NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2016 AND 2015
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
1.
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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
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Basis of Presentation and Principles of Consolidation -
Trio-Tech International (the “Company” or “TTI” hereafter) was incorporated in fiscal 1958 under the laws of the State of California. TTI provides third-party semiconductor testing and burn-in services primarily through its laboratories in Southeast Asia. In addition, TTI operates testing facilities in the United States. The Company also designs, develops, manufactures and markets a broad range of equipment and systems used in the manufacturing and testing of semiconductor devices and electronic components. In fiscal 2016, 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 and China as follows:
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Ownership
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Location
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Express Test Corporation (Dormant)
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Trio-Tech Reliability Services (Dormant)
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KTS Incorporated, dba Universal Systems (Dormant)
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European Electronic Test Centre (Dormant)
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Trio-Tech International Pte. Ltd.
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Universal (Far East) Pte. Ltd. *
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Trio-Tech International (Thailand) Co. Ltd. *
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Trio-Tech (Bangkok) Co. Ltd.
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(49% owned by Trio-Tech International Pte. Ltd. and 51% owned by Trio-Tech International (Thailand) Co. Ltd.)
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Trio-Tech (Malaysia) Sdn. Bhd.
(55% owned by Trio-Tech International Pte. Ltd.)
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Penang and Selangor, Malaysia
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Trio-Tech (Kuala Lumpur) Sdn. Bhd.
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(100% owned by Trio-Tech Malaysia Sdn. Bhd.)
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Prestal Enterprise Sdn. Bhd.
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(76% owned by Trio-Tech International Pte. Ltd.)
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Trio-Tech (Suzhou) Co., Ltd. *
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Trio-Tech (Shanghai) Co., Ltd. * (Dormant)
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Trio-Tech (Chongqing) Co. Ltd. *
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SHI International Pte. Ltd. (Dormant)
(55% owned by Trio-Tech International Pte. Ltd)
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PT SHI Indonesia (Dormant)
(100% owned by SHI International Pte. Ltd.)
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Trio-Tech (Tianjin) Co., Ltd. *
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* 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 United States dollars (‘‘U.S. dollars’’) unless otherwise designated.
Liquidity
– The Company earned net income of $779 and $521for fiscal years 2016 and 2015, 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
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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 operates in Malaysia, Thailand, China and Indonesia, of which the Malaysian ringgit (“RM”), Thai baht, Chinese renminbi 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 2016 and 2015, 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
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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, 2016 and 2015.
Warranty Costs
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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 4 to 12 months. As of June 30, 2016, the Company held approximately $199 of unrestricted term deposits in the company’s Malaysian subsidiary and $96 of unrestricted term deposits in the Company’s 100% owned Thailand subsidiary, which were denominated in the currency of Malaysian ringgit and Thai baht, as compared to nil and $101 as of June 30, 2015, respectively.
Restricted Term Deposits
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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, 2016
the Company held approximately $1,853 of restricted term deposits in the Company’s 100% owned Trio-Tech International Pte. Ltd., which were denominated in Singapore currency, and $214 of restricted term deposits in the Company’s 55% owned Malaysian subsidiary, which were denominated in the currency of Malaysia, as compared to June 30, 2015 when the Company held approximately $1,919 of restricted term deposits in the Company’s 100% owned Trio-Tech International Pte. Ltd., which were denominated in Singapore currency, and $221 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, 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, 2016, 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
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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”)
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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 United States 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. Accordingly, no provision has been made for U.S. income and foreign withholding taxes that would result if such earnings were repatriated. These taxes are undeterminable at this time. The amount of earnings retained in subsidiaries was $8,843 and $8,149 at June 30, 2016 and 2015, respectively.
Research and Development Costs —
The Company incurred research and development costs of $200 and $182 in fiscal year 2016 and in fiscal year 2015, 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, 2016 included the applicable amounts of: (a) compensation cost of all share-based payments granted prior to, but not yet vested as of July 1, 2005 (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, 2005.
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. In fiscal year 2016, all the outstanding options were excluded in the computation of diluted EPS because they were anti-dilutive.
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:
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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;
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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
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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.
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Concentration of Credit Risk
— Financial instruments that subject the Company to credit risk compose 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 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. 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 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 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.
Reclassification
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Certain reclassification have been made to the previous year’s consolidated cash flow statements to conform to current year’s presentation, with no effect on previously reported net income. These reclassifications made is to reflect the gross repayment on lines of credit and proceeds of long-term loans under financing activities
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2. NEW ACCOUNTING PRONOUNCEMENTS
The amendments in Accounting Standards Update (“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, the ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other organizations, the ASU on credit losses will take effect for fiscal years beginning after December 15, 2020, and for interim periods within fiscal years beginning after December 15, 2021. 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 2016-09 ASC Topic 718:
Compensation – Stock Compensation
(“ASC Topic 718”) are issued to simplify several aspects of the accounting for share-based payment award transactions, including (a) income tax consequences (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. For public business entities, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company does not intend to early adopt and has not yet determined the effects on the Company’s consolidated financial position or results of operations on the adoption of this update.
The amendments in ASU 2016-02 ASC Topic 842:
Leases
(“ASC Topic 842”) are required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (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. Effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for any of the following: a public business entity (1) a not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market, and (2) an employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission (SEC). For all other entities, the amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. While early adoption is permitted, 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.
T
he amendments in ASU 2015-17 eliminate the current requirement for organizations to present deferred tax liabilities and assets as current and non-current in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as non-current. For a public entity, the amendments in ASU 2015-17 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is permitted and the Company has adopted this ASU for the fiscal year ended June 30, 2016 and there is no significant effect on the Company’s consolidated financial position or results of operations.
The
amendments in ASU 2015-14 ASC Topic 606: Deferral of the Effective Date (“ASC Topic 606”) defers the effective date of update 2014-09 for all entities by one year. For a public entity, the amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The adoption of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations
.
