N
OTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AND NUMBER OF
SHARES)
1. ORGANIZATION AND BASIS OF PRESENTATION
Trio-Tech
International (“the Company” or “TTI”
hereafter) was incorporated in fiscal year 1958 under the laws of
the State of California. TTI provides third-party
semiconductor testing and burn-in services primarily through its
laboratories in Southeast Asia. In addition, TTI operates testing
facilities in the United States. The Company also
designs, develops, manufactures and markets a broad range of
equipment and systems used in the manufacturing and testing of
semiconductor devices and electronic components. In the first
quarter of fiscal year 2017, TTI conducted business in four
business segments: Manufacturing, Testing Services, Distribution
and Real Estate. TTI has subsidiaries in the U.S., Singapore,
Malaysia, Thailand and China as follows:
|
Ownership
|
Location
|
Express
Test Corporation (Dormant)
|
100%
|
Van
Nuys, California
|
Trio-Tech
Reliability Services (Dormant)
|
100%
|
Van
Nuys, California
|
KTS
Incorporated, dba Universal Systems (Dormant)
|
100%
|
Van
Nuys, California
|
European
Electronic Test Centre (Dormant)
|
100%
|
Dublin,
Ireland
|
Trio-Tech
International Pte. Ltd.
|
100%
|
Singapore
|
Universal
(Far East) Pte. Ltd. *
|
100%
|
Singapore
|
Trio-Tech
International (Thailand) Co. Ltd. *
|
100%
|
Bangkok,
Thailand
|
Trio-Tech
(Bangkok) Co. Ltd.
|
100%
|
Bangkok,
Thailand
|
(49%
owned by Trio-Tech International Pte. Ltd. and 51% owned by
Trio-Tech International (Thailand) Co. Ltd.)
|
|
|
Trio-Tech
(Malaysia) Sdn. Bhd.
(55%
owned by Trio-Tech International Pte. Ltd.)
|
55%
|
Penang
and Selangor, Malaysia
|
Trio-Tech
(Kuala Lumpur) Sdn. Bhd.
|
55%
|
Selangor,
Malaysia
|
(100%
owned by Trio-Tech Malaysia Sdn. Bhd.)
|
|
|
Prestal
Enterprise Sdn. Bhd.
|
76%
|
Selangor,
Malaysia
|
(76%
owned by Trio-Tech International Pte. Ltd.)
|
|
|
Trio-Tech
(Suzhou) Co., Ltd. *
|
100%
|
Suzhou,
China
|
Trio-Tech
(Shanghai) Co., Ltd. * (Dormant)
|
100%
|
Shanghai,
China
|
Trio-Tech
(Chongqing) Co. Ltd. *
|
100%
|
Chongqing,
China
|
SHI
International Pte. Ltd. (Dormant)
(55%
owned by Trio-Tech International Pte. Ltd)
|
55%
|
Singapore
|
PT
SHI Indonesia (Dormant)
(100%
owned by SHI International Pte. Ltd.)
|
55%
|
Batam,
Indonesia
|
Trio-Tech
(Tianjin) Co., Ltd. *
|
100%
|
Tianjin,
China
|
*
100% owned by Trio-Tech International Pte. Ltd.
The
accompanying un-audited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles (“GAAP”) for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. All significant inter-company accounts and
transactions have been eliminated in consolidation. The unaudited
condensed consolidated financial statements are presented in U.S.
dollars. The accompanying condensed consolidated
financial statements do not include all the information and
footnotes required by GAAP for complete financial
statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered
necessary for fair presentation have been
included. Operating results for the three months ended
September 30, 2016 are not necessarily indicative of the results
that may be expected for the fiscal year ending June 30,
2017. For further information, refer to the consolidated
financial statements and footnotes thereto included in the
Company's annual report for the fiscal year ended June 30,
2016.
The
Company’s operating results are presented based on the
translation of foreign currencies using the respective
quarter’s average exchange rate.
2. NEW ACCOUNTING PRONOUNCEMENTS
The
amendments in Accounting Standards Update (“ASU”)
2016-15 ASC Topic 230 —Statement of Cash Flows (“ASC
Topic 230”): These amendments provide cashflow statement
classification guidance. For public business entities for fiscal
years beginning after December 15, 2017, and interim periods within
those fiscal years. While early application is permitted, including
adoption in an interim period, the Company has not elected to early
adopt. The effectiveness of this update is not expected to have a
significant effect on the Company’s consolidated financial
position or results of operations.
