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 MarchDecember 31, 2020
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___ to ___
Commission File Number 1-14523
TRIO-TECH INTERNATIONAL
(Exact name of Registrant as specified in its Charter)
California | | 95-2086631 |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification Number) |
| | |
Block 1008 Toa Payoh North | | |
Unit 03-09 Singapore | | 318996 |
(Address of principal executive offices) | | (Zip Code) |
Registrant's Telephone Number, Including Area Code: (65) 6265 3300
Securities registered pursuant to Section 12(b) of the Act:
| | Name of each exchange |
Title of each class | Trading Symbol | onOn 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 ☒
As of MayFebruary 1, 2020,2021, there were 3,673,0553,710,555 shares of the issuer’s Common Stock, no par value, outstanding.
TRIO-TECH INTERNATIONAL
INDEXINDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE
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Part I. | Financial Information | |
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| | 6
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| | 7
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| | 3132
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| | 47
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Part II. | Other Information | |
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| | 48
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| | 48
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| | 4748
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| 4849
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FORWARD-LOOKING STATEMENTS
The discussions of Trio-Tech International’s (the “Company”) business and activities set forth in this Form 10-Q and in other past and future reports and announcements by the Company may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and assumptions regarding future activities and results of operations of the Company. In light of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the following factors, among others, could cause actual results to differ materially from those reflected in any forward-looking statements made by or on behalf of the Company: market acceptance of Company products and services; changing business conditions or technologies and volatility in the semiconductor industry, which could affect demand for the Company’s products and services; the impact of competition; problems with technology; product development schedules; delivery schedules; changes in military or commercial testing specifications which could affect the market for the Company’s products and services; difficulties in profitably integrating acquired businesses, if any, into the Company; risks associated with conducting business internationally and especially in Asia, including currency fluctuations and devaluation, currency restrictions, local laws and restrictions and possible social, political and economic instability; changes in U.S. and global financial and equity markets, including market disruptions and significant interest rate fluctuations; public health issues related to the COVID-19 pandemic; the trade tension between U.S. and China; 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
PART I. FINANCIAL INFORMATION
ITEM 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 | $4,370 | $4,863 | $4,470 | $4,150 |
Short-term deposits | 6,309 | 4,144 | 6,940 | 6,838 |
Trade accounts receivable, less allowance for doubtful accounts of $315 and $263, respectively | 6,397 | 7,113 | |
Trade accounts receivable, less allowance for doubtful accounts of $320 and $314, respectively | | 7,581 | 5,951 |
Other receivables | 1,065 | 817 | 670 | 998 |
Inventories, less provision for obsolete inventory of $656 and $673, respectively | 2,226 | 2,427 | |
Inventories, less provision for obsolete inventories of $688 and $678, respectively | | 2,147 | 1,922 |
Prepaid expenses and other current assets | 267 | 287 | 342 | 341 |
Assets held for sale | - | 89 | |
Total current assets | 20,634 | 19,740 | 22,150 | 20,200 |
NON-CURRENT ASSETS: | | |
Deferred tax asset | 565 | 390 | |
Deferred tax assets | | 354 | 247 |
Investment properties, net | 705 | 782 | 712 | 690 |
Property, plant and equipment, net | 10,597 | 12,159 | 10,050 | 10,310 |
Operating lease right-of-use assets | 1,073 | - | 1,514 | 944 |
Other assets | 1,595 | 1,750 | 1,831 | 1,609 |
Restricted term deposits | 1,627 | 1,706 | 1,752 | 1,660 |
Total non-current assets | 16,162 | 16,787 | 16,213 | 15,460 |
TOTAL ASSETS | $36,796 | $36,527 | $38,363 | $35,660 |
| | |
LIABILITIES | | |
CURRENT LIABILITIES: | | |
Lines of credit | $398 | $187 | $- | $172 |
Accounts payable | 3,129 | 3,272 | 3,103 | 2,590 |
Accrued expenses | 3,065 | 3,486 | 3,395 | 3,005 |
Income taxes payable | 396 | 417 | 341 | 344 |
Current portion of bank loans payable | 378 | 488 | 443 | 370 |
Current portion of finance leases | 246 | 283 | 227 | 231 |
Current portion of operating leases | 541 | - | 562 | 477 |
Current portion of PPP loan | | 121 | 54 |
Total current liabilities | 8,153 | 8,133 | 8,192 | 7,243 |
NON-CURRENT LIABILITIES: | | |
Bank loans payable, net of current portion | 1,919 | 2,292 | 1,899 | 1,836 |
Finance leases, net of current portion | 486 | 442 | 353 | 435 |
Operating leases, net of current portion | 532 | - | 952 | 467 |
Deferred tax liabilities | 375 | 327 | |
Income taxes payable | 430 | 439 | 385 | 430 |
PPP loan, net of current portion | | - | 67 |
Other non-current liabilities | 34 | 33 | 34 | 36 |
Total non-current liabilities | 3,776 | 3,533 | 3,623 | 3,271 |
TOTAL LIABILITIES | $11,929 | $11,666 | $11,815 | $10,514 |
| | |
EQUITY | | |
TRIO-TECH INTERNATIONAL’S SHAREHOLDERS' EQUITY: | | |
Common stock, no par value, 15,000,000 shares authorized; 3,673,055 shares issued outstanding as at March 31, 2020 and June 30, 2019, respectively | $11,424 | |
Common stock, no par value, 15,000,000 shares authorized; 3,710,555 shares issued and outstanding as at December 31, 2020 and 3,673,055 shares as at June 30, 2020, respectively | | $11,525 | $11,424 |
Paid-in capital | 3,357 | 3,305 | 3,378 | 3,363 |
Accumulated retained earnings | 7,839 | 7,070 | 8,263 | 8,036 |
Accumulated other comprehensive gain-translation adjustments | 796 | 1,867 | |
Accumulated other comprehensive income-translation adjustments | | 2,703 | 1,143 |
Total Trio-Tech International shareholders' equity | 23,416 | 23,666 | 25,869 | 23,966 |
Non-controlling interest | 1,451 | 1,195 | 679 | 1,180 |
TOTAL EQUITY | $24,867 | $24,861 | $26,548 | $25,146 |
TOTAL LIABILITIES AND EQUITY | $36,796 | $36,527 | $38,363 | $35,660 |
See notes to condensed consolidated financial statements.statements
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOMEINCOME / (LOSS) UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
| | | | |
| | Dec. 31, | |
| | | | | 2020 | | | |
Revenue | | | |
Manufacturing | $2,519 | $3,097 | $8,881 | $10,086 | $3,569 | $3,045 | $6,194 | $6,362 |
Testing Services | 3,741 | 3,989 | 12,018 | 12,819 | |
Testing services | | 3,560 | 3,887 | 6,514 | 8,277 |
Distribution | 2,225 | 1,727 | 6,338 | 5,587 | 1,065 | 2,014 | 2,323 | 4,113 |
Real Estate | 16 | 25 | 49 | 81 | |
Real estate | | 7 | 16 | 11 | 33 |
| 8,501 | 8,838 | 27,286 | 28,573 | 8,201 | 8,962 | 15,042 | 18,785 |
Cost of Sales | | |
Cost of manufactured products sold | 1,851 | 2,303 | 6,789 | 7,806 | 2,770 | 2,383 | 4,707 | 4,938 |
Cost of testing services rendered | 2,937 | 2,862 | 9,046 | 9,351 | 2,678 | 2,918 | 5,000 | 6,109 |
Cost of distribution | 1,909 | 1,483 | 5,454 | 4,831 | 861 | 1,738 | 1,908 | 3,545 |
Cost of real estate | 18 | 16 | 54 | 52 | 22 | 18 | 39 | 36 |
| 6,715 | 6,664 | 21,343 | 22,040 | 6,331 | 7,057 | 11,654 | 14,628 |
| | |
Gross Margin | 1,786 | 2,174 | 5,943 | 6,533 | 1,870 | 1,905 | 3,388 | 4,157 |
| | |
Operating Expenses: | | |
General and administrative | 1,754 | 1,742 | 5,319 | 5,223 | 1,662 | 1,777 | 3,322 | 3,565 |
Selling | 181 | 246 | 547 | 580 | 122 | 176 | 233 | 366 |
Research and development | 79 | 76 | 280 | 270 | 123 | 125 | 198 | 201 |
Impairment loss on long-lived assets | 139 | - | 139 | - | |
Gain on disposal of property, plant and equipment | - | (13) | (24) | (13) | - | (1) | (24) |
Total operating expenses | 2,153 | 2,051 | 6,261 | 6,060 | 1,907 | 2,078 | 3,752 | 4,108 |
| | |
(Loss) / Income from Operations | (367) | 123 | (318) | 473 | $(37) | $(173) | $(364) | $49 |
| | |
Other Income | | |
Other Income / (Expenses) | | |
Interest expenses | (63) | (74) | (186) | (250) | (34) | (55) | (71) | (123) |
Gain on sale of asset held for sale | - | 685 | 1,172 | 685 | - | 1,172 | - | 1,172 |
Other income, net | 440 | 128 | 590 | 220 | 143 | 40 | 354 | 150 |
Total other income | 377 | 739 | 1,576 | 655 | |
Total other income / (expenses) | | 109 | 1,157 | 283 | 1,199 |
| | |
Income from Continuing Operations before Income Taxes | 10 | 862 | 1,258 | 1,128 | |
Income / (Loss) from Continuing Operations before Income Taxes | | $72 | $984 | $(81) | $1,248 |
| | |
Income tax benefits / (expenses) | 8 | (209) | (112) | (159) | |
Income Tax Expenses | | - | 120 | 7 | 120 |
| | |
Income from continuing operations before non-controlling interest, net of tax | 18 | 653 | 1,146 | 969 | |
Income / (loss) from continuing operations before non-controlling interest, net of tax | | 72 | 864 | (88) | 1,128 |
| | |
Discontinued Operations | | |
(Loss) / Income from discontinued operations, net of tax | (21) | 2 | (21) | (2) | |
NET INCOME | (3) | 655 | 1,125 | 967 | |
Income / (loss) from discontinued operations, net of tax | | (21) | 1 | (27) | - |
NET INCOME / (LOSS) | | $51 | $865 | $(115) | $1,128 |
| | |
Less: net (loss) / income attributable to non-controlling interest | (73) | (28) | 356 | (129) | (184) | 439 | (342) | 429 |
Net Income Attributable to Trio-Tech International Common Shareholders | $70 | $683 | $769 | $1096 | $235 | $426 | $227 | $699 |
| | |
Amounts Attributable to Trio-Tech International Common Shareholders: | | |
Income from continuing operations, net of tax | 81 | 682 | 780 | 1,097 | 246 | 425 | 241 | 699 |
(Loss) / income from discontinued operations, net of tax | (11) | 1 | (11) | (1) | (11) | 1 | (14) | - |
Net Income Attributable to Trio-Tech International Common Shareholders | $70 | $683 | $769 | $1,096 | $235 | $426 | $227 | $699 |
| | |
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 per share from continuing operations attributable to Trio-Tech International | | $0.06 | $0.12 | $0.06 | $0.19 |
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 | $0.06 | $0.12 | $0.06 | $0.19 |
| | |
Diluted Earnings per Share: | | |
Diluted earnings per share from continuing operations attributable to Trio-Tech International | $0.02 | $0.19 | $0.21 | $0.29 | $0.06 | $0.11 | $0.06 | $0.19 |
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 | $0.06 | $0.11 | $0.06 | $0.19 |
| | |
Weighted average number of common shares outstanding | | |
Basic | 3,673 | 3,710 | 3,673 | 3,710 | 3,673 |
Dilutive effect of stock options | 86 | 12 | 61 | 73 | 90 | 52 | 83 | 33 |
Number of shares used to compute earnings per share diluted | 3,759 | 3,685 | 3,734 | 3,746 | 3,800 | 3,725 | 3,793 | 3,706 |
See notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEINCOME / (LOSS)
| | | | |
| | |
| | | | | | | | |
Comprehensive Income Attributable to Trio-Tech International Common Shareholders: | | |
| | |
Net (loss) / income | $(3) | $655 | $1,125 | $967 | |
Net income / (loss) | | $51 | $865 | $(115) | $1,128 |
Foreign currency translation, net of tax | (1,013) | 401 | (1,051) | (189) | 943 | 525 | 1,583 | (38) |
Comprehensive (Loss) / Income
| (1,016) | 1,056 | 74 | 778 | |
Comprehensive Income | | 994 | 1,390 | 1,468 | 1,090 |
Less: comprehensive (loss) / income attributable to non-controlling interest | (64) | 1 | 376 | (191) | (197) | 431 | (319) | 440 |
Comprehensive (Loss) / Income Attributable to Trio-Tech International Common Shareholders | $(952) | $1,055 | $(302) | $969 | |
Comprehensive Income Attributable to Trio-Tech International Common Shareholders | | $1,191 | $959 | $1,787 | $650 |
| | |
See notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITYEQUITY (IN THOUSANDS)
Nine MonthsSix months ended MarchDecember 31, 2020
| | | | Accumulated Other Comprehensive | | | | | | Accumulated Other Comprehensive | | |
| | | | | | | | | | | | | | |
| | $ | | $ |
Balance at June 30, 2019 | 3,673 | 11,424 | 3,305 | 7,070 | 1,867 | 1,195 | 24,861 | |
Balance at June 30, 2020 | | 3,673 | 11,424 | 3,363 | 8,036 | 1,143 | 1,180 | 25,146 |
Stock option expenses | - | 52 | - | | 52 | - | 15 | - | 15 |
Net income | - | 769 | - | 356 | 1,125 | |
Net income/ (loss) | | - | 227 | - | (342) | (115) |
Dividend declared by subsidiary | - | (120) | - | (182) |
Exercise of stock option | - | 37 | 101 | - | 101 |
Translation adjustment | - | (1,071) | 20 | (1,051) | - | 1,560 | 23 | 1,583 |
Balance at Mar. 31, 2020 | 3,673 | 11,424 | 3,357 | 7,839 | 796 | 1,451 | 24,867 | |
Balance at Dec. 31, 2020 | | 3,710 | 11,525 | 3,378 | 8,263 | 2,703 | 679 | 26,548 |
Nine MonthsSix months ended MarchDecember 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 |
| | | | 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 | - | - | 14 | - | - | - | 14 |
Net income | - | - | - | 699 | - | 429 | 1,128 |
Dividend declared by subsidiary | - | - | - | - | - | (120) | (120) |
Translation adjustment | - | - | - | - | (49) | 11 | (38) |
Balance at Dec. 31, 2019 | 3,673 | 11,424 | 3,319 | 7,769 | 1,818 | 1,515 | 25,845 |
See notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASHCASH FLOWS (IN THOUSANDS) | |
| | |
| | |
| | |
Cash Flow from Operating Activities | | |
Net Income | $1,125 | $967 |
Adjustments to reconcile net income to net cash flow provided by operating activities | | |
Gain on sale of assets held for sale | (1,172) | (685) |
Depreciation and amortization | 2,350 | 1,777 |
Impairment loss on long-lived assets | 139 | - |
Stock compensation | 52 | 12 |
Provision for obsolete inventory | 5 | (37) |
Reversal of income tax provision | - | (145) |
Payment of operating leases | (398) | - |
Payment of interest portion of finance leases (Note 1b) | (43) | (32) |
Allowance for doubtful debts | 62 | 1 |
Accrued interest expense, net accrued interest income | (35) | 34 |
Gain on sale of property, plant and equipment – continued operations | (24) | (13) |
Warranty recovery, net | - | (35) |
Fixed assets written off | - | (33) |
Deferred tax benefit / (provision) | (132) | 78 |
Changes in operating assets and liabilities, net of acquisition effects | | |
Trade accounts receivable | 664 | 626 |
Other receivables | (248) | (153) |
Other assets | 101 | 489 |
Inventories | 108 | 60 |
Prepaid expenses and other current assets | 20 | (99) |
Accounts payable and accrued expenses | (449) | 60 |
Income taxes payable | (29) | 58 |
Net Cash Provided by Operating Activities | 2,096 | 2,930 |
| | |
Cash Flow from Investing Activities | | |
Proceeds from sale of assets held for sale | 1,261 | 943 |
Proceeds from disposal of property, plant and equipment | 39 | 3 |
Investments in restricted and unrestricted deposits | (2,393) | (2,939) |
Addition to property, plant and equipment | (848) | (2,576) |
Net Cash Used in Investing Activities | (1,941) | (4,569) |
| | |
Cash Flow from Financing Activities | | |
Payment on lines of credit | (1,922) | (7,348) |
Payment of bank loans | (372) | (421) |
Payment of principal portion of finance leases | (251) | (172) |
Dividends paid on non-controlling interest | (120) | (125) |
Proceeds from exercising stock options | - | 401 |
Proceeds from lines of credit | 2,090 | 5,995 |
Proceeds from bank loans | - | 1,475 |
Proceeds from finance leases | 279 | 32 |
Net Cash Used in Financing Activities | (296) | (163) |
| | |
Effect of Changes in Exchange Rate | (431) | (125) |
| | |
Net Decrease in Cash, Cash Equivalents, and Restricted Cash | (572) | (1,927) |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 6,569 | 8,234 |
Cash, Cash Equivalents, and Restricted Cash at End of Period | $5,997 | $6,307 |
| | |
Supplementary Information of Cash Flows | | |
Cash paid during the period for: | | |
Interest | $186 | $217 |
Income taxes | $124 | $114 |
| | |
Non-Cash Transactions | | |
Finance lease of property, plant and equipment | $279 | $32 |
Reconciliation of Cash, Cash Equivalents, and Restricted Cash (Note 1a) | | |
Cash | 4,370 | 4,602 |
Short-Term Deposits | 6,309 | 3,646 |
Restricted Term-Deposits in Non-current Assets | 1,627 | 1,705 |
Total Cash, Cash Equivalents, and Restricted Cash Shown in Statement of Cash Flows | $12,306 | $9,953 |
See notes to condensed consolidated financial statements. |
Note 1a- | |
| | |
| | |
| | |
Cash Flow from Operating Activities | | |
Net (loss) / income | $(115) | $1,128 |
Adjustments to reconcile net income to net cash flow provided by operating activities | | |
Depreciation and amortization | 1,469 | 1,576 |
Stock compensation | 15 | 14 |
Addition / (reversal) of provision for obsolete inventories | 10 | (5) |
Bad debt (recovery) expenses | (15) | 45 |
Accrued interest expense, net accrued interest income | (18) | (20) |
Payment of interest portion of finance lease | (19) | (24) |
Gain on sale of asset held for sale | - | (1,172) |
Gain on sale of property, plant and equipment | (1) | (24) |
Dividend income | (32) | - |
Dividend received | 32 | - |
Reversal of income tax provision | 55 | - |
Deferred tax benefit | (83) | (47) |
Changes in operating assets and liabilities, net of acquisition effects | | |
Trade accounts receivable | (1,595) | 132 |
Other receivables | 328 | 65 |
Other assets | (86) | 97 |
Inventories | (140) | 247 |
Prepaid expenses and other current assets | (1) | (43) |
Accounts payable and accrued expenses | 1,000 | (6) |
Income taxes payable | (114) | (31) |
Operating lease liabilities | (375) | (359) |
Net Cash Provided by Operating Activities | 315 | 1,573 |
| | |
Cash Flow from Investing Activities | | |
Proceeds from disposal of property, plant and equipment | - | 39 |
Proceeds from sale of asset held for sale | - | 1,261 |
Withdrawal of unrestricted deposit | 520 | - |
Investment in unrestricted term deposits, net | (409) | (2,672) |
Additions to property, plant and equipment | (217) | (744) |
Net Cash Used in Investing Activities | (106) | (2,116) |
| | |
Cash Flow from Financing Activities | | |
Payment on lines of credit | (174) | (729) |
Payment of bank loans | (307) | (245) |
Payment of principal portion of finance leases | - | (127) |
Dividends paid on non-controlling interest | (182) | (120) |
Proceeds from exercise stock options | 101 | - |
Proceeds from lines of credit | - | 1,337 |
Proceeds from bank loans | 205 | - |
Proceeds from principal of finance leases | - | 279 |
Net Cash (Used in)/ Provided by Financing Activities | (357) | 395 |
| | |
Effect of Changes in Exchange Rate | 560 | 38 |
| | |
Net Increase/(Decrease) in Cash, Cash Equivalents, and Restricted Cash | 412 | (110) |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 5,810 | 6,569 |
Cash, Cash Equivalents, and Restricted Cash at end of Period | $6,222 | $6,459 |
| | |
Supplementary Information of Cash Flows | | |
Cash paid during the period for: | | |
Interest | $71 | $124 |
Income taxes | $114 | $109 |
| | |
Non-Cash Transactions | | |
Finance lease of property, plant and equipment | $- | $279 |
Amounts reflecting adoption of ASU 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230) beginning in the first quarter of 2019.
