ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Overview
The following should be read in conjunction with the condensed
consolidated financial statements and notes in Item I above and
with the audited consolidated financial statements and notes, the
information under the headings “Risk Factors” and
“Management’s discussion and analysis of financial
condition and results of operations” in our Annual Report on
Form 10-K for the fiscal year ended June 30, 2019.
Trio-Tech International (“TTI”) was incorporated in
1958 under the laws of the State of California. As used
herein, the term “Trio-Tech” or “Company”
or “we” or “us” or “Registrant”
includes Trio-Tech International and its subsidiaries unless the
context otherwise indicates. Our mailing address and executive
offices are located at Block 1008 Toa Payoh North, Unit 03-09
Singapore 318996, and our telephone number is (65) 6265
3300.
The Company is a provider of reliability test equipment and
services to the semiconductor industry. Our customers rely on us to
verify that their semiconductor components meet or exceed the
rigorous reliability standards demanded for aerospace,
communications and other electronics products.
TTI generated approximately 99.8% of its revenue from its three
core business segments in the test and measurement industry, i.e.
manufacturing of test equipment, testing services and distribution
of test equipment during the three months ended September 30, 2019.
The Real Estate segment contributed only 0.2% to the total revenue
during the three months ended September 30, 2019.
Manufacturing
TTI develops and manufactures an extensive range of test equipment
used in the "front end" and the "back end" manufacturing processes
of semiconductors. Our equipment includes leak detectors,
autoclaves, centrifuges, burn-in systems and boards, HAST testers,
temperature controlled chucks, wet benches and more.
Testing
TTI provides comprehensive electrical, environmental, and burn-in
testing services to semiconductor manufacturers in our testing
laboratories in Asia and the U.S. Our customers include both
manufacturers and end-users of semiconductor and electronic
components, who look to us when they do not want to establish their
own facilities. The independent tests are performed to industry and
customer specific standards.
Distribution
In addition to marketing our proprietary products, we distribute
complementary products made by manufacturers mainly from the U.S.,
Europe, Taiwan and Japan. The products include environmental
chambers, handlers, interface systems, vibration systems, shaker
systems, solderability testers and other semiconductor equipment.
Besides equipment, we also distribute a wide range of components
such as connectors, sockets, LCD display panels and touch-screen
panels. Furthermore, our range of products are mainly targeted for
industrial products rather than consumer products whereby the life
cycle of the industrial products can last from 3 years to 7
years.
Real Estate
Beginning in 2007, TTI has invested in real estate property in
Chongqing, China, which has generated investment income from the
rental revenue from real estate we purchased in Chongqing, China,
and investment returns from deemed loan receivables, which are
classified as other income. The rental income is generated from the
rental properties in MaoYe and FuLi in Chongqing, China. In the
second quarter of fiscal 2015, the investment in JiaSheng, which
was deemed as loans receivable, was transferred to down payment for
purchase of investment property in China.
First Quarter Fiscal Year 2020 Highlights
●
Total
revenue decreased by $222 or 2.2 %, to $9,823 in the first quarter
of fiscal year 2020, compared to $10,045 for the same period in
fiscal year 2019.
●
Manufacturing
segment revenue decreased by $320, or 8.8%, to $3,317 for the first
quarter of fiscal year 2020, compared to $3,637 for the same period
in fiscal year 2019.
●
Testing
segment revenue decreased by $47, or 1.1%, to $4,390 for the first
quarter of fiscal year 2020, compared to $4,437 for the same period
in fiscal year 2019.
●
Distribution
segment revenue increased by $155, or 8.0%, to $2,099 for the first
quarter of fiscal year 2020, compared to $1,944 for the same period
in fiscal year 2019.
●
Real
estate segment rental revenue decreased by $10 or 37% to $17 for
the first quarter of fiscal year 2020 compared to $27 for the same
period in fiscal year 2019.
●
The
overall gross profit margin increased by 2.0% to 22.9% for the
first quarter of fiscal year 2020, from 20.9% for the same period
in fiscal year 2019.
●
Income
from operations was $222 for the first quarter of fiscal year 2020,
an increase of $99, as compared to $123 for the same period in
fiscal year 2019.