The
amendments in ASU 2016-13 ASC Topic 326: Financial Instruments
—Credit Losses (“ASC Topic 326”) are issued for
the measurement of all expected credit losses for financial assets
held at the reporting date based on historical experience, current
conditions, and reasonable and supportable forecasts. For public
companies that are not SEC filers, the ASU is effective for fiscal
years beginning after December 15, 2020, and interim periods within
those fiscal years. While early application will be permitted for
all organizations for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2018, the Company
has not yet determined if it will early adopt. The effectiveness of
this update is not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
The
amendments in ASU 2016-09 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. 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. These amendments become
effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years, for a variety
of entities including a public business 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 2015-14 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 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 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.
The Financial Accounting
Standards Board (“FASB”) has issued converged standards
on revenue recognition. Specifically, the Board has issued ASU
2014-09, ASC Topic 606. ASU 2014-09 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 the adoption of
this standard to have immaterial effects on its Consolidated
Financial Statements.
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 does 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
September 30, 2016 are not expected to have a significant effect on
the Company’s consolidated financial position or results of
operations.
3. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL
ACCOUNTS
Accounts
receivable consists of customer obligations due under normal trade
terms. Although management generally does not require collateral,
letters of credit may be required from the customers in certain
circumstances. Management periodically performs credit evaluations
of customers’ financial conditions.
Senior
management reviews accounts receivable on a periodic basis to
determine if any receivables will potentially be uncollectible.
Management includes any accounts receivable balances that are
determined to be uncollectible in the allowance for doubtful
accounts. After all reasonable attempts to collect a
receivable have failed, the receivable is written off against the
allowance. Based on the information available,
management believed the allowance for doubtful accounts as of
September 30, 2016 and June 30, 2016 was
adequate.
The following table represents
the changes in the allowance for doubtful
accounts:
|
Sept. 30,
2016
(Unaudited)
|
|
Beginning
|
$
270
|
$
313
|
Additions
charged to expenses
|
63
|
21
|
Recovered
|
(2
)
|
(48
)
|
Currency
translation effect
|
(1
)
|
(16
)
|
Ending
|
$
330
|
$
270
|
4. LOANS RECEIVABLE FROM PROPERTY DEVELOPMENT
PROJECTS
The
following table presents Trio-Tech (Chongqing) Co. Ltd
(‘TTCQ’)’s loan receivable from property
development projects in China as of September 30, 2016. The
exchange rate is based on the date published by the
Monetary Authority of Singapore as of March 31, 2015, since the net
loan receivable was “nil” as at September 30,
2016.
|
|
|
Loan Amount
(U.S. Dollars)
|
Short-term loan receivables
|
|
|
|
JiangHuai
(Project – Yu Jin Jiang An)
|
May
31,2013
|
2,000
|
325
|
Less:
allowance for doubtful receivables
|
|
(2,000
)
|
(325
)
|
Net loan receivables from property development
projects
|
|
-
|
-
|
|
|
|
Long-term loan receivables
|
|
|
|
Jun
Zhou Zhi Ye
|
Oct
31, 2016
|
5,000
|
814
|
Less:
transfer – down-payment for purchase of investment
property
|
|
(5,000
)
|
(814
)
|
Net loan receivables from property development
projects
|
|
-
|
-
|
The
following table presents TTCQ’s loan receivable from property
development projects in China as of June 30, 2016. The exchange
rate is based on the date published by the Monetary
Authority of Singapore as of March 31, 2015, since the net loan
receivable was “nil” as at June 30, 2016.
|
|
|
Loan Amount
(U.S. Dollars)
|
Short-term loan receivables
|
|
|
|
JiangHuai
(Project – Yu Jin Jiang An)
|
May
31,2013
|
2,000
|
325
|
Less:
allowance for doubtful receivables
|
|
(2,000
)
|
(325
)
|
Net loan receivables from property development
projects
|
|
-
|
-
|
|
|
|
Long-term loan receivables
|
|
|
|
Jun
Zhou Zhi Ye
|
Oct
31, 2016
|
5,000
|
814
|
Less:
transfer – down-payment for purchase of investment
property
|
|
(5,000
)
|
(814
)
|
Net loan receivables 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, 2013. TTCQ is in the legal process
of recovering the outstanding amount of $325. TTCQ did not generate
other income from JiangHuai for the quarter ended September 30,
2016, or for the fiscal year ended June 30, 2016. Based on
TTI’s financial policy, a provision for doubtful receivables
of $325 on the investment in JiangHuai was recorded during the
second quarter of fiscal 2014 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 expired on October 31,
2016. Prior to the second quarter of fiscal year 2015, the loan
receivable was classified as a long-term receivable. The book value
of the loan receivable approximates its fair value. In the second
quarter of fiscal year 2015, the loan receivable was transferred to
down payment for purchase of investment property that is being
developed in the Singapore Themed Resort Project (see Note
7).
