenses and other current assets | 307 | 208 | 267 | 287 |
| Assets held for sale | 90 | 91 | - | 89 |
| Total current assets | 19,717 | 19,049 | 20,634 | 19,740 |
| NON-CURRENT ASSETS: | | |
| Deferred tax asset | 335 | 400 | 565 | 390 |
| Investment properties, net | 828 | 1,146 | 705 | 782 |
| Property, plant and equipment, net | 12,687 | 11,935 | 10,597 | 12,159 |
| Operating lease right-of-use assets | | 1,073 | - |
| Other assets | 1,728 | 2,249 | 1,595 | 1,750 |
| Restricted term deposits | 1,705 | 1,695 | 1,627 | 1,706 |
| Total non-current assets | 17,283 | 17,425 | 16,162 | 16,787 |
| TOTAL ASSETS | $37,000 | $36,474 | $36,796 | $36,527 |
| | | |
| LIABILITIES | | |
| CURRENT LIABILITIES: | | |
| Lines of credit | $622 | $2,043 | $398 | $187 |
| Accounts payable | 3,021 | 3,704 | 3,129 | 3,272 |
| Accrued expenses | 3,882 | 3,172 | 3,065 | 3,486 |
| Income taxes payable | 404 | 285 | 396 | 417 |
| Current portion of bank loans payable | 492 | 367 | 378 | 488 |
| Current portion of capital leases | 257 | 250 | |
| Current portion of finance leases | | 246 | 283 |
| Current portion of operating leases | | 541 | - |
| Total current liabilities | 8,678 | 9,821 | 8,153 | 8,133 |
| NON-CURRENT LIABILITIES: | | |
| Bank loans payable, net of current portion | 2,442 | 1,437 | 1,919 | 2,292 |
| Capital leases, net of current portion | 325 | 524 | |
| Finance leases, net of current portion | | 486 | 442 |
| Operating leases, net of current portion | | 532 | - |
| Deferred tax liabilities | 343 | 327 | 375 | 327 |
| Income taxes payable | 613 | 828 | 430 | 439 |
| Other non-current liabilities | 32 | 36 | 34 | 33 |
| Total non-current liabilities | 3,755 | 3,152 | 3,776 | 3,533 |
| TOTAL LIABILITIES | $12,433 | $12,973 | $11,929 | $11,666 |
| | | |
| EQUITY | | |
| TRIO-TECH INTERNATIONAL’S SHAREHOLDERS' EQUITY: | | |
| Common stock, no par value, 15,000,000 shares authorized; 3,673,055 shares issued and outstanding as at March 31, 2019, and 3,553,055 shares as at June 30, 2018 | $11,424 | $11,023 | |
| Common stock, no par value, 15,000,000 shares authorized; 3,673,055 shares issued outstanding as at March 31, 2020 and June 30, 2019, respectively | | $11,424 |
| Paid-in capital | 3,261 | 3,249 | 3,357 | 3,305 |
| Accumulated retained earnings | 6,621 | 5,525 | 7,839 | 7,070 |
| Accumulated other comprehensive gain-translation adjustments | 2,055 | 2,182 | 796 | 1,867 |
| Total Trio-Tech International shareholders' equity | 23,361 | 21,979 | 23,416 | 23,666 |
| Non-controlling interest | 1,206 | 1,522 | 1,451 | 1,195 |
TOTAL EQUITY | $24,567 | $23,501 | $24,867 | $24,861 |
| TOTAL LIABILITIES AND EQUITY | $37,000 | $36,474 | $36,796 | $36,527 |
See notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / (LOSS)
UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
| | | |
| | | | | |
| | | | | |
| Revenue | | | | |
| Manufacturing | $2,519 | $3,097 | $8,881 | $10,086 |
| Testing Services | 3,741 | 3,989 | 12,018 | 12,819 |
| Distribution | 2,225 | 1,727 | 6,338 | 5,587 |
| Real Estate | 16 | 25 | 49 | 81 |
| | 8,501 | 8,838 | 27,286 | 28,573 |
| Cost of Sales | | | | |
| Cost of manufactured products sold | 1,851 | 2,303 | 6,789 | 7,806 |
| Cost of testing services rendered | 2,937 | 2,862 | 9,046 | 9,351 |
| Cost of distribution | 1,909 | 1,483 | 5,454 | 4,831 |
| Cost of real estate | 18 | 16 | 54 | 52 |
| | 6,715 | 6,664 | 21,343 | 22,040 |
| | | | | |
| Gross Margin | 1,786 | 2,174 | 5,943 | 6,533 |
| | | | | |
| Operating Expenses: | | | | |
| General and administrative | 1,754 | 1,742 | 5,319 | 5,223 |
| Selling | 181 | 246 | 547 | 580 |
| Research and development | 79 | 76 | 280 | 270 |
| Impairment loss on long-lived assets | 139 | - | 139 | - |
| Gain on disposal of property, plant and equipment | - | (13) | (24) | (13) |
| Total operating expenses | 2,153 | 2,051 | 6,261 | 6,060 |
| | | | | |
| (Loss) / Income from Operations | (367) | 123 | (318) | 473 |
| | | | | |
| Other Income | | | | |
| Interest expenses | (63) | (74) | (186) | (250) |
| Gain on sale of asset held for sale | - | 685 | 1,172 | 685 |
| Other income, net | 440 | 128 | 590 | 220 |
| Total other income | 377 | 739 | 1,576 | 655 |
| | | | | |
| Income from Continuing Operations before Income Taxes | 10 | 862 | 1,258 | 1,128 |
| | | | | |
| Income tax benefits / (expenses) | 8 | (209) | (112) | (159) |
| | | | | |
| Income from continuing operations before non-controlling interest, net of tax | 18 | 653 | 1,146 | 969 |
| | | | | |
| Discontinued Operations | | | | |
| (Loss) / Income from discontinued operations, net of tax | (21) | 2 | (21) | (2) |
| NET INCOME | (3) | 655 | 1,125 | 967 |
| | | | | |
| Less: net (loss) / income attributable to non-controlling interest | (73) | (28) | 356 | (129) |
| Net Income Attributable to Trio-Tech International Common Shareholders | $70 | $683 | $769 | $1096 |
| | | | | |
| Amounts Attributable to Trio-Tech International Common Shareholders: | | | | |
| Income from continuing operations, net of tax | 81 | 682 | 780 | 1,097 |
| (Loss) / income from discontinued operations, net of tax | (11) | 1 | (11) | (1) |
| Net Income Attributable to Trio-Tech International Common Shareholders | $70 | $683 | $769 | $1,096 |
| | | | | |
| Basic Earnings per Share: | | | | |
| Basic earnings per share from continuing operations attributable to Trio-Tech International | $0.02 | $0.19 | $0.21 | $0.30 |
| Basic earnings per share from discontinued operations attributable to Trio-Tech International | $- | $- | $- | $- |
| Basic Earnings per Share from Net Income | | | | |
| Attributable to Trio-Tech International | $0.02 | $0.19 | $0.21 | $0.30 |
| | | | | |
| Diluted Earnings per Share: | | | | |
| Diluted earnings per share from continuing operations attributable to Trio-Tech International | $0.02 | $0.19 | $0.21 | $0.29 |
| Diluted earnings per share from discontinued operations attributable to Trio-Tech International | $- | $- | $- | $- |
| Diluted Earnings per Share from Net Income | | | | |
| Attributable to Trio-Tech International | $0.02 | $0.19 | $0.21 | $0.29 |
| | | | | |
| Weighted average number of common shares outstanding | | | | |
| Basic | 3,673 | 3,673 | 3,673 | 3,673 |
| Dilutive effect of stock options | 86 | 12 | 61 | 73 |
| Number of shares used to compute earnings per share diluted | 3,759 | 3,685 | 3,734 | 3,746 |
See notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
| | |
| | | | | |
| | | | | |
| Revenue | | | | |
| Manufacturing | $3,097 | $3,124 | $10,086 | $11,862 |
| Testing services | 3,989 | 4,913 | 12,819 | 14,454 |
| Distribution | 1,727 | 2,033 | 5,587 | 5,175 |
| Real Estate | 25 | 34 | 81 | 110 |
| | 8,838 | 10,104 | 28,573 | 31,601 |
| Cost of Sales | | | | |
| Cost of manufactured products sold | 2,303 | 2,530 | 7,806 | 9,247 |
| Cost of testing services rendered | 2,862 | 3,491 | 9,351 | 9,881 |
| Cost of distribution | 1,483 | 1,821 | 4,831 | 4,598 |
| Cost of real estate | 16 | 30 | 52 | 88 |
| | 6,664 | 7,872 | 22,040 | 23,814 |
| | | | | |
| Gross Margin | 2,174 | 2,232 | 6,533 | 7,787 |
| | | | | |
| Operating Expenses: | | | | |
| General and administrative | 1,742 | 1,773 | 5,223 | 5,339 |
| Selling | 246 | 181 | 580 | 612 |
| Research and development | 76 | 75 | 270 | 377 |
Gain on disposal of property, plant and equipment | (13) | (31) | (13) | (20) |
| Total operating expenses | 2,051 | 1,998 | 6,060 | 6,308 |
| | | | | |
| Income from Operations | 123 | 234 | 473 | 1,479 |
| | | | | |
| Other Income / (Expenses) | | | | |
| Interest expenses | (74) | (64) | (250) | (174) |
| Other income, net | 128 | 111 | 220 | 311 |
| Gain on sale of assets held for sale | 685 | - | 685 | - |
| Total other income | 739 | 47 | 655 | 137 |
| | | | | |
| Income from Continuing Operations before Income Taxes | 862 | 281 | 1,128 | 1,616 |
| | | | | |
| Income Tax Expenses | (209) | (980) | (159) | (1,035) |
| | | | | |
| Income / (loss) from continuing operations before non-controlling interest, net of tax | 653 | (699) | 969 | 581 |
| | | | | |
| Discontinued Operations | | | | |
| Income / (loss) from discontinued operations, net of tax | 2 | (6) | (2) | (11) |
| NET INCOME / (LOSS) | 655 | (705) | 967 | 570 |
| | | | | |
| Less: net (loss) / income attributable to non-controlling interest | (28) | 34 | (129) | 61 |
| Net Income / (Loss) Attributable to Trio-Tech International Common Shareholders | $683 | $(739) | $1,096 | $509 |
| | | | | |
| Amounts Attributable to Trio-Tech International Common Shareholders: | | | | |
| Income / (loss) from continuing operations, net of tax | 682 | (736) | 1,097 | 520 |
| Income / (loss) from discontinued operations, net of tax | 1 | (3) | (1) | (11) |
| Net Income / (Loss) Attributable to Trio-Tech International Common Shareholders | $683
| $(739) | $1,096 | $509 |
| | | | |
| Basic Earnings per Share: | | | | |
| Basic per share from continuing operations attributable to Trio-Tech International | $0.19
| $(0.21) | $0.30 | $0.15 |
| Basic earnings per share from discontinued operations attributable to Trio-Tech International | $- | $- | $- | $- |
| Basic Earnings per Share from Net Income | | | | |
| Attributable to Trio-Tech International | $0.19 | $(0.21) | $0.30 | $0.15 |
| | | | | |
| Diluted Earnings per Share: | | | | |
| Diluted earnings per share from continuing operations attributable to Trio-Tech International | $0.19 | $(0.20) | $0.29 | $0.14 |
| Diluted earnings per share from discontinued operations attributable to Trio-Tech International | $- | $- | $- | $- |
| Diluted Earnings per Share from Net Income | | | | |
| Attributable to Trio-Tech International | $0.19 | $(0.20) | $0.29 | $0.14 |
| | | | | |
| Weighted average number of common shares outstanding | | | | |
| Basic | 3,673 | 3,553 | 3,673 | 3,553 |
| Dilutive effect of stock options | 12 | 219 | 73 | 225 |
| Number of shares used to compute earnings per share diluted | 3,685 | 3,772 | 3,746 | 3,778 |
See notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONALINTERNATIONAL AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
UNAUDITED (IN THOUSANDS) / (LOSS)
| | | |
| | | | | |
| | | | | |
| Comprehensive Income Attributable to Trio-Tech International Common Shareholders: | | | | |
| | | | | |
| Net income / (loss) | $655 | $(705) | $967 | $570 |
| Foreign currency translation, net of tax | 401 | 849 | (189) | 1,809 |
| Comprehensive Income | 1,056 | 144 | 778 | 2,379 |
| Less: comprehensive income / (loss) attributable to non-controlling interest | 1 | 142 | (191) | 255 |
| Comprehensive Income attributable to Trio-Tech International Common Shareholders | $1,055 | $2 | $969 | $2,124 |
| | | | | |
See notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
Nine Months ended March 31, 2019
| | | | | Accumulated Other Comprehensive | | |
| | | | | | | | |
| | | | | | |
| Balance at June 30, 2018 | 3,553 | $11,023 | $3,249 | $5,525 | $2,182 | $1,522 | $23,501 |
| Stock option expenses | - | - | 12 | - | - | - | 12 |
| Net income | - | - | - | 1,096 | - | (129) | 967 |
| Dividend declared by subsidiary | - | - | - | - | - | (125) | (125) |
| Exercise of stock options | 120 | 401 | - | - | - | - | 401 |
| Translation adjustment | - | - | - | - | (127) | (62) | (189) |
| Balance at Mar. 31, 2019 | 3,673 | 11,424 | 3,261 | 6,621 | 2,055 | 1,206 | 24,567 |
Nine Months ended March 31, 2018
| | | | | Accumulated Other Comprehensive | | |
| | | | | | | | |
| | | | | | |
| Balance at June 30, 2017 | 3,523 | $10,921 | $3,206 | $4,341 | $1,633 | $1,426 | $21,527 |
| Stock option expenses | - | - | 40 | - | - | - | 40 |
| Net income | - | - | - | 509 | - | 61 | 570 |
| Dividend declared by subsidiary | - | - | - | - | - | (125) | (125) |
| Exercise of options | 20 | 51 | - | - | - | - | 51 |
| Issue of restricted shares to service provider | 10 | 51 | - | - | - | - | 51 |
| Translation adjustment | - | - | - | - | 1,615 | 194 | 1,809 |
| Balance at Mar. 31, 2018 | 3,553 | 11,013 | 3,246 | 4,850 | 3,248 | 1,556 | 23,923 |
| | | |
| | | | | |
| | | | | |
| Comprehensive Income Attributable to Trio-Tech International Common Shareholders: | | | | |
| | | | | |
| Net (loss) / income | $(3) | $655 | $1,125 | $967 |
| Foreign currency translation, net of tax | (1,013) | 401 | (1,051) | (189) |
Comprehensive (Loss) / Income
| (1,016) | 1,056 | 74 | 778 |
| Less: comprehensive (loss) / income attributable to non-controlling interest | (64) | 1 | 376 | (191) |
| Comprehensive (Loss) / Income Attributable to Trio-Tech International Common Shareholders | $(952) | $1,055 | $(302) | $969 |
See notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONALINTERNATIONAL AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
Nine Months ended March 31, 2020
| | | | | Accumulated Other Comprehensive | | |
| | | | | | | | |
| $
| $
| $
| $
| $
| $
|
| Balance at June 30, 2019 | 3,673 | 11,424 | 3,305 | 7,070 | 1,867 | 1,195 | 24,861 |
| Stock option expenses | - | - | 52 | - | - | | 52 |
| Net income | - | - | - | 769 | - | 356 | 1,125 |
| Dividend declared by subsidiary | - | - | - | - | - | (120) | (120) |
| Exercise of stock option | - | - | - | - | - | - | - |
| Translation adjustment | - | - | - | - | (1,071) | 20 | (1,051) |
| Balance at Mar. 31, 2020 | 3,673 | 11,424 | 3,357 | 7,839 | 796 | 1,451 | 24,867 |
Nine Months ended March 31, 2019
| | | | | Accumulated Other Comprehensive | | |
| | | | | | | | |
| | |
| $
| $
| $
| $
| $
|
| Balance at June 30, 2018 | 3,553 | 11,023 | 3,249 | 5,525 | 2,182 | 1,522 | 23,501 |
| Stock option expenses | - | - | 12 | - | - | - | 12 |
| Net income / (loss) | - | - | - | 1,096 | - | (129) | 967 |
| Dividend declared by subsidiary | - | - | - | - | - | (125) | (125) |
| Exercise of stock option | 120 | 401 | - | - | - | - | 401 |
| Translation adjustment | - | - | - | - | (127) | (62) | (189) |
| Balance at Mar. 31, 2019 | 3,673 | 11,424 | 3,261 | 6,621 | 2,055 | 1,206 | 24,567 |
See notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
| | | |
| | | |
| | | | | |
| | | |
| Cash Flow from Operating Activities | | |
| Net income | $967 | $570 | |
| Net Income | | $1,125 | $967 |
| Adjustments to reconcile net income to net cash flow provided by operating activities | | |
| Gain on sale of assets held for sale | (685) | - | (1,172) | (685) |
| Depreciation and amortization | 1,777 | 1,594 | 2,350 | 1,777 |
| Impairment loss on long-lived assets | | 139 | - |
| Stock compensation | 12 | 40 | 52 | 12 |
| Usage of provision for obsolete inventory | (37) | (4) | |
| Provision for obsolete inventory | | 5 | (37) |
| Reversal of income tax provision | (145) | - | - | (145) |
| Bad debt recovery | 1 | - | |
| Payment of operating leases | | (398) | - |
Payment of interest portion of finance leases (Note 1b) | | (43) | (32) |
| Allowance for doubtful debts | | 62 | 1 |
| Accrued interest expense, net accrued interest income | 34 | 148 | (35) | 34 |
| Gain on sale of property, plant and equipment – continued operations | (13) | (20) | (24) | (13) |
| Issuance of shares to service provider | - | 51 | |
| Warranty recovery, net | (35) | 1 | - | (35) |
| Fixed assets written off | (33) | - | - | (33) |
| Deferred tax benefit / (provision) | 78 | 33 | (132) | 78 |
| Changes in operating assets and liabilities, net of acquisition effects | | |
| Trade accounts receivable | 626 | 392 | 664 | 626 |
| Other receivables | (153) | 9 | (248) | (153) |
| Other assets | 489 | (327) | 101 | 489 |
| Inventories | 60 | (506) | 108 | 60 |
| Prepaid expenses and other current assets | (99) | 7 | 20 | (99) |
| Accounts payable and accrued expenses | 60 | 250 | (449) | 60 |
| Income taxes payable | 58 | 884 | (29) | 58 |
| Net Cash Provided by Operating Activities | 2,962 | 3,122 | 2,096 | 2,930 |
| | | |
| Cash Flow from Investing Activities | | |
| Proceeds from sale of assets held for sale | 943 | - | 1,261 | 943 |
| Proceeds from maturing of unrestricted term deposits and short-term deposits, net | - | 484 | |
| Proceeds from disposal of property, plant and equipment | 3 | 42 | 39 | 3 |
| Investments in restricted and unrestricted deposits | (2,939) | (281) | (2,393) | (2,939) |
| Addition to property, plant and equipment | (2,576) | (2,050) | (848) | (2,576) |
| Net Cash Used in Investing Activities | (4,569) | (1,805) | (1,941) | (4,569) |
| | | |
| Cash Flow from Financing Activities | | |
| Repayment on lines of credit | (7,316) | (7,397) | |
| Repayment of bank loans and capital leases | (625) | (554) | |
| Payment on lines of credit | | (1,922) | (7,348) |
| Payment of bank loans | | (372) | (421) |
| Payment of principal portion of finance leases | | (251) | (172) |
| Dividends paid on non-controlling interest | (125) | (120) | (125) |
| Proceeds from exercising stock options | 401 | 51 | - | 401 |
| Proceeds from bank loans and capital leases | 7,470 | 6,570 | |
| Proceeds from lines of credit | | 2,090 | 5,995 |
| Proceeds from bank loans | | - | 1,475 |
| Proceeds from finance leases | | 279 | 32 |
| Net Cash Used in Financing Activities | (195) | (1,455) | (296) | (163) |
| | | |
| Effect of Changes in Exchange Rate | (125) | 742 | (431) | (125) |
| | | |
| Net (Decrease) / Increase in Cash, Cash Equivalents, and Restricted Cash | (1,927) | 604 | |
| Net Decrease in Cash, Cash Equivalents, and Restricted Cash | | (572) | (1,927) |
| Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 8,234 | 4,772 | 6,569 | 8,234 |
| Cash, Cash Equivalents, and Restricted Cash at End of Period | $6,307 | $5,376 | $5,997 | $6,307 |
| | | |
| Supplementary Information of Cash Flows | | |
| Cash paid during the period for: | | |
| Interest | $217 | $138 | $186 | $217 |
| Income taxes | $114 | $225 | $124 | $114 |
| | | |
| Non-Cash Transactions | | |
| Capital lease of property, plant and equipment | $- | $228 | |
| Finance lease of property, plant and equipment | | $279 | $32 |
Reconciliation of Cash, Cash Equivalents, and Restricted Cash (Note 1a) | | |
| Cash | | 4,370 | 4,602 |
| Short-Term Deposits | | 6,309 | 3,646 |
| Restricted Term-Deposits in Non-current Assets | | 1,627 | 1,705 |
| Total Cash, Cash Equivalents, and Restricted Cash Shown in Statement of Cash Flows | | $12,306 | $9,953 |
See notes to condensed consolidated financial statements. | | See notes to condensed consolidated financial statements. |
See notes to condensed consolidated financial statements.
| Reconciliation of Cash, Cash Equivalents, and Restricted Cash | | |
| Cash | 4,602 | 6,539 |
| Restricted Term-Deposits in Non-Current Assets | 1,705 | 1,695 |
| Total Cash, Cash Equivalents, and Restricted Cash Shown in Statement of Cash Flows | $6,307 | $8,234 |
1)
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-TECHTRIO-TECH INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AND NUMBER OF SHARES)
1. ORGANIZATION AND BASIS OF PRESENTATION
Trio-Tech International (“the Company” or “TTI” hereafter) was incorporated in fiscal year 1958 under the laws of the State of California. TTI provides third-party semiconductor testing and burn-in services primarily through its laboratories in Southeast Asia. In addition, TTI operates testing facilities in the United States. The Company also designs, develops, manufactures and markets a broad range of equipment and systems used in the manufacturing and testing of semiconductor devices and electronic components. In the third quarter of fiscal year 2019,2020, TTI conducted business in four business segments: Manufacturing, Testing Services, Distribution and Real Estate. TTI has subsidiaries in the U.S., Singapore, Malaysia, Thailand, Indonesia and China as follows:
| | Ownership | Location |
| Express Test Corporation (Dormant) | 100% | Van Nuys, California |
| Trio-Tech Reliability Services (Dormant) | 100% | Van Nuys, California |
| KTS Incorporated, dba Universal Systems (Dormant) | 100% | Van Nuys, California |
| European Electronic Test Centre (Dormant) | 100% | Dublin, Ireland |
| Trio-Tech International Pte. Ltd. | 100% | Singapore |
| Universal (Far East) Pte. Ltd. * | 100% | Singapore |
| Trio-Tech International (Thailand) Co. Ltd. * | 100% | Bangkok, Thailand |
Trio-Tech (Bangkok) Co. Ltd. (49% owned by Trio-Tech International Pte. Ltd. and 51% owned by Trio-Tech International (Thailand) Co. Ltd.)