●
General
and administrative expenses increased by $29, or 1.6%, to $1,788
for the first quarter of fiscal year 2020, from $1,759 for the same
period in fiscal year 2019.
●
Selling
expenses increased by $43, or 29.3%, to $190 for the first quarter
of fiscal year 2020, from $147 for the same period in fiscal year
2019.
●
Other
income increased by $67 to $110 in the first quarter of fiscal year
2020 compared to $43 in the same period in fiscal year
2019.
●
Income
tax was $Nil in the first quarter of fiscal year 2020, an decrease
of $74 as compared to an income tax expense of $74 in the same
period in fiscal year 2019.
●
During
the first quarter of fiscal year 2020, income from continuing
operations before non-controlling interest, net of tax was $264, as
compared to $14 for the same period in fiscal year
2019.
●
Net
loss attributable to non-controlling interest for the first quarter
of fiscal year 2020 was $10, a decrease of $49, as compared to $59
in the same period in fiscal year 2019.
●
Basic
Earnings per share for the first quarter of fiscal year 2020 were
$0.07, as compared to earnings per share of $0.02 for the same
period in fiscal year 2019.
●
Dilutive
Earnings per share for the first quarter of fiscal year 2020 were
$0.07, as compared to earnings per share of $0.02 for the same
period in fiscal year 2019.
●
Total
assets decreased by $409, or 1.1% to $36,118 as of September 30,
2019 compared to $36,527 as of June 30, 2019.
●
Total
liabilities decreased by $117, or 1.0% to $11,549 as of September
30, 2019 compared to $11,666 as of June 30, 2019.
Results of Operations and Business Outlook
The following table sets forth our revenue components for the three
months ended September 30, 2019 and 2018,
respectively.
|
Revenue
Components
|
Three
Months Ended
September
30,
|
|
|
|
|
|
Revenue:
|
|
|
|
Manufacturing
|
33.8%
|
36.2%
|
|
Testing
Services
|
44.7
|
44.2
|
|
Distribution
|
21.3
|
19.3
|
|
Real
Estate
|
0.2
|
0.3
|
|
Total
|
100.0%
|
100.0%
|
Revenue for the three months ended September 30, 2019 was $9,823, a
decrease of $222 from $10,045 when compared to the revenue for the
same period of the prior fiscal year. As a percentage, revenue
decreased by 2.2% for the three months ended September 30, 2019
when compared to revenue for the same period of the prior
year.
For the three months ended September 30, 2019, there was a decrease
in revenue across all segments except for the distribution
segment when
compared to the same period of the prior fiscal
year.
Total revenue into and within China, the Southeast Asia regions and
other countries (except revenue into and within the United States)
decreased by $389 or 4.1%, to $9,187 for the three months ended
September 30, 2019, as compared with $9,576 for the same period of
last fiscal year. The decrease was mainly due to a decrease in the manufacturing
segment in Singapore and a decrease in the testing segments in the
Malaysia and China operations which were partially offset by an
increase in the testing segments in the Singapore and Thailand
operations. The decrease was also offset by an increase in the
distribution segment in the Singapore
operation.
Total revenue into and within the U.S. was $636 for the three
months ended September 30, 2019, an increase of $167 from $469 for
the same period of the prior year. The increase in the three
months’ result was mainly due to an increase in orders from
existing customers in the first quarter of fiscal year 2020 as
compared to the same period in fiscal year 2019.
Revenue within our four current segments for the three months ended
September 30, 2019 is discussed below.
Manufacturing Segment
Revenue in the manufacturing segment as a percentage of total
revenue was 33.8% for the three months ended September 30, 2019, a
decrease of 2.4% of total revenue when compared to 36.2% in the
same period of the last fiscal year. The absolute amount of
revenue decreased by $320 to $3,317 for the three months ended
September 30, 2019, compared to $3,637, for the same period of the
last fiscal year.
Revenue in the manufacturing segment for the three months ended
September 30, 2019 decreased primarily due to a decrease in orders
by customers in the Singapore operations.
Revenue in the manufacturing segment from a major customer
accounted for 39.3% and 39.6% of our revenue in the manufacturing
segment for the three months ended September 30, 2019 and 2018,
respectively. The future revenue in our manufacturing segment will
be affected by the purchase and capital expenditure plans of this
major customer, if the customer base cannot be
increased.