Th
e
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 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 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. As the new standard 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 carried out an evaluation on the impact and found it to be immaterial, if any, the adoption of this standard will have on its Consolidated Financial Statements
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The amendments in ASU 2015-11 ASC Topic 330:
Simplifying the Measurement of Inventory
(“ASC Topic 330”) specify that an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using Last-In-First-Out or the retail inventory method. The amendments in ASU 2015-011 are effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. A reporting entity should apply the amendments retrospectively to all periods presented. While early adoption is permitted, the Company has not elected to early adopt. The adoption of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
FASB amended ASU 2015-07 ASC Topic 820:
Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent)
, which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The amendments in ASU 2015-07 are effective for public business entities for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. A reporting entity should apply the amendments retrospectively to all periods presented. While early adoption is permitted, 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 2015-06 ASC Topic 260:
Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions
(“ASC Topic 260”) specify that for purposes of calculating historical earnings per unit under the two-class method, the earnings or losses of a transferred business before the date of a dropdown transaction should be allocated entirely to the general partner. The amendments in ASU 2015-06 are effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. While early adoption is permitted, the Company has not elected to early adopt. The amendments should be applied retrospectively for all financial statements presented. 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 2015-02 ASC Topic 810:
Amendments to the Consolidation Analysis
are intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The amendments in ASU 2015-02 are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. While early adoption is permitted, including adoption in an interim period, the Company has not elected to early adopt. ASU 2015-02 may be applied retrospectively in previously issued financial statements for one or more years with a cumulative-effect adjustment to retained earnings as of the beginning of the first year restated. 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 2015-01 eliminate from U.S. GAAP the concept of extraordinary items. Subtopic 225-20,
Income Statement - Extraordinary and Unusual Items
(“ASC Topic 225”), requires that an entity separately classify, present, and disclose extraordinary events and transactions. Presently, an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item. The amendments in ASU 2015-01 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. 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.
FASB amended ASU 2014-15 Subtopic 205-40,
Presentation of Financial Statements – Going Concern
(“ASC Topic 205”) to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures. ASU 2014-15 provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The amendments in ASU 2014-15 are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. While early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued, 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 FASB has issued ASU No. 2014-08, ASC Topic 205
Presentation of Financial Statements
(“ASC Topic 205”) and ASC Topic 360
Property, Plant, and Equipment
(“ASC Topic 360”):
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
. The amendments in ASU 2014-08 change the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in U.S. GAAP. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This disclosure will provide users with information about the ongoing trends in a reporting organization’s results from continuing operations. The amendments became effective as to the Company with respect to fiscal year 2015. The effectiveness of this update did not have a significant effect on the Company’s consolidated financial position or results of operations.
Other new pronouncements issued but not yet effective until after June 30, 2016 are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
3. TERM DEPOSITS
|
For the Year Ended June 30,
|
|
|
2016
|
|
2015
|
|
Short-term deposits
|
|
$
|
295
|
|
|
$
|
101
|
|
Restricted term deposits
|
|
|
2,067
|
|
|
|
2,140
|
|
Total
|
|
$
|
2,362
|
|
|
$
|
2,241
|
|
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 accounts receivable on a periodic basis to determine if any receivables will potentially be uncollectible. Management includes any accounts receivable balances that are determined to be uncollectible in the allowance for doubtful accounts. After all 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, 2016 and June 30, 2015 was adequate.
The following table represents the changes in the allowance for doubtful accounts:
|
For the Year Ended June 30,
|
|
|
2016
|
2015
|
|
|
Beginning
|
|
$
|
313
|
|
|
$
|
438
|
|
Additions charged to expenses
|
|
|
21
|
|
|
|
84
|
|
Recovered / (write-off)
|
|
|
(48
|
)
|
|
|
(180
|
)
|
Currency translation effect
|
|
|
(16
|
)
|
|
|
(29
|
)
|
Ending
|
|
$
|
270
|
|
|
$
|
313
|
|
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, 2016. The exchange rate is based on the historical rate published by the Monetary Authority of Singapore as on March 31, 2015, since the net loan receivable was “nil” as at June 30, 2016.
|
Loan Expiry
|
|
Loan Amount
|
|
|
Loan Amount
|
|
|
Date
|
|
(RMB)
|
|
|
(U.S. Dollars)
|
|
Short-term loan receivables
|
|
|
|
|
|
|
|
JiangHuai (Project - Yu Jin Jiang An)
|
|
|
|
|
|
|
|
|
|
Less: allowance for doubtful receivables
|
|
|
|
|
|
|
|
|
|
Net loan receivable from property development projects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term loan receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: transfer – down-payment for purchase of investment property
|
|
|
|
|
|
|
|
|
|
Net loan receivable from property development projects
|
|
|
|
|
|
|
|
|
|
The following table presents TTCQ’s loans receivable from property development projects in China as of June 30, 2015. The exchange rate is based on the historical rate published by the Monetary Authority of Singapore as on March 31, 2015, since the net loans receivable was “nil” as at June 30, 2015.
|
Loan Expiry
|
|
Loan Amount
|
|
|
Loan Amount
|
|
|
Date
|
|
(RMB)
|
|
|
(U.S. Dollars)
|
|
Short-term loan receivables
|
|
|
|
|
|
|
|
Investment in JiangHuai (Project - Yu Jin Jiang An)
|
|
|
|
|
|
|
|
|
|
Less: allowance for doubtful receivables
|
|
|
|
|
|
|
|
|
|
Net loan receivable from property development projects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term loan receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: transfer – down-payment for purchase of investment property
|
|
|
|
|
|
|
|
|
|
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 renminbi (“RMB”) 2,000, or approximately $325. The loan was renewed, but expired on May 31, 2014. TTCQ is in the legal process of recovering the outstanding amount of $325. TTCQ did not generate other income from JiangHuai for the fiscal year ended June 30, 2016, or for the same period in the last fiscal year. Based on TTI’s financial policy, an impairment of $325 on the investment in JiangHuai was provided for during the second quarter of fiscal 2014 based on TTI’s financial policy.
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 at 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 expires on October 31, 2016. Hence the loan receivable was reclassified as a long-term receivable. The book value of the loan receivable approximates its fair value. TTCQ did not generate other income from Jun Zhou Zhi Ye for the fiscal year ended June 30, 2016. For the fiscal year ended June 30, 2015, TTCQ recorded RMB 417, or approximately $68, in other income from Jun Zhou Zhi Ye. In fiscal year 2015, an allowance for doubtful deemed interest receivables from Jun Zhou Zhi Ye of $68 was made on the other income. 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.
