TRIO-TECH INTERNATIONAL - Annual Report: 2008 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
R ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
fiscal year ended June 30, 2008
OR
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£
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
Transition Period from ___ to ___
Commission
File Number 1-14523
TRIO-TECH
INTERNATIONAL
(Exact
name of Registrant as specified in its Charter)
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California
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95-2086631
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
Number)
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16139
Wyandotte Street
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Van
Nuys, California
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91406
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's
Telephone Number: 818-787-7000
Securities
registered pursuant to Section 12(b) of the Act:
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Name
of each exchange
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Title
of each class
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On
which registered
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Common
Stock, no par value
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AMEX
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in rule 405
of the Securities Act. £Yes RNo
Indicate by check mark if the registrant is not required
to file reports pursuant to Section 13 or Section 15(d) of the Act. £Yes R No
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days. R Yes £
No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy statement or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “large accelerated filer” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one): Large Accelerated Filer £ Accelerated
Filer £
Non-Accelerated Filer (Do not check if a smaller reporting company)£ Smaller
reporting company R
Indicate
by check mark whether the registrant is a shell company (as defined in rule
12b-2 of the Exchange Act). £Yes RNo
The
aggregate market value of voting stock held by non-affiliates of Registrant,
based upon the closing price of $9.16 for shares of the registrant’s common
stock on December 31, 2007, the last business day of the registrant’s most
recently completed second fiscal quarter as reported by the AMEX, was
approximately $19.6 million. In calculating such aggregate market value, shares
of Common Stock held by each officer, director and holder of 5% or more of the
outstanding Common Stock (including shares with respect to which a holder has
the right to acquire beneficial ownership within 60 days) were excluded because
such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
The
number of shares of Common Stock outstanding as of September 22, 2008 was
3,226,430
Documents
Incorporated by Reference
Part III
of this Form 10-K incorporates by reference information from Registrant’s Proxy
Statement for its 2008 Annual Meeting of Shareholders to be filed with the
Commission under Regulation 14A within 120 days of the end of the fiscal year
covered by this Form 10-K.
TRIO-TECH
INTERNATIONAL
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Page
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Part
I
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Item
1
Item
1A
Item
1B
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Business
Risk
factors
Unresolved
staff comments
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1
8
11
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Item
2
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Properties
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11
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Item
3
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Legal
proceedings
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13
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Item
4
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Submission
of matters to a vote of security holders
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13
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Part
II
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Item
5
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Market
for registrant’s common equity, related stockholder matters and issuer
purchases of equity securities
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13
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Item
6
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Selected
financial data
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15
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Item
7
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Management’s
discussion and analysis of financial condition and results of
operations
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16
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Item
7A
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Quantitative
and qualitative disclosures about market risk
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32
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Item
8
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Financial
statements and supplementary data
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33
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Item
9
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Changes
in and disagreements with accountants on accounting and financial
disclosure
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33
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Item
9A (T)
Item
9B
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Controls
and procedures
Other
information
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33
34
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Part
III
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Item
10
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Directors,
executive officers and corporate governance
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34
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Item
11
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Executive
compensation
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34
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Item
12
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Security
ownership of certain beneficial owners and management and related
stockholder matters
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34