Testing Services Segment
Revenue in the testing segment as a percentage of total revenue was
44.7% for the three months ended September 30, 2019, an increase of
0.5% of the total revenue when compared to 44.2% for the same
period of the last fiscal year. The absolute amount of revenue
decreased by $47 to $4,390 for the three months ended
September 30, 2019, as compared to $4,437 for the same period of
the last fiscal year.
Revenue in the testing segment for the three months ended September
30, 2019 decreased primarily due to a decrease in the Malaysia and
China operations but was partially offset by an increase in the
Singapore and Thailand operations. The decrease in Malaysia and
China operations was caused by a decrease in orders from the
customer.
The revenue in the testing segment from a major customer accounted
for 66.4% and 76.0% of our revenue in the testing segment for the
three months ended September 30, 2019 and 2018, respectively. The
future revenue in the testing segment will be affected by the
demands of this major customer, if the customer base cannot be
increased. Demand for testing services varies from country to
country depending on any changes taking place in the market and our
customers’ forecasts. As it is difficult to accurately
forecast fluctuations in the market, management believes it is
necessary to maintain testing facilities in close proximity to the
customers in order to make it convenient for them to send us their
newly manufactured parts for testing and to enable us to maintain a
share of the market.
Distribution Segment
Revenue in the distribution segment as a percentage of total
revenue was 21.3% for the three months ended September 30, 2019, an
increase of 2.0% of total revenue when compared to 19.3% in the
same period of the last fiscal year. The absolute amount of
revenue increased by $155 to $2,099 for the three months ended
September 30, 2019, compared to $1,944 for the same period of the
last fiscal year.
Revenue in the distribution segment for the three months ended
September 30, 2019 increased primarily due to an increase in
revenue generated from customers in the Singapore
operation.
Demand for the distribution segment varies depending on the demand
for our customers’ products, the changes taking place in the
market and our customers’ forecasts. Hence it is
difficult to accurately forecast fluctuations in the
market.
Real Estate Segment
The real estate segment accounted for 0.2% of total revenue for the
three months ended September 30, 2019 and 0.3% of total revenue for
three months ended September 30, 2018. The absolute amount of
revenue in the real estate segment was $17 for the three months
ended September 30, 2019 and $27 for the three months ended
September 30, 2018.
Uncertainties and Remedies
There are several influencing factors which create uncertainties
when forecasting performance, such as the constantly changing
nature of technology, specific requirements from the customer,
decline in demand for certain types of burn-in devices or
equipment, decline in demand for testing services and fabrication
services, and other similar factors. One factor that influences
uncertainty is the highly competitive nature of the semiconductor
industry. Another is that some customers are unable to provide a
forecast of the products required in the upcoming weeks; hence it
is difficult to plan for the resources needed to meet these
customers’ requirements due to short lead time and last
minute order confirmation. This will normally result in a lower
margin for these products, as it is more expensive to purchase
materials in a short time frame. However, the Company has taken
certain actions and formulated certain plans to deal with and to
help mitigate these unpredictable factors. For example, in order to
meet manufacturing customers’ demands upon short notice, the
Company maintains higher inventories, but continues to work closely
with its customers to avoid stock piling. We believe that we have
improved customer service from staff through our efforts to keep
our staff up to date on the newest technology and stressing the
importance of understanding and meeting the stringent requirements
of our customers. Finally, the Company is exploring new markets and
products, looking for new customers, and upgrading and improving
burn-in technology while at the same time searching for improved
testing methods for higher technology chips.
We are in the process of implementing an Enterprise Resource
Planning (“ERP”) system, as part of a multi-year plan
to integrate and upgrade our systems and processes. The
implementation of this ERP system is scheduled to occur in phases
over the next few years, and began with the migration of certain of
our operational and financial systems in our Singapore operations
to the new ERP system during the second quarter of fiscal
2017.
During the third quarter of fiscal 2018, the operational and
financial systems in Singapore were substantially transitioned to
the new system. The operational and financial systems in our
Malaysia operation were substantially transitioned to the new
system during the first quarter of fiscal 2019.