5. INVENTORIES
Inventories
consisted of the following:
|
Sept. 30,
2016
(Unaudited)
|
|
|
|
|
Raw
materials
|
$
942
|
$
967
|
Work
in progress
|
712
|
909
|
Finished
goods
|
229
|
279
|
Less:
provision for obsolete inventory
|
(688
)
|
(697
)
|
Currency
translation effect
|
(16
)
|
2
|
|
$
1,179
|
$
1,460
|
The
following table represents the changes in provision for obsolete
inventory:
|
Sept. 30,
2016
(Unaudited)
|
|
|
|
|
Beginning
|
$
697
|
$
764
|
Additions
charged to expenses
|
-
|
22
|
Usage
- disposition
|
(3
)
|
(86
)
|
Currency
translation effect
|
(6
)
|
(3
)
|
Ending
|
$
688
|
$
697
|
6.
ASSETS HELD FOR
SALE
During
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 approximately $89, for three
month ended September 30, 2016 and RM 371, or approximately $92,
for year ended June 30, 2016.
7. INVESTMENTS
Investments were
nil as at September 30, 2016 and June 30, 2016.
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 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
4, plus the interest receivable on long term loan receivable of RMB
1,250;
b)
Commercial units
measuring 668 square meters, as mentioned above; and
c)
RMB 5,900 for the
part of the unrecognized cash consideration of RMB 8,000 relating
to the disposal of the joint venture.
The
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 to TTCQ in
cash.
8.
INVESTMENT
PROPERTIES
The
following table presents the Company’s investment in
properties in China as of September 30, 2016. The exchange rate is
based on the exchange rate as of September 30, 2016 published by
the Monetary Authority of Singapore.
|
|
|
Investment Amount
(U.S. Dollars)
|
Purchase of rental property – Property I - MaoYe
|
Jan 04, 2008
|
5,554
|
894
|
Purchase of rental property – Property II -
JiangHuai
|
Jan 06, 2010
|
3,600
|
580
|
Purchase of rental property – Property III - Fu
Li
|
Apr 08, 2010
|
4,025
|
648
|
|
|
-
|
(147
)
|
Gross investment in rental property
|
|
13,179
|
1,975
|
Accumulated depreciation on rental property
|
Sep
30, 2016
|
(4,443
)
|
(666
)
|
Net investment in property – China
|
|
8,736
|
1,309
|
The
following table presents the Company’s investment in
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 Amount
(U.S. Dollars)
|
Purchase of rental property – Property I - MaoYe
|
Jan 04, 2008
|
5,554
|
894
|
Purchase of rental property – Property II -
JiangHuai
|
Jan 06, 2010
|
3,600
|
580
|
Purchase of rental property – Property III - Fu
Li
|
Apr 08, 2010
|
4,025
|
648
|
|
|
-
|
(139
)
|
Gross investment in rental property
|
|
13,179
|
1,983
|
Accumulated depreciation on rental property
|
|
(4,278
)
|
(643
)
|
Net investment in property – China
|
|
8,901
|
1,340
|
The
following table presents the Company’s investment properties
in Malaysia as of September 30, 2016. The exchange rate is based on
the exchange rate as of June 30, 2015 published by the Monetary
Authority of Singapore.
|
|
|
Investment Amount
(U.S. Dollars)
|
Reclassification
of rental property – Penang Property I
|
Dec
31, 2012
|
681
|
181
|
Gross
investment in rental property
|
|
681
|
181
|
Accumulated
depreciation on rental property
|
June
30, 2015
|
(310
)
|
(83
)
|
Reclassified
as “Assets held for sale”
|
June
30, 2015
|
(371
)
|
(98
)
|
Net investment in property – Malaysia
|
|
-
|
-
|
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 Amount
(U.S. Dollars)
|
Reclassification
of rental property – Penang Property I
|
Dec
31, 2012
|
681
|
181
|
Gross
investment in rental property
|
|
681
|
181
|
Accumulated
depreciation on rental property
|
June
30, 2015
|
(310
)
|
(83
)
|
Reclassified
as “Assets held for sale”
|
June
30, 2015
|
(371
)
|
(98
)
|
Net investment in property – Malaysia
|
|
-
|
-
|
Rental Property I – Mao Ye
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 $26 during the
three months ended September 30, 2016 as compared to $22 for the
same period in last fiscal year.