Note 1b-Reconciliation of Cash, Cash Equivalents, and Restricted Cash | | |
Cash | $4,470 | $4,743 |
Restricted Term-Deposits in Non-Current Assets | 1,752 | 1,716 |
Total Cash, Cash Equivalents, and Restricted Cash Shown in the Statements of Cash Flows | $6,222 | $6,459 |
Reclassification of repayment of interest portion of finance lease from financing activities in accordance with ASC 842-20-45-5
See notes to condensed consolidated financial statements.
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.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.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
NOTESNOTES TO CONDENSED 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 thirdsecond quarter of fiscal year 2020,2021, TTI conducted business in four business segments: Manufacturing, Testing Services, Distribution and Real Estate. TTI has subsidiaries in the U.S., Singapore, Malaysia, Thailand, Indonesia and China as follows:
| Ownership | Location |
Express Test Corporation (Dormant) | 100% | Van Nuys, California |
Trio-Tech Reliability Services (Dormant) | 100% | Van Nuys, California |
KTS Incorporated, dba Universal Systems (Dormant) | 100% | Van Nuys, California |
European Electronic Test Centre (Dormant) | 100% | Dublin, Ireland |
Trio-Tech International Pte. Ltd. | 100% | Singapore |
Universal (Far East) Pte. Ltd. * | 100% | Singapore |
Trio-Tech International (Thailand) Co. Ltd. * | 100% | Bangkok, Thailand |
Trio-Tech (Bangkok) Co. Ltd.* | 100% | Bangkok, Thailand |
Trio-Tech (Malaysia) Sdn. Bhd. (55% owned by Trio-Tech International Pte. Ltd.) | 55% | Penang and Selangor, Malaysia |
Trio-Tech (Kuala Lumpur) Sdn. Bhd. | 55% | Selangor, Malaysia |
(100% owned by Trio-Tech Malaysia Sdn. Bhd.) | | |
Prestal Enterprise Sdn. Bhd. | 76% | Selangor, Malaysia |
(76% owned by Trio-Tech International Pte. Ltd.) | | |
Trio-Tech (SIP) Co., Ltd. * | 100% | Suzhou, China |
Trio-Tech (Chongqing) Co. Ltd. * | 100% | Chongqing, China |
SHI International Pte. Ltd. (Dormant) (55% owned by Trio-Tech International Pte. Ltd) | 55% | Singapore |
PT SHI Indonesia (Dormant) (100% owned by SHI International Pte. Ltd.) | 55% | Batam, Indonesia |
Trio-Tech (Tianjin) Co., Ltd. * | 100% | Tianjin, China |
* 100% owned by Trio-Tech International Pte. Ltd.
The accompanying un-auditedunaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principlesGenerally 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 ninesix months ended MarchDecember 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2020.2021. Certain accounting matters that generally require consideration of forecasted financial information were assessed regarding impacts from the COVID-19 pandemic as of MarchDecember 31, 2020 and through the date of this Quarterly Report dated February 11, 2021 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 MarchDecember 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 MarchDecember 31, 2020, the Company had cash and cash equivalents and short-termsshort-term deposits totalling $10,609$11,410 and unused linelines of credit of $5,897.$6,187. We finance operations primarily through our existing cash balances, cash collected from operations, bank borrowings and capital lease financing. We believe these sources are sufficient to fund our operations for the foreseeable future. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report for the fiscal year ended June 30, 2019.2020.
Except as otherwise specifically noted in this form 10-Q, theThe 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 LesseeLeases-Lessee
Accounting Standards Codification ("ASC") Topic 842 introducedintroduces 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 providesprovided an alternative modified retrospective transition method. Under this method, the cumulative effect adjustment to the opening balance of retained earnings is recognized on the effective date of adoption (July 1, 2019). The Company adopted ASC 842 as of July 1, 2019, and applied the alternative modified retrospective transition method requiring application of the new guidance to all leases existing at, or entered into on or after, the effective date of adoption i.e., July 1, 2019.
The Company applies the guidance in ASC 842 to its individual leases of assets. When the Company receives substantially all of the economic benefits from and directs the use of specified property, plant and equipment, the transactions give rise to leases. The Company’s classes of assets include real estate leases.
Operating leases are included in operating lease right-of-use ("ROU") assets, under the non-current asset portion of our consolidated balance sheets and under this current portion and non-current liabilitieslong-term portion of operating leases in 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 liabilitieslong-term portion of finance leases in 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:Leases-Lessor
(1)
assets increased by $1,073, primarily representingFor 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 thelessor, all our leases under which the Company is the lessor will continue to be classified as operating leases under the new standard. TheWe do not expect the new standard did notto have a material effect on our financial statements and willwe do not haveexpect a significant change in our leasing activities.activities between now and adoption.
2. NEW ACCOUNTING PRONOUNCEMENTS
In October 2020, FASB issued ASU2020-10:Codification Improvements.This update contains amendments that improve the consistency of the Codification by including all disclosure guidance in the appropriate Disclosure Section (Section 50). Many of the amendments arose because the Board provided an option to give certain information either on the face of the financial statements or in the notes to financial statements and that option only was included in the Other Presentation Matters Section (Section 45) of the Codification. The option to disclose information in the notes to financial statements should have been codified in the Disclosure Section as well as the Other Presentation Matters Section (or other Section of the Codification in which the option to disclose in the notes to financial statements appears). The amendments in this update do not change GAAP and, therefore, are not expected to result in a significant change in practice. The amendments are effective for the Company for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. Adoption shall be applied retrospectively. The Company is currently evaluating the impacts of the provisions of ASU 2020-10 on its consolidated financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06: Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivative and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusion. In addition, this ASU improves and amends the related EPS guidance. These amendments are effective for the Company for fiscal years beginning after December 15, 2023, including interim period within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Adoption is either a modified retrospective method or a fully retrospective method of transition. The Company is currently evaluating the impacts of the provisions of ASU 2020-06 on its consolidated financial statements and related disclosures.
In December 2019, FASB issued ASU 2019-12 ASC Topic 740: Income Taxes: Simplifying Accounting for Income Taxes remove specific exceptions to the general principles in topic 740 in US GAAP. The amendments eliminate the need for an organization to analyze whether the specific exceptions apply in a given period, improve financial statement preparers’ application of income tax related guidance and simplify GAAP. The amendments are effective for all entities for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. The Company is currently evaluating the impacts of the provisions of ASU 2019-12 on its consolidated financial statements and related disclosures.
In March 2020, FASB issued ASU 2020-04 ASC Topic 848: Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The amendments are effective for all entities as of March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impacts of the provisions of ASU 2020-04 on its consolidated financial statements and related disclosures.
The amendments in ASU 2019-12 ASC Topic 740: Income Taxes: Simplifying Accounting for Income Taxes remove specific exceptions to the general principles in Topic 740 in Generally Accepted Accounting Principles (GAAP). The amendments eliminate the need for an organization to analyze whether the specific exceptions apply in a given period, improve financial statement preparers’ application of income tax-related guidance and simplify GAAP. The amendments are effective for all entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
The amendments in ASU 2018-18 ASC Topic 808: Collaborative Arrangements: Clarifying the Interaction between Topic 808 and Topic 606 provide more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. The amendments allow organizations to only present units of account in collaborative arrangements that are within the scope of the revenue recognition standard together with revenue accounted for under the revenue recognition standard. The parts of the collaborative arrangement that are not in the scope of the revenue recognition standard are to be presented separately from revenue accounted for under the revenue recognition standard. The amendments are effective for all entities for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company's consolidated financial position or results of operations.
The amendments in ASU 2018-13 ASC Topic 820: Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement modify the disclosure requirements on fair value measurements based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty are to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments are to be applied retrospectively to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
The amendments in ASU 2017-04 ASC Topic 350 —Intangibles - Goodwill and Othersimplify the test for goodwill impairment. For public companies, these amendments are effective for annual periods beginning after December 15, 2019, including interim periods within those periods. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
In June 2016, FASB issued ASU 2016-13 ASC Topic 326: Financial Instruments — Credit Losses (“(“ASC Topic 326”) for the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. ASC Topic 326 is effective for the Company for annual periods beginning after December 15, 2022. The Company is currently evaluating the potential impact of this accounting standard update on its consoldiatedconsolidated financial statements.
Other new pronouncements issued but not yet effective until after MarchDecember 31, 2020 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 | $6,587 | $4,143 | $6,723 | $7,028 |
Currency translation effect on short-term deposits | (278) | 1 | 217 | (190) |
Total short-term deposits | 6,309 | 4,144 | 6,940 | 6,838 |
Restricted term deposits | 1,711 | 1,701 | 1,664 | 1,712 |
Currency translation effect on restricted term deposits | (84) | 5 | 88 | (52) |
Total restricted term deposits | 1,627 | 1,706 | 1,752 | 1,660 |
Total term deposits | $7,936 | $5,850 | $8,692 | $8,498 |
Restricted deposits represent the amount of cash pledged to secure loans payable to financial institutions and serve as collateral for public utility agreements such as electricity and water, and performance bonds related to customs duty payable. Restricted deposits are classified as non-current assets, as they relate to long-term obligations and will become unrestricted only upon discharge of the obligations. Short-term deposits represent bank deposits, which do not qualify as cash equivalents.
4. TRADE ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are customer obligations due under normal trade terms. The Company performs continuing credit evaluations of its customers’ financial conditions, and although management generally does not require collateral, letters of credit may be required from the customers in certain circumstances.
Senior management reviews accounts receivable on a periodic basis to determine if any receivables will potentially be uncollectible. Management includes any accounts receivable balances that are determined to be uncollectible in the allowance for doubtful accounts. After all reasonable attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available, management believed the allowance for doubtful accounts as of MarchDecember 31, 2020 and June 30, 20192020 was adequate.
The following table represents the changes in the allowance for doubtful accounts:
| | | | |
Beginning | $263 | $259 | $314 | $263 |
Additions charged to expenses | 338 | 94 | - | 351 |
Recovered | (270) | (84) | (15) | (284) |
Written off | (6) | - | |
Write-off | | - | (9) |
Currency translation effect | (10) | (6) | 21 | (7) |
Ending | $315 | $263 | $320 | $314 |
5. LOANS RECEIVABLE FROM PROPERTY DEVELOPMENT PROJECTS
The following table presents Trio-Tech (Chongqing) Co. Ltd (“TTCQ”)’s loan receivable from property development projects in China as of March 31, 2020. The exchange rate is based on the historical rate published by the Monetary Authority of Singapore as of March 31, 2015, since the net loan receivable was “nil” as of MarchDecember 31, 2020.
| Loan Expiry Date | | Loan Amount (RMB) | | 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 | | 307 | |
Less: allowance for doubtful receivables | | | | (2,000 | ) | | | (325 | ) | | | | (2,000 | ) | | | (307 | ) |
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 | | 767 | |
Less: transfer – down-payment for purchase of investment property | | | | (5,000 | ) | | | (814 | ) | | | | (5,000 | ) | | | (767 | ) |
Net loan receivables from property development projects | | | | - | | | - | | | | | - | | | - | |
The short-term loan receivables ofamounting to renminbi (“RMB”) 2,000, or approximately $325 based on the historical rate,$307 arose fromdue to TTCQ entering into a Memorandum Agreement with JiangHuai Property Development Co. Ltd. (“JiangHuai”) to invest in their property development projects (Project - Yu Jin Jiang An) located in Chongqing City, China in fiscal 2011. Based on TTI’s financial policy, a provision for doubtful receivables of $325$294 on the investment in JiangHuai was recorded during fiscal 2014. TTCQ did not generate other income from JiangHuai for the quarter ended MarchDecember 31, 2020 or for the fiscal year ended June 30, 2019.2020. TTCQ is in the legal process of recovering the outstanding amount of $325.approximately $307.
The long-term loan receivable ofamounting to RMB 5,000, or approximately $814 based on the historical rate,$767, arose fromdue to TTCQ entering into a Memorandum Agreement with JiaSheng Property Development Co. Ltd. (“JiaSheng”) to invest in JiaSheng’stheir property development projects (Project B-48 Phase 2) located in Chongqing City, China in fiscal 2011. The loan receivableamount was unsecured and repayable at the end of the term. The book value of the loan receivable approximates its fair value. During fiscal year 2015, the loan receivable was transferred to down payment for purchase of investment property that is being developed in the Singapore Themed Resort Project (See Note 9)8).
6. INVENTORIES
Inventories consisted of the following:
| Mar. 31, 2020 (Unaudited) | | Dec. 31, 2020 (Unaudited) | |
| | |
Raw materials | $1,300 | $1,190 | $1,153 | $1,281 |
Work in progress | 1,330 | 1,306 | 1,304 | 968 |
Finished goods | 360 | 591 | 282 | 422 |
Currency translation effect | (108) | 13 | 96 | (71) |
Less: provision for obsolete inventory | (656) | (673) | |
Less: provision for obsolete inventories | | (688) | (678) |
| $2,226 | $2,427 | $2,147 | $1,922 |
The following table represents the changes in provision for obsolete inventory:inventories:
| | | | |
| | |
Beginning | $673 | $695 | $678 | $673 |
Additions charged to expenses | 9 | 17 | 10 | 26 |
Usage – disposition | (4) | (42) | (23) | (8) |
Currency translation effect | (22) | 3 | 23 | (13) |
Ending | $656 | $673 | $688 | $678 |
7.ASSETS HELD FOR SALE
Penang Property
During the fourth quarter of fiscal year 2015, the operation in Malaysia planned to sell its factory building in Penang, Malaysia. In accordance with ASC Topic 360, during the fiscal year 2015, the property was reclassified from investment property, which had a net book value of RM 371, or approximately $98 (based on the exchange rate as of June 30, 2015 as published by the Monetary Authority of Singapore), to assets held for sale, since there was an intention to sell the factory building. In May 2015, Trio-Tech Malaysia was approached by a potential buyer to purchase the factory building. On September 14, 2015, the application to sell the property was rejected by Penang Development Corporation (PDC). The rejection was because the business activity of the purchaser was not suitable for the industry that is being promoted on said property. PDC made an offer to purchase the property, which was not at the expected value and the offer expired on March 28, 2016. No further conversations with PDC have occurred since March 2016. During the fourth quarter of fiscal year 2019, management entered into a Sales and Purchase Agreement with a potential buyer. During the second quarter of fiscal year 2020, the Company obtained approval of the sale from PDC and the local government. The sale of the property was completed at the end of the second quarter of the fiscal year 2020. The sale price was RM 5,600, or $1,340. In connection with the sale of the property located in Malaysia, the Company also incurred the direct expenses of RM 330, or $79, which included professional fees, commissions, other selling related expenses and consent fees from the local government. These expenses were directly offset against the proceeds from selling the property, as these expenses were deemed as a cost of sales. The Company recognized a net gain of RM 4,901, or $1,172, in the second quarter of fiscal year 2020 excluding capital gain tax. The tax on the capital gain in Malaysia from the sale of the property was approximately $94 computed after the taxable gain was determined.
The following table presents the Company’s assets held for sale in Malaysia as of March 31, 2020 and June 30, 2019.
| | | | |
| 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.