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Item
13
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Certain
relationships and related transactions, and director
independence
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34
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Item
14
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Principal
accountant fees and services
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34
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Part
IV
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Item
15
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Exhibits
and financial statement schedules
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34
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Signatures
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41
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Report
of independent registered public accounting firm
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42
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Consolidated
Balance Sheets as of June 30, 2008 and 2007
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43
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Consolidated
Statements of Operations and Comprehensive Income for the Years Ended June
30, 2008, 2007 and 2006
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44
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Consolidated
Statements of Shareholders’ Equity for the Years Ended June 30, 2008, 2007
and 2006
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45
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Consolidated
Statements of Cash Flows for the Years Ended June 30, 2008, 2007 and
2006
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46
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Notes
to Consolidated Financial Statements
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47
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TRIO-TECH
INTERNATIONAL
PART
I
NOTE
CONCERNING FORWARD-LOOKING STATEMENTS
The
discussions of Trio-Tech International’s (the “Company”) business and activities
set forth in this Form 10-K and in other past and future reports and
announcements by the Company may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, and assumptions
regarding future activities and results of operations of the
Company. In light of the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995, the following factors, among others,
could cause actual results to differ materially from those reflected in any
forward-looking statement made by or on behalf of the Company: market acceptance
of Company products and services; changing business conditions or technologies
and volatility in the semiconductor industry, which could affect demand for the
Company’s products and services; the impact of competition; problems with
technology; product development schedules; delivery schedules; changes in
military or commercial testing specifications which could affect the market for
the Company’s products and services; difficulties in profitably integrating
acquired businesses, if any, into the Company; risks associated with conducting
business internationally and especially in Southeast Asia, including currency
fluctuations and devaluation, currency restrictions, local laws and restrictions
and possible social, political and economic instability; and other economic,
financial and regulatory factors beyond the Company’s control; the sharp correction in
the housing market and the significant fluctuations of oil prices which occurred
in 2007 and 2008 may affect the end-market demand of our
products. See the discussions elsewhere in this Form 10-K,
including under item 1A, “Risk Factors,” for more information. In
some cases, you can identify forward-looking statements by the use of
terminology such as “may,” “will,” “expects,” “plans,” “anticipates,”
“estimates,” “potential,” “believes,” “can impact,” “continue,” or the negative
thereof or other comparable terminology.
We
undertake no obligation to update forward-looking statements to reflect
subsequent events, changed circumstances, or the occurrence of unanticipated
events. You are cautioned not to place undue reliance on these
forward-looking statements.
ITEM
1 – BUSINESS (IN THOUSANDS, EXCEPT PERCENTAGE AND SHARE AMOUNTS)
Trio-Tech
International was incorporated in 1958 under the laws of the State of
California. As used herein, the term "Trio-Tech" or "Company” or “we” or “us” or
“Registrant” includes Trio-Tech International and its subsidiaries unless the
context otherwise indicates. Our mailing address and executive
offices are located at 16139 Wyandotte Street, Van Nuys, California 91406, and
our telephone number is (818) 787-7000.
With more
than 50 years dedicated to the semiconductor and related industries, we have
applied our expertise to our global customer base in test services, design,
engineering, manufacturing, and distribution.
Subsequent
Events
On August
24, 2008, Trio-Tech (Malaysia) Sdn. Bhd. obtained a long-term loan of RM 9,625,
or approximately $4,010, offered by CIMB Bank Berhad in Malaysia. This
non-revolving long-term loan has a term of fifteen years from the first draw
down. The bank offered an interest rate at the bank‘s prime rate plus
1.5% per annum or a fixed rate of 7.12% per annum in the first five years and
the bank’s prime rate plus 1.5% per annum thereafter. The Company has
not made a decision on these interest options yet.
On July
11, 2008, the Board of Directors granted options covering 50,000 shares of
Common Stock pursuant to the 2007 Employee Plan and options covering 60,000
shares of Common Stock under the 2007 Directors Equity Incentive Plan, with an
exercise price of $4.81 per share (equal to the market price at the grant
date). The options granted to directors have a ten year term and
vested in full on the granted date. The options granted to the
employees have a five-year contractual life and vested 25% on the grant date and
will vest an additional 25% on each anniversary date. The fair market
value of these stock options was estimated to be approximately $320 based on the
Black Scholes option pricing model.
General
Trio-Tech
International provides third-party semiconductor testing and burn-in services
primarily through its laboratories in Southeast Asia. We also design,
manufacture and market equipment and systems to be used in the process of
testing semiconductors at our facilities in California and Southeast Asia, and
distribute semiconductor processing and testing equipment manufactured by other
vendors.
