ITEM 2.
M
ANAGEMENT’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, 2017.
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 16139 Wyandotte Street, Van Nuys, California
91406, and our telephone number is (818) 787-7000.
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 99.6% 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, 2017.
To reduce our risks associated with sole industry focus and
customer concentration, the Company expanded its business into the
real estate investment and oil and gas equipment fabrication
businesses in 2007 and 2009, respectively. The Company’s
Indonesia operation and the Indonesia operation’s immediate
holding company, which comprised the fabrication services segment,
suffered continued operating losses since it commenced its
operations, and the cash flow was minimal in the past years. 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”), the Company presented the operation
results from fabrication services as a discontinued operation. The
Real Estate segment contributed only 0.4% to the total revenue and
has been insignificant since the property market in China has
slowed down due to control measures in China.
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 2017 Highlights
●
Total
revenue increased by $1,974, or 22.0%, to $10,945 in the first
quarter of fiscal year 2018, compared to $8,971 for the same period
in fiscal year 2017.
●
Manufacturing
segment revenue increased by $1,094, or 29.8%, to $4,765 for the
first quarter of fiscal year 2018, compared to $3,671 for the same
period in fiscal year 2017.
●
Testing
segment revenue increased by $448, or 10.8%, to $4,605 for the
first quarter of fiscal year 2018, compared to $4,157 for the same
period in fiscal year 2017.
●
Distribution
segment revenue increased by $432, or 39.1%, to $1,536 for the
first quarter of fiscal year 2018, compared to $1,104 for the same
period in fiscal year 2017.
●
Real
estate segment rental revenue was $39 for the first quarter of both
fiscal year 2018 and 2017.
●
The
overall gross profit margin decreased by 1.1% to 25.2% for the
first quarter of fiscal year 2018, from 26.3% for the same period
in fiscal year 2017.
●
Income
from operations was $547 the first quarter of fiscal year 2018, an
improvement of $170, as compared to an income from operations of
$377 for the same period in fiscal year 2017.
●
General
and administrative expenses increased by $96, or 5.5%, to $1,839
for the first quarter of fiscal year 2018, from $1,743 for the same
period in fiscal year 2017.
●
Selling
expenses decreased by $6, or 3.2%, to $179 for the first quarter of
fiscal year 2018, from $185 for the same period in fiscal year
2017.
●
Other
income decreased by $48 to $158 in the first quarter of fiscal year
2018 compared to $110 in the same period in fiscal year
2017.
●
Tax
expense decreased by $41 to $42 in the first quarter of fiscal year
2018 compared to $83 in the same period in fiscal year
2017.
●
During
the first quarter of fiscal year 2018, income from continuing
operations before non-controlling interest, net of tax was $605, as
compared to an income of $346 for the same period in fiscal year
2017.
●
Net
income attributable to non-controlling interest for the first
quarter of fiscal year 2018 was $27, a decrease of $17, as compared
to $44 in the same period in fiscal year 2017.
●
Working
capital increased by $480, or 6.4%, to $7,968 as of September 30,
2017 compared to $7,488 as of June 30, 2017.
●
Basic
Earnings per share for the first quarter of fiscal year 2018 were
$0.16, as compared to earnings per share of $0.09 for the same
period in fiscal year 2017.
●
Dilutive
Earnings per share for the first quarter of fiscal year 2018 were
$0.16, as compared to earnings per share of $0.08 for the same
period in fiscal year 2017.
●
Total
assets increased by $1,208 or 3.6% to $34,706 as of September 30,
2017 compared to $33,498 as of June 30, 2017.
●
Total
liabilities increased by $181 or 1.5% to $12,152 as of September
30, 2017 compared to $11,971 as of June 30, 2017.
Results of Operations and Business Outlook
The following table sets forth our revenue components for the three
months ended September 30, 2017 and 2016,
respectively.