This implementation effort will continue in fiscal 2020, when the
operational and financial system in our Tianjin and Suzhou
operations will be substantially transitioned to the new
system.
As a phased implementation of this system occurs, we are
experiencing certain changes to our processes and procedures which,
in turn, result in changes to our internal control over financial
reporting. While we expect the new ERP system to strengthen our
internal financial controls by automating certain manual processes
and standardizing business processes and reporting across our
organization, management will continue to evaluate and monitor our
internal controls as processes and procedures in each of the
affected areas evolve.
The Company’s primary exposure to movements in foreign
currency exchange rates relates to non-U.S. dollar-denominated
sales and operating expenses in its subsidiaries. Strengthening of
the U.S. dollar relative to foreign currencies adversely affects
the U.S. dollar value of the Company’s foreign
currency-denominated sales and earnings, and generally leads the
Company to raise international pricing, potentially reducing demand
for the Company’s products. Margins on sales of the
Company’s products in foreign countries and on sales of
products that include components obtained from foreign suppliers
could be materially adversely affected by foreign currency exchange
rate fluctuations. In some circumstances, for competitive or other
reasons, the Company may decide not to raise local prices to fully
offset the dollar’s strengthening, or at all, which would
adversely affect the U.S. dollar value of the Company’s
foreign currency-denominated sales and earnings. Conversely, a
strengthening of foreign currencies relative to the U.S. dollar,
while generally beneficial to the Company’s foreign currency
denominated sales and earnings could cause the Company to reduce
international pricing, thereby limiting the benefit. Additionally,
strengthening of foreign currencies may also increase the
Company’s cost of product components denominated in those
currencies, thus adversely affecting gross margins.
There are several influencing factors which create uncertainties
when forecasting performance of our real estate segment, such as
obtaining the rights by the joint venture to develop the real
estate projects in China, inflation in China, currency fluctuations
and devaluation, and changes in Chinese laws, regulations, or their
interpretation.
Comparison of the Three Months Ended September 30, 2019 and
September 30, 2018
The following table sets forth certain consolidated statements of
income data as a percentage of revenue for the three months ended
September 30, 2019 and 2018 respectively:
|
|
Three
Months Ended
September
30,
|
|
|
|
|
|
Revenue
|
100.0%
|
100.0%
|
|
Cost
of sales
|
77.1
|
79.1
|
|
Gross Margin
|
22.9%
|
20.9%
|
|
Operating
expenses
|
|
|
|
General
and administrative
|
18.2%
|
17.5%
|
|
Selling
|
1.9
|
1.5
|
|
Research
and development
|
0.8
|
0.7
|
|
Gain
on disposal of plant and equipment
|
(0.2)
|
-
|
|
Total
operating expenses
|
20.7%
|
19.7%
|
|
Income from Operations
|
2.2%
|
1.2%
|
Overall Gross Margin
Overall gross margin as a percentage of revenue increased by 2.0%
to 22.9% for the three months ended September 30, 2019, from 20.9%
for the same period of the last fiscal year.
Gross profit margin as a percentage of revenue in the manufacturing
segment increased by 1.6% to 23.0% for the three months ended
September 30, 2019, as compared to 21.4% for the same period in
last fiscal year. The increase in gross profit margin was primarily
due to higher sales of high profit margin products in the three
months ended September 30, 2019 as compared to the same period in
the last fiscal year. In absolute dollar amounts, gross profits in
the manufacturing segment decreased by $18 to $762 for the three
months ended September 30, 2019, from $780 for the same period in
the last fiscal year.
Gross profit margin as a percentage of revenue in the testing
segment increased by 3.5% to 27.3% for the three months ended
September 30, 2019, from 23.8% in the same period of the last
fiscal year. The increase was primarily due to management efforts
in reducing costs in the China and Malaysia operations. Significant
portions of our cost of goods sold are fixed in the testing
segment. Thus, as the demand of services and factory
utilization decreases, the fixed costs are spread over the
decreased output, which decreases the gross profit margin. However,
this negative impact was mitigated by our effort in cost savings as
mentioned earlier. In absolute dollar amounts, gross profit in the
testing segment increased by $145 to $1,199 for the three months
ended September 30, 2019 from $1,054 for the same period of
the last fiscal year as a result of an increase in gross profit
margin.
