Business Segment Information:
|
Three Months Ended
Mar. 31,
|
|
Operating
Income / (Loss)
|
|
|
|
|
|
$2,519
|
(102)
|
9,871
|
101
|
89
|
|
2019
|
$3,097
|
$(8)
|
$9,205
|
$30
|
$39
|
|
|
|
|
|
|
|
|
2020
|
3,741
|
(447)
|
22,332
|
655
|
15
|
|
2019
|
3,989
|
(17)
|
22,842
|
588
|
239
|
|
|
|
|
|
|
|
|
2020
|
2,225
|
207
|
869
|
1
|
-
|
|
2019
|
1,727
|
150
|
780
|
-
|
-
|
|
|
|
|
|
|
|
|
2020
|
16
|
(30)
|
3,584
|
17
|
|
|
2019
|
25
|
(13)
|
3,914
|
14
|
-
|
|
|
|
|
|
|
|
|
2020
|
-
|
-
|
23
|
-
|
-
|
|
2019
|
-
|
-
|
26
|
-
|
-
|
|
|
|
|
|
|
|
|
2020
|
-
|
5
|
117
|
-
|
-
|
|
2019
|
-
|
11
|
233
|
-
|
-
|
|
|
|
|
|
|
|
|
|
$8,501
|
$(367)
|
$36,796
|
$774
|
$104
|
|
|
$8,838
|
$123
|
$37,000
|
$632
|
$278
|
* Fabrication services is a discontinued operation.
16. OTHER
INCOME
Other income consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
46
|
31
|
130
|
67
|
Other
rental income
|
30
|
28
|
90
|
84
|
Government
grant
|
266
|
38
|
295
|
115
|
Exchange
loss
|
94
|
(11)
|
33
|
(78)
|
Bad
debt recovery
|
-
|
-
|
11
|
2
|
Other
miscellaneous income
|
4
|
42
|
31
|
30
|
Total
|
$440
|
$128
|
$590
|
$220
|
During
the third quarter of fiscal year 2020, the Company received
government grants amounting to $266, of which $263 were the
financial assistance received from the Singapore and China
governments amid the COVID-19 pandemic. The Company believes that,
as with other business entities in Singapore and China, it will
receive additional government assistance for a period to ease the
financial impact caused by the pandemic.
17. INCOME TAX
The
Company is subject to income taxes in the U.S. and numerous foreign
jurisdictions. Significant judgment is required in determining the
provision for income taxes and income tax assets and liabilities,
including evaluating uncertainties in the application of accounting
principles and complex tax laws. The statute of limitations, in
general, is open for years 2014 to 2019 for tax authorities in
those jurisdictions to audit or examine income tax returns. The
Company is under annual review by the tax authorities of the
respective jurisdiction to which the subsidiaries
belong.
The Tax
Cuts and Jobs Act (the “Tax Act”) was enacted on
December 22, 2017, and reduced the U.S. federal corporate tax rate
from 35% to 21%, eliminated corporate Alternative Minimum Tax,
modified rules for expensing capital investment, and limited the
deduction of interest expense for certain companies. The Act is a
fundamental change to the taxation of multinational companies,
including a shift from a system of worldwide taxation with some
deferral elements to a territorial system, current taxation of
certain foreign income, a minimum tax on low tax foreign earnings,
and new measures to curtail base erosion and promote U.S.
production.
Due to
the enactment of the Tax Act, the Company is subject to a tax on
global intangible low-taxed income
(“GILTI”). GILTI is a tax on foreign income in
excess of a deemed return on tangible assets of foreign
corporations. Companies subject to GILTI have the option to account
for the GILTI tax as a period cost if and when incurred, or to
recognize deferred taxes for temporary differences including
outside basis differences expected to reverse as GILTI. The Company
has elected to account for GILTI as a period cost.
The
Company's income tax benefit was $8 for the three months ended
March 31, 2020 as compared to an income tax expense of $209 for the
same period of the last fiscal year. Our effective tax rate
(“ETR”) from continuing operations was negative 80% and
24% for the quarters ended March 31, 2020 and March 31, 2019,
respectively. The following items caused the significant change in
the quarterly ETR:
1).
During
the
three months ended March 31, 2019, the Company recorded a capital
gain tax arising from sales of Maoye properties.
2).
During
the
three months ended March 31, 2020, the Company recorded a tax
reversal of $70 due to reversal of provision for the GILTI tax. The
Company incurred taxable loss from the adverse impact from
COVID-19.
The
Company accrues penalties and interest related to unrecognized tax
benefits when necessary as a component of penalties and interest
expenses, respectively. The Company had no unrecognized tax
benefits or related accrued penalties or interest expenses at March
31, 2020.
In
assessing the ability to realize the deferred tax assets,
management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which
those temporary differences become deductible. Management considers
the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. Based on these criteria, management believes it is more
likely than not the Company will not realize the benefits of the
federal, state, and foreign deductible differences. Accordingly, a
full valuation allowance has been established.
18. CONTRACT BALANCES
The
timing of revenue recognition, billings and collections may result
in billed accounts receivable, unbilled receivables (contract
assets), and customer advances and deposits (contract liabilities).
The Company’s payment terms and conditions vary by contract
type, although terms generally include a requirement of payment of
70% to 90% of total contract consideration within 30 to 60 days of
shipment, with the remainder payable within 30 days of acceptance.
In instances where the timing of revenue recognition differs from
the timing of invoicing, the Company has determined that its
contracts generally do not include a significant financing
component.
Contract assets were recorded under other receivables while
contract liabilities were recorded under accrued expenses in the
balance sheet.
The
following table is the reconciliation of contract
balances.
|
|
|
Trade
Accounts Receivable
|
6,397
|
7,113
|
Accounts
Payable
|
3,129
|
3,272
|
Contract
Assets
|
392
|
419
|
Contract
Liabilities
|
646
|
501
|
Remaining Performance Obligation
As at March 31, 2020, the Company had $826 of remaining performance
obligations, which represents our obligation to deliver products
and services. Given the profile
of contract terms, approximately 53.3 percent of this amount is
expected to be recognized as revenue over the next two years, while
the remaining amount is expected to be recognized between three and
five years.
Refer to note 15 “Business Segments” of the
Notes to Condensed Consolidated Financial Statements for information related to
revenue.
19. EARNINGS PER SHARE
In accordance with ASC Topic 260, Earnings Per Share,
Basic Earnings Per Share
(“EPS”) is computed by dividing net income available to
common shareholders (numerator) by the weighted average number of
common shares outstanding (denominator) during the
period. Diluted EPS give effect to all dilutive potential
common shares outstanding during a period. In computing
diluted EPS, the average price for the period is used in
determining the number of shares assumed to be purchased from the
exercise of stock options and warrants.
Options
to purchase 763,500 shares of Common Stock at exercise prices
ranging from $2.53 to $5.98 per share were outstanding as of March
31, 2020. 212,500 stock options were excluded in the computation of
diluted EPS for fiscal year 2020 because they were
anti-dilutive.
Options
to purchase 517,500 shares of Common Stock at exercise prices
ranging from $2.69 to $5.98 per share were outstanding as of March
31, 2019. 110,000 stock options were excluded in the computation of
diluted EPS for fiscal year 2019 because they were
anti-dilutive.
The following table is a reconciliation of the weighted average
shares used in the computation of basic and diluted EPS for the
period presented herein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
attributable to Trio-Tech International common shareholders from
continuing operations, net of tax
|
$81
|
$682
|
$780
|
$1,097
|
(Loss)
/ Income attributable to Trio-Tech International common
shareholders from discontinued operations, net of tax
|
(11)
|
1
|
(11)
|
(1)
|
Net Income Attributable to Trio-Tech International Common
Shareholders
|
$70
|
$683
|
$769
|
$1,096
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic
|
3,673
|
3,673
|
3,673
|
3,673
|
|
|
|
|
|
Dilutive
effect of stock options
|
86
|
12
|
61
|
73
|
Number
of shares used to compute earnings per share - diluted
|
3,759
|
3,685
|
3,734
|
3,746
|
|
|
|
|
|
Basic
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.02
|
0.19
|
0.21
|
0.30
|
Basic earnings
per share from discontinued operations attributable to Trio-Tech
International
|
-
|
-
|
-
|
-
|
Basic Earnings per Share from Net Income Attributable to Trio-Tech
International
|
$0.02
|
$0.19
|
0.21
|
0.30
|
|
|
|
|
|
Diluted
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.02
|
0.19
|
0.21
|
0.29
|
Diluted
earnings per share from discontinued operations attributable to
Trio-Tech International
|
-
|
-
|
$-
|
$-
|
Diluted Earnings per Share from Net Income Attributable to
Trio-Tech International
|
$0.02
|
$0.19
|
0.21
|
0.29
|
20. STOCK OPTIONS
On September 24, 2007, the Company’s Board of Directors
unanimously adopted the 2007 Employee Stock Option Plan (the
“2007 Employee Plan”) and the 2007 Directors Equity
Incentive Plan (the “2007 Directors Plan”), each of
which was approved by the shareholders on December 3, 2007. Each of
those plans was amended during the term of such plan to increase
the number of shares covered thereby. As of the last amendment
thereof, the 2007 Employee Plan covered an aggregate of 600,000
shares of the Company’s Common Stock and the 2007 Directors
Plan covered an aggregate of 500,000 shares of the Company’s
Common Stock. Each of those plans terminated by its respective
terms on September 24, 2017. These two plans were administered by
the Board, which also established the terms of the
awards.
On September 14, 2017, the Company’s Board of Directors
unanimously adopted the 2017 Employee Stock Option Plan (the
“2017 Employee Plan”) and the 2017 Directors Equity
Incentive Plan (the “2017 Directors Plan”), each of
which was approved by the shareholders on December 4, 2017. Each of
these plans is administered by the Board of Directors of the
Company.
Assumptions
The
fair value for the options granted were estimated using the
Black-Scholes option pricing model with the following weighted
average assumptions, assuming no expected dividends:
|
Nine Months Ended
March 31,
|
|
|
|
Expected
volatility
|
|
|
Risk-free interest
rate
|
|
|
Expected life
(years)
|
2.5-3.25
|
2.50 – 3.25
|
The
expected volatilities are based on the historical volatility of the
Company’s stock. Due to higher volatility, the observation is
made on a daily basis for the three months ended March 31, 2020.
The observation period covered is consistent with the expected life
of options. The expected life of the options granted to employees
has been determined utilizing the “simplified” method
as prescribed by ASC Topic 718 Stock Based Compensation, which,
among other provisions, allows companies without access to adequate
historical data about employee exercise behavior to use a
simplified approach for estimating the expected life of a
"plain vanilla" option grant. The simplified rule for estimating
the expected life of such an option is the average of the time to
vesting and the full term of the option. The risk-free rate is
consistent with the expected life of the stock options and is based
on the United States Treasury yield curve in effect at the time of
grant.
2017 Employee Stock Option Plan
The
Company’s 2017 Employee Plan permits the grant of stock
options to its employees covering up to an aggregate of 300,000
shares of Common Stock. Under the 2017 Employee Plan, all options
must be granted with an exercise price of not less than fair value
as of the grant date and the options granted must be exercisable
within a maximum of ten years after the date of grant, or such
lesser period of time as is set forth in the stock option
agreements. The options may be exercisable (a) immediately as of
the effective date of the stock option agreement granting the
option, or (b) in accordance with a schedule related to the date of
the grant of the option, the date of first employment, or such
other date as may be set by the Compensation Committee. Generally,
options granted under the 2017 Employee Plan are exercisable within
five years after the date of grant, and vest over the period as
follows: 25% vesting on the grant date and the remaining balance
vesting in equal installments on the next three succeeding
anniversaries of the grant date. The share-based compensation will
be recognized in terms of the grade method on a straight-line basis
for each separately vesting portion of the award. Certain option
awards provide for accelerated vesting if there is a change in
control (as defined in the 2017 Employee Plan).
During the third quarter of fiscal year 2020, the Company granted
options to purchase 60,000 shares of its Common Stock to employees
pursuant to the 2017 Employee Plan. There were no stock options
exercised during the nine month period ended March 31, 2020. The
Company recognized $28 stock-based compensation expenses during the
nine months ended March 31, 2020.
During the third quarter of fiscal year 2019, the Company granted
options to purchase 16,000 shares of its Common Stock to employees
pursuant to the 2017 Employee Plan. There were no stock options
exercised during the nine-month period ended March 31, 2019. The
Company recognized $11 stock-based compensation expenses during the
nine months ended March 31, 2019.
As of March 31, 2020, there were vested stock options granted under
the 2017 Employee Plan covering a total of 83,000 shares of Common
Stock. The weighted-average exercise price was $4.65 and the
weighted average remaining contractual term was 3.60
years.
As of March 31, 2019, there were vested stock options granted under
the 2017 Employee Plan covering a total of 34,000 shares of Common
Stock. The weighted-average exercise price was $5.72 and the
weighted average remaining contractual term was 4.06
years.
A
summary of option activities under the 2017 Employee Plan during
the nine month period ended March 31, 2020 is presented as
follows:
|
|
Weighted Average
Exercise
Price
|
Weighted Average Remaining
Contractual
Term (Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
Outstanding
at July 1, 2019
|
136,000
|
$4.53
|
4.28
|
$-
|
Granted
|
60,000
|
2.53
|
4.98
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
Outstanding at March 31, 2020
|
196,000
|
$3.91
|
3.97
|
$10
|
Exercisable at March 31, 2020
|
83,000
|
$4.65
|
3.60
|
$2
|
A
summary of the status of the Company’s non-vested employee
stock options granted under the 2017 Employee Plan during the nine
months ended March 31, 2020 is presented below:
|
|
Weighted Average
Grant-Date
Fair
Value
|
|
|
|
Non-vested
at July 1, 2019
|
87,000
|
$4.28
|
Granted
|
60,000
|
2.53
|
Vested
|
(34,000)
|
4.19
|
Forfeited
|
-
|
|
Non-vested
at March 31, 2020
|
113,000
|
$3.37
|
|
|
|
A
summary of option activities under the 2017 Employee Plan during
the nine month period ended March 31, 2019 is presented as
follows:
|
|
Weighted Average
Exercise
Price
|
Weighted Average Remaining
Contractual
Term (Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
Outstanding
at July 1, 2018
|
60,000
|
$5.98
|
4.73
|
$-
|
Granted
|
16,000
|
3.75
|
4.68
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
Outstanding at March 31, 2019
|
76,000
|
5.51
|
4.13
|
-
|
Exercisable at March 31, 2019
|
34,000
|
5.72
|
4.06
|
-
|
A
summary of the status of the Company’s non-vested employee
stock options granted under the 2017 Employee Plan during the nine
months ended March 31, 2019 is presented below:
|
|
Weighted Average
Grant-Date
Fair
Value
|
|
|
|
Non-vested
at July 1, 2018
|
45,000
|
$5.98
|
Granted
|
16,000
|
3.75
|
Vested
|
(19,000)
|
(5.72)
|
Forfeited
|
-
|
-
|
Non-vested
at March 31, 2019
|
42,000
|
$5.34
|
|
|
|
2007 Employee Stock Option Plan
The
2007 Employee Plan terminated by its terms on September 24, 2017
and no further options may be granted thereunder. However, the
options outstanding thereunder continue to remain outstanding and
in effect in accordance with their terms. The 2007 Employee Plan
permitted the issuance of options to employees.
As the
2007 Plan has terminated, the Company did not grant any options
pursuant to the 2007 Employee Plan during the nine months ended
March 31, 2020 and March 31, 2019 respectively.
There were no options exercised during the nine months ended March
31, 2020. There were 50,000 shares of options exercised during the
nine months ended March 31, 2019. The Company did not recognize any
stock-based compensation expenses during the nine months ended
March 31, 2020. The Company recognized stock-based compensation
expenses of $1 in the nine months ended March 31, 2019 under the
Employee Plan.
As of March 31, 2020, there were vested stock options granted under
the 2007 Employee Plan covering a total of 77,500 shares of Common
Stock. The weighted-average exercise price was $3.69 and the
weighted average remaining contractual term was 1.46
years.
As of March 31, 2019, there were vested employee stock options
covering a total of 68,125 shares of Common Stock. The
weighted-average exercise price was $3.62 and the weighted average
contractual term was 2.40 years.
A
summary of option activities under the 2007 Employee Plan during
the nine months ended March 31, 2020 is presented as
follows:
|
|
Weighted Average
Exercise
Price
|
Weighted Average Remaining
Contractual
Term (Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
Outstanding
at July 1, 2019
|
77,500
|
$3.69
|
2.22
|
$-
|
Granted
|
-
|
-
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
Outstanding at March 31, 2020
|
77,500
|
3.69
|
1.46
|
-
|
Exercisable at March 31, 2020
|
77,500
|
$3.69
|
1.46
|
$-
|
A
summary of the status of the Company’s non-vested employee
stock options under the 2007 Employee Plan during the nine months
ended March 31, 2020 is presented below:
|
|
Weighted
Average
Grant-Date
Fair
Value
|
|
|
|
Non-vested
at July 1, 2019
|
9,375
|
$4.14
|
Granted
|
-
|
-
|
Vested
|
(9,375)
|
-
|
Forfeited
|
-
|
-
|
Non-vested
at March 31, 2020
|
-
|
$-
|
|
|
|
A summary of option activities under the 2007 Employee Plan during
the nine months ended March 31, 2019 is presented as
follows:
|
|
Weighted Average
Exercise
Price
|
Weighted Average Remaining
Contractual
Term (Years)
|
Aggregate
Intrinsic
Value
|
Outstanding
at July 1, 2018
|
127,500
|
$3.52
|
2.10
|
$121
|
Granted
|
-
|
-
|
-
|
-
|
Exercised
|
(50,000)
|
3.25
|
-
|
-
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
Outstanding
at March 31, 2019
|
77,500
|
$3.69
|
2.47
|
$-
|
Exercisable
at March 31, 2019
|
68,125
|
$3.62
|
2.40
|
$-
|
A
summary of the status of the Company’s non-vested employee
stock options under the 2007 Employee Plan during the nine months
ended March 31, 2019 is presented below:
|
|
Weighted
Average
Grant-Date
Fair
Value
|
|
|
|
Non-vested
at July 1, 2018
|
28,750
|
$3.83
|
Granted
|
-
|
-
|
Vested
|
(19,375)
|
(4.14)
|
Forfeited
|
-
|
-
|
Non-vested
at March 31, 2019
|
9,375
|
$4.14
|
|
|
|
2017 Directors Equity Incentive Plan
The
2017 Directors Plan permits the grant of options covering up to an
aggregate of 300,000 shares of Common Stock to its directors in the
form of non-qualified options and restricted stock. The exercise
price of the non-qualified options is 100% of the fair value of the
underlying shares on the grant date. The options have five-year
contractual terms and are exercisable immediately as of the grant
date.
During the third quarter of fiscal year 2020, the Company granted
options to purchase 80,000 shares of its Common Stock to directors
pursuant to the 2017 Directors Plan. There were no stock options
exercised during the nine months ended March 31, 2020. The Company
recognized stock-based compensation expenses of $24 in the nine
months ended March 31, 2020 under the 2017 Directors
Plan.
During the first three quarters of fiscal year 2019, the Company
did not grant any options pursuant to the 2017 Directors Plan.
There were no stock options exercised during the nine months ended
March 31, 2019. The Company did not recognize any stock-based
compensation expenses during the nine months ended March 31,
2019.
As all of the stock options granted under the 2017 Directors Plan
vest immediately on the date of grant, there were no unvested stock
options granted under the 2017 Directors Plan as of March 31,
2020.
As of March 31, 2020, there were vested stock options granted under
the 2017 Directors Plan covering a total of 240,000 shares of
Common Stock. The weighted-average exercise price was $3.93 and the
weighted average remaining contractual term was 4
years.
As of March 31, 2019, there were vested stock options granted under
the 2017 Directors Plan covering a total of 80,000 shares of Common
Stock. The weighted-average exercise price was $5.98 and the
weighted average remaining contractual term was 3.98
years.
A
summary of option activities under the 2017 Directors Plan during
the nine months ended March 31, 2020 is presented as
follows:
|
|
Weighted Average
Exercise
Price
|
Weighted Average Remaining
Contractual
Term (Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
Outstanding
at July 1, 2019
|
160,000
|
$4.63
|
4.25
|
$-
|
Granted
|
80,000
|
2.53
|
4.98
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
Outstanding at March 31, 2020
|
240,000
|
$3.93
|
4.00
|
$12.8
|
Exercisable at March 31, 2020
|
240,000
|
$3.93
|
4.00
|
$12.8
|
A
summary of option activities under the 2017 Directors Plan during
the nine months ended March 31, 2019 is presented as
follows:
|
|
Weighted Average
Exercise
Price
|
Weighted Average Remaining
Contractual
Term (Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
Outstanding
at July 1, 2018
|
80,000
|
$5.98
|
4.73
|
$-
|
Granted
|
-
|
-
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
Outstanding at March 31, 2019
|
80,000
|
5.98
|
3.98
|
$-
|
Exercisable at March 31, 2019
|
80,000
|
5.98
|
3.98
|
$-
|
2007 Directors Equity Incentive Plan
The
2007 Directors Plan terminated by its terms on September 24, 2017
and no further options may be granted thereunder. However, the
options outstanding thereunder continue to remain outstanding and
in effect in accordance with their terms. The 2007 Directors Plan
permitted the issuance of options to directors.
As the
2007 Plan has terminated, the Company did not grant any options
pursuant to the 2007 Director Plan during the nine months ended
March 31, 2020 and March 31, 2019.
There were no stock options exercised during the nine months ended
March 31, 2020. The Company did not recognize any stock-based
compensation expenses during the nine months ended March 31,
2020.
There were 70,000 stock options exercised during the nine months
ended March 31, 2019. The Company did not recognize any stock-based
compensation expenses during the nine months ended March 31,
2019.
As of March 31, 2020, there were vested stock options granted under
the 2007 Directors Plan covering a total of 250,000 shares of
Common Stock. The weighted-average exercise price was $3.32 and the
weighted average remaining contractual term was 1.08
years.
As of March 31, 2019, there were vested stock options granted under
the 2007 Directors Plan covering a total of 300,000 shares of
Common Stock. The weighted-average exercise price was $3.40 and the
weighted average remaining contractual term was 1.83
years.
A summary of option activities under the 2007 Directors Plan during
the nine months ended March 31, 2020 is presented as
follows:
|
|
Weighted Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
Outstanding
at July 1, 2019
|
300,000
|
$3.40
|
1.58
|
$9
|
Granted
|
-
|
-
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
Forfeited
or expired
|
(50,000)
|
(3.81)
|
-
|
-
|
Outstanding
at March 31, 2020
|
250,000
|
3.32
|
1.08
|
-
|
Exercisable
at March 31, 2020
|
250,000
|
$3.32
|
1.08
|
$-
|
A summary of option activities under the 2007 Directors Plan during
the nine months ended March 31, 2019 is presented as
follows:
|
|
Weighted Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
Outstanding
at July 1, 2018
|
390,000
|
$3.41
|
2.05
|
$412
|
Granted
|
-
|
-
|
-
|
-
|
Exercised
|
(70,000)
|
3.39
|
-
|
-
|
Forfeited
or expired
|
(20,000)
|
(3.62)
|
-
|
-
|
Outstanding
at March 31, 2019
|
300,000
|
$3.40
|
1.83
|
$-
|
Exercisable
at March 31, 2019
|
300,000
|
$3.40
|
1.83
|
$-
|
21. LEASES
Company as Lessor
Operating
leases under which the Company is the lessor arise from the leasing
of the Company’s commercial real estate investment property
to third parties. Initial lease terms generally range from 12 to 60
months. Depreciation expense for assets subject to operating leases
is taken into account primarily on the straight-line method over a
period of twenty years in amounts necessary to reduce the carrying
amount of the asset to its estimated residual value. Depreciation
expenses relating to the property held as investments in operating
leases were $17 and $52 for the three
and nine months ended March 31, 2020, respectively, and $14 and $42
for the same periods in the last fiscal year.
Future
minimum rental income in China and Thailand to be received from
fiscal year 2020 to fiscal year 2021 on non-cancellable operating
leases is contractually due as follows as of March 31,
2020:
Remainder of fiscal
2020
|
$152
|
2021
|
$549
|
|
$701
|
Future
minimum rental income in China and Thailand to be received from
fiscal year 2020 to fiscal year 2021 on non-cancellable operating
leases is contractually due as follows as of June 30,
2019:
Company as Lessee
The Company has operating leases for corporate offices and research
and development facilities with remaining lease terms of 1 year to
3 years and finance leases for plant and equipment.
Supplemental balance sheet information related to leases is as
follows (in thousands):
|
|
|
|
|
|
Components of Lease Balances
|
Classification
|
|
Assets
|
|
|
Operating
lease assets
|
Right-of-use
asset-operating, net
|
$1,073
|
Finance
lease
assets
|
Property,
plant & equipment
|
1,758
|
Accumulated
amortization Right-of-use asset
|
|
(663)
|
Assets
|
Property,
plant & equipment
|
$1,095
|
Total Leased Assets
|
|
$2,168
|
|
|
Liabilities
|
|
|
Operating Lease Liabilities
|
|
|
Current
portion
|
Current
portion of lease liability-operating
|
$541
|
Long-term
portion
|
Lease
liability- Operating, net of current portion
|
532
|
Total Operating Lease Liabilities
|
|
$1,073
|
Finance Lease Liabilities
|
|
|
Current
portion of finance leases
|
Current
portion of lease liability-finance
|
$246
|
Net
of current portion of finance leases
|
Lease
liability- Finance, net of current portion
|
486
|
Total Finance
Lease Liabilities
|
|
$732
|
|
|
Total
Lease Liabilities
|
|
$1,805
|
|
3 Months Ended
March 31,
2020
|
9 Months Ended
March 31,
2020
|
Lease Cost
|
|
|
Finance
lease cost:
|
|
|
Interest
on lease liability
|
$13
|
$37
|
Amortization
of Right-of-use asset
|
76
|
212
|
Total
Finance Lease Cost
|
89
|
249
|
|
|
|
Operating
Lease Costs
|
$167
|
$526
|
Other information related to leases were as follows (in thousands
except lease term and discount rate):
|
|
|
|
|
|
Cash Paid for amounts included in the measurement of lease
liabilities
|
|
Operating
cash flows from finance leases
|
$(43)
|
Operating
cash flows from operating leases
|
$(398)
|
Finance
cash flows from finance leases
|
$(251)
|
Right-of-use assets obtained in exchange for new operating lease
liabilities
|
$780
|
|
|
Weighted-average remaining lease term:
|
|
Finance
leases
|
3.55
|
Operating
leases
|
1.89
|
Weighted-average discount rate:
|
|
Finance
leases
|
3.40%
|
Operating
leases
|
4.59%
|
As of March 31, 2020, the maturities of the Company's operating and
finance lease liabilities were as follow:
|
Operating Lease Liabilities
|
Finance Lease Liabilities
|
Fiscal Year
|
|
|
Remainder
of 2020
|
$244
|
$83
|
2021
|
442
|
262
|
2022
|
293
|
209
|
2023
|
153
|
132
|
2024
|
-
|
106
|
Thereafter
|
-
|
21
|
Total
future minimum lease payments
|
$1,132
|
$813
|
Less:
amount representing interest
|
(59)
|
(81)
|
Present
value of net minimum lease payments
|
1,073
|
732
|
|
|
|
Presentation
on statement of financial position
|
|
|
Current
|
$541
|
$246
|
Non-Current
|
$532
|
$486
|
As of June 30, 2019, future minimum lease payments under finance
leases and non-cancelable operating leases were as
follows:
Fiscal Year
|
Operating Lease Liabilities
|
Finance Lease Liabilities
|
2020
|
$620
|
$283
|
2021
|
216
|
187
|
2022
|
47
|
143
|
2023
|
1
|
68
|
2024
|
-
|
44
|
Total
future minimum lease payments
|
$884
|
$725
|
22. FAIR VALUE OF FINANCIAL INSTRUMENTS APPROXIMATE
CARRYING VALUE
In accordance with ASC Topics 825 and 820, the following presents
assets and liabilities measured and carried at fair value and
classified by level of fair value measurement
hierarchy:
There were no transfers between Levels 1 and 2 during the nine
months ended March 31, 2020 and 2019.
Term deposits (Level 2) – The carrying amount approximates
fair value because of the short maturity of these
instruments.
Restricted term deposits (Level 2) – The carrying amount
approximates fair value because of the short maturity of these
instruments.
Lines of credit (Level 3) – The carrying value of the lines
of credit approximates fair value due to the short-term nature of
the obligations.
Bank loans payable (Level 3) – The carrying value of the
Company’s bank loan payables approximates its fair value as
the interest rates associated with long-term debt is adjustable in
accordance with market situations when the Company borrowed funds
with similar terms and remaining maturities.
23. OTHER SIGNIFICANT TRANSACTIONS
In accordance with the accounting guidance for property, plant and
equipment, assets are measured at the lower of the carrying value
or fair value less costs to sell. As a result of one of our
customer’s products coming to the end of its product burn-in
cycle earlier than expected, the Company determined the carrying
value of the group of assets that served the above mentioned
product is higher than the fair value less costs to sell. As a
result, an impairment charge of $139 was recorded within operating
costs during the third quarter of 2020. The Company does not expect
to record a significant gain or loss upon disposition of the
assets.
24. SUBSEQUENT EVENTS
The impact of the COVID-19 pandemic continues to evolve as of March
31, 2020. The Singapore and Malaysian governments have imposed
various measures to contain the spread of the virus, such as the
closure of non-essential businesses and social distancing. Our
operations have been classified as part of the global supply chain
and are permitted to operate with the adherence of social
distancing, including employee reduction at site. As a result,
Management expects a decrease in revenue from the Singapore and
Malaysia operations with the effort of a fewer number of
employees.
The extent of the impact of COVID-19 will depend on future
developments, which are highly uncertain and unpredictable. This
includes any new information that emerges concerning the severity
of COVID-19 and any possible actions to contain the
virus.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Overview
The following should be read in conjunction with the condensed
consolidated financial statements and notes in Item I above and
with the audited consolidated financial statements and notes, the
information under the headings “Risk Factors” and
“Management’s discussion and analysis of financial
condition and results of operations” in our Annual Report on
Form 10-K for the fiscal year ended June 30, 2019.
Trio-Tech International (“TTI”) was incorporated in
1958 under the laws of the State of California. As used
herein, the term “Trio-Tech” or “Company”
or “we” or “us” or “Registrant”
includes Trio-Tech International and its subsidiaries unless the
context otherwise indicates. Our mailing address and executive
offices are located at Block 1008 Toa Payoh North, Unit 03-09
Singapore 318996, and our telephone number is (65) 6265
3300.
The Company primarily is a provider of reliability test equipment
and services to the semiconductor industry. Our customers rely on
us to verify that their semiconductor components meet or exceed the
rigorous reliability standards demanded for aerospace,
communications and other electronics products.
TTI generated approximately 99.8% of its revenue from its three
core business segments in the test and measurement industry, i.e.
manufacturing of test equipment, testing services and distribution
of test equipment, during the three months ended March 31, 2020.
The real estate segment contributed only 0.2% to the total revenue
and was immaterial to the overall business.
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 there, 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.
Impairment Loss on Long-Lived Asset
During the third quarter of 2020,
our operation in China provided impairment loss of $139 for seven
pieces of equipment due to one of our customer’s products
coming to the end of its product burn-in cycle earlier than
expected. The cost of converting the seven pieces of equipment
out-weigh the benefit of utilizing said equipment. Operations do
not foresee any future usage of these assets. There will be no
future economic cash inflow generating from these assets. Based on
these events, we concluded that it was more likely than not that
value-in-use of these assets was less than their carrying value.
Full impairment of these assets had been
recorded.
While we have not identified any changes in circumstances requiring
an interim impairment test for the three months ended
March 31, 2020, we will continue to monitor impairment
indicators, such as disposition activity, stock price declines or
changes in forecasted cash flows in future periods. If the fair
value of our reporting unit declines below the carrying value in
the future, we may incur additional impairment
charges.
Impact of COVID-19 on our Business
COVID-19
began to affect our business in the three months ended March 31,
2020. During early
calendar year 2020, the Chinese
Government took emergency measures to combat the spread of the
virus, including an extension of the Lunar New Year holidays. In
the final two weeks of our third quarter, our operation in Malaysia
was curtailed by local government efforts to reduce the spread of
COVID-19, which efforts included shelter in place orders which had
the effect of reducing the number of employees available for work.
There can be no assurance as to any of our operation will return
fully to pre-COVID-19 operating levels.
Apart from the reasons disclosed in the later part of the
discussion, the COVID-19 pandemic had an adverse effect on our
results of operations during the quarter ended March 31,
2020:
The revenue in the Malaysia operation decreased 22.0% compared to
the same period of the previous fiscal year, partially due to the
movement restriction imposed by the local government.
The revenue in the manufacturing segment of the Singapore operation
decreased by 29.4% as compared to the same period of the previous
fiscal year, primarily due to the delay in orders from customers as
a result of the global economic uncertainties contributed by
COVID-19.
The gross margin in the China operations deteriorated by 9.4% as
compared to the same period of the previous fiscal year, mainly due
to the higher labor costs incurred to ramp up the testing volume
during the extended Lunar New Year holidays caused by the
pandemic.
An allowance of doubtful debts amounted to $14 in the real estate
segment of the China operations due to the heavy impact of the
COVID-19 pandemic on the business of the tenant.
The negative impact partially offset by the government stimulus
program amounted to $263 in the Singapore and China
operations.
As of March 31, 2020, the Company had cash and cash equivalents and
short-terms deposits totalling $10,679 and unused line of credit of
$5,897. We finance operations primarily through our existing cash
balances, cash collected from operations, bank borrowings and
capital lease financing. We believe these sources are sufficient to
fund our operations for the foreseeable future.
The mitigation efforts by governments around the world in an
attempt to control the spread of the virus will likely continue to
impact our operations, customers, and suppliers for an indefinite
period of time. While we have implemented safeguards and procedures
to counter the impact of the COVID-19 pandemic, the full extent to
which the pandemic has and will directly or indirectly impact us,
including our business, financial condition, and result of
operations, will depend on future developments that are highly
uncertain and cannot be accurately predicted. This may include
further mitigation efforts taken to contain the virus or treat its
impact and the economic impact on local, regional, national and
international markets. We will continue to actively monitor the
situation and may take further actions that alter our business
operations as may be required by the governments or that we
determine are in the best interests of our employees, customers,
suppliers and stockholders.
Third Quarter Fiscal Year 2020 Highlights
●
Total
revenue decreased by $337, or 3.8%, to $8,501 in the third quarter
of fiscal year 2020, compared to $8,838 for the same period in
fiscal year 2019.
●
Manufacturing
segment revenue decreased by $578, or 18.7%, to $2,519 for the
third quarter of fiscal year 2020, compared to $3,097 for the same
period in fiscal year 2019.
●
Testing
segment revenue decreased by $248, or 6.2%, to $3,741 for the third
quarter of fiscal year 2020, compared to $3,989 for the same period
in fiscal year 2019.
●
Distribution
segment revenue increased by $498, or 28.8%, to $2,225 for the
third quarter of fiscal year 2020, compared to $1,727 for the same
period in fiscal year 2019.
●
Real
estate segment rental revenue decreased by $9, or 36%, to $16 for
the third quarter of fiscal year 2020, compared to $25 for the same
period in fiscal year 2019.
●
The
overall gross profit margin decreased by 3.6% to 21.0% for the
third quarter of fiscal year 2020, from 24.6% for the same period
in fiscal year 2019.
●
Loss
from operations was $367 for the third quarter of fiscal year 2020,
a decrease of $490 as compared to an income from operations of $123
for the same period in fiscal year 2019.
●
General
and administrative expenses increased by $12, or 0.7%, to $1,754
for the third quarter of fiscal year 2020, from $1,742 for the same
period in fiscal year 2019.
●
Selling
expenses decreased by $65, or 26.4%, to $181 for the third quarter
of fiscal year 2020, from $246 for the same period in fiscal year
2019.
●
An
impairment loss on the long-lived asset amounted to $139 in the
third quarter of fiscal year 2020.
●
Other
income increased by $312 to $440 in the third quarter of fiscal
year 2020, compared to $128 in the same period in fiscal year
2019.
●
Income
tax benefit was $8 in the third quarter of fiscal year 2020, an
increase of $217 as compared to the income tax expense of $209 in
the same period in fiscal year 2019.
●
During
the third quarter of fiscal year 2020, income from continuing
operations before non-controlling interest, net of tax was $18, as
compared to $653 for the same period in fiscal year
2019.
●
Net
loss attributable to non-controlling interest for the third quarter
of fiscal year 2020 was $73, an increase of $45, as compared to net
loss attributable to non-controlling interest of $28 in the same
period in fiscal year 2019.
●
Basic
Earnings per Share for the third quarter of fiscal year 2020 were
$0.02, as compared to earnings per share of $0.19 for the same
period in fiscal year 2019.
●
Dilutive
Earnings per Share for the third quarter of fiscal year 2020 were
$0.02, as compared to earnings per share of $0.19 for the same
period in fiscal year 2019.
●
Total
assets remained at nearly the same level of $36,796 as of March 31,
2020 compared to $36,527 as of June 30, 2019.
●
Total
liabilities increased by $263, or 2.3%, to $11,929 as of March 31,
2020 compared to $11,666 as of June 30, 2019.
Results of Operations and Business Outlook
The following table sets forth our revenue components for the three
and nine months ended March 31, 2020 and 2019,
respectively.
Revenue
Components
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
29.6%
|
35.0%
|
32.6%
|
35.3%
|
Testing
Services
|
44.0
|
45.1
|
44.0
|
44.9
|
Distribution
|
26.2
|
19.6
|
23.2
|
19.5
|
Real
Estate
|
0.2
|
0.3
|
0.2
|
0.3
|
|
|
|
|
|
Total
|
100.0%
|
100.0%
|
100.0%
|
100.0%
|
Revenue for the three and nine months ended March 31, 2020 was
$8,501 and $27,286, respectively, a decrease of $337 and $1,287,
respectively, when compared to the revenue for the same period of
the prior fiscal year. As a percentage, revenue decreased by 3.8%
and 4.5% for the three and nine months ended March 31, 2020,
respectively, when compared to revenue for the same period of the
prior year.
For the three months ended March 31, 2020, the $337 decrease in
overall revenue was primarily due to
●
a
decrease in the manufacturing segments in the U.S. and Singapore
operations; and
●
a
decrease in the testing segment in the Malaysia
operations.
These decreases were partially offset by
●
an
increase in the testing segment in the Thailand operations;
and
●
an
increase in the distribution segment in the Singapore
operations.
For the nine months ended March 31, 2020, the $1,287 decrease in
overall revenue was primarily due to
●
a
decrease in the manufacturing segments in the U.S. and Singapore
operations; and
●
a
decrease in the testing segments in the China and Malaysia
operations
These decreases were partially offset by
●
an
increase in the testing segments in the Singapore and Thailand
operations; and
●
an
increase in the distribution segment in the Singapore
operations
Total revenue into and within China, the Southeast Asia regions and
other countries (except revenue into and within the United States)
decreased by $520 (or 6.0%), to $8,085 for the three months ended
March 31, 2020 and by $1,537 (or 5.6%) to $26,103 for the nine
months ended March 31, 2020, as compared with $8,605 and $27,640,
respectively, for the same periods of last fiscal
year.
Total revenue into and within the U.S. was $416 and $1,183 for the
three and nine months ended March 31, 2020, respectively. This was
an increase of $183 from $233 and an increase of $250 from $933 for
the same periods of the prior year, respectively.
Revenue within our four current segments for the three and nine
months ended March 31, 2020 is discussed below.
Manufacturing Segment
As a percentage of total revenue, revenue in the manufacturing
segment was 29.6% and 32.6% for the three and nine months ended
March 31, 2020, respectively, a decrease of 5.4% and 2.8% of total
revenue, respectively, when compared to the same periods of the
last fiscal year. The absolute amount of revenue decreased by
$578 from $3,097 to $2,519 for the three months ended March 31,
2020 and decreased by $1,205 from $10,086 to $8,881 for the nine
months ended March 31, 2020 compared to the same periods of the
last fiscal year.
Revenue in the manufacturing segment for the three months ended
March 31, 2020 decreased primarily due to the COVID-19 pandemic,
resulting in the delay of the delivery of orders in the U.S. and
Singapore operations. Our customers’ capital purchases are
being affected by the uncertainty associated with the gloomy
economic outlook as a result of the pandemic.
Revenue in the manufacturing segment from one customer accounted
for 24.3% and 27.7% of our total revenue in the manufacturing
segment for the three and nine months ended March 31, 2020 and
2019, respectively, and 35.2% and 35.5% of our total revenue in the
manufacturing segment for the nine months ended March 31, 2020 and
2019, respectively.
The future revenue in our manufacturing segment will be affected by
the purchase and capital expenditure plans of this one customer if
the customer base cannot be increased.
Testing Services Segment
Revenue in the testing segment was 44.0% of total revenue for the
three and nine months ended March 31, 2020, a decrease of 1.1% and
0.9%, respectively, of the total revenue when compared to the same
periods of the last fiscal year. The absolute amount of
revenue decreased by $248 to $3,741 from $3,989 for the three
months ended March 31,2020 and decreased by $801 to $12,018 from
$12,819 for the nine months ended March 31, 2020 as compared to the
same periods of the last fiscal year.
The revenue in the testing segment from the one customer noted
above accounted for 56.1% and 69.7% of our revenue in the testing
segment for the three months ended March 31, 2020 and 2019,
respectively, and 61.6% and 72.8% of our total revenue in the
testing segment for the nine months ended March 31, 2020 and 2019,
respectively, due in part
to a reduction in orders from this customer. The future revenue in
the testing segment will be affected by the demands of this
customer if the customer base cannot be increased. Demand for
testing services varies from country to country depending on any
changes taking place in the market and our customers’
forecasts. As it is difficult to forecast fluctuations in the
market accurately, management believes it is necessary to maintain
testing facilities in close proximity to the customers in order to
make it convenient for them to send us their newly manufactured
parts for testing and to enable us to maintain a share of the
market.
Distribution Segment
Revenue in the distribution segment was 26.2% and 23.2% as a
percentage of total revenue for the three and nine months ended
March 31, 2020, an increase of 6.6% and 3.7%, respectively, when
compared to the same period of the last fiscal year. The
absolute amount of revenue increased by $498 to $2,225 from $1,727
and increased by $751 to $6,338 from $5,587 for the three and nine
months ended March 31, 2020, respectively, compared to the same
period of the last fiscal year.
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 forecast fluctuations in the market
accurately.
Real Estate Segment
The real estate segment accounted for 0.2% of total revenue for
both the three and nine months ended March 31, 2020. The absolute
amount of revenue in the real estate segment decreased by $9 to $16
from $25 for the three months ended March 31, 2020, and decreased
by $32 to $49 from $81 for the nine months ended March 31, 2020
compared to the same periods of the last fiscal year. This was due
to the sales of properties in the real estate segment in the China
operation in the same periods of the last fiscal year, which
resulted in a decrease in rental income.
Uncertainties and Remedies
There are several influencing factors which create uncertainties
when forecasting performance, such as the speed at which technology
changes, specific requirements from the customer, changes in demand
for certain types of burn-in devices or equipment, changes in
demand for testing services and fabrication services, and other
similar factors, such as the highly competitive nature of the
semiconductor industry in general. Some customers are unable to
provide a forecast of the products required in the upcoming weeks,
making it difficult to plan for the resources needed to meet their
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 through our efforts to keep our staff up-to-date
on the newest technology and stressing the importance of
understanding and meeting the stringent requirements of our
customers. Finally, the Company is exploring new markets and
products, looking for new customers, and upgrading and improving
burn-in technology while at the same time searching for improved
testing methods for higher technology chips.
We are in the process of implementing an ERP System, as part of a
multi-year plan to integrate and upgrade our systems and processes.
The implementation of this ERP system was scheduled to occur in
phases over a few years, and began with the migration of certain of
our operational and financial systems in our Singapore operations
to the new ERP system during the second quarter of fiscal
2017.
During the third quarter of fiscal 2018, the operational and
financial systems in Singapore were substantially transitioned to
the new system. The operational and financial systems in our
Malaysia operation were substantially transitioned to the new
system during the first quarter of fiscal 2019.
The operational systems in our Tianjin and Suzhou operations were
substantially transitioned to the new system during the third
quarter of fiscal 2020. This implementation effort will continue
until the financial systems of these two operations are fully
transitioned to the new system, and until the Group's consolidation
process is substantially automated using the new
system.
As a phased implementation of this system occurs, we are
experiencing certain changes to our processes and procedures which,
in turn, result in changes to our internal control over financial
reporting. While we expect the new ERP system to strengthen our
internal financial controls by automating certain manual processes
and standardizing business processes and reporting across our
organization, management will continue to evaluate and monitor our
internal controls as processes and procedures in each of the
affected areas evolve.
The Company’s primary exposure to movements in foreign
currency exchange rates relates to non-U.S. dollar-denominated
sales and operating expenses in its subsidiaries. Strengthening of
the U.S. dollar relative to foreign currencies adversely affects
the U.S. dollar value of the Company’s foreign
currency-denominated sales and earnings, and generally leads the
Company to raise international pricing, potentially reducing demand
for the Company’s products. Margins on sales of the
Company’s products in foreign countries and on sales of
products that include components obtained from foreign suppliers
could be materially adversely affected by foreign currency exchange
rate fluctuations. In some circumstances, for competitive or other
reasons, the Company may decide not to raise local prices to fully
offset the dollar’s strengthening, or at all, which would
adversely affect the U.S. dollar value of the Company’s
foreign currency-denominated sales and earnings. Conversely, a
strengthening of foreign currencies relative to the U.S. dollar,
while generally beneficial to the Company’s foreign currency
denominated sales and earnings, could cause the Company to reduce
international pricing, thereby limiting the benefit. Additionally,
strengthening of foreign currencies may also increase the
Company’s cost of product components denominated in those
currencies, thus adversely affecting gross margins.
The novel strain of the coronavirus identified in China in late
2019 has spread globally and resulted in authorities implementing
numerous measures to try to contain the virus, such as travel bans
and restrictions, quarantines, shelter in place orders, and
shutdowns. These measures have impacted and may further impact our
workforce and operations, the operations of our customers, and
those of our respective vendors and suppliers. We have significant
operations in China, Malaysia and Singapore, and each of these
countries has been affected by the pandemic and taken measures to
try to contain it. There is considerable uncertainty regarding such
measures and potential future measures, and restrictions on our
access to our facilities or on our support operations or workforce,
or similar limitations for our vendors and suppliers, and
restrictions or disruptions of transportation, such as reduced
availability of air transport, port closures, and increased border
controls or closures, could limit our capacity to meet our customer
demands and have a material adverse effect on our financial
condition and results of operations.
The pandemic has significantly increased economic and demand
uncertainty. The current pandemic has caused, and the continued
spread of COVID-19 may exacerbate, an economic slowdown, and it is
possible that it could lead to a global recession. There is a
significant risk the global economy could fall into recession
again. If economic conditions remain uncertain or deteriorate, our
business, financial condition and results of operations could be
materially adversely affected.
The spread of COVID-19 has caused us to modify our business
practices (including employee travel, employee work locations, and
cancellation of physical participation in meetings, events and
conferences), and we may take further actions as maybe required by
government authorities or that we determine are in the best
interest of our employees, customers, partners, and suppliers.
There is no certainty that such measures will be sufficient to
mitigate the risks posed by the virus and our ability to perform
critical functions could be harmed.
The degree to which COVID-19 impacts our results will depend on
future developments, which are highly uncertain and cannot be
predicted, including but not limited to, the duration and spread of
the pandemic, its severity, the action to contain the virus or
treat its impact, and how quickly and to what extent normal
economic and operating conditions can resume. Even after the
COVID-19 pandemic has subsided, we may experience material adverse
impacts on our business as a result of the global economic impact
and any recession that has occurred or may occur in the future.
There are no comparable recent events that provide guidance as to
the effect the spread of COVID-19 as a global pandemic may have,
and, as a result, the ultimate impact of the pandemic on our
operations and financial results is highly uncertain and subject to
change.
Comparison of the Three Months Ended March 31, 2020 and March 31,
2019
The following table sets forth certain consolidated statements of
income data as a percentage of revenue for the three months ended
March 31, 2020 and 2019 respectively:
|
Three
Months Ended
March
31,
|
|
|
|
Revenue
|
100.0%
|
100.0%
|
Cost
of sales
|
79.0
|
75.4
|
Gross Margin
|
21.0%
|
24.6%
|
Operating
expenses
|
|
|
General
and administrative
|
20.6%
|
19.7%
|
Selling
|
2.2
|
2.7
|
Research
and development
|
0.9
|
0.9
|
Impairment
loss on long-lived assets
|
1.6
|
-
|
Gain
on disposal of property, plant and equipment
|
-
|
(0.1)
|
Total
operating expenses
|
25.3%
|
23.2%
|
(Loss)/Income from Operations
|
(4.3)%
|
1.4%
|
Overall Gross Margin
Overall gross margin as a percentage of revenue decreased by 3.6%
to 21.0% for the three months ended March 31, 2020, from 24.6% for
the same period of the last fiscal year.
Gross profit margin as a percentage of revenue in the manufacturing
segment increased by 0.9% to 26.5% for the three months ended March
31, 2020, as compared to 25.6% for the same period in the last
fiscal year primarily due to a change in product mix. In absolute
dollar amounts, gross profits in the manufacturing segment
decreased by $126 to $668 for the three months ended March 31,
2020, from $794 for the same period in the last fiscal
year.
Gross profit margin as a percentage of revenue in the testing
segment decreased by 6.8% to 21.5% for the three months ended March
31, 2020, from 28.3% in the same period of the last fiscal year.
The COVID-19 pandemic negatively impacted our testing segment in
the Malaysia and China operations. Our Malaysia operation has a
limited operating level as a result of the Movement Control Order
implemented by the Malaysian government to contain the spread of
the coronavirus, coupled with a lower testing demand from the
customer. Our China operation incurred higher labor cost to ramp up
the testing volumes per the customer’s request during the
extended Lunar New Year holidays caused by the pandemic. In
absolute dollar amounts, gross profit in the testing segment
decreased by $323 to $804 for the three months ended March 31, 2020
from $1,127 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 frequently changes as
a result of changes in market demand. Gross profit margin as a
percentage of revenue in the distribution segment remained at the
same level at 14.2% for the three months ended March 31, 2020, from
14.1% in the same period of the last fiscal year. In terms of
absolute dollar amounts, gross profit in the distribution segment
for the three months ended March 31, 2020 was $316 as compared to
$244 in the same period of the last fiscal year.
In absolute dollar amounts, for the three months ended March 31,
2020, gross loss in the real estate segment was $2, as compared to
a gross profit margin of $9 for the same period of last fiscal
year. The increase in gross loss was due to lower rental income
caused by the sale of properties in the real estate segment in the
China operation after the third quarter of the last fiscal
year.
Operating Expenses
Operating expenses for the three months ended March 31, 2020 and
2019 were as follows:
|
Three Months
Ended
March
31,
|
(Unaudited)
|
|
|
General
and administrative
|
$1,754
|
$1,742
|
Selling
|
181
|
246
|
Research
and development
|
79
|
76
|
Impairment
loss on the long-lived assets
|
139
|
-
|
Gain
on disposal of property, plant and equipment
|
-
|
(13)
|
Total
|
$2,153
|
$2,051
|
General and administrative expenses increased by $12, or 0.7%, from
$1,742 to $1,754 for the three months ended March 31, 2020,
compared to the same period of last fiscal year. The increase in
general and administrative expenses was mainly attributable to an
allowance of doubtful debts made in our China
operation.
Selling expenses decreased by $65, or 26.4%, from $246 to $181 for
the three months ended March 31, 2020, compared to the same period
of the last fiscal year. The decrease was mainly due to fewer
commission expenses incurred in the manufacturing segment of the
Singapore operations.
There was an impairment loss on long-lived assets in the China
operations as a result of the end of the product life for certain
products. A detailed assessment has been carried out by management,
and this assessment indicated that these assets will not generate
any future economic benefits to the Company.
Loss/Income from Operations
Loss from operations was $367 for the three months ended March 31,
2020, a deterioration of $490 as compared to income from operations
of $123 for the three months ended March 31, 2019. The result was
mainly due to the decrease in gross profit and the increase in
operating expenses, as previously discussed.
Interest Expense
Interest expense for the three months ended March 31, 2020 and 2019
was as follows:
|
Three
Months Ended
March
31,
|
(Unaudited)
|
|
|
Interest expenses
|
$63
|
$74
|
Interest expense was $63 for the three months ended March 31, 2020,
a decrease of $11, or 14.9%, as compared to $74 for the three
months ended March 31, 2019. The decrease was due to a decrease in
the utilization of short-term loans in the Singapore and China
operations. As of March 31, 2020, the Company had an unused
line of credit of $5,897as compared to $6,251 at June 30,
2019.
Other Income
Other income for the three months ended March 31, 2020 and 2019 was
as follows:
|
Three
Months Ended
March
31,
|
|
|
|
Interest
income
|
46
|
31
|
Other
rental income
|
30
|
28
|
Exchange
gain / (loss)
|
94
|
(11)
|
Government
grant
|
266
|
38
|
Other
miscellaneous income
|
4
|
42
|
Total
|
$440
|
$128
|
Other income increased by $312 to $440 for the three months ended
March 31, 2020, from $128 in the same period of the last fiscal
year. The increase was primarily due to an increase in exchange
gain, which resulted from the favorable foreign exchange movement
for the three months ended March 31, 2020, coupled with a
government grant of $263 received in the Singapore and China
operations as compared to the same period in the last fiscal
year.
The government grant was $266, of which $263 was related to the
financial assistance from the local government in the Singapore and
China operations to mitigate the negative impact to companies amid
the COVID-19 pandemic.
Income Tax Expenses
The
Company's income tax benefit was $8 for the three months ended
March 31, 2020, an increase of $217 as compared to income tax
expenses of $209 for the same period in the last fiscal year. The
increase was mainly due to the absence of the capital gain tax from
the sale of asset-held-for sale in the third quarter of fiscal year
2020.
Non-controlling Interest
As of March 31, 2020, we held a 55% interest in Trio-Tech
(Malaysia) Sdn. Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI
International Pte. Ltd., and PT. SHI Indonesia. We also held a 76%
interest in Prestal Enterprise Sdn. Bhd. The share of net loss from
the subsidiaries by the non-controlling interest for the three
months ended March 31, 2020 was $73, an increase of $45 compared to
$28 for the same period of the previous fiscal year. The
increase in the net loss of the non-controlling interest in the
subsidiaries was attributable to the increase in net loss generated
by the Malaysia operation as a result of the Movement Control Order
implemented by the Malaysian government, coupled with the lower
testing demand from our customer.
Net Income Attributable to Trio-Tech International Common
Shareholders
Net income attributable to Trio-Tech International Common
Shareholders for the three months ended March 31, 2020 was $70, a
decrease of $613 as compared to a net income of $683 for the same
period last fiscal year.
Earnings per Share
Basic earnings per share from continuing operations were $0.02 for
the three months ended March 31, 2020 as compared to $0.19 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, 2020 and 2019.
Diluted earnings per share from continuing operations were $0.02
for the three months ended March 31, 2020 as compared to $0.19 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, 2020 and 2019.
Segment Information
The revenue, gross margin and income or loss from operations for
each segment during the third quarter of fiscal year 2020 and
fiscal year 2019 are presented below. As the revenue and gross
margin for each segment have been discussed in the previous
section, only the comparison of income or loss from operations is
discussed below.
Manufacturing Segment
The revenue, gross margin and loss from operations for the
manufacturing segment for the three months ended March 31, 2020 and
2019 were as follows:
|
Three
Months Ended
March
31,
|
(Unaudited)
|
|
|
Revenue
|
$2,519
|
$3,097
|
Gross margin
|
26.5%
|
25.6%
|
Loss from operations
|
$(102)
|
$(8)
|
Loss from operations from the manufacturing segment for the third
quarter of fiscal 2020 was $102 as compared to $8 in the same
period of the last fiscal year, primarily due to a decrease in
gross margin of $126, offset by a decrease in operating expenses of
$32. Operating expenses for the manufacturing segment were $770 and
$802 for the three months ended March 31, 2020 and 2019,
respectively. The decrease in operating expenses was mainly due to
a decrease of $91 in selling expenses as a result of the decrease
in the commission expenses in the Singapore operation. The decrease
was partially offset by an increase of $54 in general and
administrative expenses. The increase in general and administrative
expenses was mainly attributable to an increase in payroll-related
expenses in the Singapore operations.
Testing Segment
The revenue, gross margin and loss from operations for the testing
segment for the three months ended March 31, 2020 and 2019 were as
follows:
|
Three
Months Ended
March
31,
|
(Unaudited)
|
|
|
Revenue
|
$3,741
|
$3,989
|
Gross margin
|
21.5%
|
28.3%
|
Loss from operations
|
$(447)
|
$(17)
|
Loss from operations in the testing segment for the three months
ended March 31, 2020 was $447, reflecting an increase of $430
compared to loss from operations of $17 in the same period of the
last fiscal year. The increase in operating loss was mainly
attributable to a decrease in gross profit margin, as discussed
earlier under “Overall gross
margin” and the increase
in operating expenses. Operating expenses were $1,251 and $1,144
for the three months ended March 31, 2020 and 2019,
respectively. The
increase of $107 in operating expenses was mainly due to the
impairment loss of long-lived asset recognized in the third quarter
of fiscal year 2020, as discussed earlier under “Operating
expenses.”
Distribution Segment
The revenue, gross margin and income from operations for the
distribution segment for the three months ended March 31, 2020 and
2019 were as follows:
|
Three
Months Ended
March
31,
|
(Unaudited)
|
|
|
Revenue
|
$2,225
|
$1,727
|
Gross margin
|
14.2%
|
14.1%
|
Income from operations
|
$207
|
$150
|
Income from operations in the distribution segment was $207 for the
three months ended March 31, 2020, as compared to $150 for the same
period of last fiscal year. The increase of $57 was mainly due
to an increase of $72 in the gross margin, as discussed earlier
under “Overall gross
margin,” offset by an
increase in operating expenses of $16. Operating expenses were $110
and $94 for the three months ended March 31, 2020 and 2019,
respectively. The increase in payroll-related expenses in the
Singapore operation contributed to the increase in operating
expenses.
Real Estate Segment
The revenue, gross margin and loss from operations for the real
estate segment for the three months ended March 31, 2020 and 2019
were as follows:
|
Three
Months Ended
March
31,
|
(Unaudited)
|
|
|
Revenue
|
$16
|
$25
|
Gross (loss)/margin
|
(12.5)%
|
36.0%
|
Loss from operations
|
$(30)
|
$(13)
|
Gain
on sale of assets held for sale
|
-
|
685
|
Loss from operations in the real estate segment for the three
months ended March 31, 2020 was $30 compared to a loss of $13 for
the same period of last fiscal year. The increase in
operations loss of $17 was mainly due to the decrease in gross
margin of $11 and an increase in operating expenses by $6.
Operating expenses were $28 and $22 for the three months ended
March 31, 2020 and 2019, respectively. The increase in operating
expenses was mainly due to a provision for doubtful debts made for
a tenant whose business had been heavily impacted by COVID-19 in
the third quarter of fiscal year 2020.
Corporate
The loss from operations for Corporate for the three months ended
March 31, 2020 and 2019 was as
follows:
|
Three
Months Ended
March
31,
|
(Unaudited)
|
|
|
Income/(loss) from operations
|
$5
|
$11
|
The decrease of income from operations amounting to $6 was mainly
due to a increase in payroll related expenses.
Comparison of the Nine Months Ended March 31, 2020 and March 31,
2019
The following table sets forth certain consolidated statements of
income data as a percentage of revenue for the nine months ended
March 31, 2020 and 2019, respectively:
|
|
|
|
|
|
|
|
Revenue
|
100.0%
|
100.0%
|
Cost
of sales
|
78.2
|
77.1
|
Gross Margin
|
21.8%
|
22.9%
|
Operating
expenses:
|
|
|
General
and administrative
|
19.5%
|
18.3%
|
Selling
|
2.0
|
2.1
|
Research
and development
|
1.0
|
0.9
|
Impairment
loss on long-lived assets
|
0.5
|
-
|
Gain
on disposal of plant and equipment
|
(0.1)
|
-
|
Total
operating expenses
|
22.9%
|
21.3%
|
(Loss) / Income from Operations
|
(1.1)%
|
1.6%
|
Overall Gross Margin
Overall gross margin as a percentage of revenue was 21.8% for the
nine months ended March 31, 2020, as compared to the same period of
last fiscal year. In terms of absolute dollar amounts, gross
profits decreased by $590 to $5,943 for the for the nine months
ended March 31, 2020, from $6,533 for the same period of the last
fiscal year.
Gross profit margin as a percentage of revenue in the manufacturing
segment increased by 1.0% to 23.6% for the nine months ended March
31, 2019, from 22.6% in the same period of the last fiscal year. In
absolute dollar amounts, gross profit decreased by $188 to $2,092
for the nine months ended March 31, 2020 as compared to $2,280 for
the same period in last fiscal year. The decrease in absolute
dollar amount of gross margin was primarily due to a decrease in
orders in the Singapore operations. However, the orders for the
nine months ended fiscal year 2020 had a higher margin as compared
to the same period of the last fiscal year, which contributed to an
increase in the gross margin as a percentage of
revenue.
Gross profit margin as a percentage of revenue in the testing
segment decreased by 2.4% to 24.7% for the nine months ended March
31, 2020 from 27.1% in the same period of the last fiscal year.
There was a further deterioration in testing revenue in the
Malaysia and China operations where significant portions of our
cost of goods sold are fixed. As the demand for services and
factory utilization decrease, the fixed costs are spread over the
decreased output, which decreases the gross profit margin. The
higher labor cost during the extended Lunar New Year in the China
operations and the Movement Control Order implemented by the
Malaysian government to contain the spread of the COVID-19 also
resulted in a decrease of the gross profit margin. In terms of
absolute dollar amounts, gross profit in the testing segment
decreased by $496 to $2,972 for the nine months ended March 31,
2020, from $3,468 for the same period of the last fiscal
year.
Gross profit margin as a percentage of revenue in the distribution
segment increased by 0.4% to 13.9% for the nine months ended March
31, 2020, from 13.5% 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, 2020 was
$884, an increase of $128 as compared to $756 in the same period of
the last fiscal year. The increase in absolute dollar amount of
gross margin was due to an increase of distribution revenue in the
Singapore operation. 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
loss margin as a percentage of revenue in the real estate segment
changed by 46% to 10.2% for the nine months ended March 31, 2020,
from a gross profit margin of 35.8% in the same period of the last
fiscal year. In terms of absolute dollar amounts, gross loss
changed by $34 to $5 for the nine months ended March 31, 2020 as
compared to gross profit of $29 for the same period in last fiscal
year. The increase in gross loss
was due to lower rental income caused by the sale of properties in
the real estate segment in the China operation after the third
quarter of the last fiscal year.
Operating Expenses
Operating expenses for the nine months ended March 31, 2020 and
2019 were as follows:
|
|
|
|
|
(Unaudited)
|
|
|
General
and administrative
|
$5,319
|
$5,223
|
Selling
|
547
|
580
|
Research
and development
|
280
|
270
|
Impairment
loss on long-lived asset
|
139
|
-
|
Gain
on disposal of plant and equipment
|
(24)
|
(13)
|
Total
|
$6,261
|
$6,060
|
General and administrative expenses increased by $96, or 1.8%, to
$5,319 for the nine months ended March 31, 2020 compared to $5,223
in the same period of the last fiscal year. The increase in general
and administrative expenses was primarily due to the increase in
payroll-related expenses in the Singapore operations.
Selling expenses decreased by $33, or 5.7%, to $547 for the nine
months ended March 31, 2020, compared to $580 for the same period
of the last fiscal year. The decrease was mainly due to a decrease
in commission expenses in the manufacturing segment of the
Singapore operations as a result of fewer commissionable
sales.
There was an impairment loss on the long-lived assets in the China
operations as a result of the end of the product life for certain
products. A detailed assessment has been carried out by management,
and this assessment indicated that these assets will not generate
any future economic benefits to the Company.
During the nine months ended March 31, 2020, there was a gain on
disposal of plant and equipment of $24 as compared to $13 in the
same period of last fiscal year.
(Loss) / Income from Operations
Loss from operations was $318 for the nine months ended March 31,
2020 as compared to an income from operations of $473 for the same
period of the last fiscal year. The decrease was mainly due to the
decrease in gross profit margin and an increase in operating
expenses, as discussed earlier.
Interest Expense
Interest expense for the nine months ended March 31, 2020 and 2019
were as follows:
|
|
|
|
|
(Unaudited)
|
|
|
Interest expense
|
$186
|
$250
|
Interest expense decreased by $64 to $186 for the nine months ended
March 31, 2020, as compared to $250 for the same period of the last
fiscal year. The decrease was mainly due to lower utilization of
short-term loans in the Singapore and China operations.
Additionally, the bank loan payable decreased by $483 to $2,297 for
the nine months ended March 31, 2020 as compared to $2,780 as at
June 30, 2019.
Other Income
Other income for the nine months ended March 31, 2020 and 2019 were
as follows:
|
|
|
|
|
(Unaudited)
|
|
|
Interest
income
|
$130
|
$67
|
Other
rental income
|
90
|
84
|
Exchange
gain / (loss)
|
33
|
(78)
|
Bad
debt recovery
|
11
|
2
|
Government
grant
|
295
|
115
|
Other
miscellaneous income
|
31
|
30
|
Total
|
$590
|
$220
|
Other income for the nine months ended March 31, 2020 was $590, an
increase of $370 as compared to $220 for the same period of last
fiscal year. This increase was mainly due to the higher interest
income earned from the placement of fixed deposits and the
government grant of $263 received in the Singapore and China
operations, coupled with the increase in exchange gain as a result
of the favorable foreign exchange movement for the nine months
ended March 31, 2020.
The government grant was $295, of which $263 was related to the
financial assistance from the local governments in the Singapore
and China operations to mitigate the negative impact to companies
amid the COVID-19 pandemic.
Income Tax Expenses
Income tax expenses for the nine months ended March 31, 2020 was
$112, a decrease of $47 as compared to $159 for the same period
last fiscal year.
Non-controlling Interest
As of March 31, 2020, 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 the non-controlling interest in
these subsidiaries for the nine months ended March 31, 2020 was
$356, a change of $485, as compared to the loss attributable to
non-controlling interest of $129 for the same period of last fiscal
year. The increase was attributable to the increase in net
income generated by the Malaysia operation from the sale of assets
held for sale.
Net Income Attributable to Trio-Tech International Common
Shareholders
Net income attributable to Trio-Tech international common
shareholders was $769 for the nine months ended March 31, 2020, as
compared to $1,096 for the same period in the last fiscal year. The
increase was mainly due to the gain on sale of assets held for sale
in the Malaysia operation, coupled with the government grants
received from the Singapore and China government. However, the
increase was partially offset by a decrease in revenue and gross
margin, and an increase in operating expenses, as discussed
earlier.
Earnings per Share
Basic earnings per share from continuing operations was $0.21 for
the nine months ended March 31, 2020 as compared to $0.30 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, 2020 and 2019.
Diluted earnings per share from continuing operations was $0.21 for
the nine months ended March 31, 2020 as compared to $0.29 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, 2020 and 2019.
Segment Information
The revenue, gross profit margin, and income or loss from
operations in each segment for the nine months ended March 31, 2020
and 2019, 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 (loss)/income from operations for the
manufacturing segment for the nine months ended March 31, 2020 and
2019 were as follows:
|
|
|
|
|
(Unaudited)
|
|
|
Revenue
|
$8,881
|
$10,086
|
Gross margin
|
23.6%
|
22.6%
|
(Loss)/income from operations
|
$(201)
|
$175
|
Loss from operations from the manufacturing segment was $201
for the nine months ended March 31, 2020, a change of $376 as
compared to income from operations of $175 in the same period of
the last fiscal year, due to a decrease in the absolute amount of
gross margin and an increase in operating expenses. Operating
expenses for the manufacturing segment were $2,293 and $2,105 for
the nine months ended March 31, 2020 and 2019, respectively. The
increase in operating expenses of $188 was mainly due to an
increase in general and administrative expenses of $200, an
increase in corporate overhead of $10 and an increase in research
and development expenses of $10 as compared to the same period of
last fiscal year. The increase was partially offset by a decrease
in selling expenses of $32. The increase in general and
administrative expenses was mainly attributable to an increase in
payroll-related expenses and a provision of doubtful debt in the
Singapore operations. The decrease in selling expenses was
primarily due to fewer commission expenses incurred for the nine
months ended March 31, 2020 as a result of fewer commissionable
sales.
Testing Segment
The revenue, gross margin and loss from operations for the testing
segment for the nine months ended March 31, 2020 and 2019 were as
follows:
|
|
|
|
|
(Unaudited)
|
|
|
Revenue
|
$12,018
|
$12,819
|
Gross margin
|
24.7%
|
27.1%
|
Loss from operations
|
$(540)
|
$(134)
|
Loss from operations in the testing segment for the nine months
ended March 31, 2020 was $540, a further deterioration of $406
compared to loss from operations of $134 in the same period of the
last fiscal year. The deterioration in the operation loss was
attributable to a decrease in gross margin of $496. The
deterioration was partially offset by a decrease in corporate
overhead expenses of $87. The decrease in corporate overhead
expenses was due to a change in the corporate overhead allocation
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, 2020 and
2019 were as follows:
|
|
|
|
|
(Unaudited)
|
|
|
Revenue
|
$6,338
|
$5,587
|
Gross margin
|
13.9%
|
13.5%
|
Income from operations
|
$599
|
$492
|
Income from operations in the distribution segment for the nine
months ended March 31, 2020 was $599, an increase of $107 as
compared to $492 in the same period of the last fiscal
year. The increase in operating income was primarily due to an
increase in gross margin as discussed earlier which was partially
offset by the increase of operating expenses of $22. Operating
expenses were $286 and $264 for the nine months ended March 31,
2020 and 2019, respectively. The increase in payroll-related
expenses in the Singapore operations contributed to the increase in
operating expenses.
Real Estate Segment
The revenue, gross margin and loss from operations for the real
estate segment for the nine months ended March 31, 2020 and 2019
were as follows:
|
|
|
|
|
(Unaudited)
|
|
|
Revenue
|
$49
|
$81
|
Gross (loss) / margin
|
(10.2)%
|
35.8%
|
Loss from operations
|
$(82)
|
$(30)
|
Loss from operations in the real estate segment for the nine months
ended March 31, 2020 was $82, a further deterioration of $52 as
compared to a loss from operations of $30 for the same period of
the last fiscal year. The increase in operating loss was
mainly due to a decrease in gross margin and an increase in
operating expenses of $18, as discussed earlier. Operating expenses
were $77 and $59 for the nine months ended March 31, 2020 and 2019,
respectively. A provision of doubtful debts was made due to the
adverse impact of COVID-19 on one of our tenants.
Corporate
The loss from operations for corporate for the nine months ended
March 31, 2020 and 2019 were as
follows:
|
|
|
|
|
(Unaudited)
|
|
|
Loss from operations
|
$(94)
|
$(30)
|
The change of $64 was mainly due to an increase in payroll related
expenses as compared to the same period of last fiscal
year.
Financial Condition
During the nine months ended March 31, 2020 total assets increased
by $269 from $36,527 as at June 30, 2019 to $36,796. The increase
in total assets was due to an increase in short term deposits,
other receivables, deferred tax assets and operating lease
right-of-use assets, which was partially offset by a decrease in
cash and cash equivalents, trade accounts receivable, inventory,
prepaid expenses and other current assets, assets held for sale,
investment properties, property, plant and equipment, other assets
and restricted term deposits.
Cash and cash equivalents were $4,370 as at March 31, 2020,
reflecting a decrease of $493 from $4,863 as at June 30, 2019,
primarily due to further placement made into fixed deposits in the
Singapore and Malaysia operations.
Short term deposits were $6,309 as at March 31, 2020,
reflecting an increase of $2,165 from $4,144 as at June 30,
2019, primarily due to an increase in deposits in the Singapore and
Malaysia operations. The short-term deposits include proceeds
received from the sale of assets held for sale.
As at March 31, 2020, the trade accounts receivable balance
decreased by $716 to $6,397, from $7,113 as at June 30, 2019,
primarily due to a decrease in revenue for the nine months ended
March 31, 2020 in the Singapore, Malaysia and China operations. The
number of days’ sales outstanding in accounts receivables for
the Group was 67 days at the end of the third quarter of fiscal
year 2020, and 70 days at the end of the third quarter of fiscal
year 2019.
As at March 31, 2020, other receivables were $1,065, reflecting an
increase of $248 from $817 as at June 30, 2019. The increase was
primarily due to an increase in government grant receivables in the
Singapore operation.
Inventories as at March 31, 2020 were $2,226, a decrease of $201,
as compared to $2,427 as at June 30, 2019. The decrease in
inventories was mainly due to a decrease in purchases due to fewer
orders in the manufacturing segment of the Singapore operations, as
well as an impact from currency translation.
Investment properties, net in China were $705 as at March 31, 2020
and $782 as at June 30, 2019. The decrease was primarily due
to the depreciation expenses charged for the period, as well as the
foreign currency exchange movement between June 30, 2019 and March
31, 2020.
Assets held for sales were $nil as at March 31, 2020 and $89 as at
June 30, 2019. Management entered into a Sales and Purchase
Agreement with a potential buyer during fiscal year 2019 and the
sale was completed during the second quarter of fiscal
2020.
Property, plant and equipment decreased by $1,562 from $12,159 as
at June 30, 2019, to $10,597 as at March 31, 2020. This was mainly
due to depreciation charged for the period and the foreign currency
exchange movement between June 30, 2019 and March 31, 2020, coupled
with an impairment loss of $139 recognized in the China
operation. The decrease was partially offset by the new
acquisition of plant and equipment in the Malaysia
operation.
Other assets decreased by $155 to $1,595 as at March 31, 2020, as
compared to $1,750 as at June 30, 2019. This was mainly
due to the reclassification of down payments made for the purchase
of equipment to property, plant and equipment in the Malaysia
operation.
Accounts payable decreased by $143 to $3,129 as at March 31, 2020,
as compared to $3,272 as at June 30, 2019. This was due to a
decrease in purchases due to fewer orders in the manufacturing
segment of the Singapore operation.
Accrued expenses decreased by $421 to $3,065 as at March 31, 2020,
as compared to $3,486 as at June 30, 2019. The decrease in accrued
expenses was mainly due to a decrease in both accrued purchases and
accrued payroll liability in the Singapore operations.
Bank loans payable decreased by $483 to $2,297 as at March 31,
2020, as compared to $2,780 as at June 30, 2019. This was due to
the repayments made in the Singapore and Malaysia operations during
the nine months ended March 31, 2020.
Operating lease right of use assets and the corresponding leased
liability were $1,073 and $1,073, respectively, as of March 31,
2020, after taking into effect the new accounting standard,
ASC 842
Leases.
Liquidity Comparison
Net cash provided by operating activities decreased by $834 to an
inflow of $2,096 for the nine months ended March 31, 2020 from an
inflow of $2,930 for the same period of the last fiscal year. The
decrease in net cash inflow provided by operating activities was
primarily due to an increase of cash outflow of $398 from repayment
of operating leases, a decrease in cash inflow of $388 from other
assets and an increase in cash outflow of $509 from account
payables and accrued expenses. These were partially offset by an
increase in depreciation and amortization of $573.
Net cash used in investing activities decreased by $2,628 to an
outflow of $1,941 for the nine months ended March 31, 2020 from an
outflow of $4,569 for the same period of the last fiscal year. The
decrease in cash outflow was primarily due to an increase in
proceeds from the sale of assets held for sale of $318 and a
decrease in capital expenditure of $1,728.
Net cash used in financing activities for the nine months ended
March 31, 2020 was $296, representing an increase of $133, as
compared to $163 during the nine months ended March 31, 2019. The
increase in cash outflow was mainly attributable to a decrease in
cash inflow by $3,905 from proceeds of lines of credit, a decrease
of $1,475 from bank loans and a decrease of $401 from the exercise
of stock options. These were partially offset by a decrease in cash
outflow of $5,426 from repayment of lines of credit and an increase
of cash inflow of $247 from the proceeds from financial
leases.
We believe that our projected cash flows from operations, borrowing
availability under our revolving lines of credit, cash on hand,
trade credit and the secured bank loan will provide the necessary
financial resources to meet our projected cash requirements for at
least the next 12 months.
Critical Accounting Estimates & Policies
Effective
as of July 1, 2019, the Company has adopted ASU 2016-02, Leases (Topic 842) and its
related amendments using the modified retrospective transition
method. We have completed our adoption and implemented policies,
processes and controls to support the standard’s measurement
and disclosure requirements as
described in Note 1 to the financial statements included in item 1
of this Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was carried out by the Company’s Chief
Executive Officer and Chief Financial Officer of the effectiveness
of the Company’s disclosure controls and procedures (as
defined in Rule 13a-15(e) or 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of March 31, 2020, the end of
the period covered by this Form 10-Q. Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded
that these disclosure controls and procedures were effective at a
reasonable level.
Changes in Internal Control Over Financial Reporting
Due to the COVID-19 pandemic, a significant portion of our
employees are working from home. The design of our processes and
controls allows for remote execution with accessibility to secure
data.
Except as discussed below, there has been no change in the
Company’s internal control over financial reporting during
the fiscal quarter ended March 31, 2020, that has materially
affected, or is reasonably likely to materially affect, the
Company’s internal control over financial
reporting.
Enterprise Resource Planning (ERP) Implementation
We are in the process of implementing an ERP System, as part of a
multi-year plan to integrate and upgrade our systems and processes.
The implementation of this ERP system was scheduled to occur in
phases over a few years, and began with the migration of certain
operational and financial systems in our Singapore operations to
the new ERP system during the second quarter of fiscal
2017.
During the third quarter of fiscal 2018, the operational and
financial systems in Singapore were substantially transitioned to
the new system. The operational and financial systems in our
Malaysia operation were substantially transitioned to the new
system during the first quarter of fiscal 2019.
The operational systems in our Tianjin and Suzhou operations were
substantially transitioned to the new system during the third
quarter of fiscal 2020. This implementation effort will continue
until the financial systems of these two operations are fully
transitioned to the new system, and until the Group's consolidation
process is substantially automated using 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.
ITEM 5. OTHER
INFORMATION
Not applicable.
ITEM 6.
EXHIBITS
|
|
Rule 13a-14(a) Certification of Principal Executive Officer of
Registrant
|
|
|
Rule 13a-14(a) Certification of Principal Financial Officer of
Registrant
|
|
|
Section 1350 Certification
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
101.SCH
|
|
XBRL Taxonomy Extension Schema
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly
authorized.
|
TRIO-TECH INTERNATIONAL
|
|
By:
|
/s/
Victor H.M. Ting
VICTOR H.M. TING
Vice President and Chief Financial Officer
(Principal Financial Officer)
Dated: May 21, 2020
|