Revenue
Components
|
Three
Months Ended
September
30,
|
|
|
|
Revenue:
|
|
|
Manufacturing
|
43.5
%
|
40.9
%
|
Testing
Services
|
42.1
|
46.4
|
Distribution
|
14.0
|
12.3
|
Real
Estate
|
0.4
|
0.4
|
Total
|
100.0
%
|
100.0
%
|
Revenue for the three months ended September 30, 2017 was $10,945,
an increase of $1,974 when compared to the revenue for the same
period of the prior fiscal year. As a percentage, revenue increased
by 22.0% for the three months ended September 30, 2017 when
compared to revenue for the same period of the prior
year.
For the three months ended September 30, 2017, there was an
increase in revenue across all segments except for the real estate
segment. The extent of the increase in sales from fiscal year 2016
to fiscal year 2017 was offset by the currency translation to U.S.
dollars from our subsidiaries’ functional
currency.
Total revenue into and within China, the Southeast Asia regions and
other countries (except revenue into and within the United States)
increased by $1,992, or 23.6%, to $10,418 for the three months
ended September 30, 2017, as compared with $8,426 for the same
period of last fiscal year. The increase was mainly due
to an increase in the manufacturing segment in the Singapore and
Suzhou, China operations, increase in the testing segment in the
Singapore, Malaysia and Tianjin, China operations, and increase in
the distribution segment in the Singapore operation, which was
partially offset by a decrease in the testing segment in our
Bangkok, Thailand and Suzhou, China operations and decrease in the
distribution revenue in our Suzhou, China operation.
Total revenue into and within the U.S. was $527 for the three
months ended September 30, 2017, a decrease of $18 from $545 for
the same period of the prior year. The decrease in the three months
result was mainly due to a decrease in orders from existing
customers in the first quarter of fiscal year 2018 as compared to
the same period in fiscal year 2017.
Revenue within our four current segments for the three months ended
September 30, 2017 is discussed below.
Manufacturing Segment
Revenue in the manufacturing segment as a percentage of total
revenue was 43.5% for the three months ended September 30, 2017, an
increase of 2.6% of total revenue when compared to 40.9% in the
same period of the last fiscal year. The absolute amount
of revenue increased by $1,094 to $4,765 for the three months ended
September 30, 2017, compared to $3,671, for the same period of the
last fiscal year.
Revenue in the manufacturing segment for the three months ended
September 30, 2017 increased primarily due to an increase in orders
by customers in the Singapore and Suzhou, China operations, which
was offset by a decrease in demand in the U.S.
operations.
The revenue in the manufacturing segment from a major customer
accounted for 37.9% and 53.8% of our total revenue in the
manufacturing segment for the three months ended September 30, 2017
and 2016, respectively. The future revenue in our manufacturing
segment will be significantly 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
42.1% for the three months ended September 30, 2017, a decrease of
4.3% of total revenue when compared to 46.4% for the same period of
the last fiscal year. The absolute amount of revenue
increased by $448 to $4,605 for the three months ended
September 30, 2017, as compared to $4,157 for the same period of
the last fiscal year.
Revenue in the testing segment for the three months ended September
30, 2017 increased primarily due to an increase in our Singapore,
Malaysia and Tianjin, China operations, but was partially offset by
a decrease in testing volume in our Bangkok, Thailand and Suzhou,
China operations. The increase in Singapore, Malaysia and Tianjin,
China was caused by an increase in orders from our major customers,
which we believe was due to an increase in demand for their
products.
Demand for testing services varies from country to country
depending on 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 our customers in order to make it convenient for them to send us
their newly manufactured parts for testing and to enable us to
maintain a share of the market.
Distribution Segment
Revenue in the distribution segment as a percentage of total
revenue was 14.0% for the three months ended September 30, 2017, an
increase of 1.7% of total revenue when compared to 12.3% in the
same period of the last fiscal year. The absolute amount
of revenue increased by $432 to $1,536 for the three months ended
September 30, 2017, compared to $1,104 for the same period of the
last fiscal year.
Revenue in the distribution segment for the three months ended
September 30, 2017 increased primarily due to an increase in
revenue generated from existing and new customers in the Singapore
operations.
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 0.4% of total revenue for
both the three months ended September 30, 2017 and September 30,
2016. The absolute amount of revenue in the real estate segment was
$39 for the three months ended September 30, 2017, and
2016.