8. INVESTMENT PROPERTIES
The following table presents the Company’s investment in properties in China as of MarchDecember 31, 2020. The exchange rate is based on the market rate as of MarchDecember 31, 2020.
| Investment Date /
Reclassification Date | | Investment Amount (U.S. Dollars) | Investment Date / Reclassification Date | | Investment Amount (U.S. Dollars) |
Purchase of rental property – Property I – MaoYe Property | Jan 04, 2008 | 5,554 | 894 | Jan 04, 2008 | 5,554 | 894 |
Currency translation | | - | (87) | | - | (87) |
Reclassification as “Assets held for sale” | July 01, 2018 | (5,554) | (807) | July 01, 2019 | (5,554) | (807) |
Reclassification from “Assets held for sale” | Mar 31, 2019 | 2,024 | 301 | Mar 31, 2020 | 2,024 | 301 |
| | 2,024 | 301 | | 2,024 | 301 |
Purchase of rental property – Property II - JiangHuai | Jan 06, 2010 | 3,600 | 580 | Jan 06, 2010 | 3,600 | 580 |
Purchase of rental property – Property III - Fu Li | Apr 08, 2010 | 4,025 | 648 | Apr 08, 2010 | 4,025 | 648 |
Currency translation | | - | (170) | | - | (50) |
Gross investment in rental property | | 9,649 | 1,359 | | 9,649 | 1,479 |
Accumulated depreciation on rental property | Mar 31, 2020 | (6,437) | (921) | Sep 30, 2020 | (6,799) | (1,034) |
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) | |
Reclassified as “Assets held for sale”- Mao Ye Property | | July 01, 2019 | 2,822 | 410 |
Reclassification from “Assets held for sale”- Mao Ye Property | | Mar 31, 2020 | (1,029) | (143) |
| | (4,644) | (654) | | (5,006) | (767) |
Net investment in property – China | | 5,005 | 705 | | 4,643 | 712 |
The following table presents the Company’s investment in properties in China as of June 30, 2019.2020. The exchange rate is based on the market rate as of June 30, 2019.2020.
| Investment Date /
Reclassification Date | | Investment Amount (U.S. Dollars) | Investment Date / Reclassification Date | | Investment Amount (U.S. Dollars) |
Purchase of rental property – Property I – MaoYe Property | Jan 04, 2008 | 5,554 | 894 | Jan 04, 2008 | 5,554 | 894 |
Currency translation | | - | (87) | | - | (87) |
Reclassification as “Assets held for sale” | July 01, 2018 | (5,554) | (807) | July 01, 2019 | (5,554) | (807) |
Reclassification from “Assets held for sale” | Mar 31, 2019 | 2,024 | 301 | Mar 31, 2020 | 2,024 | 301 |
| | 2,024 | 301 | | 2,024 | 301 |
Purchase of rental property – Property II - JiangHuai | Jan 06, 2010 | 3,600 | 580 | Jan 06, 2010 | 3,600 | 580 |
Purchase of rental property – Property III - Fu Li | Apr 08, 2010 | 4,025 | 648 | Apr 08, 2010 | 4,025 | 648 |
Currency translation | | - | (124) | | - | (166) |
Gross investment in rental property | | 9,649 | 1,405 | | 9,649 | 1,363 |
Accumulated depreciation on rental property | June 30, 2019 | (6,075) | (890) | June 30, 2020 | (6,558) | (940) |
Reclassified as “Assets held for sale”-Mao Ye Property | July 01, 2018 | 2,822 | 410 | July 01, 2019 | 2,822 | 410 |
Reclassification from “Assets held for sale”-Mao Ye Property | Mar 31, 2019 | (1,029) | (143) | |
Reclassification from “Assets held for sale”- Mao Ye Property | | Mar 31, 2020 | (1,029) | (143) |
| | (4,282) | (623) | | (4,765) | (673) |
Net investment in property – China | | 5,367 | 782 | | 4,884 | 690 |
Rental Property I - Mao Ye Property
In fiscal 2008, TTCQ purchased an office in Chongqing, China from MaoYe Property Ltd. (“MaoYe”), for a total cash purchase price of RMB 5,554, or approximately $894. TTCQ identified a new tenant and signed a new rental agreement (653 square meters at a monthly rent of RMB 39, or approximately $6) on August 1, 2015, which expires on July 31, 2020. On April 1, 2019, a supplementary agreement was signed to revise the monthly rent to RMB 20, or approximately $3 for 403 square meters for the remaining 2 unsold units. During the fiscal year 2019, the Company sold thirteen of the fifteen units constituting the Mao Ye Property. Management has decided not to sell the remaining two units of Mao Ye properties in the near future, considering the market conditions in China.
Property purchased from MaoYe generated a rental income of $8$nil and $24 $3 dduringuring the three and ninesix months ended MarchDecember 31, 2020 respectively, as compared to $15$8 and $58$16 for the same periods, respectively, in the last fiscal year.
Depreciation expense for Mao YeMaoYe was $4 and $12$8 for the three and ninesix months ended MarchDecember 31, 2020 respectively, and $Nil for the same periods in the last fiscal year.2019, respectively.
Rental Property II - JiangHuai
In fiscal year 2010, TTCQ purchased eight units of commercial property in Chongqing, China from Chongqing JiangHuai Real Estate Development Co. Ltd. (“JiangHuai”) for a total purchase price of RMB 3,600, or approximately $580. TTCQ hadhas yet to receive the title deed for these properties. TTCQ was in the legal process of obtaining the title deed until the developer encountered cash flow difficulties in the recent years. Since then,fiscal year 2018, JiangHuai company ishas been under liquidation and is now undergoing asset distribution. Nonetheless, this is not expected to affect the property’s market value but, in view of the COVID-19 pandemic and current economic situation, it is likely to be more tedious and time-consuming for the Court in their execution of the sale.
Property purchased from JiangHuai did not generate any rental income duringfor the three and ninesix months ended MarchDecember 31, 2020 or during the same periods in the prior fiscal year.and 2019.
Depreciation expense for JiangHuai was $6$7 and $20$13 for the three and ninesix months ended MarchDecember 31, 2020 respectively, andas compared to $7 and $20$14 for the same periodsperiod in the last fiscal year.year.
Rental Property III – FuLi
In fiscal 2010, TTCQ entered into a Memorandum Agreement with Chongqing FuLi Real Estate Development Co. Ltd. (“FuLi”) to purchase two commercial properties totaling 311.99 square meters (“office space”) located in Jiang Bei District Chongqing. The total purchase price committed and paid was RMB 4,025, or approximately $648. The development was completed, and the property was handed over to TTCQ in April 2013 and the title deed was received during the third quarter of fiscal 2014.
TheOne of the two commercial properties werewas leased by TTCQ to a third partiesparty under two separate rental agreements. One of such leases providesa lease providing for a rent increase of 6% every year on May 1, commencing in 2019 until the rental agreement expiredexpires on April 30, 2021. The agreement was terminated in April 2020 due to the current slow and cautious market rental conditions. Management is still actively looking for a tenant for this property.
For the other leased property, (whichTTCQ renewed the lease expired on March 31, 2018), TTCQ signed on November 1, 2018 a rental agreement to rent out the 161 square meter space at a monthly rentrate of RMB 10,RMB10, or approximately $2, which lease was to expire on October 31, 2019. In September 2019, TTCQ renewed the lease agreement at the same monthly rent of RMB 10, or approximately $2, for a period of one year$1, from November 1, 2019.2019 to October 31, 2020.
Properties purchased from Fu Li generated a rental income of $8$4 and $25$7 for the three and ninesix months ended MarchDecember 31, 2020 respectively,as compared to $8 and $10 and $23$17 for the same periodsperiod in the last fiscal year.
Depreciation expense for Fu Li was $7 and $20$14 for the three and ninesix months ended MarchDecember 31, 2020 and 2019, respectively as compared to $6 and $7 and $20$12 for the same periodsperiod in the last fiscal year.
Summary
Total rental income for all investment properties in China was $16$7 and $49$11 for the three and ninesix months ended MarchDecember 31, 2020 respectively,as compared to $16 and $25 and $81$33 for the same periods, respectively, in the last fiscal year.
Depreciation expenses for all investment properties in China were $17$18 and $52$35 for the three and ninesix months ended MarchDecember 31, 2020, respectively, as compared to $17 and $14 and $42 for the$34 same periods, respectively, in the last fiscal year, due in part to the reclassification of the MaoYe property as noted above.year.
9.8. OTHER ASSETS
Other assets consisted of the following:
| | | | |
Down payment for purchase of investment properties * | $1,645 | $1,645 |
Down payment for purchase of property, plant and equipment | - | 100 | 144 | 8 |
Deposits for rental and utilities | 168 | 169 | 122 | 171 |
Currency translation effect | (218) | (164) | (80) | (215) |
Total | $1,595 | $1,750 | $1,831 | $1,609 |
*Down payment for purchase of investment properties included:
| | | | |
Original Investment (10% of Junzhou equity) | $10,000 | $1,606 | |
Original Investment (10% of Jun Zhou equity) | | 10,000 | 1,606 |
Less: Management Fee | (5,000) | (803) | (5,000) | (803) |
Net Investment | 5,000 | 803 | 5,000 | 803 |
Less: Share of loss on Joint Venture | (137) | (22) | |
Net Investment as Down Payment (Note *a) | 4,863 | 781 | |
Less: Share of Loss on Joint Venture | | (137) | (22) |
Net Investment as Down Payment(Note *a) | | 4,863 | 781 |
Loans Receivable | 5,000 | 814 | 5,000 | 814 |
Interest Receivable | 1,250 | 200 | 1,250 | 200 |
Less: Impairment of Interest | (906) | (150) | (906) | (150) |
Transferred to Down Payment (Note *b) | 5,344 | 864 | |
* Down Payment for Purchase of Investment Properties | 10,207 | 1,645 | |
Transferred to Down Payment(Note *b) | | 5,344 | 864 |
| | 10,207 | 1,645 |
* Down Payment for Purchase of Investment Properties
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, JunzhouJun Zhou Co., Limited (“Joint Venture” or “Junzhou”“Jun Zhou”), to jointlyjoint develop the “Singapore Themed Park” project (the “project”). The, where the Company paid RMB10RMB 10 million for the 10% investment in the joint venture. The Developer paid the Company a management fee of RMB 5RMB5 million in cash upon signing of the agreement with a remaining fee of RMB 5RMB5 million payable upon fulfilment of certain conditions in accordance with the agreement. The Company further reduced its investment by RMB 137, or approximately $22, throughtowards the losses from operations incurred by the Joint Venture.
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.joint venture. The Company recognized thatthe disposal of its 10% investment in Jun Zhou based on the recorded net book value of RMB 5RMB5 million or equivalent to US $803K, from net considerations paid, in accordance with US GAAP under ASC Topic 845 Non-monetary Consideration.ConsiderationIt is, and it’s 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,$767, 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.of the construction of the shop lots in Singapore Themed Resort Project. The initial targeted date of completion was December 31, 2016. Based on discussion with the Developer,developers, 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.
10.9. 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 MarchDecember 31, 2020, the Company had certain lines of credit that are collateralized by restricted deposits.
Entity with | | Type of | Interest | | | |
Facility | | Facility | Rate | | | |
| Type of | Interest | | | |
|
|
|
| | | | | | |
Trio-Tech International Pte. Ltd., Singapore | Lines of Credit | Ranging from 1.83% to 5.5% and SIBOR rate +1.25% | - | $4,706 | $4,706 | Lines of Credit | Ranging from 1.85% to 5.5%, SIBOR rate +1.25% and LIBOR rate +1.30% | - | $5,438 |
Trio-Tech (Tianjin) Co., Ltd. | Lines of Credit | 5.22% to 6.3% | - | $845 | $845 | |
Universal (Far East) Pte. Ltd. | Lines of Credit | Ranging from 1.85% to 5.5% | - | $398 | $- | |
Trio-Tech Malaysia Sdn. Bhd. | Revolving Credit | Cost of Funds Rate +2% | - | $346 | |
Trio-Tech International Pte. Ltd., Singapore | | Lines of Credit | Ranging from 1.85% to 5.5% | - | $378 |
Trio-Tech Malaysia Sdn. Bhd. | | Revolving Credit | Cost of Funds Rate +2%
| - | $371 |
On November 18, 2019, Trio-Tech International Pte. Ltd. signed an agreement with JECC Leasing (Singapore) Pte. Ltd. for an Accounts Receivable Financing facility for SGD 1,000, or approximately $742 based on the market exchange rate. Interest is charged at LIBOR rate +1.3% for USD financing and SIBOR rate +1.25% for SGD financing. The financing facility was set up to facilitate the working capital in our operations in Singapore. The Company started to use this facility in the second quarter of fiscal year 2020.
During the third quarter of fiscal year 2020, the credit limit offered to Trio-Tech (Tianjin) Co.,Ltd. by the Fubon Bank decreased from RMB 10,000 to RMB 6,000.
As of June 30, 2019,2020, the Company had certain lines of credit that are collateralized by restricted deposits.
Entity with | | Type of | Interest | | | |
Facility | | Facility | Rate | | | |
| Type of | Interest | | | |
|
|
|
| | | | | | |
Trio-Tech International Pte. Ltd., Singapore | Lines of Credit | Ranging from 1.85% to 5.5% | - | $4,213 | $4,213 | Lines of Credit | Ranging from 1.85% to 5.5%, SIBOR rate +1.25% and LIBOR rate +1.30% | - | $4,806 |
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 | | Ranging from 1.85% to 5.5% | - | $359 | $187 |
Trio-Tech Malaysia Sdn. Bhd. | Revolving Credit | Cost of Funds Rate +2% | - | $363 | | | - | $350 |
11.10. ACCRUED EXPENSES
Accrued expenses consisted of the following:
| | | | |
Payroll and related costs | $1,132 | $1,354 | $1,118 | $1,185 |
Commissions | 76 | 107 | 84 | 104 |
Customer deposits | 20 | 46 | 43 | 30 |
Legal and audit | 268 | 299 | 230 | 315 |
Sales tax | 11 | 9 | 13 | 19 |
Utilities | 92 | 120 | 84 | 80 |
Warranty | 38 | 39 | 11 | 12 |
Accrued purchase of materials and property, plant and equipment | 165 | 362 | 727 | 186 |
Provision for re-instatement | 300 | 302 | 376 | 300 |
Deferred income | 91 | 61 | 85 | 88 |
Contract liabilities | 646 | 501 | 579 | 476 |
Other accrued expenses | 123 | 293 | 141 | 287 |
Currency translation effect | 103 | (7) | (96) | (77) |
Total | $3,065 | $3,486 | $3,395 | $3,005 |
12.11. 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 | $39 | $82 | $12 | $39 |
(Utilization) / additions charged to cost and expenses | (2) | 15 | |
Additions charged to cost and expenses | | 1 | 1 |
Reversal | - | (58) | (2) | (27) |
Currency translation effect | 1 | - | - | (1) |
Ending | $38 | $39 | $11 | $12 |
13.12. 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 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 |
| | |
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% (3.85% at December 31, 2020 and June 30, 2020, respectively) per annum, with monthly payments of principal plus interest through August 2028, collateralized by the acquired building with a carrying value of $2,982 and $2,543, as at December 31, 2020 and June 30, 2020, respectively. | $2,015 | $2,295 |
Financing arrangement at fixed interest rate 3.2% per annum, with monthly payments of principal plus interest through July 2025. | 190 | - |
Total bank loans payable | $2,205 | $2,295 |
Current portion of bank loan payable | 395 | 494 |
Currency translation effect on current portion of bank loan | (17) | (6) |
Current portion of bank loan payable | 378 | 488 |
Long term portion of bank loan payable | 2,012 | 2,344 |
Currency translation effect on long-term portion of bank loan | (93) | (52) |
Long term portion of bank loans payable | $1,919 | $2,292 |
Current portion of bank loans payable | $418 | $384 |
Currency translation effect on current portion of bank loans | 25 | (14) |
Current portion of bank loans payable | 443 | 370 |
Long-term portion of bank loans payable | 1,787 | 1,911 |
Currency translation effect on long-term portion of bank loans | 112 | (75) |
Long-term portion of bank loans payable | $1,899 | $1,836 |
Future minimum payments (excluding interest) as at MarchDecember 31, 2020 were as follows:
Remainder of fiscal 2020 | $288 | |
2021 | 364 | |
Remainder of fiscal 2021 | | $443 |
2022 | 380 | 460 |
2023 | 397 | 478 |
2024 | 282 | 341 |
2025 | | 197 |
Thereafter | 586 | 423 |
Total obligations and commitments | $2,297 | $2,342 |
Future minimum payments (excluding interest) as at June 30, 20192020 were as follows:
2020 | $488 | |
2021 | 362 | $370 |
2022 | 380 | 384 |
2023 | 399 | 400 |
2024 | 407 | 403 |
2025 | | 158 |
Thereafter | 744 | 491 |
Total obligations and commitments | $2,780 | $2,206 |
14.13. COMMITMENTS AND CONTINGENCIES
Trio-Tech (Malaysia) Sdn. Bhd.The Company had capital commitments in China for the purchase of equipment and other related infrastructure costs amounting to RM 18,RMB 1,856, or approximately $4,$277 as at March 31, 2020 and June 30, 2019.
Trio-Tech (Tianjin) Co. Ltd. in China did not have capital commitments for the purchase of equipment and other related infrastructure costs as at MarchDecember 31, 2020, as compared to theno capital commitmentscommitment as at June 30, 2019 amounting to RMB 397, or approximately $58.
Trio-Tech (SIP) Co., Ltd. in China did not have capital commitments for the purchase of equipment and other related infrastructure costs as at March 31, 2020 and as at June 30, 2019.2020.
Deposits with banks in China are not insured by the local government or agency, and are consequently exposed to risk of loss. The Company believes the probability of a bank failure, causing loss to the Company, is remote.
The Company is, from time to time, the subject of litigation claims and assessments arising out of matters occurring in its normal business operations. In the opinion of management, resolution of these matters will not have a material adverse effect on the Company’s financial statements.
15.14. BUSINESS SEGMENTS
Although the Company operates in four segments; the testing service industry (which performs structural and electronic tests of semiconductor devices), the designing and manufacturing of equipment (which equipment tests the structural integrity of integrated circuits and other products), distribution of various products from other manufacturers in Singapore and Southeast Asia, and the real estate segment in China, theThe Company generates revenue primarily from the manufacturing, testing3 different segments: Manufacturing, Testing and distribution segments.Distribution. The Company accounts for a contract with a customer when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company’s revenues are measured based on consideration stipulated in the arrangement with each customer, net of any sales incentives and amounts collected on behalf of third parties, such as sales taxes. The revenues are recognized as separate performance obligations that are satisfied by transferring control of the product or service to the customer.
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 based on the basis of the primary purpose for which the equipment was acquired.
Significant Judgments
The Company’s arrangements with its customers include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. A product or service is considered distinct if it is separately identifiable from other deliverables in the arrangement and if a customer can benefit from it on its own or with other resources that are readily available to the customer.
The Company allocates the transaction price to each performance obligation on a relative standalone selling price basis (“SSP”). Determining the SSP for each distinct performance obligation and allocation of consideration from an arrangement to the individual performance obligations and the appropriate timing of revenue recognition are significant judgments with respect to these arrangements. The Company typically establishes the SSP based on observable prices of products or services sold separately in comparable circumstances to similar clients. The Company may estimate SSP by considering internal costs, profit objectives and pricing practices in certain circumstances.
Warranties, discounts and allowances are estimated using historical and recent data trends. The Company includes estimates in the transaction price only to the extent that a significant reversal of revenue is not probable in subsequent periods. The Company’s products and services are generally not sold with a right of return, nor has the Company experienced significant returns from or refunds to its customers.
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 considerationsconsideration stipulated in the arrangement with each customer, net of any sales incentives and amounts collected on behalf of third parties, such as sales taxes.
The Company recognizes revenue at a point in time when the Company has satisfied its performance obligation by transferring control of the product to the customer. The Company uses judgment to evaluate whether the control has transferred by considering several indicators, including:
●
whether the Company has a present right to payment;
●
the customer has legal title;
●
the customer has physical possession;
●
the customer has significant risk and rewards of ownership; and
●
the customer has accepted the product, or whether customer acceptance is considered a formality based on history of acceptance of similar products (for example, when the customer has previously accepted the same equipment, with the same specifications, and when we can objectively demonstrate that the tool meets all of the required acceptance criteria, and when the installation of the system is deemed perfunctory).
Not all of the indicators need to be met for the Company to conclude that control has transferred to the customer. In circumstances in which revenue is recognized prior to the product acceptance, the portion of revenue associated with its performance obligations of product installation and training services are deferred and recognized upon acceptance.
The majority of sales under the Manufacturing segment include a standard 12-month warranty. The Company has concluded that the warranty provided for standard products are assurance type warranties and are not separate performance obligations. Warranty provided for customized products are service warranties and are separate performance obligations. Transaction prices are allocated to this performance obligation using cost plus method. The portion of revenue associated with warranty service is deferred and recognized as revenue over the warranty period, as the customer simultaneously receives and consumes the benefits of warranty services provided by the Company.