6. INVENTORIES
Inventories consisted of the following:
|
|
For the Year Ended June 30,
|
|
|
|
2016
|
|
2015
|
|
Raw materials
|
|
$
|
967
|
|
|
$
|
1,038
|
|
Work in progress
|
|
|
909
|
|
|
|
611
|
|
Finished goods
|
|
|
279
|
|
|
|
348
|
|
Less: provision for obsolete inventory
|
|
|
(697
|
)
|
|
|
(764
|
)
|
Currency translation effect
|
|
|
2
|
|
|
|
(92
|
)
|
|
|
$
|
1,460
|
|
|
$
|
1,141
|
|
The following table represents the changes in provision for obsolete inventory:
|
|
For the Year Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Beginning
|
|
$
|
764
|
|
|
$
|
844
|
|
Additions charged to expenses
|
|
|
22
|
|
|
|
67
|
|
Usage - disposition
|
|
|
(86
|
)
|
|
|
(103
|
)
|
Currency translation effect
|
|
|
(3
|
)
|
|
|
(44
|
)
|
Ending
|
|
$
|
697
|
|
|
$
|
764
|
|
7. ASSETS HELD FOR SALE
D
uring the fourth quarter of 2015, the operations in Malaysia planned to sell its factory building in Penang, Malaysia. In May 2015, Trio-Tech Malaysia was approached by a potential buyer to purchase the factory building. Negotiation is still ongoing and is subject to approval by Penang Development Corporation. 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 $92, to assets held for sale, since there was an intention to sell the factory building. The net book values of the building were RM371, or $92, for fiscal years 2016 and RM 371, or approximately $98, for fiscal year 2015
.
8. INVESTMENTS
Investments were nil as at June 30, 2016 and as at June 30, 2015.
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 obtaining priority to bid 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 RMB10,000, 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 and 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 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 RMB500 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.
TTCQ performed a valuation on a certain commercial unit and its market value was higher than the carrying amount. The first three installment amounts of 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 had received RMB 100 during May 2014. However, the transferee, Jun Zhou Zhi Ye, has not registered the share transfer (10% interest in the joint venture) with the relevant authorities in China as of the date of this report.
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 all 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
RMB 5,900 for the part of the unrecognized cash consideration of RMB 8,000 relating to the disposal of the joint venture.
|
The shop lots are to be delivered to TTCQ upon completion of the construction of the shop lots in the Singapore Themed Resort Project, and the initial targeted date of completion was no later than December 31, 2016. However, should there be further delays in the project completion, based on the discussion with the developers it is estimated to be completed by December 31, 2018. The consideration does not include the remaining outstanding amount of RMB 2,000, or approximately $326, which will be paid in cash.
9
.
INVESTMENT PROPERTIES
The following table presents the Company’s investment properties in China as of June 30, 2016. The exchange rate is based on the exchange rate as of June 30, 2016 published by the Monetary Authority of Singapore.
|
Investment Date
|
|
Investment
Amount
(RMB)
|
|
|
Investment
Amount
|
|
Purchase of Property I – MaoYe
|
|
|
|
5,554
|
|
|
|
894
|
|
Purchase of Property II – JiangHuai
|
|
|
|
3,600
|
|
|
|
580
|
|
Purchase of Property III – FuLi
|
|
|
|
4,025
|
|
|
|
648
|
|
|
|
|
|
-
|
|
|
|
(139
|
)
|
Gross investment in rental properties
|
|
|
|
13,179
|
|
|
|
1,983
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation on rental properties
|
|
|
|
(4,278
|
)
|
|
|
(643
|
)
|
|
|
|
|
|
|
|
|
|
|
Net investment in properties – China
|
|
|
|
8,901
|
|
|
|
1,340
|
|
The following table presents the Company’s investment properties in China as of June 30, 2015. The exchange rate is based on the exchange rate as of June 30, 2015 published by the Monetary Authority of Singapore.
|
Investment Date
|
|
Investment Amount
(RMB)
|
|
|
Investment Amount(U.S.Dollars)
|
|
Purchase of Property I – MaoYe
|
|
|
|
5,554
|
|
|
|
894
|
|
Purchase of Property II – JiangHuai
|
|
|
|
3,600
|
|
|
|
580
|
|
Purchase of Property III – FuLi
|
|
|
|
4,025
|
|
|
|
648
|
|
|
|
|
|
-
|
|
|
|
1
|
|
Gross investment in rental properties
|
|
|
|
13,179
|
|
|
|
2,123
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation on rental properties
|
|
|
|
(3,619
|
)
|
|
|
(583
|
)
|
|
|
|
|
|
|
|
|
|
|
Net investment in properties – China
|
|
|
|
9,560
|
|
|
|
1,540
|
|
The following table presents the Company’s investment properties in Malaysia as of June 30, 2016. The exchange rate is based on the exchange rate as of June 30, 2015 published by the Monetary Authority of Singapore.
|
Investment Date
|
|
|
|
|
Investment Amount
(U.S. Dollars)
|
|
Reclassification of Penang Property I
|
|
|
|
|
|
|
|
|
|
Gross investment in rental property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation on rental property
|
|
|
|
|
|
|
|
|
|
Reclassified as “Assets held for sale”
|
|
|
|
|
|
|
|
|
|
Net investment in rental property - Malaysia
|
|
|
|
|
|
|
|
|
|
The following table presents the Company’s investment properties in Malaysia as of June 30, 2015. The exchange rate is based on the exchange rate as of June 30, 2015 published by the Monetary Authority of Singapore.
|
Investment Date
|
|
|
|
|
Investment Amount
(U.S. Dollars)
|
|
Reclassification of Penang Property I
|
|
|
|
|
|
|
|
|
|
Gross investment in rental property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation on rental property
|
|
|
|
|
|
|
|
|
|
Reclassified as “Assets held for sale”
|
|
|
|
|
|
|
|
|
|
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 rented this property to a third party on July 13, 2008. The term of the rental agreement was five years. The rental agreement was renewed on July 16, 2014 for a further period of five years. The rental agreement provides for a rent increase of 8% every year after July 15, 2015. The renewed agreement expires on July 15, 2018; however, this rental agreement (1,104 square meters at a monthly rental of RMB 39, or approximately $6) was terminated on July 31, 2015. 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 27, or approximately $4) on January 29, 2016. This rental agreement provides for a rent increase of 5% every year on January 29, commencing with 2017 until the rental agreement expires on February 28, 2019.
Property purchased from MaoYe generated a rental income of $78 and $115 for the years ended June 30, 2016 and 2015, 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, 2016 and 2015.
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 $649. 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 expired in April 2014 and the other of which expired in August 2014.
For the unit for which the agreement expired in April 2014, a new tenant was identified and a new agreement was executed, which expires on April 30, 2017. The new agreement carried an increase in rent of 20% in the first year. Thereafter the rent increases by approximately 8% for the subsequent years until April 2017.
For
the unit for which the agreement expired in August 2014, a new tenant was identified and a rental agreement was executed, which agreement was to expire on August 9, 2016. The agreement carried an increase in rent of approximately 21% in the first year. Thereafter the rent was to increase by approximately 6% for the subsequent year. The tenant of this unit defaulted on payment of the quarterly rental due in August 2015, however the rental deposit is available to offset the outstanding rent. In early October 2015, TTCQ issued a legal letter to this tenant on the outstanding amounts, to which the tenant has not responded. As of the date of this report, the August 2014 rental agreement (161 square meters at a monthly rental of RMB 16, and approximately $2) was terminated.