During fiscal year 2007, TTI invested in real estate property in
Chongqing, China, which has generated investment income from rental
revenue and investment returns from deemed loan receivables, which
are classified as other income. The rental income is generated from
the rental properties in MaoYe, JiangHuai and FuLi in Chongqing,
China. In the second quarter of fiscal 2015, the investment in
JiaSheng, which was deemed as loans receivable, was transferred to
down payment for purchase of investment property in
China.
Trio-Tech Chongqing Co., Ltd. (“TTCQ”) invested RMB
5,554 in rental properties in Maoye during fiscal year 2008, RMB
3,600 in rental properties in JiangHuai during fiscal year 2010 and
RMB 4,025 in rental properties in FuLi during fiscal year 2010. The
total investment in properties in China was RMB 13,179, or
approximately $1,983 and $1,944 as at September 30, 2017 and June
30, 2017, respectively. The carrying value of these investment
properties in China was RMB 8,077 and RMB 8,242, or approximately
$1,216 and $1,216 as at September 30, 2017 and June 30, 2017,
respectively. These properties generated a total rental income of
$39 for both the three months ended September 30, 2017 and
September 30, 2016, respectively. TTCQ’s investment in
properties that generated rental income is discussed further in
this Form 10-Q.
TTCQ has yet to receive the title deed for properties purchased
from JiangHuai. TTCQ is in the legal process of obtaining the title
deed, which is dependent on JiangHuai completing the entire
project. JiangHuai property did not generate any income during the
three months ended September 30, 2017, and 2016.
“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.
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
consideration does not include the remaining outstanding amount of
RMB 2,000, or approximately $326, which will be paid to TTCQ in
cash.
The
shop lots are to be delivered to TTCQ upon completion of the
construction of the shop lots in the Singapore Themed Resort
Project. The initial targeted date of completion was December 31,
2016. Based on discussions with the developers, the completion date
is estimated to be December 31, 2018.
The
share transfer (10% interest in the joint venture) was registered
with the relevant authorities in China as of end October
2016.
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 by keeping our 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 of 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.
This implementation effort will continue in Fiscal 2018, when the
operational and financial systems in Singapore will be
substantially transitioned to the new system. Implementation of a
new ERP system involves risks and uncertainties. Any disruptions,
delays or deficiencies in the design or implementation of the new
system could result in increased costs and adversely affect our
ability to timely report our financial results, which could
negatively impact our business and results of
operations.
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 First Quarter Ended September 30, 2017 and
September 30, 2016
The following table sets forth certain consolidated statements of
income data as a percentage of revenue for the first quarter of
fiscal years 2017 and 2016, respectively:
|
Three
Months Ended
September
30,
|
|
|
|
Revenue
|
100.0
%
|
100.0
%
|
Cost
of sales
|
74.8
|
73.7
|
Gross Margin
|
25.2
%
|
26.3
%
|
Operating
expenses
|
|
|
General
and administrative
|
16.8
%
|
19.4
%
|
Selling
|
1.6
|
2.1
|
Research
and development
|
1.7
|
0.6
|
Loss
on disposal of property, plant and equipment
|
0.1
|
0.0
|
Total
operating expenses
|
20.2
%
|
22.1
%
|
Income from Operations
|
5.0
%
|
4.2
%
|
Overall Gross Margin
Overall gross margin as a percentage of revenue decreased by 1.1%
to 25.2% for the three months ended September 30, 2017, from 26.3%
for the same period of the last fiscal year, primarily due to a
decrease in the gross profit margin in the manufacturing, testing
and real estate segments. The increase was partially offset by an
increase in gross profit margin in the distribution
segment.
Gross profit margin as a percentage of revenue in the manufacturing
segment decreased by 0.5% to 23.4% for the three months ended
September 30, 2017, as compared to 23.9% for the same period in
last fiscal year. The decrease in gross profit margin was primarily
due to the sales of low profit margin products being higher than
the sale of high profit margin products in the three months ended
September 30, 2017. In absolute dollar amounts, gross profits in
the manufacturing segment increased by $240 to $1,116 for the three
months ended September 30, 2017, from $876 for the same period in
the last fiscal year.