Rental Property II - JiangHuai
In
fiscal year 2010, TTCQ purchased eight units of commercial property
in Chongqing, China from Chongqing JiangHuai Real Estate
Development Co. Ltd. (“JiangHuai”) for a total purchase
price of RMB 3,600, or approximately $580. 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 did not generate any rental income during
the three months ended September 30, 2016 and 2015.
Other Properties III – Fu Li
In
fiscal 2010, TTCQ entered into a Memorandum Agreement with
Chongqing FuLi Real Estate Development Co. Ltd.
(“FuLi”) to purchase two commercial properties totaling
311.99 square meters (“office space”) located in Jiang
Bei District Chongqing. Although TTCQ currently rents its office
premises from a third party, it intends to use the office space as
its office premises. The total purchase price committed and paid
was RMB 4,025, or approximately $648. The development was completed
and the property was handed over during April 2013 and the title
deed was received during the third quarter of fiscal
2014.
The
two commercial properties were leased to third parties under two
separate rental agreements, one of which 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.
Properties
purchased from Fu Li were rented to a third party effective fourth
quarter of fiscal year 2012 and generated a rental income of $13
for the three months ended September 30, 2016, and $10 for the same
period in the last fiscal year.
Penang Property I
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, Trio-Tech (Malaysia) Sdn. Bhd.
(‘TTM’) was approached by a potential buyer to purchase
the factory building. On September 14, 2015, application to sell
the property was rejected by Penang Development Corporation
(‘PDC’). The rejection was based on the business
activity of the purchaser not suitable to the industry that is
being promoted on the said property. PDC made an offer to purchase
the property, which was not at the expected value and the offer
expired on March 28, 2016. However, management is still actively
looking for a suitable buyer. As of September 30, 2016 the net book
value was RM 369, or approximately $89.
Summary
Total
rental income for all investment properties in China was $39 for
the three months ended September 30, 2016, and was $32 for the same
period in the last fiscal year.
Depreciation
expenses for all investment properties in China were $23 for the
three months ended September 30, 2016 and $26 for the same period
in the last fiscal year.
9. OTHER ASSETS
Other
assets consisted of the following:
|
Sept. 30, 2016
(Unaudited)
|
|
Down-payment
for purchase of investment properties
|
$
1,530
|
$
1,536
|
Down-payment
for purchase of property, plant and
equipment
|
120
|
115
|
Deposits
for rental and utilities
|
136
|
137
|
Total
|
$
1,786
|
$
1,788
|
10. LINES OF CREDIT
Carrying
value of the Company’s lines of credit approximates its fair
value because the interest rates associated with the lines of
credit are adjustable in accordance with market situations when the
Company borrowed funds with similar terms and remaining
maturities.
As
of September 30, 2016, the Company had certain lines of credit that
are collateralized by restricted deposits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trio-Tech International Pte. Ltd.,
Singapore
|
Lines of Credit
|
Ranging from 1.6% to 5.5%
|
-
|
$
5,675
|
$
4,444
|
|
|
|
|
Trio-Tech (Malaysia) Sdn. Bhd
|
Lines of Credit
|
Ranging from 6.3% to 6.7%
|
-
|
$
759
|
$
759
|
|
|
|
|
Trio-Tech
(Tianjin) Co., Ltd.
|
Lines of Credit
|
Ranging from 4.9% to 6.3%
|
-
|
$
749
|
$
449
|
As
of June 30, 2016, the Company had certain lines of credit that are
collateralized by restricted deposits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
Lines of Credit
|
Ranging from 4.9% to 6.3%
|
-
|
$
1,204
|
$
602
|
11. ACCRUED EXPENSES
Accrued
expenses consisted of the following:
|
Sept. 30,
2016
(Unaudited)
|
|
Payroll
and related costs
|
$
1,310
|
$
1,311
|
Commissions
|
73
|
47
|
Customer
deposits
|
24
|
91
|
Legal
and audit
|
335
|
297
|
Sales
tax
|
115
|
110
|
Utilities
|
107
|
115
|
Warranty
|
68
|
78
|
Accrued
purchase of materials
|
90
|
50
|
Provision
for re-instatement
|
295
|
308
|
Other
accrued expenses
|
289
|
331
|
Currency
translation effect
|
(25
)
|
(96
)
|
Total
|
$
2,681
|
$
2,642
|
12. WARRANTY ACCRUAL
The
Company provides for the estimated costs that may be incurred under
its warranty program at the time the sale is
recorded. The warranty period of the products
manufactured by the Company is generally one year or the warranty
period agreed 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.