A new rental agreement with a new tenant (161 square meters at a monthly rental of RMB 14, or approximately $2) was signed on October 21, 2015. This rental agreement provides for a rent increase of 6% after the first year, commencing from the year 2016 until the rental agreement expires on October 20, 2017. The tenant of this unit had defaulted on
payment of the monthly rental due for February 2016, however the rental deposit has been offset and the balance amount recognized as other income. In March 2016, TTCQ issued a legal letter to this tenant on the outstanding amounts, to which the tenant has not responded. A new rental agreement with a new tenant (161 square meters at a monthly rental of RMB 14, or approximately $2) was signed commencing from April 1, 2016 until the rental agreement expires on March 31, 2018.
Property purchased from FuLi generated a rental income of $44 and $58 for the years ended June 30, 2016 and 2015, respectively.
Penang Property
During the fourth quarter of 2015, the operations in Malaysia planned to sell its factory building in Penang, Malaysia. In accordance to ASC Topic 360, 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, TTM was approached by a potential buyer to purchase the factory building. On September 14, 2015, application to sell the property was rejected by 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. However, management is still actively looking for a suitable buyer. As of June 30, 2016 the net book value was RM 369, or approximately $92.
Summary
Total rental income for all investment properties (Property I, II and III) in China was $122 for the year ended June 30, 2016, and was $173 for the same period in the last fiscal year.
Rental income from the Penang property was nil for the years ended June 30, 2016 and 2015, as the property in Penang, Malaysia was vacant at the date of this report. In the fourth quarter of fiscal year 2015, the Penang property was reclassified from investment property to assets held for sale.
Depreciation expenses for all investment properties in China were $103 and 109 for both the years ended June 30, 2016, and 2015, respectively.
10. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
|
|
|
Estimated Useful Life
in Years
|
|
|
|
For the Year Ended June 30,
|
|
|
|
|
|
|
|
2016
|
|
|
|
2015
|
|
Building and improvements
|
|
|
3-20
|
|
|
$
|
5,002
|
|
|
$
|
4,980
|
|
Leasehold improvements
|
|
|
3-27
|
|
|
|
5,591
|
|
|
|
5,692
|
|
Machinery and equipment
|
|
|
3-7
|
|
|
|
24,106
|
|
|
|
23,679
|
|
Furniture and fixtures
|
|
|
3-5
|
|
|
|
823
|
|
|
|
873
|
|
Equipment under capital leases
|
|
|
3-5
|
|
|
|
1,171
|
|
|
|
672
|
|
Property, plant and equipment, gross
|
|
|
|
|
|
$
|
36,693
|
|
|
$
|
35,896
|
|
Less: accumulated depreciation
|
|
|
|
|
|
|
(22,828
|
)
|
|
|
(21,740
|
)
|
Accumulated amortization on equipment under capital leases
|
|
|
|
|
|
|
(633
|
)
|
|
|
(458
|
)
|
Total accumulated depreciation
|
|
|
|
|
|
$
|
(23,461
|
)
|
|
$
|
(22,198
|
)
|
Property, plant and equipment before currency translation effect, net
|
|
|
|
|
|
|
13,232
|
|
|
|
13,698
|
|
Currency translation effect
|
|
|
|
|
|
|
(1,949
|
)
|
|
|
(1,176
|
)
|
Property, plant and equipment, net
|
|
|
|
|
|
$
|
11,283
|
|
|
$
|
12,522
|
|
Depreciation and amortization expenses for property, plant and equipment during fiscal years 2016 and 2015 were $1,735 and $2,240, respectively.
11. OTHER ASSETS
Other assets consisted of the following:
|
|
For the Year Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Down payment for purchase of investment properties
|
|
$
|
1,536
|
|
|
$
|
1,645
|
|
Down payment for purchase of property, plant and equipment
|
|
|
115
|
|
|
|
31
|
|
Deposits for rental and utilities
|
|
|
137
|
|
|
|
147
|
|
Total
|
|
$
|
1,788
|
|
|
$
|
1,823
|
|
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, 2016, the Company had certain lines of credit that are collateralized by restricted deposits.
Entity with
|
|
Type of
|
|
Interest
|
|
Expiration
|
|
|
Credit
|
|
|
Unused
|
|
Facility
|
|
Facility
|
|
Rate
|
|
Date
|
|
|
Limitation
|
|
|
Credit
|
|
Trio-Tech International Pte. Ltd., Singapore
|
|
Lines of Credit
|
|
Ranging from 1.6% to 5.5%
|
|
|
-
|
|
|
$
|
5,745
|
|
|
$
|
3,856
|
|
Trio-Tech (Malaysia) Sdn. Bhd.
|
|
Lines of Credit
|
|
Ranging from 6.3% to 6.7%
|
|
|
-
|
|
|
|
783
|
|
|
|
783
|
|
Trio-Tech (Tianjin) Co., Ltd.
|
|
Lines of Credit
|
|
Ranging from 4.9% to 6.3%
|
|
|
-
|
|
|
|
1,204
|
|
|
|
602
|
|
On May 3, 2016, Trio-Tech Tianjin used the facility amounting to RMB 2 million, or approximately $301, and on June 23, 2016, further used an additional facility of RMB 2 million, or approximately $301.
As of June 30, 2015, the Company had certain lines of credit that are collateralized by restricted deposits.
Entity with
|
|
Type of
|
|
Interest
|
|
Expiration
|
|
|
Credit
|
|
|
Unused
|
|
Facility
|
|
Facility
|
|
Rate
|
|
Date
|
|
|
Limitation
|
|
|
Credit
|
|
Trio-Tech International Pte. Ltd., Singapore
|
|
Lines of Credit
|
|
Ranging from 1.9% to 5.6%
|
|
|
-
|
|
|
$
|
7,422
|
|
|
$
|
6,161
|
|
Trio-Tech (Malaysia) Sdn. Bhd.
|
|
Lines of Credit
|
|
Ranging from 6.3% to 6.7%
|
|
|
-
|
|
|
$
|
396
|
|
|
$
|
79
|
|
Trio-Tech (Tianjin) Co., Ltd.
|
|
Lines of Credit
|
|
Ranging from 4.9% to 6.3%
|
|
|
-
|
|
|
$
|
1,289
|
|
|
$
|
1,289
|
|
On April 10, 2015, Trio-Tech Tianjin signed an agreement with a bank for an Accounts Receivable Financing facility with the bank for RMB 8,000, or approximately $1,289, interest is charged at the bank’s lending rate plus a floating interest rate. The effective interest rate is 130% 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 immediate holding company, Trio-Tech International Pte. Ltd., acted as the guarantor for this bank facility. The bank account for this facility was set up on August 24, 2015 and has started use in fiscal year 2016.