Gross profit margin of the distribution segment is not only
affected by the market price of the products we distribute, but
also the mix of products we distribute, which changes frequently as
a result of changes in market demand. Gross profit margin as a
percentage of revenue in the distribution segment increased by 0.6%
to 13.9% for the three months ended September 30, 2019, from 13.3%
in the same period of the last fiscal year. The increase in
gross margin was due to the increase in sales of high profit margin
products in our Singapore operation as compared to the same period
of last fiscal year. In terms of absolute dollar amounts, gross
profit in the distribution segment for the three months ended
September 30, 2019 was $292 as compared to $258 in the same period
of the last fiscal year.
In absolute dollar amounts, for the three months ended September
30, 2019, gross loss in the real estate segment was $1, as compared
to gross profit margin of $9 for same period of last fiscal year.
The increase in gross loss was mainly due to the sales of
properties in real estate segment after the first quarter of last
fiscal year, which resulted in a decrease in rental
income.
Operating Expenses
Operating expenses for the three months ended September 30, 2019
and 2018 were as follows:
|
|
Three Months
Ended
September
30,
|
|
(Unaudited)
|
|
|
|
General
and administrative
|
$1,788
|
$1,759
|
|
Selling
|
190
|
147
|
|
Research
and development
|
76
|
72
|
|
Gain
on disposal of plant and equipment
|
(24)
|
-
|
|
Total
|
$2,030
|
$1,978
|
General and administrative expenses increased by $29, or 1.6%, from
$1,759 to $1,788 for the three months ended September 30, 2019
compared to the same period of last fiscal year. The increase in
general and administrative expenses was mainly attributable to the
higher professional fees and payroll related expenses in the U.S.
operations.
Selling expenses increased by $43, or 29.3%, from $147 to $190 for
the three months ended September 30, 2019, compared to the same
period of the last fiscal year. The increase was mainly due to an
increase in commission expenses in the manufacturing segment of the
Singapore operations as a result of an increase in commissionable
revenue although we saw a decrease in overall revenue in the
manufacturing segment.
During the three months ended September 30, 2019, there was a gain
on disposal of plant and equipment of $24 as compared to $nil in
the same period of last fiscal year.
Income from Operations
Income from operations was $222 for the three months ended
September 30, 2019, an increase of $99, as compared to $123 for the
three months ended September 30, 2018. The increase was mainly due
to the increase in gross profit which was partially offset by the
increase in operating expenses, as previously
discussed.
Interest Expense
Interest expense for the three months ended September 30, 2019 and
2018 were as follows:
|
|
Three
Months Ended
September
30,
|
|
(Unaudited)
|
|
|
|
Interest expenses
|
$68
|
$78
|
Interest expense was $68 for the three months ended September 30,
2019, a decrease of $10, or 12.8% as compared to $78 for the three
months ended September 30, 2018. The decrease was due to a decrease
in the utilization of short-term loans in the Singapore and China
operations. As of September 30, 2019, the Company had an
unused line of credit of $6,250 as compared to $3,858 at September
30, 2018.
Other Income
Other income for the three months ended September 30, 2019 and 2018
were as follows:
|
|
Three
Months Ended
September
30,
|
|
|
|
|
|
Interest
income
|
32
|
10
|
|
Other
rental income
|
30
|
27
|
|
Exchange
gain/(loss)
|
5
|
(39)
|
|
Bad
debt recovery
|
11
|
2
|
|
Other
miscellaneous income
|
32
|
43
|
|
Total
|
$110
|
$43
|
Other income increased by $67 to $110 for the three months ended
September 30, 2019 from $43 as compared to the same period in the
last fiscal year. The increase was primarily due to an increase in
interest income from placement of fixed deposit for the three
months ended September 30, 2019 as compared to same period in the
last fiscal year. Furthermore, this increase in other income was
positively impacted by a foreign exchange movement. The exchange
gain was $5 for the three months ended September 30, 2019 as
compared to an exchange loss of $39 for the three months ended
September 30, 2018, which was mainly due to transactional foreign
exchange differences in the U.S. operations.