We
operate in three business segments: Testing Services, Manufacturing and
Distribution. The financial information on the measurement of profit
or loss and total assets for the three segments, as well as geographic areas
information, can be found under management’s discussion and analysis of results
of operations and financial conditions, as well as in the financial statements
included in this report. Our working capital requirements are covered
under management’s discussion and analysis of business outlook, liquidity and
capital resources.
We
currently operate five testing facilities; one in the United States and four in
Southeast Asia. These facilities provide customers with a full range
of testing services, such as burn-in and product life testing for finished or
packaged semiconductors. In June 2007, Trio-Tech International Pte.,
Ltd. established a subsidiary in Chongqing, China. This subsidiary,
Trio-Tech (Chongqing) Co., Ltd., has registered capital of RMB 20,000 (Chinese
yuan), or 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. In fiscal 2008, the Company
invested an aggregate of RMB 15,000, equivalent to approximately U.S. $2,187
based on the exchange rate on June 30, 2008 published by the Federal Reserve
System on this project. In the fourth quarter of 2008, the investment of RMB
5,000, or approximately $729 was returned to the Company, which reduced the
investment in this project to $1,458. The Company also recorded a
profit of RMB 750, approximately $103 in investment income in the fourth quarter
of 2008.
In
accordance with APB 18, The
Equity Method of Accounting for Investments in Common Stock, with the
initial investment of 16% equity interest in the joint venture project, the
Company considered several factors including primary beneficiary, decision
making power and representation on the Board of Directors. As
Jiasheng is responsible for the daily business operations and development of
that project and the Company does not have decision making power and has played
a passive investor role since the inception of this joint venture, management
believes that the cost method of accounting is appropriate.
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 high office building located in
Chongqing, China. The total cash purchase price was RMB 5,554
(Chinese yuan), equivalent to approximately $809 based on the exchange rate as
of June 30, 2008 published by the Federal Reserve System. The Company
rented this property out to a third party on July 13, 2008. The term
of the rent agreement is five years with a monthly rental income of RMB 39, or
approximately $5 for the first three years, with an increase of 8% in the fourth
year and another 8% in the fifth year.
The
investment income generated by Trio-Tech (Chongqing) Co., Ltd. in fiscal year
2008 was classified as investment income, which was included in other income in
the Consolidated Statements of Operations and Comprehensive Income for the years
ended June 30, 2008, 2007 and 2006.
Our
Ireland operation, as a component of the Testing segment, suffered continued
operating losses in the three fiscal years ended
June 30, 2005 and the cash flows were minimal during the same three
fiscal years. Thus, in August 2005, we established a restructuring
plan to close the testing operation in Dublin, Ireland. In November
2005, we completed the sale of the property located in Dublin, Ireland and
recorded a gain of $8,909 for the fiscal year ended June 30, 2006. As
a result, in fiscal 2006, this discontinued operation reported an income of
$8,459, which consisted of the gain from the sale of property of $8,909 offset
by the loss from discontinued operations of $450. Ireland has remained a
discontinued operation since 2006.
In the
third quarter of fiscal 2008, one of our major customers ceased its advanced
burn-in testing service contract with us due to one of their product lines
reaching the end of its life cycle earlier than expected. Management
took immediate action to reduce costs to assist in matching our expenses with
reduced future cash flows from this source of testing revenue. All of
these cost saving actions benefited the Company starting from April 1,
2008. The Company is in the early stages of developing new customer
relationships in China and Malaysia to replace the lost testing revenue from
this contract.
Our
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, we
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.
Our
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. We expanded the distribution business to include a
strategic business unit mainly to serve as a distributor of electronic
components to customers.
Information
for each segment regarding external customers, profit and loss and total assets
may be found in the footnotes to the financial statements included in this Form
10-K, which information is incorporated herein by this
reference.
Company
History
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1958
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Incorporated
in California.
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1976
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The
Company formed Trio-Tech International Pte., Ltd. in
Singapore.