Gross profit margin as a percentage of revenue in the testing
segment decreased by 0.5% to 31.8% for the three months ended
September 30, 2017, from 32.3% in the same period of the last
fiscal year. The decrease was primarily due to a decrease in
high-margin testing volume in our Thailand operations and an
increase in compliance cost in our 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. In
absolute dollar amounts, gross profit in the testing segment
increased by $123 to $1,466 for the three months ended September
30, 2017 from $1,343 for the same
period of the last fiscal
year.
Gross profit margin of the distribution segment is not only
affected by the market price of the products we distribute, but
also the mix of products we distribute, which changes frequently as
a result of changes in market demand. Gross profit margin as a
percentage of revenue in the distribution segment increased by 0.7%
to 10.9% for the three months ended September 30, 2017, from 10.2%
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 and Suzhou, China operations 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, 2017 was $168 as compared to $113 in the
same period of the last fiscal year.
Gross profit margin as a percentage of revenue in the real estate
segment was 25.6% for the three months ended September 30, 2017, as
compared to 66.7% in the same period of the last fiscal year. In
absolute dollar amounts, gross profit in the real estate segment
was $10 and $26, respectively, for the three months ended September
30, 2017 and 2016. The decrease in the gross profit
margin was mainly due to an increase in taxes.
Operating Expenses
Operating expenses for the first quarter of fiscal years 2017 and
2016 were as follows:
|
Three Months
Ended
September
30,
|
(Unaudited)
|
|
|
General
and administrative
|
$
1,839
|
$
1,743
|
Selling
|
179
|
185
|
Research
and development
|
184
|
53
|
Loss
on disposal of property, plant and equipment
|
11
|
-
|
Total
|
$
2,213
|
$
1,981
|
General and administrative expenses increased by $96, or 5.5%, from
$1,743 to $1,839 for the three months ended September 30, 2017
compared to the same period of last fiscal year. The increase in
general and administrative expenses was mainly attributable to the
increase in staff welfare related expenses in the Malaysia and
Tianjin, China operations and the increase in compliance expense in
the Malaysia operation. This increase was partially offset by
payroll-related cost control measures in the Suzhou, China
operation for the three months ended September 30, 2017 compared to
the same period of last fiscal year.
Selling expenses decreased by $6, or 3.2%, from $185 to $179 for
the three months ended September 30, 2017, compared to the same
period of the last fiscal year. The decrease was mainly due to a
decrease in travel and commission expenses in the manufacturing
segment of our Singapore operations as a result of a decrease in
commissionable revenue.
Research and development expenses increased by $131, or 247.2%,
from $53 to $184 for the three months ended September 30, 2017,
compared to the same period of the last fiscal year. The increase
was mainly due to a one-off project in the Suzhou, China
operations.
Income from Operations
Income from operations was $547 for the three months ended
September 30, 2017, an improvement of $170, as compared to an
income from operations of $377 for the three months ended September
30, 2016. 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, 2017 and
2016 were as follows:
|
Three
Months Ended
September
30,
|
(Unaudited)
|
|
|
Interest expenses
|
$
58
|
$
58
|
Interest expense was $58 for both the three months ended September
30, 2017 and 2016. We are trying to keep our debt at a minimum in
order to save financing costs. As of September 30, 2017,
the Company had an unused line of credit of $4,639.
Other Income
Other income for the three months ended September 30, 2017 and 2016
were as follows:
|
Three
Months Ended September 30,
|
|
|
|
Interest
income
|
8
|
4
|
Other
rental income
|
26
|
25
|
Exchange
(loss)/ gain
|
(6
)
|
62
|
Bad
debt recovery
|
1
|
-
|
Other
miscellaneous income
|
129
|
19
|
Total
|
$
158
|
$
110
|
Other income increased by $48 to $158 for the three months ended
September 30, 2017 from $110 as compared to the same period in the
last fiscal year. The increase was primarily due to a non-recurring
reimbursement income, which was partially offset by the change from
exchange gain to an exchange loss. The deterioration of exchange
gain by $68 from $62 for the three months ended September 30, 2016
to an exchange loss of $6 for the three months ended September 30,
2017 was mainly due to transactional foreign exchange differences
in the Malaysia operation.