Testing
The Company renderedrenders testing services to manufacturers and purchasers of semiconductors and other entities who either lack testing capabilities or whose in-house screening facilities are insufficient. The Company primarily derives testing revenue from burn-in services, manpower supply and other associated services. SSP is directly observable from the sales orders. Revenue is allocated to performance obligations satisfied at a point in time depending upon terms of the sales order. Generally, there is no other performance obligation other than what has been stated inside the sales order for each of these sales.
Terms of contract that may indicate potential variable consideration includedinclude warranty, late delivery penalty and reimbursement to solve non-conformance issues for rejected products. Based on historical and recent data trends, it is concluded that these terms of the contract do not represent potential variable consideration. The transaction price is not contingent on the occurrence of any future event.
Distribution
The Company distributes complementary products, particularly equipment, industrial products and components by manufacturers mainly from the U.S., Europe, Taiwan and Japan. The Company recognizes revenue from product sales at a point in time when the Company has satisfied its performance obligation by transferring control of the product to the customer. The Company uses judgment to evaluate whether the control has transferred by considering several indicators discussed above. The Company recognizes the revenue at a point in time, generally upon shipment or delivery of the products to the customer or distributors, depending upon terms of the sales order.
All inter-segment revenue was from the manufacturing segment to the testing and distribution segments. Total inter-segment revenue was $36$375 for the three months ended MarchDecember 31, 2020, as compared to $15$36 for the same period in the last fiscal year. Corporate assets mainly consisted of cash and prepaid expenses. Corporate expenses mainly consisted of stock option expenses, salaries, insurance, professional expenses and directors' fees. Corporate expenses are allocated to the four segments. The following segment information table includes segment operating income or loss after including the corporate expenses allocated to the segments, which gets eliminated in the consolidation.
The following segment information is un-auditedunaudited for the ninesix months ended MarchDecember 31, 2020 and MarchDecember 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 a discontinued operation. | Six Months Ended Dec. 31, | | | | | |
Manufacturing | 2020 | $6,194 | $63 | $ 11,739 | $212 | $154 |
| 2019 | $6,362 | $(99) | $ 10,542 | $196 | $ 35 |
| | | | | | |
Testing Services | 2020 | 6,514 | (673) | 21,900 | 1,222 | 63 |
| 2019 | 8,277 | (93) | 23,314 | 1,344 | 709 |
| | | | | | |
Distribution | 2020 | 2,323 | 244 | 802 | - | - |
| 2019 | 4,113 | 392 | 802 | 2 | - |
| | | | | | |
Real Estate | 2020 | 11 | (61) | 3,846 | 35 | - |
| 2019 | 33 | (52) | 3,650 | 34 | - |
| | | | | | |
Fabrication | 2020 | - | - | - | - | - |
Services * | 2019 | - | - | 27 | - | - |
| | | | | | |
Corporate & | 2020 | - | 63 | 76 | - | - |
Unallocated | 2019 | - | (99) | 120 | - | - |
| | | | | | |
Total Company | 2020 | $15,042 | $ (364) | $ 38,363 | $ 1,469 | $217 |
| 2019 | $18,785 | $ 49 | $ 38,455 | $1,576 | $744 |
The following segment information is un-auditedunaudited for the three monthmonths ended MarchDecember 31, 2020 referenced below:and December 31, 2019:
Business Segment Information:
| Three Months Ended Mar. 31, | | | | | | Three Months Ended Dec. 31, | | | | | |
| | $2,519 | (102) | 9,871 | 101 | 89 | 2020 | $3,569 | $81 | $ 11,739 | $110 | $87 |
| 2019
| $3,097 | $(8) | $9,205 | $30 | $39 | 2019 | $3,045 | $(87) | $ 10,542 | $149 | $ 16 |
| | | | | �� | |
| 2020
| 3,741 | (447) | 22,332 | 655 | 15 | 2020 | 3,560 | (336) | 21,900 | 636 | 41 |
| 2019
| 3,989 | (17) | 22,842 | 588 | 239 | 2019 | 3,887 | (161) | 23,314 | 751 | 189 |
| | | | |
| 2020 | 2,225 | 207 | 869 | 1 | - | 2020 | 1,065 | 120 | 802 | - |
| 2019 | 1,727 | 150 | 780 | - | 2019 | 2,014 | 188 | 802 | 1 | - |
| | | | |
| 2020 | 16 | (30) | 3,584 | 17 | | 2020 | 7 | (34) | 3,846 | 20 | - |
| 2019 | 25 | (13) | 3,914 | 14 | - | 2019 | 16 | (35) | 3,650 | 17 | - |
| | | | |
| 2020 | - | 23 | - | 2020 | - | - | - |
| 2019 | - | 26 | - | 2019 | - | 27 | - |
|
| | | |
| 2020 | - | 5 | 117 | - | 2020 | - | 132 | 76 | - |
| 2019 | - | 11 | 233 | - | 2019 | - | (78) | 120 | - |
|
| | | |
Total Company | | 2020 | $8,201 | $(37) | $ 38,363 | $ 766 | $ 128 |
| | $8,501 | $(367) | $36,796 | $774 | $104 | 2019 | $8,962 | $(173) | $ 38,455 | $ 918 | $205 |
| | $8,838 | $123 | $37,000 | $632 | $278 | |
* Fabrication services is a discontinued operation.
1615. OTHER INCOME
Other income consisted of the following:
| | | | |
| | |
| | | | | | | | |
| | |
Interest income | 46 | 31 | 130 | 67 | $30 | $52 | $70 | $84 |
Other rental income | 30 | 28 | 90 | 84 | 24 | 30 | 45 | 60 |
Government grant | 266 | 38 | 295 | 115 | |
Exchange loss | 94 | (11) | 33 | (78) | (93) | (66) | (137) | (61) |
Bad debt recovery | - | 11 | 2 | - | 11 |
Dividend income | | 30 | - | 32 | - |
Government grant | | 106 | - | 260 | - |
Other miscellaneous income | 4 | 42 | 31 | 30 | 46 | 24 | 84 | 56 |
Total | $440 | $128 | $590 | $220 | $143 | $40 | $354 | $150 |
During the third quarter of fiscal year 2020, theThe Company received government grants amounting to $266, of which $263 were the financial assistance receivedin the form of government grants from the Singapore and ChinaMalaysia governments amid the COVID-19 pandemic. The Company believes that, as with other business entities in Singaporegrants amounted to $101 and China, it will receive additional government assistance$243 for a period to ease the financial impact caused by the pandemic.three and six months ended December 31, 2020, respectively.
17.16. 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 20192020 for tax authorities in those jurisdictions to audit or examine income tax returns. The Company is under annual review by the tax authorities of the respective jurisdiction to which the subsidiaries belong.
The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017, and reduced the U.S. federal corporate tax rate from 35% to 21%, eliminated corporate Alternative Minimum Tax, modified rules for expensing capital investment, and limited the deduction of interest expense for certain companies. The Act is a fundamental change to the taxation of multinational companies, including a shift from a system of worldwide taxation with some deferral elements to a territorial system, current taxation of certain foreign income, a minimum tax on low tax foreign earnings, and new measures to curtail base erosion and promote U.S. production.
Due to the enactment of the Tax Act, the Company is subject to a tax on global intangible low-taxed income (“GILTI”). GILTI is a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. Companies subject to GILTI have the option to account for the GILTI tax as a period cost if and when incurred, or to recognize deferred taxes for temporary differences including outside basis differences expected to reverse as GILTI. The Company has elected to account for GILTI as a period cost. GILTI expense was $nil for the period ended December 31, 2020.
The Company's income tax benefitexpense was $8$nil and $7 for the three3 months and 6 months ended MarchDecember 31, 2020, respectively as compared to an income tax expense of $209$120 for the same period of the last fiscal year.both 3 months and 6 months ended December 31, 2019. Our effective tax rate (“ETR”) from continuing operations was negative 80%0% and 24%12% for the quarters ended MarchDecember 31, 2020 and MarchDecember 31, 2019, respectively. The following items causedquarterly ETR is significantly different due to there was a capital gain tax of $94 arising from the significant change in the quarterly ETR:
1).
Duringsale of an asset held for sale during the three months ended MarchDecember 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.
2019.
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 MarchDecember 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.
18.17. CONTRACT BALANCES
The timing of revenue recognition, billings and collections may result in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities). The Company’s payment terms and conditions vary by contract type, although terms generally include a requirement of payment of 70% to 90% of total contract consideration within 30 to 60 days of shipment with the remainder payable within 30 days of acceptance. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that its contracts generally do not include a significant financing component.
Contract assets were recorded under other receivablesreceivable while contract liabilities were recorded under accrued expenses in the balance sheet.
The following table is the reconciliation of contract balances.
| | | Dec. 31, 2020 (Unaudited) | |
Trade Accounts Receivable | 6,397 | 7,113 | 7,581 | 5,951 |
Accounts Payable | 3,129 | 3,272 | 3,103 | 2,590 |
Contract Assets | 392 | 419 | 360 | 216 |
Contract Liabilities | 646 | 501 | 579 | 476 |
Remaining Performance Obligation
As at MarchDecember 31, 2020, the Company had $826$696 of remaining performance obligations, which represents our obligation to deliver products and services. Given the profile of contract terms, approximately 53.366.7 percent of this amount is expected to be recognized as revenue over the next two years, whilewith the remaining of the amount is expected to be recognized between three and five years.
Refer to note 1514 “Business Segments” of the Notes to Condensed Consolidated Financial Statements for information related to revenue.
19.18. EARNINGS PER SHARE
In accordance withThe Company adopted 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 763,500724,500 shares of Common Stock at exercise prices ranging from $2.53 to $5.98 per share were outstanding as of MarchDecember 31, 2020. 212,500 stock options were excluded in the computation of diluted EPS for fiscal yearthe three months ended December 31, 2020 because they were anti-dilutive.
Options to purchase 517,500623,500 shares of Common Stock at exercise prices ranging from $2.69 to $5.98 per share were outstanding as of MarchDecember 31, 2019. 110,000188,125 stock options were excluded in the computation of diluted EPS for fiscal yearthree months ended December 31, 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 period presented herein:
| | | | |
| | | | | | |
| | | | | | | | |
| | | | |
| | | |
Income attributable to Trio-Tech International common shareholders from continuing operations, net of tax | $81 | $682 | $780 | $1,097 | $246 | $425 | $241 | $699 |
(Loss) / Income attributable to Trio-Tech International common shareholders from discontinued operations, net of tax | (11) | 1 | (11) | (1) | |
Net Income Attributable to Trio-Tech International Common Shareholders | $70 | $683 | $769 | $1,096 | |
Income / (loss) attributable to Trio-Tech International common shareholders from discontinued operations, net of tax | | (11) | 1 | (14) | - |
Net income attributable to Trio-Tech International Common Shareholders | | $235 | $426 | $227 | $699 |
| | | |
Weighted average number of common shares outstanding - basic | 3,673 | 3,710 | 3,673 | 3,710 | 3,673 |
| | | |
Dilutive effect of stock options | 86 | 12 | 61 | 73 | 90 | 52 | 83 | 33 |
Number of shares used to compute earnings per share - diluted | 3,759 | 3,685 | 3,734 | 3,746 | 3,800 | 3,725 | 3,793 | 3,706 |
| | | |
Basic earnings per share from continuing operations attributable to Trio-Tech International | $0.02 | 0.19 | 0.21 | 0.30 | $0.06 | 0.12 | 0.06 | 0.19 |
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 | |
Basic earnings per share from net income attributable to Trio-Tech International | | $0.06 | $0.12 | $0.06 | $0.19 |
| | | |
Diluted earnings per share from continuing operations attributable to Trio-Tech International | $0.02 | 0.19 | 0.21 | 0.29 | $0.06 | 0.11 | 0.06 | 0.19 |
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 | |
Diluted earnings per share from net income attributable to Trio-Tech International | | $0.06 | $0.11 | $0.06 | $0.19 |
20.19. 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, | Six Months Ended December 31, |
| | | | |
Expected volatility | | | | |
Risk-free interest rate | | | | |
Expected life (years) | 2.5-3.25 | 2.50 – 3.25 | 0.25 - 4.51 | 2.5 - 3.25 |
The expected volatilities are based on the historical volatility of the Company’s stock. Due to higherlower volatility, the observation is made on a daily basis for the three months ended MarchDecember 31, 2020. The observation period covered is consistent with the expected life of options. The expected life of the options granted to employees has been determined utilizing the “simplified” method as prescribed by ASC Topic 718 Stock Based Compensation, which, among other provisions, allows companies without access to adequate historical data about employee exercise behavior to use a simplified approach for estimating the expected life of a "plain vanilla" option grant. The simplified rule for estimating the expected life of such an option is the average of the time to vesting and the full term of the option. The risk-free rate is consistent with the expected life of the stock options and is based on the United States Treasury yield curve in effect at the time of grant.
2017 Employee Stock Option Plan
The Company’s 2017 Employee Plan permits the grant of stock options to its employees covering up to an aggregate of 300,000 shares of Common Stock. Under the 2017 Employee Plan, all options must be granted with an exercise price of not less than fair value as of the grant date and the options granted must be exercisable within a maximum of ten years after the date of grant, or such lesser period of time as is set forth in the stock option agreements. The options may be exercisable (a) immediately as of the effective date of the stock option agreement granting the option, or (b) in accordance with a schedule related to the date of the grant of the option, the date of first employment, or such other date as may be set by the Compensation Committee. Generally, options granted under the 2017 Employee Plan are exercisable within five years after the date of grant, and vest over the period as follows: 25% vesting on the grant date and the remaining balance vesting in equal installments on the next three succeeding anniversaries of the grant date. The share-based compensation will be recognized in terms of the grade method on a straight-line basis for each separately vesting portion of the award. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the 2017 Employee Plan).
During the third quarter first two quarters of fiscal year 2021, there were stock options granted under the 2017 Employee Plan covering a total of 11,000 shares of Common Stock. There were no stock options exercised during the six month period ended December 31, 2020. The Company recognized $15 stock-based compensation expenses during the six months ended December 31, 2020.
During the first two quarters of fiscal year 2020, the Company granteddid not grant any 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 monthsix-month period ended MarchDecember 31, 2020.2019. The Company recognized $28$14 stock-based compensation expenses during the ninesix months ended MarchDecember 31, 2020.
During the third quarter of fiscal year 2019, the Company granted options to purchase 16,000 shares of its Common Stock to employees pursuant to the 2017 Employee Plan. There were no stock options exercised during the nine-month period ended March 31, 2019. The Company recognized $11 stock-based compensation expenses during the nine months ended March 31, 2019.
As of MarchDecember 31, 2020, there were vested stock options granted under the 2017 Employee Plan covering a total of 83,000104,750 shares of Common Stock. The weighted-average exercise price was $4.65$4.40 and the weighted average remaining contractual term was 3.602.96 years.
As of MarchDecember 31, 2019, there were vested stock options granted under the 2017 Employee Plan covering a total of 34,00053,000 shares of Common Stock. The weighted-average exercise price was $5.72$4.88 and the weighted average remaining contractual term was 4.063.63 years.
A summary of option activities under the 2017 Employee Plan during the nine monthsix months period ended MarchDecember 31, 2020 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, 2019 | 136,000 | $4.53 | 4.28 | $- | |
Outstanding at July 1, 2020 | | 196,000 | $3.92 | 3.72 | $36.00 |
Granted | 60,000 | 2.53 | 4.98 | - | 11,000 | 3.73 | - |
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 | |
Outstanding at December 31, 2020 | | 207,000 | $3.91 | 3.31 | $132.49 |
Exercisable at December 31, 2020 | | 104,750 | $4.40 | 2.96 | $45.00 |
A summary of the status of the Company’s non-vested employee stock options granted under the 2017 Employee Plan during the ninesix months ended MarchDecember 31, 2020 is presented below:
| | Weighted Average Grant-Date Fair Value | | Weighted Average Grant-Date Fair Value |
| | |
Non-vested at July 1, 2019 | 87,000 | $4.28 | |
Non-vested at July 1, 2020 | | 98,000 | $3.39 |
Granted | 60,000 | 2.53 | 11,000 | - |
Vested | (34,000) | 4.19 | (6,750) | - |
Forfeited | - | | - |
Non-vested at March 31, 2020 | 113,000 | $3.37 | |
Non-vested at December 31, 2020 | | 102,250 | $3.40 |
| | |
A summary of option activities under the 2017 Employee Plan during the nine monthsix months period ended MarchDecember 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 | 60,000 | $5.98 | 4.73 | $- | |
Outstanding at July 1, 2019 | | 136,000 | $4.53 | 4.28 | $- |
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 | - | |
Outstanding at December 31, 2019 | | 136,000 | $4.53 | 3.77 | $46.44 |
Exercisable at December 31, 2019 | | 53,000 | $4.88 | 3.63 | $12.57 |
A summary of the status of the Company’s non-vested employee stock options granted under the 2017 Employee Plan during the ninesix months ended MarchDecember 31, 2019 is presented below:
| | Weighted Average Grant-Date Fair Value | | Weighted Average Grant-Date Fair Value |
| | |
Non-vested at July 1, 2018 | 45,000 | $5.98 | |
Non-vested at July 1, 2019 | | 87,000 | $4.28 |
Granted | 16,000 | 3.75 | - |
Vested | (19,000) | (5.72) | (4,000) | - |
Forfeited | - | - | - |
Non-vested at March 31, 2019 | 42,000 | $5.34 | |
| | |
Non-vested at December 31, 2019 | | 83,000 | $4.30 |
2007 Employee Stock Option Plan
The 2007 Employee Plan terminated by its terms on September 24, 2017 and no further options may be granted thereunder. However, the options outstanding thereunder continue to remain outstanding and in effect in accordance with their terms. The 2007 Employee Plan permitted the issuance of options to employees.
As the 2007 Plan has terminated, the Company did not grant any options pursuant to the 2007 Employee Plan during the ninesix months ended MarchDecember 31, 2020 and MarchDecember 31, 2019 respectively.
There were no options exercised during the ninesix months ended MarchDecember 31, 2020. There were 50,000 shares of options exercised during the nine months ended March2020 and December 31, 2019. The Company did not recognize any stock-based compensation expenses during the ninesix months ended MarchDecember 31, 2020. The Company recognized stock-based compensation expenses of $1 in the nine months ended March2020 and December 31, 2019 under the Employee Plan.2019.
As of March December 31, 2020, there were vested stock options granted under the 2007 Employee Plan covering a total of 77,500 shares of Common Stock. The weighted-average exercise price was $3.69 and the weighted average remaining contractual term was 1.460.71 years.
As of MarchDecember 31, 2019, there were vested employee stock options granted under the 2007 Employee Plan covering a total of 68,125 shares of Common Stock. The weighted-average exercise price was $3.62 and the weighted average remaining contractual term was 2.401.64 years.