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1984
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The
Company formed the European Electronic Test Center (EETC), a Cayman
Islands domiciled subsidiary, to operate a test facility in Dublin,
Ireland.
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1985
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The
Company's Singapore subsidiary entered into a joint venture agreement,
Trio-Tech Malaysia, to operate a test facility in
Penang.
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1986
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Trio-Tech
International listed on the NASDAQ Small Cap market under the symbol
TRTC.
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1988
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The
Company acquired the Rotating Test Equipment Product Line of Genisco
Technology Corporation.
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1990
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Trio-Tech
International acquired Express Test Corporation in
California.
Trio-Tech
Malaysia opened a new facility in Kuala Lumpur.
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1992
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Trio-Tech
Singapore opened Trio-Tech Bangkok, Thailand.
Trio-Tech
Singapore achieved ISO 9002 certification.
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1994
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Trio-Tech
Malaysia started a new components assembly operation in Batang
Kali.
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1995
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Trio-Tech
Singapore achieved ISO 9001 certification.
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1997
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In
November 1997, the Company acquired KTS Incorporated, dba Universal
Systems of Campbell, California.
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1998
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In
September 1998, the Company listed on AMEX under the symbol
TRT.
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2000
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Trio-Tech
Singapore achieved QS 9000 certification.
Trio-Tech
Malaysia closed its facility in Batang Kali.
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2001
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The
Company divested the Rotating Test Equipment Product Line.
Trio-Tech
Malaysia closed its facility in Kuala Lumpur.
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2003
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Trio-Tech
Singapore opened a sales office in China known as Trio-Tech (Suzhou) Co.,
Ltd.
Trio-Tech
Malaysia scaled down its facility in Penang.
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2004
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The
Company moved its Wet Process Station manufacturing from Campbell,
California to Singapore.
Trio-Tech
Test Services Pte., Ltd. was renamed Universal (Far East) Pte.,
Ltd.
Trio-Tech
Malaysia acquired a burn-in testing division in Petaling
Jaya.
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2005
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Trio-Tech
Singapore, Trio-Tech Malaysia and Trio-Tech Bangkok achieved ISO 9001:
2000 certification.
Trio-Tech
Singapore, Trio-Tech Malaysia and Trio-Tech Bangkok achieved ISO/TS16949,
2002 certification.
Trio-Tech
Ireland closed its facility in Ireland.
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2006
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Trio-Tech
Singapore acquired a burn-in testing company in Shanghai and changed its
name to Trio-Tech (Shanghai) Co., Ltd.
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2007
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Trio-Tech
Singapore achieved ISO 14001, 2004 certification.
Universal
(Far East) Pte., Ltd achieved ISO/IEC 17025, 2005 accreditation under
SAC-SINGLAS for the field of Testing.
Trio-Tech
(Suzhou) started its testing service.
Trio-Tech
Singapore established a subsidiary, Trio-Tech (ChongQing) Co., Ltd. in
ChongQing, China.
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2008
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Trio-Tech
(Suzhou) achieved ISO 9001:2000 certification.
Universal
(Far East) Pte., Ltd. obtained ISO/IEC 17025:2005 accreditation under
SAC-SINGLAS for the field of Calibration and Measurement.
Universal
(Far East) Pte., Ltd. obtained ISO 9001:2000 certification.
Trio-Tech
Singapore scaled down its facility in Singapore due to the loss of one of
its major customers.
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Background
As
reported by the Semiconductor Industry Association, the worldwide unit demand
for semiconductors continued to grow in calendar 2008, driven by healthy growth
in major end markets,
such as
personal computers and consumer devices. The decline of the average
selling price of semiconductors helped make possible very
attractive prices for many consumer products. According to the
Semiconductor Industry Association (SIA), total sales growth for semiconductors for the
first half of 2008 grew to $127.5 billion, an increase of 5.4% over the
first half of 2007 when sales were $121 billion.