Income Tax Expenses
The Company had an income tax expense of $42 for the three months
ended September 30, 2017 as compared to an income tax expense of
$83 for the same period in the last fiscal year. The decrease in
income tax expenses was mainly due to a change from deferred tax
benefit in the same period last fiscal year to deferred tax expense
for timing differences recorded by the Malaysia
operation.
Loss / income from Discontinued Operations, net of tax
Loss from discontinued operations, net of tax, was $3 for the three
months ended September 30, 2017, as compared to an income of $1 for
the same period in last fiscal year.
Non-controlling Interest
As of September 30, 2017, 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 income
from the subsidiaries by the non-controlling interest for the three
months ended September 30, 2016 was $27, a decrease of $17 compared
to the share of net income of $44 for the same period of the
previous fiscal year. The decrease in the net income of
the non-controlling interest in the subsidiaries was attributable
to the decrease in net income generated by the Malaysia operations
as compared to the same period in the previous fiscal
year.
Net Income
Net income for the three months ended September 30, 2017 was $575,
an improvement of $272, as compared to a net income of $303 for the
same period last fiscal year.
Earnings per Share
Basic earnings per share from continuing operations was $0.16 for
the three months ended September 30, 2017 as compared to $0.09 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, 2017 and 2016.
Diluted earnings per share from continuing operations was $0.16 for
the three months ended September 30, 2017 as compared to $0.08 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, 2017 and 2016.
Segment Information
The revenue, gross margin and income or loss from operations for
each segment during the first quarter of fiscal year 2018 and
fiscal year 2017 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 (loss) / income from operations for
the manufacturing segment for the three months ended September 30,
2017 and 2016 were as follows:
|
Three
Months Ended
September
30,
|
(Unaudited)
|
|
|
Revenue
|
$
4,765
|
$
3,671
|
Gross margin
|
23.4
%
|
23.9
%
|
Income / (loss) from operations
|
$
186
|
$
(93
)
|
Income from operations from the manufacturing segment was $186
as compared to a loss from operations of $93 in the same period of
the last fiscal year, primarily due to an increase in gross margin,
as discussed earlier, and a decrease in operating expenses. Gross
profit increased by $240 while operating expenses decreased by $38.
Operating expenses for the manufacturing segment were $930 and $969
for the three months ended September 30, 2017 and 2016,
respectively. The $39 decrease in operating expenses was mainly due
to a decrease in general and administrative expenses by $288 which
was partially offset by an increase in research and development
expenses by $131, as discussed earlier, and an increase in
corporate overhead by $128. The decrease in general and
administrative expenses was mainly attributable to a revision in
method of allocation of payroll related expenses between segments
in the Singapore operations. Corporate charges are allocated on a
pre-determined fixed charge basis.
Testing Segment
The revenue, gross margin and income from operations for the
testing segment for the three months ended September 30, 2017 and
2016 were as follows:
|
Three
Months Ended
September
30,
|
(Unaudited)
|
|
|
Revenue
|
$
4,605
|
$
4,157
|
Gross margin
|
31.8
%
|
32.3
%
|
Income from operations
|
$
336
|
$
402
|
Income from operations in the testing segment for the three months
ended September 30, 2017 was $336, a decrease of $66 compared to
$402 in the same period of the last fiscal year. The decrease
in operating income was mainly attributable to an increase in
operating expenses. Operating expenses were $1,130 and $941 for the
three months ended September 30, 2017 and 2016,
respectively.
The
$189 increase in operating expenses was mainly due to an increase
in general and administrative expenses by $299, which was partially
offset by a decrease in corporate overhead by $123. The increase in
general and administrative expenses was mainly due to a revision in
method of allocation of payroll related expenses between segments
in the Singapore operations, an increase in staff welfare related
expenses in the Malaysia and Tianjin, China operations and the
increase in compliance expense in the Malaysia operation. Corporate
charges are allocated on a pre-determined fixed charge
basis.
