1.ORGANIZATION AND BASIS OF PRESENTATION
Trio-Tech International (“the Company” or “TTI” hereafter) was incorporated in fiscal 1958 under the laws of the State of California. TTI provides third-party semiconductor testing and burn-in services primarily through its laboratories in Southeast Asia. In addition, TTI operates testing facilities in the United States. The Company also designs, develops, manufactures and markets a broad range of equipment and systems used in the manufacturing and testing of semiconductor devices and electronic components. TTI conducts business in five business segments: Manufacturing, Testing Services, Fabrication Services, Distribution and Real Estate. TTI has subsidiaries in the U.S.A, Singapore, Malaysia, Thailand, China and Indonesia as follows:
| |
Ownership
|
Location
|
| |
|
|
|
Express Test Corporation (dormant)
|
100%
|
Van Nuys, California
|
|
Trio-Tech Reliability Services (dormant)
|
100%
|
Van Nuys, California
|
|
KTS Incorporated, dba Universal Systems (dormant)
|
100%
|
Van Nuys, California
|
|
European Electronic Test Centre (Operation ceased on November 1, 2005)
|
100%
|
Dublin, Ireland
|
|
Trio-Tech International Pte. Ltd.
|
100%
|
Singapore
|
|
Universal (Far East) Pte. Ltd.
|
100%
|
Singapore
|
|
Trio-Tech Thailand
|
100%
|
Bangkok, Thailand
|
|
Trio-Tech Bangkok
|
100%
|
Bangkok, Thailand
|
|
Trio-Tech Malaysia
|
55%
|
Penang and Selangor, Malaysia
|
|
Trio-Tech Kuala Lumpur – 100% owned by Trio-Tech Malaysia
|
55%
|
Selangor, Malaysia
|
|
Prestal Enterprise Sdn. Bhd.
|
76%
|
Selangor, Malaysia
|
|
Trio-Tech (Suzhou) Co., Ltd.
|
100%
|
Suzhou, China
|
|
Trio-Tech (Shanghai) Co., Ltd.
|
100%
|
Shanghai, China
|
|
Trio-Tech (Chongqing) Co., Ltd.
|
100%
|
Chongqing, China
|
|
SHI International Pte., Ltd.
|
55%
|
Singapore
|
|
PT SHI Indonesia (acquired on July 1, 2009)
|
55%
|
Batam, Indonesia
|
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All significant inter-company accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements are presented in U.S. dollars. The accompanying condensed consolidated financial statements do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the six months ended December 31, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2010. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report for the fiscal year ended June 30, 2009.
New Accounting Policy:
Revenue Recognition — We adopted the following revenue recognition policy for our fabrication service segment which was acquired in the first quarter of fiscal 2010.
In the fabrication services segment, revenue is recognized from long-term, fixed-price contracts using the percentage-of-completion method of accounting, (1) Input measures - measured by multiplying the estimated total contract value by the ratio of actual contract costs incurred to date to the estimated total contract costs (2) Output measures – measured based on completion on results achieved - units produced or units delivered. The Company makes significant estimates involving its usage of percentage-of-completion accounting to recognize contract revenues. The Company periodically reviews contracts in process for estimates-to-completion, and revises estimated gross profit accordingly. While the Company believes its estimated gross profit on contracts in process is reasonable, unforeseen events and changes in circumstances can take place in a subsequent accounting period that may cause the Company to revise its estimated gross profit on one or more of its contracts in process. Accordingly, the actual gross profit realized upon completion of such contracts can vary significantly from estimated amounts between accounting periods.
Reclassification: — Certain reclassifications have been made to the previous year’s financial statements to conform to current year presentation, with no effect on previously reported net income.
|
2.
|
ACQUISITION OF PT SHI INDONESIA, BATAM, INDONESIA
|
On July 1, 2009, SHI International Pte., Ltd., a 55% owned subsidiary of the Company, consummated the acquisition of a 100% interest in PT SHI Indonesia, pursuant to the Share Purchase Agreement dated April 7, 2009. PT SHI Indonesia is an Indonesia–based enterprise providing fabrication of large and complex structures employed to process oil and gas and for temporary storage of the oil prior to transshipment, and related services for the offshore oil and gas industries. The Company’s objective for acquiring this business was to diversify its business, reduce the risk associated with sole industry focus, and enhance the Company’s future growth opportunities. There were operating activities in PT SHI Indonesia for the six months ended December 31, 2008. Beginning on July 1, 2009, the operating results of this subsidiary were included in the consolidated statements of the Company for the six months ended December 31, 2009. Fabrication services are included in the Company’s new segment “fabrication services”. This acquisition transaction was not considered significant to the Company.
Pursuant to the Share Purchase Agreement, the purchase price was approximately $113, consisting of $10 in cash and $103 in a contingent note payables. In accordance with ASC Top 805, Business Combinations, the Company allocated the purchase price to the tangible assets and liabilities based on their estimated fair values. The fair value assigned to intangible assets acquired was based on estimates and assumptions determined by management. Management determined that the fair value attributable to non-controlling was nil due to the negative net asset value and the control premium associated with the Company’s majority ownership. Therefore, 100% of the goodwill was allocated to the majority shareholder, the Company. The total purchase price was allocated as follows (in thousands):
| |
|
|
|
Total purchase price:
|
|
|
|
Cash
|
|
$ |
10 |
|
|
Contingent note payable
|
|
|
103 |
|
| |
|
|
|
|
| |
|
$ |
113 |
|
|
Allocated as follows:
|
|
|
|
|
|
$ |
235 |
|
|
|
|
|
261 |
|
|
|
|
|
332 |
|
|
|
|
|
298 |
|
Accounts payable and accrued expenses
|
|
|
(876 |
) |
Other non-current liabilities
|
|
|
(568 |
) |
|
|
|
$ |
(318 |
) |
|
|
|
|
|
|
|
|
431 |
|
| |
|
$ |
113 |
|
| |
|
|
The contingent note payable of $103 recorded during the six months ended December 31, 2009 was related to agreements to pay additional amounts based on achievement of certain performance measures for up to two years ending after the acquisition date. The excess purchase price over the fair value of net assets acquired was recorded as goodwill. Goodwill will not be amortized, but will be evaluated for impairment annually or whenever events or changes in circumstances indicate that the value of a certain asset may be impaired. The goodwill is not tax deductible.
The unaudited financial information in the table below summarizes the combined results of the operations of the Company and the new Fabrication Services segment for the three and six months ended December 31, 2009 as if the acquisition had occurred on July 1, 2008. The results from operations for the three and six months ended December 31, 2009 included the acquisition of PT SHI Indonesia, Batam , Indonesia that was completed at the beginning of the first quarter of fiscal 2009.
The pro forma results are presented for information purposes only and are not necessarily indicative of the results of operations that would have been achieved had the acquisition taken place at the beginning of the three and six months ended December 31, 2008. The unaudited pro forma combined the statement of operations for the three and six months ended December 31, 2008 and historical results for the new Fabrication & Services segment for the period preceding the acquisition on July 1, 2008.
The following amounts are in thousands.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2008
| |
Historical Information
of the Company (1)
|
|
Historical Information
of the Acquired Entity
|
|
|
| |
(Unaudited)
|
|
(Unaudited)
|
|
Pro Forma |
|
Net sales
|
$ |
5,805 |
|
$ |
67 |
|
|
$ |
5,872 |
|
|
Net loss
|
$ |
(426 |
) |
$ |
(404 |
) |
|
$ |
(830 |
) |
|
Basic loss per share
|
$ |
(0.13 |
) |
|
(0.13 |
) |
|
$ |
(0.26 |
) |
|
Diluted loss per share
|
$ |
(0.13 |
) |
|
(1.13 |
) |
|
$ |
(0.26 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
|
3,227 |
|
|
- |
|
|
|
3,227 |
|
|
Diluted weighted average common shares outstanding
|
|
3,227 |
|
|
- |
|
|
|
3,227 |
|
Note: The currency exchange rate is based on the average exchange rate of the related period.
|
1.
|
The historical operating results of the Company were based on the Company’s unaudited financial statement in this Form 10-Q filed with the SEC for the three-month period ended December 31, 2008
|
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2008
| |
Historical Information
of the Company (1)
|
|
|
Historical Information of the Acquired Entity
|
|
|
|
|
| |
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Pro Forma
|
|
|
Net sales
|
$ |
12,049 |
|
|
$ |
67 |
|
|
$ |
12,116 |
|
|
Net loss
|
$ |
(1,145 |
) |
|
$ |
(404 |
) |
|
$ |
(1,549 |
) |
|
Basic loss per share
|
$ |
(0.35 |
) |
|
|
(0.13 |
) |
|
$ |
(0.48 |
) |
|
Diluted loss per share
|
$ |
(0.35 |
) |
|
|
(0.13 |
) |
|
$ |
(0.48 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
|
3,227 |
|
|
|
- |
|
|
|
3,227 |
|
|
Diluted weighted average common shares outstanding
|
|
3,227 |
|
|
|
0 |
|
|
|
3,227 |
|
Note: The currency exchange rate is based on the average exchange rate of the related period.
1. The historical operating results of the Company were based on the Company’s unaudited financial statement in its Form 10-Q filed with the SEC for the six month period ended December 31, 2008.
3.NEW ACCOUNTING PRONOUNCEMENTS
In June 2009 the FASB established the Accounting Standards Codification ("Codification" or "ASC") as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States ("GAAP"). Rules and interpretive releases of the Securities and Exchange Commission ("SEC") issued under authority of federal securities laws are also sources of GAAP for SEC registrants. Existing GAAP was not intended to be changed as a result of the Codification, and accordingly the change did not impact our financial statements. The ASC does change the way the guidance is organized and presented.
Statement of Financial Accounting Standards ("SFAS") SFAS No. 165 (ASC Topic 855), Subsequent Events, SFAS No. 166 (ASC Topic 810), Accounting for Transfers of Financial Assets-an Amendment of FASB Statement No. 140, SFAS No. 167 (ASC Topic 810), Amendments to FASB Interpretation No. 46(R), and SFAS No. 168 (ASC Topic 105), The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles-a Replacement of FASB Statement No. 162 were recently issued. SFAS No. 165, 166, 167, and 168 have no current applicability to the Company or their effect on the financial statements would not have been significant.
Accounting Standards Update ("ASU") ASU No. 2009-05 (ASC Topic 820), which amends Fair Value Measurements and Disclosures - Overall, ASU No. 2009-13 (ASC Topic 605), Multiple-Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985), Certain Revenue Arrangements that include Software Elements, and various other ASU's No. 2009-2 through ASU No. 2009-15 which contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued. These updates have no current applicability to the Company or their effect on the financial statements would not have been significant.
The FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, on June 29, 2009 and, in doing so, authorized the Codification as the sole source for authoritative U.S. GAAP. SFAS No. 168 is effective for financial statements issued for reporting periods that end after September, 15, 2009. SFAS 168 supersedes all accounting standards for U.S. GAAP, aside from those issued by the SEC. SFAS No. 168 replaces No. 162 to establish a new hierarchy of GAAP sources for non-governmental entities under the FASB Accounting Standard Codification.
In July 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The FASB Accounting Codification and the Hierarchy of Generally Accepted Accounting Principles (“SFAS. 168"). Statement No. 168 supersedes Statement No. 162 issued in May 2008. Statement No. 168 will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. This Statement is effective for interim and annual periods ending after September 15, 2009, including the period covered by this report. The adoption of Statement No.168 does not materially impact the Company’s consolidated financial position or results of operations.
In June 2009, the FASB issued SFAS No. 167 Amendments to FASB Interpretation No. 46(R). This standard changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The statement becomes effective as to the Company on December 31, 2010. The Company is currently evaluating the impact this statement may have on our consolidated results of operations and financial condition and does not expect the impact, if any, to be material.
Effective June 30, 2009, the Company adopted a new accounting standard included in ASC 855 Subsequent Events that establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. This new accounting standard provides guidance on the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The implementation of this standard did not have a material impact on our condensed consolidated financial statements. The Company evaluated subsequent events through February 12, 2010, the date the accompanying financial statements were issued.
August 2009, the FASB issued the FASB Accounting Standards Update No. 2009-05 Fair Value Measurement and Disclosures Topic 820 - Measuring Liabilities at Fair Value, which provides amendments to subtopic 820-10, Fair Value Measurements and Disclosures - Overall, for the fair value measurement of liabilities. This update provides clarification on the methods to be used in circumstances in which a quoted price in an active market for the identical liability is not available. The provisions of ASU 2009-05 were effective for the third quarter of 2009. The adoption of ASU 2009-05 did not have a material impact on the Company’s financial statements.
In August 2009, the FASB issued an Update to ASC 820, Fair Value Measurements and Disclosures 2009-05 Measuring Liabilities at Fair Value, to provide guidance on measuring the fair value of liabilities under ASC 820. This update clarifies the fair value measurements for a liability in an active market and the valuation techniques in the absence of a Level 1 measurement. This update became effective for the interim period beginning October 1, 2009. The adoption of this update does not have a material impact on the Company’s consolidated financial statements.
In August 2009, the FASB issued new accounting guidance to provide clarification on measuring liabilities at fair value when a quoted price in an active market is not available. This guidance became effective as to the Company on October 1, 2009 and does not have significant impact on the Company’s consolidated financial position or results of operations.
In September 2009 the New FASB Accounting Standards Update 2009-08 issued in Earnings Per Share (amendments to Section 260-10-S99). This update includes technical corrections to Topic 260-10-S99 Earnings Per Share, based on EITF Topic D-53, “Computation of Earnings Per Share for a Period that includes redemption or an induced conversion of a portion of a class of preferred stock” and EITF Topic D-42, “The effect of the calculation of Earnings Per Share for the redemption or induced conversion of preferred stock.” Implementation of this does not have an impact on its results or financial position of the Company.
In October 2009, FASB issued ASU No. 2009-13, “Revenue Recognition (Topic 605): “Multiple Deliverable Revenue Arrangements” (a Consensus of the FASB EITF). ASU No. 2009-13 modifies ASC 605-25, “Revenue Recognition - Multiple-Element Arrangements” (formerly EITF 00-21). ASU No. 2009-13 requires an entity to allocate the revenue at the inception of an arrangement to all of its deliverables based on their relative selling prices. This guidance eliminates the residual method of allocation of revenue in multiple deliverable arrangements and requires the allocation of revenue based on the relative-selling-price method. The determination of the selling price for each deliverable requires the use of a hierarchy designed to maximize the use of available objective evidence, including, VSOE, third party evidence of selling price (TPE), or estimated selling price (ESP).
In October 2009, FASB issued Accounting Standards Update (ASU) No. 2009-14, Topic 985: Certain Revenue Arrangements That Include Software Elements (a Consensus of the FASB Emerging Issues Task Force Issue (EITF)). ASU No. 2009-14 modifies ASC 985-605, Software Revenue, such that the following products would be considered non-software deliverables and therefore excluded from the scope of ASC 985-605:
|
·
|
Tangible products that contain software elements and non-software elements that function together to deliver the tangible product’s essential functionality.
|
|
·
|
Undelivered elements that are essential to the above described tangible product’s functionality.
|
ASU No. 2009-13 and ASU No. 2009-14 must be adopted no later than the beginning of the Company’s fiscal year 2011 and early adoption is allowed and may be adopted either under the prospective method, whereby the guidance will apply to all revenue arrangements entered into or materially modified after the effective date, or under the retrospective application, whereby the guidance will apply to all revenue arrangements for all periods presented. An entity may elect to adopt ASU No. 2009-13 and ASU No. 2009-14 in a period other than their first reporting period of a fiscal year under the prospective method but must adjust the revenue of prior reported periods such that all new revenue arrangements entered into, or materially modified, during the fiscal year of adoption are accounted for under this guidance.
The adoption of ASU No. 2009-13 and ASU No. 2009-14 will allow the separation of deliverables under more arrangements which may result in less revenue deferral. For such arrangements, the application of the relative-selling price method of allocating the revenue of an arrangement and the elimination of the residual method of allocation may result in a different reallocation of revenue from product revenue, which is recognized upon delivery, to support revenue, which is recognized ratably over the support period.
The Company is currently evaluating the impact of these pronouncements on its financial position and results of operations.
4. INVENTORIES
Inventories consisted of the following:
| |
|
Dec. 31,
|
|
|
|
|
| |
|
2009
|
|
|
June 30,
|
|
| |
|
(Unaudited)
|
|
|
2009
|
|
| |
|
|
|
|
|
|
|
Raw materials
|
|
$ |
1,127 |
|
|
$ |
1,084 |
|
|
Work in progress
|
|
|
1,041 |
|
|
|
645 |
|
|
Finished goods
|
|
|
151 |
|
|
|
173 |
|
|
Less: provision for obsolete inventory
|
|
|
(834 |
) |
|
|
(718 |
) |
| |
|
$ |
1,485 |
|
|
$ |
1,184 |
|
5. STOCK OPTIONS
As of December 31, 2009, there were no outstanding options to purchase Common Stock which had been granted pursuant to the 1998 Employee Option Plan, which plan was terminated on December 2, 2005 by the Company’s Board of Directors.
On September 24, 2007, the Company’s Board of Directors unanimously adopted the 2007 Employee Stock Option Plan and the 2007 Directors Equity Incentive Plan, which were approved by the shareholders on December 3, 2007. The 2007 Employee Stock Option Plan provides for awards of up to 300,000 shares of the Company’s Common Stock to employees, consultants and advisors. The 2007 Directors Equity Incentive Plan provides for awards of up to 200,000 shares of the Company’s Common Stock to the members of the Board of Directors in the form of non-qualified options and restricted stock. These two plans are administered by the Board, which also establishes the terms of the awards.
Assumptions
The fair value for these awards was estimated using the Black-Scholes option pricing model with the following weighted average assumptions, assuming no expected dividends:
| |
|
Six Months Ended
|
|
|
Year Ended
|
|
| |
|
December 31, 2009
|
|
|
June 30, 2009
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The expected volatilities are based on the historical volatility of the Company’s stock. The observation is made on a weekly basis. The observation period covered is consistent with the expected life of options. The expected term of options granted to employees has been determined utilizing the “simplified” method as prescribed by SAB No. 107, Share-Based Payment, as amended by SAB No. 110 on January 1, 2008, which, among other provisions, allowed companies without access to adequate historical data about employee exercise behavior to use a simplified approach for estimating the expected term of a "plain vanilla" option grant. The simplified rule for estimating the expected term of such an option was the average of the time to vesting and the full term of the option. The risk-free rate is consistent with the expected terms of the stock options and is based on the United States Treasury yield curve in effect at the time of grant.
|
|
2007 Employee Stock Option Plan
|
The Company’s 2007 Employee Stock Option Plan (the “2007 Employee Plan”), which is shareholder-approved, permits the grant of stock options to its employees of up to 300,000 shares of Common Stock. Under the 2007 Employee Plan, all options must be granted with an exercise price of not less than “fair market value” as of the grant date and the options granted should be exercisable within a maximum of ten years after the date of grant, or such lesser period of time as is set forth in the stock option agreements. The options may be exercisable (a) immediately as of the effective date of the stock option agreement granting the option, or (b) in accordance with a schedule related to the date of the grant of the option, the date of first employment, or such other date as may be set by the Compensation Committee. Generally, options granted under the 2007 Employee Plan are exercisable within five years after the date of grant, and vest over the period as follows: 25% vesting on the grant date and the remaining balance vesting in equal installments on the next three succeeding anniversaries of the grant date. The share-based compensation will be recognized in terms of the grade method over the vesting period. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the 2007 Employee Plan).
The Company did not grant any options pursuant to the 2007 Employee Plan during the six months ended December 31, 2009. The Company recognized stock-based compensation expenses of $88 in the six months ended December 31, 2009 under the 2007 Employee Plan. The balance of unamortized stock-based compensation of $148 based on fair value on the grant date related to options granted under the 2007 Employee Plan is expected to be recognized over a period of three years.
During the six months ended December 31, 2008, pursuant to the 2007 Employee Plan, 50,000 shares of stock options were granted to certain officers and employees with an exercise price equal to the fair market value of the Company’s Common Stock (as defined under the 2007 Employee Plan in conformity with Regulation 409A of the Internal Revenue Code of 1986, as amended) at the date of grant. These options vest over the period as follows: 25% vesting on the grant date, and the balance vesting in equal installments on the next three succeeding anniversaries of the grant date. The fair market value of 50,000 shares of the Company’s Common Stock issuable upon exercise of stock options granted was approximately $136 based on the fair value of $2.71 per share determined by using the Black Scholes option pricing model.
The Company recognized stock-based compensation expense of approximately $112 in the six months ended December 31, 2008 under the 2007 Employee Plan. Unamortized stock-based compensation of $135 based on fair value on the grant date related to options granted under the 2007 Employee Plan is expected to be recognized over a period of three years.
As of December 31, 2009, there were vested employee stock options covering a total of 102,125 shares of Common Stock. The weighted-average exercise price was $4.70 and the weighted average remaining contractual term was 3.75 years. The total intrinsic value of vested employee stock options during the six month period ended December 31, 2009 was $74. A summary of option activities under the 2007 Employee Plan during the six month period ended December 31, 2009 is presented as follows:
| |
|
|
|
|
Weighted- Average
|
|
|
Weighted - Average Remaining Contractual
|
|
|
Aggregate
|
|
| |
|
Options
|
|
|
Exercise
Price
|
|
|
Term (Years)
|
|
|
Intrinsic
Value
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 1, 2009
|
|
|
|
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|
|
|
|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
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|
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|
|
|
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|
|
|
|
|
|
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|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the status of the Company’s non-vested employee stock options during the six months ended December 31, 2009 is presented below:
| |
|
|
|
|
Weighted-Average Grant-Date
|
|
| |
|
Options
|
|
|
Fair Value
|
|
| |
|
|
|
|
|
|
Non-vested at July 1, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2009
|
|
|
|
|
|
|
|
|
2007 Directors Equity Incentive Plan
The 2007 Directors Equity Incentive Plan (the “2007 Directors Plan”), which is shareholder-approved, permits the grant of 200,000 shares of Common Stock to its duly elected non-employee directors in the form of non-qualified options and restricted stock. The exercise price of the non-qualified options is 100% of the fair market value of the underlying shares on the grant date. The options have five-year contractual terms and are generally exercisable immediately as of the grant date.
During the six months ended December 31, 2009, the Company did not grant any options pursuant to the 2007 Directors Plan.
During the six months ended December 31, 2008, pursuant to the 2007 Directors Plan, stock options covering 60,000 shares of Common Stock were granted to our directors with an exercise price equal to the fair market value of our Common Stock (as defined under the 2007 Directors Plan in conformity with Regulation 409A or the Internal Revenue Code of 1986, as amended) at the date of grant. The fair market value of the 60,000 shares of the Company’s Common Stock issuable upon exercise of such stock options was approximately $163 based on the fair value of $2.71 per share determined by the Black Scholes option pricing model.
There were no options exercised under the 2007 Directors Equity Incentive Plan during the six months ended December 31, 2009 and 2008. The Company recognized stock-based compensation expense of zero and $163 in the six month period ended December 31, 2009 and 2008, respectively, under the 2007 Directors Plan.
The total intrinsic value of directors’ stock options during the six month period ended December 31, 2009 was $121. A summary of option activities under the 2007 Employee Plan during the six month period ended December 31, 2009 is presented as follows:
| |
|
|
|
|
Weighted- Average
|
|
|
Weighted - Average Remaining Contractual
|
|
|
Aggregate
|
|
| |
|
Options
|
|
|
Exercise
Price
|
|
|
Term (Years)
|
|
|
Intrinsic
Value
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 1, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998 Stock Option Plan
A summary of option activities under the 1998 Plan during the six month period ended December 31, 2009 is presented as follows:
| |
|
|
|
|
Weighted- Average
|
|
|
Weighted - Average Remaining Contractual
|
|
|
Aggregate
|
|
| |
|
Options
|
|
|
Exercise
Price
|
|
|
Term (Years)
|
|
|
Intrinsic
Value
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 1, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. EARNINGS PER SHARE
The Company adopted ASC Topic 215, Statement of Shareholder Equity. Basic EPS are 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 483,000 shares of Common Stock at exercise prices ranging from $1.72 to $9.57 per share as of December 31, 2009 were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.
Options to purchase 214,750 shares of Common Stock at exercise prices ranging from $4.40 to $9.57 per share were outstanding as of December 31, 2008 were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.
The following table is a reconciliation of the weighted average shares used in the computation of basic and diluted EPS for the years presented herein:
| |
|
Six Months Ended
|
|
|
Three Months Ended
|
|
| |
|
Dec. 31,
|
|
|
Dec. 31,
|
|
|
Dec. 31,
|
|
|
Dec. 31,
|
|
| |
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
| |
|
Unaudited
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
Unaudited
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Trio-Tech International common shareholders
|
|
|
(791 |
) |
|
|
(1,145 |
) |
|
|
(369 |
) |
|
|
(426 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share attributable to Trio-Tech International common shareholders
|
|
|
(0.25 |
) |
|
|
(0.35 |
) |
|
|
(0.11 |
) |
|
|
(0.13 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share attributable to Trio-Tech International common shareholders
|
|
|
(0.25 |
) |
|
|
(0.35 |
) |
|
|
(0.11 |
) |
|
|
(0.13 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
|
|
3,227 |
|
|
|
3,227 |
|
|
|
3,227 |
|
|
|
3,227 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Number of shares used to compute earnings per share - diluted
|
|
|
3,227 |
|
|
|
3,227 |
|
|
|
3,227 |
|
|
|
3,227 |
|
7. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are customer obligations due under normal trade terms. Management performs continuing credit evaluations of the customers’ financial conditions, and although management generally does not require collateral, letters of credit may be required from the customers in certain circumstances.
Senior management reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. Management includes any accounts receivable balances that are determined to be uncollectible in the allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available to us, management believed the allowance for doubtful accounts as of December 31, 2009 and June 30, 2009 was adequate.
The following table represents the changes in the allowance for doubtful accounts:
| |
|
Dec. 31,
|
|
|
June 30,
|
|
| |
|
2009
|
|
|
2009
|
|
| |
|
(Unaudited)
|
|
|
|
|
|
Beginning
|
|
$ |
165 |
|
|
$ |
51 |
|
|
Additions charged to expenses
|
|
|
135 |
|
|
|
128 |
|
|
Recovered
|
|
|
(200 |
) |
|
|
(14 |
) |
|
Actual write-offs
|
|
|
- |
|
|
|
- |
|
|
Ending
|
|
$ |
100 |
|
|
$ |
165 |
|
8. WARRANTY ACCRUAL
The Company provides for the estimated costs that may be incurred under its warranty program at the time the sale is recorded. The Company provides warranty for products manufactured in the term of one year. The Company estimates the warranty costs based on the historical rates of warranty returns. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary.
| |
|
Dec. 31,
|
|
|
June 30,
|
|
| |
|
2009
|
|
|
2009
|
|
| |
|
(Unaudited)
|
|
|
|
|
|
Beginning
|
|
$ |
113 |
|
|
$ |
211 |
|
|
Additions charged to cost and expenses
|
|
|
30 |
|
|
|
- |
|
|
Reversal
|
|
|
(53 |
) |
|
|
(80 |
) |
|
Actual usage
|
|
|
(3 |
) |
|
|
(18 |
) |
|
Ending
|
|
$ |
87 |
|
|
$ |
113 |
|
9. INCOME TAX
The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of ASC Topic 740. The income tax benefit was $28 for the six months ended December 31, 2009 and tax expenses of $9 for the three months ended December 31, 2009 and the income tax expense was $36 for the six months and a tax benefit of $62 for three months ended December 31, 2008
The Company accrues penalties and interest related to unrecognized tax benefits when necessary as a component of penalties and interest expenses, respectively. The Company had not accrued any penalties or interest expenses relating to unrecognized benefits at June 30, 2009 and December 31, 2009.
The major tax jurisdictions in which the Company files income tax returns are the United States, Singapore and Malaysia. The statute of limitations, in general, is open for years 2002 to 2009 for tax authorities in those jurisdictions to audit or examine income tax returns. The Company is under annual review by the government of Singapore. However, the Company is not currently under tax examination in any other jurisdiction.
The Company has not recognized any income tax benefit according to the provisions of ASC Topic 740 during the current quarter in accordance with the provisions of ASC Topic 740.
10. INVESTMENT PROPERTY IN CHONGQING, CHINA
The following table presents the Company’s investment property in China as at December 31, 2009. The exchange rate is based on the exchange rate on December 31, 2009 published by the Monetary Authority of Singapore (MAS).
| |
|
|
Investment Amount
|
|
|
Investment Amount
|
|
| |
Investment Date |
|
(RMB)
|
|
|
(U.S. Dollars)
|
|
|
Investment in property with JiaSheng
|
08/28/07
|
|
|
10,000 |
|
|
|
1,464 |
|
|
Investment in property with JiaSheng
|
12/17/07
|
|
|
5,000 |
|
|
|
732 |
|
|
Return of investment in property with JiaSheng
|
06/26/08
|
|
|
(5,000 |
) |
|
|
(732 |
) |
|
Return of investment in property with JiaSheng
|
10/23/08
|
|
|
(1,988 |
) |
|
|
(291 |
) |
|
Return of investment in property with JiaSheng
|
11/16/09
|
|
|
(1,988 |
) |
|
|
(291 |
) |
|
Net Investment in JiaSheng
|
|
|
|
6,024 |
|
|
|
882 |
|
| |
|
|
|
|
|
|
|
|
|
|
Purchase on investment property Maoye
|
01/04/08
|
|
|
5,554 |
|
|
|
813 |
|
|
Purchase on investment property JiaSheng
|
10/23/08
|
|
|
7,042 |
|
|
|
1,031 |
|
|
Additional cost of investment
|
|
|
|
209 |
|
|
|
31 |
|
|
Net Investment in Property
|
|
|
|
12,805 |
|
|
|
1,875 |
|
| |
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
|
(894 |
) |
|
|
(130 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Total Investment in China by Chongqing
|
|
|
RMB 19,723
|
|
|
$ |
2,627 |
|
In June 2007, Trio-Tech International Pte., Ltd. established a subsidiary in Chongqing, China. Trio-Tech (Chongqing) Co., Ltd. has a registered capital of RMB 20,000 (Chinese yuan), or equivalent to approximately U.S. $2,600, and is wholly owned by Trio-Tech International Pte., Ltd.
On August 27, 2007, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement with JiaSheng Property Development Co., Ltd. (“JiaSheng”) to jointly develop a piece of property with 24.91 acres owned by JiaSheng located in Chongqing City, China, which is intended for sale after the completion of development. Pursuant to the signed agreement, Trio-Tech (Chongqing) Co., Ltd. invested RMB 10,000, equivalent to approximately U.S. $1,464 based on the exchange rate on December 31, 2009 published by the Monetary Authority of Singapore.
On December 17, 2007, Trio-Tech (Chongqing) Co., Ltd. invested an additional RMB 5,000, approximately U.S. $732, to increase the square meters of the buildings specified in the original Memorandum Agreement dated August 27, 2007 by 9,885 square meters, which was approved by the Chinese District Zoning Regulation Bureau. After that additional capital infusion, the equity ratio owned by the Company in that joint venture was 20%.
On January 4, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement with MaoYe Property Ltd. to purchase an office space of 827.2 square meters on the 35th floor of a 40 story office building located in Chongqing, China. The total cash purchase price was RMB 5,554 (Chinese yuan), equivalent to approximately U.S. $813 based on the exchange rate as of December 31, 2009 published by the Monetary Authority of Singapore. Under the terms of the agreement, the Company paid the purchase price in full on January 4, 2008. The Company rented this property to a third party on July 13, 2008. The term of the rental agreement was five years with an annual rental income of RMB 468, or approximately U.S. $72 for each of the first the first three years, with an increase of 8% for the fourth and fifth year to RMB 505 or approximately $78 per year. In the three and six months ended December 31, 2009, this property generated a rental income of U.S. $17 and $34 respectively, compared with $14 and $31 for the three and six months ended December 31, 2008, respectively.
In the fourth quarter of 2008, the investment of RMB 5,000, approximately U.S. $732 based on the exchange rate as of December 31, 2009 published by the Monetary Authority of Singapore, was returned to the Company, which reduced the investment in this project to $1,464. After that return of investment, the equity ratio owned by the Company in that joint venture was 15%. The Company also recorded a profit of RMB 750, approximately $103, in investment income in the fourth quarter of 2008.
In October 2008, Trio-Tech (Chongqing) Co., Ltd.received a second return on investment principal of RMB 1,988, or $291, and investment income of RMB 1,312, or $192, from JiaSheng. The investment income was part of the return on investment based on the investment amount of RMB 10,000, or $1,464. After the second return of investment, the equity ratio owned by the Company in that joint venture was 13%.
On October 23, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement with JiaSheng to purchase four units of commercial property and two units of residential property, totaling 1,391.70 square meters, at JiaSheng Jingyun Huafu Project located at No. 17 Puyun Avenue in Chongqing, China. The total purchase price was RMB 7,042, approximately $1,031 based on the exchange rate as of December 31 2009 published by the Monetary Authority of Singapore. The Company made cash payment of RMB 3,612, or $529, and offset the remaining purchase price for this commercial and residential property with the investment returns and investment income from the No. B48 property in the BeiPei district of Chongqing City. The Company has not received the title for this property as of the filing date of this Form 10-Q, as the seller is in the process of making the payments of all taxes due so that the documents can be received and the transfer can take place.
On October 23, 2008 Trio-Tech (Chongqing) Co., Ltd. entered into a lease agreement with JiaSheng for the six units purchased from JiaSheng pursuant to the Memorandum Agreement. The lease provides for a two year term with an annual rental income of RMB 1,392, or approximately $204. The lease started on November 1, 2008 and generated a rental income of $51 and $51 in the three and six months ended December 31, 2009. The depreciation expenses of the investment property in Chongqing, China were $23 and $46 and the depreciation expenses of our office and office furniture in Chongqing, China were $2 and $4 in the three and six months ended December 31, 2009, based on the exchange rate as of December 31, 2009 published by the Monetary Authority of Singapore.
In August 2009, Trio-Tech (Chongqing) Co., Ltd. received a notice from JiaSheng that the completion of the project has been delayed due to certain reasons. In addition, the price of the property was adversely affected by the slow down of demand in real estate property in China. JiaSheng has decided to slow down the project and delay the sale of the property until the price recovered. Even though there has been a slow down in the anticipated sale of the property, the Company continues to believe that their cost basis in the property is less than the market value. However, the estimated market value is a significant estimate and it could materially change in the short term. The Company will continue to evaluate these estimates on a quarterly basis.
In the second quarter of 2010, Trio-Tech (Chongqing) Co., Ltd. received a third return on investment principal of RMB 1,988, or $291 based on the exchange rate as of December 31, 2009 published by the Monetary Authority of Singapore, and investment income of RMB 1,312, or $192, from JiaSheng. The investment income was part of the return on investment based on the total investment amount of RMB 10,000, or $1,464. After the third return of investment, the equity ratio owned by the Company in that joint venture was 10%. In second quarter of fiscal 2010 Trio-Tech (Chongqing) Co., Ltd. made a payment of RMB 209 or approximately $31 for the tax related with the property purchased on October 23, 2010.
The Company has historically operated in three segments; the testing service industry (which performs structural and electronic tests of semiconductor devices), the designing and manufacturing of equipment (which equipment tests the structural integrity of integrated circuits and other products) and distribution of various products from other manufacturers in Singapore and Southeast. In June 2007, Trio-Tech International Pte., Ltd. established a subsidiary in Chongqing, China. As the Company’s investment in the real estate business in Chongqing, China exceeds more than 10% of the combined assets of all operating segments in the fourth quarter of fiscal 2009, the Company reported its investment in China as a separate Real Estate Segment, to be in compliance with ASC Topic 280, Segment Reporting.On July 1, 2009, the Company’s 55% owned SHI International Pte., Ltd subsidiary acquired 100% interest in PT SHI Indonesia, pursuant to the Share Purchase Agreement dated April 7, 2009. PT SHI Indonesia is an Indonesia –based enterprise providing fabrication of large and complex structures and related services for the offshore oil and gas industries. Beginning on July 1, 2009, the operating results of this subsidiary were included in the condensed consolidated statements of the Company for the three and six months ended December 31, 2009 and fabrication services are included in the Company’s new segment “Fabrication Services”.
The revenue allocated to individual countries was based on where the customers were located. The allocation of the cost of equipment, the current year investment in new equipment and depreciation expense have been made on the basis of the primary purpose for which the equipment was acquired.
All inter-segment sales were sales from the manufacturing segment to the testing and distribution segments. Total inter-segment sales were $1 and $11 for the three and six months ended December 31, 2009 and 2008, respectively. Corporate assets mainly consisted of cash and prepaid expenses. Corporate expenses mainly consisted of salaries, insurance, professional expenses and directors' fees.
|
|
The following segment information is unaudited for the six months ending December 31, 2009:
|
|
Business Segment Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Six months
|
|
|
|
|
Operating |
|
|
|
|
|
Depr.
|
|
|
|
|
| |
Ended
|
|
Net
|
|
|
(Loss)
|
|
|
Total
|
|
|
and
|
|
|
Capital
|
|
| |
Dec. 31,
|
|
Sales
|
|
|
Income
|
|
|
Assets
|
|
|
Amort.
|
|
|
Expenditures
|
|
|
Manufacturing
|
2009
|
|
$ |
6,699 |
|
|
$ |
(582 |
) |
|
$ |
3,341 |
|
|
$ |
100 |
|
|
$ |
6 |
|
| |
2008
|
|
|
5,800 |
|
|
|
(586 |
) |
|
|
1,400 |
|
|
|
117 |
|
|
|
95 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Testing Services
|
2009
|
|
|
5,263 |
|
|
|
(191 |
) |
|
|
21,542 |
|
|
|
747 |
|
|
|
4,284 |
|
| |
2008
|
|
|
5,826 |
|
|
|
(811 |
) |
|
|
24,949 |
|
|
|
949 |
|
|
|
946 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
|
2009
|
|
|
302 |
|
|
|
36 |
|
|
|
116 |
|
|
|
3 |
|
|
|
- |
|
| |
2008
|
|
|
166 |
|
|
|
37 |
|
|
|
49 |
|
|
|
2 |
|
|
|
2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
2009
|
|
|
328 |
|
|
|
207 |
|
|
|
3,445 |
|
|
|
51 |
|
|
|
- |
|
| |
2008
|
|
|
257 |
|
|
|
238 |
|
|
|
3,020 |
|
|
|
35 |
|
|
|
1,031 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fabrication
|
2009
|
|
|
704 |
|
|
|
(825 |
) |
|
|
1,860 |
|
|
|
171 |
|
|
|
856 |
|
|
services
|
2008
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate & Unallocated
|
2009
|
|
|
- |
|
|
|
226 |
|
|
|
76 |
|
|
|
- |
|
|
|
- |
|
| |
2008
|
|
|
- |
|
|
|
52 |
|
|
|
61 |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company
|
2009
|
|
$ |
13,296 |
|
|
$ |
(1,129 |
) |
|
$ |
32,054 |
|
|
$ |
1,072 |
|
|
$ |
5,146 |
|
| |
2008
|
|
$ |
12,049 |
|
|
$ |
(1,070 |
) |
|
$ |
29,479 |
|
|
$ |
1,103 |
|
|
$ |
2,074 |
|
The following segment information is unaudited for the three months ending December 31, 2009:
|
Business Segment Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Quarter
|
|
|
|
|
Operating |
|
|
|
|
|
Depr.
|
|
|
|
|
| |
Ended
|
|
Net
|
|
|
(Loss)
|
|
|
Total
|
|
|
and
|
|
|
Capital
|
|
| |
Dec. 31,
|
|
Sales
|
|
|
Income
|
|
|
Assets
|
|
|
Amort.
|
|
|
Expenditures
|
|
|
Manufacturing
|
2009
|
|
$ |
2,984 |
|
|
$ |
(411 |
) |
|
$ |
3,341 |
|
|
$ |
50 |
|
|
$ |
4 |
|
| |
2008
|
|
|
2,754 |
|
|
|
(142 |
) |
|
|
1,400 |
|
|
|
57 |
|
|
|
11 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Testing Services
|
2009
|
|
|
2,592 |
|
|
|
36 |
|
|
|
21,542 |
|
|
|
375 |
|
|
|
70 |
|
| |
2008
|
|
|
2,728 |
|
|
|
(589 |
) |
|
|
24,949 |
|
|
|
467 |
|
|
|
371 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
|
2009
|
|
|
155 |
|
|
|
22 |
|
|
|
116 |
|
|
|
2 |
|
|
|
- |
|
| |
2008
|
|
|
80 |
|
|
|
6 |
|
|
|
49 |
|
|
|
1 |
|
|
|
2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
2009
|
|
|
260 |
|
|
|
193 |
|
|
|
3,445 |
|
|
|
26 |
|
|
|
- |
|
| |
2008
|
|
|
243 |
|
|
|
224 |
|
|
|
3,020 |
|
|
|
22 |
|
|
|
1,031 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fabrication
|
2009
|
|
|
200 |
|
|
|
(553 |
) |
|
|
1,860 |
|
|
|
120 |
|
|
|
501 |
|
|
services
|
2008
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate & Unallocated
|
2009
|
|
|
- |
|
|
|
112 |
|
|
|
76 |
|
|
|
- |
|
|
|
- |
|
| |
2008
|
|
|
- |
|
|
|
104 |
|
|
|
61 |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company
|
2009
|
|
$ |
6,191 |
|
|
$ |
(601 |
) |
|
$ |
32,054 |
|
|
$ |
573 |
|
|
$ |
575 |
|
| |
2008
|
|
$ |
5,805 |
|
|
$ |
(397 |
) |
|
$ |
29,479 |
|
|
$ |
547 |
|
|
$ |
1,415 |
|
12. NON-CONTROLLING INTEREST
As of July 1, 2009, the Company implemented ASC Topic 810 which modifies the accounting and disclosure requirements for subsidiaries which are not wholly-owned. In accordance with the provisions of ASC Topic 810, the Company has reclassified the non-controlling interest previously reflected between long-term liabilities and stockholders’ equity and included the amount as a component of stockholders’ equity in the accompanying condensed consolidated balance sheets. Additionally, the Company has presented the net income or net loss attributable to the Company and the non-controlling ownership interests separately in the accompanying condensed consolidated financial statements.
Non-controlling interest represents the minority stockholders’ share of 45% of the equity of Trio-Tech Malaysia, also 45% interest in the newly formed company SHI, a subsidiary of Trio-Tech International Pte. Ltd., which is a subsidiary of the Company.
13. FAIR VALUE MEASUREMENTS
In September 2006, the FASB issued ASC 820 Fair Value Measurements and Disclosures (formerly Statement of Financial Accounting Standard No. 157 Fair Value Measurements). ASC 820 provides enhanced guidance for using fair value to measure assets and liabilities. Under the standard, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between participants in the market in which the reporting entity transacts its business. ASC 820 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, ASC 820 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. Effective July 1, 2008, the Company adopted the provisions of ASC 820 as it relates to financial assets and financial liabilities. The adoption of ASC 820 did not have a material effect on our results of operations, financial position or liquidity.
The following table provides a summary of the assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2009:
| |
|
|
Basis of Fair Value Measurements
|
| |
As of
December 31, 2009
|
|
Quoted Prices in Active Markets for Identical Assets
|
|
Significant Other Observable Inputs
|
|
Significant Unobservable Inputs
|
| |
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term deposits
|
$
|
1,371
|
|
$
|
1,371
|
|
$
|
-
|
|
$
|
-
|
|
Restricted deposits
|
$
|
3,570
|
|
$
|
3,570
|
|
$
|
-
|
|
$
|
-
|
|
Total assets measured at fair value
|
$
|
4,941
|
|
$
|
4,941
|
|
$
|
-
|
|
$
|
-
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total assets
|
|
15.4%
|
|
|
15.4%
|
|
|
-
|
|
|
-
|
| |
|
|
|
|
|
|
|
|
|
|
|
As noted above, the fair value of the Company’s term deposits is determined using quoted market prices in active markets. Since the Company’s term deposits are fixed rate deposits, there is an active, readily tradable market value based on quoted prices. We based our estimates on such prices (Level 1 pricing) as of December 31, 2009, or the measurement date. Active markets are those in which transactions occur in significant frequency and volume to provide pricing information on an on-going basis. Since valuations are based on quoted prices that are readily and regularly available in an active market, the valuation of these term deposits does not entail a significant degree of judgment.
On August 24, 2008, Trio-Tech Malaysia Sdn. Bhd. entered a new loan agreement with a local bank in Malaysia obtaining a long-term loan of RM 9,650, or approximately $2,817 offered by a financial institution in Malaysia. This non-revolving long-term loan has a term of fifteen years from the first draw down with a fixed interest rate of 1.7% per annum. The purpose of this loan was to purchase a building for a purchase price of RM 12,450 (Malaysian ringgit) or approximately $3,634 (U.S. dollars), for its testing operations. Prior to this purchase, this property was under lease rental by the Company. On August 10, 2009, the Company began to draw down the money on this loan. The building was purchased in first quarter fiscal 2010.
|
|
Bank loans payable consisted of the following:
|
| |
|
Dec. 31, 2009
|
|
|
June 30, 2009
|
|
|
Note payable denominated in Malaysian Ringgit to a commercial bank for infrastructure investment, maturing in August 2024, bearing interest at the bank’s prime rate (1.7% at December 31, 2009) per annum, with monthly payments of $16 principal plus interest through August 2024, collateralized by the acquired building.
|
|
|
2,762 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
Note payable denominated in Singapore dollars to a commercial bank for expansion plans in Singapore and China, maturing in August 2010, bearing interest at the bank’s prime rate (3.523% and 6.61% at December 31, 2009 and 2008 per annum), with monthly payments of principal plus interest of $124 through June 2009, collateralized by Corporate Guarantee. This note payable is secured by cash deposits of $3,420 as at December 31, 2009, which is reported as non-current assets, restricted term deposits on the consolidated balance sheet.
|
|
|
881 |
|
|
|
1,503 |
|
| |
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
(1,132 |
) |
|
|
(1,266 |
) |
|
Long term portion of bank loans payable
|
|
$ |
2,511 |
|
|
$ |
237 |
|
Future minimum payments (including interest) at December 31, 2009 were as follows:
|
2011
|
|
$
|
1,132
|
|
|
2012
|
|
|
197
|
|
|
2013
|
|
|
197
|
|
|
2014
|
|
|
197
|
|
|
2015
|
|
|
197
|
|
|
Thereafter
|
|
|
591
|
|
| |
|
|
|
|
Total obligations and commitments
|
|
$
|
2,511
|
|
15. SUBSEQUENT EVENT
In January 2010, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement with ChongQing JiangZhun Real Estate Development Co Limited to purchase eight units of commercial property, totaling 1,002.26 square meters, at 32 Bin Jiang Road, Zhong Country in Chongqing for a total sum of RMB 3,600 approximately $527. Trio-Tech (Chongqing) Co., Ltd. has made a cash payment from the funds generated from its return on investment and rental income.
In January 2010 Trio-Tech (Chongqing) Co., Ltd. entered into a lease agreement with ChongQing JiangZhun Real Estate Development Co Limited for the eight units purchased from ChongQing JiangZhun Real Estate Development Co Limited pursuant to the Memorandum Agreement. The lease provides for a one year term with an annual rental income of RMB 720, or approximately $105. The lease started on January 8, 2010.
In January 2010 Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement with JiaSheng Property Development Co., Ltd. (“JiaSheng”) to extended the agreement entered on August 27, 2007. The agreement has been extend up to April 25, 2010 for a consideration of RMB 1,250 or approximately $183 as a guaranteed return on investment, based on the exchange rate on December 31, 2009 published by the Monetary Authority of Singapore.
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)
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, and with the information under the headings “Risk factors” and “Management’s discussion and analysis of financial condition and results of operations” in the most recent Annual Report on Form 10-K.
Overview
Founded in 1958, Trio-Tech International primarily provides third-party semiconductor testing and burn-in services primarily through its laboratories in Southeast Asia. The Company also designs, manufactures and markets equipment and systems, and distributes semiconductor processing and testing equipment manufactured by others. Trio-Tech International has historically operated in three distinct segments: Testing Services, Manufacturing and Distribution. In June 2007, Trio-Tech International Pte., Ltd. established a subsidiary Trio-Tech (Chongqing) Co., Ltd. (“TTCQ”) in Chongqing, China to develop certain real estate projects. As our investment in the real estate business in Chongqing, China exceeded more than 10% of our combined assets of all operating segments in the fourth quarter of fiscal 2009, we reported our investment in China as a separate Real Estate Segment to be in compliance and in accordance with the ASC Topic 280 Segments Reporting. In April 2009, Trio-Tech International Pte., Ltd. set up a new entity, SHI International Pte., Ltd. ("SHI"), in which Trio-Tech International Pte., Ltd. holds 55% of the ownership interest. Subsequently SHI acquired 100% interest in PT SHI Indonesia, a company in Batam, Indonesia providing fabrication services to the oil and gas industries. The Company has reported this business as a fifth segment, as the nature of these business activities is different from our other business segments.
Geographically, the Company operates in U.S., Singapore, Malaysia, Thailand, China and Indonesia. Its major operation activities are conducted in our Singapore and Malaysia operations. The Company’s customers for semi-conductor related activities are mainly concentrated in Southeast Asia and they are either semiconductor chip manufacturers or testing facilities that purchase our testing equipment.
Testing
The Company provides third-party semiconductor testing and burn-in services primarily through our laboratories in Southeast Asia.
Recently, there has been widespread concern over the instability of the financial markets and their influence on the global economy. Management believes that, as a result of the credit market crisis and other macro-economic challenges currently affecting the global economy, the orders from our customers in our testing operations were reduced during the first six months of fiscal 2010.
The Company plans to expand its market share in the semiconductor industry. In the three months ended September 30, 2009, the Malaysian subsidiary acquired the leased property in Malaysia in an effort to assure the prospects of long term support for our customers in Malaysia. The Company’s Suzhou operation is in the process of transforming from a production based operation to an engineering service based operation.
Manufacturing
The Company’s manufacturing segment manufactures Artic Temperature Controlled Wafer Chucks, which are used for test, characterization and failure analysis of semiconductor wafers, Wet Process Stations, which wash and dry wafers at a series of 100 to 300 additional processing steps after the etching or deposition of integrated circuits, and other microelectronic substrates in what is commonly called the “front-end,” or creation, of semiconductor circuits. Additionally, it also manufacture centrifuges, leak detectors, HAST (Highly Accelerated Stress Test) systems and “burn-in" systems that are used primarily in the “back-end” of the semiconductor manufacturing process to test finished semiconductor devices and electronic components.
In the United States, the manufacturing segment focused on marketing used and refurbished equipment, which some of its customers are more willing to purchase since refurbished equipment is less expensive than new equipment.
Due to the competitive environment in the manufacturing segment, we anticipate that the Company will continue to implement our cost reduction plan by outsourcing a portion of our manufacturing process to outside suppliers, such as electrical and mechanical fabrication houses, and seek competitively priced materials.
Distribution
The Company’s distribution segment operates primarily in Southeast Asia. This segment markets and supports distribution of our own manufactured equipment in addition to distributing complementary products supplied by other manufacturers that are used by our customers and other semiconductor and electronics manufacturers. It expanded the distribution business to include a strategic business unit mainly to serve as a distributor of electronic components to customers. It is the strategy of management to focus on the sales of our own manufactured products. Management believes this will help us to reduce our exposure to multiple risks arising from being a mere distributor of manufactured products from others.
Real Estate
The Company’s Real Estate segment, TTCQ, operates in Chongqing China.
In fiscal year 2008, TTCQ jointly developed a piece of property with 24.91 acres with JiaSheng Property Development Co., Ltd. (JiaSheng) located in Chongqing City, China, which is intended for sale after the completion of development.
In fiscal year 2009, TTCQ purchased four units of commercial property and two units of residential property, totaling 1,391.70 square meters located in Chongqing, China from Jin Yun Hua Fu. The total purchase price was RMB 7,042, equivalent to approximately $1,031 based on the exchange rate as of December 31, 2009 published by the Monetary Authority of Singapore System. On October 23, 2008, the Company entered into a lease agreement with JiaSheng for the six units purchased from JiaSheng pursuant to the Memorandum Agreement. The lease provides for a two year term with an annual rental income of RMB 1,392, or approximately $204 based on the exchange rate as of December 31, 2009 published by the Monetary Authority of Singapore. The lease started on November 1, 2008 and generated a rental income of $51 and $102 for the three and six months ended December 31, 2009, compared with $34 and $34 for the three and six months ended December 31, 2008, respectively.
Fabrication Services
On July 1, 2009, SHI International Pte., Ltd., a 55% owned subsidiary of the Company, consummated the acquisition of a 100% interest in PT SHI Indonesia for the purchase price of $113 pursuant to a Share Purchase Agreement dated April 7, 2009. PT SHI Indonesia is an Indonesia–based enterprise providing fabrication of large and complex employed to process oil and gas and for temporary storage of the oil prior to transshipment, and related services for the offshore oil and gas industries. Our objective for acquiring this business was to diversify our business, reduce the risk associated with sole industry focus, and enhance the Company’s future growth opportunities.
Indonesia is one of the largest oil and gas producers in Southeast Asia, as well as a major exporter of liquefied natural gas in Asia. It has sufficient oil and gas reserves available for exploration and production for several years to come. As such, management is of the view that Indonesia will offer great potential for a growth in demand for equipment and machinery for the oil and gas industries. Management believes that the demand for oil and gas has been increasing steadily for the past few years, thereby generating an increase in investments in the oil and gas industries to discover and explore new production locations to meet such demand. Management believes that this may lead to an increase in capital spending for oil and gas exploration and development, as well as capital spending on technology advances to improve the success rate in oil and gas discovery at lower costs. In addition, as offshore oil and gas exploration moves into more challenging deep waters and locations where infrastructure is lacking, larger and more complex equipment may be needed to support the production facility.
In the three and six months ended December 31, 2009, this subsidiary generated revenue of $200 and $704, respectively, and an operating loss of $553 and $825, respectively, among which $121 and $173, respectively, was for depreciation expenses.
Second Quarter Fiscal 2010 Highlights
|
●
|
Total revenue increased by $386, or 6.6%, to $6,191 for the second quarter of fiscal 2010, compared with revenue of $5,805 for the second quarter of fiscal 2009.
|
|
●
|
Manufacturing segment revenue increased by $230, or 8.4%, to $2,984 for the second quarter of fiscal 2010, compared to $2,754 for the second quarter of fiscal 2009.
|
|
●
|
Testing segment revenue decreased by $136, or 5.0%, to $2,592 for the second quarter of fiscal 2010, compared to $2,728 for the second quarter of fiscal 2009.
|
|
●
|
Fabrication services segment generated revenue of $200 in the second quarter of fiscal 2010 with an operating loss of $553. As this is the first year of operations for this segment, there is no comparison for the same period last fiscal year.
|
|
●
|
Distribution segment revenue increased by $75, or 93.8%, to $155 for the second quarter of fiscal 2010, compared to $80 for the second quarter of fiscal 2009.
|
|
●
|
Real estate segment revenue increase by $17, or 7.0%, to $260 for the second quarter of fiscal 2010, compared to $243 for the second quarter of fiscal 2009.
|
|
●
|
Loss from operations increased by $204 for the second quarter of fiscal 2010 from $397 for the second quarter of fiscal 2009 to $601 for the second quarter of fiscal 2010.
|
|
●
|
Gross profit margin decreased by 11.4% to 15.2% for the second quarter of fiscal 2010 from 26.6% for the second quarter of fiscal 2009.
|
|
●
|
Selling expenses as a percentage of revenue increased 0.1% to 1.5% for the second quarter of fiscal 2010 from 1.4% for the second quarter of fiscal 2009.
|
|
●
|
General and administrative expenses as a percentage of revenue increased by 0.4% from 22.8% of revenue for the second quarter of fiscal 2009 to 23.2% of revenue for the second quarter of fiscal 2010.
|
|
●
|
Net loss attributable to Trio-Tech International common shareholders increased by $57, or 13.4%, to $369 for the second quarter of fiscal 2010, compared to $426 for the second quarter of fiscal 2009.
|
Results of Operations and Business Outlook
The following table sets forth our revenue components for the six and three months ended December 31, 2009 and 2008, respectively.
|
Revenue Components
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Six Months Ended
December 31,
|
|
Three Months Ended December 31,
|
|
|
2009
|
|
|
|
2008
|
|
|
|
2009
|
|
|
|
2008
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
50.4
|
%
|
|
|
48.1
|
%
|
|
|
48.2
|
%
|
|
|
47.4
|
%
|
|
Testing
|
39.6
|
%
|
|
|
48.3
|
%
|
|
|
41.9
|
%
|
|
|
47.0
|
%
|
|
Fabrication Services
|
5.3
|
|
|
|
-
|
|
|
|
3.2
|
|
|
|
-
|
|
|
Distribution
|
2.2
|
%
|
|
|
1.4
|
%
|
|
|
2.5
|
%
|
|
|
1.4
|
%
|
|
Real Estate
|
2.5
|
|
|
|
2.2
|
|
|
|
4.2
|
|
|
|
4.2
|
|
|
Total
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Net sales for the three months and six months ended December 31, 2009 were $6,191 and $13,296, respectively, an increase of $386 and $1,247, respectively, when compared to net sales for the same periods of the prior year. As a percentage, net sales increased by 6.6% and 10.3% for the three and six months ended December 31, 2009, respectively, when compared to total net sales for the same periods of the prior year.
Net sales into and within China and the Southeast Asia regions and other countries (except sales into and within the United States) increased for the three months ended December 31, 2009, compared with $4,734 for the same period of last fiscal year. The increase was primarily due to an increase in sales in the fabrication services segment in Indonesia operations, manufacturing segment and distribution segment in Singapore operations. Net sales into and within the United States were $225, a decrease of $846, or 79.0%, compared to the same quarter last fiscal year, due to a decrease in market demand for our products in the U.S. market, which management believes is the result of the negative impact of the financial crisis in the United States
Net sales into and within China and the Southeast Asia regions and other countries (except sales into and within the United States) increased by $3,548 to $12,376 and by $1,232, or 26.0%, to $5,966 for the six months and three months ended December 31, 2009, compared with the same period of last fiscal year. The increase was primarily due to an increase in sales in the fabrication services segment in our Indonesia operations, manufacturing and distribution segment in Singapore and Malaysia operations. Net sales into and within the United States were $920, and $225 for the six months and three months ended December 31, 2009, respectively, a decrease of $2,301 and $846, respectively, when compared to the same periods of the prior year.
Net sales for the period ended December 31, 2009 can be discussed within the five segments as follows:
Manufacturing Segment
Net sales in the manufacturing segment as a percentage of total net sales were 48.2% and 47.4% for the three and six months ended December 31, 2009, respectively, an increase of 0.8% and 2.3% of total net sales, respectively, when compared to the same periods of the prior year. The absolute amount of net sales was $2,984 and $6,699 for the three and six months ended December 31, 2009, respectively, an increase of $230 and $899, respectively, when compared to the same periods of the prior year. The increase in revenue generated by the manufacturing segment was due to an increase in demand for our products from one of our major customers in Singapore.