Recent
reports show that worldwide sales of semiconductors of $21.8 billion in May 2008
were 7.4% higher than the $20.3 billion reported for May of 2007, and 9% higher
than the $20.0 billion reported for April 2007. The increase in sales indicates
continued strength in end markets for personal computers and cell
phones.
Testing
Services
We own
and operate facilities that provide testing services for semiconductor products
to ensure that these products meet certain requirements imposed for military, aerospace, industrial and
commercial applications. Testing services represented approximately
45%, 45% and 50% of net sales for the fiscal years ended June 30, 2008, 2007 and
2006, respectively.
We use
our own proprietary equipment for certain burn-in, centrifugal and leak tests,
and commercially available equipment for various other environmental tests. We
conduct the majority of our testing operations in Southeast Asia with facilities
in Singapore, Malaysia, Thailand and China. Most of the facilities in
Southeast Asia are either ISO9001 or ISO14001 certified. In 2008, one
of our testing operations was awarded ISO/ICE 17025: 2005 accreditation under
SAC-SINGLAS (Singapore Accreditation Council-Singapore Laboratory Accreditation
Scheme) for the fields of Calibration and Measurement. In June 2008, Trio-Tech
(Suzhou) achieved ISO 9001:2000 certification.
In August
2005, we established a restructuring plan to close our testing operation in
Dublin, Ireland, as the operation had not generated adequate operating cash flow
during the three prior years. The testing operations closed in
November 2005. In the second quarter of fiscal 2007, our China
operation in Suzhou started its testing services.
In the
third quarter of fiscal 2008, one of our major customers ceased their advanced
burn-in testing service contract with us due to one of their product lines
reaching the end of its life cycle earlier than expected. The net sales in the
testing segment decreased by $2,711 to $18,172 for the year ended June 30, 2008
as the result of the significant drop in orders from this major
customer. Management took immediate action to reduce expenses in an
effort to match future cash flows and is in the process of developing new
customer relationships in China and Malaysia and exploring new business
opportunities to offset the lost testing revenue from this
contract.
Testing
services are rendered to manufacturers and purchasers of semiconductors and
other entities who either lack testing capabilities or whose in-house screening
facilities are insufficient for testing devices in order for them to make sure
that these products meet military or certain commercial
specifications. Customers outsource their test services either to
accommodate fluctuations in output or to benefit from economies that can be
offered by third party service providers. For those customers with
adequate in-house capabilities, we offer testing services for their “overflow”
requirements and also provide independent testing verification
services.
Our
laboratories perform a variety of tests, including stabilization bake, thermal
shock, temperature cycling, mechanical shock, constant acceleration, gross and
fine leak tests, electrical testing, microprocessor equipment contract cleaning
services, static and dynamic burn-in tests, smart burn-in tests, reliability lab
services and vibration testing. Our laboratories also perform
qualification testing, consisting of intense tests conducted on small samples of
output from manufacturers who require qualification of their processes and
devices.
Manufacturing
Products
We
design, develop, manufacture and market equipment for the manufacturing and
testing of semiconductor wafers, devices and other electronic
components. Revenue from the sale of products manufactured by the
Company represented approximately 54%, 51% and 43% of net sales for the fiscal
years ended June 30, 2008, 2007 and 2006, respectively.
Front-End
Products
Wet
Process Stations
Wet
Process Stations are used for cleaning, rinsing and drying semiconductor wafers,
magnetic disks, flat panel displays and other microelectronic
substrates. After the etching or deposition of integrated circuits,
wafers are typically sent through a series of 100 to 300 additional processing
steps. At many of these processing steps, the wafer is washed and
dried using Wet Process Stations. This product line includes manual,
semi-automated and automated Wet Process Stations, and features radial and
linear robots, state-of-the-art PC touch-screen controllers and sophisticated
scheduling and control software. The Wet Process Station is currently
manufactured in Singapore.