Distribution Segment
The revenue, gross margin and income from operations for the
distribution segment for the three months ended September 30, 2017
and 2016 were as follows:
|
Three
Months Ended
September
30,
|
(Unaudited)
|
|
|
Revenue
|
$
1,536
|
$
1,104
|
Gross margin
|
10.9
%
|
10.2
%
|
Income / from operations
|
$
101
|
$
34
|
Income from operations was $101, for the three months ended
September 30, 2017, as compared to an income from operations of $34
for the same period of last fiscal year. The increase of $67
was mainly due to an increase in gross margin, as discussed
earlier, and a decrease in operating expenses. Gross profit
increased by $55 while operating expenses decreased by $12.
Operating expenses were $67 and $79 for the three months ended
September 30, 2017 and 2016, respectively. The decrease in
operating expenses was mainly a due to a decrease in general and
administrative expenses by $8 and a decrease in corporate overhead
by $4. General and administrative expenses decreased due to cost
control measures in the Suzhou, China operation. Corporate charges
are allocated on a pre-determined fixed charge basis.
Real Estate Segment
The revenue, gross margin and income / (loss) from operations for
the real estate segment for the three months ended September 30,
2017 and 2016 were as follows:
|
Three
Months Ended
September
30,
|
(Unaudited)
|
|
|
Revenue
|
$
39
|
$
39
|
Gross margin
|
25.6
%
|
66.7
%
|
(Loss) / income from operations
|
$
(10
)
|
$
2
|
Loss from operations in the real estate segment for the three
months ended September 30, 2017 was $10, a deterioration of $12
compared to an income of $2 for the same period of the last fiscal
year. The change was mainly due to a decrease in gross
margin, as discussed earlier. Operating expenses were $20 and $24
for the three months ended September 30, 2017 and 2016,
respectively.
Corporate
The income / (loss) from operations for Corporate for the three
months ended September 30, 2017 and 2016 was as
follows:
|
Three
Months Ended
September
30,
|
(Unaudited)
|
|
|
(Loss) / income from operations
|
$
(66
)
|
$
32
|
Corporate operating loss was $66 for the three months ended
September 30, 2017, a change of $98 from an income of $32 in the
same period of the last fiscal year. The change from an
operating income to an operating loss was mainly attributable to an
increase in general and administrative expenses by $97 due to an
increase in payroll related expenses and professional
fees.
Financial Condition
During the three months ended September 30, 2017 total assets
increased by $1,208 from $33,498 as at June 30, 2017 to $34,706.
The increase in total assets was primarily due to an increase in
short term deposits, trade accounts receivable, inventory, prepaid
expenses, property, plant and equipment, restricted term deposits,
other assets and deferred tax assets, which were partially offset
by a decrease in cash and cash equivalents and other
receivables.
Cash and cash equivalents were $3,118 as at September 30, 2017,
reflecting a decrease of $1,584 from $4,772 as at June 30,
2017, primarily due lower utilization of credit facilities in our
Singapore operation and prepayment in the Tianjin, China operation,
which were partially offset by the increase due to improved
collection in the Malaysia and U.S. operations.
Short term deposits were $1,043 as at September 30, 2017,
reflecting an increase of $256 from $787 as at June 30, 2017,
primarily due to placement of deposit by the Malaysia
operation.
As at September 30, 2017, the trade accounts receivable balance
increased by $1,163 to $10,172, from $9,009 as at June 30, 2017,
primarily due to the increase in revenue for the first three months
of fiscal year 2018 as compared to the revenue in the fourth
quarter of last fiscal year in the Singapore and Suzhou, China
operations and longer collection cycles in the Singapore
operations. The increase was partially offset by the decrease in in
the Bangkok, Thailand operations due to the decrease in revenue for
the first three months of fiscal year 2018 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 79 and 83 days at the end of the first quarter of fiscal year
2018 and for the fiscal year ended 2017, respectively.
As at September 30, 2017 other receivables were $302, reflecting a
decrease of $99 from $401 as at June 30, 2017. The decrease was
primarily due to the capitalization of down payment of fixed assets
in the Singapore operations in the first quarter of fiscal year
2018.