* | 100% | Bangkok, Thailand |
Trio-Tech (Malaysia) Sdn. Bhd. (55% owned by Trio-Tech International Pte. Ltd.) | 55% | Penang and Selangor, Malaysia |
Trio-Tech (Kuala Lumpur) Sdn. Bhd. | 55% | Selangor, Malaysia |
| (100% owned by Trio-Tech Malaysia Sdn. Bhd.) | 55% | |
| Prestal Enterprise Sdn. Bhd. | 76% | 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.)Ltd) | 55% | Singapore |
PT SHI Indonesia (Dormant) (100% owned by SHI International Pte. Ltd.) | 55% | Batam, Indonesia |
| Trio-Tech (Tianjin) Co., Ltd. * | 100% | Tianjin, China |
* 100% owned by Trio-Tech International Pte. Ltd.
The accompanying un-audited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All significant inter-company accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements are presented in U.S. dollars. The accompanying condensed consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the three and nine months ended March 31, 20192020 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2019.2020. Certain accounting matters that generally require consideration of forecasted financial information were assessed regarding impacts from the COVID-19 pandemic as of March 31, 2020 and through the date of this Quarterly Report using reasonably available information as of those dates. Those accounting matters assessed included, but were not limited to, allowance for doubtful accounts, the carrying value of long-lived tangible assets and the valuation allowances for tax assets. While the assessments resulted in no material impacts to the consolidated financial statements as of and for the quarter ended March 31, 2020, the Company believes the full impact of the pandemic remains uncertain and the Company will continue to assess if ongoing developments related to the pandemic may cause future material impacts to our consolidated financial statements. As of March 31, 2020, the Company had cash and cash equivalents and short-terms deposits totalling $10,609 and unused line of credit of $5,897. We finance operations primarily through our existing cash balances, cash collected from operations, bank borrowings and capital lease financing. We believe these sources are sufficient to fund our operations for the foreseeable future. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report for the fiscal year ended June 30, 2018.2019.
Except as otherwise specifically noted in this Formform 10-Q, the Company’s operating results are presented based on the translation of foreign currencies using the respective quarter’s average exchange rate.
Certain reclassifications have been made to prior period amounts to conform to the current presentation.
Basis of Presentation and Summary of Significant Accounting Policies
Comparability
Effective as of first day of fiscal 2020, the Company adopted Accounting Standards Update 2016-02, Leases (“ASC 842”). Prior periods were not retrospectively restated, and accordingly, the consolidated balance sheet as of June 30, 2019, and the condensed consolidated statements of operations for the nine months ended March 31, 2019 were prepared using accounting standards that were different than those in effect for the nine months ended March 31, 2020.
Leases-Company as Lessee
Accounting Standards Codification ("ASC") Topic 842 introduced new requirements to increase transparency and comparability among organizations for leasing transactions for both lessees and lessors. It requires a lessee to record a right-of-use asset and a lease liability for all leases with terms longer than 12 months. These leases will be either finance or operating, with classification affecting the pattern of expense recognition.
The standard provides an alternative modified retrospective transition method. Under this method, the cumulative effect adjustment to the opening balance of retained earnings is recognized on the effective date of adoption (July 1, 2019). The Company adopted ASC 842as of July 1, 2019 and applied the alternative modified retrospective transition method requiring application of the new guidance to all leases existing at, or entered into on or after, the effective date of adoption, i.e. July 1, 2019.
The Company applies the guidance in ASC 842 to its individual leases of assets. When the Company receives substantially all of the economic benefits from and directs the use of specified property, plant and equipment, the transactions give rise to leases. The Company’s classes of assets include real estate leases.
Operating leases are included in operating lease right-of-use ("ROU") assets under the non-current asset portion of our consolidated balance sheets and under this current portion and non-current liabilities portion of our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the related lease. Finance leases are included in property, plant and equipment under the non-current asset portion of our consolidated balance sheets and under the current portion and non-current liabilities portion of our consolidated balance sheets.
The Company has elected the practical expedient within ASC 842 to not separate lease and non-lease components within lease transactions for all classes of assets. Additionally, the Company has elected the short-term lease exception for all classes of assets, does not apply the recognition requirements for leases of 12 months or less, and recognizes lease payments for short-term leases as expense either straight-line over the lease term or as incurred depending on whether the lease payments are fixed or variable. These elections are applied consistently for all leases.
As part of applying the transition method, the Company has elected to apply the package of transition practical expedients within the new guidance. As required by the new standard, these expedients have been elected as a package and are consistently applied across the Company’s lease portfolio. Given this election, the Company need not reassess:
●
whether any expired or existing contracts are or contain leases;
●
the lease classification for any expired or existing leases;
●
treatment of initial direct costs relating to any existing leases.
When discount rates implicit in leases cannot be readily determined, the Company uses the applicable incremental borrowing rate at lease commencement to perform lease classification tests on lease components and to measure lease liabilities and ROU assets. The incremental borrowing rate used by the Company was based on baseline rates and adjusted by the credit spreads commensurate with the Company’s secured borrowing rate over a similar term. At each reporting period when there is a new lease initiated, the rates established for that quarter will be used.
In applying the alternative modified retrospective transition method, the Company measured lease liabilities at the present value of the sum of remaining minimum rental payments (as defined under ASC Topic 840). The present value of lease liabilities has been measured using the Company’s incremental borrowing rates as of July 1, 2019 (the date of initial application). Additionally, ROU assets for these operating leases have been measured as the initial measurement of application lease liabilities adjusted for reinstatement liabilities.
The adoption of this new standard as of July 1, 2019 and the application of the modified retrospective transition approach resulted in the following changes in the Company’s financial report:
(1)
assets increased by $1,073, primarily representing the recognition of ROU assets for operating leases;
(2)
liabilities increased by $1,073, primarily representing the recognition of lease liabilities for operating leases.
Leases- Company as Lessor
All of the leases under which the Company is the lessor will continue to be classified as operating leases under the new standard. The new standard did not have a material effect on our financial statements and will not have a significant change in our leasing activities.
2. NEW ACCOUNTING PRONOUNCEMENTS
In March 2020, FASB issued ASU 2020-04 ASC Topic 848: Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The amendments are effective for all entities as of March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impacts of the provisions of ASU 2020-04 on its consolidated financial statements and related disclosures.
The amendments in ASU 2018-192019-12 ASC Topic 326:740: Codification ImprovementsIncome Taxes: Simplifying Accounting for Income Taxes remove specific exceptions to Financial Instruments – Credit Losses clarifies that receivables arising from operating leases are not within the scopegeneral 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 the credit losses standard, but rather, should be accounted for in accordance with the lease’s standard.income tax-related guidance and simplify GAAP. The amendments are effective for all entities for fiscal years beginning after December 15, 2019,2020, 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 Company is currently evaluating the impacteffectiveness of this accounting standard update is not expected to have a significant effect on itsthe Company’s consolidated financial statements.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. It allowsThe 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 shouldare to be presented separately from revenue accounted for under the revenue recognition standard. The amendments are effective for all entities for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The Company is currently evaluating the impacteffectiveness of this accounting standard update is not expected to have a significant effect on itsthe Company's consolidated financial statements.position or results of operations.
The amendments in ASU 2018-13 ASC Topic 820: Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement modify the disclosure requirements on fair value measurements based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty shouldare to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments shouldare to be applied retrospectively to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
The amendments in ASU 2018-09Codification Improvementsrepresent changes to clarify, correct errors in, or make minor improvements to the Codification, eliminating inconsistencies and providing clarifications in current guidance. The amendments in this ASU include those made to: Income Statement-Reporting Comprehensive Income-Overall; Debt-Modifications and Extinguishments; Distinguishing Liabilities from Equity-Overall; Compensation-Stock Compensation-Income Taxes; Business Combinations-Income Taxes; Derivatives and Hedging-Overall; Fair Value Measurement-Overall; Financial Services-Brokers and Dealers-Liabilities; and Plan Accounting-Defined Contribution Pension Plans-Investments-Other. The amendments are effective for all entities for annual periods beginning after December 15, 2018. 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 2018-02 ASC Topic 220: Income Statement – Reporting Comprehensive Income provide financial statement preparers with an option to reclassify stranded tax effects within Accumulated Other Comprehensive Income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The amendments in ASC Topic 220 are effective for public business entities for fiscal years beginning after December 15, 2018 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 Accounting Standards Update (“ASU”) 2017-11:Earnings Per Share(Topic 260); Distinguishing Liabilities from Equity(Topic 480); Derivatives and Hedging(Topic 815) are effective for public companies for annual periods beginning after December 15, 2018, including interim periods within those periods. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s presentation of consolidated financial position or results of operations.
The amendments in ASU 2017-04 ASC Topic 350 — 'Intangibles - Goodwill and Other (“ASC Topic 350”) simplify the test for goodwill impairment. For public companies, these amendments are effective for annual periods beginning after December 15, 2019, including interim periods within those periods. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s presentation of consolidated financial position or results of operations.
The amendments inIn June 2016, FASB issued ASU 2016-13 ASC Topic 326: Financial Instruments — Credit lossesLosses (“ASC Topic 326”) are issued for the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. For public companies that are not SEC filers,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 fiscal yearsthe Company for annual periods beginning after December 15, 2020, and interim periods within those fiscal years. While early application will be permitted for all organizations for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018, the Company has not yet determined if it will early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.2022.
In February 2016, the FASB issued an ASU 2016-12 ASC Topic 842:Leases, which amends a number of aspects of the existing accounting standards for leases which require lessees to recognize operating leased assets and corresponding liabilities on the balance sheet for all leases with lease terms of more than 12 months. In July 2018, ASU 2018-10: Codification Improvements to Leases addressed stakeholders’ questions about how to apply certain aspects of the new guidance in Accounting Standards Codification (ASC) 842: Leases. The clarifications address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. Besides, the amendments in ASU 2018-11 ASC Topic 842: Leases: Targeted Improvements related to transition relief on comparative reporting at adoption affect all entities with lease contracts that choose the additional transition method and separating components of a contract affect only lessors whose lease contracts qualify for the practical expedient. In July 2018, the amendments in ASU 2018-20 ASC Topic 842: Leases: Narrow-Scope Improvements for Lessors addressed the following issues facing lessors when applying this lease standard: (1) sales taxes and other similar taxes collected from lessees, (2) certain lessor costs and (3) recognition of variable payments for contracts with lease and non-lease components. On 5 March 2019, ASU 2019-01 issued to exempt both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard. The amendments are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. While early application is permitted and allows for either a modified retrospective adoption or a retrospective adoption by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, the Company has not elected to early adopt. The Company will adopt these standards starting in the first quarter of fiscal year 2020 on a modified retrospective approach at the beginning of the period through a cumulative-effect adjustment. The Company is currently evaluating the potential impact of this accounting standard update on its consolidatedconsoldiated financial statements and expects that there will be an increase in assets and liabilities on the Consolidated Balance Sheets at adoption due to the recognition of right-of-use assets and related lease liabilities. Upon adoption, the Company expects that its financial statement disclosure will be expanded to present additional details of its leasing arrangements.statements.
Other new pronouncements issued but not yet effective until after March 31, 20192020 are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
3. TERM DEPOSITS
| | | | | |
| | | |
| Short-term deposits | $3,615 | $606 | $6,587 | $4,143 |
| Currency translation effect on short-term deposits | 31 | 47 | (278) | 1 |
| Total short-term deposits | 3,646 | 653 | 6,309 | 4,144 |
| Restricted term deposits | 1,690 | 1,664 | 1,711 | 1,701 |
| Currency translation effect on restricted term deposits | 15 | 31 | (84) | 5 |
| Total restricted term deposits | 1,705 | 1,695 | 1,627 | 1,706 |
| Total term deposits | $5,351 | $2,348 | $7,936 | $5,850 |
Restricted deposits represent the amount of cash pledged to secure loans payable granted byto financial institutions and serve as collateral for public utility agreements such as electricity and water.water and performance bonds related to customs duty payable. Restricted deposits are classified as non-current assets, as they relate to long-term obligations and will become unrestricted only upon discharge of the obligations. Short-term deposits represent bank deposits, which do not qualify as cash equivalents.
4. TRADE ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable consists ofare customer obligations due under normal trade terms. AlthoughThe Company performs continuing credit evaluations of its customers’ financial conditions, and although management generally does not require collateral, letters of credit may be required from the customers in certain circumstances. Management periodically performs credit evaluations of customers’ financial conditions.
Senior management reviews accounts receivable on a periodic basis to determine if any receivables will potentially be uncollectible. Management includes any accounts receivable balances that are determined to be uncollectible in the allowance for doubtful accounts. After all reasonable attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available, management believed the allowance for doubtful accounts as of March 31, 20192020, and June 30, 20182019 was adequate.
The following table represents the changes in the allowance for doubtful accounts:
| | | |
| Beginning | $263 | $259 |
| Additions charged to expenses | 338 | 94 |
| Recovered | (270) | (84) |
| Written off | (6) | - |
| Currency translation effect | (10) | (6) |
| Ending | $315 | $263 |
| | | |
| Beginning | $259 | $247 |
| Additions charged to expenses | 85 | 8 |
| Recovered | (84) | (1) |
| Currency translation effect | (4) | 5 |
| Ending | $256 | $259 |
5. LOANS RECEIVABLE FROM PROPERTY DEVELOPMENT PROJECTS
The following table presents Trio-Tech (Chongqing) Co. Ltd.Ltd (“TTCQ”)’s loan receivable from property development projects in China as of March 31, 2019.2020. The exchange rate is based on the datehistorical rate published by the Monetary Authority of Singapore as of March 31, 2015, since the net loan receivable was “nil” as of March 31, 2019.2020.
| | | | Loan Amount (U.S. Dollars) | Loan Expiry Date | | Loan Amount (RMB) | | Loan Amount (U.S. Dollars) | |
| Short-term loan receivables | | | | | | | | |
| JiangHuai (Project – Yu Jin Jiang An) | May 31, 2013 | 2,000 | 325 | May 31, 2013 | | 2,000 | | 325 | |
| Less: allowance for doubtful receivables | | (2,000) | (325) | | | | (2,000 | ) | | | (325 | ) |
| Net loan receivables from property development projects | | - | | | | - | | | - | |
| | | | | | | | | |
| Long-term loan receivables | | | | | | | | |
| Jun Zhou Zhi Ye | Oct 31, 2016 | 5,000 | 814 | Oct 31, 2016 | | 5,000 | | 814 | |
| Less: transfer – down-payment for purchase of investment property | | (5,000) | (814) | | | | (5,000 | ) | | | (814 | ) |
| Net loan receivables from property development projects | | - | | | | - | | | - | |
On November 1, 2010,The short-term loan receivables of renminbi (“RMB”) 2,000, or approximately $325 based on the historical rate, arose from TTCQ enteredentering into a Memorandum Agreement with JiangHuai Property Development Co. Ltd. (“JiangHuai”) to invest in their property development projects (Project - Yu Jin Jiang An) located in Chongqing City, China. Due to the short-term nature of the investment, the amount was classified as a loan based on ASC Topic 310-10-25Receivables, amounting to renminbi (“RMB”) 2,000, or approximately $325. The loan was renewed, but expired on May 31, 2013. TTCQ isChina in the legal process of recovering the outstanding amount of $325. TTCQ did not generate other income from JiangHuai for the quarter ended March 31, 2019 or for the fiscal year ended June 30, 2018.2011. Based on TTI’s financial policy, a provision for doubtful receivables of $325 on the investment in JiangHuai was recorded during fiscal 2014. TTCQ did not generate other income from JiangHuai for the second quarter ended March 31, 2020 or for the fiscal year ended June 30, 2019. TTCQ is in the legal process of fiscal 2014recovering the outstanding amount of $325.
The long-term loan receivable of RMB 5,000, or approximately $814 based on TTI’s financial policy.
On November 1, 2010,the historical rate, arose from TTCQ enteredentering into a Memorandum Agreement with JiaSheng Property Development Co. Ltd. (“JiaSheng”) to invest in theirJiaSheng’s property development projects (Project B-48 Phase 2) located in Chongqing City, China. Due to the short-term nature of the investment, the amount was classified as aChina in fiscal 2011. The loan based on ASC Topic 310, amounting to RMB 5,000, or approximately $814 based on the exchange rate as at March 31, 2015 published by the Monetary Authority of Singapore. The amountreceivable was unsecured and repayable at the end of the term. The loan was renewed in November 2011 for a period of one year, which expired on October 31, 2012 and was again renewed in November 2012 and expired in November 2013. On November 1, 2013 the loan was transferred by JiaSheng to, and is now payable by, Chong Qing Jun Zhou Zhi Ye Co. Ltd. (“Jun Zhou Zhi Ye”), and the transferred agreement expired on October 31, 2016. Prior to the second quarter of fiscal year 2015, the loan receivable was classified as a long-term receivable. The book value of the loan receivable approximates its fair value. In the second quarter ofDuring fiscal year 2015, the loan receivable was transferred to the down payment for the purchase of an investment property that is being developed in the Singapore Themed Resort Project (see(See Note 8)9).
6. INVENTORIES
Inventories consisted of the following:
| | | Mar. 31, 2020 (Unaudited) | |
| | | | |
| Raw materials | $1,206 | $1,153 | $1,300 | $1,190 |
| Work in progress | 1,839 | 1,947 | 1,330 | 1,306 |
| Finished goods | 520 | 505 | 360 | 591 |
| Currency translation effect | 13 | 20 | (108) | 13 |
| Less: provision for obsolete inventory | (660) | (695) | (656) | (673) |
| | $2,918 | $2,930 | $2,226 | $2,427 |
The following table represents the changes in provision for obsolete inventory:
| | | | | |
| | | |
| Beginning | $695 | $686 | $673 | $695 |
| Additions charged to expenses | 5 | 9 | 9 | 17 |
| Usage – disposition | (42) | (5) | (4) | (42) |
| Currency translation effect | 2 | 5 | (22) | 3 |
| Ending | $660 | $695 | $656 | $673 |
7. ASSETS HELD FOR SALE
Penang Property
During the fourth quarter of fiscal year 2015, the operationsoperation 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 tofor the industry that is being promoted on said property. PDC made an offer to purchase the property, which was not at the expected value and the offer expired on March 28, 2016 and no2016. No further conversations with PDC have occurred since. Management received an expression of interest from a potential buyer in acquiringsince March 2016. During the property during secondfourth quarter of fiscal year 2019, management entered into a Sales and the sale is still under negotiationPurchase Agreement with thea potential buyer during third quarter of fiscal year 2019. The completion of the sale is also subject to the approval by Penang Development Corporation. The net book values of the building was RM371, or $90, as at March 31, 2019 and RM371, or $91, as at June 30, 2018.
Mao Ye Property
During the first quarter of 2019, management decided to sell Mao Ye Property, which is one of our earlier investment properties. In order to monetize the capital gain on property, TTCQ appointed a sole agent for 6 months as of September 1, 2018 to search for suitable buyers for this property. The Company has completed the sale of thirteen of the fifteen units constituting the Mao Ye Property as the end of the third quarter 2019 which contributed the gain of $685. During the third quarter 2019, considering the current market conditions in China, management has decided not to sell the remaining two units of Mao Ye properties and as of third quarter 2019, the properties were reclassified to investment property from assets held for sale.
8. INVESTMENTS
buyer. During the second quarter of fiscal year 2011,2020, the Company entered into a joint venture agreement with JiaSheng to develop real estate projects in China.obtained approval of the sale from PDC and the local government. The Company invested RMB 10,000,sale of the property was completed at the end of the second quarter of the fiscal year 2020. The sale price was RM 5,600, or approximately $1,606 for a 10% interest in the newly formed joint venture, which was incorporated as a limited liability company, Chong Qing Jun Zhou Zhi Ye Co. Ltd. (the “joint venture”), in China. The Company would receive a fee of RMB 10,000, or approximately $1,606 for the services rendered in$1,340. In connection with biddingthe sale of the property located in certain real estate projectsMalaysia, 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. Upon signing ofThese expenses were directly offset against the agreement, JiaSheng paidproceeds from selling the Company RMB 5,000 in cash, or approximately $803. The remaining RMB 5,000, which was not recordedproperty, as these expenses were deemed as a receivable as the Company considered the collectability uncertain, would be paid over 72 months commencing in 36 months from the datecost of the agreement when the joint venture secured a property development project stated inside the joint venture agreement.sales. The Company considered the RMB 5,000, or approximately $803 received in cash from JiaSheng, the controlling venturer in the joint venture, as a partial return of the Company’s initial investment, resulting inrecognized a net investmentgain of RMB 5,000 as of March 31, 2014. The Company further reduced its investments by RMB 137,RM 4,901, or approximately $22, towards the losses from operations incurred by the joint venture, resulting$1,172, in a net investment of RMB 4,863, or approximately $781. Transaction amounts in this paragraph were translated into US dollars based on the exchange rate as of March 31, 2014 published by the Monetary Authority of Singapore.
During the second quarter of fiscal year 2014, TTCQ decided to dispose of its 10% interest in the joint venture after TTCQ revalued certain monetary risks relating to the development of the project. On October 2, 2013, TTCQ entered into a share transfer agreement (the “Share Transfer Agreement”) with Zhu Shu. Based2020 excluding capital gain tax. The tax on the agreement, the purchase price was to be paid by (1) RMB 10,000 worth of commercial propertycapital gain in Chongqing China, or approximately $1,634 consisting of commercial units measuring 668 square meters to be delivered in June 2016, and (2) the remaining RMB 8,000, or approximately $1,307 by cash consideration to be paid in sixteen quarterly equal instalments of RMB 500 per quarter commencingMalaysia from January 2014. Based on ASC Topic 845 Non-monetary Consideration, the Company deferred the recognition of the gain on disposal of the 10% interest in joint venture investment until such time that the consideration is paid, so that the gain can be ascertained. The recorded value of the disposed investment amounting to $783, based on exchange rates published by the Monetary Authority of Singapore as of June 30, 2014, is classified as “other assets” under non-current assets, because it is considered a down payment for the purchase of the commercial property in Chongqing. The first three instalments, amounting to RMB 500 each due in January 2014, April 2014 and July 2014, were all outstanding until the date of disposal of the investment in the joint venture. Out of the outstanding RMB 8,000, TTCQ received RMB 100 during May 2014. Except as otherwise noted, transaction amounts in this paragraph were translated into US dollars based on the exchange rate as of October 2, 2013 published by the Monetary Authority of Singapore
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 the license to sell the commercial property (the Singapore Themed Resort Project) located in Chongqing, China. The proposed agreement is for the sale of shop lots with a total area of 1,484.55 square meters as consideration for the outstanding amounts owed to TTCQ by Jun Zhou Zhi Ye as follows:
a) Long term loan receivable RMB 5,000, orproperty was approximately $814, as disclosed in Note 5, plus$94 computed after the interest receivable on long term loan receivable of RMB 1,250;
b) Commercial units measuring 668 square meters, as mentioned above; and
c) RMB 5,900 for the part of the unrecognized cash consideration of RMB 8,000 relating to the disposal of the joint venture.
The consideration does not include the remaining outstanding amount of RMB 2,000, or approximately $326, which will be paid to TTCQ in cash.
The shop lots are to be delivered to TTCQ upon completion of the construction of the shop lots in the Singapore Themed Resort Project. The initial targeted date of completiontaxable gain was December 31, 2016. Based on discussions with the developers, the completion date is currently estimated to be December 31, 2021.
The Share Transfer Agreement (10% interest in the joint venture) was registered with the relevant authorities in China during October 2016.
9.INVESTMENT PROPERTIESdetermined.