|
Sept. 30,
2016
(Unaudited)
|
|
Beginning
|
$
76
|
$
103
|
Additions
charged to cost and expenses
|
10
|
80
|
Reversal
|
(18
)
|
(105
)
|
Currency
translation effect
|
(1
)
|
(2
)
|
Ending
|
$
67
|
$
76
|
13. BANK LOANS PAYABLE
Bank
loans payable consisted of the following:
|
|
Sept. 30,
2016
(Unaudited)
|
|
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% (5.25% and 5.45% at September
30, 2016 and June 30, 2016) per annum, with monthly payments of
principal plus interest through August 2024, collateralized by the
acquired building with a carrying value of $2,800 and 2,898, as at
September 30, 2016 and June 30, 2016, respectively.
|
|
1,815
|
1,919
|
|
|
|
|
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 (7.5%
and 7.3% at September 30, 2016 and June 30, 2016) with monthly
payments of principal plus interest through April 2017. This note
payable is secured by plant and equipment with a carrying value of
$275 and 294, as at September 30, 2016 and June 30, 2016,
respectively.
|
|
103
|
148
|
|
|
|
|
Current portion
|
|
(295
)
|
(342
)
|
Long term portion of bank loans
payable
|
|
$
1,623
|
$
1,725
|
Future minimum payments
(excluding interest) as at September 30, 2016 were as
follows:
2017
|
$
295
|
2018
|
202
|
2019
|
213
|
2020
|
224
|
2021
|
236
|
Thereafter
|
748
|
Total
obligations and commitments
|
$
1,918
|
Future minimum payments
(excluding interest) as at June 30, 2016 were as
follows:
2017
|
$
342
|
2018
|
204
|
2019
|
215
|
2020
|
226
|
2021
|
239
|
Thereafter
|
841
|
Total
obligations and commitments
|
$
2,067
|
14. COMMITMENTS AND CONTINGENCIES
TTM
has capital commitments for the purchase of equipment and other
related infrastructure costs amounting to RM 1,659, or
approximately $400, based on the exchange rate as at September 30,
2016 published by the Monetary Authority of Singapore, as compared
to the capital commitment as at June 30, 2016 amounting to RM
1,153, or approximately $287.
Trio-Tech
(Tianjin) Co. Ltd. in China has capital commitments for the
purchase of equipment and other related infrastructure costs
amounting to RMB 48, or approximately $7, based on the exchange
rate as on September 30, 2016 published by the Monetary Authority
of Singapore, as compared to the capital commitment as at June 30,
2016 amounting to RMB 597, or approximately $93.
Deposits
with banks in China are not insured by the local government or
agency, and are consequently exposed to risk of loss. The Company
believes the probability of a bank failure, causing loss to the
Company, is remote.
The
Company is, from time to time, the subject of litigation claims and
assessments arising out of matters occurring in its normal business
operations. In the opinion of management, resolution of these
matters will not have a material adverse effect on the
Company’s financial statements.
15.
BUSINESS
SEGMENTS
In
fiscal year 2017, the Company operates in four segments; the
testing service industry (which performs structural and electronic
tests of semiconductor devices), the designing and manufacturing of
equipment (which equipment tests the structural integrity of
integrated circuits and other products), distribution of various
products from other manufacturers in Singapore and Southeast Asia
and the real estate segment in China.
The
real estate segment did not record other income for the first
quarter of fiscal 2017 and first quarter of fiscal year 2016, based
on the average exchange rate for the respective periods 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 revenue was from the manufacturing segment to the
testing and distribution segments. Total inter-segment revenue was
$283 for the three months ending September 30, 2016, as compared to
$115 for the same period in the last fiscal
year. Corporate assets mainly consisted of cash and
prepaid expenses. Corporate expenses mainly consisted of stock
option expenses, salaries, insurance, professional expenses and
directors' fees. Corporate expenses are allocated to the four
segments. The following segment information table includes segment
operating income or loss after including the corporate expenses
allocated to the segments, which gets eliminated in the
consolidation.