13. ACCRUED EXPENSES
Accrued expenses consisted of the following:
|
|
|
For the Year Ended June 30,
|
|
|
|
|
2016
|
|
|
|
2015
|
|
Payroll and related costs
|
|
|
1,311
|
|
|
|
1,513
|
|
Commissions
|
|
|
47
|
|
|
|
52
|
|
Customer deposits
|
|
|
91
|
|
|
|
41
|
|
Legal and audit
|
|
|
297
|
|
|
|
244
|
|
Sales tax
|
|
|
110
|
|
|
|
131
|
|
Utilities
|
|
|
115
|
|
|
|
129
|
|
Warranty
|
|
|
78
|
|
|
|
109
|
|
Accrued purchase of materials and property, plant and equipment
|
|
|
50
|
|
|
|
430
|
|
Provision for re-instatement
|
|
|
308
|
|
|
|
422
|
|
Other accrued expenses
|
|
|
331
|
|
|
|
243
|
|
Currency translation effect
|
|
|
(96
|
)
|
|
|
(230
|
)
|
Total
|
|
$
|
2,642
|
|
|
$
|
3,084
|
|
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,
|
|
|
|
|
2016
|
|
|
|
2015
|
|
Beginning
|
|
$
|
103
|
|
|
$
|
60
|
|
Additions charged to cost and expenses
|
|
|
80
|
|
|
|
114
|
|
Utilization / reversal
|
|
|
(105
|
)
|
|
|
(65
|
)
|
Currency translation effect
|
|
|
(2
|
)
|
|
|
(6
|
)
|
Ending
|
|
$
|
76
|
|
|
$
|
103
|
|
15. BANK LOANS PAYABLE
Bank loans payable consisted of the following:
|
|
For the Year Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Note payable denominated in U.S. dollars to a commercial bank for expansion plans in Singapore and its subsidiaries, maturing in March 2017, bearing interest at the bank’s lending rate (7.3% at June 30, 2016 and 2015), with monthly payments of principal plus interest of $16 and $18 through August 2024 in fiscal year 2016 and 2015, respectively. This note payable is secured by plant and equipment with the net book value of $294 and $357 as at June 30, 2016 and 2015, respectively.
|
|
|
|
|
|
|
|
|
Note payable denominated in RM to a commercial bank for expansion plans in Malaysia, maturing in August 2024, bearing interest at the bank’s prime rate plus 1.50% (4.1% to 6.9% at June 30, 2016 and 2015), with monthly payments of principal plus interest of $22 and $12 through August 2024 in fiscal year 2016 and 2015, respectively. This loan payable is collateralized by the acquired building with the net book value of $2,898 and $3,146 as at June 30, 2016 and 2015, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term portion of bank loans payable
|
|
|
|
|
|
|
|
|
Future minimum payments (excluding interest) as of June 30, 2016 were as follows:
2017
|
|
$
|
342
|
|
2018
|
|
|
204
|
|
2019
|
|
|
215
|
|
2020
|
|
|
226
|
|
2021
|
|
|
239
|
|
Thereafter
|
|
|
841
|
|
Total obligations and commitments
|
|
$
|
2,067
|
|
Future minimum payments (excluding interest) as of June 30, 2015 were as follows:
2016
|
|
$
|
346
|
|
2017
|
|
|
322
|
|
2018
|
|
|
183
|
|
2019
|
|
|
193
|
|
2020
|
|
|
203
|
|
Thereafter
|
|
|
1,297
|
|
Total obligations and commitments
|
|
$
|
2,544
|
|
1
6. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its facilities and equipment under long-term agreements expiring at various dates through fiscal year 2016 and thereafter. Certain of these 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, 2016 were as follows:
For the Year Ending June 30,
|
|
Capital Leases
|
|
|
Operating Leases
|
|
|
Sub-lease
Rental (Income)
|
|
|
|
|
2017
|
|
$
|
235
|
|
|
$
|
598
|
|
|
$
|
(24
|
)
|
|
$
|
574
|
|
2018
|
|
|
212
|
|
|
|
269
|
|
|
|
(24
|
)
|
|
|
245
|
|
2019
|
|
|
156
|
|
|
|
204
|
|
|
|
(24
|
)
|
|
|
180
|
|
Thereafter
|
|
|
135
|
|
|
|
229
|
|
|
|
-
|
|
|
|
229
|
|
Total future minimum lease payments
|
|
$
|
738
|
|
|
$
|
1,300
|
|
|
$
|
(72
|
)
|
|
$
|
1,228
|
|
Less: amount representing interest
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
|
738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: current portion of capital lease obligations
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations under capital leases
|
|
|
503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2015 were as follows:
For the Year Ending June 30,
|
|
Capital Leases
|
|
|
Operating Leases
|
|
|
Sub-lease
Rental (Income)
|
|
|
|
|
2016
|
|
$
|
197
|
|
|
$
|
803
|
|
|
$
|
(128
|
)
|
|
$
|
675
|
|
2017
|
|
|
199
|
|
|
|
671
|
|
|
|
(41
|
)
|
|
|
630
|
|
2018
|
|
|
169
|
|
|
|
279
|
|
|
|
(24
|
)
|
|
|
255
|
|
Thereafter
|
|
|
107
|
|
|
|
2,060
|
|
|
|
-
|
|
|
|
2,060
|
|
Total future minimum lease payments
|
|
$
|
672
|
|
|
$
|
3,813
|
|
|
$
|
(193
|
)
|
|
$
|
3,620
|
|
Less: amount representing interest
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
|
672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: current portion of capital lease obligations
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations under capital leases
|
|
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company purchased equipment under the capital lease agreements with rates ranging from 1.6% to 7.5%. These agreements mature ranging from July 2016 to May 2020.
Total rental expense on all operating leases, cancelable and non-cancelable, amounted to $743 and $784 in fiscal years 2016 and 2015 respectively.
Trio-Tech (Malaysia) Sdn. Bhd. has a capital lease for the purchase of equipment and other related infrastructure costs amounting to RM 1,153, or approximately $287 based on the exchange rate on June 30, 2016 published by the Monetary Authority of Singapore, as compared to RM 33, or approximately $9 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 597, or approximately $93 based on the exchange rate on June 30, 2016 published by the Monetary Authority of Singapore, as compared to nil for last fiscal year.
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, 2016 and for the same period in last 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,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Accounts Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19. BUSINESS SEGMENTS
In fiscal year 2016, 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 (which equipment tests the structural integrity of integrated circuits and other products), distribution of various products from other manufacturers in Singapore and Southeast Asia and the real estate segment in China
The real estate segment recorded other income of nil and $68 and allowance for doubtful interest receivables of nil and $68 for fiscal year 2016 and 2015, respectively, based on the average exchange rate for the twelve months ended June 30, 2016 and 2015, respectively, published by the Monetary Authority of Singapore. Due to the short-term nature of the investments, the investments were classified as loan receivables based on ASC Topic 310. Thus the investment income was classified under other income, which is not part of the below table.
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 $1,086 in fiscal year 2016 and $1,655 in fiscal year 2015. Corporate assets mainly consisted of cash and prepaid expenses. Corporate expenses mainly consisted of stock option expenses, salaries, insurance, professional expenses and directors' fees. Corporate expenses are allocated to the four segments on a pre-determined fixed amount calculated based on the annual budgeted sales, except the Malaysia operation, which is calculated based on actual sales. The following segment information table includes segment operating income or loss after including corporate expenses allocated to the segments, which gets eliminated in the consolidation.
Business Segment Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
|
|
Operating
|
|
|
|
|
|
Depr.
|
|
|
|
|
|
Ended
|
|
Net
|
|
|
Income
|
|
|
Total
|
|
|
and
|
|
|
Capital
|
|
|
June 30,
|
|
Revenue
|
|
|
(Loss)
|
|
|
Assets
|
|
|
Amort.
|
|
|
Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
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|
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|
|
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|
|
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|
* 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 $103 and $109 for fiscal years 2016 and 2015, respectively.
Future minimum rental income in China to be received from fiscal year 2017 to fiscal year 2021 on non-cancellable operating leases is contractually due as follows as of June 30, 2016:
2017
|
|
$
|
174
|
|
2018
|
|
|
149
|
|
2019
|
|
|
116
|
|
2020
|
|
|
84
|
|
2021
|
|
|
7
|
|
|
|
$
|
530
|
|
Future minimum rental income in China to be received from fiscal year 2016 to fiscal year 2020 on non-cancellable operating leases is contractually due as follows as of June 30, 2015:
2016
|
|
$
|
188
|
|
2017
|
|
|
165
|
|
2018
|
|
|
146
|
|
2019
|
|
|
6
|
|
2020
|
|
|
-
|
|
|
|
$
|
505
|
|
21. OTHER INCOME, NET
Other income, net consisted of the following:
|
|
For the Year Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Investment income deemed interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful deemed interest receivables
|
|
|
|
|
|
|
|
|
Other miscellaneous income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income included investment income which was deemed to be interest income since the investment was deemed and classified as a loan receivables based on ASC Topic 310-10-25
Receivables
amounted to nil for fiscal year 2016, as compared to $68 for fiscal year 2015. No allowance for doubtful interest receivables was included in fiscal year 2016, as compared to $68 in the previous fiscal year.
22. INCOME TAXES
On a consolidated basis, the Company’s net income tax provisions were as follows:
|
|
|
For the Year Ended June 30,
|
|
|
|
|
2016
|
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
2
|
|
|
|
2
|
|
Foreign
|
|
|
300
|
|
|
|
439
|
|
|
|
$
|
302
|
|
|
$
|
441
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
(65
|
)
|
|
|
66
|
|
|
|
|
(65
|
)
|
|
|
66
|
|
Total provisions
|
|
$
|
237
|
|
|
$
|
507
|
|
The reconciliation between the U.S. federal tax rate and the effective income tax rate was as follows:
|
|
For the Year Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Statutory federal tax rate
|
|
|
|
|
|
|
|
|
State taxes, net of federal benefit
|
|
|
|
|
|
|
|
|
Foreign tax related to profits making subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2016, the Company had net operating loss carry-forward of approximately $129 and $293 for federal and state tax purposes, respectively, expiring through 2024. The Company also had tax credit carry-forward of approximately $834 for federal income tax purposes expiring through 2033. 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, 2015, the Company had net operating loss carry-forward of approximately $353 and $658 for federal and state tax purposes, respectively, expiring through 2024. The Company also had tax credit carry-forward of approximately $834 for federal income tax purposes expiring through 2033. 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 has been established.
The components of deferred income tax assets (liabilities) were as follows:
|
|
|
For the Year Ended June 30,
|
|
|
|
|
2016
|
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating losses and credits
|
|
$
|
1,498
|
|
|
$
|
1,645
|
|
Inventory valuation
|
|
|
99
|
|
|
|
99
|
|
Depreciation
|
|
|
-
|
|
|
|
-
|
|
Provision for bad debts
|
|
|
128
|
|
|
|
144
|
|
Accrued vacation
|
|
|
40
|
|
|
|
32
|
|
Capital loss
|
|
|
-
|
|
|
|
66
|
|
Accrued expenses
|
|
|
1,262
|
|
|
|
1,338
|
|
Investment in subsidiaries
|
|
|
169
|
|
|
|
169
|
|
Other
|
|
|
11
|
|
|
|
23
|
|
Total deferred tax assets
|
|
$
|
3,207
|
|
|
$
|
3,516
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
(34
|
)
|
|
|
(56
|
)
|
Accrued expenses
|
|
|
(182
|
)
|
|
|
(277
|
)
|
Depreciation
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
(216
|
)
|
|
|
(333
|
)
|
Total deferred income tax liabilities
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,991
|
|
|
|
3,183
|
|
Valuation allowance
|
|
|
(2,806
|
)
|
|
|
(3,063
|
)
|
Net deferred tax assets / (liability)
|
|
|
185
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
Presented as follows in the balance sheets:
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
401
|
|
|
|
453
|
|
Deferred tax liabilities
|
|
|
(216
|
)
|
|
|
(333
|
)
|
Net deferred tax assets / (liability)
|
|
|
185
|
|
|
|
120
|
|
The valuation allowance was decreased by $257 and increased by $187 in fiscal year years 2016 and 2015, respectively.
For U.S. income tax purposes, no provision has been made for U.S. taxes on undistributed earnings amounting to $694 and $617 as at June 30, 2016 and 2015, respectively, of overseas subsidiaries with which the Company intends to continue to reinvest. It is not practicable to estimate the amount of additional tax that might be payable on the foreign earnings if they were remitted as dividends or lent to the Company, or if the Company should sell its stock in the subsidiary. However, the Company believes that the existing U.S. foreign tax credits and net operating losses available would substantially eliminate any additional tax effects.