Inventories as at September 30, 2017 were $2,482, an increase of
$726, as compared to $1,756 as at June 30, 2017. The increase in
inventory was mainly due to a delay in shipment as a result of
external factors and higher inventory turnover days in the
Singapore operations.
Prepaid expenses were $336 as at September 30, 2017 compared to
$226 as at June 30, 2017. The increase of $110 was primarily due to
prepayment for software related expenses in the Singapore operation
and insurance in the Singapore and Tianjin, China
operations.
Investment properties, net in China was $1,216 for both as at
September 30, 2017 and as at June 30,
2017.
Property, plant and equipment, net increased by $251 from $11,291
as at June 30, 2017, to $11,542 as at September 30, 2017, mainly
due higher capital expenditure in the Singapore operations and
foreign currency exchange difference between the functional
currency and U.S. dollars for the three months ended September 30,
2017, which was partially offset by depreciation charges being
higher than the capital expenditure in the Tianjin, China
operation.
Restricted cash increased by $29 to $1,686 as at September 30,
2017, as compared to $1,657 as at June 30, 2017. This
was primarily due to foreign currency exchange difference between
functional currency and U.S. dollars from June 30, 2017 to
September 30, 2017.
Other assets increased by $298 to $2,220 as at September 30, 2017,
as compared to $1,922 as at June 30, 2017. This was
mainly due to long-term renovation down-payment in the Tianjin,
China operations and foreign currency exchange difference between
functional currency and U.S. dollars from June 30, 2017 to
September 30, 2017.
Utilized lines of credit decreased by $975 to $1,581 as at
September 30, 2017 compared to $2,556 as at June 30, 2017, which
was mainly due to lower utilization of lines of credit by the
Singapore operation in the first quarter of fiscal year
2018.
Accounts payable increased by $537 to $3,766 as at September 30,
2017, as compared to $3,229 as at June 30, 2017. This was due to
the increase in creditor turnover days in the Singapore operation
and project purchases in the Suzhou, China operation, partially
offset by repayment of payables outstanding as at June 30, 2017 by
the Tianjin, China operations.
Accrued expenses increased by $440 to $3,483 as at September 30,
2017, as compared to $3,043 as at June 30, 2017. The increase in
accrued expenses was mainly due to an increase in purchase accruals
in the Singapore operations.
Bank loans payable increased by $181 to $1,993 as at September 30,
2017, as compared to $1,812 as at June 30, 2017. This was due to an
additional loan made by the Singapore operation, partially offset
by repayment of bank loans by the Malaysia operation.
Capital leases decreased by $54 to $705 as at September 30, 2017,
as compared to $759 as at June 30, 2017. This was due to the
repayment of capital leases by the Singapore and Malaysia
operations.
Liquidity Comparison
Net cash provided by operating activities decreased by $2,463 to an
inflow of $3 for the three months ended September 30, 2017 from an
inflow of $2,466 in the same period of the last fiscal year. The
decrease in net cash inflow provided by operating activities was
primarily due to a decrease in cash inflow of $1,819 from accounts
receivables and $143 from other receivables, and an increase in
cash outflow of $974 from inventories and $227 from other assets.
These were partially offset by a decrease in cash outflow of $477
from accounts payable and accrued expenses.
Net cash used in investing activities decreased by $19 to an
outflow of $763 for the three months ended September 30, 2017 from
an outflow of $782 for the same period of the last fiscal
year. The decrease in cash outflow was primarily due to
a decrease in investments in restricted and unrestricted deposits
of $187, which was partially offset by an increase in cash outflow
of $168 from an increase in capital expenditure.
Net cash used in financing activities for the three months ended
September 30, 2017 was $925, representing a decrease of $244,
as compared to $1,169 during the three months ended September 30,
2016. The decrease was mainly attributable to a $281 increase in
cash inflow from borrowings from bank loans and capital leases,
which was partially offset by an increase in cash outflow of $38
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
There have been no significant changes in the critical accounting
policies from those, disclosed in “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” included in the most recent Annual Report on Form
10-K.