The
following segment information is un-audited for the three months
ended September 30, 2016 and September 30, 2015:
Business Segment Information:
|
Three Months
Ended
Sept. 30,
|
|
Operating
Income / (Loss)
|
|
|
|
Manufacturing
|
2016
|
$
3,671
|
$
(93
)
|
$
7,716
|
$
50
|
$
11
|
|
2015
|
3,140
|
242
|
5,618
|
54
|
17
|
|
|
|
|
|
|
|
Testing
Services
|
2016
|
4,157
|
402
|
19,219
|
388
|
350
|
|
2015
|
3,783
|
78
|
20,495
|
403
|
237
|
|
|
|
|
|
|
|
Distribution
|
2016
|
1,104
|
34
|
695
|
1
|
-
|
|
2015
|
975
|
19
|
749
|
-
|
-
|
|
|
|
|
|
|
|
Real
Estate
|
2016
|
39
|
2
|
3,304
|
25
|
-
|
|
2015
|
32
|
(24
)
|
3,530
|
27
|
-
|
|
|
|
|
|
|
|
Fabrication
|
2016
|
-
|
-
|
30
|
-
|
-
|
Services
*
|
2015
|
-
|
-
|
26
|
-
|
-
|
|
|
|
|
|
|
|
Corporate
&
|
2016
|
-
|
32
|
567
|
-
|
-
|
Unallocated
|
2015
|
-
|
(16
)
|
62
|
-
|
-
|
|
|
|
|
|
|
|
Total
Company
|
2016
|
$
8,971
|
377
|
31,531
|
464
|
361
|
|
2015
|
$
7,930
|
$
299
|
$
30,480
|
$
484
|
$
254
|
*
Fabrication Services is a discontinued operation (Note
18).
16
.
OTHER
INCOME
Other
income consisted of the following:
|
Three
Months Ended
September
30,
|
|
|
|
Interest
income
|
4
|
3
|
Other
rental income
|
25
|
24
|
Exchange
gain
|
62
|
184
|
Other
miscellaneous income / (expenses)
|
19
|
(3
)
|
Total
|
$
110
|
$
208
|
17. INCOME TAX
The
Company is subject to income taxes in the U.S. and numerous foreign
jurisdictions. Significant judgment is required in determining the
provision for income taxes and income tax assets and liabilities,
including evaluating uncertainties in the application of accounting
principles and complex tax laws. The statute of limitations, in
general, is open for years 2004 to 2016 for tax authorities in
those jurisdictions to audit or examine income tax returns. The
Company is under annual review by the tax authorities of the
respective jurisdiction to which the subsidiaries
belong.
The Company had no material adjustments to its
liabilities for unrecognized income tax benefits according to the
provisions of ASC Topic 740
Income Tax.
The Company had an income tax expense
of $83 for the three months ended September 30, 2016 as compared to
an income tax expense of $67 for the same period in the last fiscal
year. The increase in income tax expenses was mainly due to
increase in deferred tax for the timing differences recorded by the
Singapore and Malaysia operations for the three months
ended September 30, 2016, as compared to the same period in
the last fiscal year. This increase was partially offset by the
decrease in income tax expenses mainly due to the increase in
income in the subsidiaries which has carry forward tax
losses.
The
Company recognizes tax benefits from uncertain tax positions only
if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities based on the
technical merits of the position. Although the Company believes
that the uncertain tax positions are adequately reserved, no
assurance is provided that the final tax outcome of these matters
may not be materially different. Adjustments are made to these
reserves when facts and circumstances change, such as the closing
of tax audit or the refinement of an estimate. To the extent that
the final tax outcome of these matters is different than the
amounts recorded, such differences may affect the provision for
income taxes in the period in which such determination is made and
could have a material impact on the financial condition and
operating results. The provision for income taxes includes the
effect of any reserves that the Company believes are appropriate,
as well as the related net interest and penalties.
The
income tax expenses included with-holding tax held by related
companies that were not recoverable from the Inland Revenue Board
in Singapore.
The
Company accrues penalties and interest related to unrecognized tax
benefits when necessary as a component of penalties and interest
expenses, respectively. The Company had not accrued any
penalties or interest expenses relating to unrecognized benefits at
September 30, 2016 and June 30, 2016.
18. 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. Management has assessed the costs and expenses to be
immaterial, thus no accrual has been made.
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 $35 and is collecting the accounts
receivable of $2.
The
discontinued operations in Shanghai and in Indonesia did not incur
general and administrative expenses for the three months ended
September 30, 2016, and did not incur general and administrative
expenses for the same period in the last fiscal year. The Company
anticipates that it may incur additional costs and expenses when
the winding up of the business of the subsidiary through which the
facilities operated takes place.
Management
has assessed the costs and expenses to be immaterial, thus no
accrual has been made.