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 July 1, 2014
|
|
$
|
(250
|
)
|
Additions based on current year tax positions
|
|
|
-
|
|
Additions for prior year(s) tax positions
|
|
|
-
|
|
Reductions for prior year(s) tax positions
|
|
|
-
|
|
Settlements
|
|
|
-
|
|
Expiration of statute of limitations
|
|
|
-
|
|
Balance at June 30, 2015
|
|
$
|
(250
|
)
|
Additions based on current year tax positions
|
|
|
-
|
|
Additions for prior year(s) tax positions
|
|
|
-
|
|
Reductions for prior year(s) tax positions
|
|
|
-
|
|
Settlements
|
|
|
-
|
|
Expiration of statute of limitations
|
|
|
-
|
|
Balance at June 30, 2016
|
|
$
|
(250
|
)
|
The Company accrues penalties and interest on unrecognized tax benefits as a component of penalties and interest expense, respectively. The Company has not accrued any penalties or interest expense relating to the unrecognized benefits at June 30, 2016 and June 30, 2015.
The major tax jurisdictions in which the Company files income tax returns are the United States of America, Singapore, Malaysia, China, Thailand and Indonesia. The statute of limitations, in general, is open for years 2005 to 2015 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, Thailand and Indonesia. However, the Company is not currently under tax examination in any other jurisdiction.
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 up the operations. The Company anticipates that it may incur costs and expenses when the winding up of the subsidiary in Indonesia takes place.
In January 2010, the Company established a restructuring plan to close the Testing operation in Shanghai, China. Based on the restructuring plan and in accordance with ASC Topic 205, the Company presented the operation results from Shanghai as a discontinued operation as the Company believed that no continued cash flow would be generated by the discontinued component (Shanghai subsidiary) and that the Company would have no significant continuing involvement in the operations of the discontinued component. The Shanghai operation has an outstanding balance of accounts payable of $36 and is collecting the accounts receivable of $1.
The discontinued operations in Shanghai and in Indonesia incurred general and administrative expenses of $7 and $22 for the year ended June 30, 2016 and 2015. The Company anticipates that it may incur additional costs and expenses at the time of the winding up of the business of the subsidiary through which the Shanghai, China facility operated.
Income / (Loss) from discontinued operations was as follows:
|
|
|
For the Year Ended June 30,
|
|
|
|
|
2016
|
|
|
|
2015
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost of sales
|
|
|
-
|
|
|
|
-
|
|
Gross loss
|
|
|
-
|
|
|
|
-
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
7
|
|
|
|
22
|
|
Selling
|
|
|
-
|
|
|
|
-
|
|
Impairment
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
7
|
|
|
|
22
|
|
Loss from discontinued operation
|
|
|
(7
|
)
|
|
|
(22
|
)
|
Other income / (charges)
|
|
|
3
|
|
|
|
28
|
|
Net income / (loss) from discontinued operation
|
|
$
|
(4
|
)
|
|
$
|
6
|
|
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 366,250 shares of Common Stock at exercise prices ranging from $2.07 to $3.26 per share were outstanding as of June 30, 2016. All the other outstanding options were excluded in the computation of diluted EPS for fiscal year 2016 since they were anti-dilutive.
Options to purchase 430,000 shares of Common Stock at exercise prices ranging from $3.10 to $4.35 per share were outstanding as of June 30, 2015. All the outstanding options were excluded in the computation of diluted EPS for fiscal year 2015 since they were anti-dilutive.
The following table is a reconciliation of the weighted average shares used in the computation of basic and diluted EPS for the years presented herein:
|
|
|
For the Year Ended June 30,
|
|
|
|
|
2016
|
|
|
|
2015
|
|
Income attributable to Trio-Tech International common shareholders from continuing operations, net of tax
|
|
|
|
|
|
|
|
|
Income / (loss) attributable to Trio-Tech International common shareholders from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
Net income attributable to Trio-Tech International common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options
|
|
|
|
|
|
|
|
|
Number of shares used to compute earnings per share - diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share from continuing operations attributable to Trio-Tech International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share from discontinued operations attributable to Trio-Tech International
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share from net income attributable to Trio-Tech International
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2016
|
|
|
2015
|
|
Expected volatility
|
|
|
60.41% to 104.94
|
%
|
|
|
71.44% to 104.94
|
%
|
Risk-free interest rate
|
|
|
0.30% to 0.78
|
%
|
|
|
0.30% to 0.78
|
%
|
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, 2016. 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.
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).
On March 21, 2016, the Company granted options to purchase 40,000 shares of its Common Stock to employee directors pursuant to the 2007 Employee Plan during the twelve months ended June 30, 2016. The Company recognized stock-based compensation expenses of $2 in the twelve months ended June 30, 2016 under the 2007 Employee Plan. The balance of unamortized stock-based compensation of $3 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 two years. No stock options were exercised during the twelve months ended June 30, 2016. The weighted-average remaining contractual term for non-vested options was 4.72 years. There were 271,875 shares of Common Stock available for grant under the 2007 Employee Plan.
The Company did not grant any stock options pursuant to the 2007 Employee Plan and no stock options were exercised during the twelve months ended June 30, 2015. There were no cash proceeds from exercise of stock options during fiscal year 2015. The Company recognized stock-based compensation expenses of $23 in fiscal year ended June 30, 2015 under the 2007 Employee Plan. The balance of unamortized stock-based compensation of $4 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. The weighted-average grant date fair-value and weighted-average remaining contractual term for non-vested options were $1.69 and 1.45 years, respectively.
As of June 30, 2016, there were vested employee stock options that were exercisable covering a total of 51,250 shares of Common Stock. The weighted-average exercise price was $3.28 and the weighted average contractual term was 2.82 years. The total fair value of vested and outstanding employee stock options as of June 30, 2016 was $168.
As of June 30, 2015, there were vested employee stock options covering a total of 112,500 shares of Common Stock. The weighted-average exercise price was $4.06 and the weighted average contractual term was 1.28 years. The total fair value of vested employee stock options was $457 and remains outstanding as of June 30, 2015.
A summary of option activities under the 2007 Employee Plan during the twelve-month period ended June 30, 2016 is presented as follows:
|
|
Options
|
|
|
Weighted Average
Exercise
Price
|
|
|
Weighted Average Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at July 1, 2015
|
|
|
130,000
|
|
|
$
|
3.93
|
|
|
|
1.57
|
|
|
$
|
13
|
|
Granted
|
|
|
40,000
|
|
|
|
3.26
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited or expired
|
|
|
(80,000
|
)
|
|
|
4.35
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at June 30, 2016
|
|
|
90,000
|
|
|
$
|
3.26
|
|
|
|
3.42
|
|
|
$
|
30
|
|
Exercisable at June 30, 2016
|
|
|
51,250
|
|
|
$
|
3.28
|
|
|
|
2.82
|
|
|
$
|
16
|
|
The aggregate intrinsic value of the 90,000 shares of common stock upon exercise of options was $30.
A summary of option activities under the 2007 Employee Plan during the twelve-month period ended June 30, 2015 is presented as follows:
|
|
Options
|
|
|
Weighted Average
Exercise
Price
|
|
|
Weighted Average Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at July 1, 2014
|
|
|
130,000
|
|
|
$
|
3.93
|
|
|
|
2.57
|
|
|
$
|
13
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at June 30, 2015
|
|
|
130,000
|
|
|
$
|
3.93
|
|
|
|
1.57
|
|
|
$
|
13
|
|
Exercisable at June 30, 2015
|
|
|
112,500
|
|
|
$
|
4.06
|
|
|
|
1.28
|
|
|
$
|
-
|
|
The aggregate intrinsic value of the 126,500 shares of common stock upon exercise of options was $175.
A summary of the status of the Company’s non-vested employee stock options during the twelve months ended June 30, 2016 is presented below:
|
|
|
|
|
Weighted Average Grant-Date
|
|
|
|
Options
|
|
|
Fair Value
|
|
Non-vested at July 1, 2015
|
|
|
17,500
|
|
|
$
|
1.69
|
|
Granted
|
|
|
40,000
|
|
|
|
-
|
|
Vested
|
|
|
(18,750
|
)
|
|
|
-
|
|
Forfeited
|
|
|
|
|
|
|
-
|
|
Non-vested at June 30, 2016
|
|
|
38,750
|
|
|
$
|
3.22
|
|
A summary of the status of the Company’s non-vested employee stock options during the twelve months ended June 30, 2015 is presented below:
|
|
|
|
|
Weighted Average Grant-Date
|
|
|
|
Options
|
|
|
Fair Value
|
|
Non-vested at July 1, 2014
|
|
|
26,250
|
|
|
$
|
1.69
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
8,750
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Non-vested at June 30, 2015
|
|
|
17,500
|
|
|
$
|
1.69
|
|
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.
On March 21, 2016, the Company granted options to purchase 150,000 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 150,000 shares of the Company’s Common Stock was approximately $489 based on the fair value of $3.26 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, 2016. The Company recognized stock-based compensation expenses of $42 in the fiscal year 2016 under the 2007 Directors Plan. No stock options were exercised during the fiscal year 2016. There were 80,000 shares of Common Stock available for grant under the 2007 Directors Plan.
On October 5, 2015, 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 $51 based on the fair value of $2.69 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, 2015. The Company recognized stock-based compensation expenses of $55 in the six months ended December 31, 2015 under the 2007 Directors Plan. No stock options were exercised during the nine months ended December 31, 2015. No stock options were exercised during the six months ended December 31, 2015.
During the fiscal year 2015, the Company granted options to purchase 50,000 shares of its Common Stock to our directors pursuant to the 2007 Directors Plan with an exercise price equal to the fair market value of our Common Stock (as defined under the 2007 Directors Plan in conformity with Regulation 409A or the Internal Revenue Code of 1986, as amended) on October 21, 2014, the date of grant thereof. The fair value of the options granted to purchase 50,000 shares of the Company's Common Stock was $191 based on the grant date fair value of $3.81 per share determined by the Black Scholes option pricing model.
There were no stock options exercised during the fiscal year 2016, hence there were no proceeds from exercise of stock options during fiscal year 2016. The Company recognized stock-based compensation expenses of $$99 in the twelve-month period ended June 30, 2016 under the 2007 Directors Plan.
There were no stock options exercised during the twelve-month period ended June 30, 2015, hence there were no proceeds from exercise of stock options during fiscal year 2015. The Company recognized stock-based compensation expenses of $106 in the twelve-month period ended June 30, 2015 under the 2007 Directors Plan.
As of June 30, 2016, there were vested director stock options covering a total of 415,000 shares of Common Stock. The weighted-average exercise price was $3.14 and the weighted average remaining contractual term was 3.29 years. The total fair value of vested directors' stock options as of June 30, 2016 was $24. All of our director stock options vest immediately at the date of grant. There were no unvested director stock options as of June 30, 2016.
As of June 30, 2015, there were vested director stock options covering a total of 365,000 shares of Common Stock. The weighted-average exercise price was $3.65 and the weighted average remaining contractual term was 1.99 years. The total fair value of vested directors' stock options as of June 30, 2015 was $24. All of our director stock options vest immediately at the date of grant. There were no unvested director stock options as of June 30, 2015.
A summary of option activities under the 2007 Directors Plan during the twelve months ended June 30, 2016 is presented as follows:
|
|
Options
|
|
|
Weighted Average
Exercise
Price
|
|
|
Weighted Average Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at July 1, 2015
|
|
|
365,000
|
|
|
$
|
3.65
|
|
|
|
1.99
|
|
|
$
|
53
|
|
Granted
|
|
|
200,000
|
|
|
|
3.12
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(150,000
|
)
|
|
|
4.35
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2016
|
|
|
415,000
|
|
|
|
3.14
|
|
|
|
3.29
|
|
|
|
198
|
|
Exercisable at June 30, 2016
|
|
|
415,000
|
|
|
|
3.14
|
|
|
|
3.29
|
|
|
|
198
|
|
A summary of option activities under the 2007 Directors Plan during the twelve months ended June 30, 2015 is presented as follows:
|
|
Options
|
|
|
Weighted Average
Exercise
Price
|
|
|
Weighted Average Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at July 1, 2014
|
|
|
315,000
|
|
|
$
|
3.62
|
|
|
|
2.63
|
|
|
$
|
24
|
|
Granted
|
|
|
50,000
|
|
|
|
3.81
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at June 30, 2015
|
|
|
365,000
|
|
|
$
|
3.65
|
|
|
|
1.99
|
|
|
$
|
53
|
|
Exercisable at June 30, 2015
|
|
|
365,000
|
|
|
$
|
3.65
|
|
|
|
1.99
|
|
|
$
|
53
|
|
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
|
|
|
2016
|
|
|
|
2015
|
|
Beginning balance
|
|
$
|
1,736
|
|
|
$
|
1,732
|
|
Net income
|
|
|
282
|
|
|
|
303
|
|
Dividend declared by a subsidiary
|
|
|
(181
|
)
|
|
|
-
|
|
Translation adjustment
|
|
|
(223
|
)
|
|
|
(299
|
)
|
Ending balance
|
|
$
|
1,614
|
|
|
$
|
1,736
|
|
28. RELATED PARTY TRANSACTION
There were no related party transactions in fiscal year 2016 or 2015.