Artic
Temperature Controlled Wafer Chucks
Artic
Temperature Controlled Chucks are used for test, characterization and failure
analysis of semiconductor wafers and other components at accurately controlled
hot and cold temperatures. Several models are available with
temperature ranges from -65°C to +400°C and in diameters from 4
to 12 inches. The finished wafer is put through a series of tests
using the Artic Temperature Controlled Chuck in which each separate integrated
device on the wafer is tested at accurately controlled temperatures for
functionality. After testing, the wafer is "diced" or cut up, and
each die is then placed into packaging material, usually plastic or ceramic,
with lead wires to permit mounting onto printed circuit boards. These
systems provide excellent performance to meet the most demanding customer
applications. Several unique mechanical design features, for which
patents have been granted, provide excellent mechanical stability under high
probing forces and across temperature ranges.
Back-End
Products
Autoclaves
and HAST (Highly Accelerated Stress Test) Equipment
We
manufacture a range of autoclaves and HAST systems and specialized test
fixtures. Autoclaves provide pressurized, saturated vapor (100%
relative humidity) test environments for fast and easy monitoring of integrated
circuit manufacturing processes. HAST equipment, which provides a
pressurized high temperature environment with variable humidity, are used to
determine the moisture resistance of plastic encapsulated
devices. HAST provides a fast and cost-effective alternative to
conventional non-pressurized temperature and humidity testing.
Burn-in
Equipment and Boards
We
manufacture burn-in systems, burn-in boards and burn-in board test
systems. Burn-in equipment is used to subject semiconductor devices
to elevated temperatures while testing them electrically to identify early
product failures and to assure long-term reliability. Burn-in testing
approximates, in a compressed time frame, the electrical and thermal conditions
to which the device would be subjected during its normal life.
We
manufacture the COBIS II burn-in system, which offers state-of-the-art dynamic
burn-in capabilities and a Windows-based operating system with full data logging
and networking features. We also offer burn-in boards for our BISIC,
COBIS and COBIS II burn-in systems and other brands of burn-in
systems. Burn-in boards are used to mount devices during high
temperature environmental stressing tests.
We have
developed several new products to complement the burn-in processes, including
semi-automatic (LUBIBM) and automatic burn-in board loaders and unloaders
(LUBIB). These products are designed to perform precise, high-speed
transfer of IC (Integrated Circuit) packages from the semiconductor holding tray
to the burn-in board, or vice versa, while maintaining the integrity of the IC’s
leads. Burn-in-board cleaning systems (CUBIB) are designed to perform
wet or dry cleaning for burn-in boards and other modular boards.
We build
Smart Burn-In (SBI) electrical equipment and System Level Test (SLT) equipment,
which are used in the few final stages of testing microprocessor devices. While
providing integrated burn-in solutions, we present total burn-in automation
solutions to improve products’ yield, reduce processing downtime and improve
efficiency. In addition, we developed a cooling solution for high
power heat dissipation semiconductor devices. This solution involves
the cooling or maintaining of the temperature of high power semiconductor
devices.
Component
Centrifuges and Leak Detection Equipment
Component
centrifuges and leak detection equipment are used to test the mechanical
integrity of ceramic and other hermetically sealed semiconductor devices and
electronic parts for high reliability and aerospace applications. Our
centrifuges spin these devices and parts at specific acceleration rates, create
gravitational forces (g’s) up to 30,000g’s, and thereby indicate any mechanical
weakness in the devices. Leak detection equipment is designed to
detect leaks in hermetic packaging. The first stage of the test
includes pressurizing the devices in a tracer gas for fine leaks or fluid for
gross leaks. The bubble tester is used for gross leak
detection. A visual bubble trail will indicate when a device is
defective.
Distribution
Activities
The
Company’s Singapore subsidiary continues to develop its international
distribution activities in Southeast Asia. In addition to marketing
our own proprietary products, the Singapore subsidiary distributes complementary
products from other manufacturers based in the United States, Europe, Japan and
other countries. The products sold include environmental chambers,
shaker systems, handlers, interface systems, vibration systems, solderability
testers and other manufactured products.