Loss
/ income from discontinued operations for the three months ended
September 30, 2016 and 2015 were as follows:
|
Three
Months Ended
September
30,
|
|
|
|
Revenue
|
$
-
|
$
-
|
Cost
of sales
|
-
|
-
|
Gross
margin
|
-
|
-
|
Operating
expenses
|
|
|
General
and administrative
|
-
|
-
|
Selling
|
-
|
-
|
Impairment
loss of property, plant and equipment
|
-
|
-
|
Total
|
-
|
-
|
Income
from discontinued operation
|
-
|
-
|
Other
income / (charges)
|
2
|
(10
)
|
Net
(loss) / income from discontinued operation
|
2
|
(10
)
|
Less:
net (income) / loss attributable to the non-controlling
interest
|
-
|
(5
)
|
(Loss)
/ income from discontinued operation, net of tax
|
$
2
|
(5
)
|
The
Company does not provide a separate cash flow statement for the
discontinued operation, as the impact of this discontinued
operation was immaterial.
19. EARNINGS PER SHARE
The Company adopted ASC Topic 260,
Earnings Per
Share.
Basic Earnings Per Share
(“EPS”) is computed by dividing net income available to
common shareholders (numerator) by the weighted average number of
common shares outstanding (denominator) during the
period. Diluted EPS give effect to all dilutive
potential common shares outstanding during a period. In
computing diluted EPS, the average price for the period is used in
determining the number of shares assumed to be purchased from the
exercise of stock options and warrants.
Stock
options to purchase 125,000 of Common Stock at exercise prices
ranging from $3.62 to $3.81 per share were outstanding as of
September 30, 2016 and were excluded in the computation of diluted
EPS because their effect would have been
anti-dilutive.
Stock
options to purchase 495,000 of Common Stock at exercise prices
ranging from $2.26 to $3.2 per share were outstanding as of
September 30, 2015.
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:
|
|
|
|
|
|
|
Income
attributable to Trio-Tech International common shareholders from
continuing operations, net of tax
|
$
303
|
$
264
|
Loss
attributable to Trio-Tech International common shareholders from
discontinued operations, net of tax
|
-
|
(5
)
|
Net income attributable to Trio-Tech International common
shareholders
|
$
303
|
$
259
|
|
|
|
Weighted
average number of common shares outstanding - basic
|
3,513
|
3,513
|
Dilutive
effect of stock options
|
66
|
8
|
Number
of shares used to compute earnings per share –
diluted
|
3,579
|
3,521
|
|
|
|
Basic
earnings per share from continuing operations attributable to
Trio-Tech International
|
0.09
|
0.08
|
|
|
|
Basic
earnings per share from discontinued operations attributable to
Trio-Tech International
|
-
|
-
|
Basic earnings
per share from net loss attributable to Trio-Tech
International
|
$
0.09
|
$
0.08
|
|
|
|
Diluted
earnings per share from continuing operations attributable to
Trio-Tech International
|
0.08
|
0.08
|
|
|
|
Diluted
earnings per share from discontinued operations attributable to
Trio-Tech International
|
-
|
-
|
Diluted
earnings per share from net loss attributable to Trio-Tech
International
|
$
0.08
|
$
0.08
|
|
|
|
20. STOCK OPTIONS
On
September 24, 2007, the Company’s Board of Directors
unanimously adopted the 2007 Employee Stock Option Plan (the
“2007 Employee Plan”) and the 2007 Directors Equity
Incentive Plan (the “2007 Directors Plan”) each of
which was approved by the shareholders on December 3, 2007. Each of
those plans was amended 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 its 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. At present, the
2007 Directors Plan provides for awards of up to 500,000 shares of
the Company’s Common Stock to the members of the
Company’s 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:
|
|
Three
Months Ended
September
30,
|
|
|
|
|
|
|
|
|
|
|
|
|
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. 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).
The
Company did not grant any options pursuant to the 2007 Employee
Plan during the three months ended September 30, 2016. There were
no options exercised during the three months ended September 30,
2016. The Company recognized stock-based compensation expenses of
$1 in the three months ended September 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 three years. The weighted-average remaining contractual
term for non-vested options was 3.96years.
The
Company did not grant any options pursuant to the 2007 Employee
Plan during the three months ended September 30, 2015. There were
no options exercised during the three months ended September 30,
2015. The Company recognized stock-based compensation expenses of
$4 in the three months ended September 30, 2015 under the 2007
Employee Plan. There was no balance of unamortized stock-based
compensation based on fair value on the grant date related to
options granted under the 2007. The weighted-average remaining
contractual term for non-vested options was 1.19years.
As
of September 30, 2016, there were vested employee stock options
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 2.57 years. The total fair value of vested
employee stock option was $168 and remains outstanding as of
September 30, 2016.
As
of September 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 1.03 years. The total fair value of vested
employee stock option was $457 and remains outstanding as of
September 30, 2015.