A summary of option activities under the 2007 Employee Plan during the nine months ended March 31, 2020 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 under the 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 ninesix months ended MarchDecember 31, 2020 is presented as follows:
| | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | |
Outstanding at July 1, 2020 | 77,500 | $3.69 | 1.22 | $- |
Granted | - | - | - | - |
Exercised | - | - | - | - |
Forfeited or expired | - | - | - | - |
Outstanding at December 31, 2020 | 77,500 | $3.69 | 0.71 | $28.00 |
Exercisable at December 31, 2020 | 77,500 | $3.69 | 0.71 | $28.00 |
There were no non-vested employee stock options during the six months ended December 31, 2020.
A summary of option activities under the 2007 Employee Plan during the six months ended December 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 | 127,500 | $3.52 | 2.10 | $121 | |
| | |
Outstanding at July 1, 2019 | | 77,500 | $3.69 | 2.22 | $- |
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 | $- | |
Outstanding at December 31, 2019 | | 77,500 | 3.69 | 1.71 | $29.20 |
Exercisable at December 31, 2019 | | 68,125 | $3.62 | 1.64 | $29.20 |
A summary of the status of the Company’s non-vested employee stock options under the 2007 Employee Plan during the ninesix months ended MarchDecember 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 | |
Non-vested at July 1, 2019 | | 9,375 | $4.14 |
Granted | - | - |
Vested | (19,375) | (4.14) | - |
Forfeited | - | - | - |
Non-vested at March 31, 2019 | 9,375 | $4.14 | |
| | |
Non-vested at December 31, 2019 | | 9,375 | $4.14 |
2017 Directors Equity Incentive Plan
The 2017 Directors Plan permits the grant of options covering up toinitially covered an aggregate of 300,000 shares of Common Stockthe Company’s common stock. The Company’s board of directors approved an amendment to the 2017 Directors Plan in September 2020 to increase the shares covered thereby from 300,000 shares to an aggregate of 600,000 shares, which amendment was approved by the Company’s shareholders at the annual meeting held in December 2020. The 2017 Directors Plan permits the grant of options to its directors in the form of non-qualified options and restricted stock. The exercise price of the non-qualified options is required to be 100% of the fair value of the underlying shares on the grant date. The options have five-year contractual terms and are exercisable immediately as of the grant date.
During the third quarterfirst two quarters of fiscal year 2020,2021, the Company granteddid not grant any 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 ninesix months ended MarchDecember 31, 2020. The Company recognizeddid not recognize any stock-based compensation expenses of $24 induring the ninesix months ended MarchDecember 31, 2020 under the 2017 Directors Plan.2020.
During the first threetwo quarters of fiscal year 2019,2020, the Company did not grant any options pursuant to the 2017 Directors Plan. There were no stock options exercised during the ninesix months ended MarchDecember 31, 2019. The Company did not recognize any stock-based compensation expenses during the ninesix months ended MarchDecember 31, 2019.
As all of the stock options granted under the 2017 Directors Plan vest immediately on the date of grant, there were no unvested stock options granted under the 2017 Directors Plan as of MarchDecember 31, 2020.2020 or December 31, 2019.
As of MarchDecember 31, 2020, there were vested stock options granted under the 2017 Directors Plan covering a total of 240,000 shares of Common Stock. The weighted-average exercise price was $3.93 and the weighted average remaining contractual term was 43.24 years.
As of MarchDecember 31, 2019, there were vested stock options granted under the 2017 Directors Plan covering a total of 80,000160,000 shares of Common Stock. The weighted-average exercise price was $5.98$4.63 and the weighted average remaining contractual term was 3.983.75 years.
A summary of option activities under the 2017 Directors Plan during the ninesix months ended MarchDecember 31, 2020 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, 2019 | 160,000 | $4.63 | 4.25 | $- | |
Outstanding at July 1, 2020 | | 240,000 | $3.93 | 3.75 | $48.00 |
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 | |
Outstanding at December 31, 2020 | | 240,000 | $3.93 | 3.24 | $168.80 |
Exercisable at December 31, 2020 | | 240,000 | $3.93 | 3.24 | $168.80 |
A summary of option activities under the 2017 Directors Plan during the ninesix months ended MarchDecember 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 | $- | |
Outstanding at July 1, 2019 | | 160,000 | $4.63 | 4.25 | $- |
Granted | - | - |
Exercised | - | - |
Forfeited or expired | - | - | - |
Outstanding at March 31, 2019 | 80,000 | 5.98 | 3.98 | $- | |
Exercisable at March 31, 2019 | 80,000 | 5.98 | 3.98 | $- | |
Outstanding at December 31, 2019 | | 160,000 | $4.63 | 3.75 | $56.80 |
Exercisable at December 31, 2019 | | 160,000 | $4.63 | 3.75 | $56.80 |
2007 Directors Equity Incentive Plan
The 2007 Directors Plan terminated by its terms on September 24, 2017 and no further options may be granted thereunder. However, the options outstanding thereunder continue to remain outstanding and in effect in accordance with their terms. The 2007 Directors Plan permitted the issuance of options to directors.
As the 2007 Plan has terminated, the Company did not grant any options pursuant to the 2007 DirectorDirectors Plan during the ninesix months ended MarchDecember 31, 2020 and MarchDecember 31, 2019.
There were no50,000 shares of stock options were exercised during the ninesix months ended MarchDecember 31, 2020. The Company did not recognize any stock-based compensation expenses during the ninesix months ended MarchDecember 31, 2020.
There were 70,000no stock options exercised during the ninesix months ended MarchDecember 31, 2019. The Company did not recognize any stock-based compensation expenses during the ninesix months ended MarchDecember 31, 2019.
As of MarchDecember 31, 2020, there were vested stock options granted under the 2007 Directors Plan covering a total of 200,000 shares of Common Stock. The weighted-average exercise price was $3.48 and the weighted average remaining contractual term was 0.47 years.
As of December 31, 2019, there were vested stock options granted under the 2007 Directors Plan covering a total of 250,000 shares of Common Stock. The weighted-average exercise price was $3.32 and the weighted average remaining contractual term was 1.081.33 years.
As of March 31, 2019, there were vested stock options granted under the 2007 Directors Plan covering a total of 300,000 shares of Common Stock. The weighted-average exercise price was $3.40 and the weighted average remaining contractual term was 1.83 years.
A summary of option activities under the 2007 Directors Plan during the nine months ended March 31, 2020 is presented as follows:
| | 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 ninesix months ended MarchDecember 31, 2020 is presented as follows:
| | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | |
| | | | |
Outstanding at July 1, 2020 | 250,000 | $3.32 | 0.83 | $22.00 |
Granted | - | - | - | - |
Exercised | (50,000) | 2.69 | - | - |
Forfeited or expired | - | - | - | - |
Outstanding at December 31, 2020 | 200,000 | $3.48 | 0.47 | $105.00 |
Exercisable at December 31, 2020 | 200,000 | $3.48 | 0.47 | $105.00 |
A summary of option activities under the 2007 Directors Plan during the six months ended December 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 | 390,000 | $3.41 | 2.05 | $412 | |
Outstanding at July 1, 2019 | | 300,000 | $3.40 | 1.58 | $9.00 |
Granted | - | - |
Exercised | (70,000) | 3.39 | - | - |
Forfeited or expired | (20,000) | (3.62) | - | (50,000) | (3.81) | - |
Outstanding at March 31, 2019 | 300,000 | $3.40 | 1.83 | $- | |
Exercisable at March 31, 2019 | 300,000 | $3.40 | 1.83 | $- | |
Outstanding at December 31, 2019 | | 250,000 | $3.32 | 1.33 | $174.50 |
Exercisable at December 31, 2019 | | 250,000 | $3.32 | 1.33 | $174.50 |
21.20. LEASES
Company as Lessor
Operating leases under which the Company is thewhere we are lessor arise from the leasing of the Company’s commercial and residential real estate investment property to third parties.property. 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 was were $17 and $52$18 for both the three and nine3 months ended MarchDecember 31, 2020 respectively, and $14 and $42 for the same periods in the last fiscal year.December 31, 2019.
Future minimum rental income in China and Thailand to be received from fiscal year 20202021 to fiscal year 20212022 on non-cancellablenon-cancelable operating leases is contractually due as follows as of MarchDecember 31, 2020:
Remainder of fiscal 2020 | $152 | |
2021 | $549 | $68 |
2022 | | 110 |
| $701 | $178 |
Future minimum rental income in China and Thailand to be received from fiscal year 20202021 to fiscal year 20212022 on non-cancellablenon-cancelable operating leases is contractually due as follows as of June 30, 2019:2020:
2020 | $93 | |
2021 | $6 | $120 |
2022 | | 114 |
| $99 | $234 |
Company as Lessee
The Company hasis the lessee under 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 iswas 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
|
| | |
Finance Leases (Plant and Equipment) | | |
Plant and equipment, at cost | $1,880 | $1,372 |
Accumulated depreciation | (864) | (526) |
Plant and Equipment, Net | $1,016 | $846 |
| | |
Current portion of finance leases | 227 | 231 |
Net of current portion of finance leases | 353 | 435 |
Total Finance Lease Liabilities | $580 | $666 |
| | |
Operating Leases (Corporate Offices, Research and Development Facilities) | | |
Operating lease right-of-use assets | 1,514 | 944 |
Current portion of operating leases | 562 | 477 |
Net of current portion of operating leases | 952 | 467 |
Total Operating Lease Liabilities | $1,514 | $944 |
| | |
| | | |
| | | | |
| | | | | |
| 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 | |
Interest on finance lease | | $8 | $3 | $20 | $24 |
Amortization of right-of -use assets | | 63 | 69 | 125 | 136 |
Total finance lease cost | | $71 | $72 | $145 | $160 |
| | |
Operating Lease Costs
| $167 | $526 | $189 | $184 | $375 | $359 |
Other information related to leases werewas 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%
|
| | |
| | |
| | |
| | |
Cash Paid for Amounts Included in the Measurement of Lease Liabilities | | |
Operating cash flows from finance leases | $19 | $24 |
Operating cash flows from operating leases | $375 | $359 |
Finance cash flows from finance leases | $- | $127 |
Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities | 847 | - |
Weighted-Average Remaining Lease Term: | | |
Finance leases | 3.31 | 3.67 |
Operating leases | 2.97 | 0.97 |
Weighted-Average Discount Rate: | | |
Finance leases | 3.36% | 3.43% |
Operating leases | 4.72% | 3.25% |
As of MarchDecember 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:
| | Operating Lease Liabilities | |
Fiscal Year | Operating Lease Liabilities | Finance Lease Liabilities | |
2020 | $620 | $283 | |
2021 | 216 | 187 | |
Remainder of 2021 | | $625 | $137 |
2022 | 47 | 143 | 519 | 220 |
2023 | 1 | 68 | 235 | 141 |
2024 | - | 44 | 151 | 114 |
2025 | | 114 | 22 |
Total future minimum lease payments | $884 | $725 | 1,644 | 634 |
Less: amount representing interest | | (130) | (54) |
Present value of net minimum lease payments | | $1,514 | $580 |
| | |
Presentation on statement of financial position | | |
Current | | $562 | $227 |
Non-current | | $952 | $353 |
22.As of June 30, 2020, future minimum lease payments under finance leases and non-cancelable operating leases were as follows:
| Operating Lease Liabilities | |
Fiscal Year | | |
2021 | $509 | $265 |
2022 | 317 | 211 |
2023 | 168 | 133 |
2024 | - | 107 |
2025 | - | 20 |
Total future minimum lease payments | 994 | 736 |
Less: amount representing interest | (50) | (70) |
Present value of net minimum lease payments | $944 | $666 |
Presentation on statement of financial position | | |
Current | $477 | 231 |
Non-current | $467 | 435 |
21. 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 ninethree months ended MarchDecember 31, 2020 and 2019.
Term deposits (Level 2) – The carrying amount approximates fair value because of the short maturity of these instruments.
Restricted term deposits (Level 2) – The carrying amount approximates fair value because of the short maturity of these instruments.
PPP loan (Level 2) – The carrying amount approximates its fair value based on similar short-term debt issues available to the Company.
Lines of credit (Level 3) – The carrying value of the lines of credit approximates fair value due to the short-term nature of the obligations.
Bank loans payable (Level 3) – The carrying value of the Company’s bank loanloans 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
22. PAYCHECK PROTECTION PROGRAM LOAN
The Coronavirus Aid, Relief, and Economic Security (CARES) Act created the Paycheck Protection Program (PPP) to provide certain small businesses with liquidity to support their operations during the COVID-19 pandemic. The PPP is a loan program designed to provide a direct incentive for small businesses to keep their employees on payroll.
The loans have a 1% fixed interest rate and are due in two years with payment deferred for the first six months. However, they are eligible for forgiveness (in full or in part, including any accrued interest) under certain conditions and are subject to audit by the U.S. government. The loans will be forgiven if the loan proceeds were used for eligible purposes, including payroll, benefits, rent and utilities, and the Company maintained its payroll levels for eight weeks.
In May 2020, the Company received loan proceeds in the amount of approximately $121 under the PPP. The Company accounted for the PPP loan as a financial liability in accordance with Accounting Standards Codification (ASC) 470 Debt after considering the accounting guidancefollowing aspects: (1) the legal form of a PPP loan is debt regardless of whether the Company expects the loan to be forgiven (2) given the degree of uncertainty and complexity surrounding the PPP loan forgiveness process, this may impact a Company’s initial assessment.
Under ASC 470, the Company recognizes a liability for property, plantthe full amount of PPP proceeds received and equipment, assets are measured ataccrues interest over the lowerterm of the carrying value or fair value less costsloan. No additional interest was imputed at a market rate because the guidance on imputing interest in ASC 835-30 excludes transactions where interest rates are prescribed by a government agency. If any amount is ultimately forgiven (i.e., the Company is legally released from being the loan’s primary obligor in accordance with ASC 405-20), income from the extinguishment of the liability would be recognized in the income statement as a gain on loan extinguishment. The Company intended to sell. As a resultuse the proceeds for purposes consistent with the PPP. Hence, the Company expects that its use of onethe loan proceeds will meet the conditions for forgiveness of our customer’s products coming to the endloan. In considering the term of its product burn-in cycle earlier than expected,the loan and payment deferred portion, the Company determined that the carrying valueloan would be presented as a current portion of $121 in 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.balance sheet.
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-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 2. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Overview
The following should be read in conjunction with the condensed consolidated financial statements and notes in Item I above and with the audited consolidated financial statements and notes, the information under the headings “Risk Factors” and “Management’s discussion and analysis of financial condition and results of operations” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019.2020.
Trio-Tech International (“TTI”) was incorporated in 1958 under the laws of the State of California. As used herein, the term “Trio-Tech” or “Company” or “we” or “us” or “Registrant” includes Trio-Tech International and its subsidiaries unless the context otherwise indicates. Our mailing address and executive offices are located at Block 1008 Toa Payoh North, Unit 03-09 Singapore 318996, and our telephone number is (65) 6265 3300.
The Company primarily is a provider of reliability test equipment and services to the semiconductor industry. Our customers rely on us to verify that their semiconductor components meet or exceed the rigorous reliability standards demanded for aerospace, communications and other electronics products.
TTI generated approximately 99.8%99.9% 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 MarchDecember 31, 2020. The real estateReal Estate segment contributed only 0.2%0.1% to the total revenue and was immaterial toduring the overall business.three months ended December 31, 2020.
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 there, and investment returns from deemed loan receivables, which are classified as other income. The rental income is generated from the rental properties in MaoYe and FuLi in Chongqing, China. In the second quarter of fiscal 2015, the investment in JiaSheng, which was deemed as loans receivable, was transferred to down payment for purchase of investment property in China.
Impairment Loss on Long-Lived Asset
During the third quarter of2020, 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 beganIn December 2019, a novel strain of coronavirus (“COVID-19”), was reported to affect our businesshave surfaced in China, resulting in shutdowns of manufacturing and commerce in the three months ended March 31, 2020. During early calendar year2020,that followed. Since then, the Chinese Government took emergencyCOVID-19 pandemic has spread to multiple countries worldwide and has resulted in authorities implementing numerous measures to combattry to contain the disease and slow its spread, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns. These measures have created significant uncertainty and economic disruption, both short-term and potentially long-term.
The health and safety of our employees and our customers are a top priority for us. In an effort to protect our employees, we took and continue to take proactive and aggressive actions, starting with the earliest signs of the virus,outbreak, to adopt social distancing policies at our locations, including an extensionworking from home and suspending employee travel. Our operations have been classified as part of the Lunar New Year holidays. Inglobal supply chain and essential businesses in many jurisdictions, and employees who are working onsite are required to adhere to strict safety measures, including the final two weeksuse of our third quarter, our operation in Malaysia was curtailed by local government effortsmasks and sanitizer, wellness screenings prior to reduce the spreadaccessing work sites, staggered break times to prevent congregation, prohibitions on physical contact with co-workers or customers, restrictions on access through only a single point of 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 assuranceentry and exit, and utilizing video conferencing. We have also incorporated other rules such as restricting visitors 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:facilities that remain open and proactively providing employees with hand sanitizer.
The revenue in the Malaysia operation decreased 22.0% compared to the same periodmost significant near-term impacts of the previous fiscal year, partially due to the movement restriction imposed by the local government.
The revenueongoing COVID-19 pandemic on our financial performance are declines in customers’ volume of testing services, customers’ order in our distribution segment, and a delay in deliveries for our manufacturing segment. We see a sign of recovery as there was an improvement in the manufacturing segmentsegment’s financial performance in the second quarter of the Singapore operation decreased by 29.4%fiscal 2021, 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.discussed below.
The gross marginCompany received an aggregate of $243 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 $263assistance in the Singapore, and China operations.Malaysia operations to mitigate the adverse impact on the business from the pandemic. The Company believes that, as with other business entities in Singapore, it will receive additional government assistance for a period to ease the financial impact caused by the pandemic. The Company also received a PPP loan of $121 in the US operations to support the business amid the pandemic.
As of MarchDecember 31, 2020, the Company had cash and cash equivalents and short-termsshort-term deposits totalling $10,679totaling $11,410 and an unused line of credit of $5,897.$6,187. 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.
ThirdSecond Quarter Fiscal Year 20202021 Highlights
●
Total revenue decreased by $337,$761, or 3.8%8.5%, to $8,501$8,201 in the thirdsecond quarter of fiscal year 2020,2021, compared to $8,838$8,962 for the same period in fiscal year 2019.2020.
●
Manufacturing segment revenue decreasedincreased by $578,$524, or 18.7%17.2%, to $2,519$3,569 for the thirdsecond quarter of fiscal year 2020,2021, compared to $3,097$3,045 for the same period in fiscal year 2019.2020.
●
Testing segment revenue decreased by $248,$327, or 6.2%8.4%, to $3,741$3,560 for the thirdsecond quarter of fiscal year 2020,2021, compared to $3,989$3,887 for the same period in fiscal year 2019.2020.
●
Distribution segment revenue increaseddecreased by $498,$949, or 28.8%47.1%, to $2,225$1,065 for the thirdsecond quarter of fiscal year 2020,2021, compared to $1,727$2,014 for the same period in fiscal year 2019.2020.
●
Real estate segment rental revenue decreased by $9 or 36%,56.3% to $7 for the second quarter of fiscal year 2021, compared to $16 for the thirdsame period in fiscal year 2020.
●
The overall gross profit margin increased by 1.5% to 22.8% for the second quarter of fiscal year 2021, from 21.3% for the same period in fiscal year 2020.
●
General and administrative expenses decreased by $115, or 6.5%, to $1,662 for the second quarter of fiscal year 2021, from $1,777 for the same period in fiscal year 2020.
●
Selling expenses decreased by $54, or 30.7%, to $122 for the second quarter of fiscal year 2021, from $176 for the same period in fiscal year 2020.
●
Other income increased by $103 to $143 in the second quarter of fiscal year 2020, compared to $25$40 in the same period in fiscal year 2020.
●
Loss from operations was $37 for the second quarter of fiscal year 2021, a decrease of $136 as compared to $173 for the same period in fiscal year 2019.2020.
●
The overall gross profit margin decreased by 3.6% to 21.0% forIncome tax expenses was $nil in the thirdsecond quarter of fiscal year 2020, from 24.6% for the same period in fiscal year 2019.
●
Loss from operations was $367 for the third quarter of fiscal year 2020,2021, a decrease of $490$120 as compared to an income from operationstax expense of $123 for the same period in fiscal year 2019.
●
General and administrative expenses increased by $12, or 0.7%, to $1,754 for the third quarter of fiscal year 2020, from $1,742 for the same period in fiscal year 2019.
●
Selling expenses decreased by $65, or 26.4%, to $181 for the third quarter of fiscal year 2020, from $246 for the same period in fiscal year 2019.
●
An impairment loss on the long-lived asset amounted to $139 in the third quarter of fiscal year 2020.
●
Other income increased by $312 to $440 in the third quarter of fiscal year 2020, compared to $128$120 in the same period in fiscal year 2019.2020.
●
Income tax benefit was $8 inDuring the thirdsecond quarter of fiscal year 2020, an increase of $217 as compared to the income tax expense of $209 in the same period in fiscal year 2019.
●
During the third quarter of fiscal year 2020, income2021, profit from continuing operations before non-controlling interest, net of tax was $18,$72, as compared to $653income from continuing operations before non-controlling interest of $864 for the same period in fiscal year 2019.2020.
●
Net loss attributable to non-controlling interest for the thirdsecond quarter of fiscal year 20202021 was $73, an increase$184, a deterioration of $45,$623 as compared to net lossprofit attributable to non-controlling interest of $28$439 in the same period in fiscal year 2019.2020.
●
Basic Earningsearnings per Shareshare for the thirdsecond quarter of fiscal year 20202021 were $0.02,$0.06, as compared to earnings per share of $0.19$0.12 for the same period in fiscal year 2019.2020.
●
Dilutive Earningsearnings per Shareshare for the thirdsecond quarter of fiscal year 20202021 were $0.02,$0.06, as compared to earnings per share of $0.19$0.11 for the same period in fiscal year 2019.2020.
●
Total assets remained at nearly the same level of $36,796increased by $2,703 to $38,363 as of MarchDecember 31, 2020, compared to $36,527$35,660 as of June 30, 2019.2020.
●
Total liabilities increased by $263, or 2.3%,$1,301 to $11,929$11,815 as of MarchDecember 31, 2020, compared to $11,666$10,514 as of June 30, 2019.2020.
Results of Operations and Business Outlook
The following table sets forth our revenue components for theboth three months and ninesix months ended MarchDecember 31, 2020 and 2019, respectively.
Revenue Components | | | | |
| | |
| | | | | | | | |
| | |
Manufacturing | 29.6% | 35.0% | 32.6% | 35.3% | 43.5% | 34.0% | 41.2% | 33.9% |
Testing Services | 44.0 | 45.1 | 44.0 | 44.9 | 43.4 | 43.3 | 44.1 |
Distribution | 26.2 | 19.6 | 23.2 | 19.5 | 13.0 | 22.4 | 15.4 | 21.8 |
Real Estate | 0.2 | 0.3 | 0.2 | 0.3 | 0.1 | 0.2 | 0.1 | 0.2 |
| | |
Total | 100.0% | 100.0% |
Revenue for the three and ninesix months ended MarchDecember 31, 2020 was $8,501$8,201 and $27,286,$15,042, respectively, a decrease of $337$761 and $1,287,$3,743, respectively, when compared to the revenue for the same period of the prior fiscal year. As a percentage, revenue decreased by 3.8%8.5% and 4.5%19.9% for the three and ninesix months ended MarchDecember 31, 2020, respectively, when compared to revenue for the same period of the prior year.
For the three months ended MarchDecember 31, 2020, the $337$761 decrease in overall revenue was primarily due to
●
a decrease in the testing segment in the Malaysia operation; and
●
a decrease in the distribution segment in the Singapore operation.
These decreases were partially offset by:
●
an increase in the manufacturing segmentssegment in the U.S. and Singapore operations; and
●
an increase in the testing segments in the China and Thailand operations.
For the six months ended December 31, 2020, the $3,743 decrease in overall revenue was primarily due to:
●
a decrease in the manufacturing segment in the Singapore operations;
●
a decrease in the testing segment in the Singapore, Malaysia operations.
These decreases were partially offset by
●
an increase in the testing segment in the Thailand operations; and
●
an increase in the distribution segment in the Singapore operations.
For the nine months ended March 31, 2020, the $1,287 decrease in overall revenue was primarily due to
●
a decrease in the manufacturing segments in the U.S. and SingaporeChina operations; and
●
a decrease in the testing segmentsdistribution segment in the China and Malaysia operationsSingapore operation.
These decreases were partially offset byby:
●
an increase in the manufacturing segment in the U.S. operation; and
●
an increase in the testing segments in the Singapore and Thailand operations; and
●
an increase in the distribution segment in the Singapore operationsThailand operation.
Total revenue into and within China, the Southeast Asia regions and other countries (except revenue into and within the United States) decreased by $520$1,004 (or 6.0%11.4%), to $8,085$7,827 and by $3,783 (or 21.0%) to $14,235 for the three and six months ended MarchDecember 31, 2020, and by $1,537 (or 5.6%) to $26,103 for the nine months ended March 31, 2020,respectively, as compared with $8,605$8,831 and $27,640,$18,018, respectively, for the same periodsperiod of last fiscal year.
Total revenue into and within the U.S. was $416$374 and $1,183$807 for the three and ninesix months ended MarchDecember 31, 2020, respectively. This wasrespectively, an increase of $183$243 and $40 from $233$131 and an increase of $250 from $933$767 for the same periods of the prior year, respectively.
Revenue within our four current segments for the three and ninesix months ended MarchDecember 31, 2020 is discussed below.
Manufacturing Segment
AsRevenue in the manufacturing segment was 43.5% and 41.2% as a percentage of total revenue revenue in the manufacturing segment was 29.6% and 32.6% for the three and ninesix months ended MarchDecember 31, 2020, respectively, a decreasean increase of 5.4%9.5% and 2.8%7.3% of total revenue, respectively, when compared to the same periods of the last fiscal year. The absolute amount of revenue increased by $524 to $3,569 from $3,045 and decreased by $578$168 to $6,194 from $3,097 to $2,519$6,362 for the three and six months ended MarchDecember 31, 2020, and decreased by $1,205 from $10,086 to $8,881 for the nine months ended March 31, 2020respectively, compared to the same periods of the last fiscal year.
Revenue in the manufacturing segment for the three months ended MarchDecember 31, 2020 decreasedincreased primarily due to the COVID-19 pandemic, resultingan increase in orders by customers in the delay of the delivery of ordersSingapore and U.S. operations in the U.S. and Singapore operations. Our customers’ capital purchases are being affectedsecond quarter. Despite substantial headwinds caused by the uncertainty associated withpandemic, the gloomy economic outlook as a resultdemand for our equipment was strong in this quarter.
Revenue in the manufacturing segment from one customer accounted for 24.3%42.4% and 27.7%39.7% of our total revenue in the manufacturing segment for the three and nine months ended MarchDecember 31, 2020 and 2019, respectively, and 35.2%29.7% and 35.5%39.5% of our total revenue in the manufacturing segment for the ninesix months ended MarchDecember 31, 2020, and 2019, respectively.
The future revenue in our manufacturing segment will be affected by thethis one customer's purchase and capital expenditure plans of this one customer if the customer base cannot be increased.
Testing Services Segment
The testing segment's revenue was 43.4% of total revenue for the three months ended December 31, 2020 and 2019, respectively. Revenue in the testing segment was 44.0%43.3% as a percentage of total revenue for the three and ninesix months ended MarchDecember 31, 2020, a decrease of 1.1% and 0.9%, respectively, of the total revenue when0.8% compared to the same periodsperiod of the last fiscal year. The absolute amount of revenue decreased by $248$327 to $3,741$3,560 from $3,989$3,887 and decreased by $1,763 to $6,514 from $8,277 for the three and six months ended March 31,2020 and decreased by $801 to $12,018 from $12,819 for the nine months ended MarchDecember 31, 2020, respectively, as compared to the same periods of the last fiscal year.
The revenue in the testing segment from the one customer noted above accounted for 56.1%61.1% and 69.7%61.6% of our revenue in the testing segment for the three months ended MarchDecember 31, 2020 and 2019, respectively, and 61.6%58.8% and 72.8%64.1% of our total revenue in the testing segment for the ninesix months ended MarchDecember 31, 2020 and 2019, respectively, due in part to a reduction in orders from this customer.respectively. The future revenue in the testing segment will be affected by the demands of this customer if the customer base cannot be increased. Demand for testing services varies from country to country, depending on any changes taking place in the market and our customers’ forecasts. As it is difficultchallenging to forecast fluctuations in the market accurately, management believes it is necessary to maintain testing facilities in close proximity to the customers in order to make it convenient for them to send us their newly manufactured parts for testing and to enable us to maintain a share of the market.
Distribution Segment
Revenue in the distribution segment was 26.2%13.0% and 23.2%15.4% as a percentage of total revenuefor the three and ninesix months ended MarchDecember 31, 2020, an increaserespectively, a decrease of 6.6%9.4% and 3.7%6.4%, respectively, when compared to the same periodperiods of the last fiscal year. The absolute amount of revenue increaseddecreased by $498$949 to $2,225$1,065 from $1,727$2,014 and increaseddecreased by $751$1,790 to $6,338$2,323 from $5,587$4,113 for the three and ninesix months ended MarchDecember 31, 2020, respectively, compared to the same periodperiods of the last fiscal year.
Demand for the distribution segment varies depending on the demand for our customers’ products, the changes taking place in the market, and our customers’ forecasts. Hence it is difficult to forecast fluctuations in the market accurately.
Real Estate Segment
The real estate segment accounted for 0.2%0.1% of total revenue for both the three and ninesix months ended MarchDecember 31, 2020.2020, respectively. The absolute amount of revenue in the real estate segment decreased by $9 to $7 from $16 and decreased by $22 to $11 from $25$33 for the three and six months ended MarchDecember 31, 2020, and decreased by $32 to $49 from $81 for the nine months ended March 31, 2020respectively, compared to the same periods of the last fiscal year. ThisThe decrease in rental income was mainly due to the sales of properties in the real estate segment in the China operation in the same periods of the last fiscal year, which resulted in a decrease in rental income.demand amid the uncertainties brought by the pandemic.
Uncertainties and Remedies
There are severalSeveral influencing factors which create uncertainties when forecasting performance, such as the speed at whichconstantly changing nature of technology, changes, specific customer requirements, from the customer, changesa decline in demand for certain types of burn-in devices or equipment, changesdecline in demand for testing services and fabrication services, and other similar factors, such asfactors. One influencing factor is the highly competitive nature of the semiconductor industry in general. Someindustry. Additionally, some customers are unable to provide a forecast of the products required in the upcoming weeks, makingweeks; hence it is difficult to plan for the resources needed to meet theirthese customers’ requirements due to short lead time and last minutelast-minute order confirmation. This will normallygenerally 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 certainparticular actions and formulated certainspecific 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.stockpiling. We believe that we have improved customer service from staff through our efforts to keep our staff up-to-dateup to date on the newest technology and stressingstress the importance of understanding and meeting theour customers' stringent requirements of our customers.requirements. Finally, the Company is exploring new markets and products, looking for new customers, and upgrading and improving burn-in technology while at the same time searching for improved testing methods for higher technology chips.
We are in the process of implementing an ERPEnterprise Resource Planning System as part of a multi-year plan to integrate and upgrade our systems and processes. The implementation of this ERP system was scheduled to occur in phases over a few years, and began with the migration of certain of ouryears. The operational and financial systems in our Singapore and Malaysia operations were transitioned to the new ERPsystem in fiscal 2018 and fiscal 2019, respectively.
The operational and financial systems in our Tianjin and Suzhou operations have been fully transitioned to the new system during the second quarter of fiscal 2017.
During the third quarter of fiscal 2018, the operational and financial systems in Singapore were substantially transitioned to the new system. The operational and financial systems in our Malaysia operation were substantially transitioned to the new system during the first quarter of fiscal 2019.
The operational systems in our Tianjin and Suzhou operations were substantially transitioned to the new system during the third quarter of fiscal 2020.2021. This implementation effort will continue untiltill the financial systems of these two operations are fully transitioned to the new system, and until the Group'sCompany'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 generallyearnings. Generally, it 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 identifiedIn December 2019, COVID-19 was reported to have surfaced in China, resulting in late 2019shutdowns of manufacturing and commerce in the months that followed. Since then, the COVID-19 pandemic has spread globallyto multiple countries worldwide and has resulted in authorities implementing numerous measures to try to contain the virus,disease and slow its spread, such as travel bans and restrictions, quarantines, shelter in placeshelter-in-place orders and shutdowns. These measures have impactedcreated significant uncertainty and may further impact our workforceeconomic disruption, both short-term 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.potentially long-term.
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 maybemay be required by government authorities or that we determine are in the best interest of our employees, customers, partners, and suppliers. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus and our ability to perform critical functions could be harmed.
The degree to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including but not limited to, the duration and spread of the pandemic, its severity, the action to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may experience material adverse impacts on our business as a result of the global economic impact and any recession that has occurred or may occur in the future. There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the pandemic on our operations and financial results is highly uncertain and subject to change.
Comparison of the Three Months Ended MarchDecember 31, 2020 and MarchDecember 31, 2019
The following table sets forth certain consolidated statements of income data as a percentage of revenue for the three months ended MarchDecember 31, 2020 and 2019 respectively:
| Three Months Ended March 31, | Three Months Ended December 31, |
| | | | |
Revenue | 100.0% | 100.0% |
Cost of sales | 79.0 | 75.4 | 77.2 | 78.7 |
Gross Margin | 21.0% | 24.6% | 22.8% | 21.3% |
Operating expenses | | |
General and administrative | 20.6% | 19.7% | 20.3% | 19.8% |
Selling | 2.2 | 2.7 | 1.5 | 2.0 |
Research and development | 0.9 | 1.5 | 1.4 |
Impairment loss on long-lived assets | 1.6 | - | |
Gain on disposal of property, plant and equipment | - | (0.1) | |
Total operating expenses | 25.3% | 23.2% | 23.3% | 23.2% |
(Loss)/Income from Operations | (4.3)% | 1.4% | |
Loss from Operations | | (0.5)% | (1.9)% |
Overall Gross Margin
Overall gross margin as a percentage of revenue decreasedincreased by 3.6%1.5% to 21.0%22.8% for the three months ended MarchDecember 31, 2020, from 24.6%21.3% for the same period of the last fiscal year.
Gross profit margin as a percentage of revenue in the manufacturing segment increased by 0.9%0.7% to 26.5%22.4% for the three months ended MarchDecember 31, 2020, as compared to 25.6%21.7% for the same period in the last fiscal year primarily due to a change in product mix.year. In absolute dollar amounts, gross profits in the manufacturing segment decreasedincreased by $126$137 to $668$799 for the three months ended MarchDecember 31, 2020, from $794$662 for the same period in the last fiscal year.
Gross profit margin as a percentage of revenue in the testing segment decreased by 6.8% to 21.5%remained comparable at 24.8% for the three months ended MarchDecember 31, 2020, from 28.3%compared to 24.9% in the same period of the last fiscal year. The COVID-19 pandemic negatively impactedSignificant portions of our testing segmentcost of goods sold are fixed in the Malaysiatesting segment. Thus, as the demand for services and China operations. Our Malaysia operation hasfactory utilization decreases, the fixed costs are spread over the decreased output, which decreases the gross profit margin. Despite a limited operating leveldecrease in the testing revenue, we improved the testing segment’s gross margin as a result of the Movement Control Order implemented by the Malaysian government to contain the spread of the coronavirus, coupled with a lower testing demand from the customer. Our China operation incurred higher labor cost to ramp up the testing volumes per the customer’s request during the extended Lunar New Year holidays caused by the pandemic.control measures. In absolute dollar amounts, gross profit in the testing segment decreased by $323$87 to $804$882 for the three months ended MarchDecember 31, 2020 from $1,127$969 for the same period of the last fiscal year.
Gross profit margin of the distribution segment is not only affected by the market price of the products we distribute, but also the mix of products we distribute, which frequently changes as a result of changesfluctuations in market demand. Gross profit margin as a percentage of revenue in the distribution segment remained at the same level at 14.2%increased by 5.5% to 19.2% for the three months ended MarchDecember 31, 2020, from 14.1%13.7% in the same period of the last fiscal year. The increase in gross margin was due to the increase in sales of high-profit margin products in our Singapore operation 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 MarchDecember 31, 2020 was $316 as$204 compared to $244$276 in the same period of the last fiscal year.
In absolute dollar amounts, for the three months ended MarchDecember 31, 2020, gross loss in the real estate segment was $2,$15, as compared to a gross profit margin of $9$2 for the same period of last fiscal year. The increase in gross loss was mainly due to lowera decrease in rental income caused byamid the sale of properties in the real estate segment in the China operation after the third quarter of the last fiscal year.pandemic.
Operating Expenses
Operating expenses for the three months ended MarchDecember 31, 2020 and 2019 were as follows:
| Three Months Ended March 31, | Three Months Ended December 31, |
(Unaudited) | | | | |
General and administrative | $1,754 | $1,742 | $1,662 | $1,777 |
Selling | 181 | 246 | 122 | 176 |
Research and development | 79 | 76 | 123 | 125 |
Impairment loss on the long-lived assets | 139 | - | |
Gain on disposal of property, plant and equipment | - | (13) | |
Total | $2,153 | $2,051 | $1,907 | $2,078 |
General and administrative expenses increaseddecreased by $12,$115, or 0.7%6.5%, from $1,742$1,777 to $1,754$1,662 for the three months ended MarchDecember 31, 2020 compared to the same period of last fiscal year. The increasedecrease in general and administrative expenses was mainly attributable to an allowancethe lower payroll and staff-related expenses in the Singapore operations resulting from the pandemic. In addition, the absence of doubtful debts madeprovision for the three months ended December 31, 2020 also contributed to a decrease in our China operation.general and administrative expenses.
Selling expenses decreased by $65,$54, or 26.4%30.7%, from $246$176 to $181$122 for the three months ended MarchDecember 31, 2020 compared to the same period of the last fiscal year. The decrease in selling expenses was mainly due to fewer commission expenses incurred in the manufacturing segment of the Singapore operations.
There was an impairment loss on long-lived assets in the China operations as a result of the end of the product life for certain products. A detailed assessment has been carried out by management, and this assessment indicated that these assets will not generate any future economic benefitsprimarily attributable to the Company.worldwide travel restrictions imposed to contain the pandemic's spread, which resulted in lower traveling expenses.
Loss/IncomeLoss from Operations
Loss from operations was $367$37 for the three months ended MarchDecember 31, 2020, a deteriorationdecrease of $490 as$136, compared to income from operations of $123$173 for the three months ended March 31, 2019.same period of last fiscal year. The result was mainly due to the decreaseincrease in gross profit margin and the increasedecrease in operating expenses, as previously discussed.
Interest Expense
Interest expense for the three months ended MarchDecember 31, 2020 and 2019 waswere as follows:
| Three Months Ended March 31, | Three Months Ended December 31, |
(Unaudited) | | | | |
Interest expenses | $63 | $74 | $34 | $55 |
Interest expense was $63$34 for the three months ended MarchDecember 31, 2020, a decrease of $11,$21, or 14.9%38.2%, as compared to $74$55 for the three months ended MarchDecember 31, 2019. The decrease was primarily due to a decrease in the utilization of short-term loans in the Singapore and China operations. As of MarchDecember 31, 2020, the Company had an unused line of credit of $5,897as$6,187 as compared to $6,251$6,325 at June 30,December 31, 2019.
Other Income
Other income for the three months ended MarchDecember 31, 2020 and 2019 waswere as follows:
| Three Months Ended March 31, | Three Months Ended December 31, |
| | | |
(Unaudited) | | | |
Interest income | 46 | 31 | $30 | 52 |
Other rental income | 30 | 28 | 24 | 30 |
Exchange gain / (loss) | 94 | (11) | |
Exchange loss | | (93) | (66) |
Dividend income | | 30 | - |
Government grant | 266 | 38 | 106 | - |
Other miscellaneous income | 4 | 42 | 46 | 24 |
Total | $440 | $128 | $143 | $40 |
Other income increased by $312$103 from $40 to $440$143 for the three months ended MarchDecember 31, 2020 from $128 incompared to the same period ofin the last fiscal year. The increase was primarily due to anthe Company receiving government grants of $106 from the local government in the Singapore and Malaysia operations, of which $101 reflects financial assistance to mitigate the negative impact on the businesses amid the pandemic. The increase was partially offset with the increase in exchange gain, which resulted from the favorableunfavorable foreign exchange movement for the three months ended MarchDecember 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.2020.
Income Tax Expenses
The Company's income tax benefitexpense was $8$nil and $120 for the three months ended MarchDecember 31, 2020 an increaseand December 31, 2019, respectively. The decrease of $217 as compared$120 was primarily due to incomeabsence of capital gain tax expenses of $209 for$94 incurred in the Malaysia operation in the same period in the last fiscal year. The increase was mainly due to the absence of the capital gain tax from the sale of asset-held-for sale in the third quarter of fiscal year 2020.
Non-controlling Interest
As of MarchDecember 31, 2020, we held a 55% interest in Trio-Tech (Malaysia) Sdn. Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd., and PT. SHI Indonesia. We also held a 76% interest in Prestal Enterprise Sdn. Bhd. The share of net loss from the subsidiaries by the non-controlling interest for the three months ended MarchDecember 31, 2020 was $73,$184, an increase of $45$653 compared to $28the share of net profit from the subsidiaries by the non-controlling interest of $439 for the same period of the previous fiscal year. The increase in the net loss of the non-controlling interest in the subsidiaries was attributable to the increase in net loss generated by the Malaysia operation, as a result of the Movement Control Order implemented by the Malaysian government, coupled with the lower testing demand from our customer.absence of the gain on sale of assets held for sale which occurred the same period in the previous fiscal year.
Net Income Attributable to Trio-Tech International Common Shareholders
Net income attributable to Trio-Tech International Common Shareholderscommon shareholders for the three months ended MarchDecember 31, 2020 was $70,$235, a decreasedeterioration of $613 as$191, compared to a net income of $683$426 for the same period last fiscal year.
Earnings per Share
Basic earnings per share from continuing operations were $0.02$0.06 for the three months ended MarchDecember 31, 2020 as compared to $0.19$0.12 for the same period in the last fiscal year. Basic earnings per share from discontinued operations were Nil$nil for both the three months ended MarchDecember 31, 2020 and 2019.
Diluted earnings per share from continuing operations were $0.02$0.06 for the three months ended MarchDecember 31, 2020 as compared to $0.19$0.11 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 MarchDecember 31, 2020 and 2019.
Segment Information
The revenue, gross margin and income or loss from operations for each segment during the thirdsecond quarter of fiscal year 20202021 and fiscal year 20192020 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 lossincome / (loss) from operations for the manufacturing segment for the three months ended MarchDecember 31, 2020 and 2019 were as follows:
| Three Months Ended March 31, | Three Months Ended December 31, |
(Unaudited) | | | | |
Revenue | $2,519 | $3,097 | $3,569 | $3,045 |
Gross margin | 26.5% | 25.6% | 22.4% | 21.7% |
Loss from operations | $(102) | $(8) | |
Income / (loss) from operations | | $81 | $(87) |
LossIncome from operations from the manufacturing segment for the third quarter of fiscal 2020 was $102 as$81 compared to $8a loss from operations of $87 in the same period of the last fiscal year, primarily due to a decreasean increase in gross margin of $126, offset by$137 and a decrease in operating expenses of $32.$31. Operating expenses for the manufacturing segment were $770$718 and $802$749 for the three months ended MarchDecember 31, 2020 and 2019, respectively. The decrease in operating expenses was mainly due to a decrease of $91 in selling expenses as a result of the decrease in the commission expenses in the Singapore operation. The decrease was partially offset by an increase of $54$6 in general and administrative expenses, $12 in selling expenses, and $13 in corporate overhead expenses. The increasedecrease in general and administrative expenses was mainly attributable to an increasea decrease in payroll-related expenses in the Singapore operations. The decrease in selling expenses was primarily attributable to lower traveling expenses due to the worldwide travel restrictions imposed to contain the spread of the pandemic.
Testing Segment
The revenue, gross margin and loss from operations for the testing segment for the three months ended MarchDecember 31, 2020 and 2019 were as follows:
| Three Months Ended March 31, | Three Months Ended December 31, |
(Unaudited) | | | | |
Revenue | $3,741 | $3,989 | $3,560 | $3,887 |
Gross margin | 21.5% | 28.3% | 24.8% | 24.9% |
Loss from operations | $(447) | $(17) | $(336) | $(161) |
Loss from operations in the testing segment for the three months ended MarchDecember 31, 2020 was $447, reflecting an increase$336, a deterioration of $430 compared to loss$175 from income from operations of $17$161 in the same period of the last fiscal year. The increase in operating lossdeterioration was mainly attributable to a decrease in gross profit, margin, as discussed earlier, under“Overall gross margin”and thean increase in operating expenses. Operating expenses were $1,251$1218 and $1,144$1,130 for the three months ended MarchDecember 31, 2020 and 2019, respectively. The increase of $107$88 in operating expenses was mainly due to the impairment loss of long-lived asset recognizedan increase in corporate overhead expenses. The increase in corporate overhead expenses was due to a change in the third quarter ofcorporate overhead allocation compared to the same period in the last fiscal year 2020, as discussed earlier under“Operating expenses.”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 three months ended MarchDecember 31, 2020 and 2019 were as follows:
| Three Months Ended March 31, | Three Months Ended December 31, |
(Unaudited) | | | | |
Revenue | $2,225 | $1,727 | $1,065 | $2,014 |
Gross margin | 14.2% | 14.1% | 19.2% | 13.7% |
Income from operations | $207 | $150 | $120 | $188 |
Income from operations in the distribution segment was $207$120 for the three months ended MarchDecember 31, 2020, as compared to $150$188 for the same period of last fiscal year. The increasedecrease of $57$68 was mainly due to an increasea decrease of $72 in the gross margin, as discussed earlier under “Overall gross margin,” offset by an increase in operating expenses of $16.earlier. Operating expenses were $110$84 and $94$88 for the three months ended MarchDecember 31, 2020 and 2019, respectively. The increase in payroll-related expenses in the Singapore operation contributed to the increase in operating expenses.
Real Estate Segment
The revenue, gross margin and loss from operations for the real estate segment for the three months ended MarchDecember 31, 2020 and 2019 were as follows:
| Three Months Ended March 31, | Three Months Ended December 31, |
(Unaudited) | | | | |
Revenue | $16 | $25 | $7 | $16 |
Gross (loss)/margin | (12.5)% | 36.0% | |
Gross margin | | (214.3)% | (12.5)% |
Loss from operations | $(30) | $(13) | $(34) | $(35) |
Gain on sale of assets held for sale | - | 685 | |
Loss from operations in the real estate segment for the three months ended MarchDecember 31, 2020 was $30$34 compared to a loss of $13$35 for the same period of last fiscal year. The increase in operations loss of $17 was mainly due to the decrease in gross margin of $11 and an increase in operating expenses by $6. Operating expenses were $28$19 and $22$33 for the three months ended MarchDecember 31, 2020 and 2019, respectively. The increasedecrease in operating expenses by $14 was mainly due to a provisionthe absence of bonus expense for doubtful debts made for a tenant whose business had been heavily impacted by COVID-19the three months ended December 31, 2020, compared to the bonus expense in the third quartersame period of prior last fiscal year 2020.year.
Corporate
The lossincome / (loss) from operations for Corporate for the three months ended MarchDecember 31, 2020 and 2019 was as follows:
| Three Months Ended March 31, | Three Months Ended December 31, |
(Unaudited) | | | | |
Income/(loss) from operations | $5 | $11 | |
Income / (Loss) from operations | | $132 | $(78) |
Corporate operating income was $132 for the three months ended December 31, 2020, an increase of $210 from the corporate operating loss of $78 in the same period of the last fiscal year. The decrease of income from operations amounting to $6increase was mainly dueattributable to a increasechange in payroll related expenses.the corporate overhead allocation as compared to the same period last fiscal year. Corporate charges are allocated on a pre-determined fixed charge basis.
Comparison of the NineSix Months Ended MarchDecember 31, 2020 and MarchDecember 31, 2019
The following table sets forth certain consolidated statements of income data as a percentage of revenue for the ninesix months ended MarchDecember 31, 2020 and 2019, respectively:
| | |
| | | | |
| | |
Revenue | 100.0% | 100.0% |
Cost of sales | 78.2 | 77.1 | 77.5 | 77.9 |
Gross Margin | 21.8% | 22.9% | 22.5% | 22.1% |
Operating expenses: | | |
General and administrative | 19.5% | 18.3% | 22.1% | 19.0% |
Selling | 2.0 | 2.1 | 1.5 | 1.9 |
Research and development | 1.0 | 0.9 | 1.3 | 1.0 |
Impairment loss on long-lived assets | 0.5 | - | |
Gain on disposal of plant and equipment | (0.1) | - | - | (0.1) |
Total operating expenses | 22.9% | 21.3% | 24.9% | 21.8% |
(Loss) / Income from Operations | (1.1)% | 1.6% | |
(Loss)/ Income from Operations | | (2.4)% | 0.3% |
Overall Gross Margin
Overall gross margin as a percentage of revenue was 21.8%remained comparable at 22.5% for the ninesix months ended MarchDecember 31, 2020, as compared to 22.1% in the same period of last fiscal year. In terms of absolute dollar amounts, gross profits decreased by $590$769 to $5,943$3,388 for the for the ninesix months ended MarchDecember 31, 2020 from $6,533$4,157 for the same period of the last fiscal year.
Gross profit margin as a percentage of revenue in the manufacturing segment increased by 1.0%1.6% to 23.6%24.0% for the ninesix months ended MarchDecember 31, 2019,2020, from 22.6%22.4% in the same period of the last fiscal year. In absolute dollar amounts, gross profit decreasedincreased by $188$63 to $2,092$1,487 for the ninesix months ended MarchDecember 31, 2020 as compared to $2,280$1,424 for the same period in the last fiscal year. The decrease in absolute dollar amount of gross margin increase as a percentage of revenue was primarily due to a decrease inbecause the orders in the Singapore operations. However, the orders for the nine months endedsecond quarter of fiscal year 20202021 had a higher margin as compared tothan those in the same period of the lastprior fiscal year, which contributed to an increase in the gross margin as a percentage of revenue.year.
Gross profit margin as a percentage of revenue in the testing segment decreased by 2.4%3.0% to 24.7%23.2% for the ninesix months ended MarchDecember 31, 2020 from 27.1%26.2% in the same period of the last fiscal year. There was a further deterioration in testing revenue in the Malaysia and China operations where significant portions of our cost of goods sold are fixed. As the demand for services and factory utilization decrease, the fixed costs are spread over the decreased output, which decreases the gross profit margin. The higher labor cost during the extended Lunar New YearHowever, this negative impact was partially mitigated by management’s efforts at reducing costs 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.operations. In terms of absolute dollar amounts, gross profit in the testing segment decreased by $496$654 to $2,972$1,514 for the ninesix months ended MarchDecember 31, 2020, from $3,468$2,168 for the same period of the last fiscal year.
Gross profit margin as a percentage of revenue in the distribution segment increased by 0.4%4.1% to 13.9%17.9% for the ninesix months ended MarchDecember 31, 2020, from 13.5%13.8% in the same period of the last fiscal year. In terms of absolute dollar amounts, gross profit in the distribution segment for the ninesix months ended MarchDecember 31, 2020 was $884, an increase$415, a decrease of $128 as$153 compared to $756$568 in the same period of the last fiscal year. The increasedecrease in the absolute dollar amount of gross margin was due to an increase ofresulted from a decrease in distribution revenue in the Singapore operation. The gross profit margin of the distribution segment was affected not only affected by the market price of our products but also by our product mix, which frequently changes frequently as a result of changesdue to fluctuations in market demand.
Gross loss margin as a percentage of revenue in the real estate segment changedincreased by 46%245.4% to 10.2%254.5% for the ninesix months ended MarchDecember 31, 2020, from a gross profit margin of 35.8%9.1% in the same period of the last fiscal year. In terms of absolute dollar amounts, gross loss changedincreased by $34$25 to $5$28 for the ninesix months ended MarchDecember 31, 2020 as compared to gross profit of $29$3 for the same period in the last fiscal year. The increase in gross loss was due to lowermainly resulted from a decrease in rental income caused byamid the sale of properties in the real estate segment in the China operation after the third quarter of the last fiscal year.pandemic.
Operating Expenses
Operating expenses for the ninesix months ended MarchDecember 31, 2020 and 2019 were as follows:
| | |
| | | | |
(Unaudited) | | |
General and administrative | $5,319 | $5,223 | $3,322 | $3,565 |
Selling | 547 | 580 | 233 | 366 |
Research and development | 280 | 270 | 198 | 201 |
Impairment loss on long-lived asset | 139 | - | |
Gain on disposal of plant and equipment | (24) | (13) | (1) | (24) |
Total | $6,261 | $6,060 | $3,752 | $4,108 |
General and administrative expenses increaseddecreased by $96,$243, or 1.8%6.8%, from $3,565 to $5,319$3,322 for the ninesix months ended MarchDecember 31, 2020 compared to $5,223 in the same period of the last fiscal year. The increasedecrease in general and administrative expenses was primarily due to the increase in payroll-relatedlower payroll and staff-related expenses in the Singapore, Malaysia, and China operations. In addition, there was also a decrease in doubtful debts provision in the six months ended December 31, 2020 compared to the same period of the prior fiscal year.
Selling expenses decreased by $33,$133, or 5.7%36.3%, to $547 for the ninesix months ended MarchDecember 31, 2020,2019, from $366 to $233 compared to $580 for the same period of the last fiscal year. The decrease in selling expenses was mainlyprimarily attributable to lower traveling expenses due to a decrease in commission expenses in the manufacturing segmentworldwide travel restrictions imposed to contain the spread of the Singapore operations as a result of fewer commissionable sales.pandemic.
There was an impairment loss on the long-lived assets in the China operations as a result of the end of the product life for certain products. A detailed assessment has been carried out by management, and this assessment indicated that these assets will not generate any future economic benefits to the Company.
During the nine months ended March 31, 2020, there was a gain on disposal of plant and equipment of $24 as compared to $13 in the same period of last fiscal year.
(Loss) / Income from Operations
Loss from operations was $318$364 for the ninesix months ended MarchDecember 31, 2020 as compared to an income from operations of $473$49 for the same period of the last fiscal year. The decrease was mainly due to the decrease in gross profit margin, and an increaseoffset with a decrease in operating expenses, as discussed earlier.
Interest Expense
Interest expense for the ninesix months ended MarchDecember 31, 2020 and 2019 were as follows:
| | |
| | | | |
(Unaudited) | | |
Interest expense | $186 | $250 | $71 | $123 |
Interest expense decreased by $64$52 to $186$71 from $123 for the ninesix months ended MarchDecember 31, 2020 as compared to $250 for the same period of the last fiscal year. The decrease was mainly due to lower utilization of short-term loanslines of credit in the Singapore and China operations. Additionally, the bank loan payablepayables decreased by $483$136 to $2,297$2,342 for the ninesix months ended MarchDecember 31, 2020 as compared to $2,780$2,206 as atof June 30, 2019.2020.
Other Income
Other income for the ninesix months ended MarchDecember 31, 2020 and 2019 werewas as follows:
| | |
| | | | |
(Unaudited) | | |
Interest income | $130 | $67 | $70 | $84 |
Other rental income | 90 | 84 | 45 | 60 |
Exchange gain / (loss) | 33 | (78) | |
Exchange loss | | (137) | (61) |
Bad debt recovery | 11 | 2 | - | 11 |
Dividend Income | | 32 | - |
Government grant | 295 | 115 | 260 | - |
Other miscellaneous income | 31 | 30 | 84 | 56 |
Total | $590 | $220 | $354 | $150 |
Other income for the ninesix months ended MarchDecember 31, 2020 was $590,$354, an increase of $370 as$204 compared to $220$150 for the same period of last fiscal year. ThisThe increase was mainlyprimarily due to the higher interest income earned from the placementCompany receiving government grants of fixed deposits and the government grant of $263 received in the Singapore and China operations, coupled with the increase in exchange gain as a result of the favorable foreign exchange movement for the nine months ended March 31, 2020.
The government grant was $295, of which $263 was related to the financial assistance$260 from the local governments in the Singapore and ChinaMalaysia operations, of which $243 reflects financial assistance to mitigate the negative impact to companieson the businesses amid the COVID-19 pandemic. The increase was partially offset with the unfavorable foreign exchange movement for the six months ended December 31, 2020.
