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 unaudited financial statements and notes in Item I
above and with the audited consolidated financial statements and
notes, and 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 99.7% 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 March 31, 2018. 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 operating results from
fabrication services as a discontinued operation. The Real Estate
segment contributed only 0.3% 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 United States (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, solder ability 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.
Third Quarter Fiscal 2018 Highlights
●
Total
revenue increased by $279, or 2.84%, to $10,104 for the third
quarter of fiscal 2018, as compared to $9,825 for the same period
in fiscal 2017.
●
Manufacturing
segment revenue decreased by $1,106, or 26.15%, to $3,124 for the
third quarter of fiscal 2018, as compared to $4,230 for the same
period in fiscal 2017.
●
Testing
segment revenue increased by $936, or 23.54%, to $4,913 for the
third quarter of fiscal 2018, as compared to $3,977 for the same
period in fiscal 2017.
●
Distribution
segment revenue increased by $452, or 28.59%, to $2,033 for the
third quarter of fiscal 2018, as compared to $1,581 for the same
period in fiscal 2017.
●
Real
estate segment revenue decreased by $3, or 8.1%, to $34 for the
third quarter of fiscal 2018, as compared to $37 for the same
period in fiscal 2017.
●
Gross
profit margin in absolute dollars decreased by $215, or 8.79%, to
$2,232 for the third quarter of fiscal 2018, as compared to $2,447
for the same period in fiscal 2017.
●
The
overall gross profit margin decreased by 2.81% to 22.09% for the
third quarter of fiscal 2018, from 24.90% for the same period in
fiscal 2017.
●
Income
from operations for the third quarter of fiscal 2018 was $234, a
decrease of $251 or 51.75%, as compared to $485 for the same period
in fiscal 2017.
●
General
and administrative expenses increased by $114, or 6.87%, to $1,773
for the third quarter of fiscal year 2018, from $1,659 for the same
period in fiscal year 2017.
●
Selling
expenses decreased by $41, or 18.47%, to $181 for the third quarter
of fiscal year 2018, from $222 for the same period in fiscal year
2017.
●
(Gain)/Loss
on disposal of property, plant and equipment increased by $61 to
gain of $31 for the third quarter of fiscal year 2018, from loss of
$30.
●
Other
income increased by $66 to $111 in the third quarter of fiscal year
2018 compared to $45 in the same period in fiscal year
2017.
●
Tax
expenses for the third quarter of fiscal year 2018 was $980, an
increase of $874, as compared to $106 in the same period in fiscal
year 2017 due primarily to a one-time Repatriation
Tax.
●
During
the third quarter of fiscal year 2018, loss from continuing
operations before non-controlling interest, net of tax was $699, a
decrease of $1,080, as compared to income of $381 for the same
period in fiscal year 2017.
●
Net
income attributable to non-controlling interest for the third
quarter of fiscal year 2018 was $34, as compared to $30 in the same
period in fiscal year 2017.
●
Working
capital increased by $448, or 18%, to $7,936 as of March 31,
2018,as compared to $7,488 as of June 30, 2017.
●
Loss
per share for the three months ended March 31, 2018 was $(0.21), a
decrease of $0.31, as compared to earning per share of $0.10 for
the same period in fiscal year 2017.
●
Total
assets increased by $2,890 or 8.63% to $36,388 as of March 31,
2018, as compared to $33,498 as of June 30, 2017.
●
Total
liabilities increased by $494 or 4.13% to $12,465 as of March 31,
2018, as 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
and nine months ended March 31, 2018 and 2017,
respectively.
|
|
|
|
|
|
|
|
Mar. 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
30.9
%
|
43.1
%
|
37.5
%
|
40.2
%
|
|
Testing
Services
|
48.7
|
40.5
|
45.7
|
43.7
|
|
Distribution
|
20.1
|
16.1
|
16.4
|
15.6
|
|
Real
Estate
|
0.3
|
0.3
|
0.4
|
0.5
|
|
|
|
|
|
|
|
Total
|
100.0
%
|
100.0
%
|
100.0
%
|
100.0
%
|
Revenue for the three and nine months ended March 31, 2018 was
$10,104 and $31,601, respectively, an increase of $279 and
$3,701 respectively, when compared to the revenue for the same
periods of the prior fiscal year. As a percentage, revenue
increased by 2.84% and 13.27% for the three and nine months ended
March 31, 2018, respectively, when compared to total revenue for
the same periods of the prior year.
For the three months ended March 31, 2018, the $279 increase in
overall revenue was primarily due to
●
an
increase in the testing segment in the Singapore, Malaysia and
Tianjin operations.
●
an
increase in the distribution segment in the Malaysia and Singapore
operations
These increases were partially offset by the
●
decrease
in the manufacturing segment in the Singapore operations and U.S.
operations,
●
decrease
in the real estate segment in China operations.
For the nine months ended March 31, 2018, the $3,701 increase in
overall revenue was primarily due to
●
an
increase in the testing segment in the Singapore, Malaysia and
China operations,
●
an
increase in the distribution segment in the Singapore and Malaysia
operations
●
an
increase in the manufacturing segment in the U.S.
operations
These increases were partially offset by the
●
decrease
in the manufacturing segment in the Singapore operations,
and
●
decrease
in the real estate segment in China operations.
Revenue into and within China, the Southeast Asia region and other
countries (except revenue into and within the U.S.) increased by
$397 (or 4.22%) to $9,803, and by $3,683 (or 13.77%) to $30,422 for
the three and nine months ended March 31, 2018, respectively, as
compared with $9,406 and $26,739, respectively, for the same
periods of last fiscal year.
Revenue into and within the U.S. was $300 and $1,179 for the three
and nine months ended March 31, 2018, respectively, a decrease of
$119 and an increase of $17, respectively, from $419 and $1,162 for
the same periods of last fiscal year, respectively.
Revenue for the three and nine months ended March 31, 2018 is
discussed within the four segments as follows:
Manufacturing Segment
Revenue in the manufacturing segment as a percentage of total
revenue was 30.9% and 37.5% for the three and nine months ended
March 31, 2018, respectively, a decrease of 12.2% and 2.78% of
total revenue, respectively, when compared to the same periods of
the last fiscal year. The absolute amount of revenue
decreased by $1,106 to $3,124 from $4,230 and increased by $641 to
$11,862 from $11,221 for the three and nine months ended March 31,
2018, respectively, compared to the same periods of the last fiscal
year.
The revenue in the manufacturing segment from a major customer
accounted for 47.4% and 55.9% of our total revenue in the
manufacturing segment for the three months ended March 31, 2018 and
2017, respectively, and 47.4% and 56.0% of our total revenue in the
manufacturing segment for the nine months ended March 31, 2018 and
2017, 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
48.7% and 45.7% for the three and nine months ended March 31, 2018,
an increase of 8.2% and 2.0%, respectively, of total revenue when
compared to the same periods of the last fiscal
year. The absolute amount of revenue increased by $936
to $4,913 from $3,977 for the three months ended March 31, 2018 and
by $2,250 to $14,454 from $12,204 for the nine months ended March
31, 2018, compared to the same periods of the last fiscal
year.
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 20.1% and 16.4% for the three and nine months ended
March 31, 2018, an increase of 4.0% and 0.8%, respectively,
when compared to the same periods of the prior fiscal
year. The absolute amount of revenue increased by $452
to $2,033 from $1,581, and increased by $815 to $5,175 from $4,360
for the three and nine months ended March 31, 2018, respectively,
compared to the same periods of the last fiscal
year.
Demand in the distribution segment varies depending on the demand
for our customers’ products and 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 0.3% and 0.4% of total net
revenue for the three and nine months ended March 31, 2018. The
absolute amount of revenue in the real estate segment decreased by
$3 to $34 from $37 and by $5 to $110 from $115 for the three and
nine months ended March 31, 2018, respectively, compared to the
same periods of the last fiscal year. The decrease was
primarily due to a decrease in rental income in the real
estate segment for the three and nine months ended March 31,
2018.
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
were 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 $2,094 and $1,944 as at March 31, 2018 and June 30,
2017, respectively. The carrying value of these investment
properties in China was RMB 7,748 and RMB 8,242, or approximately
$1,231 and $1,216 as at March 31, 2018 and June 30, 2017,
respectively.
For the three and nine
months ended March 31, 2018,
these properties generated a
total rental income of $34 and $110, respectively, as compared to
$37 and $115, respectively, for the same periods of the last fiscal
year. 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 and nine months ended March 31, 2018, and 2017.
“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
5, plus the interest receivable on
long term loan
receivable of RMB 1,250;
b)
Commercial
units
measuring 668
square meters, as mentioned above; and
c)
RMB 5,900
f
or the part of the
unrecognized cash consideration of RMB 8,000 relating to the
disposal of the joint venture.
The
consideration does not include the remaining outstanding amount of
RMB 2,000, or approximately $326, which will be paid to TTCQ in
cash.
The
shop lots are to be delivered to TTCQ upon completion of the
construction of the shop lots in the Singapore Themed Resort
Project. The initial targeted date of completion was December 31,
2016. Based on discussions with the developers, the completion date
is estimated to be December 31, 2019.
The
share transfer (10% interest in the joint venture) was registered
with the relevant authorities in China 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 is continuing and will continue in
fiscal 2019, when the operational and financial systems in our
Malaysia operation will be substantially transitioned to the new
system.
As a phased implementation of this system occurs, we are
experiencing certain changes to our processes and procedures which,
in turn, result in changes to our internal control over financial
reporting. While we expect the new ERP system to strengthen our
internal financial controls by automating certain manual processes
and standardizing business processes and reporting across our
organization, management will continue to evaluate and monitor our
internal controls as processes and procedures in each of the
affected areas evolve. 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 Three Months Ended March 31, 2018 and March 31,
2017
The following table sets forth certain consolidated statements of
income data as a percentage of revenue for the three months ended
March 31, 2018 and 2017, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
100.0
%
|
100.0
%
|
|
Cost
of sales
|
77.9
|
75.1
|
|
Gross Margin
|
22.1
%
|
24.9
%
|
|
Operating
expenses
|
|
|
|
General
and administrative
|
17.5
%
|
16.9
%
|
|
Selling
|
1.8
|
2.3
|
|
Research
and development
|
0.7
|
0.5
|
|
(Gain)
/ Loss on disposal of property, plant and equipment
|
(0.3
)
|
0.3
|
|
Total
operating expenses
|
19.7
%
|
20.0
%
|
|
Income from Operations
|
2.4
%
|
4.9
%
|
Overall Gross Margin
Overall gross margin as a percentage of revenue decreased by 2.8%
to 22.1% for the three months ended March 31, 2018, from24.9% in
the same period of the last fiscal year. In terms of absolute
dollar amounts, gross profits decreased by $215 to $2,232 for the
three months ended March 31, 2018, from $2,447 as compared to the
same period of the last fiscal year. There was a decrease in gross
profit margin, in absolute dollars, across all the
segments.
Gross profit margin as a percentage of revenue in the manufacturing
segment decreased by 1.9% to 19.0% for the three months ended March
31, 2018, from 20.9% in the same period of the last fiscal year.
The decrease in gross margin was due to the change in product mix
of some operations and Singapore operations, where there was an
increase in sales of products that had lower profit margins and a
decrease in sales of products that had higher profit margins as
compared to the same period of last fiscal year. As a result, the
increase in manufacturing revenue was lower than the increase in
cost for the three months ended March 31, 2018, as compared to the
same period last fiscal year. In absolute dollar amounts, gross
profits in the manufacturing segment decreased by $291 to $594 for
the three months ended March 31, 2018 from $885 for the same period
of last fiscal year.
Gross profit margin as a percentage of
revenue in the testing segment decreased by 5.8% to 28.9% for the
three months ended March 31, 2018, from 34.7% in the same period of
the last fiscal year. The decrease in profit margin as a
percentage of revenue was mainly due to a decrease in high margin
testing revenue in Asia operations. Furthermore, there was an
increase in compliance costs in the Malaysia operations which
resulted in an increase in the cost of sales. In absolute dollar
amounts, gross profit in the testing segment increased by $42 to
$1,422 for the three months ended March 31, 2018 from $1,380 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 our products, but also by our
product mix, which changes frequently as a result of changes in
market demand. Gross profit margin as a percentage of revenue in
the distribution segment decreased by 0.6% to 10.4% for the three
months ended March 31, 2018, from 11.0% in the same period of the
last fiscal year. The operations resulting in an decrease in sales
of products that had higher profit margin and an increase in sales
of products that had lower profit margin, 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
March 31, 2018 was $212, an increase of $38 as compared to $174 in
the same period of last fiscal year.
Gross profit margin as a percentage of revenue in the real estate
segment was 11.8% for the three months ended March 31, 2018, as
compared to 21.6% in the same period of the last fiscal year. In
absolute dollar amounts, gross profit in the real estate segment
for the three months ended March 31, 2018 was $4, a decrease of
$4 from $8 in the same period of last fiscal
year. The decrease was primarily due to a decrease in
rental income from the MaoYe and Fu Li investment property, as
compared to the same period in the last fiscal year.
Operating Expenses
Operating expenses for the three months ended March 31, 2018 and
2017 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
General
and administrative
|
$
1,773
|
$
1,659
|
|
Selling
|
181
|
222
|
|
Research
and development
|
75
|
51
|
|
(Gain)
/ Loss on disposal of property, plant and equipment
|
(31
)
|
30
|
|
Total
|
$
1,998
|
$
1,962
|
General and administrative expenses increased by $114, or 6.9%,
from $1,659 to $1,773 for the three months ended March 31, 2018
compared to the same period of last fiscal year. The increase in
the general and administrative expenses was mainly attributable to
the U.S., Malaysia and Tianjin, China operations, which was
partially offset by the decrease in the Singapore
operations.
The increase in general and administrative expenses was primarily
due to the increase in payroll related expenses in the U.S.,
Malaysia and staff welfare expenses in China operations. This
increase was partially offset by a decrease in the Singapore
operations as a result of lower payroll and bonus in the three
months ended March 31, 2018 as compared to the same period of last
fiscal year.
Selling expenses decreased by $41 or 18.5%, for the three months
ended March 31, 2018, from $222 to $181, as compared to the same
period of the last fiscal year. The decrease was mainly due to a
decrease in commission expenses in the Singapore operations in the
three months ended March 31, 2018 as compared to the same period of
last fiscal year.
Research and development expenses increased by $24, for the three
months ended March 31, 2018, from $51 to $75, as compared to the
same period of the last fiscal year. The increase was mainly
attributable to the increase of Singapore manufacturing
operations.
Gain
on disposal of property, plant and equipment for the three months
ended March 31, 2018, was $31 as compared to loss on disposal of
property, plant and equipment of $30 for the same period of the
last fiscal year. The change was mainly attributable to the gain on
disposal of property, plant and equipment in Malaysia testing
operations.
Income from Operations
Income from operations was $234 for the three months ended March
31, 2018, as compared to $485 for the same period of last fiscal
year. The decrease was mainly due to the decrease in gross profit
margin as discussed earlier.
Interest Expense
Interest expense for the third quarter of fiscal years 2018 and
2017 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Interest expense
|
$
64
|
$
43
|
Interest expense increased by $21 to $64 from $43 for the three
months ended March 31, 2018. The increase was due to higher bank
loan payable for the three months ended March 31,2018, which was
$1,969 as compared to 1,812 for the same period in prior
year.
Other Income
Other income for the three months ended March 31, 2018 and 2017
were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Interest
income
|
$
19
|
$
14
|
|
Other
rental income
|
28
|
24
|
|
Exchange
loss
|
(5
)
|
(88
)
|
|
Other
miscellaneous income
|
69
|
95
|
|
Total
|
$
111
|
$
45
|
Other income for the three months ended March 31, 2018 was $111, an
increase of $66 as compared to $45 for the same period last fiscal
year. This increase was mainly attributable to decrease of $83 in
foreign exchange loss .Foreign exchange loss of for the three
months ended March 31, 2018 was $5 as compared to a loss of $88 for
the same period in last fiscal year.
Income Tax Expenses
Income tax expenses for the three months ended March 31, 2018 were
$980, an increase of 874 as compared to $106 for the same period of
last fiscal year. The increase in income tax expenses was mainly
due to the provision of tax expenses
effect of the Tax Cuts
and Jobs Act which requires a mandatory one-time repatriation of
certain post-1986 earnings and profits that were deferred from US
taxation by Company’s foreign subsidiaries and partially
offset by the decrease in withholding tax payment by the Singapore
operation.
Non-controlling Interest
As of March 31, 2018, we held a 55% interest in Trio-Tech
(Malaysia) Sdn. Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI
International Pte. Ltd. and PTSHI Indonesia, and a 76% interest in
Prestal Enterprise Sdn. Bhd. The non-controlling interest for the
three months ended March 31, 2018, in the net income of
subsidiaries was $34, compared to $30 for the same period of the
previous fiscal year. The increase in the non-controlling
interest in the net income of subsidiaries was attributable to the
increase in net income generated by the Malaysia manufacturing and
testing operation compared to the same period in the last fiscal
year.
Net (Loss) / Income
Net loss was $739 for the three months
ended March 31, 2018, as compared to net income of $350 for the
three months ended March 31, 2018. The change in net income was
mainly due to the provision for tax expenses of $980, due to
the
effect of the Tax Cuts and Jobs Act and also decrease in
gross profit margin, as discussed
earlier.
Loss per Share
Basic loss per share from continuing operations was $0.21 for the
three months ended March 31, 2018 as compared to earnings per share
of $0.10 for the same period in the last fiscal year. Basic
earnings per share from discontinued operations were nil for both
the three months ended March 31, 2018 and 2017.
Diluted loss per share from continuing operations was $0.20 for the
three months ended March 31, 2018 as compared to earnings per share
of $0.10 for the same period in the last fiscal year. Diluted
earnings per share from discontinued operations were nil for both
the three months ended March 31, 2018 and 2017.
Segment Information
The revenue, gross margin and income from each segment for the
third quarter of fiscal years 2018 and 2017, respectively, are
presented below. As the revenue and gross margin for each segment
have been discussed in the previous section, only the comparison of
income 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 March 31,
2018 and 2017 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$
3,124
|
$
4,230
|
|
Gross margin
|
19.0
%
|
20.9
%
|
|
(Loss) / Income from operations
|
$
(105
)
|
$
169
|
Loss from operations in the manufacturing segment was $105 for
the three months ended March 31, 2018, as compared to a gain of
$169 in the same period of the last fiscal year. The decline of
$274 was primarily due to a lower demand from our major customer
and also different product mix which decreased our gross profit
margin. Furthermore, the decrease in operating expenses are lower
than the decrease in gross profit, resulting in a loss from
operations. Operating expenses for the manufacturing segment were
$699 and $716 for the three months ended March 31, 2018 and 2017,
respectively. The decrease in operating expenses was
mainly due to a decrease in selling expenses of $43, which was
partially offset by an increase in general and administrative of
$11, increase in corporate overhead by $12 and research and
development cost of $3, as compared to the same period of last
fiscal year. The decrease in selling expenses was primarily due to
a lower agent commission expenses as the commissionable revenue
decreased in Singapore operations. The increase in general and
administrative expenses was due to an increase in payroll related
expenses in U.S. operations. The increase in corporate overhead
expenses was due to a change in the corporate overhead allocation
method as compared to the same period last fiscal year. 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 March 31, 2018 and 2017
were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$
4,913
|
$
3,977
|
|
Gross margin
|
28.9
%
|
34.7
%
|
|
Income from operations
|
$
428
|
$
200
|
Income from operations in the testing segment for the three months
ended March 31, 2018 was $428, an increase of $228 compared to $200
in the same period of last fiscal year. The increase in operating
income was mainly attributable to an increase of $42 in gross
margin and a decrease of $186 in operating expenses. Operating
expenses were $994 and $1,180 for the three months ended March 31,
2018 and 2017, respectively. The decrease in operating expenses was
mainly attributable to a decrease in corporate overhead expenses by
$264 and increase in gain from disposal of fixed assets by $61,
which was partially offset by an increase in general and
administrative expenses by $117 and research and development cost
by $21. The increase in general and administrative expenses was due
to a revision in the method of allocation of payroll related
expenses between segments in the Singapore operations and payroll
related expenses in the China operations. The decrease in corporate
overhead expenses was due to a change in the corporate overhead
allocation method as compared to the same period last fiscal year.
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 March 31, 2018 and
2017 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$
2,033
|
$
1,581
|
|
Gross margin
|
10.4
%
|
11.0
%
|
|
Income from operations
|
$
117
|
$
101
|
Income from operations in the distribution segment increased by $16
to $117 for the three months ended March 31, 2018, as compared to
$101 in the same period of last fiscal year. The increase in
operating income was primarily due to an increase in gross margin
by $38 as discussed earlier, which was partially offset by an
increase in operating expenses of $22. Operating expenses were $95
and $73 for the three months ended March 31, 2018 and 2017,
respectively.
Real Estate Segment
The revenue, gross margin and loss from operations for the real
estate segment for the three months ended March 31, 2018 and 2017
were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$
34
|
$
37
|
|
Gross margin
|
11.8
%
|
21.6
%
|
|
Loss from operations
|
$
(18
)
|
$
(14
)
|
Loss from operations in the real estate segment for the three
months ended March 31, 2018 was $18, as compared to loss of $14 for
the same period of the last fiscal year. The increase in
operating loss was mainly due to a decrease in gross margin as
discussed earlier.
Corporate
The (loss) / income from operations for corporate for the three
months ended March 31, 2018 and 2017 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Loss) / income from operations
|
$
(188
)
|
$
29
|
Corporate operating loss for the three months ended March 31, 2018
was 188 as compared to income of $29 in the same period of the last
fiscal year. The change from an operating income to an
operating loss was mainly attributable to the change in
corporate overhead allocation
method
during the three months ended March 31, 2018,
as compared to the same period last
fiscal year.
Comparison of the Nine Months Ended March 31, 2018 and March 31,
2017
The following table sets forth certain consolidated statements of
income data as a percentage of revenue for the nine months ended
March 31, 2018 and 2017, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
100.0
%
|
100.0
%
|
|
Cost
of sales
|
75.4
|
74.6
|
|
Gross Margin
|
24.6
%
|
25.5
%
|
|
Operating
expenses:
|
|
|
|
General
and administrative
|
16.9
%
|
18.6
%
|
|
Selling
|
1.9
|
2.1
|
|
Research
and development
|
1.2
|
0.6
|
|
(Gain)/Loss
on sale of property, plant & equipment
|
(0.1
)
|
0.1
|
|
Total
operating expenses
|
19.9
%
|
21.4
%
|
|
Income from Operations
|
4.7
%
|
4.1
%
|
Overall Gross Margin
Overall gross margin as a percentage of revenue decreased by 0.9%
to 24.6% for the nine months ended March 31, 2018, from 25.5% in
the same period of last fiscal year, primarily due to a decrease in
the gross profit margin in the testing and real estate segments,
which was partially offset by an increase in the gross profit
margin in the manufacturing and distribution segments. In terms of
absolute dollar amounts, gross profits increased by $688 to $7,787
for the nine months ended March 31, 2018, from $7,099 for the same
period of the last fiscal year.
Gross profit margin as a percentage of revenue in the manufacturing
segment increased by 0.2% to 22.1% for the nine months ended March
31, 2018, from 21.9% in the same period of the last fiscal year. In
absolute dollar amounts, gross profit increased by $157 to $2,616
for the nine months ended March 31, 2018 as compared to $2,459 for
the same period in last fiscal year. The increase in absolute
dollar amount of gross margin was primarily due to the change in
product mix of some operations, where there was an increase in
sales of products that had higher profit margins and a decrease in
sales of products that had lower profit margins as compared to the
same period of last fiscal year. As a result, the increase in
manufacturing revenue was higher than the increase in cost for the
nine months ended March 31, 2018, as compared to the same period
last fiscal year.
Gross profit margin as a percentage of revenue in the testing
segment decreased by 2.3% to 31.6% for the nine months ended March
31, 2018 from 33.9% in the same period of the last fiscal
year. The decrease in profit margin as a percentage of revenue
was mainly due to a decrease in high margin testing revenue in Asia
operations. Furthermore, there was an increase in compliance costs
in the Malaysia operations which increased in the cost of sales. As
significant portions of our cost of goods sold are fixed for
testing segment, gross profit is impacted when demand from testing
customer slow down for some operations. In terms of absolute dollar
amounts, gross profit in the testing segment increased by $438 to
$4,573 for the nine months ended March 31, 2018, from $4,135 for
the same
period of the last fiscal
year.
Gross profit margin as a percentage of
revenue in the distribution segment increased by 0.5% to 11.1% for
the nine months ended March 31, 2018, from 10.6% in the same period
of the last fiscal year. In terms of absolute dollar amounts,
gross profit in the distribution segment for the nine months ended
March 31, 2018 was $577, an increase of $116 as compared to $461 in
the same period of the last fiscal year. The increase in gross
margin was due to the change in product mix, as this segment had
fewer sales of products with a lower profit margin as compared to
the same period of last fiscal year. The gross profit margin
of the distribution segment was not only affected by the market
price of our products, but also our product mix, which changes
frequently as a result of changes in market
demand
.
Gross
profit margin as a percentage of revenue in the real estate segment
decreased by 19.2% to 19.1% for the nine months ended March 31,
2018, from 38.3% in the same period of the last fiscal year. In
terms of absolute dollar amounts, gross profit decreased by $23 to
$21 for the nine months ended March 31, 2018 as compared to $44 for
the same period in last fiscal year. The decrease
was due to the a reversal of overprovision for
taxes in the nine months ended Mar 31, 2017 while there was none in
the same period this fiscal year and also decrease in rental income
from both investment properties, MaoYe and FuLi, as compared to the
same period in the last fiscal year.
Operating Expenses
Operating expenses for the nine months ended March 31, 2018 and
2017 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
General
and administrative
|
$
5,339
|
$
5,178
|
|
Selling
|
612
|
587
|
|
Research
and development
|
377
|
156
|
|
(Gain)/
Loss on disposal of property, plant and equipment
|
(20
)
|
38
|
|
Total
|
$
6,308
|
$
5,959
|
General and administrative expenses increased by $161, or 3.1%,
from $5,178 to $5,339 for the nine months ended March 31, 2018
compared to the same period of the last fiscal year. There was an
increase in general and administrative expenses in the U.S. and
Tianjin, China operations, which was partially offset by the
decrease in general and administrative expenses in all other
operations.
The increase in general and administrative expenses was primarily
due to the increase in payroll related expenses in the U.S. and
China operations and also increase in staff welfare expenses in
China operations. This increase was partially offset mainly by a
decrease in payroll related expenses in the Singapore operations
for the nine months ended March 31, 2018, as compared to the same
period of last fiscal year.
Selling expenses increased by $25, or 4.3%, for the nine months
ended March 31, 2018, from $587 to $612 compared to the same period
of the last fiscal year. The increase was mainly due to an increase
in commission expenses in the U.S. and Singapore operations as the
commissionable revenue increased as compared to the same period of
last fiscal year.
Research and development expenses increased by $221, for the nine
months ended March 31, 2018, from $156 to $377, as compared to the
same period of the last fiscal year. The increase was mainly
attributable to the increase of Singapore operations and partially
offset by the decrease in U.S. operations.
Gain on disposal of property, plant and equipment for the nine
months was $20 as compared to a loss on disposal of property, plant
& equipment of $38, for the same period of the last fiscal
year. The change was mainly attributable to the gain on disposal of
property, plant and equipment from Malaysia
operations.
Income from Operations
Income from operations was $1,479 for the nine months ended March
31, 2018 as compared to $1,140 for the same period of the last
fiscal year. The increase was mainly due to the increase in gross
profit margin being greater than the increase in operating
expenses, as discussed earlier.
Interest Expense
Interest expense for the nine months ended March 31, 2018 and 2017
were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Interest expense
|
$
174
|
$
149
|
Interest expense increased by $25 to $174 from $149 for the nine
months ended March 31, 2018 as compared to the same period of the
last fiscal year. The increase is due to higher bank
loan.
Other Income
Other income for the nine months ended March 31, 2018 and 2017 were
as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Interest
income
|
$
39
|
$
26
|
|
Other
rental income
|
81
|
74
|
|
Exchange
(loss)/ gain
|
(26
)
|
94
|
|
Other
miscellaneous income
|
217
|
164
|
|
Total
|
$
311
|
$
358
|
Other income for
the nine months ended March 31, 2018 was $311, a decrease of $47 as
compared to $358 for the same period last fiscal year. This
decrease was mainly attributable to decrease of foreign exchange
gain. Foreign exchange loss of $26 for the nine months ended March
31, 2018 as compared to and exchange gain of $94 for the same
period last fiscal year and also a non-recurring reimbursement
income.
Income Tax Expenses
Income tax expense for the nine months ended March 31, 2018 was
$1,035, an increase of $779, as compared to $256 for the same
period of last fiscal year. The increase in income tax expenses was
mainly due to the provision of tax expenses
effect of the
Tax Cuts and Jobs Act which requires a mandatory one-time
repatriation of certain post-1986 earnings and profits that were
deferred from US taxation by Company’s foreign subsidiaries
and partially offset by the
decrease
in the withholding tax payment by the Singapore
operation
.
Non-controlling Interest
As of March 31, 2018, we held a 55% interest in Trio-Tech Malaysia,
Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd. and
PTSHI Indonesia, and a 76% interest in Prestal Enterprise Sdn. Bhd.
The net income attributable to our non-controlling interest in
these subsidiaries for the nine months ended March 31, 2018 was
$61, a decrease of $65, as compared to $126 for the same period of
last fiscal year. The decrease was attributable to the
decrease in net income generated by the Malaysia testing operations
due to a decrease in gross profit margin and other income as
compared to the same period in the last fiscal year
Loss from Discontinued Operations
Loss from discontinued operations was $11 for the nine months ended
March 31, 2018, an increase of $4 as compared to a loss of $7 for
the same period of the last fiscal year.
Net Income
Net income was $570 for the nine months ended March 31, 2018,
decrease of $519, as compared to a net income of $1,089 for the
same period in the last fiscal year. The decrease was mainly due to
the provision of tax expenses
of $900 effect of the Tax Cuts
and Jobs Act
and offset by the
increase in operating income as discussed
earlier.
Earnings per Share
Basic earnings per share from continuing operations was $0.15 for
the nine months ended March 31, 2018 as compared to $0.28 for the
same period in the last fiscal year. Basic earnings per share from
discontinued operations were nil for both the nine months ended
March 31, 2018 and 2017.
Diluted earnings per share from continuing operations was $0.14 for
the nine months ended March 31, 2018 as compared to $0.27 for the
same period in the last fiscal year. Diluted earnings per share
from discontinued operations were nil for both the nine months
ended March 31, 2018 and 2017.
Segment Information
The revenue, gross profit margin, and income or loss from each
segment for the nine months ended March 31, 2018 and 2017,
respectively, are presented below. As the segment
revenue and gross margin for each segment have been discussed in
the previous section, only the comparison of income from operations
is discussed below.
Manufacturing Segment
The revenue, gross margin and income or loss from operations for
the manufacturing segment for the nine months ended March 31, 2018
and 2017 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$
11,862
|
$
11,221
|
|
Gross margin
|
22.1
%
|
21.9
%
|
|
Income / (loss) from operations
|
$
188
|
$
(153
)
|
Income
from operations from the manufacturing segment was $188 for
the nine months ended March 31, 2018, an improvement of $341 as
compared to a loss of $153 in the same period of the last fiscal
year, due to an increase of gross profit margin by $157 and
decrease in operating expenses by $184. Operating expenses for the
manufacturing segment were $2,428 and $2,612 for the nine months
ended March 31, 2018 and 2017, respectively. The decrease in
operating expenses of $184 was mainly due to a decrease in general
and administrative expenses of $626, which was partially offset by
an increase in corporate overhead of $281, and increase in research
and development expenses of $163 as compared to the same period of
last fiscal year. The decrease in general and administrative
expenses was primarily due to a revision in the method of
allocation of payroll related expenses between segments in the
Singapore operations and lower of software license fees in the
Singapore operations.
Testing Segment
The revenue, gross margin and income from operations for the
testing segment for the nine months ended March 31, 2018 and 2017
were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$
14,454
|
$
12,204
|
|
Gross margin
|
31.6
%
|
33.9
%
|
|
Income from operations
|
$
1,281
|
$
990
|
Income
from operations in the testing segment for the nine months ended
March 31, 2018 was $1,281, an increase of $291 compared to $990 in
the same period of the last fiscal year. The increase in
operating income was attributable to an increase in gross profit of
$438 and increase of operating expenses of $147. Operating
expenses were $3,292 and $3,145 for the nine months ended March 31,
2018 and 2017, respectively. The increase in operating expenses was
mainly attributable to an increase in general and administrative
expenses of $638 which was partially offset by a decrease in
corporate overhead of $514.The increase in general and
administrative expenses was due to a revision in the method of
allocating payroll related expenses between segments in the
Singapore operations and an increase in payroll related expenses in
the Tianjin, China operations. The decrease in corporate overhead
expenses was due to a change in the corporate overhead allocation
method as compared to the same period last fiscal year. 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 nine months ended March 31, 2018 and
2017 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$
5,175
|
$
4,360
|
|
Gross margin
|
11.1
%
|
10.6
%
|
|
Income from operations
|
$
337
|
$
235
|
Income
from operations in the distribution segment for the nine months
ended March 31, 2018 was $337, an increase of $102 as compared to
$235 in the same period of the last fiscal year. The increase
in operating income was primarily due to an increase in gross
profit margin of $116 which were partially offset by an increase in
operating expenses of $14. Operating expenses were $240 and $226
for the nine months ended March 31, 2018 and 2017,
respectively.
Real Estate Segment
The revenue, gross margin and loss from operations for the real
estate segment for the nine months ended March 31, 2018 and 2017
were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$
110
|
$
115
|
|
Gross margin
|
19.1
%
|
38.3
%
|
|
Loss from operations
|
$
(38
)
|
$
(20
)
|
Loss from operations in the real estate segment for the nine months
ended March 31, 2018 was $38, an increase of $18 as compared to a
loss of $20 for the same period of the last fiscal
year. The increase in operating loss was mainly due to
an increase in gross loss of $23 and decrease of operating expenses
of $5, as discussed earlier. Operating expenses were $59 and $64
for the nine months ended March 31, 2018 and 2017,
respectively.
Corporate
The (loss)/ gain from operations for corporate for the nine months
ended March 31, 2018 and 2017 were as
follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Loss) / income from operations
|
$
(289
)
|
$
88
|
Operating loss in the corporate office for the nine months ended
March 31, 2018 was $289, representing a change of $377, as compared
to an income of $88 for the same period of the last fiscal
year. The change from an operating income to an
operating loss was mainly attributable to a
different
corporate overhead allocation
method
during the nine months ended March 31, 2018,
as compared to the same period last
fiscal year.
Financial Condition
During the nine months ended March 31, 2018 total assets increased
by $2,890 from $33,498 as at June 30, 2017 to $36,388. The increase
in total assets was primarily due to an increase in cash and cash
equivalents, inventory, deferred tax assets, property, plant and
equipment, other assets, and restricted term deposits, which were
partially offset by a decrease in short term deposits, trade
accounts receivable, other receivables and prepaid
expenses.
Cash and cash equivalents were $5,376 as at March 31, 2018,
reflecting an increase of $604 from $4,772 as at June 30, 2017,
mainly due to uplift of short-term deposit in the Malaysia
operation. This increase was partially offset by the decrease in
utilization of credit facilities in our Singapore
operation.
Short-term
deposits were $678 as at March 31, 2018, reflecting a decrease of
$109 from $787 as at June 30, 2017, primarily due to uplift of
short-term deposit in the Malaysia
operation.
As at
March 31, 2018, the trade accounts receivable balance decreased by
$392 to $8,617 from $9,009 as at June 30, 2017, mainly due to
shorter collection cycles in the Singapore operations and foreign
currency exchange difference between the functional currency and
U.S. dollars for the nine months ended March 31, 2018. The number
of days’ sales outstanding in accounts receivables was 75 and
83 days at the end of the third quarter of fiscal year 2018 and for
the fiscal year ended 2017, respectively.
As at
March 31, 2018, other receivables were $392, reflecting a decrease
of $9 from $401 as at June 30, 2017. The decrease was primarily due
to decrease of input tax in Singapore operations and offset by
increase of tax incentives in the China operations in the third
quarter of fiscal year 2018.
Inventories as at March 31, 2018 were $2,369, reflecting an
increase of $613, 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 $219 as at March 31, 2018 compared to $226 as
at June 30, 2017. The decrease of $7 was primarily due to
capitalization of fixed asset in Malaysia operation and partially
offset by increase of insurance and software related
prepayment.
Property, plant and equipment, net increased by $1,590 from $11,291
as at June 30, 2017, to $12,881 as at March 31, 2018, mainly due to
higher capital expenditure in the Singapore, Malaysia and Tianjin,
China operations and a foreign currency exchange difference between
the functional currency and U.S. dollars for the nine months ended
March 31, 2018.
Other assets increased by $393 to $2,315 as at March 31, 2018, as
compared to $1,922 as at June 30, 2017. This was mainly due to
increase of down payment of assets from June 30, 2017 to March 31,
2018.
Restricted term deposits increased by $104 to $1,761 as at March
31, 2018, as compared to $1,657 as at June 30, 2017. This was
primarily due to the foreign currency exchange difference between
functional currency and U.S. dollars from June 30, 2017 to March
31, 2018.
Utilized lines of credit decreased by $1,245 to $1,311 as at March
31, 2018 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 decreased by $1,130 to $2,099 as at March 31,
2018, as compared to $3,229 as at June 30, 2017. This was mainly
due to the foreign currency exchange difference between the
functional currency and U.S. dollars for the nine months ended
March 31, 2018.
Accrued expenses increased by $1,605 to $4,648 as at March 31,
2018, 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 and Tianjin, China operations.
Bank loans payable increased by $157 to $1,969 as at March 31,
2018, 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 increased by $115 to $874 as at March 31, 2018, as
compared to $759 as at June 30, 2017. This was due to new capital
leases in the Malaysia operations, partially offset by repayment of
capital leases by the Singapore operations.
Liquidity Comparison
Net
cash provided by operating activities increased by $109 to $3,122
for the nine months ended March 31, 2018, compared to $3,013 during
the same period of the last fiscal year. The increase in net cash
generated by operating activities was primarily due to increase in
cash inflow of $223 in inventories and increase of provision of tax
payable of 901. These were partially offset by a decrease in cash
inflow from other receivable of $277, account payable and accrued
expenses of $ 241 and other assets of $128.
Net
cash used in investing activities increased by $488 to $1,805 for
the nine months ended March 31, 2018, compared to $1,317 during the
same period of the last fiscal year. The increase was
primarily due to $583 in capital spending. This increase in net
cash used in investing activities was partially offset by the $140
increase in proceeds from maturing of restricted and unrestricted
deposits.
Net
cash used in financing activities increased by $410 to $1,455 for
the nine months ended March 31, 2018, compared to $1,045 during the
same period of the last fiscal year. The increase was mainly due to
an increase in repayment for lines of credit of $1,226, which was
partially offset by an increase in cash generated through
borrowings from bank loans and capital leases in repayment of
$720.
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, except as 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.