Income Tax Expenses
The
Company's income tax expense was $Nil and $74 for the three months
ended September 30, 2019 and September 30, 2018, respectively. The
provision for the three months ended September 30, 2019 was
primarily due to provision for GILTI tax which is absent during
first quarter of 2019 fiscal year. The provision for GILTI tax was
offset by pre-tax income changes as well as various discrete items.
The income tax expense for the three months ended September 30,
2019 was offset by the tax refund in
the China operation. In the same period of 2018, the Company
recorded deferred tax expense for timing differences in the
Malaysia operation.
Non-controlling Interest
As of September 30, 2019, we held a 55% interest in Trio-Tech
(Malaysia) Sdn. Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI
International Pte. Ltd., and PT. SHI Indonesia. We also held a 76%
interest in Prestal Enterprise Sdn. Bhd. The share of net loss from
the subsidiaries by the non-controlling interest for the three
months ended September 30, 2019 was $10, a decrease of $49 compared
to $59 for the same period of the previous fiscal year. The
decrease in the net loss of the non-controlling interest in the
subsidiaries was attributable to the increase in net income
generated by the Malaysia operation as compared to the same period
in the previous fiscal year.
Net Income
Net income for the three months ended September 30, 2019 was $273,
an increase of $208, as compared to a net income of $65 for the
same period last fiscal year.
Earnings per Share
Basic earnings per share from continuing operations were $0.07 for
the three months ended September 30, 2019 as compared to $0.02 for
the same period in the last fiscal year. Basic earnings per share
from discontinued operations were Nil for both the three months
ended September 30, 2019 and 2018.
Diluted earnings per share from continuing operations were $0.07
for the three months ended September 30, 2019 as compared to $0.02
for the same period in the last fiscal year. Diluted earnings per
share from discontinued operations were Nil for both the three
months ended September 30, 2019 and 2018.
Segment Information
The revenue, gross margin and income or loss from operations for
each segment during the first quarter of fiscal year 2020 and
fiscal year 2019 are presented below. As the revenue and gross
margin for each segment have been discussed in the previous
section, only the comparison of income or loss from operations is
discussed below.
Manufacturing Segment
The revenue, gross margin and income from operations for the
manufacturing segment for the three months ended September 30, 2019
and 2018 were as follows:
|
|
Three
Months Ended
September
30,
|
|
(Unaudited)
|
|
|
|
Revenue
|
$3,317
|
$3,637
|
|
Gross margin
|
23.0%
|
21.4%
|
|
(Loss)/Income from operations
|
$(12)
|
$107
|
Loss from operations from the manufacturing segment was $12 as
compared to income from operation of $107 in the same period of the
last fiscal year, primarily due to a decrease in gross margin of
$18 and an increase in operating expenses of $101. Operating
expenses for the manufacturing segment were $774 and $673 for the
three months ended September 30, 2019 and 2018, respectively. The
increase in operating expenses was mainly due to an increase of $60
in general and administrative expenses and an increase of $56 in
selling expenses. The increase in general and administrative
expenses was mainly attributable to an increase in payroll related
expenses in the Singapore operations. The increase in selling
expenses was due to higher commission expenses as there was higher
commissionable revenue in the Singapore operations. These increases
were partially offset by a decrease of $19 in corporate overhead
expenses.
Testing Segment
The revenue, gross margin and income/(loss) from operations for the
testing segment for the three months ended September 30, 2019 and
2018 were as follows:
|
|
Three
Months Ended
September
30,
|
|
(Unaudited)
|
|
|
|
Revenue
|
$4,390
|
$4,437
|
|
Gross margin
|
27.3%
|
23.8%
|
|
Income/(Loss) from operations
|
$68
|
$(138)
|
Income from operations in the testing segment for the three months
ended September 30, 2019 was $68, an increase of $206 compared to a
loss from operations of $138 in the same period of the last fiscal
year. The increase in operating income was mainly attributable
to an increase of gross profit margin as discussed earlier and a
decrease in operating expenses. Operating expenses were $1,131 and
$1,192 for the three months ended September 30, 2019 and 2018,
respectively. The
decrease of $61 in operating expenses was mainly due to a decrease
in general and administrative expenses, which was mainly due to
lower payroll related expenses incurred in the China
operations.
Distribution Segment
The revenue, gross margin and income from operations for the
distribution segment for the three months ended September 30, 2019
and 2018 were as follows:
|
|
Three
Months Ended
September
30,
|
|
(Unaudited)
|
|
|
|
Revenue
|
$2,099
|
$1,944
|
|
Gross margin
|
13.9%
|
13.3%
|
|
Income from operations
|
$204
|
$172
|
Income from operations was $204, for the three months ended
September 30, 2019, as compared to $172 for the same period of last
fiscal year. The increase of $32 was mainly due to an increase
of $34 in the gross margin, as discussed earlier. Operating
expenses were $88 and $86 for the three months ended September 30,
2019 and 2018, respectively.
Real Estate Segment
The revenue, gross margin and loss from operations for the real
estate segment for the three months ended September 30, 2019 and
2018 were as follows:
|
|
Three
Months Ended
September
30,
|
|
(Unaudited)
|
|
|
|
Revenue
|
$17
|
$27
|
|
Gross margin
|
(5.9)%
|
33.3%
|
|
Loss from operations
|
$(17)
|
$(12)
|
Loss from operations in the real estate segment for the three
months ended September 30, 2019 was $17 compared to $12 for the
same period of last fiscal year. Operating expenses were $16
and $21 for the three months ended September 30, 2019 and 2018,
respectively.
Corporate
The loss from operations for Corporate for the three months ended
September 30, 2019 and 2018 was as
follows:
|
|
Three
Months Ended
September
30,
|
|
(Unaudited)
|
|
|
|
Loss from operations
|
$(21)
|
$(6)
|
Corporate operating loss was $21 for the three months ended
September 30, 2019, an increase of $15 from $6 in the same period
of the last fiscal year. The increase was mainly attributable
to an increase in general and administrative expenses.
Financial Condition
During the three months ended September 30, 2019 total assets
decreased by $409 from $36,527 as at June 30, 2019 to $36,118. The
decrease in total assets was primarily due to a decrease in cash
and cash equivalents, other receivables, inventory, deferred tax
asset, investment properties, property, plant and equipment, other
asset and restricted term deposits, which was
partially–offset by an increase in short term deposits, trade
accounts receivable, prepaid expenses and other current assets, and
operating lease right-of-use assets.
Cash and cash equivalents were $3,710 as at September 30, 2019,
reflecting a decrease of $1,153 from $4,863 as at June 30,
2019, primarily due to placement made into fixed deposits in the
Singapore and China operations and the acquisition of plant and
equipment in the Malaysia operation.
Short term deposits were $5,222 as at September 30, 2019,
reflecting an increase of $1,078 from $4,144 as at June 30,
2019, primarily due to an increase in deposits in the Singapore and
China operations.
As at September 30, 2019, the trade accounts receivable balance
increased by $407 to $7,520, from $7,113 as at June 30, 2019,
primarily due to the increase in revenue for the first three months
of fiscal year 2020 as compared to the revenue in the fourth
quarter of last fiscal year in the Malaysia, China and U.S.
operations. This increase was partially offset by the decrease in
the Singapore and Thailand operations due to the decrease in
revenue for the first three months of fiscal year 2020 as compared
to the revenue in the fourth quarter of last fiscal year. The
number of days’ sales outstanding in accounts receivables for
the Group was 67 and 74 days at the end of the first quarter of
fiscal year 2020 and for the fiscal year ended 2019,
respectively.
As at September 30, 2019 other receivables were $756, reflecting a
decrease of $61 from $817 as at June 30, 2019. The decrease was
primarily due to a decrease in advance payments made to suppliers
and other tax receivables in the Singapore operation.
Inventories as at September 30, 2019 were $1,688, a decrease of
$739, as compared to $2,427 as at June 30, 2019. The decrease in
inventories was in line with a decrease in orders by customers in
the manufacturing segment of Singapore operations.
Prepaid expenses were $346 as at September 30, 2019 compared to
$287 as at June 30, 2019. The increase of $59 was primarily due to
the prepaid application fee made in relation to the sale of
property in the Malaysia operation.
Investment properties, net in China were $736 as at September 30,
2019 and $782 as at June 30, 2019. The decrease was primarily
due to the depreciation charged for the period and the foreign
currency exchange movement between June 30, 2019 and September 30,
2019.
Assets held for sales were $88 as at September 30, 2019 and $89 as
at June 30, 2019. Management entered into a Sales and Purchase
Agreement with a potential buyer during fiscal year 2019. The
completion of the sale is subject to approval by the local
government. In accordance with ASC 360-20, a sale is considered
consummated when all the legal steps to transfer the ownership are
completed, not when the sales agreement is signed.
Property, plant and equipment decreased by $372 from $12,159 as at
June 30, 2019, to $11,787 as at September 30, 2019, mainly due to
depreciation charged for the period and the foreign currency
exchange movement between June 30, 2019 to September 30,
2019. The decrease was partially offset by the new acquisition
of plant and equipment in the Malaysia operation.
Restricted cash decreased by $32 to $1,674 as at September 30,
2019, as compared to $1,706 as at June 30, 2019. This was
primarily due to the foreign currency exchange movement between
June 30, 2019 and September 30, 2019.
Other assets decreased by $156 to $1,594 as at September 30, 2019,
as compared to $1,750 as at June 30, 2019. This was
mainly due to the reclassification of down payments made for the
purchase of property, plant and equipment, to fixed assets in the
Malaysia operation.
Accounts payable decreased by $102 to $3,170 as at September 30,
2019, as compared to $3,272 as at June 30, 2019. This was due to a
decrease in purchases by the Singapore operation.
Accrued expenses decreased by $112 to $3,374 as at September 30,
2019, as compared to $3,486 as at June 30, 2019. The decrease in
accrued expenses was mainly due to a decrease in the accrued
payroll liability in the China operation.
Bank loans payable decreased by $161 to $2,619 as at September 30,
2019, as compared to $2,780 as at June 30, 2019. This was due to
the repayments made in the Singapore and Malaysia
operations.
Finance leases decreased by $40 to $685 as at September 30, 2019,
as compared to $725 as at June 30, 2019. This was due to the
repayment of finance leases in the Singapore and Malaysia
operations. The decrease was partially offset by an increase in a
finance lease in the Singapore operation.
Operating lease right of use assets and the corresponding leased
liability were $614 and $581 respectively as of September 30, 2019,
after taking into effect the new accounting standard,
ASC 842
leases.
Liquidity Comparison
Net cash provided by operating activities increased by $616 to an
inflow of $1,174 for the three months ended September 30, 2019 from
an inflow of $558 for the same period of the last fiscal year. The
increase in net cash inflow provided by operating activities was
primarily due to an increase in net income by $257, an increase in
cash inflow of $231 from depreciation and amortization, an increase
of $172 from inventories and a decrease in cash outflow of $337
from accounts payable and accrued expenses. These were partially
offset by a decrease in cash inflow of $419 from other
assets.
Net cash used in investing activities increased by $96 to an
outflow of $1,665 for the three months ended September 30, 2019
from an outflow of $1,569 for the same period of the last fiscal
year. The increase in cash outflow was primarily due to an increase
in investment in unrestricted term deposits by $807 and partially
offset by a decrease of $714 from the capital
expenditure.
Net cash used in financing activities for the three months ended
September 30, 2019 was $521, representing a decrease of $2,160, as
compared to net cash generated in financing activities of $1,639
during the three months ended September 30, 2018. The increase in
cash outflow was mainly attributable to an increase in cash outflow
by $189 from repayment of bank loans, operating and finance leases,
a decrease in cash inflow of $199 from proceeds from exercising
stock option, a decrease of $3,467 from proceeds from lines of
credit and a decrease in proceeds from bank loans by $1,475. These
were partially offset by a decrease in cash outflow of $3,124 from
repayment of lines of credit.
We believe that our projected cash flows from operations, borrowing
availability under our revolving lines of credit, cash on hand,
trade credit and the secured bank loan will provide the necessary
financial resources to meet our projected cash requirements for at
least the next 12 months.
Critical Accounting Estimates & Policies
Effective
as of July 1, 2019, the Company has adopted ASU 2016-02, Leases (Topic 842), and
its related amendments using modified retrospective transition
method. We have completed our adoption and implemented policies,
processes and controls to support the standard’s measurement
and disclosure requirements as
described in note 1 to the financial statements included in item 1
of this Form 10-Q.