The following table presents the Company’s investment in properties in China as of March 31, 2019. The exchange rate is based on the market rate as of March 31, 2019.
| | Investment Date / Reclassification Date | | Investment Amount (U.S. Dollars) |
| Purchase of rental property – Property I – Mao Ye 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 | | - | (93) |
| Gross investment in rental property | | 9,649 | 1,436 |
| Accumulated depreciation on rental property | Mar 31, 2019 | (5,879) | (875) |
| Reclassified as “Assets held for sale” | July 01, 2018 | 2,822 | 410 |
| Reclassification from “Assets held for sale” | Mar 31, 2019 | (1,029) | (143) |
| | (4,086) | (608) |
| Net investment in property – China | | 5,563 | 828 |
The following table presents the Company’s investment in properties in China as of June 30, 2018. The exchange rate is based on the market rate as of June 30, 2018.
| | Investment Date | | Investment Amount (U.S. Dollars) |
| Purchase of rental property – Property I - Mao Ye Property | Jan 04, 2008 | 5,554 | 894 |
| Purchase of rental property – Property II - JiangHuai | Jan 06, 2010 | 3,600 | 580 |
| Purchase of rental property – Property III - Fu Li | Apr 08, 2010 | 4,025 | 648 |
| Currency translation | | - | (131) |
| Gross investment in rental property | | 13,179 | 1,991 |
| Accumulated depreciation on rental property | June 30, 2018 | (5,596) | (845) |
| Net investment in property – China | | 7,583 | 1,146 |
The following table presents the Company’s investment propertiesassets held for sale in Malaysia as of March 31, 20192020 and June 30, 2018. 2019.
| | | | | |
| | Reclassification Date/
| | | |
| | | | | |
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.
| | Investment Date | | |
| | | | |
| Purchase of Penang Property | Dec 31, 2012 | 681 | 181 |
| Currency translation | | - | (16) |
| Reclassification as “Assets held for sale” | June 30, 2015 | (681) | (165) |
| | - | - |
| Accumulated depreciation on rental property | June 30, 2015 | (310) | (83) |
| Currency translation | | - | 7 |
| Reclassified as “Assets held for sale” | June 30, 2015 | (310) | (76) |
| Net investment in rental property - Malaysia | | - | - |
8.INVESTMENT PROPERTIES
The following table presents the Company’s investment in properties in China as of March 31, 2020. The exchange rate is based on the market rate as of March 31, 2020.
| | Investment Date /
Reclassification Date | | Investment Amount (U.S. Dollars) |
| Purchase of rental property – Property I – MaoYe Property | Jan 04, 2008 | 5,554 | 894 |
| Currency translation | | - | (87) |
| Reclassification as “Assets held for sale” | July 01, 2018 | (5,554) | (807) |
| Reclassification from “Assets held for sale” | Mar 31, 2019 | 2,024 | 301 |
| | 2,024 | 301 |
| Purchase of rental property – Property II - JiangHuai | Jan 06, 2010 | 3,600 | 580 |
| Purchase of rental property – Property III - Fu Li | Apr 08, 2010 | 4,025 | 648 |
| Currency translation | | - | (170) |
| Gross investment in rental property | | 9,649 | 1,359 |
| Accumulated depreciation on rental property | Mar 31, 2020 | (6,437) | (921) |
| Reclassified as “Assets held for sale”-Mao Ye Property | July 01, 2018 | 2,822 | 410 |
| Reclassification from “Assets held for sale”-Mao Ye Property | Mar 31, 2019 | (1,029) | (143) |
| | (4,644) | (654) |
| Net investment in property – China | | 5,005 | 705 |
The following table presents the Company’s investment in properties in China as of June 30, 2019. The exchange rate is based on the market rate as of June 30, 2019.
| | Investment Date /
Reclassification Date | | Investment Amount (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 - Mao Ye Property
In fiscal 2008, TTCQ purchased an office in Chongqing, China from Mao YeMaoYe Property Ltd. (“Mao Ye”MaoYe”), for a total cash purchase price of RMB 5,554, or approximately $894. TTCQ identified a new tenant and signed a new rental agreement (653 square meters at a monthly rent of RMB 39, or approximately $6) on August 1, 2015, which expires on July 31, 2020. TTCQOn April 1, 2019, a supplementary agreement was signed a new rental agreement (451to revise the monthly rent to RMB 20, or approximately $3 for 403 square meters at a monthly rent of RMB 24, or approximately $4) on February 1, 2018 which expires on January 31, 2021.
for the remaining 2 unsold units. During the first quarter offiscal year 2019, management decided to sell Mao Ye Property, which is one of our earlier investment properties. In order to monetize the capital gain on property, TTCQ appointed a sole agent for 6 months as of September 1, 2018 to search for suitable buyers for this property. The Company has completed the sale ofsold thirteen of the fifteen units constituting the Mao Ye Property as the end of third quarter 2019 which contributed the gain of $685. During the third quarter 2019, considering the current market conditions in China, managementProperty. Management has decided not to sell the remaining two units of Mao Ye properties and as of third quarter 2019,in the properties were reclassified to investment property from assets held for sale.near future, considering the market conditions in China.
Property purchased from Mao YeMaoYe generated a rental income of $15$8 and $58 $24 during the three and nine months ended March 31, 2019,2020, respectively, as compared to $15 and $22 and $75$58 for the same periods in the last fiscal year.
Depreciation expense for Mao Ye was $4 and $12 for the three and nine months ended March 31, 2020, respectively, and $Nil for the same periods in the last fiscal year.
Rental Property II - JiangHuai
In fiscal year 2010, TTCQ purchased eight units of commercial property in Chongqing, China from Chongqing JiangHuai Real Estate Development Co. Ltd. (“JiangHuai”) for a total purchase price of RMB 3,600, or approximately $580. Although these units were rented in the past, all eight units are currently vacant and TTCQ is working with the developer to find a suitable buyer to purchase all the commercial units. TTCQ hashad yet to receive the title deed for these properties; however,properties. TTCQ has the vacancies in possession with the exception of two units, which are in the process of clarification. TTCQ iswas in the legal process to obtainof obtaining the title deed whichuntil the developer encountered cash flow difficulties in the recent years. Since then, JiangHuai company is dependent on JiangHuai completingunder liquidation and is now undergoing asset distribution. Nonetheless, this is not expected to affect the entire project.property’s market value but, in view of the COVID-19 pandemic and current economic situation, it is likely to be more tedious and time-consuming for the Court in their execution of the sale.
Property purchased from JiangHuai did not generate any rental income during the three and nine months ended March 31, 20192020 or during the same periodperiods in the prior fiscal year.
Depreciation expense for JiangHuai was $6 and $20 for the three and nine months ended March 31, 2020, respectively, and $7 and $20 for the same periods in the last fiscal year.
Rental Property III – FuLi
In fiscal 2010, TTCQ entered into a Memorandum Agreement with Chongqing FuLi Real Estate Development Co. Ltd. (“FuLi”) to purchase two commercial properties totallingtotaling 311.99 square meters (“office space”) located in Jiang Bei District Chongqing. Although TTCQ currently rents its office premises from a third party, it intends to use the office space as its office premises. The total purchase price committed and paid was RMB 4,025, or approximately $648. The development was completed and the property was handed over 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 5%6% every year on May 1, commencing in 20172019 until the rental agreement expiresexpired on April 30, 2019. The rental agreement of this lease has been extended for 3 years, commencing from May 01, 2019 to Apr 30, 2021 with a term of rent increase of 6% every year.
2021. For the other leased property (which lease expired on March 31, 2018), TTCQ signed on November 1, 2018 TTCQ identified a new tenant and signed a new rental agreement (161to rent out the 161 square metersmeter space at a monthly rent of RMB 62,10, or approximately $9) on November 1, 2018$2, which expireslease 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 $10$8 and $23$25 for the three and nine months ended March 31, 2019,2020, respectively, while it generated a rental income of $12 and $35$10 and $23 for the same periods in the last fiscal year.
Depreciation expense for Fu Li was $7 and $20 for the three and nine months ended March 31, 2020, respectively, and $7 and $20 for the same periods in the last fiscal year.
Summary
Total rental income for all investment properties in China was $25$16 and $81$49 for the three and nine months ended March 31, 2019,2020, respectively, and were $34$25 and $110$81 for the same periods in the last fiscal year.
Depreciation expenses for all investment properties in China were $14 $17 and $42 and$52 for the three and nine months ended March 31, 2019,2020, respectively, and were $25$14 and $74$42 for the same periods in the last fiscal year.year, due in part to the reclassification of the MaoYe property as noted above.
9. OTHER ASSETS
Other assets consisted of the following:
| | | | | |
| Down payment for purchase of investment properties | $1,645 | |
| Down payment for purchase of investment properties * | | $1,645 |
| Down payment for purchase of property, plant and equipment | 71 | 561 | - | 100 |
| Deposits for rental and utilities | 140 | 168 | 169 |
| Currency translation effect | (128) | (97) | (218) | (164) |
| Total | $1,728 | $2,249 | $1,595 | $1,750 |
11.*Down payment for purchase of investment properties included:
| | | |
| Original Investment (10% of Junzhou equity) | $10,000 | $1,606 |
| Less: Management Fee | (5,000) | (803) |
| Net Investment | 5,000 | 803 |
| Less: Share of loss on Joint Venture | (137) | (22) |
| Net Investment as Down Payment (Note *a) | 4,863 | 781 |
| Loans Receivable | 5,000 | 814 |
| Interest Receivable | 1,250 | 200 |
| Less: Impairment of Interest | (906) | (150) |
| Transferred to Down Payment (Note *b) | 5,344 | 864 |
| * Down Payment for Purchase of Investment Properties | 10,207 | 1,645 |
a)
On December 2, 2010, the Company signed a Joint Venture agreement (“agreement”) with Jia Sheng Property Development Co. Ltd. (“Developer”) to form a new company, Junzhou Co. Limited (“Joint Venture” or “Junzhou”), to jointly develop the “Singapore Themed Park” project (the “project”). The Company paid RMB10 million for the 10% investment in the joint venture. The Developer paid the Company a management fee of RMB 5 million in cash upon signing of the agreement, with a remaining fee of RMB 5 million payable upon fulfilment of certain conditions in accordance with the agreement. The Company further reduced its investment by RMB 137, or approximately $22, through the losses from operations incurred by the Joint Venture.
On October 2, 2013, the Company disposed of its entire 10% interest in the Joint Venture but to date has not received payment in full therefor. The Company recognized that disposal based on the recorded net book value of RMB 5 million, or equivalent to US $803K, from net considerations paid, in accordance with GAAP under ASC Topic 845Non-monetary Consideration.It is presented under “Other Assets” as non-current assets to defer the recognition of the gain on the disposal of the 10% interest in the joint venture investment until such time that the consideration is paid, so that the gain can be ascertained.
b)
Amounts of RMB 5,000, or approximately $814, as disclosed in Note 5, plus the interest receivable on long term loan receivable of RMB 1,250, or approximately $200, and impairment on interest of RMB 906, or approximately $150.
The shop lots in the Singapore Themed Resort Project being developed by the Developer under the agreement are to be delivered to TTCQ upon completion thereof. The initial targeted date of completion was December 31, 2016. Based on discussion with the Developer, the completion date is currently estimated to be December 31, 2022. The delay was primarily due to the time needed by the developers to work with various parties to inject sufficient funds into this project, especially during the COVID-19 pandemic. Based on the available information, management believes that the Developer is capable of working with new investors to complete certain phases of this project.
10. LINES OF CREDIT
Carrying value of the Company’s lines of credit approximates its fair value because the interest rates associated with the lines of credit are adjustable in accordance with market situations when the Company borrowed funds with similar terms and remaining maturities.
The Company’s credit rating provides it with readily and adequate access to funds in global markets.
As of March 31, 2019,2020, the Company had certain lines of credit that are collateralized by restricted deposits.
| | Type of | Interest | | | |
| Entity with | Type of | Interest | | | | | | | | |
| Facility | Rate | | | | |
Trio-Tech International Pte. Ltd., Singapore | Lines of Credit | Ranging from 1.83% to 5.5% | -
| $4,206 | $4,072 | Lines of Credit | Ranging from 1.83% to 5.5% and SIBOR rate +1.25% | - | $4,706 | $4,706 |
| Trio-Tech (Tianjin) Co., Ltd. | Lines of Credit | 5.22% to 6.3% | - | $1,490 | $1,250 | Lines of Credit | 5.22% to 6.3% | - | $845 | $845 |
Universal (Far East) Pte. Ltd. | Lines of Credit | Ranging from 1.83% to 5.5% | - | $369 | $121 | Lines of Credit | Ranging from 1.85% to 5.5% | - | $398 | $- |
| Trio-Tech Malaysia Sdn. Bhd. | | Revolving Credit | Cost of Funds Rate +2% | - | $346 |
As of June 30, 2018, the Company had certain lines of credit that are collateralized by restricted deposits.
| Entity with | Type of | Interest | | | |
| Facility | Facility | Rate | | | |
Trio-Tech International Pte. Ltd., Singapore | Lines of Credit | Ranging from 1.6% to 5.5% | -
| $4,183 | $3,325 |
| Trio-Tech (Tianjin) Co., Ltd. | Lines of Credit | 5.22% | - | $1,511 | $437 |
Universal (Far East) Pte. Ltd. | Lines of Credit | Ranging from 1.6% to 5.5% | - | $367 | $256 |
On November 18, 2019, Trio-Tech International Pte. Ltd. signed an agreement with a bank to sub-allocate a portion of the facility thereunder to Universal (Far East)JECC Leasing (Singapore) Pte. Ltd. for an Accounts PayableReceivable Financing facility for Singapore Dollar of 500,SGD 1,000, or approximately $369.$742 based on the market exchange rate. Interest is charged ranges between 1.83%at LIBOR rate +1.3% for USD financing and 5.5%.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 2018.2020.
During the third quarter of fiscal year 2020, the credit limit offered to Trio-Tech (Tianjin) Co.,Ltd. by the Fubon Bank decreased from RMB 10,000 to RMB 6,000.
-14-
| Type of | Interest | | | |
| | | | | |
| 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.
11. ACCRUED EXPENSES
Accrued expenses consisted of the following:
| | | | | |
| Payroll and related costs | $1,129 | $1,545 | $1,132 | $1,354 |
| Commissions | 135 | 89 | 76 | 107 |
| Customer deposits | 1,117 | 17 | 20 | 46 |
| Legal and audit | 300 | 265 | 268 | 299 |
| Sales tax | 16 | 17 | 11 | 9 |
| Utilities | 117 | 130 | 92 | 120 |
| Warranty | 47 | 82 | 38 | 39 |
| Accrued purchase of materials and property, plant and equipment | 355 | 454 | 165 | 362 |
| Provision for re-instatement | 302 | 289 | 300 | 302 |
| Deferred income | | 91 | 61 |
| Contract liabilities | | 646 | 501 |
| Other accrued expenses | 363 | 203 | 123 | 293 |
| Currency translation effect | 1 | 81 | 103 | (7) |
| Total | $3,882 | $3,172 | $3,065 | $3,486 |
13.
12. WARRANTY ACCRUAL
The Company provides for the estimated costs that may be incurred under its warranty program at the time the sale is recorded. The warranty period of the products manufactured by the Company is generally one year or the warranty period agreed upon with the customer. The Company estimates the warranty costs based on the historical rates of warranty returns. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary.
| | | | | |
| Beginning | $82 | $48 | $39 | $82 |
| Additions charged to cost and expenses | 11 | 64 | |
| (Utilization) / additions charged to cost and expenses | | (2) | 15 |
| Reversal | (46) | (30) | - | (58) |
| Currency translation effect | - | - | 1 | - |
| Ending | $47 | $82 | $38 | $39 |
14.13. BANK LOANS PAYABLE
Bank loans payable consisted of the following:
| | | |
| Note payable denominated in RM for expansion plans in Malaysia, maturing in August 2028, bearing interest at the bank’s prime rate less 1.50% (5.00% at March 31, 2019 and June 30, 2018) per annum, with monthly payments of principal plus interest through August 2028, collateralized by the acquired building with a carrying value of $2,727 and $2,809, as at March 31, 2019 and June 30, 2018, respectively. | 2,779 | 1,615 |
| | | |
| Note payable denominated in U.S. dollars for expansion plans in Singapore and its subsidiaries, maturing in April 2020, bearing interest at the bank’s lending rate (3.96% for March 31, 2019 and June 30, 2018) with monthly payments of principal plus interest through June 2020. This note payable is secured by plant and equipment with a carrying value of $158 and $187, as at March 31, 2019 and June 30, 2018, respectively. | 180 | 293 |
| | | |
| Currency translation effect on bank loan payable | (25) | (104) |
| | | |
| Total bank loans payable | $2,934 | $1,804 |
| | | |
| Note payable denominated in RM for expansion plans in Malaysia, maturing in August 2028, bearing interest at the bank’s prime rate less 2.00% (4.85% and 5.00% at March 31, 2020 and June 30, 2019, respectively) per annum, with monthly payments of principal plus interest through August 2028, collateralized by the acquired building with a carrying value of $2,539 and $2,683 as at March 31, 2020 and June 30, 2019, respectively. | 2,271 | 2,638 |
| Note payable denominated in U.S. dollars for expansion plans in Singapore and its subsidiaries, maturing in April 2020, bearing interest at the bank’s lending rate (3.96% for March 31, 2020 and June 30, 2019) with monthly payments of principal plus interest through June 2020. This note payable is secured by plant and equipment with a carrying value of $121 and $148 as at March 31, 2020 and June 30, 2019, respectively. | 26 | 142 |
| Total bank loans payable | $2,297 | $2,780 |
| Current portion of bank loan payable | 495 | 380 | 395 | 494 |
| Currency translation effect on current portion of bank loan | (3) | (13) | (17) | (6) |
| Current portion of bank loan payable | 492 | 367 | 378 | 488 |
| Long term portion of bank loan payable | 2,465 | 1,528 | 2,012 | 2,344 |
| Currency translation effect on long-term portion of bank loan | (23) | (91) | (93) | (52) |
| Long term portion of bank loans payable | $2,442 | $1,437 | $1,919 | $2,292 |
Future minimum payments (excluding interest) as at March 31, 20192020 were as follows:
| 2019 | $492 |
| 2020 | 383 |
| 2021 | 375 |
| 2022 | 394 |
| 2023 | 205 |
| Thereafter | 1,085 |
| Total obligations and commitments | $2,934 |
| Remainder of fiscal 2020 | $288 |
| 2021 | 364 |
| 2022 | 380 |
| 2023 | 397 |
| 2024 | 282 |
| Thereafter | 586 |
| Total obligations and commitments | $2,297 |
Future minimum payments (excluding interest) as at June 30, 20182019 were as follows:
| 2019 | $367 | |
| 2020 | 372 | $488 |
| 2021 | 242 | 362 |
| 2022 | 254 | 380 |
| 2023 | 267 | 399 |
| 2024 | | 407 |
| Thereafter | 302 | 744 |
| Total obligations and commitments | $1,804 | $2,780 |
14. COMMITMENTS AND CONTINGENCIES
Trio-Tech (Malaysia) Sdn. Bhd. hashad capital commitments for the purchase of equipment and other related infrastructure costs amounting to RM 315,18, or approximately $77, based on the exchange rate$4, as at March 31, 2019, as compared to the capital commitment as at2020 and June 30, 2018 amounting to RM 62, or approximately $16.2019.
Trio-Tech (Tianjin) Co., Ltd. in China hasdid not have capital commitments for the purchase of equipment and other related infrastructure costs amounting to RMB 265, or approximately $40, based on the exchange rate as at March 31, 2019,2020, as compared to the capital commitmentcommitments as at June 30, 20182019 amounting to RMB 3,927,397, or approximately $593.$58.
Trio-Tech (SIP) Co., Ltd. in China hasdid not have capital commitments for the purchase of equipment and other related infrastructure costs amounting to RMB 632, or approximately $94, based on the exchange rate as at March 31, 2019 as compared to the capital commitment2020 and as at June 30, 2018 amounting to RMB 6,084, or approximately $919.2019.
Deposits with banks in China are not insured by the local government or agency and are consequently exposed to risk of loss. The Company believes the probability of a bank failure, causing loss to the Company, is remote.
The Company is, from time to time, the subject of litigation claims and assessments arising out of matters occurring in its normal business operations. In the opinion of management, resolution of these matters will not have a material adverse effect on the Company’s financial statements.
16.15. BUSINESS SEGMENTS
In fiscal year 2019,Although the Company operates in four segments; the testing service industry (which performs structural and electronic tests of semiconductor devices), the designing and manufacturing of equipment (which equipment tests the structural integrity of integrated circuits and other products), distribution of various products from other manufacturers in Singapore and Southeast Asia, and the real estate segment in China.
The revenue allocated to individual countries was based on whereChina, the customers were located. The allocation of the cost of equipment, the current year investment in new equipment and depreciation expense have been made based on the primary purpose for which the equipment was acquired.
All inter-segment revenue was from the manufacturing segment to the testing and distribution segments. Total inter-segment revenue was $15 and $416 for the three and nine months ended March 31, 2019, as compared to $587 and $681 for the same periods in the last fiscal year. Corporate assets mainly consisted of cash and prepaid expenses. Corporate expenses mainly consisted of stock option expenses, salaries, insurance, professional expenses and directors' fees. Corporate expenses are allocated to the four segments. The following segment information table includes segment operating income or loss after including the corporate expenses allocated to the segments, which gets eliminated in the consolidation.
The following segment information is un-audited for the three and nine months ended March 31, 2019 and March 31, 2018:| | Business Segment Information: Nine months
| | | | | |
| | Ended | | | | | |
| | Mar. 31 | | | | | |
| | | | | | | |
| Manufacturing | 2019 | $10,086 | $175 | $9,205 | $88 | $40 |
| | 2018 | $11,862 | $188 | $7,035 | $86 | $63 |
| | | | | | |
| Testing Services | 2019 | 12,819 | (134) | 22,842 | 1,647 | 2,535 |
| | 2018 | 14,454 | 1,281 | 24,790 | 1,432 | 1,987 |
| | | | | | |
| Distribution | 2019 | 5,587 | 492 | 780 | - | - |
| | 2018 | 5,175 | 337 | 631 | - | - |
| | | | | | |
| Real Estate | 2019 | 81 | (30) | 3,914 | 42 | - |
| | 2018 | 110 | (38) | 3,732 | 76 | - |
| | | | | | |
| Fabrication * | 2019 | - | - | 26 | - | - |
| Services | 2018 | - | - | 28 | - | - |
| | | | | | |
| Corporate & | 2019 | - | (30) | 233 | - | - |
| Unallocated | 2018 | - | (289) | 172 | - | - |
| | | | | | |
| Total | 2019 | $28,573 | $473 | $37,000 | $1,777 | $2,575 |
| | 2018 | $31,601 | $1,479 | $36,388 | $1,594 | $2,050 |
The following segment information is unaudited for the period referenced below:
| | Business Segment Information: Three months
| | | | | |
| | Ended | | | | | |
| | Mar. 31 | | | | | |
| | | | | | | |
| Manufacturing | 2019 | $3,097 | $(8) | $9,205 | $30 | $39 |
| | 2018 | $3,124 | $(105) | $7,035 | $30 | $26 |
| | | | | | |
| Testing Services | 2019 | 3,989 | (17) | 22,842 | 588 | 239 |
| | 2018 | 4,913 | 428 | 24,790 | 519 | 429 |
| | | | | | |
| Distribution | 2019 | 1,727 | 150 | 780 | - | - |
| | 2018 | 2,033 | 117 | 631 | - | - |
| | | | | | |
| Real Estate | 2019 | 25 | (13) | 3,914 | 14 | - |
| | 2018 | 34 | (18) | 3,732 | 26 | - |
| | | | | | |
| Fabrication * | 2019 | - | - | 26 | - | - |
| Services | 2018 | - | - | 28 | - | - |
| | | | | | |
| Corporate & | 2019 | - | 11 | 233 | - | - |
| Unallocated | 2018 | - | (188) | 172 | - | - |
| | | | | | |
| Total | 2019 | $8,838 | $123 | $37,000 | $632 | $278 |
| | 2018 | $10,104 | $234 | $36,388 | $575 | $455 |
* Fabrication services is a discontinued operation.
17. OTHER INCOME, NET
Other income / (expenses) consisted of the following:
| | | |
| | | | | |
| | | | | |
| | | | | |
| Interest income | 31 | 19 | 67 | 39 |
| Other rental income | 28 | 28 | 84 | 81 |
| Exchange loss | (11) | (5) | (78) | (27) |
| Bad debt recovery | - | - | 2 | - |
| Other miscellaneous income | 80 | 69 | 145 | 218 |
| Total | $128 | $111 | $220 | $311 |
18. INCOME TAX
The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining the provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws. The statute of limitations, in general, is open for years 2014 to 2017 for tax authorities in those jurisdictions to audit or examine income tax returns. The Company is under annual review by the tax authorities of the respective jurisdiction to which the subsidiaries belong.
The U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Tax Act, among other things reduced the U.S. federal corporate tax rate from 35.0% to 21.0%, eliminated corporate Alternative Minimum Tax, modified rules for expensing capital investment, and limited the deduction of interest expense for certain companies. The Tax Act is a fundamental change to the taxation of multinational companies, including a shift from a system of worldwide taxation with some deferral elements to a territorial system, current taxation of certain foreign income, a minimum tax on low tax foreign earnings, and new measures to curtail base erosion and promote U.S. production.
As the Company has a June 30 fiscal year end, the lower corporate income tax rate will be phased in, resulting in a lower U.S. statutory federal rate. In accordance with Section 15 of the Internal Revenue Code, the Company applied a blended U.S. statutory federal income tax rate of 27.5% for the year ended June 30, 2018. Accounting Standard Codification (“ASC”) 740 requires filers to record the effect of tax law changes in the period enacted. During fiscal year 2018, the Company recognized income tax expenses of $900 related to the one-time deemed repatriation. No expenses have been recognized related to the deferred tax re-measurement and minimum tax on low tax foreign earnings. However, SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), that permits filers who may not have the necessary information available, prepared, or analyzed (including computations) for certain income tax effects of the Act in order to determine a reasonable estimate to be recorded as provisional amounts during a measurement period ending no later than one year from the date of enactment.
Certain material provisions affecting the Company is provided below.
One-Time Mandatory Repatriation
One of the effects of the Tax Act is to transition from a world-wide to a territorial tax system. The Tax Act requires a mandatory one-time repatriation of certain post-1986 earnings and profits that were deferred from U.S. taxation by the Company’s foreign subsidiaries. The basis of the tax is on cash held and specified assets which are taxed at 15.5% and 8%, respectively. The Company has elected to pay the repatriation tax over an 8-year period.
The Company recorded an estimated $900 charge in fiscal 2018 related to the one-time transition tax on the deemed repatriation of deferred foreign income, which was included in the provision for income taxes on our consolidated income statements and income taxes on our consolidated balance sheets, based on existing tax laws and the best information available as of the date of estimate.
As of second quarter of fiscal year 2019, the initial estimate for the one-time transition tax was adjusted to reflect final computation using all available data and tax legislation published post estimate. In the second quarter of fiscal 2019 upon finalization of our accounting analysis, we reversed $145 from the provision of income tax thus reducing the tax liability related to the one-time transition tax to $755. That adjustment materially impacts our provision for income taxes and effective tax rate. The significant change is due to the update of information from additional analysis performed on foreign tax pools and earnings and profits computations where the information is only available post-estimate. As at March 31, 2019, the U.S. Treasury Department and the Internal Revenue Services are still in the process of issuing various regulations related to the Tax Act. The transition tax may change in the future due to changes in tax law as enacted by the U.S. Government, new guidance from federal and state regulators and related interpretations of the Tax Act.
Minimum Tax on Low Tax Foreign Earnings
The Tax Act implemented the inclusion in gross income for the Global Intangible Low-Tax Income (GILTI) for any taxable year beginning on or after January 1, 2018. This provision significantly expands current taxation of foreign subsidiary corporate earnings. The Company must generally include in current income all earnings of the foreign subsidiaries in excess of the assumed deemed return on tangible assets of the foreign subsidiaries. The Company has elected to provide for the minimum tax as future income tax expense as a period expense. The Company recorded $19 of income tax expense related to GILTI for the nine months ended March 31, 2019.
Deferred Tax Re-Measurement
The re-measurement is based on the expected reversals of the deferred taxes at the estimated U.S. federal tax rates of 28.0% for the current fiscal year and 21.0% for future fiscal years. As the Company established a full valuation allowance on the U.S. deferred tax assets, the Company has not recognized any income tax effects for the deferred tax re-measurement under the Tax Act. The Company’s accounting for any possible income tax effects for the deferred tax re-measurement will be completed during the measurement period, which should not extend beyond one year from the enactment date.
The Company accrues penalties and interest related to unrecognized tax benefits when necessary as a component of penalties and interest expenses, respectively. The Company had not accrued any penalties or interest expenses relating to unrecognized benefits as of March 31, 2019.
19. REVENUE
The Company generates revenue primarily from 3 different segments: Manufacturing, Testingthe manufacturing, testing and Distribution.distribution segments. The Company accounts for a contract with a customer when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company’s revenues are measured based on consideration stipulated in the arrangement with each customer, net of any sales incentives and amounts collected on behalf of third parties, such as sales taxes. The revenues are recognized as separate performance obligations that are satisfied by transferring control of the product or service to the customer.
The revenue allocated to individual countries was based on where the customers were located. The allocation of the cost of equipment, the current year investment in new equipment and depreciation expense have been made on the basis of the primary purpose for which the equipment was acquired.
Significant Judgments
The Company’s arrangements with its customers include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. A product or service is considered distinct if it is separately identifiable from other deliverables in the arrangement and if a customer can benefit from it on its own or with other resources that are readily available to the customer.
The Company allocates the transaction price to each performance obligation on a relative standalone selling price basis (SSP)(“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 considerationconsiderations 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 to installof product isinstallation and training services are deferred and recognized upon acceptance.
The majority of sales under the Manufacturing segment include a standard 12-month warranty. The Company has concluded that the warranty provided for standard products are assurance type warranties and are not separate performance obligations. Warranty provided for customized products are service warranties and are separate performance obligations. Transaction prices are allocated to this performance obligation using cost plus method. The portion of revenue associated with warranty service is deferred and recognized as revenue over the warranty period, as the customer simultaneously receives and consumes the benefits of warranty services provided by the Company.
Testing
The Company rendered testing services to manufacturers and purchasers of semiconductors and other entities who either lack testing capabilities or whose in-house screening facilities are insufficient. The Company primarily derives testing revenue from burn-in services, manpower supply and other associated services. Standalone Selling priceSSP 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.
MethodAll inter-segment revenue was from the manufacturing segment to the testing and Impactdistribution segments. Total inter-segment revenue was $36 for the three months ended March 31, 2020, as compared to $15 for the same period in the last fiscal year. Corporate assets mainly consisted of Adoptioncash and prepaid expenses. Corporate expenses mainly consisted of stock option expenses, salaries, insurance, professional expenses and directors' fees. Corporate expenses are allocated to the four segments. The following segment information table includes segment operating income or loss after including the corporate expenses allocated to the segments, which gets eliminated in the consolidation.
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 605.
An assessment was made on-19-
The following segment information is un-audited for the impact of all existing arrangements as at the date of adoption, under ASC 606, to identify the cumulative effect of applying ASC 606 on the beginning retained earnings. The Company quantified the impact of the adoption on its financial position, results of operationsnine months ended March 31, 2020 and cash flow. The impact amounted to 0.06% of fiscal 2018 revenue or $28, whichMarch 31, 2019:
Business Segment Information:
| Nine Months Ended Mar. 31, | | | | | |
| 2020 | $8,881 | (201) | 9,871 | 297 | 124 |
| 2019 | $10,086 | $175 | $9,205 | $88 | $40 |
|
| | | | | |
| 2020
| 12,018 | (540) | 22,332 | 1,999 | 724 |
| 2019 | 12,819 | (134) | 22,842 | 1,647 | 2,535 |
|
| | | | | |
| 2020
| 6,338 | 599 | 869 | 3 | - |
| 2019 | 5,587 | 492 | 780 | - | - |
|
| | | | | |
| 2020
| 49 | (82) | 3,584 | 51 | |
| 2019 | 81 | (30) | 3,914 | 42 | - |
|
| | | | | |
| 2020
| - | - | 23 | - | - |
| 2019 | - | - | 26 | - | - |
|
| | | | | |
| 2020
| - | (94) | 117 | - | - |
| 2019
| - | (30) | 233 | - | - |
|
| | | | | |
| 2020
| $27,286 | $(318) | $36,796 | $2,350 | $848 |
| 2019
| $28,573 | $473 | $37,000 | $1,777 | $2,575 |
* Fabrication services is immaterial to the Company. Hence, based on materiality principle, the Company concluded that the cumulative adjustment is not required to be made to the Company’s Beginning Retained Earnings.a discontinued operation.
The following segment information is un-audited for the three month ended March 31, 2020 referenced below:
Business Segment Information:
| Three Months Ended Mar. 31, | | | | | |
| | $2,519 | (102) | 9,871 | 101 | 89 |
| 2019
| $3,097 | $(8) | $9,205 | $30 | $39 |
| | | | | | |
| 2020
| 3,741 | (447) | 22,332 | 655 | 15 |
| 2019
| 3,989 | (17) | 22,842 | 588 | 239 |
| | | | | | |
| 2020 | 2,225 | 207 | 869 | 1 | - |
| 2019 | 1,727 | 150 | 780 | - | - |
| | | | | | |
| 2020 | 16 | (30) | 3,584 | 17 | |
| 2019 | 25 | (13) | 3,914 | 14 | - |
| | | | | | |
| 2020 | - | - | 23 | - | - |
| 2019 | - | - | 26 | - | - |
|
| | | | | |
| 2020 | - | 5 | 117 | - | - |
| 2019 | - | 11 | 233 | - | - |
|
| | | | | |
| | $8,501 | $(367) | $36,796 | $774 | $104 |
| | $8,838 | $123 | $37,000 | $632 | $278 |
* Fabrication services is a discontinued operation.
16.OTHER INCOME
Other income consisted of the following:
| | | |
| | | | | |
| | | | | |
| | | | | |
| Interest income | 46 | 31 | 130 | 67 |
| Other rental income | 30 | 28 | 90 | 84 |
| Government grant | 266 | 38 | 295 | 115 |
| Exchange loss | 94 | (11) | 33 | (78) |
| Bad debt recovery | - | - | 11 | 2 |
| Other miscellaneous income | 4 | 42 | 31 | 30 |
| Total | $440 | $128 | $590 | $220 |
During the third quarter of fiscal year 2020, the Company received government grants amounting to $266, of which $263 were the financial assistance received from the Singapore and China governments amid the COVID-19 pandemic. The Company believes that, as with other business entities in Singapore and China, it will receive additional government assistance for a period to ease the financial impact is primarily drivencaused by the changes related to the accounting of standard warranty. Prior to adoption of ASC 606, the Company accounted for the estimated warranty cost as a charge to costs of sales when revenue was recognized. Upon adoption of ASC 606, the standard warranty for customized products is recognized as a separate performance obligation.pandemic.
17. INCOME TAX
The Company has completed its adoptionis subject to income taxes in the U.S. and implemented policies, processesnumerous foreign jurisdictions. Significant judgment is required in determining the provision for income taxes and controlsincome tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws. The statute of limitations, in general, is open for years 2014 to support the standard’s measurement and disclosure requirements.2019 for tax authorities in those jurisdictions to audit or examine income tax returns. The Company recognizes net product revenue when it satisfies the obligations as evidencedis under annual review by the transfertax authorities of control of its products and servicesthe respective jurisdiction to customers. The guidance did not have material impact onwhich the Company’s consolidated financial results.subsidiaries belong.
Contract BalancesThe Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017, and reduced the U.S. federal corporate tax rate from 35% to 21%, eliminated corporate Alternative Minimum Tax, modified rules for expensing capital investment, and limited the deduction of interest expense for certain companies. The Act is a fundamental change to the taxation of multinational companies, including a shift from a system of worldwide taxation with some deferral elements to a territorial system, current taxation of certain foreign income, a minimum tax on low tax foreign earnings, and new measures to curtail base erosion and promote U.S. production.
Due to the enactment of the Tax Act, the Company is subject to a tax on global intangible low-taxed income (“GILTI”). GILTI is a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. Companies subject to GILTI have the option to account for the GILTI tax as a period cost if and when incurred, or to recognize deferred taxes for temporary differences including outside basis differences expected to reverse as GILTI. The Company has elected to account for GILTI as a period cost.
The Company's income tax benefit was $8 for the three months ended March 31, 2020 as compared to an income tax expense of $209 for the same period of the last fiscal year. Our effective tax rate (“ETR”) from continuing operations was negative 80% and 24% for the quarters ended March 31, 2020 and March 31, 2019, respectively. The following items caused the significant change in the quarterly ETR:
1).
During the three months ended March 31, 2019, the Company recorded a capital gain tax arising from sales of Maoye properties.
2).
During the three months ended March 31, 2020, the Company recorded a tax reversal of $70 due to reversal of provision for the GILTI tax. The Company incurred taxable loss from the adverse impact from COVID-19.
The Company accrues penalties and interest related to unrecognized tax benefits when necessary as a component of penalties and interest expenses, respectively. The Company had no unrecognized tax benefits or related accrued penalties or interest expenses at March 31, 2020.
In assessing the ability to realize the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on these criteria, management believes it is more likely than not the Company will not realize the benefits of the federal, state, and foreign deductible differences. Accordingly, a full valuation allowance has been established.
18. CONTRACT BALANCES
The timing of revenue recognition, billings and cash collections may result in billed accounts receivable, contract assets, and contract liabilities (deferred revenue) on the Company’s condensed consolidated balance sheet. A receivable is recorded in the period the Company delivers products or provides services when the Company has an unconditional right to payment.
Contract assets primarily relate to the value of products and services transferred to the customer for which the right to payment is not just dependent on the passage of time. Contract assets are transferred to receivable when rights to payment become unconditional.
A contract liability is recognized when the Company receives payment or has an unconditional right to payment in advance of the satisfaction of performance. The contract liabilities represent (1) Deferred product revenue related to the value of products that have been shipped and billed to customers and for which the control has not been transferred to the customers, and (2) Deferred service revenue, which is recorded when the Company receives consideration, or such consideration is unconditionally due, from a customer prior to transferring services to the customer under the terms of a sales contract. Deferred service revenue typically results from warranty services, and maintenance and other service contracts.
As of July 1, 2018, deferred income amounting to $260 was reclassified from otherunbilled receivables to contract assets(contract assets), and customer advances and deposits amounting to $31 was reclassified from accrued expenses to contract liabilities in order to establish the new opening balance for contract assets and liabilities.
(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 receivablereceivables while contract liabilities were recorded under accrued expenses in the balance sheet.
The following table is the reconciliation of contract balances.
| | | July 1, 2018 (Unaudited) $ | | |
| Trade Accounts Receivable | 7,120 | 7,747 | 6,397 | 7,113 |
| Trade Accounts Payable | 3,021 | 3,704 | |
| Accounts Payable | | 3,129 | 3,272 |
| Contract Assets | 357 | 260 | 392 | 419 |
| Contract Liabilities | 1,077 | 31 | 646 | 501 |
Remaining Performance Obligation
The remaining performance obligation (RPO) disclosure provides the aggregate amount of the transaction price yet to be recognized as of the end of the reporting period and an explanation as to when the company expects to recognize these amounts in revenue. It is intended to be a statement of overall work under contract that has not yet been performed and does not include contracts in which the customer is not committed. The customer is not considered committed when they are able to terminate for convenience without payment of a substantive penalty. The disclosure includes estimates of variable consideration,except when the variable consideration is a sale based or usage-based royalty promised in exchange for a license of intellectual property. Additionally, as a practical expedient, the Company does not include contracts that have an original duration of one year or less. Remaining performance obligation estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, and adjustment for revenue that has not materialized and adjustments for currency.
As at March 31, 2019,2020, the aggregate amountCompany had $826 of the transaction price allocatedremaining performance obligations, which represents our obligation to RPO related to customer contracts that are unsatisfied or partially unsatisfied was $1,061. deliver products and services.Given the profile of contract terms, approximately 23.5%53.3 percent of this amount is expected to be recognized as revenue over the next two years, approximately 76.5% percentwhile the remaining amount is expected to be recognized between three and five years and the balance thereafter.years.
Practical ExpedientsRefer to note 15 “Business Segments” of the Notes to Condensed 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.
20.19. EARNINGS PER SHARE
The Company adoptedIn accordance with ASC Topic 260, Earnings Per Share.Share, Basic Earnings Per Share (“EPS”) is computed by dividing net income available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS give effect to all dilutive potential common shares outstanding during a period. In computing diluted EPS, the average price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options and warrants.
Options to purchase 763,500 shares of Common Stock at exercise prices ranging from $2.53 to $5.98 per share were outstanding as of March 31, 2020. 212,500 stock options were excluded in the computation of diluted EPS for fiscal year 2020 because they were anti-dilutive.
Options to purchase 517,500 shares of Common Stock at exercise prices ranging from $2.69 to $5.98 per share were outstanding as of March 31, 2019. 110,000 stock options were excluded in the computation of diluted EPS for fiscal year 2019 because they were anti-dilutive.
The following table is a reconciliation of the weighted average shares used in the computation of basic and diluted EPS for the periodsperiod presented herein:
| | | Nine Months Ended | | |
| | | Mar. 31, | Mar. 31, | | | |
| | | | | 2018 | | | | |
| | | (Unaudited) | | | |
| | | |
| Income attributable to Trio-Tech International common shareholders from continuing operations, net of tax | $682 | $(736) | $1,097 | $520 | $81 | $682 | $780 | $1,097 |
| Income / (loss) attributable to Trio-Tech International common shareholders from discontinued operations, net of tax | 1 | (3) | (1) | (11) | |
| (Loss) / Income attributable to Trio-Tech International common shareholders from discontinued operations, net of tax | | (11) | 1 | (11) | (1) |
| Net Income Attributable to Trio-Tech International Common Shareholders | $683 | $739 | $1,096 | $509 | $70 | $683 | $769 | $1,096 |
| | | | |
| Weighted average number of common shares outstanding - basic | 3,673 | 3,553 | 3,673 | 3,553 | 3,673 |
| | | | |
| Dilutive effect of stock options | 12 | 219 | 73 | 225 | 86 | 12 | 61 | 73 |
| Number of shares used to compute earnings per share - diluted | 3,685 | 3,772 | 3,746 | 3,778 | 3,759 | 3,685 | 3,734 | 3,746 |
| | | | |
| Basic earnings per share from continuing operations attributable to Trio-Tech International | $0.19 | (0.21) | 0.30 | 0.15 | $0.02 | 0.19 | 0.21 | 0.30 |
| Basic earnings per share from discontinued operations attributable to Trio-Tech International | - | - |
| Basic Earnings Per Share from Net Income Attributable to Trio-Tech International | $0.19 | $(0.21) | $0.30 | $0.15 | |
| Basic Earnings per Share from Net Income Attributable to Trio-Tech International | | $0.02 | $0.19 | 0.21 | 0.30 |
| | | | |
| Diluted earnings per share from continuing operations attributable to Trio-Tech International | $0.19 | (0.20) | 0.29 | 0.14 | $0.02 | 0.19 | 0.21 | 0.29 |
| Diluted earnings per share from discontinued operations attributable to Trio-Tech International | - | - | $- |
| Diluted Earnings Per Share from Net Income Attributable to Trio-Tech International | $0.19 | $(0.20) | $0.29 | $0.14 | |
| Diluted Earnings per Share from Net Income Attributable to Trio-Tech International | | $0.02 | $0.19 | 0.21 | 0.29 |
21.20. STOCK OPTIONS
On September 24, 2007, the Company’s Board of Directors unanimously adopted the 2007 Employee Stock Option Plan (the “2007 Employee Plan”) and the 2007 Directors Equity Incentive Plan (the “2007 Directors Plan”), each of which was approved by the shareholders on December 3, 2007. Each of those plans was amended during the term of such plan to increase the number of shares covered thereby. As of the last amendment thereof, the 2007 Employee Plan covered an aggregate of 600,000 shares of the Company’s Common Stock and the 2007 Directors Plan covered an aggregate of 500,000 shares of the Company’s Common Stock. Each of those plans terminated by its respective terms on September 24, 2017. These two plans were administered by the Board, which also established the terms of the awards.
On September 14, 2017, the Company’s Board of Directors unanimously adopted the 2017 Employee Stock Option Plan (the “2017 Employee Plan”) and the 2017 Directors Equity Incentive Plan (the “2017 Directors Plan”), each of which was approved by the shareholders on December 4, 2017. Each of these plans is administered by the Board of Directors of the Company.
Assumptions
The fair value for the options granted were estimated using the Black-Scholes option pricing model with the following weighted average assumptions, assuming no expected dividends:
| | | Nine Months Ended March 31, | |
| | | 2019 | | 2018 | Nine Months Ended March 31, |
| | | | | | | |
| Expected volatility | | 47.29% to 97.48 % | | 47.29% to 104.94 % | | |
| Risk-free interest rate | | 0.30% to 1.05 % | | 0.30% to 1.05 % | | |
| Expected life (years) | | 2.50 – 3.25 | | 2.50 – 3.25 | 2.5-3.25 | 2.50 – 3.25 |
The expected volatilities are based on the historical volatility of the Company’s stock. Due to higher volatility, the observation is made on a daily basis for the three months ended March 31, 2019.2020. The observation period covered is consistent with the expected life of options. The expected life of the options granted to employees has been determined utilizing the “simplified” method as prescribed by ASC Topic 718 Stock Based Compensation, which, among other provisions, allows companies without access to adequate historical data about employee exercise behavior to use a simplified approach for estimating the expected life of a "plain vanilla" option grant. The simplified rule for estimating the expected life of such an option is the average of the time to vesting and the full term of the option. The risk-free rate is consistent with the expected life of the stock options and is based on the United States Treasury yield curve in effect at the time of grant.
2017 Employee Stock Option Plan
The Company’s 2017 Employee Plan permits the grant of stock options to its employees covering up to an aggregate of 300,000 shares of Common Stock. Under the 2017 Employee Plan, all options must be granted with an exercise price of not less than fair value as of the grant date and the options granted must be exercisable within a maximum of ten years after the date of grant, or such lesser period of time as is set forth in the stock option agreements. The options may be exercisable (a) immediately as of the effective date of the stock option agreement granting the option, or (b) in accordance with a schedule related to the date of the grant of the option, the date of first employment, or such other date as may be set by the Compensation Committee. Generally, options granted under the 2017 Employee Plan are exercisable within five years after the date of grant, and vest over the period as follows: 25% vesting on the grant date and the remaining balance vesting in equal instalmentsinstallments on the next three succeeding anniversaries of the grant date. The share-based compensation will be recognized in terms of the grade method on a straight-line basis for each separately vesting portion of the award. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the 2017 Employee Plan).
During the third quarter of fiscal year 2020, the Company granted options to purchase 60,000 shares of its Common Stock to employees pursuant to the 2017 Employee Plan. There were no stock options exercised during the nine month period ended March 31, 2020. The Company recognized $28 stock-based compensation expenses during the nine months ended March 31, 2020.
During the third quarter of fiscal year 2019, the Company granted options to purchase 16,000 shares of its Common Stock to employeeemployees pursuant to the 2017 Employee PlanPlan. There were no stock options exercised during the nine-month period ended March 31, 2019. The Company recognized $11 stock-based compensation expenses during the nine months ended March 31, 2019. There were no stock options exercised during the nine months ended
As of March 31, 2019. The Company recognized stock-based compensation expenses of $3 and $11 in the three and nine months ended March 31, 2019 under the 2017 Employee Plan. The balance of unamortized stock-based compensation of $14 based on fair value on the grant date related to2020, there were vested stock options granted under the 2017 Employee Plan is to be recognized overcovering a periodtotal of three83,000 shares of Common Stock. The weighted-average exercise price was $4.65 and the weighted average remaining contractual term was 3.60 years.
As of March 31, 2019, there were vested employee stock options granted under the 2017 Employee Plan 2017 covering a total of 34,000 shares of Common Stock. The weighted-average exercise price was $5.72 and the weighted average remaining contractual term was 4.06 years.
On March 23, 2018, the Company granted options to purchase 60,000 shares of its Common Stock to employee directors pursuant to the 2017 Employee Plan during the nine-month ended March 31, 2018. The Company recognized stock-based compensation expenses of $4 in the nine months ended March 31, 2018 under the 2017 Employee Plan. The balance of unamortized stock-based compensation of $11 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.
As of March 31, 2018, there were vested employee stock options covering a total of 15,000 shares of Common Stock. The weighted-average exercise price was $5.98, and the weighted average contractual term was 4.98 years. The total fair value of vested employee stock options was $90 and remains outstanding as of March 31, 2018.
A summary of option activities under the 2017 Employee Plan during the nine month period ended March 31, 2020 is presented as follows:
| | | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | |
| | | | | |
| Outstanding at July 1, 2019 | 136,000 | $4.53 | 4.28 | $- |
| Granted | 60,000 | 2.53 | 4.98 | - |
| Exercised | - | - | - | - |
| Forfeited or expired | - | - | - | - |
Outstanding at March 31, 2020 | 196,000 | $3.91 | 3.97 | $10 |
Exercisable at March 31, 2020 | 83,000 | $4.65 | 3.60 | $2 |
A summary of the status of the Company’s non-vested employee stock options granted under the 2017 Employee Plan during the nine months ended March 31, 2020 is presented below:
| | | Weighted Average Grant-Date Fair Value |
| | | |
| Non-vested at July 1, 2019 | 87,000 | $4.28 |
| Granted | 60,000 | 2.53 |
| Vested | (34,000) | 4.19 |
| Forfeited | - | |
| Non-vested at March 31, 2020 | 113,000 | $3.37 |
| | | |
A summary of option activities under the 2017 Employee Plan during the nine month period ended March 31, 2019 is presented as follows:
| | | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | |
| | | | | |
| Outstanding at July 1, 2018 | 60,000 | $5.98 | 4.73 | $- |
| Granted | 16,000 | 3.75 | 4.68 | - |
| Exercised | - | - | - | - |
| Forfeited or expired | - | - | - | - |
Outstanding at March 31, 2019 | 76,000 | 5.51 | 4.13 | - |
Exercisable at March 31, 2019 | 34,000 | 5.72 | 4.06 | - |
A summary of the status of the Company’s non-vested employee stock options granted under the 2017 Employee Plan during the nine months ended March 31, 2019 is presented below:
| | | Weighted Average Grant-Date Fair Value |
| | | |
| Non-vested at July 1, 2018 | 45,000 | $5.98 |
| Granted | 16,000 | 3.75 |
| Vested | (19,000) | (5.72) |
| Forfeited | - | - |
| Non-vested at March 31, 2019 | 42,000 | $5.34 |
| | | |
A summary of option activities under the 2017 Employee Plan during the nine-month period ended March 31, 2018 is presented as follows:
| | | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | |
| | | | | |
| Outstanding at July 1, 2017 | - | $- | - | $- |
| Granted | 60,000 | 5.98 | 4.98 | - |
| Exercised | - | - | - | - |
| Forfeited or expired | - | - | - | - |
Outstanding at March 31, 2018 | 60,000 | 5.98 | 4.98 | - |
Exercisable at March 31, 2018 | 60,000 | 5.98 | 4.98 | - |
A summary of the status of the Company’s non-vested employee stock options during the nine months ended March 31, 2018 is presented below:
| | Weighted Average Grant-Date Fair Value |
| | |
Non-vested at July 1, 2017 | - | $- |
Granted | 60,000 | 5.98 |
Vested | (15,000) | 5.98 |
Forfeited | - | - |
Non-vested at March 31, 2018
| 45,000 | 3.83 |
2007 Employee Stock Option Plan
The Company’s 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 grantissuance of stock options to its employees covering up to an aggregate of 600,000 shares of Common Stock. Underemployees.
As the 2007 Employee Plan all options were required to be granted with an exercise price of not less than fair value as ofhas terminated, the grant date and the options granted were required to 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 were permitted to be exercisable (a) immediately as of the effective date of the stock option agreement granting the option, or (b) in accordance with a schedule related to the date of the grant of the option, the date of first employment, or such other date as may be set by the Compensation Committee. Generally, options granted under the 2007 Employee Plan are exercisable within five years after the date of grant, and vest over the period as follows: 25% vesting on the grant date and the remaining balance vesting in equal instalments on the next three succeeding anniversaries of the grant date. The share-based compensation will be recognized in terms of the grade method on a straight-line basis for each separately vesting portion of the award. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the 2007 Employee Plan).
The Company did not grant any options pursuant to the 2007 Employee Plan for nine months ended March 31, 2019. There were 50,000 options exercised during the nine months ended March 31, 2019. The Company recognized stock-based compensation expenses of $1 in the nine months ended March 31, 2019 under the 2007 Employee Plan.
The Company did not grant any options pursuant to the 2007 Employee Plan during the nine months ended March 31, 2018. 2020 and March 31, 2019 respectively.
There were no options exercised during the nine months ended March 31, 2018.2020. There were 50,000 shares of options exercised during the nine months ended March 31, 2019. The Company did not recognize any stock-based compensation expenses during the nine months ended March 31, 2020. The Company recognized stock-based compensation expenses of $3$1 in the nine months ended March 31, 20182019 under the 2007 Employee Plan. The balance unamortized stock-based compensation
As of $2 based on fair value on the grant date related toMarch 31, 2020, there were vested stock options granted under the 2007 Employee Plan is to be recognized overcovering a periodtotal of three77,500 shares of Common Stock. The weighted-average exercise price was $3.69 and the weighted average remaining contractual term was 1.46 years.
As of March 31, 2019, there were vested employee stock options covering a total of 68,125 shares of Common Stock. The weighted-average exercise price was $3.62 and the weighted average contractual term was 2.40 years.
As
A summary of option activities under the 2007 Employee Plan during the nine months ended March 31, 2018, there were vested2020 is presented as follows:
| | | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | |
| | | | | |
| Outstanding at July 1, 2019 | 77,500 | $3.69 | 2.22 | $- |
| Granted | - | - | - | - |
| Exercised | - | - | - | - |
| Forfeited or expired | - | - | - | - |
Outstanding at March 31, 2020 | 77,500 | 3.69 | 1.46 | - |
Exercisable at March 31, 2020 | 77,500 | $3.69 | 1.46 | $- |
A summary of the status of the Company’s non-vested employee stock options covering a total of 98,750 shares of Common Stock. The weighted-average exercise price was $3.43, andunder the weighted average contractual term was 1.98 years.2007 Employee Plan during the nine months ended March 31, 2020 is presented below:
| | | Weighted Average Grant-Date Fair Value |
| | | |
| Non-vested at July 1, 2019 | 9,375 | $4.14 |
| Granted | - | - |
| Vested | (9,375) | - |
| Forfeited | - | - |
| Non-vested at March 31, 2020 | - | $- |
| | | |
A summary of option activities under the 2007 Employee Plan during the nine months ended March 31, 2019 is presented as follows:
| | | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | |
| Outstanding at July 1, 2018 | 127,500 | $3.52 | 2.10 | $121 |
| Granted | - | - | - | - |
| Exercised | (50,000) | 3.25 | - | - |
| Forfeited or expired | - | - | - | - |
| Outstanding at March 31, 2019 | 77,500 | $3.69 | 2.47 | $- |
| Exercisable at March 31, 2019 | 68,125 | $3.62 | 2.40 | $- |
A summary of the status of the Company’s non-vested employee stock options under the 2007 Employee Plan during the nine months ended March 31, 2019 is presented below:
| | | | Weighted Average Grant-Date Fair Value |
| | | Weighted Average Grant-Date Fair Value | |
| Non-vested at July 1, 2018 | 28,750 | $3.83 | 28,750 | $3.83 |
| Granted | - | - |
| Vested | (19,375) | 4.14 | (19,375) | (4.14) |
| Forfeited | - | - | - | - |
Non-vested at March 31, 2019 | 9,375 | $4.14 | |
| Non-vested at March 31, 2019 | | 9,375 | $4.14 |
| | | |
A summary of option activities under the 2007 Employee Plan during the nine-month period ended March 31, 2018 is presented as follows:
| | | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | |
| | | | | |
| Outstanding at July 1, 2017 | 127,500 | $3.52 | 3.10 | $187 |
| Granted | - | - | - | - |
| Exercised | - | - | - | - |
| Forfeited or expired | - | - | - | - |
Outstanding at March 31, 2018 | 127,500 | 3.52 | 2.35 | 285 |
Exercisable at March 31, 2018 | 98,750 | 3.43 | 1.98 | 230 |
A summary of the status of the Company’s non-vested employee stock options during the nine months ended March 31, 2018 is presented below:
| | | Weighted Average Grant-Date Fair Value |
| | | |
| Non-vested at July 1, 2017 | 48,125 | $3.77 |
| Granted | - | - |
| Vested | (19,375) | (3.43) |
| Forfeited | - | - |
Non-vested at March 31, 2018
| 28,750 | $3.83 |
2017 Directors Equity Incentive Plan
The 2017 Directors Plan permits the grant of options covering up to an aggregate of 300,000 shares of Common Stock to its directors in the form of non-qualified options and restricted stock. The exercise price of the non-qualified options is 100% of the fair value of the underlying shares on the grant date. The options have five-year contractual terms and are generally exercisable immediately as of the grant date.
During the third quarter of fiscal year 2020, the Company granted options to purchase 80,000 shares of its Common Stock to directors pursuant to the 2017 Directors Plan. There were no stock options exercised during the nine months ended March 31, 2020. The Company recognized stock-based compensation expenses of $24 in the nine months ended March 31, 2020 under the 2017 Directors Plan.
During the first three quarters of fiscal year 2019, the Company did not grant any options pursuant to the 2017 Director Plan during the nine months ended March 31, 2019.Directors Plan. There were no stock options exercised during the nine months ended March 31, 2019. The Company did not recognize any stock-based compensation expenses during the nine months ended March 31, 2019.
On March 23, 2018, 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 $478 based on the fair value of $5.98 per share determined by the Black Scholes option pricing model. As all of the stock options granted under the 2017 Directors Plan vest immediately aton the date of grant, there were no unvested stock options granted under the 2017 Directors Plan as of March 31, 2018.2020.
As of March 31, 2020, there were vested stock options granted under the 2017 Directors Plan covering a total of 240,000 shares of Common Stock. The Company recognized stock-based compensation expensesweighted-average exercise price was $3.93 and the weighted average remaining contractual term was 4 years.
As of $33 inMarch 31, 2019, there were vested stock options granted under the 2017 Directors Plan covering a total of 80,000 shares of Common Stock. The weighted-average exercise price was $5.98 and the weighted average remaining contractual term was 3.98 years.
A summary of option activities under the 2017 Directors Plan during the nine months ended March 31, 2018 under the 2017 Directors Plan.2020 is presented as follows:
| | | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | |
| | | | | |
| Outstanding at July 1, 2019 | 160,000 | $4.63 | 4.25 | $- |
| Granted | 80,000 | 2.53 | 4.98 | - |
| Exercised | - | - | - | - |
| Forfeited or expired | - | - | - | - |
Outstanding at March 31, 2020 | 240,000 | $3.93 | 4.00 | $12.8 |
Exercisable at March 31, 2020 | 240,000 | $3.93 | 4.00 | $12.8 |
A summary of option activities under the 2017 Directors Plan during the nine months ended March 31, 2019 is presented as follows:
| | | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | | | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | |
| | | |
| Outstanding at July 1, 2018 | 80,000 | $5.98 | 4.73 | $- | 80,000 | $5.98 | 4.73 | $- |
| Granted | - | - |
| Exercised | - | - |
| Forfeited or expired | - | - | - | - |
Outstanding at March 31, 2019 | 80,000 | 5.98 | 3.98 | - | 80,000 | 5.98 | 3.98 | $- |
Exercisable at March 31, 2019 | 80,000 | 5.98 | 3.98 | - | 80,000 | 5.98 | 3.98 | $- |
A summary of option activities under the 2017 Directors Plan during the nine months ended March 31, 2018 is presented as follows:
| | | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | |
| | | | | |
| Outstanding at July 1, 2017 | - | $- | - | $- |
| Granted | 80,000 | 5.98 | 4.98 | - |
| Exercised | - | - | - | - |
| Forfeited or expired | - | - | - | - |
Outstanding at March 31, 2018 | 80,000 | 5.98 | 4.98 | - |
Exercisable at March 31, 2018 | 80,000 | 5.98 | 4.98 | - |
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 grantissuance 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.directors.
TheAs the 2007 Plan has terminated, the Company did not grant any options pursuant to the 2007 Director Plan during the nine months ended March 31, 2020 and March 31, 2019.
There were no stock options exercised during the nine months ended March 31, 2020. The Company did not recognize any stock-based compensation expenses during the nine months ended March 31, 2020.
There were 70,000 stock options exercised during the nine months period ended March 31, 2019. The Company did not recognize any stock-based compensation expenses during the nine months ended March 31, 2019.
The Company did not grant anyAs of March 31, 2020, there were vested stock options pursuant togranted under the 2007 DirectorDirectors Plan duringcovering a total of 250,000 shares of Common Stock. The weighted-average exercise price was $3.32 and the nine months ended weighted average remaining contractual term was 1.08 years.
As of March 31, 2018. There2019, there were 20,000vested stock options exercised duringgranted under the nine-month period ended March 31, 2018.2007 Directors Plan covering a total of 300,000 shares of Common Stock. The Company did not recognize any stock-based compensation expensesweighted-average exercise price was $3.40 and the weighted average remaining contractual term was 1.83 years.
A summary of option activities under the 2007 Directors Plan during the nine months ended March 31, 2018.2020 is presented as follows:
| | | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | |
| | | | | |
| Outstanding at July 1, 2019 | 300,000 | $3.40 | 1.58 | $9 |
| Granted | - | - | - | - |
| Exercised | - | - | - | - |
| Forfeited or expired | (50,000) | (3.81) | - | - |
| Outstanding at March 31, 2020 | 250,000 | 3.32 | 1.08 | - |
| Exercisable at March 31, 2020 | 250,000 | $3.32 | 1.08 | $- |
A summary of option activities under the 2007 Directors Plan during the nine months ended March 31, 2019 is presented as follows:
| | | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | |
| | | | | |
| Outstanding at July 1, 2018 | 390,000 | $3.41 | 2.05 | $412 |
| Granted | - | - | - | - |
| Exercised | (70,000) | 3.39 | - | - |
| Forfeited or expired | (20,000) | (3.62) | - | - |
| Outstanding at March 31, 2019 | 300,000 | $3.40 | 1.83 | $- |
| Exercisable at March 31, 2019 | 300,000 | $3.40 | 1.83 | $- |
21. LEASES
Company as Lessor
Operating leases under which the Company is the lessor arise from the leasing of the Company’s commercial real estate investment property to third parties. Initial lease terms generally range from 12 to 60 months. Depreciation expense for assets subject to operating leases is taken into account primarily on the straight-line method over a period of twenty years in amounts necessary to reduce the carrying amount of the asset to its estimated residual value. Depreciation expenses relating to the property held as investments in operating leases were $17 and $52 for the three and nine months ended March 31, 2020, respectively, and $14 and $42 for the same periods in the last fiscal year.
Future minimum rental income in China and Thailand to be received from fiscal year 2020 to fiscal year 2021 on non-cancellable operating leases is contractually due as follows as of March 31, 2020:
| Remainder of fiscal 2020 | $152 |
| 2021 | $549 |
| | $701 |
Future minimum rental income in China and Thailand to be received from fiscal year 2020 to fiscal year 2021 on non-cancellable operating leases is contractually due as follows as of June 30, 2019:
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):
| | |
|
| |
| Components of Lease Balances | Classification | |
| Assets | | |
Operating lease assets
| Right-of-use asset-operating, net | $1,073 |
Finance lease assets | Property, plant & equipment | 1,758 |
| Accumulated amortization Right-of-use asset | | (663) |
| Assets | Property, plant & equipment | $1,095 |
| Total Leased Assets | | $2,168 |
| |
| Liabilities | | |
| Operating Lease Liabilities | | |
| Current portion | Current portion of lease liability-operating | $541 |
| Long-term portion | Lease liability- Operating, net of current portion | 532 |
| Total Operating Lease Liabilities | | $1,073 |
| Finance Lease Liabilities | | |
| Current portion of finance leases | Current portion of lease liability-finance | $246 |
| Net of current portion of finance leases | Lease liability- Finance, net of current portion | 486 |
Total Finance Lease Liabilities | | $732 |
| |
Total Lease Liabilities | | $1,805 |
| 3 Months Ended March 31, 2020
| 9 Months Ended March 31, 2020
|
| Lease Cost | | |
| Finance lease cost: | | |
| Interest on lease liability | $13 | $37 |
| Amortization of Right-of-use asset | 76 | 212 |
| Total Finance Lease Cost | 89 | 249 |
| | | |
Operating Lease Costs
| $167 | $526 |
Other information related to leases were as follows (in thousands except lease term and discount rate):
| |
| |
| |
| Cash Paid for amounts included in the measurement of lease liabilities | |
| Operating cash flows from finance leases | $(43) |
| Operating cash flows from operating leases | $(398) |
| Finance cash flows from finance leases | $(251) |
| Right-of-use assets obtained in exchange for new operating lease liabilities | $780 |
| |
| Weighted-average remaining lease term: | |
| Finance leases | 3.55 |
| Operating leases | 1.89 |
| Weighted-average discount rate: | |
| Finance leases | 3.40% |
| Operating leases | 4.59% |
As of March 31, 2020, the maturities of the Company's operating and finance lease liabilities were as follow:
| | Operating Lease Liabilities | Finance Lease Liabilities |
| Fiscal Year | | |
| Remainder of 2020 | $244 | $83 |
| 2021 | 442 | 262 |
| 2022 | 293 | 209 |
| 2023 | 153 | 132 |
| 2024 | - | 106 |
| Thereafter | - | 21 |
| Total future minimum lease payments | $1,132 | $813 |
| Less: amount representing interest | (59) | (81) |
| Present value of net minimum lease payments | 1,073 | 732 |
| | | |
| Presentation on statement of financial position | | |
| Current | $541 | $246 |
| Non-Current | $532 | $486 |
As of June 30, 2019, future minimum lease payments under finance leases and non-cancelable operating leases were as follows:
A summary of option activities under the 2007 Directors Plan during the nine months ended March 31, 2018 is presented as follows:
| | | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | |
| | | | | |
| Outstanding at July 1, 2017 | 415,000 | $3.36 | 2.93 | $673 |
| Granted | - | - | - | - |
| Exercised | (20,000) | 2.59 | - | - |
| Forfeited or expired | (5,000) | 2.07 | - | - |
Outstanding at March 31, 2018 | 390,000 | 3.41 | 2.30 | 911 |
Exercisable at March 31, 2018 | 390,000 | 3.41 | 2.30 | 911 |
| Fiscal Year | Operating Lease Liabilities | Finance Lease Liabilities |
| 2020 | $620 | $283 |
| 2021 | 216 | 187 |
| 2022 | 47 | 143 |
| 2023 | 1 | 68 |
| 2024 | - | 44 |
| Total future minimum lease payments | $884 | $725 |
22. FAIR VALUE OF FINANCIAL INSTRUMENTS APPROXIMATE CARRYING VALUE
In accordance with ASC Topics 825 and 820, the following presents assets and liabilities measured and carried at fair value and classified by level of fair value measurement hierarchy:
There were no transfers between Levels 1 and 2 during the three and nine months ended March 31, 20192020 and 2018.2019.
Term deposits (Level 2) – The carrying amount approximates fair value because of the short maturity of these instruments.
Restricted term deposits (Level 2) – The carrying amount approximates fair value because of the short maturity of these instruments.
Lines of credit (Level 3) – The carrying value of the lines of credit approximates fair value due to the short-term nature of the obligations.
Bank loans payable (Level 3) – The carrying value of the Company’s bank loan payables approximates its fair value as the interest rates associated with long-term debt is adjustable in accordance with market situations when the Company borrowed funds with similar terms and remaining maturities.
23. OTHER SIGNIFICANT TRANSACTIONS
In accordance with the accounting guidance for property, plant and equipment, assets are measured at the lower of the carrying value or fair value less costs to sell. As a result of one of our customer’s products coming to the end of its product burn-in cycle earlier than expected, the Company determined the carrying value of the group of assets that served the above mentioned product is higher than the fair value less costs to sell. As a result, an impairment charge of $139 was recorded within operating costs during the third quarter of 2020. The Company does not expect to record a significant gain or loss upon disposition of the assets.
24. SUBSEQUENT EVENTS
The impact of the COVID-19 pandemic continues to evolve as of March 31, 2020. The Singapore and Malaysian governments have imposed various measures to contain the spread of the virus, such as the closure of non-essential businesses and social distancing. Our operations have been classified as part of the global supply chain and are permitted to operate with the adherence of social distancing, including employee reduction at site. As a result, Management expects a decrease in revenue from the Singapore and Malaysia operations with the effort of a fewer number of employees.
The extent of the impact of COVID-19 will depend on future developments, which are highly uncertain and unpredictable. This includes any new information that emerges concerning the severity of COVID-19 and any possible actions to contain the virus.
TRIO-TECHTRIO-TECH INTERNATIONAL AND SUBSIDIARIESITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Overview
The following should be read in conjunction with the condensed consolidated unaudited financial statements and notes in Item I above and with the audited consolidated financial statements and notes, and the information under the headingheadings “Risk Factors” and “Management’s Discussiondiscussion and Analysisanalysis of Financial Conditionfinancial condition and Resultsresults of Operations”operations” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018.2019.
Trio-Tech International (“TTI”) was incorporated in 1958 under the laws of the State of California. As used herein, the term “Trio-Tech” or “Company” or “we” or “us” or “Registrant” includes Trio-Tech International and its subsidiaries unless the context otherwise indicates. Our mailing address and executive offices are located at 16139 Wyandotte Street, Van Nuys, California 91406,Block 1008 Toa Payoh North, Unit 03-09 Singapore 318996, and our telephone number is (818) 787-7000.(65) 6265 3300.
The Company primarily is a provider of reliability test equipment and services to the semiconductor industry. Our customers rely on us to verify that their semiconductor components meet or exceed the rigorous reliability standards demanded for aerospace, communications and other electronics products.
TTI generated approximately 99.7%99.8% of its revenue from its three core business segments in the test and measurement industry, i.e. manufacturing of test equipment, testing services and distribution of test equipment, during the three months ended March 31, 2019. To reduce our risks associated with sole industry focus and customer concentration, the Company expanded its business into the2020. The real estate investment and oil and gas equipment fabrication businesses in 2007 and 2009, respectively. The Company’s Indonesia operation and the Indonesia operation’s immediate holding company, which comprised the fabrication services segment, suffered continued operating losses since it commenced its operations, and the cash flow was minimal in the past years. The Company established a restructuring plan to close the fabrication services operation, and in accordance with ASC Topic 205,Presentation of Financial Statement Discontinued Operations(“ASC Topic 205”), the Company presented the operation results from fabrication services as a discontinued operation. The Real Estate segment contributed only 0.3%0.2% to the total revenue and has been insignificant.was immaterial to the overall business.
Manufacturing
TTI develops and manufactures an extensive range of test equipment used in the "front end" and the "back end" manufacturing processes of semiconductors. Our equipment includes leak detectors, autoclaves, centrifuges, burn-in systems and boards, HAST testers, temperature-controlledtemperature controlled chucks, wet benches and more.
Testing
TTI provides comprehensive electrical, environmental, and burn-in testing services to semiconductor manufacturers in our testing laboratories in Asia and the U.S. Our customers include both manufacturers and end-users of semiconductor and electronic components, who look to us when they do not want to establish their own facilities. The independent tests are performed to industry and customer specificcustomer-specific standards.
Distribution
In addition to marketing our proprietary products, we distribute complementary products made by manufacturers mainly from the U.S., Europe, Taiwan and Japan. The products include environmental chambers, handlers, interface systems, vibration systems, shaker systems, solderability testers and other semiconductor equipment. Besides equipment, we also distribute a wide range of components such as connectors, sockets, LCD display panels and touch-screen panels. Furthermore, our range of products are mainly targeted for industrial products rather than consumer products whereby the life cycle of the industrial products can last from 3 years to 7 years.
Real Estate
Beginning in 2007, TTI has invested in real estate property in Chongqing, China, which has generated investment income from the rental revenue from real estate we purchased in Chongqing, China,there, and investment returns from deemed loan receivables, which are classified as other income. The rental income is generated from the rental properties in Mao YeMaoYe 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.
Impairment Loss on Long-Lived Asset
During the third quarter of Contents2020, our operation in China provided impairment loss of $139 for seven pieces of equipment due to one of our customer’s products coming to the end of its product burn-in cycle earlier than expected. The cost of converting the seven pieces of equipment out-weigh the benefit of utilizing said equipment. Operations do not foresee any future usage of these assets. There will be no future economic cash inflow generating from these assets. Based on these events, we concluded that it was more likely than not that value-in-use of these assets was less than their carrying value. Full impairment of these assets had been recorded.
While we have not identified any changes in circumstances requiring an interim impairment test for the three months ended March 31, 2020, we will continue to monitor impairment indicators, such as disposition activity, stock price declines or changes in forecasted cash flows in future periods. If the fair value of our reporting unit declines below the carrying value in the future, we may incur additional impairment charges.
Impact of COVID-19 on our Business
COVID-19 began to affect our business in the three months ended March 31, 2020. During early calendar year2020, the Chinese Government took emergency measures to combat the spread of the virus, including an extension of the Lunar New Year holidays. In the final two weeks of our third quarter, our operation in Malaysia was curtailed by local government efforts to reduce the spread of COVID-19, which efforts included shelter in place orders which had the effect of reducing the number of employees available for work. There can be no assurance as to any of our operation will return fully to pre-COVID-19 operating levels.
Apart from the reasons disclosed in the later part of the discussion, the COVID-19 pandemic had an adverse effect on our results of operations during the quarter ended March 31, 2020:
The revenue in the Malaysia operation decreased 22.0% compared to the same period of the previous fiscal year, partially due to the movement restriction imposed by the local government.
The revenue in the manufacturing segment of the Singapore operation decreased by 29.4% as compared to the same period of the previous fiscal year, primarily due to the delay in orders from customers as a result of the global economic uncertainties contributed by COVID-19.
The gross margin in the China operations deteriorated by 9.4% as compared to the same period of the previous fiscal year, mainly due to the higher labor costs incurred to ramp up the testing volume during the extended Lunar New Year holidays caused by the pandemic.
An allowance of doubtful debts amounted to $14 in the real estate segment of the China operations due to the heavy impact of the COVID-19 pandemic on the business of the tenant.
The negative impact partially offset by the government stimulus program amounted to $263 in the Singapore and China operations.
As of March 31, 2020, the Company had cash and cash equivalents and short-terms deposits totalling $10,679 and unused line of credit of $5,897. We finance operations primarily through our existing cash balances, cash collected from operations, bank borrowings and capital lease financing. We believe these sources are sufficient to fund our operations for the foreseeable future.
The mitigation efforts by governments around the world in an attempt to control the spread of the virus will likely continue to impact our operations, customers, and suppliers for an indefinite period of time. While we have implemented safeguards and procedures to counter the impact of the COVID-19 pandemic, the full extent to which the pandemic has and will directly or indirectly impact us, including our business, financial condition, and result of operations, will depend on future developments that are highly uncertain and cannot be accurately predicted. This may include further mitigation efforts taken to contain the virus or treat its impact and the economic impact on local, regional, national and international markets. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by the governments or that we determine are in the best interests of our employees, customers, suppliers and stockholders.
Third Quarter Fiscal 2019Year 2020 Highlights
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Total revenue decreased by $1,266,$337, or 12.5%3.8%, to $8,838 for$8,501 in the third quarter of fiscal 2019, asyear 2020, compared to $10,104$8,838 for the same period in fiscal 2018.year 2019.
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Manufacturing segment revenue decreased by $27,$578, or 0.9%18.7%, to $3,097$2,519 for the third quarter of fiscal 2019, asyear 2020, compared to $3,124$3,097 for the same period in fiscal 2018.year 2019.
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Testing segment revenue decreased by $924,$248, or 18.8%6.2%, to $3,989$3,741 for the third quarter of fiscal 2019, asyear 2020, compared to $4,913$3,989 for the same period in fiscal 2018.year 2019.
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Distribution segment revenue decreasedincreased by $306,$498, or 15.1%28.8%, to $1,727$2,225 for the third quarter of fiscal 2019, asyear 2020, compared to $2,033$1,727 for the same period in fiscal 2018.year 2019.
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Real estate segment rental revenue decreased by $9, or 26.5%36%, to $25$16 for the third quarter of fiscal 2019, asyear 2020, compared to $34$25 for the same period in fiscal 2018.
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Gross profit margin in absolute dollars decreased by $58, or 2.6%, to $2,174 for the third quarter of fiscal 2019, as compared to $2,232 for the same period in fiscal 2018.year 2019.
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The overall gross profit margin increaseddecreased by 2.5%3.6% to 24.6%21.0% for the third quarter of fiscal 2019,year 2020, from 22.1%24.6% for the same period in fiscal 2018.year 2019.
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IncomeLoss from operations was $367 for the third quarter of fiscal 2019 was $123,year 2020, a decrease of $111 or 47.4%,$490 as compared to $234an income from operations of $123 for the same period in fiscal 2018.year 2019.
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General and administrative expenses decreasedincreased by $31,$12, or 1.7%0.7%, to $1,742$1,754 for the third quarter of fiscal year 2019,2020, from $1,773$1,742 for the same period in fiscal year 2018.2019.
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Selling expenses increaseddecreased by $65, or 35.9%26.4%, to $246$181 for the third quarter of fiscal year 2019,2020, from $181$246 for the same period in fiscal year 2018.2019.
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GainAn impairment loss on disposal of property, plant and equipment decreased by $18the long-lived asset amounted to $13 for$139 in the third quarter of fiscal 2019, as compared to $31 for the same period in fiscal 2018.year 2020.
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Other income increased by $17$312 to $128$440 in the third quarter of fiscal year 20192020, compared to $111 for$128 in the same period in fiscal year 2018.2019.
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Tax expenses forIncome tax benefit was $8 in the third quarter of fiscal year 2019 was $209, a decrease2020, an increase of $771,$217 as compared to the income tax expensesexpense of $980 for$209 in the same period in fiscal year 2018 due primarily to a one-time Repatriation Tax in the previous fiscal year.2019.
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During the third quarter of fiscal year 2019,2020, income from continuing operations before non-controlling interest, net of tax was $653, an increase of $1,352,$18, as compared to loss of $699$653 for the same period in fiscal year 2018.2019.
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Net loss attributable to non-controlling interest for the third quarter of fiscal year 20192020 was $28,$73, an increase of $45, as compared to incomenet loss attributable to non-controlling interest of $34$28 in the same period in fiscal year 2019.
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Basic Earnings per Share for the third quarter of fiscal year 2020 were $0.02, as compared to earnings per share of $0.19 for the same period in fiscal year 2018.2019.
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Working capital increased $1,751 or 18.9%, to $11,039 as of March 31, 2019, compared to $9,288 as of June 30, 2018.
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Dilutive Earnings per shareShare for the three months ended March 31, 2019 was $0.19, an increasethird quarter of $0.40,fiscal year 2020 were $0.02, as compared to lossearnings per share of ($0.21)$0.19 for the same period in fiscal year 2018.2019.
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Total assets increased by $526 or 1.4% to $37,000remained at nearly the same level of $36,796 as of March 31, 2019,2020 compared to $36,474$36,527 as of June 30, 2018.2019.
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Total liabilities decreasedincreased by $540$263, or 4.2%2.3%, to $12,433$11,929 as of March 31, 2019,2020 compared to $12,973$11,666 as of June 30, 2018.2019.
Results of Operations and Business Outlook
The following table sets forth our revenue components for the three and nine months ended March 31, 2020 and 2019, and 2018, respectively.
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| Manufacturing | 35.0% | 30.9% | 35.3% | 37.5% |
| Testing Services | 45.1 | 48.7 | 44.9 | 45.7 |
| Distribution | 19.6 | 20.1 | 19.5 | 16.4 |
| Real Estate | 0.3 | 0.3 | 0.3 | 0.4 |
| | | | | |
| Total | 100.0% | 100.0% | 100.0% | 100.0% |
| Revenue Components | | |
| | | | | |
| | | | | |
| | | | | |
| Manufacturing | 29.6% | 35.0% | 32.6% | 35.3% |
| Testing Services | 44.0 | 45.1 | 44.0 | 44.9 |
| Distribution | 26.2 | 19.6 | 23.2 | 19.5 |
| Real Estate | 0.2 | 0.3 | 0.2 | 0.3 |
| | | | | |
| Total | 100.0% | 100.0% | 100.0% | 100.0% |
Revenue for the three months and nine months ended March 31, 20192020 was $8,838$8,501 and $28,573,$27,286, respectively, a decrease of $1,266$337 and $3,028,$1,287, respectively, when compared to the revenue for the same periodsperiod of the prior fiscal year. As a percentage, revenue decreased by 12.5%3.8% and 9.6%4.5% for the three and nine months ended March 31, 2019,2020, respectively, when compared to total revenue for the same periodsperiod of the prior year.
For the three months ended March 31, 2019,2020, the $1,266$337 decrease in overall revenue was primarily due to:to
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a decrease in the manufacturing segmentsegments in the U.S. and Singapore operations; and
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a decrease in the testing segment in the Malaysia and Tianjin, China operations.
These decreases were partially offset by:by
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an increase in the manufacturing segment in the Singapore operations; and
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an increase in the testing segment in the Singapore and Bangkok, Thailand operations.
For the nine months ended March 31, 2019, the $3,028 decrease in overall revenue was primarily due to:
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a decrease in the manufacturing segment in the Singapore and Suzhou, China operations; and
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a decrease in the testing segment in the Tianjin, China Operations and Malaysia operations.
These decreases were partially offset by:
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an increase in the testing segment in the Singapore and Bangkok, Thailand operations; and
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an increase in the distribution segment in the Singapore and Suzhou, China operations.
RevenueFor the nine months ended March 31, 2020, the $1,287 decrease in overall revenue was primarily due to
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a decrease in the manufacturing segments in the U.S. and Singapore operations; and
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a decrease in the testing segments in the China and Malaysia operations
These decreases were partially offset by
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an increase in the testing segments in the Singapore and Thailand operations; and
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an increase in the distribution segment in the Singapore operations
Total revenue into and within China, the Southeast Asia regions and other countries (except revenue into and within the U.S.)United States) decreased by $1,198$520 (or 12.2%6.0%), to $8,605, and by $2,782 (or 9.1%) to $27,640$8,085 for the three months ended March 31, 2020 and by $1,537 (or 5.6%) to $26,103 for the nine months ended March 31, 2019, respectively,2020, as compared with $9,803$8,605 and $30,422,$27,640, respectively, for the same periods of last fiscal year.
RevenueTotal revenue into and within the U.S. was $233$416 and $933 for the three months and nine months ended March 31, 2019, respectively, a decrease of $67 and $246, respectively, from $300 and $1,179 for the same periods of last fiscal year, respectively.
Revenue$1,183 for the three and nine months ended March 31, 2019 is discussed within2020, respectively. This was an increase of $183 from $233 and an increase of $250 from $933 for the four segments as follows:
Manufacturing Segmentsame periods of the prior year, respectively.
Revenue in the manufacturing segment as a percentage of total revenue was 35.0% and 35.3%within our four current segments for the three and nine months ended March 31, 2019,2020 is discussed below.
Manufacturing Segment
As a percentage of total revenue, revenue in the manufacturing segment was 29.6% and 32.6% for the three and nine months ended March 31, 2020, respectively, an increase of 4.1% and a decrease of 2.2%5.4% and 2.8% of total revenue, respectively, when compared to the same periods of the last fiscal year. The absolute amount of revenue decreased by $27$578 from $3,097 to $3,097 from $3,124$2,519 for the three months ended March 31, 2020 and decreased by $1,776$1,205 from $10,086 to $10,086 from $11,862$8,881 for the three and nine months ended March 31, 2019, respectively,2020 compared to the same periods of the last fiscal year.
The revenueRevenue in the manufacturing segment for the three months ended March 31, 2020 decreased primarily due to the COVID-19 pandemic, resulting in the delay of the delivery of orders in the U.S. and Singapore operations. Our customers’ capital purchases are being affected by the uncertainty associated with the gloomy economic outlook as a result of the pandemic.
Revenue in the manufacturing segment from a majorone customer accounted for 27.7%24.3% and 47.4%27.7% of our total revenue in the manufacturing segment for the three and nine months ended March 31, 20192020 and 2018,2019, respectively, and 35.5%35.2% and 47.4%35.5% of our total revenue in the manufacturing segment for the nine months ended March 31, 20192020 and 2018,2019, respectively.
The future revenue in our manufacturing segment will be significantly affected by the purchase and capital expenditure plans of this majorone customer if the customer base cannot be increased.
Testing Services Segment
Revenue in the testing segment as a percentagewas 44.0% of total revenue was 45.1% and 44.9% for the three and nine months ended March 31, 2019,2020, a decrease of 3.5%1.1% and 0.8%0.9%, respectively, of the total revenue when compared to the same periods of the last fiscal year. The absolute amount of revenue decreased by $924$248 to $3,989$3,741 from $4,913 and by $1,635 to $12,819 from $14,454$3,989 for the three months ended March 31,2020 and decreased by $801 to $12,018 from $12,819 for the nine months ended March 31, 2018, respectively,2020 as compared to the same periods of the last fiscal year.
The revenue in the testing segment from a majorthe one customer noted above accounted for 69.7%56.1% and 80.4%69.7% of our revenue in the testing segment for the three months ended March 31, 20192020 and 2018,2019, respectively, and 72.8%61.6% and 79.2%72.8% of our total revenue in the manufacturingtesting segment for the nine months ended March 31, 2020 and 2019, and 2018, respectively.respectively, due in part to a reduction in orders from this customer. The future revenue in ourthe testing segment will be affected by the demands of this major customer if the customer base cannot be increased. Demand for testing services varies from country to country depending on any changes taking place in the market and our customers’ forecasts. As it is difficult to accurately forecast fluctuations in the market accurately, management believes it is necessary to maintain testing facilities in close proximity to ourthe customers in order to make it convenient for them to send us their newly manufactured parts for testing and to enable us to maintain a share of the market.
Distribution Segment
Revenue in the distribution segment was 26.2% and 23.2% as a percentage of total revenue was 19.5% and 19.6% for the three and nine months ended March 31, 2019, a decrease of 0.6% and2020, an increase of 3.2%6.6% and 3.7%, respectively, when compared to the same periodsperiod of the priorlast fiscal year. The absolute amount of revenue decreasedincreased by $306$498 to $1,727$2,225 from $2,033,$1,727 and increased by $412$751 to $5,587$6,338 from $5,175$5,587 for the three and nine months ended March 31, 2019,2020, respectively, compared to the same periodsperiod of the last fiscal year.
Demand infor the distribution segment varies depending on the demand for our customers’ products, and the changes taking place in the market and our customers’ forecasts. Hence it is difficult to accurately forecast fluctuations in the market.market accurately.
Real Estate Segment
The real estate segment accounted for 0.3%0.2% of total net revenue for both the three and nine months ended March 31, 2019.2020. The absolute amount of revenue in the real estate segment decreased by $9 to $25$16 from $34 and by $29 to $81 from $110$25 for the three months ended March 31, 2020, and decreased by $32 to $49 from $81 for the nine months ended March 31, 2019, respectively,2020 compared to the same periods of the last fiscal year. The decreaseThis was primarily due to a decrease in rental incomethe sales of properties in the real estate segment forin the three and nine months ended March 31, 2019.
DuringChina operation in the first quartersame periods of 2019, management decided to sell off the Mao Ye Property,last fiscal year, which is one of our earlier investment properties. In order to monetize the capital gain on property, TTCQ appointed a sole agent for 6 months as of September 1, 2018 to search for suitable buyers for this property. During the third quarter of 2019, the Company completed the sale of 13 units constituting the Mao Ye Property which had resulted in an aggregate gain of RMB4,620, and $685 recorded includeda decrease in other income, on the Consolidated Statements of Operations. As the end of third quarter, the remaining 2 units of properties were reclassified to investment property from assets held for sale due to the strategic operational decision made by the management based on the current property market condition in China.rental income.
Uncertainties and Remedies
There are several influencing factors which create uncertainties when forecasting performance, such as the constantly changing nature ofspeed at which technology changes, specific requirements from the customer, declinechanges in demand for certain types of burn-in devices or equipment, declinechanges in demand for testing services and fabrication services, and other similar factors. One factor that influences uncertainty isfactors, such as the highly competitive nature of the semiconductor industry. Another is that someindustry in general. Some customers are unable to provide a forecast of the products required in the upcoming weeks; henceweeks, making it is difficult to plan for the resources needed to meet these customers’their requirements due to short lead time and last-minutelast minute order confirmation. This will normally result in a lower margin for these products, as it is more expensive to purchase materials in a short time frame. However, the Company has taken certain actions and formulated certain plans to deal with and to help mitigate these unpredictable factors. For example, in order to meet manufacturing customers’ demands upon short notice, the Company maintains higher inventories, but continues to work closely with its customers to avoid stock piling. We believe that we have improved customer service through our efforts to keep our staff up to dateup-to-date on the newest technology and stressing the importance of understanding and meeting the stringent requirements of our customers. Finally, the Company is exploring new markets and products, looking for new customers, and upgrading and improving burn-in technology while at the same time searching for improved testing methods offor higher technology chips.
We are in the process of implementing an ERP (Enterprise Resource Planning) systemSystem, as part of a multi-year plan to integrate and upgrade our systems and processes. The implementation of this ERP system iswas scheduled to occur in phases over the nexta few years, and began with the migration of certain of our operational and financial systems in our Singapore operations to the new ERP system during the second quarter of fiscal 2017.
During the third quarter of fiscal 2018, the operational and financial systems in Singapore were substantially transitioned to the new system.
This implementation effort continuing in fiscal 2019. The operational and financial systems in our Malaysia operation were substantially transitioned to the new system during the first quarter of fiscal 2019.
The operational systems in our Tianjin and Suzhou operations were substantially transitioned to the new system during the third quarter of fiscal 2020. This implementation effort will continue until the financial systems of these two operations are fully transitioned to the new system, and until the Group's consolidation process is substantially automated using the new system.
As a phased implementation of this system occurs, we are experiencing certain changes to our processes and procedures which, in turn, result in changes to our internal control over financial reporting. While we expect the new ERP system to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as processes and procedures in each of the affected areas evolve.
The Company’s primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar-denominated sales and operating expenses in its subsidiaries. Strengthening of the U.S. dollar relative to foreign currencies adversely affects the U.S. dollar value of the Company’s foreign currency-denominated sales and earnings, and generally leads the Company to raise international pricing, potentially reducing demand for the Company’s products. Margins on sales of the Company’s products in foreign countries and on sales of products that include components obtained from foreign suppliers could be materially adversely affected by foreign currency exchange rate fluctuations. In some circumstances, for competitive or other reasons, the Company may decide not to raise local prices to fully offset the dollar’s strengthening, or at all, which would adversely affect the U.S. dollar value of the Company’s foreign currency-denominated sales and earnings. Conversely, a strengthening of foreign currencies relative to the U.S. dollar, while generally beneficial to the Company’s foreign currency denominated sales and earnings, could cause the Company to reduce international pricing, thereby limiting the benefit. Additionally, strengthening of foreign currencies may also increase the Company’s cost of product components denominated in those currencies, thus adversely affecting gross margins.
The novel strain of the coronavirus identified in China in late 2019 has spread globally and resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns. These measures have impacted and may further impact our workforce and operations, the operations of our customers, and those of our respective vendors and suppliers. We have significant operations in China, Malaysia and Singapore, and each of these countries has been affected by the pandemic and taken measures to try to contain it. There is considerable uncertainty regarding such measures and potential future measures, and restrictions on our access to our facilities or on our support operations or workforce, or similar limitations for our vendors and suppliers, and restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures, could limit our capacity to meet our customer demands and have a material adverse effect on our financial condition and results of operations.
The pandemic has significantly increased economic and demand uncertainty. The current pandemic has caused, and the continued spread of COVID-19 may exacerbate, an economic slowdown, and it is possible that it could lead to a global recession. There is a significant risk the global economy could fall into recession again. If economic conditions remain uncertain or deteriorate, our business, financial condition and results of operations could be materially adversely affected.
The spread of COVID-19 has caused us to modify our business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and we may take further actions as maybe required by government authorities or that we determine are in the best interest of our employees, customers, partners, and suppliers. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus and our ability to perform critical functions could be harmed.
The degree to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including but not limited to, the duration and spread of the pandemic, its severity, the action to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may experience material adverse impacts on our business as a result of the global economic impact and any recession that has occurred or may occur in the future. There are several influencing factors which create uncertainties when forecasting performanceno comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the pandemic on our real estate segment, such as obtaining the rights by the joint ventureoperations and financial results is highly uncertain and subject to develop the real estate projects in China, inflation in China, currency fluctuations and devaluation, and changes in Chinese laws, regulations, or their interpretation.change.
Comparison of the Three Months Ended March 31, 20192020 and March 31, 20182019
The following table sets forth certain consolidated statements of income data as a percentage of revenue for the three months ended March 31, 20192020 and 2018,2019 respectively:
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| | | | Three Months Ended March 31, |
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| Revenue | 100.0% | 100.0% |
| Cost of sales | 75.4 | 77.9 | 79.0 | 75.4 |
| Gross Margin | 24.6% | 22.1% | 21.0% | 24.6% |
| Operating expenses | | |
| General and administrative | 19.7% | 17.5% | 20.6% | 19.7% |
| Selling | 3.0 | 1.8 | 2.2 | 2.7 |
| Research and development | 0.9 | 0.7 | 0.9 |
| (Gain)/loss on disposal of property, plant and equipment | (0.1) | (0.3) | |
| Impairment loss on long-lived assets | | 1.6 | - |
| Gain on disposal of property, plant and equipment | | - | (0.1) |
| Total operating expenses | 23.5% | 19.7% | 25.3% | 23.2% |
| Income from Operations | 1.4% | 2.4% | |
| (Loss)/Income from Operations | | (4.3)% | 1.4% |
Overall Gross Margin
Overall gross margin as a percentage of revenue increaseddecreased by 2.5%3.6% to 24.6%21.0% for the three months ended March 31, 2019,2020, from 22.1% in24.6% for the same period of the last fiscal year. In terms of absolute dollar amounts, gross profits decreased by $58 to $2,174 for the three months ended March 31, 2019, from $2,232 as compared to the same period of the last fiscal year. There was a decrease in gross profit margin of the testing segment, in absolute dollars.
Gross profit margin as a percentage of revenue in the manufacturing segment increased by 6.6%0.9% to 25.6%26.5% for the three months ended March 31, 2019, from 19.0% in2020, as compared to 25.6% for the same period ofin the last fiscal year. The increase in gross profit margin wasyear primarily due to thea change in product mix in the Singapore operations, where there was a decrease in sales of products that had lower profit margins and an increase in sales of products that had higher profit margins as compared to the same period of last fiscal year. As a result, the decrease in manufacturing revenue was lower than the decrease in cost for the three months ended March 31, 2019, as compared to the same period last fiscal year.mix. In absolute dollar amounts, gross profits in the manufacturing segment increaseddecreased by $200$126 to $794$668 for the three months ended March 31, 20192020, from $594$794 for the same period ofin the last fiscal year.
Gross profit margin as a percentage of revenue in the testing segment decreased by 0.6%6.8% to 28.3%21.5% for the three months ended March 31, 2019,2020, from 28.9%28.3% in the same period of the last fiscal year. The decrease of gross profit margin was mainlyCOVID-19 pandemic negatively impacted by the decrease of salesour testing segment in the Malaysia and China operations. Our Malaysia operation and Tianjin,has a limited operating level as a result of the Movement Control Order implemented by the Malaysian government to contain the spread of the coronavirus, coupled with a lower testing demand from the customer. Our China operation where significant portions of ourincurred higher labor cost of goods sold are fixed and asto ramp up the demand of services and factory utilization decrease,testing volumes per the fixed costs are spread overcustomer’s request during the decreased output, which decreases the gross profit margin. The negative impact on gross profit margin was partially offsetextended Lunar New Year holidays caused by the effort of cost saving in Tianjin, China operation and Malaysia operation. Both operation has put in effort mainly to reduce their labour cost.pandemic. In absolute dollar amounts, gross profit in the testing segment decreased by $295$323 to $1,127$804 for the three months ended March 31, 20192020 from $1,422$1,127 for the sameperiod of the last fiscal year.
Gross profit margin of the distribution segment is not only affected by the market price of ourthe products we distribute, but also by our productthe mix of products we distribute, which frequently changes frequently as a result of changes in market demand. Gross profit margin as a percentage of revenue in the distribution segment increased by 3.7% to 14.1%remained at the same level at 14.2% for the three months ended March 31, 2019,2020, from 10.4%14.1% in the same period of the last fiscal year. The increase in gross profit margin as a percentage of revenue was due to the change in product mix in the distribution segment of the Suzhou, China operations resulting in an increase in sales of products that had higher profit margin and a decline in sales of products that had lower profit margin, as compared to the same period of last fiscal year. In terms of absolute dollar amounts, gross profit in the distribution segment for the three months ended March 31, 20192020 was $244, an increase of $32$316 as compared to $212 in the same period of last fiscal year.
Gross profit margin as a percentage of revenue in the real estate segment was 36.0% for the three months ended March 31, 2019, as compared to 11.8%$244 in the same period of the last fiscal year.
In absolute dollar amounts, gross profit in the real estate segment for the three months ended March 31, 20192020, gross loss in the real estate segment was $2, as compared to a gross profit margin of $9 an increase of $5 from $4 infor the same period of last fiscal yearyear. The increase in gross loss was due to lower rental income caused by the sale of properties in the real estate segment in the China operation after the third quarter of the last fiscal year.
Operating Expenses
Operating expenses for the three months ended March 31, 20192020 and 20182019 were as follows:
| | | |
| | | | Three Months Ended March 31, |
| (Unaudited) | | | |
| General and administrative | $1,742 | $1,773 | $1,754 | $1,742 |
| Selling | 246 | 181 | 181 | 246 |
| Research and development | 76 | 75 | 79 | 76 |
Gain on disposal of property, plant & equipment
| (13) | (31) | |
| Impairment loss on the long-lived assets | | 139 | - |
| Gain on disposal of property, plant and equipment | | - | (13) |
| Total | $2,051 | $1,998 | $2,153 | $2,051 |
General and administrative expenses decreasedincreased by $31,$12, or 1.7%0.7%, from $1,742 to $1,773$1,754 for the three months ended March 31, 20192020, compared to the same period of last fiscal year. The decreaseincrease in general and administrative expenses was primarily duemainly attributable to the decreasean allowance of doubtful debts made in payroll related expenses in the Malaysia and Tianjin,our China operations. Both operations’ sales slowed down due to market condition which triggered the cost saving effort primarily on payroll related expenses. On the other hand, the market downturn had minimal impact on Singapore operation. The decrease in general and administrative expenses was partially offset by an increase in the Singapore operations as a result of additional headcount in the three months ended March 31, 2019 as compared to the same period of last fiscal year.
Selling expenses increaseddecreased by $65, or 35.9%26.4%, from $246 to $181 for the three months ended March 31, 2019, to $246 from $181 as2020, compared to the same period of the last fiscal year. The increasedecrease was mainly due to higherfewer commission expenses incurred in the Singapore operations in the three months ended March 31, 2019 as compared to the same periodmanufacturing segment of last fiscal year. Higher commission expenses were incurred due to the Singapore operations having secured more commissionable sales in third quarter of fiscal year 2019 compared to the same period in previous year.operations.
There was an impairment loss on long-lived assets in the China operations as a result of the end of the product life for certain products. A detailed assessment has been carried out by management, and this assessment indicated that these assets will not generate any future economic benefits to the Company.
Loss/Income from Operations
IncomeLoss from operations was $101$367 for the three months ended March 31, 2019,2020, a deterioration of $490 as compared to $234income from operations of $123 for the same period of last fiscal year.three months ended March 31, 2019. The decreaseresult was mainly due to the lower revenuedecrease in gross profit and higher sellingthe increase in operating expenses, as discussed earlier.previously discussed.
Interest Expense
Interest expense for the third quarter of fiscal yearsthree months ended March 31, 2020 and 2019 and 2018 werewas as follows:
| | | |
| | | | Three Months Ended March 31, |
| (Unaudited) | | | |
| Interest expense | $74 | $64 | |
| Interest expenses | | $63 | $74 |
Interest expense increased by $10was $63 for the three months ended March 31, 2020, a decrease of $11, or 14.9%, as compared to $74 for the three months ended March 31, 2019. The decrease was due to a decrease in the utilization of short-term loans in the Singapore and China operations. As of March 31, 2020, the Company had an unused line of credit of $5,897as compared to $6,251 at June 30, 2019.
Other Income
Other income for the three months ended March 31, 2020 and 2019 was as follows:
| | Three Months Ended March 31, |
| | | |
| Interest income | 46 | 31 |
| Other rental income | 30 | 28 |
| Exchange gain / (loss) | 94 | (11) |
| Government grant | 266 | 38 |
| Other miscellaneous income | 4 | 42 |
| Total | $440 | $128 |
Other income increased by $312 to $440 for the three months ended March 31, 2020, from $64$128 in the same period of the last fiscal year. The increase was primarily due to an increase in exchange gain, which resulted from the favorable foreign exchange movement for the three months ended March 31, 2020, coupled with a government grant of $263 received in the Singapore and China operations as compared to the same period in the last fiscal year.
The government grant was $266, of which $263 was related to the financial assistance from the local government in the Singapore and China operations to mitigate the negative impact to companies amid the COVID-19 pandemic.
Income Tax Expenses
The Company's income tax benefit was $8 for the three months ended March 31, 2020, an increase of $217 as compared to income tax expenses of $209 for the same period in the last fiscal year. The increase was mainly due to increased utilizationthe absence of short-term loanthe capital gain tax from the sale of asset-held-for sale in the Singapore operation and long-term loan in the Malaysia operation. The bank loan payable increased by $1,130 to $2,934 for the nine months ended March 31, 2019 as compared to $1,804 as at June 30, 2018.
Other Income
Other income for the three months ended March 31, 2019 and 2018 were as follows:
| | |
| | | |
| (Unaudited) | | |
| Interest income | $31 | $19 |
| Other rental income | 28 | 28 |
| Exchange loss | (11) | (5) |
| Other miscellaneous income | 80 | 69 |
| Total | $128 | $111 |
Other income for the three months ended March 31, 2019 was $17, an increase of $128 as compared to $111 for the same period last fiscal year. This increase was mainly attributable to higher interest income received due to placement of interest-bearing deposits by the Malaysia, Singapore and Chongqing, China operations.
Income Tax Expenses
Income Tax expenses for the three months ended March 31, 2019 was $209, a change of $771 as compared to income tax expense of $980 for the same period last fiscal year. This change was mainly due to the reversal of $145 from provision of income tax. The reversal was made after finalization of the One-Time Mandatory Repatriation Tax summarized in the financial statements under Item 1 above in this Form 10-Q. Initially, during the third quarter of fiscal year 2018, we made an income tax provision of $900 on an estimated basis. During the second quarter of fiscal 2019, upon finalization of the One-Time Mandatory Repatriation Tax, we determined that an adjustment was required, resulting in a $145 tax liability reversal which in turn reduced the income tax provision to $755. This adjustment materially impacted our provision for income taxes and effective tax rate.2020.
The significant change in the tax liability provision was due to the update of information from additional analysis performed on foreign tax pools and earnings and profits computations.
Non-controlling Interest
As of March 31, 2019,2020, we held a 55% interest in Trio-Tech (Malaysia) Sdn. Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd., and PTSHI Indonesia, andPT. SHI Indonesia. We also held a 76% interest in Prestal Enterprise Sdn. Bhd. The share of net loss from the subsidiaries by the non-controlling interest for the three months ended March 31, 2019 in the net loss2020 was $73, an increase of subsidiaries was $28,$45 compared to income of $34$28 for the same period of the previous fiscal year. The decreaseincrease in the net loss of the non-controlling interest in the net income of subsidiaries was attributable to the decreaseincrease in net incomeloss generated by the Malaysia operation as a result of the Movement Control Order implemented by the Malaysian government, coupled with the lower testing operation due to a decrease in testing revenue which decreased the net profit.demand from our customer.
Profit from Discontinued OperationsNet Income Attributable to Trio-Tech International Common Shareholders
Profit from discontinued operations was $2Net income attributable to Trio-Tech International Common Shareholders for the three months ended March 31, 2019,2020 was $70, a decrease of $613 as compared to a lossnet income of $6$683 for the same period of the last fiscal year. This discontinued operation refers to fabrication service segment. The increase in the profit from discontinued operation was attributable to the unrealised exchange gain as at March 31, 2019.
Net Income
Net income was $683 for the three months ended March 31, 2019, an increase of $1,422 as compared to net loss of $739 for the three months ended March 31, 2018. The increase in net income was mainly due to the gain on disposal of Mao Ye properties and also the absence of provision for repatriation tax in third quarter of fiscal year 2019, which was provided for in the third quarter of 2018.
Earnings per Share
Basic earnings per share from continuing operations was $0.19were $0.02 for the three months ended March 31, 20192020 as compared to loss per share of $0.21$0.19 for the same period in the last fiscal year. Basic earnings per share from discontinued operations were nilNil for both the three months ended March 31, 20192020 and 2018.2019.
Diluted earnings per share from continuing operations was $0.19were $0.02 for the three months ended March 31, 20192020 as compared to loss per share of $0.20$0.19 for the same period in the last fiscal year. Diluted earnings per share from discontinued operations were nil$Nil for both the three months ended March 31, 20192020 and 2018.
2019.
Segment Information
The revenue, gross margin and income or loss from operations for each segment forduring the third quarter of fiscal yearsyear 2020 and fiscal year 2019 and 2018, respectively, are presented below. As the revenue and gross margin for each segment have been discussed in the previous section, only the comparison of income or loss from operations is discussed below.
Manufacturing Segment
The revenue, gross margin and incomeloss from operations for the manufacturing segment for the three months ended March 31, 20192020 and 20182019 were as follows:
| | | |
| | | | Three Months Ended March 31, |
| (Unaudited) | | | |
| Revenue | $3,097 | $3,124 | $2,519 | $3,097 |
| Gross margin | 25.6% | 19.0% | 26.5% | 25.6% |
| Loss from operations | $(8) | $(105) | $(102) | $(8) |
Loss from operations infrom the manufacturing segment was $8 for the three months ended March 31, 2019, a decreasethird quarter of $97fiscal 2020 was $102 as compared to loss from operation of $105$8 in the same period of the last fiscal year. The decrease wasyear, primarily due to an increase of $200a decrease in the gross margin as discussed earlier, which partiallyof $126, offset an increase of $103by a decrease in operating expenses.expenses of $32. Operating expenses for the manufacturing segment were $802$770 and $699$802 for the three months ended March 31, 20192020 and 2018,2019, respectively. The increasedecrease in operating expenses was mainly due to an increasea decrease of $91 in selling expenses as a result of $80,the decrease in the commission expenses in the Singapore operation. The decrease was partially offset by an increase of $54 in general and administrative expenses of $50, and partially offset by a decrease in corporate overhead of $27 as compared to the same period of last fiscal year.expenses. The increase in general and administrative expenses was primarily duemainly attributable to an increase in headcountpayroll-related expenses in the Singapore operations. The increase in selling expenses was due to an increase in commission expenses in the Singapore operations as the commissionable revenue increased compared to the same period last fiscal year. The decrease in corporate overhead expenses was due to a change in the corporate overhead allocation as compared to the same period last fiscal year. Corporate charges are allocated on a pre-determined fixed charge basis.
Testing Segment
The revenue, gross margin and incomeloss from operations for the testing segment for the three months ended March 31, 20192020 and 20182019 were as follows:
| | | |
| | | | Three Months Ended March 31, |
| (Unaudited) | | | |
| Revenue | $3,989 | $4,913 | $3,741 | $3,989 |
| Gross margin | 28.3% | 28.9% | 21.5% | 28.3% |
| (Loss)/income from operations | $(17) | $428 | |
| Loss from operations | | $(447) | $(17) |
Loss from operations in the testing segment for the three months ended March 31, 20192020 was $17, which represents$447, reflecting an increase inof $430 compared to loss from operations of $445 based on income of $428$17 in the same period of the last fiscal year. The decreaseincrease in operating incomeloss was mainly attributable to thea decrease of $295 in gross profit margin, as discussed earlier coupled with anunder“Overall gross margin”and the increase in operating expenses of $150.expenses. Operating expenses were $1,144$1,251 and $994$1,144 for the three months ended March 31, 2020 and 2019, and 2018, respectively.The increase of $107 in operating expenses was mainly attributable to an increase in corporate overhead expenses, which was partially offset by a decrease in general and administrative expenses by $67 and selling expenses of $14. The increase in corporate overhead expenses was due to a changethe impairment loss of long-lived asset recognized in the corporate overhead allocationthird quarter of fiscal year 2020, as compared to the same period last fiscal year. Corporate charges are allocated on a pre-determined fixed charge basis. The decrease in general and administrative expenses was due to a decrease in office expenses in the Malaysia operation and a decrease in manpower and administrative expenses in the Tianjin, China operation.discussed earlier under“Operating expenses.”
Distribution Segment
The revenue, gross margin and income from operations for the distribution segment for the three months ended March 31, 20192020 and 20182019 were as follows:
| | | |
| | | | Three Months Ended March 31, |
| (Unaudited) | | | |
| Revenue | $1,727 | $2,033 | $2,225 | $1,727 |
| Gross margin | 14.1% | 10.4% | 14.2% | 14.1% |
| Income from operations | $150 | $117 | $207 | $150 |
Income from operations in the distribution segment increased by $33 to $150was $207 for the three months ended March 31, 2019,2020, as compared to $117 in$150 for the same period of last fiscal year. The increase in operating incomeof $57 was primarilymainly due to an increase of $72 in the gross margin, as discussed earlier which was partiallyunder “Overall gross margin,” offset by a decreasean increase in operating expenses of $1.$16. Operating expenses were $94$110 and $95$94 for the three months ended March 31, 2020 and 2019, and 2018, respectively. The increase in payroll-related expenses in the Singapore operation contributed to the increase in operating expenses.
Real Estate Segment
The revenue, gross margin and loss from operations for the real estate segment for the three months ended March 31, 20192020 and 20182019 were as follows:
| | | |
| | | | Three Months Ended March 31, |
| (Unaudited) | | | |
| Revenue | $25 | $34 | $16 | $25 |
| Gross margin | 36.0% | 11.8% | |
| Gross (loss)/margin | | (12.5)% | 36.0% |
| Loss from operations | $(13) | $(18) | $(30) | $(13) |
| Gain on sale of assets held for sale | $685 | - | - | 685 |
Loss from operations in the real estate segment for the three months ended March 31, 20192020 was $13, a decrease of $5 as$30 compared to $18a loss of $13 for the same period of the last fiscal year. The decreaseincrease in operatingoperations loss of $17 was mainly due to the decrease in gross margin of $11 and an increase in gross margin as discussed earlier. There was other income arising from gain on sale of asset held for sale amounting to $685operating expenses by $6. Operating expenses were $28 and $22 for the three months ended March 31, 2019.2020 and 2019, respectively. The increase in operating expenses was mainly due to a provision for doubtful debts made for a tenant whose business had been heavily impacted by COVID-19 in the third quarter of fiscal year 2020.
Corporate
The loss from operations for corporateCorporate for the three months ended March 31, 2020 and 2019 and 2018 werewas as follows:
| | |
| | | |
| (Unaudited) | | |
| Loss from operations | $(11) | $(188) |
Corporate operating loss decreased by $177| | Three Months Ended March 31, |
| (Unaudited) | | |
| Income/(loss) from operations | $5 | $11 |
The decrease of income from operations amounting to $11 for the three months ended March 31, 2019 as compared$6 was mainly due to of $188a increase in the same period of the last fiscal year.payroll related expenses.
Comparison of the Nine Months Ended March 31, 20192020 and March 31, 2018
2019
The following table sets forth certain consolidated statements of income data as a percentage of revenue for the nine months ended March 31, 20192020 and March 31, 2018,2019, respectively:
| | | |
| | | | |
| | | | |
| Revenue | 100.0% | 100.0% |
| Cost of sales | 77.1 | 75.4 | 78.2 | 77.1 |
| Gross Margin | 22.9% | 24.6% | 21.8% | 22.9% |
| Operating expenses: | | |
| General and administrative | 18.3% | 16.9% | 19.5% | 18.3% |
| Selling | 2.1 | 1.9 | 2.0 | 2.1 |
| Research and development | 0.9 | 1.2 | 1.0 | 0.9 |
| Impairment loss on long-lived assets | | 0.5 | - |
| Gain on disposal of plant and equipment | | (0.1) | - |
| Total operating expenses | 21.3% | 19.9% | 22.9% | 21.3% |
| Income from Operations | 1.6% | 4.7% | |
| (Loss) / Income from Operations | | (1.1)% | 1.6% |
Overall Gross Margin
Overall gross margin as a percentage of revenue decreased by 1.7% to 22.9%was 21.8% for the nine months ended March 31, 2019, from 24.6% in2020, as compared to the same period of last fiscal year, primarily due to an decrease in the gross profit margin in the testing segments, which was offset by an increase in the gross profit margin in the manufacturing, distribution and real estate segments.year. In terms of absolute dollar amounts, gross profits decreased by $1,254$590 to $6,533$5,943 for the for the nine months ended March 31, 2019,2020, from $7,787$6,533 for the same period of the last fiscal year.
Gross profit margin as a percentage of revenue in the manufacturing segment increased by 0.6%1.0% to 22.6%23.6% for the nine months ended March 31, 2019, from 22.0%22.6% in the same period of the last fiscal year. In absolute dollar amounts, gross profit decreased by $336$188 to $2,280$2,092 for the nine months ended March 31, 20192020 as compared to $2,616$2,280 for the same period in last fiscal year. The decrease in absolute dollar amount of gross margin was primarily due to a decrease in orders in the Singapore operation, Suzhou, China operations and U.S. operation,operations. However, the orders for the nine months ended fiscal year 2020 had a higher margin as compared to the same period of the last fiscal year, which contributed to a decreasean increase in the gross margin.margin as a percentage of revenue.
Gross profit margin as a percentage of revenue in the testing segment decreased by 4.5%2.4% to 27.1%24.7% for the nine months ended March 31, 20192020 from 31.6%27.1% in the same period of the last fiscal year. The decreaseThere was a further deterioration in profit margin as a percentage oftesting revenue was mainly due to a decrease in demand from our customers in the Tianjin,Malaysia and China operation and Malaysia operation,operations where significant portions of our cost of goods sold are fixed. As the demand offor services and factory utilization decreases,decrease, the fixed costs are spread over the decreased output, which decreases the gross profit margin. The higher labor cost during the extended Lunar New Year in the China operations and the Movement Control Order implemented by the Malaysian government to contain the spread of the COVID-19 also resulted in a decrease of the gross profit margin. In terms of absolute dollar amounts, gross profit in the testing segment decreased by $1,105$496 to $3,468$2,972 for the nine months ended March 31, 2019,2020, from $4,573$3,468 for the same period of the last fiscal year.
Gross profit margin as a percentage of revenue in the distribution segment increased by 2.4%0.4% to 13.5%13.9% for the nine months ended March 31, 2019,2020, from 11.1%13.5% in the same period of the last fiscal year. In terms of absolute dollar amounts, gross profit in the distribution segment for the nine months ended March 31, 20192020 was $756,$884, an increase of $179$128 as compared to $577$756 in the same period of the last fiscal year. The increase in absolute dollar amount of gross margin was due to an increase of distribution revenue in the Singapore operation and Suzhou, China operation which was offset by a decrease of distribution revenue in the Malaysia operation. The gross profit margin of the distribution segment was not only affected by the market price of our products, but also our product mix, which changes frequently as a result of changes in market demand.
Gross profitloss margin as a percentage of revenue in the real estate segment increasedchanged by 15.8%46% to 35.8%10.2% for the nine months ended March 31, 2019,2020, from 20.0%a gross profit margin of 35.8% in the same period of the last fiscal year. In terms of absolute dollar amounts, gross profit increasedloss changed by $7$34 to $29$5 for the nine months ended March 31, 20192020 as compared to $22gross profit of $29 for the same period in last fiscal year. The increase in gross loss was due to lower rental income caused by the sale of properties in the real estate segment in the China operation after the third quarter of the last fiscal year.
Operating Expenses
Operating expenses for the nine months ended March 31, 20192020 and 20182019 were as follows:
| | | |
| | | | | |
| (Unaudited) | | |
| General and administrative | $5,223 | $5,339 | $5,319 | $5,223 |
| Selling | 580 | 612 | 547 | 580 |
| Research and development | 270 | 377 | 280 | 270 |
| Gain on disposal of property, plant and equipment | (13) | (20) | |
| Impairment loss on long-lived asset | | 139 | - |
| Gain on disposal of plant and equipment | | (24) | (13) |
| Total | $6,060 | $6,308 | $6,261 | $6,060 |
General and administrative expenses decreasedincreased by $116,$96, or 2.2%1.8%, from $5,339 to $5,223$5,319 for the nine months ended March 31, 20192020 compared to $5,223 in the same period of the last fiscal year. There was a decrease in general and administrative expenses in the U.S., Tianjin, China operations and Suzhou, China operations, which was partially offset by theThe increase in general and administrative expenses in all other operations.
The decrease in general and administrative expenses was primarily due to the decrease in payroll related and bonus expenses in the U.S. operation, Tianjin, China operation and Malaysia operation. This decrease was partially offset mainly by an increase in medicalpayroll-related expenses in the Singapore operationoperations.
Selling expenses decreased by $33, or 5.7%, to $547 for the nine months ended March 31, 2019, as2020, compared to the same period of last fiscal year.
Selling expenses decreased by $32, or 5.2%,$580 for the nine months ended March 31, 2019, from $612 to $580 compared to the same period of the last fiscal year. The decrease was mainly due to an decrease in commission expenses in the U.S operations in the nine months ended March 31, 2019, and selling expenses further decreased due to adoption of a new revenue standard as described in Note 19 to financial statements included in Part1 Item1 of this Form 10-Q as compared to the same period of last fiscal year.
Research and development expenses decreased by $107, for the nine months ended March 31, 2019, from $377 to $270, as compared to the same period of the last fiscal year. The decrease was mainly due to a decrease ofin commission expenses in the Suzhou,manufacturing segment of the Singapore operations as a result of fewer commissionable sales.
There was an impairment loss on the long-lived assets in the China operation. The Suzhou operation didoperations as a result of the end of the product life for certain products. A detailed assessment has been carried out by management, and this assessment indicated that these assets will not incur research and development expenses ingenerate any future economic benefits to the Company.
During the nine months ended March 31, 2019 whereas2020, there was a one-off researchgain on disposal of plant and development projectequipment of $24 as compared to $13 in the Suzhou, China operations in the nine months ended March 31, 2018.same period of last fiscal year.
(Loss) / Income from Operations
IncomeLoss from operations was $451$318 for the nine months ended March 31, 20192020 as compared to $1,479an income from operations of $473 for the same period of the last fiscal year. The decrease was mainly due to the decrease in gross profit margin being greater than the decreaseand an increase in operating expenses, as discussed earlier.
Interest Expense
Interest expense for the nine months ended March 31, 20192020 and 20182019 were as follows:
| | | |
| | | | | |
| (Unaudited) | | |
| Interest expense | $250 | $174 | $186 | $250 |
Interest expense increaseddecreased by $76$64 to $250 from $174$186 for the nine months ended March 31, 20192020, as compared to $250 for the same period of the last fiscal year. The increasedecrease was mainly due to increaselower utilization of short-term loans in the Singapore operation and long-term loans inChina operations. Additionally, the Malaysia operation. The bank loan payable increaseddecreased by $1,130$483 to $2,934$2,297 for the nine months ended March 31, 20192020 as compared to $1,804$2,780 as at June 30, 2018.2019.
Other Income
Other income for the nine months ended March 31, 20192020 and 20182019 were as follows:
| | | |
| | | | | |
| (Unaudited) | | |
| Interest income | $67 | $39 | $130 | $67 |
| Other rental income | 84 | 81 | 90 | 84 |
| Exchange loss | (78) | (26) | |
| Exchange gain / (loss) | | 33 | (78) |
| Bad debt recovery | 2 | - | 11 | 2 |
| Government grant | | 295 | 115 |
| Other miscellaneous income | 145 | 217 | 31 | 30 |
| Total | $220 | $311 | $590 | $220 |
Other income for the nine months ended March 31, 20192020 was $220, a decrease$590, an increase of $189$370 as compared to $311$220 for the same period of last fiscal year. This decreaseincrease was mainly attributabledue to the existencehigher interest income earned from the placement of fixed deposits and the government grant of $263 received in the Singapore and China operations, coupled with the increase in exchange gain as a non-recurring reimbursement incomeresult of the favorable foreign exchange movement for the nine months ended March 31, 2018.2020.
The government grant was $295, of which $263 was related to the financial assistance from the local governments in the Singapore and China operations to mitigate the negative impact to companies amid the COVID-19 pandemic.
Income Tax Expenses
Income tax expenseexpenses for the nine months ended March 31, 20192020 was $159,$112, a changedecrease of $876$47 as compared to income tax expense of $1,035$159 for the same period last fiscal year. This change was mainly due to the provision for repatriation tax of $900 for nine months ended March 31, 2019. During the second quarter of fiscal 2019, upon finalization of the One-Time Mandatory Repatriation Tax, we determined that an adjustment was required, resulting in a $145 tax liability reversal which in turn reduced the income tax provision to $755. These adjustments materially impacted our provision for income taxes and effective tax rate.
The significant change in the tax liability provision was due to the update of information from additional analysis performed on foreign tax pools and earnings and profits computations.
Non-controlling Interest
As of March 31, 2019,2020, we held a 55% interest in Trio-Tech Malaysia, Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd. and PTSHI Indonesia, and a 76% interest in Prestal Enterprise Sdn. Bhd. The net lossincome attributable to ourthe non-controlling interest in these subsidiaries for the nine months ended March 31, 20192020 was $129,$356, a decreasechange of $190$485, as compared to net incomethe loss attributable to non-controlling interest of $61$129 for the same period of last fiscal year. The decreaseincrease was attributable to the decreaseincrease in net income generated by the Malaysia testing operation due to a decrease in testing revenue which decreasedfrom the net profit.sale of assets held for sale.
Loss from Discontinued OperationsNet Income Attributable to Trio-Tech International Common Shareholders
Loss from discontinued operationsNet income attributable to Trio-Tech international common shareholders was $1$769 for the nine months ended March 31, 2019, a decrease of $102020, as compared to a loss of $11 for the same period of the last fiscal year.
Net Income
Net income was $967 for the nine months ended March 31, 2019, an increase of $397 as compared to a net income of $570$1,096 for the same period in the last fiscal year. The increase was mainly due to the gain on disposalsale of assets held for sale in the Mao Ye properties.Malaysia operation, coupled with the government grants received from the Singapore and China government. However, the increase was partially offset by a decrease in revenue and gross margin, and an increase in operating expenses, as discussed earlier.
Earnings per Share
Basic earnings per share from continuing operations was $0.30$0.21 for the nine months ended March 31, 20192020 as compared to $0.15$0.30 for the same period in the last fiscal year. Basic earnings per share from discontinued operations were nil for both the nine months ended March 31, 20192020 and 2018.2019.
Diluted earnings per share from continuing operations was $0.29$0.21 for the nine months ended March 31, 20192020 as compared to $0.14$0.29 for the same period in the last fiscal year. Diluted earnings per share from discontinued operations waswere nil for both the nine months ended March 31, 20192020 and 2018.2019.
Segment Information
The revenue, gross profit margin, and income or loss from operations in each segment for the nine months ended March 31, 20192020 and 2018,2019, respectively, are presented below. As the segment revenue and gross margin for each segment have been discussed in the previous section, only the comparison of income from operations is discussed below.
Manufacturing Segment
The revenue, gross margin and (loss)/income from operations for the manufacturing segment for the nine months ended March 31, 20192020 and 20182019 were as follows:
| | | |
| | | | | |
| (Unaudited) | | |
| Revenue | $10,086 | $11,862 | $8,881 | $10,086 |
| Gross margin | 22.6% | 22.1% | 23.6% | 22.6% |
| Income from operations | $175 | $188 | |
| (Loss)/income from operations | | $(201) | $175 |
IncomeLoss from operations from the manufacturing segment was $175$201 for the nine months ended March 31, 2019,2020, a decreasechange of $13$376 as compared to $188income from operations of $175 in the same period of the last fiscal year, due to a decrease in the absolute amount of gross margin by $335 which was partially offset by a decreaseand an increase in operating expenses. Operating expenses for the manufacturing segment were $2,105$2,293 and $2,428$2,105 for the nine months ended March 31, 20192020 and 2018,2019, respectively. The decreaseincrease in operating expenses of $323$188 was mainly due to a decreasean increase in general and administrative expenses by $44, a decrease in selling expenses by $52, a decreaseof $200, an increase in corporate overhead by $98of $10 and a decreasean increase in research and development expenses by $128,of $10 as compared to the same period of last fiscal year. The increase was partially offset by a decrease in selling expenses of $32. The increase in general and administrative expenses was mainly attributable to an increase in payroll-related expenses and a provision of doubtful debt in the Singapore operations. The decrease in selling expenses was primarily due to fewer commission expenses incurred for the nine months ended March 31, 2020 as a result of fewer commissionable sales.
Testing Segment
The revenue, gross margin and (loss) / incomeloss from operations for the testing segment for the nine months ended March 31, 20192020 and 20182019 were as follows:
| | | |
| | | | | |
| (Unaudited) | | |
| Revenue | $12,819 | $14,454 | $12,018 | $12,819 |
| Gross margin | 27.1% | 31.6% | 24.7% | 27.1% |
| (Loss) / Income from operations | $(134) | $1,281 | |
| Loss from operations | | $(540) | $(134) |
Loss from operations in the testing segment for the nine months ended March 31, 20192020 was $134,$540, a further deterioration of $1,415$406 compared to incomeloss from operationoperations of $1,281$134 in the same period of the last fiscal year. The deterioration in the operation loss was attributable to thea decrease in gross margin of $496. The deterioration was partially offset by $1,105 as discussed earlier. The increasea decrease in operatingcorporate overhead expenses of $310 also further decreased the operating income. Operating expenses were $3,602 and $3,292 for the nine months ended March 31, 2019 and 2018, respectively.$87. The higher operating expenses were mainly attributable to an increase in general and administrative expenses by $168 and an increase in corporate overheads by $98. The increase in general and administrative expenses was due to an increase of medical expenses and an increase of headcount in the Singapore operations. The increasedecrease in corporate overhead expenses was due to a change in the corporate overhead allocation as compared to the same period last fiscal year. Corporate charges are allocated on a pre-determined fixed charge basis.
Distribution Segment
The revenue, gross margin and income from operations for the distribution segment for the nine months ended March 31, 20192020 and 20182019 were as follows:
| | | |
| | | | | |
| (Unaudited) | | |
| Revenue | $5,587 | $5,175 | $6,338 | $5,587 |
| Gross margin | 13.5% | 11.1% | 13.9% | 13.5% |
| Income from operations | $492 | $337 | $599 | $492 |
Income from operations in the distribution segment for the nine months ended March 31, 20192020 was $492,$599, an increase of $155$107 as compared to $337$492 in the same period of the last fiscal year. The increase in operating income was primarily due to an increase in gross margin of $179,as discussed earlier which was partially offset by the increase of operating expenses by $24.of $22. Operating expenses were $264$286 and $240$264 for the nine months ended March 31, 2020 and 2019, and 2018, respectively. The increase in payroll-related expenses in the Singapore operations contributed to the increase in operating expenses.
Real Estate Segment
The revenue, gross margin and loss from operations for the real estate segment for the nine months ended March 31, 20192020 and 20182019 were as follows:
| | | |
| | | | | |
| (Unaudited) | | |
| Revenue | $81 | $110 | $49 | $81 |
| Gross margin | 35.8% | 20.0% | |
| Gross (loss) / margin | | (10.2)% | 35.8% |
| Loss from operations | $(30) | $(37) | $(82) | $(30) |
Loss from operations in the real estate segment for the nine months ended March 31, 20192020 was $30, an improvement$82, a further deterioration of $7$52 as compared to $37a loss from operations of $30 for the same period of the last fiscal year. Gross profit margin increased by 15.8% due to the decrease of depreciation expenses of the Mao Ye properties as it has been reclassified to assets held for sale in the first quarter of fiscal year 2019. The decreaseincrease in operating loss was mainly due to a decrease in gross margin and an increase in gross margin.operating expenses of $18, as discussed earlier. Operating expenses were $77 and $59 for the nine months ended March 31, 2020 and 2019, and 2018.respectively. A provision of doubtful debts was made due to the adverse impact of COVID-19 on one of our tenants.
Corporate
The loss from operations for corporate for the nine months ended March 31, 20192020 and 20182019 were as follows:
| | | |
| | | | | |
| (Unaudited) | | |
| Loss from operations | $(30) | $(290) | $(94) | $(30) |
Operating lossThe change of $64 was mainly due to an increase in the corporate office for the nine months ended March 31, 2019 was $30, a decrease of $260,payroll related expenses as compared to $290 for the same period of the last fiscal year. The decrease was mainly due to a decrease in staff related expenses and also decrease in professional fees.
Financial Condition
During the nine months ended March 31, 2019,2020 total assets increased by $526$269 from $36,474$36,527 as at June 30, 20182019 to $37,000.$36,796. The increase in total assets was primarily due to an increase in short-termshort term deposits, other receivables, prepaid expenses, property, plantdeferred tax assets and equipment and restricted term deposits,operating lease right-of-use assets, which werewas partially offset by a decrease in cash and cash equivalents, trade receivables, deferred tax asset,accounts receivable, inventory, prepaid expenses and other current assets, assets held for sale, investment properties, property, plant and equipment, other assets.
assets and restricted term deposits.
Cash and cash equivalents were $4,602$4,370 as at March 31, 2019,2020, reflecting a decrease of $1,937$493 from $6,539$4,863 as at June 30, 2018, mainly2019, primarily due to further placement of interest-bearingmade into fixed deposits byin the Singapore and Malaysia and Chongqing, China operation. This was partially offset by improved collections in the U.S. operation.operations.
Short term deposits were $3,646$6,309 as at March 31, 2019,2020, reflecting an increase of $2,993$2,165 from $653$4,144 as at June 30, 2018,2019, primarily due to placement of deposit byan increase in deposits in the Singapore and Malaysia and Chongqing, China operations. The short-term deposits include proceeds received from the sale of assets held for sale.
As at March 31, 2019,2020, the trade accounts receivable balance decreased by $627$716 to $7,120$6,397, from $7,747$7,113 as at June 30, 2018, mainly2019, primarily due to decreased salesa decrease in the Malaysia operation and the Tianjin, China operationrevenue for the nine months ended March 31, 2019.2020 in the Singapore, Malaysia and China operations. The number of days’ sales outstanding in accounts receivables turnover days were 70 and 72for the Group was 67 days at the end of the third quarter of fiscal year 20192020, and for70 days at the end of the third quarter of fiscal year ended 2018, respectively.2019.
As at March 31, 2019,2020, other receivables were $1,034,$1,065, reflecting an increase of $153$248 from $881$817 as at June 30, 2018.2019. The increase was primarily due to an increase of advance payment madein government grant receivables in the Singapore operation.
Inventories as at March 31, 20192020 were $2,918,$2,226, a decrease of $12$201, as compared to $2,930$2,427 as at June 30, 2018.2019. The decrease in inventoryinventories was mainly due to a decrease in purchases due to fewer orders in the manufacturing segment of the Singapore operation managing and monitoring its purchases to meet the requirements.operations, as well as an impact from currency translation.
Prepaid expensesInvestment properties, net in China were $307$705 as at March 31, 2019, compared to $2082020 and $782 as at June 30, 2018.2019. The increase of $99decrease was primarily due to an increase in prepaymentthe depreciation expenses charged for insurance expenses, software related expensesthe period, as well as the foreign currency exchange movement between June 30, 2019 and NYSE annual fees in the Singapore and U.S. operations.March 31, 2020.
Investment propertiesAssets held for sales were $828$nil as at March 31, 2019 compared to $1,1462020 and $89 as at June 30,2018. The decrease30, 2019. Management entered into a Sales and Purchase Agreement with a potential buyer during fiscal year 2019 and the sale was completed during the second quarter of $318 was primarily due to disposal of Mao Ye investment properties.fiscal 2020.
Property, plant and equipment net increaseddecreased by $751$1,562 from $11,935$12,159 as at June 30, 2018,2019, to $12,686$10,597 as at March 31, 2019,2020. This was mainly due to higher capital expendituredepreciation charged for the period and the foreign currency exchange movement between June 30, 2019 and March 31, 2020, coupled with an impairment loss of $139 recognized in the Suzhou, China operations,operation. The decrease was partially offset by the new acquisition of plant and equipment in the Malaysia operation and Tianjin, China operation for the nine months ended March 31, 2018.operation.
Other assets decreased by $521$155 to $1,728$1,595 as at March 31, 2019,2020, as compared to $2,249$1,750 as at June 30, 2018.2019. This was mainly due to the reclassification of down paymentpayments made for the purchase of equipment to property, plant &and equipment to fixed assets byin the Malaysia and Tianjin, China operation.
Accounts payable decreased by $683$143 to $3,021$3,129 as at March 31, 2019,2020, as compared to $3,704$3,272 as at June 30, 2018.2019. This was mainly due to more payments releaseda decrease in purchases due to fewer orders in the first, second and third quartersmanufacturing segment of fiscal year 2019 compared to the fourth quarter of fiscal year 2018.Singapore operation.
Accrued expenses increaseddecreased by $710$421 to $3,882$3,065 as at March 31, 2019,2020, as compared to $3,172$3,486 as at June 30, 2018.2019. The increasedecrease in accrued expenses was mainly due to customer depositsa decrease in both accrued purchases and accrued payroll liability in the Singapore operation and Suzhou, China operations.
Bank loans payable increaseddecreased by $1,130$483 to $2,934$2,297 as at March 31, 2019,2020, as compared to $1,804$2,780 as at June 30, 2018.2019. This was due to an additional loan availed by the Malaysia operation, which was partially offset by repayment of bank loans byrepayments made in the Singapore operation.and Malaysia operations during the nine months ended March 31, 2020.
Capital leases decreased by $192 to $582Operating lease right of use assets and the corresponding leased liability were $1,073 and $1,073, respectively, as atof March 31, 2019, as compared to $774 as at June 30, 2018. This was due to repayment of capital leases by2020, after taking into effect the Malaysia and Singapore operations.new accounting standard,ASC 842 Leases.
Liquidity Comparison
Net cash provided by operating activities decreased by $160$834 to $2,962an inflow of $2,096 for the nine months ended March 31, 2019, compared to $3,122 during2020 from an inflow of $2,930 for the same period of the last fiscal year. The decrease in net cash inflow provided by operating activities was primarily due to an increase of cash outflow of $398 from repayment of operating leases, a decrease in cash inflow of $388 from other assets and an increase in cash outflow of $162$509 from other receivables, $106 from prepaid expensesaccount payables and other current asset, and $685 from gain on disposal of assets for sale. The decrease in net cash wasaccrued expenses. These were partially offset by increase in cash inflow from net income of $397, an increase of cash inflow of $234 from accounts receivables and $816 from other assets, an increase in cash inflowdepreciation and amortization of $566 in inventories, a decrease in cash outflow of $190 from accounts payable and accrued expenses and also a decrease in cash outflow of $826 for income tax expenses.
$573.
Net cash used in investing activities increaseddecreased by $2,764$2,628 to $4,569an outflow of $1,941 for the nine months ended March 31, 2019, compared to $1,805 during the same period2020 from an outflow of the last fiscal year. The increase was primarily due to $526 in capital spending coupled with increase in $2,658 in investments in unrestricted short-term deposits and a decrease of $484 in proceeds from maturing of unrestricted and restricted term deposits and short-term deposits. This increase in net cash used in investing activities was partially offset by the $943 from sale of assets held$4,569 for sale.
Net cash used in financing activities decreased by $1,260 to $195 for the nine months ended March 31, 2019, compared to net cash used in financing activities of $1,455 during the same period of the last fiscal year. The decrease in cash outflow was mainlyprimarily due to an increase in proceeds from the sale of assets held for sale of $318 and a decrease in capital expenditure of $1,728.
Net cash generated through borrowingsused in financing activities for the nine months ended March 31, 2020 was $296, representing an increase of $133, as compared to $163 during the nine months ended March 31, 2019. The increase in cash outflow was mainly attributable to a decrease in cash inflow by $3,905 from proceeds of lines of credit, a decrease of $1,475 from bank loans and capital leasesa decrease of $401 from the exercise of stock options. These were partially offset by $829a decrease in cash outflow of $5,426 from repayment of lines of credit and an increase of $350 in cash generatedinflow of $247 from stock option exercised.the proceeds from financial leases.
We believe that our projected cash flows from operations, borrowing availability under our revolving lines of credit, cash on hand, trade credit and the secured bank loan will provide the necessary financial resources to meet our projected cash requirements for at least the next 12 months.
Critical Accounting Estimates & Policies
Effective as of July 1, 2018,2019, the Company has adopted ASU 2014-09, Revenue from contracts with Customers2016-02, Leases (Topic 606),842) and its related amendments using the modified retrospective transition method. We have completed our adoption and implemented policies, processes and controls to support the standard’s measurement and disclosure requirements as described in Note 1 to the financial statements included in Itemitem 1 of this Form 10-Q.
The amendments in ASU 2016-02 ASC Topic 842:Leasesbecome effective for the Company in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. These amendments require companies to recognize the following for all leases (with the exception of short-term leases) at the commencement date of the applicable lease: (a) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset, which is as an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The Company will adopt these standards starting in the first quarter of fiscal year 2020 on a modified retrospective approach at the beginning of the period through a cumulative-effect adjustment. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements and expects that there will be an increase in assets and liabilities on the Consolidated Balance Sheets at adoption due to the recognition of right-of-use assets and related lease liabilities. Upon adoption, the Company expects that its financial statement disclosure will be expanded to present additional details of its leasing arrangements.
There have been no other significant changes in the critical accounting policies from those, disclosed in” Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the most recent Annual Report on Form 10-K.
ITEM 3.
QUANTITATIVEQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLSCONTROLS AND PROCEDURES
An evaluation was carried out by the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2019,2020, the end of the period covered by this Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective at a reasonable level.
Changes in Internal Control Over Financial Reporting
Due to the COVID-19 pandemic, a significant portion of our employees are working from home. The design of our processes and controls allows for remote execution with accessibility to secure data.
Except as discussed below, there has been no change in the Company’s internal control over financial reporting during the fiscal quarter ended March 31, 20192020, that havehas materially affected, or areis 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,System, as part of a multi-year plan to integrate and upgrade our systems and processes. The implementation of this ERP system iswas scheduled to occur in phases over the nexta few years, and began with the migration of certain operational and financial systems in our Singapore operations to the new ERP system during the second quarter of fiscal 2017.
During the third quarter of fiscal 2018, the operational and financial systems in Singapore were substantially transitioned to the new system.
This implementation effort is continuing in fiscal 2019. The operational and financial systems in our Malaysia operation were substantially transitioned to the new system during the first quarter of fiscal 2019.
The operational systems in our Tianjin and Suzhou operations were substantially transitioned to the new system during the third quarter of fiscal 2020. This implementation effort will continue until the financial systems of these two operations are fully transitioned to the new system, and until the Group's consolidation process is substantially automated using the new system.
As a phased implementation of this system occurs, we are experiencing certain changes to our processes and procedures which, in turn, result in changes to our internal control over financial reporting. While we expect the new ERP system to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as processes and procedures in each of the affected areas evolve.
Adoption of New Revenue Recognition Accounting Standard
In the first quarter of fiscal 2019, we implemented controls relating to adoption of the new revenue recognition accounting standards that were adopted in fiscal 2019 to ensure that the revenue contracts and related policies and process flows were sufficiently reviewed to identify adoption impacts.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Malaysia and Singapore regulations prohibit the payment of dividends if the Company does not have sufficient retained earnings and tax credit. In addition, the payment of dividends can only be made after making deductions for income tax pursuant to the regulations. Furthermore, the cash movements from the Company’s 55% owned Malaysian subsidiary to overseas are restricted and must be authorized by the Central Bank of Malaysia. California law also prohibits the payment of dividends if the Company does not have sufficient retained earnings or cannot meet certain asset to liability ratios.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
ItemITEM 5. Other InformationOTHER INFORMATION
Not applicable.
ItemITEM 6. ExhibitsEXHIBITS
| | 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
| 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 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | TRIO-TECH INTERNATIONAL |
| | By: | /s/ Victor H.M. Ting VICTOR H.M. TING Vice President and Chief Financial Officer (Principal Financial Officer) Dated: May 14, 201921, 2020 |