Income Tax Expenses
Income tax expenses for the ninesix months ended MarchDecember 31, 2020 was $112,$7, a decrease of $47 as$113 compared to $159$120 for the same period last fiscal year. The decrease in income tax expense was primarily due to absence of the capital gain tax from the sale of asset held for sale in the Malaysia operation in the six months ended December 31, 2020.
Non-controlling Interest
As of MarchDecember 31, 2020, we held a 55% interest in Trio-Tech Malaysia, Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd. and PTSHI Indonesia, and a 76% interest in Prestal Enterprise Sdn. Bhd. The net incomeloss attributable to the non-controlling interest in these subsidiaries for the ninesix months ended MarchDecember 31, 2020 was $356,$342, a changedeterioration of $485, as$771, compared to the loss attributable to non-controlling interesta net income of $129$429 for the same period of last fiscal year. The increasedeterioration was attributable to the increase in net income generatedabsence of gain from the sale of asset held for sale by the Malaysia operation fromin the sale of assets held for sale.six months ended December 31, 2020.
Net Income Attributable to Trio-Tech International Common Shareholders
Net income attributable to Trio-Tech international common shareholders was $769$227 for the ninesix months ended MarchDecember 31, 2020, asa decrease of $472 compared to $1,096a net income of $699 for the same period in the last fiscal year. The increasedecrease was mainly due to the decrease in revenue and gross margin, coupled with the absence of the gain on the sale of assetsasset held for sale in the Malaysia operation, coupled with the government grants received from the Singapore and China government.operation. However, the increasedecrease was partially offset bywith a decrease in revenue and gross margin, and an increase in operating expenses, as discussed earlier.
Earnings per Share
Basic earnings per share from continuing operations was $0.21$0.06 for the ninesix months ended MarchDecember 31, 2020 as compared to $0.30$0.19 for the same period in the last fiscal year. Basic earnings per share from discontinued operations were nil for both the ninesix months ended MarchDecember 31, 2020 and 2019.
Diluted earnings per share from continuing operations was $0.21$0.06 for the ninesix months ended MarchDecember 31, 2020 as compared to $0.29$0.19 for the same period in the last fiscal year. Diluted earnings per share from discontinued operations were nil for both the ninesix months ended MarchDecember 31, 2020 and 2019.
Segment Information
The revenue, gross profit margin, and income or loss from operations in each segment for the ninesix months ended MarchDecember 31, 2020 and 2019, respectively, are presented below. As the segment revenue and gross margin for each segment have been discussed in the previous section, only the comparison of income / (loss) from operations is discussed below.
Manufacturing Segment
The revenue, gross margin and income / (loss)/income from operations for the manufacturing segment for the ninesix months ended MarchDecember 31, 2020 and 2019 were as follows:
| | |
| | | | |
(Unaudited) | | |
Revenue | $8,881 | $10,086 | $6,194 | $6,362 |
Gross margin | 23.6% | 22.6% | 24.0% | 22.4% |
(Loss)/income from operations | $(201) | $175 | |
Income / (Loss) from operations | | $63 | $(99) |
LossIncome from operations from the manufacturing segment was $201$63 for the ninesix months ended MarchDecember 31, 2020, a change of $376$162 as compared to incomea loss from operations of $175$99 in the same period of the last fiscal year due to an increase in gross margin and a decrease in the absolute amount of gross margin and an increase in operating expenses. OperatingThe manufacturing segment's operating expenses were $1,424 and $1,523 for the manufacturing segment were $2,293 and $2,105 for the ninesix months ended MarchDecember 31, 2020 and 2019, respectively. The increasedecrease in operating expenses of $188$99 was mainly due to an increasea decrease in general and administrative expenses of $200, an increaseby $30, a decrease in selling expenses by $51, and a decrease in corporate overhead of $10 and an increase in research and development expenses of $10 asby $18 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 increasea decrease in payroll-related expenses and the absence of a provision of doubtful debt in the Singapore operations. The decrease in selling expenses was primarily due to fewer commissiontraveling expenses incurred for the ninesix months ended MarchDecember 31, 2020, as there is a resultworldwide travel restriction to contain the spread of fewer commissionable sales.the pandemic.
Testing Segment
The revenue, gross margin and loss from operations for the testing segment for the ninesix months ended MarchDecember 31, 2020 and 2019 were as follows:
| | |
| | | | |
(Unaudited) | | |
Revenue | $12,018 | $12,819 | $6,514 | $8,277 |
Gross margin | 24.7% | 27.1% | 23.2% | 26.2% |
Loss from operations | $(540) | $(134) | $(673) | $(93) |
Loss from operations in the testing segment for the ninesix months ended MarchDecember 31, 2020 was $540,$673, a further deterioration of $406$580 compared to loss from operations of $134$93 in the same period of the last fiscal year. The deteriorationdecrease in gross margin of $654 offset with a decrease in operating expenses of $74, also contributable to the increase in operating loss. Operating expenses were $2,187 and $2,261 for the six months ended December 31, 2020 and 2019, respectively. The lower operating expenses were mainly attributed to a decrease in general and administrative expenses and selling expenses by $227 and $71, respectively. The decrease offset with an increase in corporate overheads by $204 and a decrease in the operation lossgain from the sales of property, plant and equipment by $23. The decrease in general and administrative expenses was attributabledue to a decrease in payroll-related expenses in the Malaysia and China operations as part of our cost-savings measures. The increase in corporate overhead expenses was due to a change in the corporate overhead allocation compared to the same period last fiscal year. Corporate charges are allocated on a pre-determined fixed charge basis.
Distribution Segment
The revenue, gross margin and income from operations for the distribution segment for the six months ended December 31, 2020 and 2019 were as follows:
| |
| | |
(Unaudited) | | |
Revenue | $2,323 | $4,113 |
Gross margin | 17.9% | 13.8% |
Income from operations | $244 | $392 |
Income from operations in the distribution segment for the six months ended December 31, 2020 was $244, a decrease of $148 compared to $392 in the same period of the last fiscal year. The decrease in operating income was primarily due to a decrease in gross margin of $496. The deteriorationby $153, which was partially offset bywith a decrease in corporate overheadoperating expenses of $87.$5. Operating expenses were $171 and $176 for the six months ended December 31, 2020 and 2019, respectively.
Real Estate Segment
The revenue, gross loss margin and loss from operations for the real estate segment for the six months ended December 31, 2020 and 2019 were as follows:
| |
| | |
(Unaudited) | | |
Revenue | $11 | $33 |
Gross loss margin | 254.5% | 9.1% |
Loss from operations | $(61) | $(52) |
Loss from operations in the real estate segment for the six months ended December 31, 2020 was $61, a further deterioration of $9 compared to $52 for the same period of the last fiscal year. The increase in operating loss was mainly due to an increase in gross loss margin, as discussed earlier. Operating expenses were $33 and $49 for the six months ended December 31, 2020 and 2019, respectively. The decrease in corporate overheadoperating expenses was mainly due to the absence of one-off payroll-related expenses, which occurred in the same period of the prior fiscal year.
Corporate
The income / (loss) from operations for corporate for the six months ended December 31, 2020 and 2019 were as follows:
| |
| | |
(Unaudited) | | |
Income / (loss) from operations | $63 | $(99) |
The improvement of $162 was mainly due to a change in the corporate overhead allocation as compared to the same period last fiscal year. Corporate charges are allocated on a pre-determined fixed charge basis.
Distribution SegmentFinancial Condition
The revenue, gross margin and income from operations forDuring the distribution segment for the ninesix months ended MarchDecember 31, 2020 and 2019 were as follows:
| |
| | |
(Unaudited) | | |
Revenue | $6,338 | $5,587 |
Gross margin | 13.9% | 13.5% |
Income from operations | $599 | $492 |
Income from operations in the distribution segment for the nine months ended March 31, 2020 was $599, an increase of $107 astotal assets increased by $2,703 to $38,363 compared to $492 in the same period$35,660 as of the last fiscal year.June 30, 2020. The increase in operating incometotal assets was primarily due to an increase in gross margin as discussed earlier which was partially offset by the increase of operatingcash and cash equivalents, short-term deposits, trade account receivables, inventories, prepaid expenses of $22. Operating expenses were $286 and $264 for the nine months ended March 31, 2020 and 2019, respectively. The increase in payroll-related expenses in the Singapore operations contributed to the increase in operating expenses.
Real Estate Segment
The revenue, gross margin and loss from operations for the real estate segment for the nine months ended March 31, 2020 and 2019 were as follows:
| |
| | |
(Unaudited) | | |
Revenue | $49 | $81 |
Gross (loss) / margin | (10.2)% | 35.8% |
Loss from operations | $(82) | $(30) |
Loss from operations in the real estate segment for the nine months ended March 31, 2020 was $82, a further deterioration of $52 as compared to a loss from operations of $30 for the same period of the last fiscal year. The increase in operating loss was mainly due to a decrease in gross margin and an increase in operating expenses of $18, as discussed earlier. Operating expenses were $77 and $59 for the nine months ended March 31, 2020 and 2019, respectively. A provision of doubtful debts was made due to the adverse impact of COVID-19 on one of our tenants.
Corporate
The loss from operations for corporate for the nine months ended March 31, 2020 and 2019 were as follows:
| |
| | |
(Unaudited) | | |
Loss from operations | $(94) | $(30) |
The change of $64 was mainly due to an increase in payroll related expenses as compared to the same period of last fiscal year.
Financial Condition
During the nine months ended March 31, 2020 totalother current assets, increased by $269 from $36,527 as at June 30, 2019 to $36,796. The increase in total assets was due to an increase in short term deposits, other receivables, deferred tax assets, andinvestment properties, operating lease right-of-use, other assets whichand restricted term deposits. This was partially offset by a decrease in cashother receivables, and cash equivalents, trade accounts receivable, inventory, prepaid expenses and other current assets, assets held for sale, investment properties, property, plant and equipment, other assets and restricted term deposits.equipment.
Cash and cash equivalents were $4,370$4,470 as at MarchDecember 31, 2020, reflecting an increase of $320 from $4,150 as at June 30, 2020, primarily due to the Company generated operating cash flow of $301 for the six months ended December 31, 2020.
Short-term deposits were $6,940 as at December 31, 2020, reflecting a decrease of $493$102 from $4,863$6,838 as at June 30, 2019, primarily due to further placement made into fixed deposits in the Singapore and Malaysia operations.
Short term deposits were $6,309 as at March 31, 2020, reflecting an2020. The increase of $2,165 from $4,144 as at June 30, 2019,was primarily due to an increase in deposits in the Singapore and Malaysia operations. The short-term deposits include proceeds received from the sale of assets held for sale.operation.
As at March December31, 2020, the trade accounts receivable balance decreasedincreased by $716$1,630 to $6,397,$7,581, from $7,113$5,951 as at June 30, 2019,2020, primarily due to athe increase in revenue in the Malaysia, China, and U.S. operations. This increase was partially offset by the decrease in revenue for the nine months ended March 31, 2020 in the Singapore, Malaysia and ChinaThailand operations. The number of days’ sales outstanding in accounts receivables for the Group was 88 and 67 days at the end of the thirdsecond quarter of the fiscal year 2020,2021 and 70 days at the end of the third quarter oflast fiscal year, 2019.respectively.
As at MarchDecember 31, 2020 other receivables were $1,065,$670, reflecting an increasea decrease of $248$328 from $817$998 as at June 30, 2019.2020. The increasedecrease was primarily due to an increasea decrease in government grant receivablesadvance payments made to suppliers in the Singapore operation.
Inventories as at MarchDecember 31, 2020 were $2,226, a decrease$2,147, an increase of $201, as$225, compared to $2,427$1,922 as at June 30, 2019.2020. The decreaseincrease in inventories was mainly due to a decrease in purchases due to fewerline with an increase in orders by customers in the manufacturing segment of the Singapore operations, as well as an impact from currency translation.and U.S. operations.
Investment properties, net in ChinaPrepaid expenses and other current assets were $705$342 as at MarchDecember 31, 2020 and $782compared to $341 as at June 30, 2019.2020.
Investment properties’ net in China was $712 as at December 31, 2020 and $690 as at June 30, 2020. The decreaseincrease was primarily due to the depreciation expenses charged for the period, as well as the foreign currency exchange movement between June 30, 20192020 and MarchDecember 31, 2020.
Assets heldThe increase was partially offset by the depreciation charged for sales were $nil as at March 31, 2020 and $89 as at June 30, 2019. Management entered into a Sales and Purchase Agreement with a potential buyer during fiscal year 2019 and the sale was completed during the second quarter of fiscal 2020.period.
Property, plant and equipment decreased by $1,562$260 from $12,159$10,310 as at June 30, 2019,2020, to $10,597$10,050 as at MarchDecember 31, 2020. This was2020, mainly due to depreciation charged for the period and the foreign currency exchange movement between June 30, 20192020 and MarchDecember 31, 2020, coupled with an impairment loss of $139 recognized in the China operation.2020. The decrease was partially offset by the new acquisition ofproperty, plant, and equipment acquisition in the Singapore and Malaysia operation.operations.
Other assets decreasedRestricted term deposits increased by $155$92 to $1,595$1,752 as at MarchDecember 31, 2020 as compared to $1,750$1,660 as at June 30, 2019.2020. This was primarily due to the foreign currency exchange movement between June 30, 2020 and December 31, 2020.
Other assets increased by $222 to $1,831 as at December 31, 2020 compared to $1,609 as at June 30, 2020. This was mainly due to the reclassification of down payments made for the purchase of equipment to property, plant and equipment in the Malaysia operation.
Lines of credit decreased by $172 to $nil as at December 31, 2020 as compared to $172 as at June 30, 2020. This was due to lower utilization of the bank facilities in the Singapore operation.
Accounts payable decreasedincreased by $143$513 to $3,129$3,103 as at MarchDecember 31, 2020 as compared to $3,272$2,590 as at June 30, 2019.2020. This was due to a decreasean increase in purchases duesales, which lead to fewer ordersmore materials purchased to meet customer requirements in the manufacturing segment of the Singapore operation.
Accrued expenses decreasedincreased by $421$390 to $3,065$3,395 as at MarchDecember 31, 2020 as compared to $3,486$3,005 as at June 30, 2019.2020. The decreaseincrease in accrued expenses was mainly due to a decreasean increase in boththe accrued purchases and accrued payroll liability in the Singapore operations.operation.
Bank loans payable decreasedincreased by $483$136 to $2,297$2,342 as at MarchDecember 31, 2020 as compared to $2,780$2,206 as at June 30, 2019.2020. This was due to the additional loan drawdown in the Malaysia operation.
Finance leases decreased by $86 to $580 as at December 31, 2020 as compared to $666 as at June 30, 2020. This was due to the repayments made in the Singapore and Malaysia operations during the nine months ended March 31, 2020.operation.
Operating lease right of useright-of-use assets and the corresponding leasedlease liability were $1,073 and $1,073, respectively,increased by $570 to $1,514 as of MarchDecember 31, 2020, after taking into effectas compared to $944 as at June 30, 2020. This was due to the new accounting standard,ASC 842 Leases.renewal of the lease agreements in the Singapore operations. The increase was partially offset with the repayment made and the operating lease expenses charged for the period.
As of December 31, 2020 and June 30, 2020, the Company accounted $121 for the Paycheck Protection Program which was created by the United States Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Liquidity Comparison
Net cash provided by operating activities decreased by $834$1,258 to an inflow of $2,096$315 for the ninesix months ended MarchDecember 31, 2020 from an inflow of $2,930$1,573 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 assetsnet income by $1,243 and an increase in cash outflow of $509$1,727 from accounttrade accounts receivable. These increases were partially offset by a decrease in depreciation and amortization amounted to $107 and an increase in cash inflow of $1,006 from accounts payables and accrued expenses. These were partially offset by an increase in depreciation and amortization of $573.
Net cash used in investing activities decreased by $2,628$2,010 to an outflow of $1,941$106 for the ninesix months ended MarchDecember 31, 2020 from an outflow of $4,569$2,116 for the same period of the last fiscal year. The decrease in cash outflow was primarily due to a decrease in investment in unrestricted term deposits by $2,263 and $527 in capital expenditures, coupled with an increase in proceedscash inflow of $520 from the salewithdrawal of assets held for sale of $318 andunrestricted deposit. These decreases were partially offset by a decrease in capital expenditurecash inflow of $1,728.$1,261 from proceed from sale of asset held for sale.
Net cash used in financing activities for the ninesix months ended MarchDecember 31, 2020 was $296,$357, representing an increasea decrease of $133,$752, as compared to $163cash inflow $395 during the ninesix months ended MarchDecember 31, 2019. The increase in cash outflow was mainly attributable to a decrease in cash inflow by $3,905$1,337 from proceeds ofthe lines of credit a decrease of $1,475 from bank loans and a decrease of $401 from the exercise of stock options. These wereproceeds. This increase was partially offset by a decrease in cash outflow of $5,426$555 from repayment ofthe payments on lines of credit and an increase of cash inflow of $247 from the proceeds from financial leases.credit.
We believe that our projected cash flows from operations, borrowing availability under our revolving lines of credit, cash on hand, trade credit and the secured bank loan will provide the necessary financial resources to meet our projected cash requirements for at least the next 12 months.
Critical Accounting Estimates & Policies
Effective as of July 1, 2019, the Company has adopted ASU 2016-02, Leases (Topic 842), and its related amendments using 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 Notenote 1 to the financial statements included in item 1 of this Form 10-Q.
ITEM 3. QUANTITATIVEQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was carried out by the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of MarchDecember 31, 2020, the end of the period covered by this Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective at a reasonable level.
Changes in Internal Control Over Financial Reporting
Due to the COVID-19 pandemic, a significant portion of our employees are working from home. The design of our processes and controls allows for remote execution with accessibility to secure data.
Except as discussed below, there has been no change in the Company’s internal control over financial reporting during the fiscal quarter ended MarchDecember 31, 2020 that hashave materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial reporting.
Enterprise Resource Planning (ERP) Implementation
We are in the process of implementing an ERP System as part of a multi-year plan to integrate and upgrade our systems and processes. The implementation of this ERP system was scheduled to occur in phases over a few years, and began with the migration of certainyears. The operational and financial systems in our Singapore and Malaysia operations were transitioned to the new ERPsystem in fiscal 2018 and fiscal 2019, respectively.
The operational and financial systems in our Tianjin and Suzhou operations have been fully transitioned to the new system during the second quarter of fiscal 2017.
During the third quarter of fiscal 2018, the operational and financial systems in Singapore were substantially transitioned to the new system. The operational and financial systems in our Malaysia operation were substantially transitioned to the new system during the first quarter of fiscal 2019.
The operational systems in our Tianjin and Suzhou operations were substantially transitioned to the new system during the third quarter of fiscal 2020.2021. 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.
TRIO-TECH INTERNATIONAL
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 | | 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 21, 2020February 11, 2021 |