A
summary of option activities under the 2007 Employee Plan during
the three months ended September 30, 2016 is presented as
follows:
|
|
Weighted
Average
Exercise
Price
|
Weighted
Average Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
Outstanding
at July 1, 2016
|
90,000
|
$
3.26
|
3.42
|
$
30
|
Granted
|
-
|
-
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
Outstanding
at September 30, 2016
|
90,000
|
$
3.26
|
3.17
|
$
31
|
Exercisable
at September 30, 2016
|
51,250
|
$
3.28
|
2.57
|
$
17
|
A
summary of option activities under the 2007 Employee Plan during
the three months ended September 30, 2015 is presented as
follows:
|
|
Weighted
Average
Exercise
Price
|
Weighted
Average Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
Outstanding
at July 1, 2015
|
130,000
|
$
3.93
|
1.57
|
$
-
|
Granted
|
-
|
-
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
Outstanding
at September 30, 2015
|
130,000
|
$
3.93
|
1.32
|
$
-
|
Exercisable
at September 30, 2015
|
112,500
|
$
4.06
|
1.03
|
$
-
|
A
summary of the status of the Company’s non-vested employee
stock options during the three months ended September 30, 2016 is
presented below:
|
|
Weighted
Average Grant-Date
Fair
Value
|
Non-vested
at July 1, 2016
|
38,750
|
$
3.22
|
Granted
|
-
|
-
|
Vested
|
-
|
-
|
Forfeited
|
-
|
-
|
Non-vested
at September 30, 2016
|
38,750
|
$
3.22
|
A
summary of the status of the Company’s non-vested employee
stock options during the three months ended September 30, 2015 is
presented below:
|
|
Weighted
Average Grant-Date
Fair
Value
|
Non-vested
at July 1, 2015
|
17,500
|
$
1.69
|
Granted
|
-
|
-
|
Vested
|
-
|
-
|
Forfeited
|
-
|
-
|
Non-vested
at September 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 directors in the
form of non-qualified options and restricted stock. The exercise
price of the non-qualified options is 100% of the fair value of the
underlying shares on the grant date. The options have five-year
contractual terms and are generally exercisable immediately as of
the grant date.
During
the first quarter of fiscal year 2017, the Company did not grant
any options pursuant to the 2007 Directors Plan. There were no
stock options exercised during the three-month period ended
September 30, 2016. The Company did not recognize any stock-based
compensation expenses during the three months ended September 30,
2016.
During
the first quarter of fiscal year 2016, the Company did not grant
any options pursuant to the 2007 Directors Plan. There were no
stock options exercised during the three-month period ended
September 30, 2015. The Company did not recognize any stock-based
compensation expenses during the three months ended September 30,
2015.
As
of September 30, 2016, there were vested stock options granted
under the 2007 Directors Plan 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 3.04 years. Both
the aggregate intrinsic value of such stock options outstanding and
the aggregate intrinsic value of such options exercisable as of
September 30, 2016 were $204. 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 September 30, 2016.
As
of September 30, 2015, there were vested stock options granted
under the 2007 Directors Plan covering a total of 365,000 shares of
Common Stock. The weighted-average exercise price was $3.64 and the
weighted average remaining contractual term was 1.74 years. Both
the aggregate intrinsic value of such stock options outstanding and
the aggregate intrinsic value of such options exercisable as of
September 30, 2015 were $13. 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 September 30, 2015.
A summary of option activities under the 2007
Directors Plan during the three months ended September 30, 2016 is
presented as follows:
|
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
Outstanding
at July 1, 2016
|
415,000
|
$
3.14
|
3.29
|
$
198
|
Granted
|
-
|
-
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
Outstanding
at September 30, 2016
|
415,000
|
$
3.14
|
3.04
|
$
204
|
Exercisable
at September 30, 2016
|
415,000
|
$
3.14
|
3.04
|
$
204
|
A summary of option activities
under the 2007 Directors Plan during the three months ended
September 30, 2015 is presented as follows:
|
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
Outstanding
at July 1, 2015
|
365,000
|
$
3.64
|
1.99
|
$
53
|
Granted
|
-
|
-
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
Outstanding
at September 30, 2015
|
365,000
|
$
3.64
|
1.74
|
$
13
|
21. FAIR VALUE OF FINANCIAL INSTRUMENTS APPROXIMATE
CARRYING VALUE
In
accordance with the ASC Topic 825, the following presents assets
and liabilities measured and carried at fair value and classified
by level of the following fair value measurement hierarchy in
accordance to ASC 820:
There
were no transfers between Levels 1 and 2 during the three months
ended September 30, 2016 and 2015.
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.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES