Blueprint
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
fiscal year ended June 30, 2018
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
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95-2086631
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
Number)
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16139 Wyandotte Street
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Van Nuys, California
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91406
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's
Telephone Number: 818-787-7000
Securities
registered pursuant to Section 12(b) of the Act:
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Name of each
exchange
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Title of each
class
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On
which registered
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Common
Stock, no par value
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The
NYSE MKT
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a
well-known seasoned issuer, as defined in rule 405 of the
Securities Act. ⬜Yes ☑No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
⬜Yes ☑ No
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. ☑Yes ⬜ No
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files). ☑Yes ⬜ No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (§229.405) is not contained herein, and
will not be contained, to the best of Registrant’s knowledge,
in a definitive proxy statement or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definition of
“large accelerated filer,” “accelerated
filer”, “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large
Accelerated Filer ☐
Accelerated Filer
☐
Non-Accelerated
Filer ☐
Smaller Reporting Company
☑
Emerging Growth Company ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). ⬜Yes
☑No
The
aggregate market value of voting stock held by non-affiliates of
Registrant, based upon the closing price of $7.01 for shares of the
registrant’s Common Stock on December 31, 2017, the last
business day of the registrants most recently completed second
fiscal quarter as reported by the NYSE MKT, was approximately
$12,052,000. In calculating such aggregate market value, shares of
Common Stock held by each officer, director and holder of 5% or
more of the outstanding Common Stock (including shares with respect
to which a holder has the right to acquire beneficial ownership
within 60 days) were excluded because such persons may be deemed to
be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other
purposes.
The
number of shares of Common Stock outstanding as of September 1,
2018 was 3,553,055.
Documents
Incorporated by Reference
Part
III of this Form 10-K incorporates by reference information from
Registrant’s Proxy Statement for its 2018 Annual Meeting of
Shareholders to be filed with the Commission under Regulation 14A
within 120 days of the end of the fiscal year covered by this Form
10-K.
TRIO-TECH INTERNATIONAL
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F-7
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PART I
ITEM 1 – BUSINESS (IN THOUSANDS, EXCEPT PERCENTAGES AND SHARE
AMOUNTS)
Cautionary Statement Regarding Forward-Looking
Statements
The discussions of Trio-Tech International’s (the
“Company”) business and activities set forth in this
Form 10-K and in other past and future reports and announcements by
the Company may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended,
and assumptions regarding future activities and results of
operations of the Company. In light of the “safe
harbor” provisions of the Private Securities Litigation
Reform Act of 1995, the following factors, among others, could
cause actual results to differ materially from those reflected in
any forward-looking statements made by or on behalf of the Company:
market acceptance of Company 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; credit risks in the Chinese
real estate industry; changes in macroeconomic conditions
and credit market conditions; and
other economic, financial and regulatory factors beyond the
Company’s control. In some cases, you can identify
forward-looking statements by the use of terminology such as
“may,” “will,” “expects,”
“plans,” “anticipates,”
“estimates,” “potential,”
“believes,” “can impact,”
“continue,” or the negative thereof or other comparable
terminology.
Unless
otherwise required by law, the Company undertakes no obligation to
update forward-looking statements to reflect subsequent events,
changed circumstances, or the occurrence of unanticipated events.
You are cautioned not to place undue reliance on such
forward-looking statements.
General
Trio-Tech
International was incorporated in 1958 under the laws of the State
of California. As used herein, the term "Trio-Tech" or
"Company” or “we” or “us” or
“Registrant” includes Trio-Tech International and its
subsidiaries unless the context otherwise indicates. The mailing
address and executive offices are located at 16139 Wyandotte
Street, Van Nuys, California 91406, and the telephone number is
(818) 787-7000.
During
fiscal year 2018, the Company operated its business in four
segments: manufacturing, testing services, distribution and real
estate. Geographically, the Company operates in the United States
(“U.S.”), Singapore, Malaysia, Thailand and China. It
operates six testing service facilities; one in the U.S. and five
in Asia. It operates two manufacturing facilities: one in the
U.S.and the other in Asia. Its distribution segment and real estate
segment operate primarily in Asia. Its major customers are
concentrated in Asia and they are either semiconductor chip
manufacturers or testing facilities that purchase testing
equipment. For information relating to revenues, profit and loss
and total assets for each of the segments, see Note 19 - Business
Segments contained in the consolidated financial statements
included in this Form 10-K.
Company History – Certain Highlights up to Fiscal Year
2018
2014
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Trio-Tech
International Pte. Ltd., Singapore, re-certified to ISO 17025:2005
standards.
Universal
(Far East) Pte. Ltd. Singapore re-certified to ISO 9001:2008
standards.
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2015
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Trio-Tech
(Tianjin) Co., Ltd., re-certified to ISO 9001:2008
standards.
Trio-Tech
International Pte. Ltd., Singapore, Trio-Tech (Malaysia) Sdn. Bhd.
and Trio-Tech (Bangkok) Co., Ltd. re-certified to ISO 9001:2008
standards. (Aug 2015)
Trio-Tech
International Pte. Ltd., Singapore, re-certified to ISO 14001:2004
standards. (Aug 2015)
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2016
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Trio-Tech
(Tianjin) Co., Ltd., re-certified to ISO 14001:2004 standards.
(July 2016)
Trio-Tech
(Tianjin) Co., Ltd., re-certified to OHSAS 18001:2007 standards.
(July 2016)
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2017
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Trio-Tech
International Pte. Ltd., Singapore, re-certified to biz SAFE Level
3 Workplace Safety and Health standards.
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2018
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Trio-Tech
(Tianjin) Co. Ltd. re-certified to ISO 9001:2015 standards. (Apr
2018).
Trio-Tech
International Pte. Ltd. (Singapore) re-certified to ISO 9001:2015
standards. (Jun 2018)
Trio-Tech
(Malaysia) Sdn. Bhd. re-certified to ISO 9001:2015 standards. (Jun
2018)
Trio-Tech
(Bangkok) Co. Ltd. re-certified to ISO 9001:2015 standards. (Jun
2018)
Trio-Tech
International Pte. Ltd. (Singapore) re-certified to ISO 14001:2015
standards. (Jun 2018)
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Overall Business Strategies
Our core business is and historically has been in the semiconductor
industry (testing services, manufacturing-assembly) manufacturing
and distribution. Revenue from this industry accounted for 99.7%
and 99.6% for fiscal years 2018 and 2017 respectively. The
semiconductor industry has experienced periods of rapid growth, but
has also experienced downturns, often in connection with, or in
anticipation of, maturing product cycles of both semiconductor
companies’ and their customers’ products and declines
in general economic conditions. To reduce our risks
associated with sole industry focus and customer concentration, the
Company continue to put its effort to expand for new customer in
different industry. Real Estate
segment contributed only 0.3% to the total revenue for fiscal 2018
and has been insignificant since the property market in China has
slowed down due to control measures in China. We are continuing the
process of winding-down the oil & gas equipment fabrication
operations, which discontinued its operations in December
2012.
To
achieve our strategic plan for our semiconductor business, we
believe that we must pursue and win new business in the following
areas:
●
Primary markets – Capturing
additional market share within our primary markets by offering
superior products and services to address the needs of our major
customers.
●
Growing markets – Expanding our
geographic reach in areas of the world with significant growth
potential.
●
New markets
– Developing new products and
technologies that serve wholly new markets.
●
Complementary strategic relationships
– Through complementary acquisitions or
similar arrangements, we believe we can expand our markets and
strengthen our competitive position. As part of our growth
strategy, the Company continues to selectively assess opportunities
to develop strategic relationships, including acquisitions,
investments and joint development projects with key partners and
other businesses.
Business Segments
Testing Services
Our
testing services are rendered to manufacturers and purchasers of
semiconductors and other entities who either lack testing
capabilities or whose in-house screening facilities are
insufficient for testing devices in order for them to make sure
that these products meet certain commercial specifications.
Customers outsource their test services either to accommodate
fluctuations in output or to benefit from economies that can be
offered by third party service providers.
Our
laboratories perform a variety of tests, including stabilization
bake, thermal shock, temperature cycling, mechanical shock,
constant acceleration, gross and fine leak tests, electrical
testing, microprocessor equipment contract cleaning services,
static and dynamic burn-in tests, reliability lab services and
vibration testing. We also perform qualification testing,
consisting of intense tests conducted on small samples of output
from manufacturers who require qualification of their processes and
devices.
We use
our own proprietary equipment for certain burn-in, centrifugal and
leak tests, and commercially available equipment for various other
environmental tests. We conduct the majority of our testing
operations in Asia with facilities in Singapore, Malaysia, Thailand
and China, which have been certified to the relevant ISO quality
management standards.
Manufacturing
We
manufacture both front-end and back-end semiconductor test
equipment and related peripherals at our facilities in Singapore
and the U.S.
Front-End Products
Artic Temperature Controlled Wafer Chucks
Artic
Temperature Controlled Wafer Chucks are used for test,
characterization and failure analysis of semiconductor wafers and
such other components at accurately controlled cold and hot
temperatures. These systems provide excellent performance to meet
the most demanding customer applications. Several unique mechanical
design features provide excellent mechanical stability under high
probing forces and across temperature ranges.
Wet Process Stations
Wet
Process Stations are used for cleaning, rinsing and drying
semiconductor wafers, flat panel display magnetic disks, and other
microelectronic substrates. After the etching or deposition of
integrated circuits, wafers are typically sent through a series of
100 to 300 additional processing steps. At many of these processing
steps, the wafer is washed and dried using Wet Process
Stations.
Back-End Products
Autoclaves and HAST (Highly Accelerated Stress Test)
Equipment
We
manufacture autoclaves, HAST systems and specialized test fixtures.
Autoclaves provide pressurized, saturated vapor (100% relative
humidity) test environments for fast and easy monitoring of
integrated circuit manufacturing processes. HAST systems provide a
fast and cost-effective alternative to conventional non-pressurized
temperature and humidity testing.
Burn-in Equipment and Boards
We
manufacture burn-in systems, burn-in boards and burn-in board test
systems. Burn-in equipment is used to subject semiconductor devices
to elevated temperatures while testing them electrically to
identify early product failures and to assure long-term
reliability. Burn-in boards are used to mount devices during high
temperature environmental stressing tests.
We
provide integrated burn-in automation solutions to improve
products’ yield, reduce processing downtime and improve
efficiency. In addition, we develop a cooling solution, which is
used to cool or maintain the temperature of high power heat
dissipation semiconductor devices.
Component Centrifuges and Leak Detection Equipment
We
manufacture centrifuges that perform high speed constant
acceleration to test the mechanical integrity of ceramic and other
hermetically sealed semiconductor devices and electronic parts for
high reliability and aerospace applications. Leak detection
equipment is designed to detect leaks in hermetic packaging. The
bubble tester is used for gross leak detection. A visual bubble
trail will indicate when a device is defective.
Distribution
In
addition to marketing our proprietary products, we distribute
complementary products made by manufacturers mainly from the U.S.,
Europe, Taiwan and Japan. The products include environmental
chambers, handlers, interface systems, vibration systems, shaker
systems, solderability testers and other, semiconductor equipment.
Besides equipment, we also distribute a wide range of components
such as connectors, sockets, LCD display panels and touch-screen
panels. Furthermore, our range of products are mainly targeted for
industrial products, the life cycle of which can last from 3 years
to 7 years, rather than consumer products which have a shorter life
cycle.
Real Estate
Beginning in 2007, TTI invested in real estate property in
Chongqing, China, which has generated investment income from the
rental revenue and investment returns from deemed loan receivables,
which are classified as other income. The rental income is
generated from the rental properties in MaoYe and FuLi in
Chongqing, China. In the second quarter of fiscal 2015, the
investment in JiaSheng, which was deemed as loans receivable, was
transferred to down payment for purchase of investment property in
China.
Product Research and Development
We
focus our research and development activities on improving and
enhancing both product design and process technology. We conduct
product and system research and development activities for our
products in Singapore and the U.S. Research and development
expenses were $451 and $208 in fiscal years 2018 and 2017,
respectively.
Marketing, Distribution and Services
We
market our products and services worldwide, directly and through
independent sales representatives and our own marketing sales team.
We have approximately five independent sales representatives
operating in the U.S. and another twenty in various foreign
countries. All sales representatives represented the testing
services segment and the manufacturing segment for various products
and services produced and provided from our facilities in different
locations.
Dependence on Limited Number of Customers
In
fiscal years 2018 and 2017, combined sales of equipment and
services to our three largest customers accounted for approximately
64.0% and 66.2%, respectively, of our total net revenue. Of those
sales, $21,648 (51.1%) and $21,105 (54.8%) were from one major
customer. Although the major customer is a U.S. company, the
revenue generated from it was from facilities located outside of
the U.S. The majority of our sales and services in fiscal years
2018 and 2017 were to customers outside of the U.S.
Backlog
The following table
sets forth the Company's backlog at the dates
indicated:
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For the
Year Ended June 30,
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Manufacturing
backlog
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$4,324
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$4,414
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Testing services
backlog
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1,301
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1,105
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Distribution
backlog
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2,781
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1,686
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293
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341
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$8,699
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$7,546
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*Real
estate backlog is based on the rental income from a non-cancellable
lease.
Based
on our past experience, we do not anticipate any significant
cancellations or re-negotiation of sales. The purchase orders for
the manufacturing, testing services and distribution businesses
generally require delivery within 12 months from the date of the
purchase order and certain costs are incurred before delivery. In
the event of a cancellation of a confirmed purchase order, we
require our customers to reimburse us for all costs
incurred. We do not
anticipate any difficulties in meeting delivery schedules. The
backlog is based on estimates provided by our customers and is not
based on a customer’s purchase order as it is a practice that
the purchase orders are provided only during the process of
delivery.
Materials and Supplies
Our
products are designed by our engineers and are assembled and tested
at our facilities in the U.S., China and Singapore. We purchase all
parts and certain components from outside vendors for assembly
purposes. We have no written contracts with any of our key
suppliers. As these parts and components are available from a
variety of sources, we believe that the loss of any one of our
suppliers would not have a material adverse effect on our results
of operations taken as a whole.
Competition
Our
ability to compete depends on our ability to develop, introduce and
sell new products or enhanced versions of existing products on a
timely basis and at competitive prices, while reducing our
costs.
There
are numerous testing laboratories in the areas where we operate
that perform a range of testing services similar to those
offered. However, due to severe competition in the Asia
testing and burn-in services industry there has been a reduction in
the total number of competitors. The existence of competing
laboratories and the purchase of testing equipment by semiconductor
manufacturers and users are potential threats to our future testing
services revenue and earnings. Although these laboratories and
new competitors may challenge us at any time, we believe that other
factors, including reputation, long service history and strong
customer relationships, are instrumental in determining our
position in the market.
The
distribution segment sells a wide range of equipment to be used for
testing products. As the semiconductor equipment industry is highly
competitive, we offer a one-stop service alternative to customers
by complementing our products with design consultancy and other
value-added services.
The
principal competitive factors in the manufacturing industry include
product performance, reliability, service and technical support,
product improvements, price, established relationships with
customers and product familiarity. We make every effort to compete
favorably with respect to each of these factors. Although we
have competitors for our various products, we believe that our
products compete favorably with respect to each of the above
factors. We have been in business for more than 59 years and have
operation facilities mostly located in Asia. Those factors
combined have helped us to establish and nurture long-term
relationships with customers and will allow us to continue doing
business with our existing customers upon their relocation to other
regions where we have a local presence or are able to
reach.
Patents
In
fiscal years 2018 and 2017, we did not register any patents within
the U.S.
It is
typical in the semiconductor industry to receive notices from time
to time alleging infringement of patents or other intellectual
property rights of others. We do not believe that we infringe on
the intellectual property rights of any others. However, should any
claims be brought against us, the cost of litigating such claims
and any damages could materially and adversely affect our business,
financial condition, and results of operations.
Employees
As of
June 30, 2018, we had approximately 661 full time employees and no
part time employees. Geographically, approximately 9 full time
employees were located in the U.S. and approximately 652 full time
employees in Asia. None of our employees are represented by a labor
union.
There
were approximately 59 employees in the manufacturing segment, 561
employees in the testing services segment, 3 employees in the
distribution segment, 3 employees in the real estate segment and 35
employees in general administration, logistics and
others.
As a
smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934, we are not required to provide the
information required by this item.
ITEM 1B –
UNRESOLVED STAFF
COMMENTS
Not
applicable.
As of
the date of filing of this Form 10-K, we believe that we are
utilizing approximately 80% of our fixed property capacity. We also
believe that our existing facilities are adequate and suitable to
cover any sudden increase in our needs in the foreseeable
future.
The
following table presents the relevant information regarding the
location and general character of our principal manufacturing and
testing facilities:
Location
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Segment
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Owned
(O) or Leased (L)
& Expiration Date
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16139 Wyandotte Street, Van Nuys,
CA 91406,
United States of America
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Corporate, Testing
Services / Manufacturing
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5,200
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(L) March 2020
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1004, Toa Payoh North, Singapore
Unit No. HEX 07-01/07
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Testing Services
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6,864
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(L) Sept 2020
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Unit No. HEX 07-01/07, (ancillary site)
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Testing Services
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2,532
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(L) Sept 2020
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Unit No. HEX 03-01/02/03
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Testing Services / Manufacturing
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2,959
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(L) Sept 2020
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Unit No. HEX 01-08/15
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Testing Services / Manufacturing / Logistics Store
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6,864
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(L) Jan 2020
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Unit No. HEX 01-08/15, (ancillary site)
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Testing Services / Manufacturing
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449
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(L) Jan 2020
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1008, Toa Payoh North, Singapore
Unit No. HEX 03-09/17
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Manufacturing
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6,099
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(L) Jan 2020
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Unit No. HEX 03-09/17, (ancillary site)
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Manufacturing
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70
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(L) Jan 2020
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Unit No. HEX 01-09/10/11
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Manufacturing
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2,202
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(L) Nov 2020
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Unit No. HEX 01-15/16
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Manufacturing
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1,400
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(L) Sept 2020
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Unit No. HEX 01-08
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Manufacturing
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603
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(L) June 2020
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Unit No. HEX 01-12/14
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Manufacturing
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1,664
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(L) July 2019
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Plot 1A, Phase 1
Bayan Lepas Free Trade Zone
11900 Penang, Malaysia
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Manufacturing
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42,013
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(O)
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Lot No. 11A, Jalan SS8/2,
Sungai Way Free Industrial Zone,
47300 Petaling Jaya,
Selangor Darul Ehsan, Malaysia
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Testing Services
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78,706
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(O)
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Lot No. 4, Kawasan MIEL
No. B-11-03, Jalan Persiaran Multimedia, I-City Seksyen 7,
40000 Shah Alam, Selangor
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Software Development Office
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480
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(L) March 2019
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327, Chalongkrung Road,
Lamplathew, Lat Krabang,
Bangkok 10520, Thailand
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Testing Services
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34,433
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(O)
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No. 5, Xing Han Street, Block A
#04-15/16, Suzhou Industrial Park
China 215021
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Testing Services
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6,200
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(L) Jan 2019
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27-05, Huang Jin Fu Pan.
No. 26 Huang Jin Qiao Street
Hechuan District Chongqing
China 401520
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Real Estate
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969
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(L) Aug 2019
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B7-2, Xiqing Economic Development Area International Industrial
Park
Tianjin City, China 300385
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Testing Services
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45,940
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(L) April 2021
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ITEM 3 – LEGAL PROCEEDINGS
The
Company is, from time to time, the subject of litigation claims and
assessments arising out of matters occurring in its normal business
operations. In the opinion of management, resolution of these
matters will not have a material adverse effect on our financial
statements.
There
are no material proceedings to which any director, officer or
affiliate of the Company, any beneficial owner of more than five
percent of the Company’s Common Stock, or any associate of
such person is a party that is adverse, to the Company or its
properties.
ITEM 4 – MINE SAFETY
DISCLOSURES
Not
applicable.
ITEM 5 – MARKET FOR REGISTRANT'S COMMON EQUITY,
RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market Information
Our
Common Stock is traded on the NYSE MKT under the symbol
“TRT.” The following table sets forth, for the periods
indicated, the range of high and low sales prices of our Common
Stock as quoted by the NYSE MKT:
|
|
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|
|
|
Fiscal
year ended June 30, 2017
|
|
|
Quarter
ended September 30, 2016
|
$4.19
|
$2.60
|
Quarter
ended December 31, 2016
|
$3.63
|
$2.75
|
Quarter
ended March 31, 2017
|
$4.48
|
$3.25
|
Quarter
ended June 30, 2017
|
$6.04
|
$4.02
|
|
|
|
Fiscal
year ended June 30, 2018
|
|
|
Quarter
ended September 30, 2017
|
$5.25
|
$4.05
|
Quarter
ended December 31, 2017
|
$8.47
|
$4.75
|
Quarter
ended March 31, 2018
|
$6.95
|
$5.61
|
Quarter
ended June 30, 2018
|
$5.80
|
$4.18
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Stockholders
As of September 1, 2018, there were 3,553,055 shares of our Common
Stock issued and outstanding, and the Company had approximately 59
record holders of Common Stock. The
number of holders of record does not include the number of persons
whose stock is in nominee or “street name” accounts
through brokers.
Dividend Policy
We did
not declare any cash dividends in either fiscal year 2018 or fiscal
year 2017.
The
determination as to whether to
pay any future cash dividends will depend upon our earnings
and financial position at that time and other factors as the Board
of Directors may deem appropriate. In general, California law
prohibits the payment of unless the corporation’s retained
earnings prior to the dividend equals or exceeds the dividend or,
immediately after payment of the dividends, the corporation’s
assets would equal or exceed its total liabilities. There is no
assurance that dividends will be paid
to holders of Common Stock in the foreseeable
future.
ITEM 6 - SELECTED FINANCIAL
DATA
As a
smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934, we are not required to provide the
information required by this item.
ITEM 7 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT
PERCENTAGES AND SHARE AMOUNTS)
The following discussion and analysis should be read in conjunction
with our disclaimer on “Forward-Looking Statements,”
“Item 1. Business,” and our Consolidated Financial
Statements, the notes to those statements and other financial
information contained elsewhere in this Annual Report on
Form 10-K.
During
fiscal years 2018 and 2017, Trio-Tech International operated in
four segments: manufacturing, testing services, distribution and
real estate. In fiscal year 2018, revenue from the manufacturing,
testing services, distribution and real estate segments represented
37.7%, 45.8%, 16.2% and 0.3% of our revenue, respectively, as
compared to 39.7%, 43.0%, 16.9% and 0.4%, respectively, in fiscal
year 2017.
Semi-conductor
testing and manufacturing (assembly) of test equipment is our core
business. We provide
third-party semiconductor testing and burn-in services primarily
through our laboratories in Asia. At or from our facilities in the
U.S. and Asia, we also design, manufacture and market equipment and
systems to be used in the testing and production of semiconductors,
and distribute semiconductor processing and testing equipment
manufactured by other vendors.
Our
distribution segment operates primarily in Asia. This segment
markets and supports distributing complementary products supplied
by other manufacturers that are used by its customers and other
semiconductor and electronics manufacturers. We believe this will
help us to reduce our exposure to multiple risks arising from being
a mere distributor of manufactured products from
others.
The main revenue component for the real estate segment was rental
income.
No investment income was recorded as “revenue” by the
real estate segment in either of fiscal years 2018 or
2017.
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.
Trio-Tech
Chongqing Co., Ltd. (“TTCQ”) invested RMB 5,554 in
rental properties in MaoYe during fiscal year 2008, RMB 3,600 in
rental properties in JiangHuai during fiscal year 2010 and RMB
4,025 in rental properties in FuLi during fiscal year 2010. The
total investment in properties in China was RMB 13,179, or
approximately $1,991 and $1,944 in fiscal years 2018 and 2017,
respectively. The carrying value of these investment properties in
China was RMB 7,583 and RMB 8,242, or approximately $1,146 and
$1,216, in fiscal years 2018 and 2017, respectively. These
properties generated a total rental income of $139 and $152 for
fiscal years 2018 and 2017, respectively. TTCQ’s investment
in properties that generated rental income is discussed further in
this Form 10-K.
TTCQ
has yet to receive the title deed for properties purchased from
JiangHuai. TTCQ is in the legal process of obtaining the title
deed, which is dependent on JiangHuai completing the entire
project. JiangHuai property did not generate any income during
fiscal 2018 and 2017.
On October 14, 2014, TTCQ and Jun Zhou Zhi Ye entered into a
memorandum of understanding. Based on the memorandum of
understanding, both parties agreed to register a sales and purchase
agreement upon Jun Zhou Zhi Ye obtaining a license to sell the
commercial property (the Singapore Themed Resort Project) located
in Chongqing, China. The proposed agreement is for the sale of shop
lots with a total area of 1,484.55 square meters as consideration
for the outstanding amounts owed to TTCQ by Jun Zhou Zhi Ye as
follows:
a) Long term loan receivable RMB 5,000, or approximately $814, as
disclosed in Note 5, plus the interest receivable on long term loan
receivable of RMB 1,250;
b) Commercial units measuring 668 square meters, as mentioned
above; and
c) RMB 5,900 for the part of the unrecognized cash consideration of
RMB 8,000 relating to the disposal of the joint
venture.
The consideration does not include the remaining outstanding amount
of RMB 2,000, or approximately $326, which will be paid to TTCQ in
cash.
The shop lots are to be delivered to TTCQ upon completion of the
construction of the shop lots in the Singapore Themed Resort
Project. The initial targeted date of completion was December 31,
2016. Based on discussions with the developers, the completion date
is estimated to be December 31, 2019.
The share transfer (10% interest in the joint venture) was
registered with the relevant authorities in China in October
2016.
Fiscal Year 2018
Highlights (in Thousands)
●
Total revenue
increased by $3,823, or 9.9%, to $42,361 in fiscal year 2018
compared to $38,538 in fiscal year 2017.
●
Manufacturing
segment revenue increased by $689, or 4.5%, to $15,978 in fiscal
year 2018 compared to $15,289 in fiscal year 2017.
●
Testing services
segment revenue was $19,391 in fiscal year 2018, an increase of
$2,805, or 16.9%, compared to $16,586 in fiscal year
2017.
●
Distribution
segment revenue was $6,853 in fiscal year 2018, an increase of $342
or 5.3%, compared to $6,511 in fiscal year 2017.
●
Real estate segment
revenue decreased by $13, to $139 in fiscal year 2018 compared to
$152 in fiscal year 2017.
●
Overall gross
profit margin increased by 0.5% to 25.1% in fiscal year 2018
compared to 24.6% in fiscal year 2017.
●
General and
administrative expenses increased by $339, or 4.9%, to $7,250 in
fiscal year 2018 compared to $6,911 in fiscal year
2017.
●
Research and
development expenses increased by $243, from $ 208 in fiscal year
2017 to $451 in fiscal year 2018.
●
Selling expenses
increased by $19, or 2.4%, to $826 in fiscal year 2018 compared to
$807 in fiscal year 2017.
●
Loss on disposal of
property, plant and equipment was $77 in fiscal year 2018, a
deterioration of $124 as compared to a gain of $47 in fiscal year
2017.
●
Income from
operations was $2,188 in fiscal year 2018, an increase of $699, as
compared to $1,489 in fiscal year 2017.
●
Income from
continuing operations before income taxes was $2,290 in fiscal year
2018, an increase of $489, as compared to $1,801 in fiscal year
2017.
●
Other income
decreased by $179 to $335 in fiscal year 2018 compared to $514 in
fiscal year 2017.
●
Tax expense for
fiscal year 2018 was $987 compared to $341 in fiscal year
2017.
●
Total assets
increased by $2,976 or 8.9%, to $36,474 as of June 30, 2018
compared to $33,498 as of June 30, 2017.
●
Working capital
increased by $1,740, or 23.2 %, to $9,228 as of June 30, 2018
compared to $7,488 as of June 30, 2017.
●
Net income
attributable to Trio-Tech International for fiscal year 2018 was
$1,184 compared to $1,316 in fiscal year 2017.
●
Net income
attributable to non-controlling interest for fiscal year 2018 was
$106 compared to $139 in fiscal year 2017.
The
highlights above are intended to identify some of our most
significant events and transactions during our fiscal year 2018.
However, these highlights are not intended to be a full discussion
of our results for the year. These highlights should be read in
conjunction with the discussion in this Item 7 and with our
consolidated financial statements and footnotes accompanying this
Annual Report.
General Financial Information
During
the fiscal year ended June 30, 2018, total assets increased by
$2,976 from $33,498 in fiscal year 2017 to $36,474 in fiscal year
2018. The increase was primarily due to an increase in cash and
cash equivalents, other receivables, inventories and assets held
for sale, deferred tax asset, property, plant and equipment, other
assets and restricted term deposits. The increase was partially
offset by the decrease in short term deposits, trade accounts
receivables, prepayments and investment properties.
Cash
and cash equivalents at June 30, 2018 were $6,539, an increase of
$1,767, or 37.0%, compared to $4,772 at June 30, 2017. The increase
was mainly due to improvement in collection from customers in the
Singapore, Malaysia and Tianjin, China operations.
Trade
accounts receivable at June 30, 2018 was $8,007, representing a
decrease of $1,002, or 11.1%, compared to $9,009 at June 30, 2017.
The decrease was attributable to improved collection in the
Singapore, Malaysia and Tianjin, China operations. The number of
days’ sales outstanding in accounts receivables was 72 days
and 83 days for the fiscal years ended June 30, 2018 and 2017,
respectively. The decrease in days’ sales outstanding was
primarily due to improved collections for fiscal year ended 2018,
as compared to the yearend of the last fiscal
year.
As June
30, 2018, other receivables were $621, an increase of $220, or
54.9%, compared to $401 at June 30, 2017. The increase was
primarily due to the tax incentive receivable by the Tianjin, China
operations and the increase of advance payment due to engagement of
a new principal supplier in the Singapore operations. As the
Tianjin, China operations is qualified as a National Advanced Tech
Corporation, the operation therefore enjoyed reduced tax rate
commencing Jan 2018.The increase was partially offset by the
transfer of down payment for purchase of property, plant and
equipment to fixed assets in the Singapore operations during fiscal
year ended 2018.
Inventories
at June 30, 2018 were $2,930, an increase of $1,174, or 66.8%,
compared to $1,756 at June 30, 2017. The number of days’
inventory held was 70 days at the end of fiscal 2018, compared to
48 days at the end of fiscal year 2017. The slower turnover
days’ inventory on hand was mainly due to an increase in
inventory purchased to meet the demand and also delayed shipment in
the Singapore operations in the fiscal year ended June 30,
2018.
Investment
properties in China as of June 30, 2018 were $1,146, a decrease of
$70 from $1,216 at June 30, 2017. The decrease was primarily
due to the depreciation charged during fiscal year 2018. The
decrease was partially offset by currency translation. Investment
property in Malaysia as of June 30, 2018 and 2017 were
nil.
Property,
plant and equipment at June 30, 2018 were $11,935, an increase of
$644, compared to $11,291 at June 30, 2017. The increase in
property, plant and equipment was mainly due to lower disposal of
assets in the Malaysia and Tianjin, China operations as part of
operation review in fiscal year 2018 compared to fiscal year of
2017, and the foreign currency
exchange difference between functional currency and U.S.
dollars from June 30, 2017 to June 30, 2018. Capital
expenditures in fiscal year 2018 increased by $24, to $2,309, as
compared to $2,285 for fiscal year 2017. The increase in capital
expenditures in the Singapore and Tianjin, China operations was
partially offset by the decrease in capital expenditures in the
Malaysia and Bangkok, Thailand operations in fiscal year
2018.
Other
assets at June 30, 2018 were $2,249, an increase of $327, or 17.0%,
compared to $1,922 at June 30, 2017. The increase in other assets
was primarily due to down payments for purchases of property, plant
and equipment in the Tianjin, China operations and by the currency
translation difference between functional currency and U.S. dollars
from June 30, 2017 to June 30, 2018.
Restricted
term deposits at June 30, 2018 increased by $38, or 2.3%, to $1,695
compared to $1,657 at June 30, 2017. The increase was mainly due to
fixed deposit interest earned and
currency translation difference between functional currency and
U.S. dollar from
June 30, 2017 to June 30, 2018.
Total
liabilities at June 30, 2018 were $12,973, an increase of $1,002, or 8.4%, compared
to $11,971 at June 30, 2017. The increase in liabilities was
primarily due to the increase in accounts payable, accrued
expenses, income tax payable, deferred tax liabilities, and bank
loans payable, but partially offset by the decrease in lines of
credit.
Utilized
lines of credit as of June 30, 2018 decreased by $513 to $2,043,
from to $2,556 as of June 30, 2017. The decrease in lines of credit
was mainly due to the repayment of lines of credit and lower
utilization by the Singapore operation compared to fiscal year
2017. The decrease was partially offset by drawdown of loan in the
Tianjin, China operations.
Accounts
payable as of June 30, 2018 increased by $475 to $3,704 from $3,229
as of June 30, 2017. The increase was mainly due to the increase in
purchases in the Singapore operations to meet the increase of
customer demand.
Accrued
expenses as of June 30, 2018 increased by $129 to $3,172 from
$3,043 as of June 30, 2017. The increase was mainly due to purchase
of plant & machinery by the Tianjin, China operations,
provision of warranty by the Singapore operations and also impact
of currency translation. This increase was partially offset by the
return of customer deposits and a reduction of provision for sales
return.
Deferred
tax liabilities as of June 30, 2018 increased by $32 to $327 from
to $295 as of June 30, 2017. The increase was mainly caused by
timing differences in our Singapore and Malaysia
operations.
Income
Tax Payable as of June 30, 2018 increase by $880 to $1,113 from
$233 as of June 30,2017. The increase was mainly caused by
Repatriation Tax arised from introduction of Jobs Act & Tax Cut
2017.
Critical Accounting Estimates & Policies
The
discussion and analysis of the Company’s financial condition
presented in this section are based upon our consolidated financial
statements, which have been prepared in accordance with generally
accepted accounting principles in the U.S. During the preparation
of the consolidated financial statements we are required to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, we evaluate
our estimates and judgments, including those related to sales,
returns, pricing concessions, bad debts, inventories, investments,
fixed assets, intangible assets, income taxes and other
contingencies. We base our estimates on historical experience and
on various other assumptions that we believe are reasonable under
current conditions. Actual results may differ from these estimates
under different assumptions or conditions.
In response to the SEC’s Release No.
33-8040, Cautionary
Advice Regarding Disclosure about Critical Accounting
Policy, we
have identified the most critical accounting policies upon
which our financial status depends. We
determined that those critical accounting policies are related to
the inventory valuation, allowance for doubtful accounts, revenue
recognition, impairment of property, plant and equipment,
investment property and income tax. These accounting policies are
discussed in the relevant sections in this management’s
discussion and analysis, including the Recently Issued Accounting
Pronouncements discussed below.
Accounts Receivable and Allowance for Doubtful
Accounts
During
the normal course of business, we extend unsecured credit to our
customers in all segments. Typically, credit terms require payment
to be made between 30 to 90 days from the date of the sale. We
generally do not require collateral from customers. We maintain our
cash accounts at credit-worthy financial institutions.
The
Company’s management considers the following factors when
determining the collectability of specific customer accounts:
customer credit-worthiness, past transaction history with the
customer, current economic industry trends, and changes in customer
payment terms. The Company includes any account balances that are
determined to be uncollectible, along with a general reserve, in
the overall allowance for doubtful accounts. After all attempts to
collect a receivable have failed, the receivable is written off
against the allowance. Based on the information available to
management, the Company believed that its allowance for doubtful
accounts was adequate as of June 30, 2018.
Inventory Valuation
Inventories of our manufacturing and distribution segments
consisting principally of raw materials, works in progress, and
finished goods are stated at the lower of cost, using the first-in,
first-out (“FIFO”) method, or market value. The
semiconductor industry is characterized by rapid technological
change, short-term customer commitments and swiftly changing
demand. Provisions for estimated excess and obsolete inventory are
based on regular reviews of inventory quantities on hand and the
latest forecasts of product demand and production requirements from
our customers. Inventories are written down for not saleable,
excess or obsolete raw materials, works-in-process and finished
goods by charging such write-downs to cost of sales. In addition to
write-downs based on newly introduced parts, statistics and
judgments are used for assessing provisions of the remaining
inventory based on salability and obsolescence.
Property, Plant and Equipment & Investment
Property
Property, plant and equipment and investment properties are stated
at cost, less accumulated depreciation and amortization.
Depreciation is provided for over the estimated useful lives of the
assets using the straight-line method. Amortization of leasehold
improvements is provided for over the lease terms or the estimated
useful lives of the assets, whichever is shorter, using the
straight-line method.
Maintenance, repairs and minor renewals are charged directly to
expense as incurred. Additions and improvements to property and
equipment are capitalized. When assets are disposed of, the related
cost and accumulated depreciation thereon are removed from the
accounts and any resulting gain or loss is included in the
consolidated statements of operations and comprehensive income or
loss.
Foreign Currency Translation and Transactions
The United States dollar (“U.S. dollar”) is the
functional currency of the U.S. parent company. The Singapore
dollar, the national currency of Singapore, is the primary currency
of the economic environment in which the operations in Singapore
are conducted. We also have business entities in Malaysia,
Thailand, China and Indonesia, of which the Malaysian ringgit
(“RM”), Thai baht, Chinese renminbi (“RMB”)
and Indonesian rupiah, are the national currencies. The Company
uses the U.S. dollar for financial reporting purposes.
The Company translates assets and liabilities of its subsidiaries
outside the U.S. into U.S. dollars using the rate of exchange
prevailing at the balance sheet date, and the statement of
operations is measured using average rates in effect for the
reporting period. Adjustments resulting from the translation of the
subsidiaries’ financial statements from foreign currencies
into U.S. dollars are recorded in shareholders' equity as part of
accumulated comprehensive income or loss - translation adjustment.
Gains or losses resulting from transactions denominated in
currencies other than functional currencies of the Company’s
subsidiaries are reflected in income for the reporting
period.
Revenue Recognition
Revenue derived from testing services is recognized when testing
services are rendered. Revenue generated from sale of products in
the manufacturing and distribution segments are recognized when
persuasive evidence of an arrangement exists, delivery of the
products has occurred, customer acceptance has been obtained (which
means the significant risks and rewards of ownership have been
transferred to the customer), the price is fixed or determinable
and collectability is reasonably assured. Certain products sold in
the manufacturing segment require installation and training to be
performed.
Revenue from product sales is also recorded in accordance with the
provisions of ASC Topic 605 (Emerging Issues Task Force (“EITF”)
Statement 00-21), Revenue Arrangements with
Multiple Deliverables, and
Staff Accounting Bulletin (SAB) 104 Revenue Recognition in
Financial Statements(“ASC
Topic 605”), which generally require revenue earned on
product sales involving multiple-elements to be allocated to each
element based on the relative fair values of those elements.
Accordingly, the Company allocates revenue to each element in a
multiple-element arrangement based on the element’s
respective fair value, with the fair value determined by the price
charged when that element is sold and specifically defined in a
quotation or contract. The Company allocates a portion of the
invoice value to products sold and the remaining portion of invoice
value to installation work in proportion to the fair value of
products sold and installation work to be performed. Training
elements are valued based on hourly rates, which the Company
charges for these services when sold apart from product sales. The
fair value determination of products sold and the installation and
training work is also based on our specific historical experience
of the relative fair values of the elements if there is no easily
observable market price to be considered. In fiscal year 2018 and
2017, the installation revenues generated in connection with
product sales were immaterial and were included in the product
sales revenue line on the consolidated statements of operations and
comprehensive income or loss.
In the real estate segment: (1) revenue from property development
is earned and recognized on the earlier of the dates when the
underlying property is sold or upon the maturity of the agreement;
if this amount is uncollectible, the agreement empowers the
repossession of the property, and (2) rental revenue is recognized
on a straight-line basis over the terms of the respective leases.
This means that, with respect to a particular lease, actual amounts
billed in accordance with the lease during any given period may be
higher or lower than the amount of rental revenue recognized for
the period. Straight-line rental revenue is commenced when the
tenant assumes possession of the leased premises. Accrued
straight-line rents receivable represents the amount by which
straight-line rental revenue exceeds rents currently billed in
accordance with lease agreements.
Joint Venture
The Company analyzes its investments in joint ventures to determine
if the joint venture is a variable interest entity (a
“VIE”) and would require consolidation. The Company (a)
evaluates the sufficiency of the total equity at risk, (b) reviews
the voting rights and decision-making authority of the equity
investment holders as a group, and whether there are any guaranteed
returns, protection against losses, or capping of residual returns
within the group and (c) establishes whether activities within the
venture are on behalf of an investor with disproportionately few
voting rights in making this VIE determination. The Company would
consolidate a venture that is determined to be a VIE if it was the
primary beneficiary. Beginning January 1, 2010, a new accounting
standard became effective and changed the method by which the
primary beneficiary of a VIE is determined. Through a primarily
qualitative approach, the variable interest holder, if any, who has
the power to direct the VIE’s most significant activities is
the primary beneficiary. To the extent that the joint venture does
not qualify as VIE, the Company further assesses the existence of a
controlling financial interest under a voting interest model to
determine whether the venture should be consolidated.
Equity Method
The Company analyzes its investments in joint ventures to determine
if the joint venture should be accounted for using the equity
method. Management evaluates both Common Stock and in-substance
Common Stock as to whether they give the Company the ability to
exercise significant influence over operating and financial
policies of the joint venture even though the Company holds less
than 50% of the Common Stock and in-substance Common Stock. If so,
the net income of the joint venture will be reported as
“Equity in earnings of unconsolidated joint ventures, net of
tax” in the Company’s consolidated statements of
operations and comprehensive income or loss.
Cost Method
Investee
companies not accounted for under the consolidation or the equity
method of accounting are accounted for under the cost method of
accounting. Under this method, the Company’s share of the
earnings or losses of such investee companies is not included in
the consolidated balance sheet or consolidated statements of
operations and comprehensive income or loss. However, impairment
charges are recognized in the consolidated statements of operations
and comprehensive income or loss. If circumstances suggest that the
value of the investee company has subsequently recovered, such
recovery is not recorded.
Long-Lived Assets & Impairment
Our business requires heavy investment in manufacturing facilities
and equipment that are technologically advanced but can quickly
become significantly under-utilized or rendered obsolete by rapid
changes in demand. We have recorded intangible assets with finite
lives related to our acquisitions.
We evaluate our long-lived assets with finite lives for impairment
whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. Factors
considered important that could result in an impairment review
include significant underperformance relative to expected
historical or projected future operating results, significant
changes in the manner of use of the assets or the strategy for our
business, significant negative industry or economic trends, and a
significant decline in our stock price for a sustained period of
time. Impairment is recognized based on the difference between the
fair value of the asset and its carrying value, and fair value is
generally measured based on discounted cash flow analysis, if there
is significant adverse change.
In our business in the future, we may be required to record
impairment charges on our long-lived assets. There was no
impairment in fiscal years 2018 and 2017.
Fair Value Measurements
Under the standard ASC Topic 820, Fair Value
Measurements and Disclosures
(“ASC Topic
820”), fair value refers to the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between participants in the market in which the
reporting entity transacts its business. ASC Topic 820 clarifies
the principle that fair value should be based on the assumptions
market participants would use when pricing the asset or liability.
In support of this principle, ASC Topic 820 establishes a fair
value hierarchy that prioritizes the information used to develop
those assumptions. Under the standard, fair value measurements
would be separately disclosed by level within the fair value
hierarchy.
Income Tax
We account for income taxes using the liability method in
accordance with the provisions of ASC Topic 740, Accounting for Income
Taxes (“ASC Topic 740”), which requires an entity to
recognize deferred tax liabilities and assets. Deferred tax assets
and liabilities are recognized for the future tax consequence
attributable to the difference between the tax bases of assets and
liabilities and their reported amounts in the financial statements,
which will result in taxable or deductible amounts in future years.
Further, the effects of enacted tax laws or rate changes are
included as part of deferred tax expenses or benefits in the period
that covers the enactment date. Management believed that it was
more likely than not that the future benefits from these timing
differences would not be realized. Accordingly, a full allowance
was provided as of June 30, 2018 and 2017.
The calculation of tax liabilities involves dealing with
uncertainties in the application of complex global tax regulations.
We recognize potential liabilities for anticipated tax audit issues
in the U.S. and other tax jurisdictions based on our estimate of
whether, and the extent to which, additional taxes will be due. If
the estimate of tax liabilities proves to be less than the ultimate
assessment, a further charge to expense would result.
Stock Based Compensation
We adopted the fair value recognition provisions under ASC Topic
718, Share
Based Payments (“ASC
Topic 718”), using the modified prospective application
method. Under this transition method, compensation cost recognized
during the twelve months ended June 30, 2018 included the
applicable amounts of: (a) compensation cost of all share-based
payments granted prior to, but not yet vested as of, July 1, 2017
(based on the grant-date fair value estimated in accordance with
the original provisions of ASC Topic 718) and (b) compensation cost
for all share-based payments granted subsequent to June 30,
2018.
Non-controlling Interests in Consolidated Financial
Statements
We adopted ASC Topic 810, Consolidation
(“ASC Topic 810”). This
guidance establishes accounting and reporting standards for the
non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. This guidance requires that
non-controlling interests in subsidiaries be reported in the equity
section of the controlling company’s balance sheet. It also
changes the manner in which the net income of the subsidiary is
reported and disclosed in the controlling company’s income
statement.
Loan Receivables
The loan receivables are classified as current assets carried at
face value and are individually evaluated for impairment. The
allowance for loan losses reflects management’s best estimate
of probable losses determined principally on the basis of
historical experience and specific allowances for known loan
accounts. All loans or portions thereof deemed to be uncollectible
or to require an excessive collection cost are written off to the
allowance for losses.
Interest Income
Interest income on loans is recognized on an accrual basis.
Discounts and premiums on loans are amortized to income using the
interest method over the remaining period to contractual maturity.
The amortization of discounts into income is discontinued on loans
that are contractually 90 days past due or when collection of
interest appears doubtful.
Recent Accounting Pronouncements
The
amendments in Accounting Standards Update (“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 should be applied prospectively for only the most
recent interim or annual period presented in the initial fiscal
year of adoption. All other amendments should 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. While early application is permitted, including adoption in
an interim period, 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 2018-11 ASC Topic 842: Leases: Targeted Improvements related
to transition relief on comparative reporting at adoption affect
all entities with lease contracts that choose the additional
transition method and separating components of a contract affect
only lessors whose lease contracts qualify for the practical
expedient. The amendments in ASC Topic 842 are effective for public
business entities for fiscal years beginning after December 15,
2018, and interim periods within those fiscal years. While early
application is permitted, including adoption in an interim period,
the Company has not elected to early adopt. The Company is
currently evaluating the impact of this accounting standard update
on its consolidated financial statements.
The
amendments in ASU 2018-10 ASC Topic 842: Codification Improvements to Leases are
to address stakeholders’ questions about how to apply certain
aspects of the new guidance in Accounting Standards Codification
(ASC) 842, Leases. The clarifications address the rate implicit in
the lease, impairment of the net investment in the lease, lessee
reassessment of lease classification, lessor reassessment of lease
term and purchase options, variable payments that depend on an
index or rate and certain transition adjustments. The amendments in
ASC Topic 842 are effective for public business entities for fiscal
years beginning after December 15, 2018, and interim periods within
those fiscal years. While early application is permitted, including
adoption in an interim period, the Company has not elected to early
adopt. The Company is currently evaluating the impact of this
accounting standard update on its consolidated financial
statements.
The amendments in ASU 2018-09 Codification
improvements represent changes
to clarify, correct errors in, or make minor improvements to the
Codification, eliminating inconsistencies and providing
clarifications in current guidance. The amendments in this ASU
include those made to: Income Statement-Reporting Comprehensive
Income-Overall; Debt-Modifications and Extinguishments;
Distinguishing Liabilities from Equity-Overall; Compensation-Stock
Compensation-Income Taxes; Business Combinations-Income Taxes;
Derivatives and Hedging-Overall; Fair Value Measurement-Overall;
Financial Services-Brokers and Dealers-Liabilities; and Plan
Accounting-Defined Contribution Pension Plans-Investments-Other.
The amendments are effective for all entities for annual periods
beginning after December 15, 2018. The effectiveness of this update
is not expected to have a significant effect on the Company’s
consolidated financial position or results of
operations.
The amendments in ASU 2018-03 Technical Corrections and
Improvements to Financial Instruments
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 should be applied prospectively for only
the most recent interim or annual period presented in the initial
fiscal year of adoption. All other amendments should 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. While early application is permitted, including adoption in
an interim period, the effectiveness of this update is not expected
to have a significant effect on the Company’s consolidated
financial position or results of
operations.
The
amendments in ASU 2018-02 ASC Topic 220: Income Statement – Reporting
Comprehensive Income provide financial statement preparers
with an option to reclassify stranded tax effects within
Accumulated Other Comprehensive Income to retained earnings in each
period in which the effect of the change in the U.S. federal
corporate income tax rate in the Tax Cuts and Jobs Act (or portion
thereof) is recorded. The amendments
in ASC Topic 220 are effective for public business entities for
fiscal years beginning after December 15, 2018, and interim periods
within those fiscal years. While early application is
permitted, including adoption in an interim period, the
Company has not elected to early adopt. The effectiveness of this
update is not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
The amendments in ASU 2017-11: Earnings Per Share (Topic
260); Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic
815) the amendments are effective for annual periods beginning
after December 15, 2018, including interim periods within those
periods. While early application is permitted, including adoption
in an interim period, the Company has not elected to early adopt.
The effectiveness of this update is not expected to have a
significant effect on the Company’s presentation of
consolidated financial position or results of
operations.
The amendments in ASU 2017-09— Compensation—Stock
Compensation (“ASC Topic
718”): Scope of Modification Accounting: provide guidance on
determining which changes to the terms and conditions of
share-based payment awards require an entity to apply modification
accounting under Topic 718. For public companies, these amendments
are effective for annual periods beginning after December 15, 2017,
including interim periods within those periods. While early
application is permitted, including adoption in an interim period,
the Company has not elected to early adopt. The effectiveness of
this update is not expected to have a significant effect on the
Company’s presentation of consolidated financial position or
results of operations.
The amendments in ASU 2017-07 ASC Topic 715 —
'Compensation
— Retirement Benefits (“ASC Topic 715”) improve the
presentation of net periodic pension Cost and Net Periodic
Postretirement Benefit Cost. For public companies, these amendments
are effective for annual periods beginning after December 15, 2017,
including interim periods within those periods. While early
application is permitted, including adoption in an interim period,
the Company has not elected to early adopt. The effectiveness of
this update is not expected to have a significant effect on the
Company’s presentation of consolidated financial position or
results of operations.
The amendments in ASU 2017-05 ASC Subtopic 610-20 —
'Other Income
– Gains and Losses from the Derecognition of Nonfinancial
Assets (“ASC Subtopic
610-20”) clarify the scope of asset derecognition Guidance
and Accounting for Partial Sales of Nonfinancial Assets. For public
companies, these amendments are effective for annual periods
beginning after December 15, 2017, including interim periods within
those periods. While early application is permitted, including
adoption in an interim period, the Company has not elected to early
adopt. The effectiveness of this update is not expected to have a
significant effect on the Company’s presentation of
consolidated financial position or results of
operations.
The amendments in ASU 2017-04 ASC Topic 350 —
'Intangibles - Goodwill and
Other (“ASC Topic
350”) simplify the test for goodwill impairment. For public
companies, these amendments are effective for annual periods
beginning after December 15, 2019, including interim periods within
those periods. While early application is permitted, including
adoption in an interim period, the Company has not elected to early
adopt. The effectiveness of this update is not expected to have a
significant effect on the Company’s presentation of
consolidated financial position or results of
operations.
The amendments in ASU 2017-01 ASC Topic 805 —
'Business
Combinations (“ASC Topic
805”) clarify the definition of a business. The amendments
affect all companies and other reporting organizations that must
determine whether they have acquired or sold a business. For public
companies, these amendments are effective for annual periods
beginning after December 15, 2017, including interim periods within
those periods. While early application is permitted, including
adoption in an interim period, the Company has not elected to early
adopt. The effectiveness of this update is not expected to have a
significant effect on the Company’s presentation of
consolidated financial position or results of
operations.
The amendments in ASU 2016-18 ASC Topic 230 —
'Statement of Cash
Flows (“ASC Topic
230”) provide cash flow statement classification guidance.
For public business entities, these amendments are effective for
fiscal years beginning after December 15, 2017, 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
presentation of consolidated financial position and statement of
cash flows.
The amendments in ASU 2016-17 ASC Topic 810 —
Consolidation
(“ASC Topic 810”) require
an entity to recognize the income tax consequences of an
intra-entity transfer of an asset other than inventory when the
transfer occurs. For public business entities, these amendments are
effective for annual reporting periods beginning after December 15,
2017, and interim periods within those fiscal years. While early
application is permitted, including interim reporting periods
within those annual reporting periods, 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
2016-15 ASC Topic 230 — (“ASC Topic 350”) provide cash flow
statement classification guidance. For public business entities,
the amendments are effective for fiscal years beginning after
December 15, 2017, 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 2016-13 ASC Topic 326: Financial
Instruments—Credit losses (“ASC Topic 326”) are issued for the
measurement of all expected credit losses for financial assets held
at the reporting date based on historical experience, current
conditions, and reasonable and supportable forecasts. For public
companies that are not SEC filers, ASC Topic 326 is effective for
fiscal years beginning after December 15, 2020, and interim periods
within those fiscal years. While early application will be
permitted for all organizations for fiscal years, and interim
periods within those fiscal years, beginning after December 15,
2018, the Company has not yet determined if it will early adopt.
The effectiveness of this update is not expected to have a
significant effect on the Company’s consolidated financial
position or results of operations.
The amendments in ASU 2016-02 ASC Topic 842: Leases require
companies to recognize the following for all leases (with the
exception of short-term leases) at the commencement date of the
applicable lease: (a) a lease liability, which is a lessee’s
obligation to make lease payments arising from a lease, measured on
a discounted basis; and (b) a right-of-use asset, which is as an
asset that represents the lessee’s right to use, or control
the use of, a specified asset for the lease term. These amendments
become effective for fiscal years beginning after December 15,
2018, including interim periods within those fiscal years, for a
variety of entities including a public company. While early
adoption is permitted, the Company has not elected to early adopt.
The Company is currently evaluating the impact of this accounting
standard update on its consolidated financial
statements.
The Financial Accounting Standards Board (“FASB”) has
issued converged standards on revenue recognition. Specifically,
the Board has issued ASU 2014-09, ASC Topic 606 (“ASU
2014-09”). ASU 2014-09 affects any entity using U.S. GAAP
that either enters into contracts with customers to transfer goods
or services or enters into contracts for the transfer of
non-financial assets unless those contracts are within the scope of
other standards (e.g., insurance contracts or lease contracts). ASU
2014-09 will supersede the revenue recognition requirements in ASC
Topic 605, Revenue Recognition (“ASC Topic 605”), and
most industry-specific guidance. ASU 2014-09 also supersedes some
cost guidance included in Subtopic 605-35, Revenue
Recognition—Construction-Type and Production-Type Contracts.
In addition, the existing requirements for the recognition of a
gain or loss on the transfer of non-financial assets that are not
in a contract with a customer (e.g., assets within the scope of ASC
Topic 360, Property, Plant, and Equipment, (“ASC Topic
360”), and intangible assets within the scope of Topic 350,
Intangibles—Goodwill and Other) are amended to be consistent
with the guidance on recognition and measurement (including the
constraint on revenue) in ASU 2014-09. For a public entity, the
amendments in ASU 2014-09 would be effective for annual reporting
periods beginning after December 15, 2016, including interim
periods within that reporting period. However, ASU 2015-14 ASC
Topic 606: Deferral of the Effective
Date (“ASC Topic
606”) defers the effective date of ASU 2014-09 for all
entities by one year, to be effective for annual reporting periods
beginning after December 15, 2017. Earlier
application is permitted only as of annual reporting periods
beginning after December 15, 2016, including interim reporting
periods within that reporting period. The Company has not elected
to early adopt. The new standards, will supersede substantially all
existing revenue guidance affecting the Company under GAAP, it
could impact revenue and cost recognition on sales across all the
Company's business segments. The Company is currently conducting
its review on contracts and has not completed its
quantification yet to know the impact the adoption will have on its
consolidated financial statements. While we are continuing to
assess all potential impacts, the Company has not presently
selected a transition method whether it will adopt retrospective
approach or through adjustment the cumulative effect of accounting
changes in retained earnings.
Other new pronouncements issued but not yet effective until after
June 30, 2018 are not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
Comparison of Operating Results
The
following table presents certain data from the consolidated
statements of operating income as a percentage of net sales for the
fiscal years ended June 30,
2018 and 2017:
|
For the
Year Ended June 30,
|
|
|
|
Revenue
|
100.0%
|
100.0%
|
Cost
of sales
|
74.9
|
75.4
|
Gross Margin
|
25.1%
|
24.6%
|
Operating
expenses:
|
|
|
General
and administrative
|
17.1%
|
17.9%
|
Selling
|
1.9
|
2.1
|
Research
and development
|
1.1
|
0.5
|
(Gain)
/ loss on disposal of property, plant and equipment
|
(0.2)
|
0.1
|
Total
operating expenses
|
19.9%
|
20.6%
|
Income from Operations
|
5.2%
|
4.0%
|
Overall Revenue
The
overall revenue is composed of the revenues from the manufacturing,
testing services, distribution and real estate segments. The
following table presents the components of the overall revenue
realized in fiscal years 2018 and 2017 in percentage format,
respectively.
|
For the
Year Ended June 30,
|
|
|
|
Manufacturing
|
37.7%
|
39.7%
|
Testing
|
45.8
|
43.0
|
Distribution
|
16.2
|
16.9
|
Real
estate
|
0.3
|
0.4
|
Total
|
100.0%
|
100.0%
|
|
|
|
Revenue
in fiscal year 2018 was $42,361, an increase of $3,823 or 9.9%,
compared to $38,538 in fiscal year 2017. The increase in revenue
was due to an increase in sales across all segments except the real
estate segment.
As a
percentage of total revenue, the revenue generated by the
manufacturing segment in fiscal year 2018 accounted for 37.7%, a
decrease of 2.0%, as compared to 39.7% in fiscal year 2017. In
terms of dollar amount, the revenue generated by the manufacturing
segment in fiscal year 2018 was $15,978, reflecting an increase of
$689, or 4.5%, compared to $15,289 in fiscal year 2017. The
increase in revenue generated by the manufacturing segment was due
to the higher demand of manufacturing services in the Suzhou, China
operations and the U.S. operations, which was offset by a decrease
in the manufacturing segment in our Singapore
operations.
Backlog
in the manufacturing segment was $4,324 as of June 30, 2018,
representing a decrease of $90 from $4,414 as of June 30, 2017. We
expect the demand for our products to continue to increase at a
slower pace in fiscal year 2019 as compared to fiscal year 2018,
depending on the global market for testing equipment and
systems.
As a percentage of total revenue, the revenue generated by the
testing services segment in fiscal year 2018 accounted for 45.8% of
total sales, an increase of 2.8% compared to 43.0% in fiscal year
2017. In terms of dollar amount, the revenue generated by the
testing services segment for fiscal year 2018 was $19,391,
reflecting an increase of $2,805, compared to $16,586 for fiscal
year 2017. The increase in revenue generated by the testing
segment was primarily attributable to an increase in sales in our
Singapore, Malaysia and Tianjin, China operations. The increase in
the Singapore operations was due to receiving orders from testing
customers while the increase was partially offset by a decrease of
customers’ demand for certain product categories, which is
dependent on the demand for their products. The increase in the
Malaysia and Tianjin, China operations were due to an increase in
volumes. These increases were partially offset by the decrease in
revenue as a result of lower volume in the Bangkok, Thailand and
Suzhou, China operations during fiscal year 2018. Demand for
testing services varies from country to country depending on
changes taking place in the market and our customers’
forecasts. Because it is difficult to accurately forecast
fluctuations in the market, we believe that it is necessary to
maintain testing facilities in close proximity to our customers in
order to make it convenient for them to send us their newly
manufactured parts for testing and to enable us to maintain a share
of the market.
Backlog
in the testing services segment as of June 30, 2018 was $1,301, an
increase of $196 as compared to $1,105 at June 30, 2017. The
increase in backlog was mainly from our Singapore operations. The
backlog depends on the orders received from customers, which are in
turn dependent upon the customers’ inventory
levels.
As a
percentage of total revenue, the revenue generated by the
distribution segment in fiscal year 2018 accounted for 16.2% of
total sales, a decrease of 0.7% compared to 16.9% in fiscal year
2017. In terms of dollar amount, revenue for fiscal year 2018 was
$6,853, an increase of $342, or 5.3%, compared to $6,511 for fiscal
year 2017. The increase in our distribution segment was due to the
increase in orders for certain products from customers in our
Singapore operations and also the currency translation effect from
Singapore dollars strengthened against U.S. dollar in fiscal year
2018. This increase was partially offset by a decrease in orders in
our Malaysia operations and Suzhou, China operations.
As
a percentage of total revenue, the revenue generated by the
distribution segment in fiscal year 2018 accounted for 16.2% of
total sales, a decrease of 0.7% compared to 16.9% in fiscal year
2017. In terms of dollar amount, revenue for fiscal year 2018 was
$6,853, an increase of $342, or 5.3%, compared to $6,511 for fiscal
year 2017. The increase in our distribution segment was due to the
increase in orders for certain products from customers in our
Singapore operations, as well as the strengthened currency
translation effect from Singapore dollars against U.S. dollar in
fiscal year 2018. This increase was partially offset by a decrease
in orders in our Malaysia operations and Suzhou, China
operations.
Backlog
in the distribution segment as of June 30, 2018 was $2,781,
reflecting an increase of $1,095 compared to the backlog of $1,686
at June 30, 2017. The increase in backlog was mainly due to an
increase in orders from customers due to an increase in the demand
for the customer’s products and expansion of our customer
base. We believe that our competitive advantage in the distribution
segment is our design and engineering capabilities in components
and touch screen products, which allow customization to meet the
specific requirement of our customers. Product volume for the
distribution segment depends on sales activities such as placing
orders, queries on products and backlog. Equipment and electronic
component sales are very competitive, as the products are readily
available in the market.
As a
percentage of total revenue, the revenue generated by the real
estate segment was 0.3% of total sales in fiscal year 2018 and 0.4
% of total sales in fiscal years 2017. In terms of dollar value,
revenue for fiscal year 2018 was $139, a decrease of $13, or 8.6%,
compared to $152 for fiscal year 2017. Our real estate segment saw
a decrease in rental income due to the expiration of the rental
agreement for the FuLi properties in fiscal year 2018.
Backlog
in the real estate segment as of June 30, 2018 was $293, a decrease
of $48 as compared to $341 at June 30, 2017. The decrease in
backlog was mainly due to fewer instances of renewal of expired
rental agreements for certain properties in our China operations
during fiscal year 2018 as compared to fiscal year
2017.
Overall Gross Margin
Overall
gross margin as a percentage of revenue was 25.1% in fiscal year
2018, an increase of 0.5% compared to 24.6% in fiscal year 2017.
The increase in gross margin as a percentage of revenue was mainly
attributable to the manufacturing, testing and distribution
segments. In terms of dollar value, the overall gross profit for
fiscal year 2018 was $10,638, an increase of $1,176, or 12.4%,
compared to $9,462 for fiscal year 2017. The increase in the dollar
value of overall gross margin was mainly due to the increase in the
manufacturing, testing and distribution segment.
The
gross margin as a percentage of revenue in the manufacturing
segment was 23.6% in fiscal year 2018, an increase of 2.7% compared
to 20.9% in fiscal year 2017. In terms of dollar amount, gross
profit for the manufacturing segment in fiscal year 2018 was
$3,765, an increase of $567, or 17.7%, compared to $3,198 in fiscal
year 2017. The increase in absolute dollar amount of gross margin
was mainly due to a change in product mix in our Singapore, U.S.
and Suzhou, China operations.
The
gross margin as a percentage of revenue in the testing services
segment was 31.3% in fiscal year 2018, a decrease of 2.0% compared
to 33.3% in fiscal year 2017. In terms of dollar amounts, gross
profit in the testing services segment in fiscal year 2018 was
$6,068, an increase of $539, or 9.7%, compared to $5,529 in fiscal
year 2017. The increase
in gross profit margin was primarily due to the increase of in
revenue brought about by an increase in orders in our Tianjin,
China, Malaysia and Singapore operations. A significant portion of
our cost of goods sold is fixed in the testing segment. Thus, as
the demand of services and factory utilization increases, the fixed
costs are spread over the increase output, which will increase the
gross profit margin.
The
gross margin as a percentage of revenue in the distribution segment
was 11.5% in fiscal year 2018, an increase of 1.0% compared to
10.5% in fiscal year 2017. The increase in gross margin
percentage was due to the increase of sales and change in product
mix. The distribution segment had more sales of products with a
higher profit margin as compared to the same period of last fiscal
year. In terms of dollar amount, gross profit in the distribution
segment was $785, an increase of $102, or 14.9%, compared to $683
in fiscal year 2017. The gross margin of the distribution segment
was not only affected by the market price of our products, but also
our product mix, which changes frequently as a result of changes in
market demand.
The
gross margin as a percentage of revenue in the real estate segment
was 14.4% in fiscal year 2018, a decrease of 19.8% compared to a
gross margin of 34.2% in fiscal year 2017. In absolute dollar
amount, gross margin in the real estate segment was $20 in fiscal
year 2018, a decrease of $32, as compared to a gross margin of $52
in fiscal year 2017. The decrease was due to a decrease in revenue
from investment properties in FuLi due to expired rental agreement
in fiscal year 2018 as discussed earlier.
Operating Expenses
Operating
expenses for the fiscal years ended June 30, 2018 and 2017 were as
follows:
|
For the
Year Ended June 30,
|
|
|
|
General
and administrative
|
$7,250
|
$6,911
|
Selling
|
826
|
807
|
Research
and development
|
451
|
208
|
(Gain)
/ loss on disposal of property, plant and equipment
|
(77)
|
47
|
Total
|
$8,450
|
$7,973
|
General
and administrative expenses increased by $339, or 4.9%, from $6,911
in fiscal year 2017 to $7,250 in fiscal year 2018. The increase was mainly attributable to an
increase in payroll expenses in our Malaysia, Tianjin, China
operations, and U.S operations, and an increase in professional
expenses in the U.S. operations. These increases were partially
offset by a decrease in headcount, software related fees and
payroll related expenses due to decrease of headcount by Singapore
operations.
Selling
expenses were $826 and $807 in fiscal years 2018 and 2017,
respectively, reflecting an increase of $19, or 2.4%. The increase
was mainly due to an increase in commission and provision of
warranty in our Singapore operations and also an increase in
commission and payroll related expenses in our U.S.
operations.
During
fiscal year 2018, there was a gain in disposal of property, plant
and equipment amounting to $77, as compared to a loss on disposal
of $47 in fiscal year 2017. The change of $124 is due to certain
assets that were no longer required were disposed of during
financial year 2018, resulting in a gain. In Malaysia and Tianjin,
China operations. As part of routine operational review of assets
during the fiscal year 2018 these operations disposed the property,
plant and equipment.
Income from Operations
Income
from operations was $2,188 in fiscal year 2018, an increase of
$699, as compared to $1,489 in fiscal year 2017. The increase was
mainly due to an increase in revenue, which was partially offset by
the increase in the cost of sales and increase in the operating
expenses, as discussed earlier.
Interest Expenses
The
interest expenses for fiscal years 2018 and 2017 were as
follows:
|
For the
Year Ended June 30,
|
|
|
|
Interest expenses
|
$233
|
$202
|
Interest
expenses increased by $31, or 15.3%, to $233 in fiscal year 2018
from $202 in fiscal year 2017.
Other
Income, Net
Other
income, net for fiscal years 2018 and 2017 was as
follows:
|
For the
Year Ended June 30,
|
|
|
|
Interest
income
|
$50
|
33
|
Other
rental income
|
110
|
99
|
Exchange
(loss) / gain
|
(160)
|
96
|
Government
Grants
|
126
|
56
|
Other
miscellaneous income
|
209
|
230
|
Total
|
$335
|
$514
|
Other
income decreased by $179 to $335 for fiscal year 2018 as compared
to $514 for fiscal year 2017. The decrease in other income in
fiscal year 2018 was mainly due to a foreign exchange loss of $160
as compared to a foreign exchange gain of $96 in fiscal year 2017.
This was partially offset by an increase in interest income, other
rental income and receipt of government grants.
Income Tax Expenses / Benefits
Income
tax expenses for fiscal year 2018 were $987, as compared to $341
for fiscal year 2017. The increase in income tax expenses was
mainly due to the provision of tax
expenses effect of the Tax Cuts and Jobs Act which requires
a mandatory one-time repatriation of certain post-1986 earnings and
profits that were deferred from U.S. taxation by Company’s
foreign subsidiaries.
At June 30, 2018 the Company had net operating loss carry-forward
of approximately $232 and $314 for U.S. federal and state tax
purposes, respectively, expiring through 2037. The Company also had
tax credit carry-forward of approximately $200 for U.S. federal
income tax purposes expiring through 2020. Management of the
Company is uncertain whether it is more likely than not that these
future benefits will be realized. Accordingly, a full valuation
allowance was established.
Loss / Income from Discontinued Operations
Loss
from discontinued operations was $13 in fiscal year 2018, as
compared to $5 in fiscal year 2017. The loss was attributable to
currency translation effect in the discontinued operations. We
discontinued our fabrication segment in fiscal year
2013.
The
discontinued operation in Shanghai was wound up in March 2017. The
operation did not incur any general and administrative expenses for
the fiscal year 2017.
Non-controlling Interest
As of
June 30, 2018, we held an indirect 55% interest each in Trio-Tech
(Malaysia) Sdn. Bhd. (“TTM”), Trio-Tech (Kuala Lumpur)
Sdn. Bhd. (“TTKL”), SHI and PT SHI, and a 76% interest
in Prestal Enterprise Sdn. Bhd. (“Prestal”).
The non-controlling interest for
fiscal year 2018, in the net income of subsidiaries, was $106, a
decrease of $33 compared to the non-controlling interest in the net
income of $139 for the previous fiscal year. The decrease in
the non-controlling interest in the net income of subsidiaries was
primarily attributable to the lower net income generated by the
Malaysia operations in fiscal year 2018, as compared to the
previous fiscal year.
Net Income Attributable to Trio-Tech International Common
Shareholders
Net
income for fiscal year 2018 was $1,184, a decrease of $132, as
compared to $1,316 for fiscal year 2017. The decrease in net income
during fiscal year 2018 was due to the increase in operating
expenses as discussed earlier and increase in tax expenses. These
were partially offset by the increase in gross profit as discussed
earlier.
Earnings per Share
Basic
earnings per share from continuing operations was $0.34 in fiscal
year 2018, as compared to $0.38 in fiscal year 2017. Basic loss per
share from discontinued operations was 0.01 for fiscal year 2018
and nil in fiscal year 2017.
Diluted
earnings per share from continuing operations was $0.32 in fiscal
year 2018, as compared to $0.36 in fiscal year 2017. Diluted loss
per share from discontinued operations was 0.01 for fiscal year
2018 and nil in fiscal year 2017.
Segment Information
The
revenue, gross margin and income or loss from each segment for
fiscal years 2018 and 2017 are presented below. As the segment
revenue and gross margin 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 income from operations for the
manufacturing segment for fiscal years 2018 and 2017 were as
follows:
|
For the
Year Ended June 30,
|
|
|
|
Revenue
|
$15,978
|
$15,289
|
Gross
margin
|
23.6%
|
20.9%
|
Income
from operations
|
$548
|
$75
|
Income
from operations in the manufacturing segment was $548 in fiscal
year 2018, an increase of $473, as compared to $75 in fiscal year
2017. The increase was attributable to an increase in gross margin
by $567, as discussed earlier. Operating expenses were $3,217 and
$3,123 for fiscal years 2018 and 2017, respectively. The increase in operating expenses was mainly due
to an increase in research & development expenses and
allocation of Corporate charges, which are allocated on a
predetermined fixed charge basis. This increase was partially
offset by a decrease in general and administrative
expenses.
Testing Services Segment
The
revenue, gross margin and income from operations for the testing
services segment for fiscal years 2018 and 2017 were as
follows:
|
For the
Year Ended June 30,
|
|
|
|
Revenue
|
$19,391
|
$16,586
|
Gross
margin
|
31.3%
|
33.3%
|
Income
from operations
|
$1,522
|
$1,112
|
Income
from operations in the testing services segment in fiscal year 2018
was $1,522 an increase of $410 compared to $1,112 in fiscal year
2017. The increase in operating income was attributable to an
increase in revenue by $2,805 and an increase in gross margin by
$539, as discussed earlier, and partially offset by an increase in
operating expenses of $129. Operating expenses were $4,546 and
$4,417 for fiscal years 2018 and 2017, respectively. The increase
in operating expenses was mainly attributable to an increase in general and administrative expenses,
selling expenses, and research and development expenses. General
and administrative expenses increased due to an increase in payroll
related expenses in the Malaysia and Tianjin, China operations.
Selling expenses increased due to an increase in commission and
warranty expenses in the Singapore operations and also payroll
related expenses in the U.S operations. Increased commission
expenses were due to increase in commissionable sales. These
increases were partially offset by an increase in gain on disposal
of property, plant and equipment and also a decrease in allocation
of corporate charges, which are allocated on a predetermined
fixed charge basis. During fiscal year 2018, certain assets that
were no longer required were disposed of, resulting in a
gain.
Distribution Segment
The
revenue, gross margin and income from operations for the
distribution segment for fiscal years 2018 and 2017 were as
follows:
|
For the
Year Ended June 30,
|
|
|
|
Revenue
|
$6,853
|
$6,511
|
Gross
margin
|
11.5%
|
10.5%
|
Income
from operations
|
$475
|
$345
|
Income
from operations in the distribution segment was $475 in fiscal year
2018, an increase of $130 as compared to $345 in fiscal year 2017.
The increase was mainly due to the increase in revenue by $342 and
an increase in gross margin of $102, as discussed earlier, and a
decrease in operating expenses by $28. Operating expenses were $310
and $338 for fiscal years 2018 and 2017, respectively. The
decrease in allocation of Corporate
charges, which are allocated on a predetermined fixed charge
basis, and selling expenses contributed to the decrease in
operating expenses.
Real Estate
The
revenue, gross margin and loss from operations for the real estate
segment for fiscal years 2018 and 2017 were as
follows:
|
For the
Year Ended June 30,
|
|
|
|
Revenue
|
$139
|
$152
|
Gross
margin
|
14.4%
|
34.2%
|
Loss
from operations
|
$(56)
|
$(38)
|
Loss
from operations in the real estate segment increased by $19 to $56
in fiscal year 2018 as compared to $38 in fiscal year 2017. The
increase in operating loss was primarily due to the decrease in
revenue by $13 and the decrease in gross margin by $32, as
discussed earlier. The decrease was offset by a decrease in
operating expenses by $14. Operating expenses were $76 and $90 for
fiscal years 2018 and 2017, respectively.Frm
Corporate
The
following table presents the loss from operations for Corporate for
fiscal years 2018 and 2017, respectively:
|
For the
Year Ended June 30,
|
|
|
|
Loss
from operations
|
$(301)
|
$(5)
|
In fiscal year 2018, Corporate operating loss was $301, a
deterioration of $296 compared to an operating loss of $5 in fiscal
year 2017. This was mainly due to a different corporate overhead allocation method during fiscal
year 2018 as compared to fiscal year
2017.
Liquidity
The
Company’s core businesses testing services, manufacturing and
distribution—operate in a volatile industry, in which its
average selling prices and product costs are influenced by
competitive factors. These factors create pressures on sales,
costs, earnings and cash flows, which impact liquidity.
Net
cash provided by operating activities increased by $479 to $4,432
for the twelve months ended June 30, 2018 from $3,953 in the same
period of the last fiscal year. The increase was mainly due to an
improvement in collection from accounts receivable by $1,162 and an
increase in tax payables by $877. This was partially offset by
decrease in account payable & accrued expenses of $299, an
increase in inventories of $862 and an increase of depreciation by
$378.
Net
cash used in investing activities decreased by $298 to an outflow
of $2,064 for the twelve months ended June 30, 2018, from an
outflow of $2,362 for the same period of last fiscal year. The
decrease in net cash used in investing activities was primarily due
to a decrease of $370 from investments in restricted and
unrestricted deposits due to uplift of deposits. This decrease was
partially offset by an increase in cash outflow of $24 from
additions to property, plant and equipment and a decrease in cash
inflow of $44 from disposal of property, plant and
equipment.
Net
cash used in financing activities for the twelve months ended June
30, 2018 was $996, representing a change of $647 compared to
$349 net cash generated from financing activities during the twelve
months ended June 30, 2018. Cash inflow decreased mainly due to a
decrease in proceeds from bank loans and capital lease by $1,586.
The decrease in cash inflow was partially offset by a decrease in
cash outflow of $912 from repayment of lines of
credit.
We
believe that our projected cash flows from operations, borrowing
availability under our revolving lines of credit, cash on hand,
trade credit and the secured bank loans will provide the necessary
financial resources to meet our projected cash requirements for at
least the next 12 months. Should we find an attractive capital
investment, we may seek additional debt or equity financing in
order to fund the transaction, in the form of bank financing,
convertible debt, or the issuance of Common Stock.
Capital Resources
Our working capital (defined as current assets minus current
liabilities) has historically been generated primarily from the
following sources: operating cash flow, availability under our
revolving line of credit, and short-term loans. The working capital
was $9,228 as of June 30, 2018, representing an increase of $1,740,
or 23.2%, compared to working capital of $7,488 as of June 30,
2017. The increase in working capital was mainly due to increases
in current assets such as cash and cash equivalents, assets held
for sale and inventories and decreases in current liabilities such
as, lines of credit. Such fluctuations were partially offset by
decreases in current assets such as accounts receivable, prepaid
expenses and other current assets and increases in current
liabilities such as trade payable and accrued expenses, as
discussed above.
The majority of our capital expenditures are based on demands from
our customers, as we are operating in a capital-intensive
industry. Our capital expenditures were $2,309 and $2,285 for
fiscal year 2018 and fiscal year 2017, respectively. The capital
expenditures in fiscal year 2018 were mainly in the China and
Malaysia operations, which provide testing services to one of our
customers. We financed our capital expenditures and other operating
expenses through operating cash flows, revolving lines of credit
and long-term debts.
Our
credit rating provides us with ready and adequate access to funds
in the global market. At June 30, 2018, we had available unused
lines of credit totaling $4,018.
Entity
with
|
Type
of
|
|
|
|
|
Facility
|
Facility
|
|
|
|
|
Trio-Tech
International Pte. Ltd., Singapore
|
Lines of
Credit
|
Ranging from 1.6% to
5.5%
|
-
|
$4,183
|
$3,325
|
Trio-Tech
(Tianjin) Co., Ltd
|
Lines of
Credit
|
5.22%
|
-
|
$1,511
|
$437
|
Universal (Far
East) Pte. Ltd
|
Lines of
Credit
|
Ranging from 1.6% to
5.5%
|
-
|
$367
|
$256
|
On 4 January 2018, Trio-Tech International Pte. Ltd. signed an
agreement with a bank to sub-allocate a portion of the facility
thereafter to its subsidiary - Universal (Far East) Pte. Ltd for an
Accounts Payable Financing facility with the bank for SGD 500, or
approximately $367 based on the market exchange rate. Interest is
charged at 1.85% to 5.5%. The financing facility was set up to
facilitate the working capital in our operations in Singapore. The
company started to use this facility in fiscal year
2018.
As of June 30, 2017, the Company had certain lines of credit that
are collateralized by restricted deposits.
Entity
with
|
Type
of
|
|
|
|
|
Facility
|
Facility
|
|
|
|
|
Trio-Tech
International Pte. Ltd., Singapore
|
Lines of
Credit
|
Ranging from 1.6% to
5.5%
|
-
|
$4,496
|
$2,815
|
Trio-Tech
(Tianjin) Co., Ltd.
|
Lines of
Credit
|
5.22%
|
-
|
$885
|
$10
|
On January 20, 2017, Trio-Tech Tianjin signed an agreement with a
bank for an Accounts Receivable Financing facility for RMB 6,000,
or approximately $871 based on the market rate. Interest is charged
at the bank’s lending rate plus a floating interest rate. The
effective interest rate is 120% of the bank’s lending rate.
The financing facility was set up to facilitate the growing testing
operations in our Tianjin operations in China. The bank account for
this facility was set up on January 20, 2017 and started use in
fiscal year 2017.
Off-Balance Sheet Arrangements
We do
not consider the Company to have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
ITEM 7A – QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a
smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934, we are not required to provide the
information required by this item.
ITEM
8 - FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
The
information called for by this item is included in the Company's
consolidated financial statements beginning on page 34 of this
Annual Report on Form 10-K.
ITEM 9 – CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A – CONTROLS AND PROCEDURES
An
evaluation was carried out by the Company’s Chief Executive
Officer and Chief Financial Officer (the principal executive and
principal financial officers, respectively, of the Company) of the
effectiveness of the Company’s disclosure controls and
procedures (as defined in Rule 13a-15(e) or 15d-15(e) promulgated
under the Securities Exchange Act of 1934, as amended) as of June
30, 2018, the end of the period covered by this Form 10-K. Based
upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company’s disclosure
controls and procedures were effective as of June 30,
2018.
Additionally,
management has the responsibility for establishing and maintaining
adequate internal control over financial reporting for the Company
and thus also assessed the effectiveness of our internal controls
over financial reporting as of June 30, 2018. Management used the
framework set forth in the report entitled “Internal Control
– Integrated Framework” published by the Committee of
Sponsoring Organizations of the Treadway Commission in 2013 to
evaluate the effectiveness of the Company’s internal control
over financial reporting.
Internal
control over financial reporting refers to the process designed by,
or under the supervision of, our Chief Executive Officer and Chief
Financial Officer, and effected by our Board of Directors,
management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purpose in
accordance with U.S. generally accepted accounting principles, and
includes those policies and procedures that:
1.
Pertain to the
maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of
the Company;
2.
Provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S.
generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorization of management and directors of the Company;
and
3.
Provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, and use or disposition of the Company’s assets
that could have a material effect on the financial
statements.
Internal
control over financial reporting cannot provide absolute assurance
of achieving financial reporting objectives because of its inherent
limitations. Internal control over financial reporting is a process
that involves human diligence and compliance and is subject to
lapses in judgment and breakdowns resulting from human failures.
Internal control over financial reporting also can be circumvented
by collusion or improper management override. Because of such
limitations, there is a risk that material misstatements may not be
prevented or detected on a timely basis by internal control over
financial reporting. However, these inherent limitations are known
features of the financial reporting process. Therefore, it is
possible to design into the process safeguards to reduce, though
not eliminate, the risk.
Based
on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company’s internal controls over
financial reporting were effective as of June 30,
2018.
Changes in Internal Control Over Financial Reporting
Except as discussed below, there has been no change in the
Company’s internal control over financial reporting
during the fourth quarter of Fiscal 2018, which were identified in
connection with management’s evaluation required by paragraph
(d) of rules 13a-15 and 15d-15 under the Exchange Act, that
have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial
reporting.
Enterprise Resource Planning (ERP) Implementation
We are in the process of implementing an ERP System, as part of a
multi-year plan to integrate and upgrade our systems and processes.
The implementation of this ERP system is scheduled to occur in
phases over the next few years, and began with the migration of
certain of our operational and financial systems in our Singapore
operations to the new ERP system during the second quarter of
fiscal 2017. During the third quarter of fiscal 2018, the
operational and financial systems in Singapore were substantially
transitioned to the new system. This implementation effort is
continuing in fiscal 2019, when the operational and financial
systems in our Malaysia operation will be substantially
transitioned to the new system.
As a phased implementation of this system occurs, we are
experiencing certain changes to our processes and procedures which,
in turn, result in changes to our internal control over financial
reporting. While we expect the new ERP system to strengthen our
internal financial controls by automating certain manual processes
and standardizing business processes and reporting across our
organization, management will continue to evaluate and monitor our
internal controls as processes and procedures in each of the
affected areas evolve.
Enhancement of Automated Manufacturing System
During the first quarter of fiscal 2018, we enhanced the automated
manufacturing system used by our Malaysia operation resulting in a
material change in internal controls over financial reporting. The
enhancement automates the process of invoice generation and
matching of customer payments against invoices. We believe the
enhancement was necessary to support increased volumes and
transaction complexities related to our business as well to reduce
the number of manual processes employed by the
Company.
ITEM 9B – OTHER
INFORMATION
None.
PART III
The
information required by Items 10 through 14 of Part III of this
Form 10-K (information regarding our directors and executive
officers, executive compensation, security ownership of certain
beneficial owners, management, related stockholder matters, and
certain relationships and related transactions and principal
accountant fees and services, respectively) is hereby incorporated
by reference from the Company's Proxy Statement to be filed with
the Securities and Exchange Commission within 120 days after the
end of fiscal year 2017.
ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
(a) (1 and
2)
FINANCIAL
STATEMENTS AND SCHEDULES:
The
following financial statements, including notes thereto and the
independent auditors' report with respect thereto, are filed as
part of this Annual Report on Form 10-K, starting on page 34
hereof:
1.
Report of
Independent Registered Public Accounting Firm
2.
Consolidated
Balance Sheets
3.
Consolidated
Statements of Operations and Comprehensive Income
(Loss)
4.
Consolidated
Statements of Shareholders' Equity
5.
Consolidated
Statements of Cash Flows
6.
Notes to
Consolidated Financial Statements
(b) The
exhibits filed as part of this Annual Report on Form 10K are set
forth on the Exhibit Index immediately preceding such exhibits, and
are incorporated herein by reference.
ITEM 16 – FORM 10-K
SUMMARY
Not
applicable.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
|
TRIO-TECH
INTERNATIONAL
By:
/s/ Victor H.M.
Ting
VICTOR H.M. TING
Vice
President and Chief Financial Officer
September 25, 2018
|
Pursuant
to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the Registrant and in the capacity and on the dates
indicated.
|
/s/ A. Charles
Wilson
A. Charles
Wilson, Director
Chairman
of the Board
September
25, 2018
/s/ S.W.Yong
S. W.
Yong, Director
President,
Chief Executive Officer
(Principal
Executive Officer)
September
25, 2018
/s/ Victor H. M.
Ting
Victor
H.M. Ting, Director
Vice
President, and Chief Financial Officer
(Principal
Financial Officer)
September
25, 2018
/s/ Jason T.
Adelman
Jason T.
Adelman, Director
September 25,
2018
/s/ Richard M.
Horowitz
Richard M. Horowitz,
Director
September 25,
2018
|
EXHIBITS:
Number
|
Description
|
|
|
3.1
|
Articles
of Incorporation, as currently in effect. [Incorporated by
reference to Exhibit 3.1 to the Registrant’s Annual Report on
Form 10-K for June 30, 1988.]
|
3.2
|
Bylaws,
as currently in effect. [Incorporated by reference to Exhibit 3.2
to the Registrant’s Annual Report on Form 10-K for June 30,
1988.]
|
|
Amendment
to 2007 Employee Stock Option Plan [Incorporated by reference to
Exhibit A to the Registrant’s Proxy Statement for its Annual
Meeting held December 14, 2010.]**
|
|
Amendment
to 2007 Directors Equity Incentive Plan [Incorporated by reference
to Exhibit B to the Registrant’s Proxy Statement for its
Annual Meeting held December 14, 2010.]**
|
|
Amendment
to 2007 Directors Equity Incentive Plan [Incorporated by reference
to Appendix A to the Registrant’s Proxy Statement for its
Annual Meeting held December 9, 2013.]**
|
10.4
|
2017
Employee Stock Option Plan [Incorporated by reference to Appendix 1
to the Registrant’s Proxy Statement for its Annual Meeting
held December 4, 2017.]**
|
10.5
|
2017
Directors Equity Incentive Plan [Incorporated by reference to
Appendix 2 to the Registrant’s Proxy Statement for its Annual
Meeting held December 4, 2017.]**
|
21.1
|
Subsidiaries
of the Registrant (100% owned by the Registrant except as otherwise
stated)
|
|
Express
Test Corporation (Dormant), a California Corporation
|
|
Trio-Tech
Reliability Services (Dormant), a California
Corporation
|
|
KTS
Incorporated, dba Universal Systems (Dormant), a California
Corporation
|
|
European Electronic
Test Center. Ltd., a Cayman Islands Corporation (Operation ceased
on November 1, 2005)
|
|
Trio-Tech
International Pte. Ltd., a Singapore Corporation
|
|
Universal (Far
East) Pte. Ltd., a Singapore Corporation
|
|
Trio-Tech
International (Thailand) Co., Ltd., a Thailand
Corporation
|
|
Trio-Tech
(Bangkok) Co., Ltd., a Thailand Corporation
|
|
Trio-Tech
(Malaysia) Sdn Bhd., a Malaysia Corporation (55% owned by the
subsidiary of Registrant)
|
|
Trio-Tech (Kuala
Lumpur) Sdn Bhd., a Malaysia Corporation (100% owned by Trio-Tech
Malaysia)
|
|
Prestal
Enterprise Sdn. Bhd., a Malaysia Corporation (76% owned by the
Registrant)
|
|
Trio-Tech (SIP)
Co., Ltd., a China Corporation
|
|
Trio-Tech
(Shanghai) Co., Ltd., a China Corporation (Windup in March 30,
2017)
|
|
Trio-Tech
(Chongqing) Co. Ltd., (100% owned by Trio-Tech International Pte.
Ltd., a Singapore Corporation)
|
|
SHI
International Pte. Ltd, a Singapore Corporation (55% owned
Trio-Tech International Pte. Ltd., a Singapore
Corporation)
|
|
PT SHI
Indonesia, an Indonesia Corporation (100% owned by SHI
International Pte. Ltd., a Singapore Corporation)
|
|
Trio-Tech (Tianjin)
Co., Ltd., a China Corporation (100% owned by Trio-Tech
International Pte. Ltd., a Singapore Corporation)
|
|
Consent
of Independent Registered Public Accounting Firm*
|
|
Rule
13a-14(a) Certification of Principal Executive Officer of
Registrant*
|
|
Rule
13a-14(a) Certification of Principal Financial Officer of
Registrant*
|
|
Section
1350 Certification. *
|
|
|
101.INS*
|
XBRL Instance Document
|
101.SCH*
|
XBRL Taxonomy Extension Schema
|
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase
|
101.DEF*
|
XBRL Taxonomy Extension Definition Linkbase
|
101.LAB*
|
XBRL Taxonomy Extension Label Linkbase
|
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase
|
*
Filed
electronically herewith.
**
Indicates
management contracts or compensatory plans or arrangements required
to be filed as an exhibit to this report
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Board of Directors and Shareholders
Trio-Tech International
Van Nuys, California
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
Trio-Tech International and Subsidiaries (the
“Company”) as of June 30, 2018 and 2017, and the
related consolidated statements of operations and comprehensive
income (loss), shareholders’ equity and cash flows for each
of the two years in the period ended June 30, 2018, and the related
notes (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the
consolidated financial position of the Company as of June 30, 2018
and 2017, and the consolidated results of its operations and its
cash flows for each of the two years in the period ended June 30,
2018, in conformity with accounting principles generally accepted
in the United States of America.
Basis of Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Mazars LLP
PUBLIC ACCOUNTANTS AND
CHARTERED ACCOUNTANTS
We have served as the company’s auditors since
2009
/s/ Mazars
LLP
Singapore
September
25, 2018
PART I. FINANCIAL
INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
AUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
|
|
|
ASSETS
|
|
|
CURRENT
ASSETS:
|
|
|
Cash
and cash equivalents
|
$6,539
|
$4,772
|
Short-term
deposits
|
653
|
787
|
Trade
accounts receivable, less allowance for doubtful accounts of $259
and $247
|
8,007
|
9,009
|
Other
receivables
|
621
|
401
|
Inventories,
less provision for obsolete inventory of $695 and $686
|
2,930
|
1,756
|
Prepaid
expenses and other current assets
|
208
|
226
|
Assets
held for sale
|
91
|
86
|
Total current assets
|
19,049
|
17,037
|
NON-CURRENT
ASSETS:
|
|
|
Deferred
tax assets
|
400
|
375
|
Investment
properties, net
|
1,146
|
1,216
|
Property,
plant and equipment, net
|
11,935
|
11,291
|
Other
assets
|
2,249
|
1,922
|
Restricted
term deposits
|
1,695
|
1,657
|
Total
non-current assets
|
17,425
|
16,461
|
TOTAL ASSETS
|
$36,474
|
$33,498
|
|
|
|
LIABILITIES
|
|
|
CURRENT
LIABILITIES:
|
|
|
Lines
of credit
|
$2,043
|
$2,556
|
Accounts
payable
|
3,704
|
3,229
|
Accrued
expenses
|
3,172
|
3,043
|
Income
taxes payable
|
285
|
233
|
Current
portion of bank loans payable
|
367
|
260
|
Current
portion of capital leases
|
250
|
228
|
Total current liabilities
|
9,821
|
9,549
|
NON-CURRENT
LIABILITIES:
|
|
|
Bank
loans payable, net of current portion
|
1,437
|
1,552
|
Capital
leases, net of current portion
|
524
|
531
|
Deferred
tax liabilities
|
327
|
295
|
Income
taxes payable
|
828
|
-
|
Other
non-current liabilities
|
36
|
44
|
Total non-current liabilities
|
3,152
|
2,422
|
TOTAL LIABILITIES
|
$12,973
|
$11,971
|
|
|
|
EQUITY
|
|
|
TRIO-TECH
INTERNATIONAL’S SHAREHOLDERS' EQUITY:
|
|
|
Common
stock, no par value, 15,000,000 shares authorized; 3,553,055 shares
issued and outstanding as of June 30, 2018 and 3,523,055 shares
issued and outstanding as of June 30, 2017
|
$11,023
|
$10,921
|
Paid-in
capital
|
3,249
|
3,206
|
Accumulated
retained earnings
|
5,525
|
4,341
|
Accumulated
other comprehensive gain-translation adjustments
|
2,182
|
1,633
|
Total Trio-Tech International shareholders'
equity
|
21,979
|
20,101
|
Non-controlling
interests
|
1,522
|
1,426
|
TOTAL EQUITY
|
$23,501
|
$21,527
|
TOTAL LIABILITIES AND EQUITY
|
$36,474
|
$33,498
|
See notes to consolidated financial statements.
TRIO-TECH INTERNATIONAL AND
SUBSIDIARIES
AUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
|
|
|
|
|
|
|
|
Revenue
|
|
|
Manufacturing
|
$15,978
|
$15,289
|
Testing
services
|
19,391
|
16,586
|
Distribution
|
6,853
|
6,511
|
Others
|
139
|
152
|
|
42,361
|
38,538
|
Cost of Sales
|
|
|
Cost
of manufactured products sold
|
12,213
|
12,091
|
Cost
of testing services rendered
|
13,323
|
11,057
|
Cost
of distribution
|
6,068
|
5,828
|
Others
|
119
|
100
|
|
31,723
|
29,076
|
|
|
|
Gross Margin
|
10,638
|
9,462
|
|
|
|
Operating Expenses:
|
|
|
General
and administrative
|
7,250
|
6,911
|
Selling
|
826
|
807
|
Research
and development
|
451
|
208
|
(Gain) / loss on disposal of property, plant and
equipment
|
(77)
|
47
|
Total
operating expenses
|
8,450
|
7,973
|
|
|
|
Income from Operations
|
2,188
|
1,489
|
|
|
|
Other Income / (Expenses)
|
|
|
Interest
expenses
|
(233)
|
(202)
|
Other income,
net
|
335
|
514
|
Total
other income / (expenses)
|
102
|
312
|
|
|
|
Income from Continuing Operations before Income
Taxes
|
2,290
|
1,801
|
|
|
|
Income Tax Expenses
|
(987)
|
(341)
|
|
|
|
Income
from continuing operations before non-controlling interests, net of
tax
|
1,303
|
1,460
|
|
|
|
Discontinued Operations (Note 24)
|
|
|
Loss
from discontinued operations, net of tax
|
(13)
|
(5)
|
NET INCOME
|
1,290
|
1,455
|
|
|
|
Less:
net income attributable to non-controlling interests
|
106
|
139
|
Net Income Attributable to Trio-Tech International Common
Shareholders
|
$1,184
|
$1,316
|
|
|
|
Amounts Attributable to Trio-Tech International Common
Shareholders:
|
|
|
Income
from continuing operations, net of tax
|
1,197
|
1,325
|
Loss
from discontinued operations, net of tax
|
(13)
|
(9)
|
Net Income Attributable to Trio-Tech International Common
Shareholders
|
$1,184
|
$1,316
|
|
|
|
Basic Earnings per Share:
|
|
|
Basic
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.34
|
$0.38
|
Basic
loss per share from discontinued operations attributable to
Trio-Tech International
|
$(0.01)
|
$-
|
Basic Earnings per Share from Net Income
|
|
|
Attributable to Trio-Tech International
|
$0.33
|
$0.38
|
|
|
|
Diluted Earnings per Share:
|
|
|
Diluted
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.32
|
$0.36
|
Diluted
loss per share from discontinued operations attributable to
Trio-Tech International
|
(0.01)
|
-
|
Diluted Earnings per Share from Net Income
|
|
|
Attributable to Trio-Tech International
|
$0.31
|
$0.36
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
Basic
|
3,553
|
3,523
|
Dilutive
effect of stock options
|
218
|
121
|
Number
of shares used to compute earnings per share diluted
|
3,771
|
3,644
|
See notes to consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
Comprehensive Income Attributable to Trio-Tech
International Common Shareholders:
|
|
|
|
|
|
Net
income
|
1,290
|
1,455
|
Foreign
currency translation, net of tax
|
728
|
(679)
|
Comprehensive Income
|
2,018
|
776
|
Less:
comprehensive income / (loss) attributable to the non-controlling
interests
|
285
|
(11)
|
Comprehensive Income Attributable to Trio-Tech International Common
Shareholders
|
$1,733
|
$787
|
|
|
|
See notes to consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
|
|
|
|
Accumulated Other
Comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
$
|
$
|
Balance
at June 30, 2016
|
3,513
|
10,882
|
3,188
|
3,025
|
2,162
|
1,614
|
20,871
|
|
|
|
|
|
|
|
|
Stock
option expenses
|
-
|
-
|
18
|
-
|
-
|
-
|
18
|
Net
income
|
-
|
-
|
-
|
1,316
|
-
|
139
|
1,455
|
Dividend
declared by subsidiary
|
-
|
-
|
-
|
-
|
-
|
(177)
|
(177)
|
Issue
of restricted shares to consultant
|
10
|
39
|
-
|
-
|
-
|
-
|
39
|
Translation
adjustment
|
-
|
-
|
-
|
-
|
(529)
|
(150)
|
(679)
|
Balance
at June 30, 2017
|
3,523
|
10,921
|
3,206
|
4,341
|
1,633
|
1,426
|
21,527
|
|
|
|
|
|
|
|
|
Stock
option expenses
|
-
|
-
|
43
|
-
|
-
|
-
|
43
|
Net
income
|
-
|
-
|
-
|
1,184
|
-
|
106
|
1,290
|
Dividend
declared by subsidiary
|
-
|
-
|
-
|
-
|
-
|
(189)
|
(189)
|
Exercise
of options
|
20
|
51
|
-
|
-
|
-
|
-
|
51
|
Issue
of restricted shares to consultant
|
10
|
51
|
-
|
-
|
-
|
-
|
51
|
Translation
adjustment
|
-
|
-
|
-
|
-
|
549
|
179
|
728
|
Balance
at June 30, 2018
|
3,553
|
11,023
|
3,249
|
5,525
|
2,182
|
1,522
|
23,501
|
See accompanying notes to consolidated financial
statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
|
|
|
|
|
|
|
|
Cash Flow from Operating Activities
|
|
|
Net
income
|
$1,290
|
$1,455
|
Adjustments
to reconcile net income to net cash flow provided by operating
activities
|
|
|
Depreciation
and amortization
|
2,214
|
1,836
|
Bad
debt expenses / (recovery), net
|
7
|
(15)
|
Inventory
recovery, net
|
4
|
-
|
Warranty
provision / (recovery), net
|
34
|
(27)
|
Accrued
interest expense, net accrued interest income
|
194
|
180
|
Fixed
assets written off
|
-
|
30
|
Issuance
of shares to service provider
|
51
|
39
|
Loss
on disposal of property, plant and equipment
|
15
|
17
|
Stock
compensation expenses
|
43
|
18
|
Deferred
tax provision
|
5
|
104
|
Changes
in operating assets and liabilities
|
|
|
Trade
accounts receivables
|
995
|
(168)
|
Other
receivables
|
(220)
|
191
|
Other
assets
|
(377)
|
(235)
|
Inventories
|
(1,162)
|
(300)
|
Prepaid
expenses and other current assets
|
18
|
38
|
Accounts
payable and accrued expenses
|
488
|
787
|
Income
tax payable
|
880
|
3
|
Other
non-current liabilities
|
-
|
-
|
Net Cash Provided by Operating Activities
|
4,479
|
3,953
|
Cash Flow from Investing Activities
|
|
|
Proceeds
from maturing of unrestricted and restricted term deposits,
net
|
484
|
488
|
Additions
to property, plant and equipment
|
(2,309)
|
(2,285)
|
Investments
in restricted and un-restricted deposits
|
(281)
|
(651)
|
Proceeds
from disposal of property, plant and equipment
|
42
|
86
|
Net Cash Used in Investing Activities
|
(2,064)
|
(2,362)
|
Cash Flow from Financing Activities
|
|
|
Repayment
on lines of credit
|
(8,883)
|
(8,915)
|
Dividends
paid on non-controlling interest
|
(189)
|
(177)
|
Repayment
of bank loans and capital leases
|
(733)
|
(721)
|
Proceeds
from bank loans and capital leases
|
8,747
|
9,464
|
Proceeds
from exercising stock options
|
51
|
-
|
Net Cash Used in Financing Activities
|
(1,007)
|
(349)
|
Effect of Changes in Exchange Rate
|
359
|
(277)
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
1,767
|
965
|
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
|
4,772
|
3,807
|
CASH AND CASH EQUIVALENTS, END OF YEAR
|
$6,539
|
$4,772
|
Supplementary Information of Cash Flows
|
|
|
Cash
paid during the period for:
|
|
|
Interest
|
$181
|
$185
|
Income
taxes
|
$245
|
$170
|
Non-Cash Transactions
|
|
|
Capital
lease of property, plant and equipment
|
$228
|
$295
|
See accompanying notes to consolidated financial
statements.
TRIO-TECH INTERNATIONAL AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2018 AND 2017
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
1.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES.
Basis of Presentation and Principles of Consolidation
- Trio-Tech International (the “Company”
or “TTI” hereafter) was incorporated in fiscal 1958
under the laws of the State of California. TTI provides
third-party semiconductor testing and burn-in services primarily
through its laboratories in Asia. In addition, TTI operates testing
facilities in the U.S. The Company also designs, develops,
manufactures and markets a broad range of equipment and systems
used in the manufacturing and testing of semiconductor devices and
electronic components. In fiscal 2018, TTI conducted business in
the foregoing four segments: Manufacturing (assembly), Testing
Services, Distribution and Real Estate. TTI has subsidiaries in the
U.S., Singapore, Malaysia, Thailand, Indonesia and China as
follows:
|
Ownership
|
Location
|
|
|
|
Express Test Corporation (Dormant)
|
100%
|
Van Nuys, California
|
Trio-Tech Reliability Services (Dormant)
|
100%
|
Van Nuys, California
|
KTS Incorporated, dba Universal Systems (Dormant)
|
100%
|
Van Nuys, California
|
European Electronic Test Centre (Dormant)
|
100%
|
Dublin, Ireland
|
Trio-Tech International Pte. Ltd.
|
100%
|
Singapore
|
Universal (Far East) Pte. Ltd. *
|
100%
|
Singapore
|
Trio-Tech International (Thailand) Co. Ltd. *
|
100%
|
Bangkok, Thailand
|
Trio-Tech (Bangkok) Co. Ltd.
(49% owned by Trio-Tech International Pte. Ltd. and 51% owned by
Trio-Tech International (Thailand) Co. Ltd.)
|
100%
|
Bangkok, Thailand
|
Trio-Tech (Malaysia) Sdn. Bhd.
(55% owned by Trio-Tech International Pte. Ltd.)
|
55%
|
Penang and Selangor, Malaysia
|
Trio-Tech (Kuala Lumpur) Sdn. Bhd.
(100% owned by Trio-Tech Malaysia Sdn. Bhd.)
|
55%
|
Selangor, Malaysia
|
Prestal Enterprise Sdn. Bhd.
(76% owned by Trio-Tech International Pte. Ltd.)
|
76%
|
Selangor, Malaysia
|
Trio-Tech (SIP) Co., Ltd. *
|
100%
|
Suzhou, China
|
Trio-Tech (Chongqing) Co. Ltd. *
|
100%
|
Chongqing, China
|
SHI International Pte. Ltd. (Dormant)
(55% owned by Trio-Tech International Pte. Ltd)
|
55%
|
Singapore
|
PT SHI Indonesia (Dormant)
(100% owned by SHI International Pte. Ltd.)
|
55%
|
Batam, Indonesia
|
Trio-Tech (Tianjin) Co., Ltd. *
|
100%
|
Tianjin, China
|
* 100%
owned by Trio-Tech International Pte. Ltd.
The
consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of
America (‘‘U.S. GAAP’’). The basis of
accounting differs from that used in the statutory financial
statements of the Company’s subsidiaries and equity investee
companies, which are prepared in accordance with the accounting
principles generally accepted in their respective countries of
incorporation. In the opinion of management, the consolidated
financial statements have reflected all costs incurred by the
Company and its subsidiaries in operating the
business.
All
dollar amounts in the financial statements and in the notes herein
are presented in thousands of United States dollars (US$’000)
unless otherwise designated.
Liquidity – The Company
earned net income attributable to common shareholders of $1,184 and
$1,316 for fiscal years 2018 and 2017, respectively.
The
Company’s core businesses - testing services, manufacturing
(assembly) and distribution - operate in a volatile industry,
whereby its average selling prices and product costs are influenced
by competitive factors. These factors create pressures on sales,
costs, earnings and cash flows, which will impact liquidity.
Foreign Currency Translation and Transactions —
The U.S. dollar is the functional
currency of the U.S. parent company. The Singapore dollar, the
national currency of Singapore, is the primary currency of the
economic environment in which the operations in Singapore are
conducted. The Company also has business entities in Malaysia,
Thailand and China, of which the Malaysian ringgit
(“RM”), Thai baht, Chinese renminbi (“RMB”)
and Indonesian rupiah, are the national currencies. The Company
uses the U.S. dollar for financial reporting
purposes.
The Company translates assets and liabilities of its subsidiaries
outside the U.S. into U.S. dollars using the rate of exchange
prevailing at the fiscal year end, and the consolidated statements
of operations and comprehensive income or loss is translated at
average rates during the reporting period. Adjustments resulting
from the translation of the subsidiaries’ financial
statements from foreign currencies into U.S. dollars are recorded
in shareholders' equity as part of accumulated other comprehensive
gain - translation adjustments. Gains or losses resulting from
transactions denominated in currencies other than functional
currencies of the Company’s subsidiaries are reflected in
income for the reporting period.
Use of Estimates — The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Among the more significant estimates included
in these financial statements are the estimated allowance for
doubtful accounts receivable, reserve for obsolete inventory,
reserve for warranty, impairments and the deferred income tax asset
allowance. Actual results could materially differ from those
estimates.
Revenue Recognition — Revenue derived from testing
services is recognized when testing services are rendered. Revenues
generated from sales of products in the manufacturing and
distribution segments are recognized when persuasive evidence of an
arrangement exists, delivery of the products has occurred, customer
acceptance has been obtained (which means the significant risks and
rewards of ownership have been transferred to the customer), the
price is fixed or determinable and collectability is reasonably
assured. Certain products sold (in the manufacturing segment)
require installation and training to be performed.
Revenue
from product sales is also recorded in accordance with the
provisions of ASC Topic 605 and Staff Accounting Bulletin
(“SAB”) 104 Revenue
Recognition in Financial Statements (“ASC Topic
605”), which generally require revenue earned on product
sales involving multiple-elements to be allocated to each element
based on the relative fair values of those elements. Accordingly,
the Company allocates revenue to each element in a multiple-element
arrangement based on the element’s respective fair value,
with the fair value determined by the price charged when that
element is sold and specifically defined in a quotation or
contract. The Company allocates a portion of the invoice value to
products sold and the remaining portion of invoice value to
installation work in proportion to the fair value of products sold
and installation work to be performed. Training elements are valued
based on hourly rates, which services the Company charges for when
sold apart from product sales. The fair value determination of
products sold and the installation and training work is also based
on our specific historical experience of the relative fair values
of the elements if there is no easily observable market price to be
considered. In fiscal years 2018 and 2017, the installation
revenues generated in connection with product sales were immaterial
and were included in the product sales revenue line on the
consolidated statements of operations and comprehensive income or
loss.
In the
real estate segment: (1) revenue from property development is
earned and recognized on the earlier of the dates when the
underlying property is sold or upon the maturity of the agreement;
if this amount is uncollectible, the agreement empowers the
repossession of the property, and (2) rental revenue is recognized
on a straight-line basis over the terms of the respective leases.
This means that, with respect to a particular lease, actual amounts
billed in accordance with the lease during any given period may be
higher or lower than the amount of rental revenue recognized for
the period. Straight-line rental revenue is commenced when the
tenant assumes possession of the leased premises. Accrued
straight-line rents receivable represents the amount by which
straight-line rental revenue exceeds rents currently billed in
accordance with lease agreements.
GST / Indirect Taxes — The Company’s policy is to
present taxes collected from customers and remitted to governmental
authorities on a net basis. The Company records the amounts
collected as a current liability and relieves such liability upon
remittance to the taxing authority without impacting revenues or
expenses.
Accounts Receivable and Allowance for Doubtful Accounts
— During the normal course of business, the Company
extends unsecured credit to its customers in all segments.
Typically, credit terms require payment to be made between 30 to 90
days from the date of the sale. The Company generally does not
require collateral from our customers.
The
Company’s management considers the following factors when
determining the collectability of specific customer accounts:
customer credit-worthiness, past transaction history with the
customer, current economic industry trends, and changes in customer
payment terms. The Company includes any account balances that are
determined to be uncollectible, along with a general reserve, in
the overall allowance for doubtful accounts. After all attempts to
collect a receivable have failed, the receivable is written off
against the allowance. Based on the information available to
management, the Company believed that its allowance for doubtful
accounts was adequate as of June 30, 2018 and 2017.
Warranty Costs — The Company provides for the
estimated costs that may be incurred under its warranty program at
the time the sale is recorded in its manufacturing segment. The
Company estimates warranty costs based on the historical rates of
warranty returns. The Company periodically assesses the adequacy of
its recorded warranty liability and adjusts the amounts as
necessary.
Cash and Cash Equivalents — The Company considers all
highly liquid investments with an original maturity of three months
or less when purchased to be cash equivalents.
Term Deposits — Term deposits consist of bank
balances and interest-bearing deposits having maturities of 3 to 6
months. As of June 30, 2018,
the Company held approximately $548 of
unrestricted term deposits in the company’s Malaysian
subsidiary and $105 of unrestricted term deposits in the
Company’s 100% owned Thailand subsidiary, which were
denominated in RM and Thai baht, as compared to $687 and $100 as of
June 30, 2017, respectively.
Restricted Term Deposits — The Company held certain term
deposits in the Singapore and Malaysia operations which were
considered restricted as they were held as security against certain
facilities granted by the financial institutions. As of June 30,
2018 the Company held
approximately $1,468 of restricted term deposits in the
Company’s 100% owned Trio-Tech International Pte. Ltd., which
were denominated in Singapore currency, and $227 of restricted term
deposits in the Company’s 55% owned Malaysian subsidiary,
which were denominated in RM, as compared to June 30, 2017 when the
Company held approximately $1,450 of restricted term deposits in
the Company’s 100% owned Trio-Tech International Pte. Ltd.,
which were denominated in Singapore currency, and $207 of
restricted term deposits in the Company’s 55% owned Malaysian
subsidiary, which were denominated in the currency of
Malaysia.
Inventories — Inventories in the Company’s
manufacturing and distribution segments consisting principally of
raw materials, works in progress, and finished goods are stated at
the lower of cost, using the first-in, first-out
(“FIFO”) method, or market value. The semiconductor
industry is characterized by rapid technological change, short-term
customer commitments and rapid changes in demand. Provisions for
estimated excess and obsolete inventory are based on our regular
reviews of inventory quantities on hand and the latest forecasts of
product demand and production requirements from our customers.
Inventories are written down for not saleable, excess or obsolete
raw materials, works-in-process and finished goods by charging such
write-downs to cost of sales. In addition to write-downs based on
newly introduced parts, statistics and judgments are used for
assessing provisions of the remaining inventory based on salability
and obsolescence.
Property, Plant and Equipment & Investment Property
— Property, plant and equipment, and investment property are
stated at cost, less accumulated depreciation and amortization.
Depreciation is provided for over the estimated useful lives of the
assets using the straight-line method. Amortization of leasehold
improvements is provided for over the lease terms or the estimated
useful lives of the assets, whichever is shorter, using the
straight-line method.
Maintenance,
repairs and minor renewals are charged directly to expense as
incurred. Additions and improvements to the assets are capitalized.
When assets are disposed of, the related cost and accumulated
depreciation thereon are removed from the accounts and any
resulting gain or loss is included in the consolidated statements
of operations and comprehensive income or loss.
Long-Lived Assets and Impairment – The Company’s
business requires heavy investment in manufacturing facilities and
equipment that are technologically advanced but can quickly become
significantly under-utilized or rendered obsolete by rapid changes
in demand.
The
Company evaluates the long-lived assets, including property, plant
and equipment and investment property, for impairment whenever
events or changes in circumstances indicate that the carrying value
of such assets may not be recoverable. Factors considered important
that could result in an impairment review include significant
underperformance relative to expected historical or projected
future operating results, significant changes in the manner of use
of the assets or the strategy for our business, significant
negative industry or economic trends, and a significant decline in
the stock price for a sustained period of time. Impairment is
recognized based on the difference between the fair value of the
asset and its carrying value, and fair value is generally measured
based on discounted cash flow analysis, if there is significant
adverse change.
The
Company applies the provisions of ASC Topic 360, Accounting for the Impairment or Disposal of
Long-Lived Assets (“ASC Topic 360”), to
property, plant and equipment. ASC Topic 360 requires that
long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable through the estimated undiscounted
cash flows expected to result from the use and eventual disposition
of the assets. Whenever any such impairment exists, an impairment
loss will be recognized for the amount by which the carrying value
exceeds the fair value.
Leases — The Company leases certain property,
plant and equipment in the ordinary course of business. The leases
have varying terms. Some may have included renewal and/or purchase
options, escalation clauses, restrictions, penalties or other
obligations that the Company considered in determining minimum
lease payments. The leases were classified as either capital leases
or operating leases, in accordance with ASC Topic 840, Accounting for Leases (“ASC Topic
840”). The Company records monthly rental expense equal to
the total amount of the payments due in the reporting period over
the lease term in accordance with U.S. GAAP. The difference between
rental expense recorded and the amount paid is credited or charged
to deferred rent, which is included in accrued expenses in the
accompanying consolidated balance sheets.
The Company’s management expects that in the normal course of
business, operating leases will be renewed or replaced by other
leases. The future minimum operating lease payments, for which the
Company is contractually obligated as of June 30, 2018, are
disclosed in these notes to the consolidated financial
statements.
Assets under capital leases are capitalized using interest rates
appropriate at the inception of each lease and are depreciated over
either the estimated useful life of the asset or the lease term on
a straight-line basis. The present value of the related lease
payments is recorded as a contractual obligation. The future
minimum annual capital lease payments are included in the total
future contractual obligations as disclosed in the notes to the
consolidated financial statements.
Comprehensive Income or Loss — ASC Topic 220, Reporting Comprehensive
Income, (“ASC Topic
220”), establishes standards for reporting and
presentation of comprehensive income or loss and its components in
a full set of general-purpose financial statements. The Company has
chosen to report comprehensive income or loss in the statements of
operations. Comprehensive income or loss is comprised of net income
or loss and all changes to shareholders’ equity except those
due to investments by owners and distributions to
owners.
Income Taxes — The
Company accounts for income taxes using the liability method in
accordance with ASC Topic 740, Accounting for Income
Taxes (“ASC Topic
740”). ASC Topic 740 requires an entity to recognize
deferred tax liabilities and assets. Deferred tax assets and
liabilities are recognized for the future tax consequence
attributable to the difference between the tax bases of assets and
liabilities and their reported amounts in the financial statements,
which will result in taxable or deductible amounts in future years.
Further, the effects of enacted tax laws or rate changes are
included as part of deferred tax expenses or benefits in the period
that covers the enactment date.
The
calculation of tax liabilities involves dealing with uncertainties
in the application of complex global tax regulations. The Company
recognizes potential liabilities for anticipated tax audit issues
in the U.S. and other tax jurisdictions based on its estimate of
whether, and the extent to which, additional taxes will be due. If
payment of these amounts ultimately proves to be unnecessary, the
reversal of the liabilities would result in tax benefits being
recognized in the period when the Company determines the
liabilities are no longer necessary. If the estimate of tax
liabilities proves to be less than the ultimate assessment, a
further charge to expense would result.
Retained Earnings — It is
the intention of the Company to reinvest earnings of its foreign
subsidiaries in the operations of those subsidiaries. These taxes
are undeterminable at this time. The amount of earnings retained in
subsidiaries was $12,393 and $10,126 at June 30, 2018 and 2017,
respectively.
Research and Development Costs — The Company incurred research and development
costs of $451 and $208 in fiscal year 2018 and in fiscal year 2017,
respectively, which were charged to operating expenses as
incurred.
Stock Based Compensation — The Company adopted the fair value
recognition provisions under ASC Topic 718, Share Based Payments
(“ASC Topic 718”), using
the modified prospective application method. Under this transition
method, compensation cost recognized during the twelve months ended
June 30, 2018 included the applicable amounts of:
(a) compensation cost of all share-based payments granted
prior to, but not yet vested as of July 1, 2017 (based on the
grant-date fair value estimated in accordance with the original
provisions of ASC Topic 718) and (b) compensation cost for all
share-based payments granted subsequent to June 30,
2018.
Earnings per Share — Computation of basic earnings per share is
conducted by dividing net income available to common shares
(numerator) by the weighted average number of common shares
outstanding (denominator) during a reporting period. Computation of
diluted earnings per share gives effect to all dilutive potential
common shares outstanding during a reporting period. In computing
diluted earnings per share, the average market price of common
shares for a reporting period is used in determining the number of
shares assumed to be purchased from the exercise of stock
options.
Fair Values of Financial Instruments — Carrying values of trade accounts
receivable, accounts payable, accrued expenses, and term deposits
approximate their fair value due to their short-term maturities.
Carrying values of the Company’s lines of credit and
long-term debt are considered to approximate their fair value
because the interest rates associated with the lines of credit and
long-term debt are adjustable in accordance with market situations
when the Company tries to borrow funds with similar terms and
remaining maturities. See Note 17 for detailed discussion of the
fair value measurement of financial
instruments.
ASC
Topic 820 defines fair value as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The financial assets and financial liabilities that require
recognition under the guidance include available-for-sale
investments, employee deferred compensation plan and foreign
currency derivatives. The guidance establishes a hierarchy for
inputs used in measuring fair value that maximizes the use of
observable inputs and minimizes the use of unobservable inputs by
requiring that the observable inputs be used when available.
Observable inputs are inputs that market participants would use in
pricing the asset or liability developed based on market data
obtained from sources independent of us. Unobservable inputs are
inputs that reflect our assumptions about the assumptions market
participants would use in pricing the asset or liability developed
based on the best information available under the circumstances. As
such, fair value is a market-based measure considered from the
perspective of a market participant who holds the asset or owes the
liability rather than an entity-specific measure. The hierarchy is
broken down into three levels based on the reliability of inputs as
follows:
●
Level
1—Valuations based on quoted prices in active markets for
identical assets or liabilities that we have the ability to access.
Since valuations are based on quoted prices that are readily and
regularly available in an active market, valuation of these
products does not entail a significant degree of judgment.
Financial assets utilizing Level 1 inputs include U.S. treasuries,
most money market funds, marketable equity securities and our
employee deferred compensation plan;
●
Level
2—Valuations based on quoted prices in markets that are not
active or for which all significant inputs are observable, directly
or indirectly. Financial assets and liabilities utilizing Level 2
inputs include foreign currency forward exchange contracts, most
commercial paper and corporate notes and bonds; and
●
Level
3—Valuations based on inputs that are unobservable and
significant to the overall fair value measurement. Financial assets
utilizing Level 3 inputs primarily include auction rate securities.
We use an income approach valuation model to estimate the exit
price of the auction rate securities, which is derived as the
weighted-average present value of expected cash flows over various
periods of illiquidity, using a risk adjusted discount rate that is
based on the credit risk and liquidity risk of the
securities.
Concentration of Credit Risk — Financial instruments that subject the
Company to credit risk compose of trade accounts receivable. The
Company performs ongoing credit evaluations of its customers for
potential credit losses. The Company generally does not require
collateral. The Company believes that its credit policies do not
result in significant adverse risk and historically it has not
experienced significant credit related losses.
Investments - The Company analyzes its investments to
determine if it is a variable interest entity (a “VIE”)
and would require consolidation. The Company (a) evaluates the
sufficiency of the total equity at risk, (b) reviews the voting
rights and decision-making authority of the equity investment
holders as a group, and whether there are any guaranteed returns,
protection against losses, or capping of residual returns within
the group, and (c) establishes whether activities within the
venture are on behalf of an investor with disproportionately few
voting rights in making this VIE determination. The Company would
consolidate an investment that is determined to be a VIE if it was
the primary beneficiary. The primary beneficiary of a VIE is
determined by a primarily qualitative approach, whereby the
variable interest holder, if any, has the power to direct
the VIE’s most significant activities and is the primary
beneficiary. A new accounting standard became effective and
changed the method by which the primary beneficiary of a VIE is
determined. Through a primarily qualitative approach, whereby the
variable interest holder, if any, who has the power to direct the
VIE’s most significant activities and is the primary
beneficiary. To the extent that the investment does not qualify as
VIE, the Company further assesses the existence of a controlling
financial interest under a voting interest model to determine
whether the investment should be consolidated.
Equity Method - The Company analyzes its investments to
determine if they should be accounted for using the equity method.
Management evaluates both Common Stock and in-substance Common
Stock to determine whether they give the Company the ability to
exercise significant influence over operating and financial
policies of the investment even though the Company holds less than
50% of the Common Stock and in-substance Common Stock. The net
income of the investment, if any, will be reported as “Equity
in earnings of unconsolidated joint ventures, net of tax” in
the Company’s consolidated statements of operations and
comprehensive income.
Cost Method - Investee companies not accounted for under the
consolidation or the equity method of accounting are accounted for
under the cost method of accounting. Under this method, the
Company’s share of the earnings or losses of such Investee
companies is not included in the consolidated balance sheet or
statements of operations and comprehensive income or loss. However,
impairment charges are recognized in the consolidated statements of
operations and comprehensive income or loss. If circumstances
suggest that the value of the investee Company has subsequently
recovered, such recovery is not recorded.
Loan Receivables from Property Development Projects - The
loan receivables from property development projects are classified
as current asset, carried at face value and are individually
evaluated for impairment. The allowance for loan losses
reflects management’s best estimate of probable losses
determined principally on the basis of historical experience and
specific allowances for known loan accounts. All loans or portions
thereof deemed to be uncollectible or to require an excessive
collection cost are written off to the allowance for
losses.
Interest
income on the loan receivables from property development projects
are recognized on an accrual basis. Discounts and premiums on loans
are amortized to income using the interest method over the
remaining period to contractual maturity. The amortization of
discounts into income is discontinued on loans that are
contractually 90 days past due or when collection of interest
appears doubtful.
Contingent Liabilities - Certain conditions may exist as of
the date the financial statements are issued, which may result in a
loss to the Company, but which will only be resolved when one or
more future events occur or fail to occur. The Company’s
management and its legal counsel assess such contingent
liabilities, and such assessment inherently involves an exercise of
judgment. In assessing loss contingencies related to legal
proceedings that are pending against the Company or un-asserted
claims that may result in such proceedings, the Company’s
legal counsel evaluates the perceived merits of any legal
proceedings or un-asserted claims as well as the perceived merits
of the amount of relief sought or expected to be sought
therein.
If the
assessment of a contingency indicates that it is probable that a
material loss has been incurred and the amount of the liability can
be estimated, then the estimated liability would be accrued in the
Company’s financial statements. If the assessment indicates
that a potentially material loss contingency is not probable, but
is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an
estimate of the range of possible loss if determinable and
material, would be disclosed.
Loss
contingencies considered remote are generally not disclosed unless
they involve guarantees, in which case the nature of the guarantee
would be disclosed.
2. NEW ACCOUNTING PRONOUNCEMENTS
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 should be applied prospectively for only
the most recent interim or annual period presented in the initial
fiscal year of adoption. All other amendments should be applied
retrospectively to all periods presented upon their effective date.
The amendments are effective for all entities for fiscal years
beginning after December 15, 2019, and interim periods within those
fiscal years. While early application is permitted, including
adoption in an interim period, the Company has not elected to early
adopt. The effectiveness of this update is not expected to have a
significant effect on the Company’s consolidated financial
position or results of operations.
The
amendments in ASU 2018-11 ASC Topic 842: Leases: Targeted Improvements related
to transition relief on comparative reporting at adoption affect
all entities with lease contracts that choose the additional
transition method and separating components of a contract affect
only lessors whose lease contracts qualify for the practical
expedient. The amendments in ASC Topic 842 are effective for public
business entities for fiscal years beginning after December 15,
2018, and interim periods within those fiscal years. While early
application is permitted, including adoption in an interim period,
the Company has not elected to early adopt. The Company is
currently evaluating the impact of this accounting standard update
on its consolidated financial statements.
The
amendments in ASU 2018-10 ASC Topic 842: Codification Improvements to Leases are
to address stakeholders’ questions about how to apply certain
aspects of the new guidance in Accounting Standards Codification
(ASC) 842, Leases. The clarifications address the rate implicit in
the lease, impairment of the net investment in the lease, lessee
reassessment of lease classification, lessor reassessment of lease
term and purchase options, variable payments that depend on an
index or rate and certain transition adjustments. The amendments in
ASC Topic 842 are effective for public business entities for fiscal
years beginning after December 15, 2018, and interim periods within
those fiscal years. While early application is permitted, including
adoption in an interim period, the Company has not elected to early
adopt. The Company is currently evaluating the impact of this
accounting standard update on its consolidated financial
statements.
The amendments in ASU 2018-09 Codification
Improvements represent changes
to clarify, correct errors in, or make minor improvements to the
Codification, eliminating inconsistencies and providing
clarifications in current guidance. The amendments in this ASU
include those made to: Income Statement-Reporting Comprehensive
Income-Overall; Debt-Modifications and Extinguishments;
Distinguishing Liabilities from Equity-Overall; Compensation-Stock
Compensation-Income Taxes; Business Combinations-Income Taxes;
Derivatives and Hedging-Overall; Fair Value Measurement-Overall;
Financial Services-Brokers and Dealers-Liabilities; and Plan
Accounting-Defined Contribution Pension Plans-Investments-Other.
The amendments are effective for all entities for annual periods
beginning after December 15, 2018. . The effectiveness of this
update is not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
The amendments in ASU 2018-03 Technical Corrections and
Improvements to Financial Instruments
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 should be applied prospectively for only
the most recent interim or annual period presented in the initial
fiscal year of adoption. All other amendments should 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. While early application is permitted, including adoption in
an interim period, the effectiveness of this update is not expected
to have a significant effect on the Company’s consolidated
financial position or results of
operations.
The
amendments in ASU 2018-02 ASC Topic 220: Income Statement – Reporting
Comprehensive Income provide financial statement preparers
with an option to reclassify stranded tax effects within
Accumulated Other Comprehensive Income to retained earnings in each
period in which the effect of the change in the U.S. federal
corporate income tax rate in the Tax Cuts and Jobs Act (or portion
thereof) is recorded. The amendments
in ASC Topic 220 are effective for public business entities for
fiscal years beginning after December 15, 2018, and interim periods
within those fiscal years. While early application is
permitted, including adoption in an interim period, the
Company has not elected to early adopt. The effectiveness of this
update is not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
The amendments in Accounting Standards Update (“ASU”)
2017-11: Earnings Per Share (Topic
260); Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic
815). are effective for public companies for annual periods
beginning after December 15, 2018, including interim periods within
those periods. While early application is permitted, including
adoption in an interim period, the Company has not elected to early
adopt. The effectiveness of this update is not expected to have a
significant effect on the Company’s presentation of
consolidated financial position or results of
operations.
The amendments in ASU 2017-09 — Compensation — Stock
Compensation (“ASC Topic
718”): Scope of Modification Accounting provide guidance on
determining which changes to the terms and conditions of
share-based payment awards require an entity to apply modification
accounting under Topic 718. For public companies, these amendments
are effective for annual periods beginning after December 15, 2017,
including interim periods within those periods. While early
application is permitted, including adoption in an interim period,
the Company has not elected to early adopt. The effectiveness of
this update is not expected to have a significant effect on the
Company’s presentation of consolidated financial position or
results of operations.
The amendments in ASU 2017-07 ASC Topic 715 —
'Compensation
— Retirement Benefits (“ASC Topic 715”) improve the
presentation of net periodic pension Cost and Net Periodic
Postretirement Benefit Cost. For public companies, these amendments
are effective for annual periods beginning after December 15, 2017,
including interim periods within those periods. While early
application is permitted, including adoption in an interim period,
the Company has not elected to early adopt. The effectiveness of
this update is not expected to have a significant effect on the
Company’s presentation of consolidated financial position or
results of operations.
The amendments in ASU 2017-05 ASC Subtopic 610-20 —
'Other Income
– Gains and Losses from the Derecognition of Nonfinancial
Assets (“ASC Subtopic
610-20”) clarify the scope of asset derecognition Guidance
and Accounting for Partial Sales of Nonfinancial Assets. For public
companies, these amendments are effective for annual periods
beginning after December 15, 2017, including interim periods within
those periods. While early application is permitted, including
adoption in an interim period, the Company has not elected to early
adopt. The effectiveness of this update is not expected to have a
significant effect on the Company’s presentation of
consolidated financial position or results of
operations.
The amendments in ASU 2017-04 ASC Topic 350 —
'Intangibles - Goodwill and
Other (“ASC Topic
350”) simplify the test for goodwill impairment. For public
companies, these amendments are effective for annual periods
beginning after December 15, 2019, including interim periods within
those periods. While early application is permitted, including
adoption in an interim period, the Company has not elected to early
adopt. The effectiveness of this update is not expected to have a
significant effect on the Company’s presentation of
consolidated financial position or results of
operations.
The amendments in ASU 2017-01 ASC Topic 805 —
'Business
Combinations (“ASC Topic
805”) clarify the definition of a business. The amendments
affect all companies and other reporting organizations that must
determine whether they have acquired or sold a business. For public
companies, these amendments are effective for annual periods
beginning after December 15, 2017, including interim periods within
those periods. While early application is permitted, including
adoption in an interim period, the Company has not elected to early
adopt. The effectiveness of this update is not expected to have a
significant effect on the Company’s presentation of
consolidated financial position or results of
operations.
The amendments in ASU 2016-18 ASC Topic 230 —
'Statement of Cash
Flows (“ASC Topic
230”) provide cash flow statement classification guidance.
For public business entities, these amendments are effective for
fiscal years beginning after December 15, 2017, 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
presentation of consolidated financial position and statement of
cash flows.
The amendments in ASU 2016-17 ASC Topic 810 —
Consolidation
(“ASC Topic 810”) require
an entity to recognize the income tax consequences of an
intra-entity transfer of an asset other than inventory when the
transfer occurs. For public business entities, these amendments are
effective for annual reporting periods beginning after December 15,
2017, and interim periods within those fiscal years. While early
application is permitted, including interim reporting periods
within those annual reporting periods, 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 2016-15 ASC Topic 230 —
Statement of Cash
Flows (“ASC Topic
350”) provide cashflow statement classification guidance. For
public business entities, the amendments are effective for fiscal
years beginning after December 15, 2017, 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 2016-13 ASC Topic 326: Financial Instruments —
Credit losses (“ASC Topic
326”) are issued for the measurement of all expected credit
losses for financial assets held at the reporting date based on
historical experience, current conditions, and reasonable and
supportable forecasts. For public companies that are not SEC
filers, ASC Topic 326 is effective for fiscal years beginning after
December 15, 2020, and interim periods within those fiscal years.
While early application will be permitted for all organizations for
fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018, the Company has not yet
determined if it will early adopt. The effectiveness of this update
is not expected to have a significant effect on the Company’s
consolidated financial position or results of
operations.
The amendments in ASU 2016-02 ASC Topic 842: Leases require
companies to recognize the following for all leases (with the
exception of short-term leases) at the commencement date of the
applicable lease: (a) a lease liability, which is a lessee’s
obligation to make lease payments arising from a lease, measured on
a discounted basis; and (b) a right-of-use asset, which is as an
asset that represents the lessee’s right to use, or control
the use of, a specified asset for the lease term. These amendments
become effective for fiscal years beginning after December 15,
2018, including interim periods within those fiscal years, for a
variety of entities including a public company. While early
adoption is permitted, the Company has not elected to early adopt.
The Company is currently evaluating the impact of this accounting
standard update on its consolidated financial
statements.
The Financial Accounting Standards Board (“FASB”) has
issued converged standards on revenue recognition. Specifically,
the Board has issued ASU 2014-09, ASC Topic 606 (“ASU
2014-09”). ASU 2014-09 affects any entity using U.S. GAAP
that either enters into contracts with customers to transfer goods
or services or enters into contracts for the transfer of
non-financial assets unless those contracts are within the scope of
other standards (e.g., insurance contracts or lease contracts). ASU
2014-09 will supersede the revenue recognition requirements in ASC
Topic 605, Revenue Recognition (“ASC Topic 605”), and
most industry-specific guidance. ASU 2014-09 also supersedes some
cost guidance included in Subtopic 605-35, Revenue
Recognition—Construction-Type and Production-Type Contracts.
In addition, the existing requirements for the recognition of a
gain or loss on the transfer of non-financial assets that are not
in a contract with a customer (e.g., assets within the scope of ASC
Topic 360, Property, Plant, and Equipment, (“ASC Topic
360”), and intangible assets within the scope of Topic 350,
Intangibles—Goodwill and Other) are amended to be consistent
with the guidance on recognition and measurement (including the
constraint on revenue) in ASU 2014-09. For a public entity, the
amendments in ASU 2014-09 would be effective for annual reporting
periods beginning after December 15, 2016, including interim
periods within that reporting period. However, ASU 2015-14 ASC
Topic 606: Deferral of the Effective
Date (“ASC Topic
606”) defers the effective date of ASU 2014-09 for all
entities by one year, to be effective for annual reporting periods
beginning after December 15, 2017. Earlier
application is permitted only as of annual reporting periods
beginning after December 15, 2016, including interim reporting
periods within that reporting period. The Company has not elected
to early adopt. The new standards, will supersede substantially all
existing revenue guidance affecting the Company under GAAP, it
could impact revenue and cost recognition on sales across all the
Company's business segments. The Company is currently conducting
its review on contracts and has not completed its
quantification yet to know the impact the adoption will have on its
consolidated financial statements. While we are continuing to
assess all potential impacts, the Company has not presently
selected a transition method whether it will adopt retrospective
approach or through adjustment the cumulative effect of accounting
changes in retained earnings.
Other new pronouncements issued but not yet effective until after
June 30, 2018 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
|
$606
|
$824
|
Currency
translation effect on short-term deposits
|
47
|
(37)
|
Total short-term deposits
|
653
|
787
|
Restricted
term deposits
|
1,664
|
1,722
|
Currency
translation effect on restricted term deposits
|
31
|
(65)
|
Total restricted term deposits
|
1,695
|
1,657
|
Total Term deposits
|
$2,348
|
$2,444
|
Restricted deposits represent the amount of cash pledged to secure
loans payable granted by financial institutions and serve as
collateral for public utility agreements such as electricity and
water and performance bonds related to customs duty payable.
Restricted deposits are classified as non-current assets, as they
relate to long-term obligations and will become unrestricted only
upon discharge of the obligations. Short-term deposits represent
bank deposits, which do not qualify as cash
equivalents.
4. TRADE 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 its customers in certain circumstances.
Senior
management reviews trade accounts receivable on a periodic basis to
determine if any receivables will potentially be uncollectible.
Management includes any trade accounts receivable balances that are
determined to be uncollectible in the allowance for doubtful
accounts. After all attempts to collect a receivable have failed,
the receivable is written off against the allowance. Based on
the information available to us, management believed the allowance
for doubtful accounts as of June 30, 2018 and June 30, 2017 was
adequate.
The
following table represents the changes in the allowance for
doubtful accounts:
|
For the
Year Ended June 30,
|
|
|
|
Beginning
|
$247
|
$270
|
Additions charged
to expenses
|
8
|
65
|
Recovered
|
(1)
|
(78)
|
Write-off
|
-
|
(2)
|
Currency
translation effect
|
5
|
(8)
|
Ending
|
$259
|
$247
|
5. LOANS RECEIVABLE FROM PROPERTY DEVELOPMENT PROJECTS
The
following table presents TTCQ’s loans receivable from
property development projects in China as of June 30, 2018 and as
of June 30, 2017. The exchange rate is based on the historical
rate published by the Monetary Authority of Singapore as on
March 31, 2015, since the net loan receivable was “nil”
as of June 30, 2018 and as of June 30, 2017.
|
Loan Expiry
|
|
|
|
|
|
|
Short-term loan receivables
|
|
|
|
JiangHuai
(Project - Yu Jin Jiang An)
|
May
31, 2013
|
2,000
|
325
|
Less:
allowance for doubtful receivables
|
|
(2,000)
|
(325)
|
Net loan receivable from property development projects
|
|
-
|
-
|
|
|
|
Long-term loan receivables
|
|
|
|
Jun
Zhou Zhi Ye
|
Oct
31, 2016
|
5,000
|
814
|
Less:
transfer – down-payment for purchase of investment
property
|
|
(5,000)
|
(814)
|
Net loan receivable from property development projects
|
|
-
|
-
|
On November 1, 2010, TTCQ entered into a Memorandum Agreement with
JiangHuai Property Development Co. Ltd. (“JiangHuai”)
to invest in their property development projects (Project - Yu Jin
Jiang An) located in Chongqing City, China. Due to the short-term
nature of the investment, the amount was classified as a loan based
on ASC Topic 310-10-25 Receivables, amounting to RMB 2,000, or approximately $325.
The loan was renewed and it, expired on May 31, 2013. TTCQ did not
generate other income from JiangHuai for the fiscal years ended
June 30, 2018 and June 30, 2017. Based on TTI’s financial
policy, a provision for doubtful receivables of $325 on the
investment in JiangHuai was recorded during the second quarter of
fiscal 2014. TTCQ is in the legal process of recovering the
outstanding amount of $325.
On November 1, 2010, TTCQ entered into a Memorandum Agreement with
JiaSheng Property Development Co. Ltd. (“JiaSheng”) to
invest in their property development projects (Project B-48 Phase
2) located in Chongqing City, China. Due to the short-term nature
of the investment, the amount was classified as a loan based on ASC
Topic 310, amounting to RMB 5,000, or approximately $814 based on
the exchange rate as of March 31, 2015 published by the Monetary
Authority of Singapore. The amount was unsecured and repayable at
the end of the term. The loan was renewed in November 2011 for a
period of one year, which expired on October 31, 2012 and was again
renewed in November 2012 and expired in November 2013. On November
1, 2013, the loan was transferred by JiaSheng to, and is now
payable by, Chong Qing Jun Zhou Zhi Ye Co. Ltd. (“Jun Zhou
Zhi Ye”), and the transferred agreement expired on October
31, 2016. Prior to the second quarter of fiscal year 2015, the loan
receivable was classified as a long-term receivable. The book value
of the loan receivable approximates its fair value. In the second
quarter of 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
8).
6. INVENTORIES
Inventories
consisted of the following:
|
For the
Year Ended June 30,
|
|
|
|
|
|
|
Raw
materials
|
$1,153
|
$1,047
|
Work in
progress
|
1,947
|
1,045
|
Finished
goods
|
505
|
365
|
Less: provision for
obsolete inventory
|
(695)
|
(686)
|
Currency
translation effect
|
20
|
(15)
|
|
$2,930
|
$1,756
|
The
following table represents the changes in provision for obsolete
inventory:
|
For the
Year Ended June 30,
|
|
|
|
|
|
|
Beginning
|
$686
|
$697
|
Additions charged
to expenses
|
9
|
6
|
Usage -
disposition
|
(5)
|
(6)
|
Currency
translation effect
|
5
|
(11)
|
Ending
|
$695
|
$686
|
7. ASSETS HELD FOR SALE
During the fourth quarter of 2015, the operations in Malaysia
planned to sell its factory building in Penang, Malaysia. In
accordance with ASC Topic 360, during fiscal year 2015 the property
was reclassified from investment property, which had a net book
value of RM 371, or approximately $98, 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, application
to sell the property was rejected by Penang Development Corporation
(PDC). The rejection was based on the business activity of the
purchaser not suitable to the industry that is being promoted on
the 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. As of the end of fiscal year 2018, management is still
working closely with PDC to confirm their interest on buying the
factory while actively looking for a suitable buyer. The net book
values of the building were RM371, or $91, for fiscal year 2018 and
RM 371, or approximately $86, for fiscal year
2017.
8. INVESTMENTS
Investments were nil as of June 30, 2018 and as of June 30,
2017.
During the second quarter of fiscal year 2011, the Company entered
into a joint venture agreement with JiaSheng to develop real estate
projects in China. The Company invested RMB 10,000, or
approximately $1,606 based on the exchange rate as of March 31,
2014 published by the Monetary Authority of Singapore, for a 10%
interest in the newly formed joint venture, which was incorporated
as a limited liability company, Chong Qing Jun Zhou Zhi Ye Co. Ltd.
(the “joint venture”), in China. The agreement
stipulated that the Company would nominate two of the five members
of the Board of Directors of the joint venture and had the ability
to assign two members of management to the joint venture. The
agreement also stipulated that the Company would receive a fee of
RMB 10,000, or approximately $1,606 based on the exchange rate as
of March 31, 2014, published by the Monetary Authority of
Singapore, for the services rendered in connection with bidding in
certain real estate projects from the local government. Upon
signing of the agreement, JiaSheng paid the Company RMB 5,000 in
cash, or approximately $803 based on the exchange rate published by
the Monetary Authority of Singapore as of March 31, 2014. The
remaining RMB 5,000, which was not recorded as a receivable as the
Company considered the collectability uncertain, would be paid over
72 months commencing in 36 months from the date of the agreement
when the joint venture secured a property development project
stated inside the joint venture agreement. The Company considered
the RMB 5,000, or approximately $803 based on the exchange rate as
of March 31, 2014 published by the Monetary Authority of Singapore,
received in cash from JiaSheng, the controlling venturer in the
joint venture, as a partial return of the Company’s initial
investment of RMB 10,000, or approximately $1,606 based on the
exchange rate as of March 31, 2014 published by the Monetary
Authority of Singapore. Therefore, the RMB 5,000 received in cash
was offset against the initial investment of RMB 10,000, resulting
in a net investment of RMB 5,000 as of March 31, 2014. The Company
further reduced its investments by RMB 137, or approximately $22,
towards the losses from operations incurred by the joint venture,
resulting in a net investment of RMB 4,863, or approximately $781
based on exchange rates published by the Monetary Authority of
Singapore as of March 31, 2014.
“Investments” in the real estate segment were the cost
of an investment in a joint venture in which we had a 10% interest.
During the second quarter of fiscal year 2014, TTCQ disposed of its
10% interest in the joint venture. The joint venture had to raise
funds for the development of the project. As a joint-venture
partner, TTCQ was required to stand guarantee for the funds to be
borrowed; considering the amount of borrowing, the risk involved
was higher than the investment made, hence TTCQ decided to dispose
of the 10% interest in the joint venture investment. On October 2,
2013, TTCQ entered into a share transfer agreement (the
“Share Transfer Agreement”) with Zhu Shu. Based on the
agreement, the purchase price was to be paid by (1) RMB 10,000
worth of commercial property in Chongqing China, or approximately
$1,634 based on exchange rates published by the Monetary Authority
of Singapore as of October 2, 2013, by non-monetary consideration
and (2) the remaining RMB 8,000, or approximately $1,307 based on
exchange rates published by the Monetary Authority of Singapore as
of October 2, 2013, by cash consideration. The consideration
consisted of (1) commercial units measuring 668 square meters to be
delivered in June 2016 and (2) sixteen quarterly equal installments
of RMB 500 per quarter commencing from January 2014. Based on ASC
Topic 845 Non-monetary
Consideration, the Company
deferred the recognition of the gain on disposal of the 10%
interest in joint venture investment until such time that the
consideration is paid, so that the gain can be ascertained. The
recorded value of the disposed investment amounting to $783, based
on exchange rates published by the Monetary Authority of Singapore
as of June 30, 2014, is classified as “other assets”
under non-current assets, because it is considered a down payment
for the purchase of the commercial property in Chongqing. The first
three installments, amounting to RMB 500 each due in January 2014,
April 2014 and July 2014, were all outstanding until the date of
disposal of the investment in the joint venture. Out of the
outstanding RMB 8,000, TTCQ received RMB 100 during May
2014.
On October 14, 2014, TTCQ and Jun Zhou Zhi Ye entered into a
memorandum of understanding. Based on the memorandum of
understanding, both parties have agreed to register a sales and
purchase agreement upon Jun Zhou Zhi Ye obtaining the license to
sell the commercial property (the Singapore Themed Resort Project)
located in Chongqing, China. The proposed agreement is for the sale
of shop lots with a total area of 1,484.55 square meters as
consideration for the outstanding amounts owed to TTCQ by Jun Zhou
Zhi Ye as follows:
a) Long term loan receivable RMB 5,000, or approximately $814, as
disclosed in Note 5, plus the interest receivable on long term loan
receivable of RMB 1,250;
b) Commercial units measuring 668 square meters, as mentioned
above; and
c) RMB 5,900 for the part of the unrecognized cash consideration of
RMB 8,000 relating to the disposal of the joint
venture.
The consideration does not include the remaining outstanding amount
of RMB 2,000, or approximately $326, which will be paid to TTCQ in
cash.
The shop lots are to be delivered to TTCQ upon completion of the
construction of the shop lots in the Singapore Themed Resort
Project. The initial targeted date of completion was December 31,
2016. Based on discussions with the developers, the completion date
is estimated to be December 31, 2019.
The Share Transfer Agreement (10% interest in the joint venture)
was registered with the relevant authorities in China during
October 2016.
9. INVESTMENT
PROPERTIES
The
following table presents the Company’s investment properties
in China as of June 30, 2018. The exchange rate is based on the
market rate as of June 30, 2018.
|
|
|
|
|
|
|
|
Purchase
of Property I – MaoYe
|
Jan
04, 2008
|
5,554
|
894
|
Purchase
of Property II – JiangHuai
|
Jan
06, 2010
|
3,600
|
580
|
Purchase
of Property III – FuLi
|
Apr
08, 2010
|
4,025
|
648
|
Currency
translation
|
|
-
|
(131)
|
Gross
investment in rental properties
|
|
13,179
|
1,991
|
|
|
|
Accumulated
depreciation on rental properties
|
June
30, 2018
|
(5,596)
|
(845)
|
|
|
|
Net
investment in properties – China
|
|
7,583
|
1,146
|
The
following table presents the Company’s investment properties
in China as of June 30, 2017. The exchange rate is based on the
exchange rate as of June 30, 2017 published by the Monetary
Authority of Singapore.
|
|
|
|
|
|
|
|
Purchase
of Property I – MaoYe
|
Jan
04, 2008
|
5,554
|
894
|
Purchase
of Property II – JiangHuai
|
Jan
06, 2010
|
3,600
|
580
|
Purchase
of Property III – FuLi
|
Apr
08, 2010
|
4,025
|
648
|
Currency
translation
|
|
-
|
(178)
|
Gross
investment in rental properties
|
|
13,179
|
1,944
|
|
|
|
Accumulated
depreciation on rental properties
|
June
30, 2017
|
(4,937)
|
(728)
|
|
|
|
Net
investment in properties – China
|
|
8,242
|
1,216
|
The
following table presents the Company’s investment properties
in Malaysia as of June 30, 2018 and June 30, 2017. The exchange
rate is based on the exchange rate as of June 30, 2015 published by
the Monetary Authority of Singapore.
|
|
|
|
|
|
|
|
Reclassification
of Penang Property I
|
Dec
31, 2012
|
681
|
181
|
Gross
investment in rental property
|
|
681
|
181
|
|
|
|
Accumulated
depreciation on rental property
|
June
30, 2015
|
(310)
|
(83)
|
Reclassified
as “Assets held for sale”
|
June
30, 2015
|
(371)
|
(98)
|
Net
investment in rental property - Malaysia
|
|
-
|
-
|
Rental Property I - MaoYe
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 rental of RMB 39, or approximately $6) on August 1,
2015. This rental agreement provides for a rent increase of 5%
every year on January 31, commencing with 2017 until the rental
agreement expires on July 31, 2020. TTCQ signed a new rental
agreement (451 square meters at a monthly rental of RMB 24, or
approximately $4) on February 1, 2018. This rental agreement
provides for a rent increase of 6% from the second year of the
contract onwards until the rental agreement expires on January 31,
2021.
Property purchased from MaoYe generated a rental income of
$99 and $102 for the years ended June 30, 2018 and 2017,
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 rented all of these
commercial units to a third party until the agreement expired in
January 2012. TTCQ then rented three of the eight commercial units
to another party during the fourth quarter of fiscal year 2013
under a rental agreement that expired on March 31, 2014. Currently
all the units are vacant and TTCQ is working with the developer to
find a suitable buyer to purchase all the commercial units. TTCQ
has yet to receive the title deed for these properties; however,
TTCQ has the vacancies in possession with the exception of two
units, which are in the process of clarification. TTCQ is in the
legal process to obtain the title deed, which is dependent on
JiangHuai completing the entire project. In August 2016, TTCQ
performed a valuation on one of the commercial units and its market
value was higher than the carrying amount.
Property purchased from JiangHuai generated a rental income of nil
for both the years ended June 30, 2018 and 2017.
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. Although TTCQ currently rents its office
premises from a third party, it intends to use the office space as
its office premises. The total purchase price committed and paid
was RMB 4,025, or approximately $648. The development was
completed, and the property was handed over during April 2013 and
the title deed was received during the third quarter of fiscal
2014.
The two commercial properties were leased to third parties under
two separate rental agreements, one of which expires in April 2019
and provides for a rent increase of 5% every year on May 1,
commencing in 2017 until the rental agreement expires on April 30,
2019 and the other of which expired in March 31, 2018 and provides
for a rent increase of 5% every year on April 1, commencing in 2016
until the rental agreement expires on March 31, 2018. Management is
actively looking for a suitable tenant.
Property purchased from FuLi generated a rental income of $40 and
$50 for the years ended June 30, 2018 and 2017,
respectively.
Summary
Total
rental income for all investment properties (Property I, II and
III) in China was $139 for the year ended June 30, 2018, and $152
for the same period in the prior fiscal year.
Depreciation
expenses for all investment properties in China were $102 and $98
for the years ended June 30, 2018 and 2017,
respectively.
10. PROPERTY, PLANT AND EQUIPMENT
Property, plant and
equipment consisted of the following:
|
Estimated
Useful
|
For
the Year Ended June 30,
|
|
|
2018
|
2017
|
Building
and improvements
|
3-20
|
$5,070
|
$5,070
|
Leasehold
improvements
|
3-27
|
6,093
|
5,614
|
Machinery
and equipment
|
3-7
|
24,138
|
22,858
|
Furniture
and fixtures
|
3-5
|
1,029
|
941
|
Equipment
under capital leases
|
3-5
|
928
|
928
|
Property, plant and
equipment, gross
|
|
$37,258
|
$35,411
|
Less:
accumulated depreciation
|
|
(23,440)
|
(21,751)
|
Accumulated
amortization on equipment under capital leases
|
|
(795)
|
(776)
|
Total
accumulated depreciation
|
|
$(24,235)
|
$(22,527)
|
Property,
plant and equipment before currency translation effect,
net
|
|
13,023
|
12,884
|
Currency
translation effect
|
|
(1,088)
|
(1,593)
|
Property, plant and equipment, net
|
|
$11,935
|
11,291
|
Depreciation
and amortization expenses for property, plant and equipment during
fiscal years 2018 and 2017 were $2,112 and $1,738,
respectively.
11. OTHER ASSETS
|
For the
Year Ended June 30,
|
|
|
|
|
|
|
Down
payment for purchase of investment properties
|
$1,645
|
$1,645
|
Down
payment for purchase of property, plant and equipment
|
561
|
280
|
Deposits
for rental and utilities
|
140
|
139
|
Currency
translation effect
|
(97)
|
(142)
|
Total
|
$2,249
|
$1,922
|
12. LINES OF CREDIT
The carrying value of the Company’s lines of credit
approximates its fair value, because the interest rates associated
with the lines of credit are adjustable in accordance with market
situations when the Company borrowed funds with similar terms and
remaining maturities.
The Company’s credit rating provides it with readily and
adequate access to funds in global markets.
As of June 30, 2018, the Company had certain lines of credit that
are collateralized by restricted deposits.
Entity
with
|
Type
of
|
|
|
|
|
Facility
|
Facility
|
|
|
|
|
Trio-Tech
International Pte. Ltd., Singapore
|
Lines
of Credit
|
Ranging
from
1.6%
to 5.5%
|
-
|
$4,183
|
3,325
|
Trio-Tech (Tianjin) Co., Ltd.
|
Lines of
Credit
|
5.22%
|
-
|
$1,511
|
437
|
Universal
(Far East) Pte. Ltd.
|
Lines
of Credit
|
Ranging
from
1.6%
to 5.5%
|
-
|
$367
|
256
|
On 4 January 2018, Trio-Tech International Pte. Ltd. signed an
agreement with a bank to sub-allocate a portion of the facility
thereunder to its subsidiary - Universal (Far East) Pte. Ltd for an
Accounts Payable Financing facility with the bank for SGD 500, or
approximately $367 based on the market exchange rate. Interest is
charged at 1.85% to 5.5%. The financing facility was set up to
facilitate the working capital in our operations in Singapore. The
Company started to use this facility in fiscal year
2018.
As of June 30, 2017, the Company had certain lines of credit that
are collateralized by restricted deposits.
Entity
with
|
Type
of
|
|
|
|
|
Facility
|
Facility
|
|
|
|
|
Trio-Tech
International Pte. Ltd., Singapore
|
Lines of
Credit
|
Ranging
from
1.6%
to 5.5%
|
-
|
$4,496
|
$2,815
|
|
|
|
|
Trio-Tech
(Tianjin) Co., Ltd.
|
Lines of
Credit
|
5.22%
|
-
|
$885
|
$10
|
On January 20, 2017, Trio-Tech Tianjin signed an agreement with a
bank for an Accounts Receivable Financing facility for RMB 6,000,
or approximately $871 based on the market rate. Interest is charged
at the bank’s lending rate plus a floating interest rate. The
effective interest rate is 120% of the bank’s lending rate.
The financing facility was set up to facilitate the growing testing
operations in our Tianjin operations in China. The bank account for
this facility was set up on January 20, 2017 and has started use in
fiscal year 2017.
13. ACCRUED
EXPENSES
Accrued expenses
consisted of the following:
|
For the
Year Ended June 30,
|
|
|
|
|
|
|
Payroll
and related costs
|
1,545
|
1,568
|
Commissions
|
89
|
107
|
Customer
deposits
|
17
|
218
|
Legal
and audit
|
265
|
283
|
Sales
tax
|
17
|
80
|
Utilities
|
130
|
142
|
Warranty
|
82
|
49
|
Accrued
purchase of materials and property, plant and
equipment
|
454
|
33
|
Provision
for re-instatement
|
289
|
295
|
Other
accrued expenses
|
203
|
319
|
Currency
translation effect
|
81
|
(51)
|
Total
|
$3,172
|
$3,043
|
14. WARRANTY ACCRUAL
The Company provides for the estimated costs that may be incurred
under its warranty program at the time the sale is recorded. The
warranty period for products manufactured by the Company is
generally one year or the warranty period agreed with the
customer. The Company estimates the warranty costs based on
the historical rates of warranty returns. The Company
periodically assesses the adequacy of its recorded warranty
liability and adjusts the amounts as necessary.
|
For the
Year Ended June 30,
|
|
2018
|
|
Beginning
|
$48
|
$76
|
Additions
charged to cost and expenses
|
64
|
46
|
Utilization
/ reversal
|
(30)
|
(73)
|
Currency
translation effect
|
-
|
(1)
|
Ending
|
$82
|
$48
|
15. BANK LOANS PAYABLE
Bank
loans payable consisted of the following:
|
|
|
Note payable denominated in RM for expansion plans
in Malaysia, maturing in August 2024, bearing interest rate of
5.00% and 5.25% at June 30, 2018 and June 30, 2017 per annum, with
monthly payments of principal plus interest through August 2024,
collateralized by the acquired building with a carrying value
of $2,809 and $2,671, as of
June 30, 2018 and June 30, 2017, respectively.
|
1,615
|
1,735
|
|
|
|
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 June 30, 2018
and June 30, 2017, respectively) with monthly payments of principal
plus interest through April 2017. This note payable is secured by
plant and equipment with a carrying value of $187 and $224 as of
June 30, 2018 and June 30, 2017, respectively.
|
293
|
196
|
|
|
|
Total bank loans payable
|
1,908
|
1,931
|
|
|
|
Current
portion of bank loan payable
|
380
|
271
|
Currency
translation effect on current portion of bank loan
|
(13)
|
(11)
|
Current
portion of bank loan payable
|
367
|
260
|
Long
term portion of bank loan payable
|
1,528
|
1,660
|
Currency
translation effect on long-term portion of bank loan
|
(91)
|
(108)
|
Long
term portion of bank loans payable
|
$1,437
|
$1,552
|
Future
minimum payments (excluding interest) as of June 30, 2018 were as
follows:
2019
|
$367
|
2020
|
372
|
2021
|
242
|
2022
|
254
|
2023
|
267
|
Thereafter
|
302
|
Total
obligations and commitments
|
$1,804
|
Future minimum payments (excluding interest) as of June 30, 2017
were as follows:
2018
|
$260
|
2019
|
273
|
2020
|
274
|
2021
|
225
|
2022
|
236
|
Thereafter
|
544
|
Total
obligations and commitments
|
$1,812
|
16.
COMMITMENTS AND CONTINGENCIES
The
Company leases certain facilities and equipment under long-term
agreements expiring at various dates through fiscal year 2018 and
thereafter. Certain leases require the Company to pay real estate
taxes and insurance and provide for escalation of lease costs based
on certain indices.
Future
minimum payments under capital leases and non-cancelable operating
leases and net rental income under non-cancelable sub-leased
properties as of June 30, 2018 were as follows:
|
|
|
|
|
|
|
|
|
Sub-lease
|
|
|
Net
|
For the
Year Ending June 30,
|
|
|
Capital
Leases
|
|
|
Operating
Leases
|
|
|
Rental
(Income)
|
|
|
Operating
Leases
|
2019
|
|
$
|
250
|
|
$
|
717
|
|
$
|
(26)
|
|
$
|
691
|
2020
|
|
|
249
|
|
|
531
|
|
|
(26)
|
|
|
505
|
2021
|
|
|
150
|
|
|
44
|
|
|
-
|
|
|
44
|
2022
|
|
|
102
|
|
|
-
|
|
|
-
|
|
|
-
|
2023
|
|
|
23
|
|
|
-
|
|
|
-
|
|
|
-
|
Total
future minimum lease payments
|
|
$
|
774
|
|
$
|
1,292
|
|
$
|
(52)
|
|
$
|
1,240
|
Less:
amount representing interest
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Present
value of net minimum lease payments
|
|
|
774
|
|
|
|
|
|
|
|
|
|
Less:
current portion of capital lease obligations
|
|
|
250
|
|
|
|
|
|
|
|
|
|
Long-term
obligations under capital leases
|
|
|
524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future
minimum payments under capital leases and non-cancelable operating
leases and net rental income under non-cancelable sub-leased
properties as of June 30, 2017 were as follows:
|
|
|
|
|
|
|
|
|
Sub-lease
|
|
|
Net
|
For the
Year Ending June 30,
|
|
|
Capital
Leases
|
|
|
Operating
Leases
|
|
|
Rental
(Income)
|
|
|
Operating
Leases
|
2018
|
|
$
|
228
|
|
$
|
536
|
|
$
|
(33)
|
|
$
|
503
|
2019
|
|
|
197
|
|
|
423
|
|
|
(25)
|
|
|
398
|
2020
|
|
|
193
|
|
|
224
|
|
|
(26)
|
|
|
198
|
2021
|
|
|
95
|
|
|
-
|
|
|
-
|
|
|
-
|
2022
|
|
|
46
|
|
|
-
|
|
|
-
|
|
|
-
|
Total
future minimum lease payments
|
|
$
|
759
|
|
$
|
1,183
|
|
$
|
(84
|
)
|
$
|
1,099
|
Less:
amount representing interest
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Present
value of net minimum lease payments
|
|
|
759
|
|
|
|
|
|
|
|
|
|
Less:
current portion of capital lease obligations
|
|
|
228
|
|
|
|
|
|
|
|
|
|
Long-term
obligations under capital leases
|
|
|
531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company purchased equipment under the capital lease agreements with
rates ranging from 1.88% to 7.50% for fiscal years 2018 and 2017.
These agreements mature ranging from July 2018 to May
2021.
Total
rental expense on all operating leases, cancelable and
non-cancelable, amounted to $703 and $747 in fiscal years 2018 and
2017, respectively.
Trio-Tech
(Malaysia) Sdn. Bhd. has a capital lease for the purchase of
equipment and other related infrastructure costs amounting to RM
62, or approximately $16 based on the exchange rate on June 30,
2018 as compared to RM 684, or approximately $159 for the last
fiscal year.
Trio-Tech
Tianjin Co. Ltd has a capital lease for the purchase of equipment
and other related infrastructure costs amounting to RMB 3,927, or
approximately $593 based on the exchange rate on June 30, 2018 as
compared to RMB 1,260, or approximately $186 based on the exchange
rate on June 30, 2017.
Trio-Tech (SIP) Co., Ltd. has a
capital lease for the purchase of equipment and other related
infrastructure costs amounting to RMB 6,084, or approximately $919
based on the exchange rate on June 30,
2018.
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.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS APPROXIMATE CARRYING
VALUE
In accordance with ASC Topic 825 and 820, the following presents
assets and liabilities measured and carried at fair value and
classified by level of fair value measurement
hierarchy:
There were no transfers between Levels 1 and 2 during the fiscal
year ended June 30, 2018 or for the same period in the prior fiscal
year.
Term deposits (Level 2) – The carrying amount approximates
fair value because of the short maturity of these
instruments.
Restricted term deposits (Level 2) – The carrying amount
approximates fair value because of the short maturity of these
instruments.
Lines of credit (Level 3) – The carrying value of the lines
of credit approximates fair value due to the short-term nature of
the obligations.
Bank loans payable (Level 3) – The carrying value of the
Company’s bank loan payables approximates its fair value as
the interest rates associated with long-term debt is adjustable in
accordance with market situations when the Company borrowed funds
with similar terms and remaining maturities.
18. CONCENTRATION OF CUSTOMERS
The
Company had one major customer that accounted for the following
revenue and trade accounts receivable:
|
For the
Year Ended June 30,
|
|
|
|
Revenue
|
|
|
- Customer
A
|
51.4%
|
54.8%
|
|
|
|
Trade
Accounts Receivable
|
|
|
- Customer
A
|
57.9%
|
60.6%
|
19. BUSINESS SEGMENTS
In fiscal year 2018, the Company operated in four segments; the
testing service industry (which performs structural and electronic
tests of semiconductor devices), the designing and manufacturing of
equipment (assembly of equipment tests the structural integrity of
integrated circuits and other products), distribution of various
products from other manufacturers in Singapore and Asia and the
real estate segment in China.
The revenue allocated to individual countries was based on where
the customers were located. The allocation of the cost of
equipment, the current year investment in new equipment and
depreciation expense have been made on the basis of the primary
purpose for which the equipment was acquired.
All
inter-segment sales were sales from the manufacturing segment to
the testing and distribution segment. Total inter-segment sales
were $1,127 in fiscal year 2018 and $725 in fiscal year 2017.
Corporate assets mainly consisted of
cash and prepaid expenses. Corporate expenses mainly consisted of
stock option expenses, salaries, insurance, professional expenses
and directors' fees. Corporate expenses are allocated to the four
segments on a pre-determined fixed amount calculated based on the
annual budgeted sales, except the Malaysia operation, which is
calculated based on actual sales. The following segment information
table includes segment operating income or loss after including
corporate expenses allocated to the segments, which gets eliminated
in the consolidation.
Business Segment Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
$15,978
|
$548
|
$8,549
|
$115
|
$143
|
|
2017
|
$15,289
|
$75
|
$8,229
|
$186
|
$99
|
|
|
|
|
|
|
|
|
2018
|
19,391
|
1,522
|
23,480
|
1,997
|
2,166
|
|
2017
|
16,586
|
1,112
|
20,871
|
1,550
|
2,186
|
|
|
|
|
|
|
|
|
2018
|
6,853
|
475
|
789
|
-
|
-
|
|
2017
|
6,511
|
345
|
617
|
2
|
-
|
|
|
|
|
|
|
|
|
2018
|
139
|
(56)
|
3,521
|
102
|
-
|
|
2017
|
152
|
(38)
|
3,511
|
98
|
-
|
|
|
|
|
|
|
|
|
2018
|
-
|
-
|
27
|
-
|
-
|
|
2017
|
-
|
-
|
29
|
-
|
-
|
|
|
|
|
|
|
|
|
2018
|
-
|
(301)
|
108
|
-
|
-
|
|
2017
|
-
|
(5)
|
241
|
-
|
-
|
|
|
|
|
|
|
|
|
2018
|
$42,361
|
$2,188
|
$36,474
|
$2,214
|
$2,309
|
|
2017
|
$38,538
|
$1,489
|
$33,498
|
$1,836
|
$2,285
|
*
Fabrication services is a discontinued
operation (Note 24).
20. OPERATING LEASES
Operating leases arise from the leasing of the Company’s
commercial and residential real estate investment 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 $99 and $97 for fiscal years 2018 and 2017,
respectively.
Future minimum rental income in China to be received from fiscal
year 2019 to fiscal year 2022 on non-cancellable operating leases
is contractually due as follows as of June 30, 2018:
2019
|
$137
|
2020
|
121
|
2021
|
35
|
2022
|
-
|
|
$293
|
Future minimum rental income in China to be received from fiscal
year 2018 to fiscal year 2021 on non-cancellable operating leases
is contractually due as follows as of June 30, 2017:
2018
|
$157
|
2019
|
107
|
2020
|
67
|
2021
|
6
|
|
$337
|
21. OTHER INCOME, NET
Other
income, net consisted of the following:
|
For the
Year Ended June 30,
|
|
|
|
Interest
income
|
50
|
33
|
Other
rental income
|
110
|
99
|
Exchange
gain / (loss)
|
(160)
|
96
|
Government
grant
|
126
|
56
|
Other
miscellaneous income
|
209
|
230
|
Total
|
$335
|
$514
|
22. INCOME TAXES
The
Company is subject to income taxes in the U.S. and numerous foreign
jurisdictions. Significant judgment is required in determining the
provision for income taxes and income tax assets and liabilities,
including evaluating uncertainties in the application of accounting
principles and complex tax laws. The statute of limitations, in
general, is open for years 2014 to 2017 for tax authorities in
those jurisdictions to audit or examine income tax returns. The
Company is under annual review by the tax authorities of the
respective jurisdiction to which the subsidiaries
belong.
The Tax
Cuts and Jobs Act (the “Tax Act”) was enacted on
December 22, 2017, and permanently reduces the U.S. federal
corporate tax rate from 35% to 21%, eliminated corporate
Alternative Minimum Tax, modified rules for expensing capital
investment, and limits 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.
As the Company has a June 30 fiscal year end, the lower corporate
income tax rate will be phased in, resulting in a lower U.S.
statutory federal rate. In accordance with Section 15 of the
Internal Revenue Code, the Company applied a blended U.S. statutory
federal income tax rate of 27.55% for the year ended June 30, 2018.
Accounting Standard Codification (“ASC”) 740 requires
filers to record the effect of tax law changes in the period
enacted. The Company recognized income tax expenses of $900 related
to the one-time deemed repatriation. No expenses have been
recognized related to the deferred tax re-measurement and minimum
tax on low tax foreign earnings. However, the SEC issued Staff
Accounting Bulletin No. 118 (“SAB 118”), that permits
filers who may not have the necessary information available,
prepared, or analyzed (including computations) for certain income
tax effects of the Act in order to determine a reasonable estimate
to be recorded as provisional amounts during a measurement period
ending no later than one year from the date of enactment.
Accordingly, the Company has recorded an estimate $900 and will
finalize the accounting for the tax impact of the Tax Act no later
than the end of the permitted measurement period under the SAB
118.
Discussion
of the certain material provisions affecting the Company is
provided below.
One-Time
Mandatory Repatriation
One of
the effects of the Tax Act is to transition from a world-wide to a
territorial tax system. The Tax Act requires a mandatory one-time
repatriation of certain post-1986 earnings and profits that were
deferred from U.S. taxation by the Company’s foreign
subsidiaries. The Company recognized an income tax expense and
payable of $900 for the twelve months ended June 30, 2018. The
basis of the tax is on cash held and specified assets which are
taxed at 15.5% and 8%, respectively. The Company may elect to pay
the Repatriation Tax over an 8-year period.
The
computation of the post-1986 earning and profits used estimates and
are preliminary amounts which will be finalized during the
measurement period.
Minimum
Tax on Low Tax Foreign Earnings
The Tax
Act implemented the inclusion in gross income for the Global
Intangible Low-Tax Income (GILTI) for any taxable year beginning on
or after January 1, 2018. This provision significantly expands
current taxation of foreign subsidiary corporate earnings. The
Company must generally include in current income all earnings of
the foreign subsidiaries in excess of the assumed deemed return on
tangible assets of the foreign subsidiaries. Given the complexity
of GILTI provision, the company is still assessing the effects of
the provisions to determine whether to elect to either provide for
the minimum tax as future income tax expense as a period expense or
as a deferred tax on the related investment in foreign
subsidiaries.
Deferred
Tax Re-Measurement
The
re-measurement is based on the expected reversals of the deferred
taxes at the estimated U.S. federal tax rates of 28% for the
current fiscal year and 21% for future fiscal years. As the Company
established a full valuation allowance on the U.S. deferred tax
assets, the Company has not recognized any income tax effects for
the deferred tax re-measurement under the Tax Act.
However,
the Company is still considering any future impacts on any
additional U.S. federal or U.S. state and local deferred tax assets
and liabilities.
Effective Tax Rate Effects
|
For
the Year Ended June 30,
|
|
|
|
Income
before Income Taxes
|
2,290
|
1,801
|
Income
Taxes Expenses
|
987
|
341
|
Effective
Tax Rate
|
43.1%
|
18.9%
|
The Act
impacted the Company’s effective tax rate which recorded at
43.1% for fiscal 2018 compared to 18.9% for fiscal 2017. This
effects of this tax were primarily due to estimated charge of $900
recorded as a component of provision for income taxes from
continuing operations.
The
Company had an income tax expense of $987 for the year ended June
30, 2018, as compared to income tax expense of $341 for the year
ended June 30, 2017. Without the impact of $900 in one-time tax
expenses, the decrease in income tax expenses was mainly due to a
lower corporate tax rate enjoyed by the Tianjin, China operation in
calendar year 2018 which qualified as a National Advanced Tech
Corporation and a decrease in deferred tax for timing differences
recorded by the Malaysia operation.
The
Company accrues penalties and interest related to unrecognized tax
benefits when necessary as a component of penalties and interest
expenses, respectively. The Company had not accrued any penalties
or interest expenses relating to unrecognized benefits at June 30,
2018.
Undistributed
Foreign Earnings
The
Company has asserted in prior years that all of its undistributed
offshore earnings were permanently reinvested and had not recorded
any deferred taxes related to any basis difference regarding the
foreign subsidiaries. The estimated remaining net undistributed
earnings at June 30, 2018 was $12,392. (This items is the Retained
Earnings of the Non-U.S. subs less eliminations less Retained
Earnings used for transition tax.) The Company has computed and
recorded a preliminary estimate of the mandatory deemed
repatriation tax on the such earnings. The Company, however, is
currently evaluating the 2017 Tax Act on how the Tax Act will
affect the Company’s current assertion of permanent
reinvestment. As such, the Company has made no changes with respect
to the permanent reinvestment assertion for remaining non-U.S.
subsidiary basis, foreign withholding taxes, and state and local
income taxes, during the measurement period.
On a consolidated basis, the Company’s net income tax
provisions were as follows:
|
For the
Year Ended June 30,
|
|
|
|
Current:
|
|
|
Federal
|
$900
|
$-
|
State
|
2
|
2
|
Foreign
|
79
|
235
|
|
$981
|
$237
|
Deferred:
|
|
|
Federal
|
$-
|
$-
|
State
|
-
|
-
|
Foreign
|
6
|
104
|
|
6
|
104
|
Total
provisions
|
$987
|
$341
|
The
reconciliation between the U.S. federal tax rate and the effective
income tax rate was as follows:
|
For
the Year Ended June 30,
|
|
|
|
Statutory federal
tax rate
|
(27.55)%
|
(34.00)%
|
State taxes, net of
federal benefit
|
(6.00)
|
(6.00)
|
Foreign tax related
to profits making subsidiaries
|
35.93
|
20.23
|
NOL
Expiration
|
-
|
(0.03)
|
Other
|
(3.50)
|
(0.86)
|
Changes in
valuation allowance
|
13.63
|
1.54
|
Tax reform related
to one-time repatriation tax
|
(153.31)
|
-
|
Effective
rate
|
(140.80)%
|
(19.12)%
|
At June 30, 2018, the Company had net operating loss carry-forward
of approximately $232 and $314 for U.S. federal and state tax
purposes, respectively, expiring through 2037. The Company also had
tax credit carry-forward of approximately $200 for U.S. federal
income tax purposes expiring through 2020. Management of the
Company is uncertain whether it is more likely than not that these
future benefits will be realized. Accordingly, a full valuation
allowance was established.
At June 30, 2017, the Company had net operating loss carry-forward
of approximately $nil and $148 for U.S. federal and state tax
purposes, respectively, expiring through 2033. The Company also had
tax credit carry-forward of approximately $211 for U.S. federal
income tax purposes expiring through 2020. Management of the
Company is uncertain whether it is more likely than not that these
future benefits will be realized. Accordingly, a full valuation
allowance was established.
The
components of deferred income tax assets (liabilities) were as
follows:
|
For the
Year Ended June 30,
|
|
2018
|
2017
|
Deferred
tax assets:
|
|
|
Net operating
losses and credits
|
$633
|
$710
|
Inventory
valuation
|
69
|
99
|
Provision for bad
debts
|
112
|
107
|
Accrued
vacation
|
3
|
35
|
Accrued
expenses
|
629
|
751
|
Investment in
subsidiaries
|
61
|
60
|
Unrealized
gain
|
4
|
23
|
Other
|
3
|
-
|
Total deferred tax
assets
|
$1,514
|
$1,785
|
Deferred tax
liabilities:
|
|
|
Unrealized
loss
|
-
|
(29)
|
Depreciation
|
(324)
|
(266)
|
Total deferred
income tax liabilities
|
$(324)
|
$(295)
|
|
|
|
Subtotal
|
1,190
|
1,490
|
Valuation
allowance
|
(1,117)
|
(1,410)
|
Net
deferred tax assets
|
$73
|
$80
|
|
|
|
Presented
as follows in the balance sheets:
|
|
|
Deferred tax
assets
|
400
|
375
|
Deferred tax
liabilities
|
(327)
|
(295)
|
Net
deferred tax assets
|
$73
|
$80
|
The valuation allowance decreased by $293 and
$1,396 in fiscal year 2018 and 2017,
respectively.
23. UNRECOGNIZED TAX
BENEFITS
The Company adopted ASC Topic 740, Accounting for Income
Taxes - Interpretation of Topic
740.
A reconciliation of the beginning and ending amount of unrecognized
tax benefits is as follows:
Balance at June 30, 2017 and June 30, 2018
|
|
|
|
|
$
|
|
(250
|
)
|
The Company accrues penalties and interest on unrecognized tax
benefits as a component of penalties and interest expenses,
respectively. The Company has not accrued any penalties or interest
expense relating to the unrecognized benefits at June 30, 2018 and
June 30, 2017.
The major tax jurisdictions in which the Company files income tax
returns are the U.S., Singapore, China and Malaysia. The statute of
limitations, in general, is open for years 2011 to 2017 for tax
authorities in those jurisdictions to audit or examine income tax
returns. The Company is under annual review by the governments of
Singapore, Malaysia, China, and Thailand. However, the Company is
not currently under tax examination in any other jurisdiction
including the United States.
24.
DISCONTINUED
OPERATION AND CORRESPONDING RESTRUCTURING PLAN
The
Company’s Indonesia operation and the Indonesia
operation’s immediate holding company, which comprise the
fabrication services segment, suffered continued operating losses
from fiscal year 2010 to 2014, and the cash flow was minimal from
fiscal year 2009 to 2014. The Company established a restructuring
plan to close the fabrication services operation, and in accordance
with ASC Topic 205, Presentation
of Financial Statement Discontinued Operations (“ASC
Topic 205”), from fiscal year 2015 onwards the Company
presented the operation results from fabrication services as a
discontinued operation, as the Company believed that no continued
cash flow would be generated by the discontinued component and that
the Company would have no significant continuing involvement in the
operations of the discontinued component.
In
accordance with the restructuring plan, the Company’s
Indonesia operation is negotiating with its suppliers to settle the
outstanding balance of accounts payable of $56 and has no
collection for accounts receivable. The Company’s fabrication
operation in Batam, Indonesia is in the process of winding down the
operations. The Company anticipates that it may incur costs and
expenses when the winding down of the subsidiary in Indonesia takes
place.
The
discontinued operations in Shanghai and Indonesia incurred general
and administrative expenses of $1 and $1 for the years ended June
30, 2018 and 2017, respectively.
Income
/ (loss) from discontinued operations was as follows:
|
For the
Year Ended June 30,
|
|
|
|
Revenue
|
$-
|
$-
|
Cost
of sales
|
-
|
-
|
Gross
loss
|
-
|
-
|
Operating
expenses
|
|
|
General
and administrative
|
1
|
1
|
Selling
|
-
|
-
|
Impairment
|
-
|
-
|
Total
|
1
|
1
|
Loss
from discontinued operation
|
(1)
|
(1)
|
Other
charges
|
(12)
|
(4)
|
Net loss from discontinued operation
|
$(13)
|
$(5)
|
The
Company does not provide a separate cash flow statement for the
discontinued operation, as the impact of this discontinued
operation is immaterial.
25. EARNINGS PER SHARE
The Company adopted ASC Topic 260, Earnings Per Share.
Basic earnings per share
(“EPS”) are computed by dividing net income available
to common shareholders (numerator) by the weighted average number
of common shares outstanding (denominator) during the period.
Diluted EPS give effect to all dilutive potential common shares
outstanding during a period. In computing diluted EPS, the average
price for the period is used in determining the number of shares
assumed to be purchased from the exercise of stock options and
warrants.
Options
to purchase 657,500 shares of Common Stock at exercise prices
ranging from $3.41 to $5.98 per share were outstanding as of June
30, 2018. No outstanding options were excluded in the computation
of diluted EPS for fiscal year 2018 since all options were
dilutive.
Options
to purchase 542,500 shares of Common Stock at exercise prices
ranging from $2.07 to $4.14 per share were outstanding as of June
30, 2017. No outstanding options were excluded in the computation
of diluted EPS for fiscal year 2017 since all options were
dilutive
The following table is a reconciliation of the weighted average
shares used in the computation of basic and diluted EPS for the
years presented herein:
|
For the
Year Ended June 30,
|
|
|
|
|
|
|
Income
attributable to Trio-Tech International common shareholders from
continuing operations, net of tax
|
$1,197
|
$1,325
|
Loss
attributable to Trio-Tech International common shareholders from
discontinued operations, net of tax
|
$(13)
|
$(9)
|
Net Income attributable to Trio-Tech International common
shareholders
|
$1,184
|
$1,316
|
|
|
|
Weighted
average number of common shares outstanding - basic
|
3,553
|
3,523
|
Dilutive
effect of stock options
|
218
|
121
|
Number of shares used to compute earnings per share -
diluted
|
3,771
|
$3,644
|
|
|
|
Basic Earnings per Share:
|
|
|
Basic
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.34
|
$0.38
|
Basic
loss per share from discontinued operations attributable to
Trio-Tech International
|
$(0.01)
|
$-
|
Basic
Earnings per Share from Net Income Attributable to Trio-Tech
International
|
$0.33
|
$0.38
|
|
|
|
Diluted Earnings per Share:
|
|
|
Diluted
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.32
|
$0.36
|
Diluted
loss per share from discontinued operations attributable to
Trio-Tech International
|
(0.01)
|
-
|
Diluted Earnings per Share from Net Income Attributable to
Trio-Tech International
|
$0.31
|
$0.36
|
26. 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 by the Board in 2010 to increase the number
of shares covered thereby, which amendments were approved by the
shareholders on December 14, 2010. At present, the 2007 Employee
Plan provides for awards of up to 600,000 shares of the
Company’s Common Stock to employees, consultants and
advisors. The Board also amended the 2007 Directors Plan in
November 2013 to further increase the number of shares covered
thereby from 400,000 shares to 500,000 shares, which amendment was
approved by the shareholders on December 9, 2013. The 2007
Directors Plan provides for awards of up to 500,000 shares of the
Company’s Common Stock to the members of the Board of
Directors in the form of non-qualified options and restricted
stock. These two plans are administered by the Board, which also
establishes the terms of the awards.
Assumptions
The
fair value for the options granted were estimated using the
Black-Scholes option pricing model with the following weighted
average assumptions, assuming no expected dividends:
|
For
the Year Ended June 30,
|
|
|
|
Expected
volatility
|
|
|
Risk-free interest
rate
|
|
|
Expected life
(years)
|
2.50
|
2.50
|
The
expected volatilities are based on the historical volatility of the
Company’s stock. Due to higher volatility, the observation is
made on a daily basis for the twelve months ended June 30, 2018.
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).
On
March 23, 2018, the Company granted options to purchase 60,000
shares of its Common Stock to employee directors pursuant to the
2017 Employee Plan during the twelve months ended June 30, 2018.
The Company recognized stock-based compensation expenses of $6 in
the twelve months ended June 30, 2018 under the 2017 Employee Plan.
The balance of unamortized stock-based compensation of $9 based on
fair value on the grant date related to options granted under the
2017 Employee Plan is to be recognized over a period of three
years. No stock options were exercised during the twelve months
ended June 30, 2018. The weighted-average remaining contractual
term for non-vested options was 5.98 years.
As of
June 30, 2018 there were vested employee stock options that were
exercisable covering a total of 15,000 shares of Common Stock. The
weighted-average exercise price was $5.98 and the weighted average
contractual term was 4.73 years. The total fair value of vested and
outstanding employee stock options was $90.
A
summary of option activities under the 2017 Employee Plan during
the twelve-months period ended June 30, 2018 is presented as
follows:
|
|
Weighted
Average
Exercise
Price
|
Weighted
Average Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
Outstanding
at July 1, 2017
|
-
|
$-
|
-
|
$-
|
Granted
|
60,000
|
5.98
|
4.98
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
Outstanding at June 30, 2018
|
60,000
|
5.98
|
4.73
|
-
|
Exercisable at June 30, 2018
|
15,000
|
5.98
|
4.73
|
-
|
A
summary of the status of the Company’s non-vested employee
stock options during the twelve months ended June 30, 2018 is
presented below:
|
|
Weighted Average Grant Date Fair
Value
|
|
|
|
Non-vested
at July 1, 2017
|
-
|
$-
|
Granted
|
60,000
|
$5.98
|
Vested
|
(15,000)
|
$5.98
|
Forfeited
|
-
|
-
|
Non-vested at June 30, 2018
|
45,000
|
$5.98
|
2007 Employee Stock Option Plan
The
Company’s 2007 Employee Plan permits the grant of stock
options to its employees covering up to an aggregate of 600,000
shares of Common Stock. Under the 2007 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 2007 Employee Plan are exercisable within
five years after the date of grant, and vest over the period as
follows: 25% vesting on the grant date and the remaining balance
vesting in equal 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 2007 Employee Plan).
The
Company did not grant any options pursuant to the 2007 Employee
Plan during the twelve months ended June 30, 2018. There were no
options exercised during the twelve months ended June 30, 2018. The
Company recognized stock-based compensation expenses of $4 in the
twelve months ended June 30, 2018 under the 2007 Employee Plan. The
balance of unamortized stock-based compensation of $1 based on fair
value on the grant date related to options granted under the 2007
Employee Plan is to be recognized over a period of three
years.
On
March 30, 2017, the Company granted options to purchase 37,500
shares of its Common Stock to employee directors pursuant to the
2007 Employee Plan during the twelve months ended June 30, 2017.
The Company recognized stock-based compensation expenses of $6 in
the twelve months ended June 30, 2017 under the 2007 Employee Plan.
The balance of unamortized stock-based compensation of $5 based on
fair value on the grant date related to options granted under the
2007 Employee Plan is to be recognized over a period of three
years. No stock options were exercised during the twelve months
ended June 30, 2017. The weighted-average remaining contractual
term for non-vested options was 4.22 years.
As of
June 30, 2018, there were vested employee stock options that were
exercisable covering a total of 98,750 shares of Common Stock. The
weighted-average exercise price was $3.43 and the weighted average
contractual term was 1.73 years. The total fair value of vested and
outstanding employee stock options as of June 30, 2018 was
$338.
As of
June 30, 2017, there were vested employee stock options that were
exercisable covering a total of 79,375 shares of Common Stock. The
weighted-average exercise price was $3.36 and the weighted average
contractual term was 2.36 years. The total fair value of vested and
outstanding employee stock options as of June 30, 2017 was
$267.
A
summary of option activities under the 2007 Employee Plan during
the twelve-month period ended June 30, 2018 is presented as
follows:
|
|
Weighted
Average
Exercise
Price
|
Weighted Average
Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
Outstanding at July
1, 2017
|
127,500
|
$3.52
|
3.10
|
$187
|
Granted
|
-
|
-
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
Forfeited or
expired
|
-
|
-
|
-
|
-
|
Outstanding at June
30, 2018
|
127,500
|
$3.52
|
2.10
|
$121
|
Exercisable at June
30, 2018
|
98,750
|
$3.43
|
1.73
|
$103
|
The
aggregate intrinsic value of the 127,500 shares of common stock
upon exercise of options was $121.
A
summary of option activities under the 2007 Employee Plan during
the twelve-month period ended June 30, 2017 is presented as
follows:
|
|
Weighted
Average
Exercise
Price
|
Weighted Average
Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
Outstanding at July
1, 2016
|
90,000
|
$3.26
|
3.42
|
$30
|
Granted
|
37,500
|
4.14
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
Forfeited or
expired
|
-
|
-
|
-
|
-
|
Outstanding at June
30, 2017
|
127,500
|
$3.52
|
3.10
|
$187
|
Exercisable at June
30, 2017
|
79,375
|
$3.36
|
2.36
|
$129
|
The
aggregate intrinsic value of the 127,500 shares of common stock
upon exercise of options was $187.
A
summary of the status of the Company’s non-vested employee
stock options during the twelve months ended June 30, 2018 is
presented below:
|
|
Weighted Average
Grant-Date
|
|
|
|
Non-vested at July
1, 2017
|
48,125
|
$3.77
|
Granted
|
-
|
-
|
Vested
|
(19,375)
|
(3.43)
|
Forfeited
|
-
|
-
|
Non-vested at June
30, 2018
|
28,750
|
$3.83
|
A
summary of the status of the Company’s non-vested employee
stock options during the twelve months ended June 30, 2017 is
presented below:
|
|
Weighted Average
Grant-Date
|
|
|
|
Non-vested at July
1, 2016
|
38,750
|
$3.22
|
Granted
|
37,500
|
4.14
|
Vested
|
(28,125)
|
3.19
|
Forfeited
|
-
|
-
|
Non-vested at June
30, 2017
|
48,125
|
$3.77
|
2017 Directors Equity Incentive Plan
The
2017 Directors Plan permits the grant of options covering up to an
aggregate of 300,000 shares of Common Stock to its directors in the
form of non-qualified options and restricted stock. The exercise
price of the non-qualified options is 100% of the fair value of the
underlying shares on the grant date. The options have five-year
contractual terms and are generally exercisable immediately as of
the grant date.
On
March 23, 2018 the Company granted options to purchase 80,000
shares of its Common Stock to directors pursuant to the 2017
Directors Plan with an exercise price equal to the fair market
value of Common Stock (as defined under the 2017 Directors Plan in
conformity with Regulation 409A or the Internal Revenue Code of
1986, as amended) at the date of grant. The fair value of the
options granted to purchase 80,000 shares of the Company’s
Common Stock was approximately $478 based on the fair value of
$5.98 per share determined by the Black Scholes option pricing
model. As all of the stock options granted under the 2017 Directors
Plan vest immediately at the date of grant, there were no unvested
stock options granted under the 2017 Directors Plan as of June 30,
2018. The Company recognized stock-based compensation expenses of
$33 in the twelve months ended June 30, 2018 under the 2017
Directors Plan.
A
summary of option activities under the 2017 Directors Plan during
the twelve months ended June 30, 2018 is presented as
follows:
|
|
Weighted
Average
Exercise
Price
|
Weighted
Average Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
Outstanding
at July 1, 2017
|
-
|
$-
|
-
|
$-
|
Granted
|
80,000
|
5.98
|
4.98
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
Outstanding at June 30, 2018
|
80,000
|
5.98
|
4.73
|
-
|
Exercisable at June 30, 2018
|
80,000
|
5.98
|
4.73
|
-
|
2007 Directors Equity Incentive Plan
The
2007 Directors Plan permits the grant of options covering up to an
aggregate of 500,000 shares of Common Stock to its non-employee
directors in the form of non-qualified options and restricted
stock. The exercise price of the non-qualified options is 100% of
the fair value of the underlying shares on the grant date. The
options have five-year contractual terms and are generally
exercisable immediately as of the grant date.
The
Company did not grant any options pursuant to the 2007 Director
Plan during the twleve months ended June 30, 2018. There were
20,000 worth of stock options exercised during the twelve months
period ended June 30, 2018. The Company did not recognize any stock
based compensation expenses during the twelve months ended June 30,
2018.
On
March 30, 2017 the Company granted options to purchase 50,000
shares of its Common Stock to directors pursuant to the 2007
Directors Plan with an exercise price equal to the fair market
value of Common Stock (as defined under the 2007 Directors Plan in
conformity with Regulation 409A or the Internal Revenue Code of
1986, as amended) at the date of grant. The fair value of the
options granted to purchase 50,000 shares of the Company’s
Common Stock was approximately $207 based on the fair value of
$4.14 per share determined by the Black Scholes option pricing
model. As all of the stock options granted under the 2007 Directors
Plan vest immediately at the date of grant, there were no unvested
stock options granted under the 2007 Directors Plan as of June 30,
2017. The Company recognized stock-based compensation expenses of
$12 in fiscal year 2017 under the 2007 Directors Plan. No stock
options were exercised during the twelve months ended June 30,
2017. There were 80,000 shares of
Common Stock available for grant under the 2007 Directors
Plan.
There
were no stock options exercised during the twelve months ended June
30, 2017, hence there were no proceeds from the exercise of stock
options during fiscal year 2017. The Company recognized stock-based
compensation expenses of $12 in the twelve-month period ended June
30, 2017 under the 2007 Directors Plan.
As of
June 30, 2018, there were vested director stock options covering a
total of 390,000 shares of Common Stock. The weighted-average
exercise price was $3.41 and the weighted average remaining
contractual term was 2.05 years. The total fair value of vested
directors' stock options as of June 30, 2018 was $1,331. All of our
director stock options vest immediately at the date of grant. There
were no unvested director stock options as of June 30,
2018.
As of
June 30, 2017, there were vested director stock options covering a
total of 415,000 shares of Common Stock. The weighted-average
exercise price was $3.36 and the weighted average remaining
contractual term was 2.93 years. The total fair value of vested
directors' stock options as of June 30, 2017 was $1,393. All of our
director stock options vest immediately at the date of grant. There
were no unvested director stock options as of June 30,
2017.
A
summary of option activities under the 2007 Directors Plan during
the twelve months ended June 30, 2018 is presented as
follows:
|
|
Weighted
Average
Exercise
Price
|
Weighted Average
Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
Outstanding at July
1, 2017
|
415,000
|
3.36
|
2.93
|
673
|
Granted
|
-
|
-
|
-
|
-
|
Exercised
|
(20,000)
|
2.59
|
-
|
-
|
Forfeited or
expired
|
(5,000)
|
2.07
|
-
|
-
|
Outstanding at June
30, 2018
|
390,000
|
3.41
|
2.05
|
412
|
Exercisable at June
30, 2018
|
390,000
|
3.41
|
2.05
|
412
|
A
summary of option activities under the 2007 Directors Plan during
the twelve months ended June 30, 2017 is presented as
follows:
|
|
Weighted
Average
Exercise
Price
|
Weighted Average
Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
Outstanding at July
1, 2016
|
415,000
|
3.14
|
3.29
|
198
|
Granted
|
50,000
|
4.14
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
Forfeited or
expired
|
(50,000)
|
2.30
|
-
|
-
|
Outstanding at June
30, 2017
|
415,000
|
3.36
|
2.93
|
673
|
Exercisable at June
30, 2017
|
415,000
|
3.36
|
2.93
|
673
|
27. NON-CONTROLLING INTEREST
In accordance with the provisions of ASC Topic 810, the Company has
classified the non-controlling interest as a component of
stockholders’ equity in the accompanying consolidated balance
sheets. Additionally, the Company has presented the net income
attributable to the Company and the non-controlling ownership
interests separately in the accompanying consolidated
financial statements.
Non-controlling interest represents the minority
stockholders’ share of 45% of the equity of Trio-Tech
Malaysia Sdn. Bhd., 45% interest in SHI International Pte.
Ltd., and 24% interest in Prestal Enterprise Sdn. Bhd., which are
subsidiaries of the Company.
The table below reflects a reconciliation of the equity
attributable to non-controlling interest:
|
For the
Year Ended June 30,
|
Non-controlling
interest
|
|
|
Beginning
balance
|
$1,426
|
$1,614
|
Net
income
|
106
|
139
|
Dividend declared
by a subsidiary
|
(189)
|
(177)
|
Translation
adjustment
|
179
|
(150)
|
Ending
balance
|
$1,522
|
$1,426
|
28. RELATED PARTY TRANSACTION
Other than those disclosed in this report, there were no related
party transactions in fiscal years 2018 and 2017.
29. SUBSEQUENT EVENT
Subsequent to 30
June 2018, management expressed its intention to sell one of its
investment properties in China, Chongqing with net book value of
RMB 2,729, approximately $412. The decision will not change the
financial reporting. The investment shall be continue to be dealt
with as investment property until it is
derecognized.