In recent
years, many multinational companies in electronic manufacturing and
semiconductor industries have set up production facilities in China, and this
trend has presented excellent opportunities for our testing equipment in
China. We believe that requirements for auxiliary services such as
after-sales installation, equipment services, and spare parts will be natural
add-ons to our overall business.
Revenue
from distribution activities represented approximately 1%, 4%, and 7% of net
sales for the years ended June 30, 2008, 2007, and 2006, respectively. It is the
strategy of management to focus on the sales of our own manufactured products.
We believe this will help us to reduce our exposure to multiple risks arising
from being a mere distributor of manufactured products from
others.
Product Research and
Development
Research
and development costs in our U.S. operation decreased by $14 in fiscal 2008 when
compared with fiscal 2007 due to a decrease in full time research and
development engineer headcount in the U.S. operation. The Company
incurred research and development costs of $55 in fiscal 2008, $69 in fiscal
2007, and $70 in fiscal 2006.
In fiscal
2008, we successfully incorporated the new touch panel display and PLC
controller into the C-103 Series CENTRSAFE Centrifuge. The existing C-103 series Centrifuge systems
with obsolete display and
analog boards are difficult to support. These systems can now be
upgraded with a new design and will have supportable
configuration. This modification is also available as an
upgrade to customers that have the previous style display and controller
boards.
Marketing, Distribution and
Services
We market
our products and services worldwide, directly and through independent sales
representatives. We have approximately six independent sales
representatives operating in the United States and another sixteen in various
foreign countries. Of the twenty-two sales representatives, six are
representing the distribution segment and
sixteen are representing the testing segment and the manufacturing
segment. Trio-Tech’s United States marketing efforts are coordinated
from its California location. Southeast Asia marketing efforts are
assigned to the Company’s subsidiaries located in Singapore. We
advertise our products in trade journals and participate in trade
shows.
Independent
testing laboratories, users, assemblers and manufacturers of semiconductor
devices, including many large, well-known corporations, purchase our products
and services. These customers depend on the current and anticipated
market demand for integrated circuits and products utilizing semiconductor
devices. Our ability to maintain close, satisfactory relationships
with our customers is essential to our stability and growth. However,
because of a high concentration of customers, the loss, reduction, or delay of
orders placed by our significant customers, or delays in collecting accounts
receivable from our significant customers, could adversely affect our results of
operations and financial positions.
In fiscal
2008, 2007 and 2006, sales of equipment and services to our three largest
customers (Advanced Micro Devices, Freescale Semiconductor and Infineon
Technology) accounted for approximately 80%, 77% and 71%, respectively, of our
total net revenue. During fiscal 2008, we had sales of $16,760 (42%),
$13,777 (34%) and $1,736 (4%) to Advanced Micro Devices, Freescale Semiconductor
and Infineon Technology, respectively. During fiscal 2007, we had
sales of $27,895 (60%), $6,923 (15%) and $1,100 (2%) to Advanced Micro Devices,
Freescale Semiconductor and Infineon Technology, respectively. During
fiscal 2006, we had sales of $14,490 (50%), $4,787 (16%) and $1,441 (5%) to
Advanced Micro Devices, Freescale Semiconductor and Infineon Technology,
respectively (see information presented in Note 15-Concentration of
customers). Although the three customers mentioned above are U.S.
companies, the revenue generated from them was from their facilities located
outside of the U.S. The majority of our sales and services in fiscal
years 2008, 2007 and 2006 were to customers outside of the United
States. See information presented in Note 22 - Business Segments of
our financial statements included in this Form 10-K, which note is incorporated
by reference, for further financial information about geographic areas.
Backlog
The
following table sets forth the Company's backlog at the dates indicated (amounts
in thousands):
|
June
30,
|
June
30,
|
|||||||
|
2008
|
2007
|
|||||||
|
Manufacturing
backlog
|
$ | 3,165 | $ | 6,275 | ||||
|
Testing
service backlog
|
6,965 | 6,452 | ||||||
|
Distribution
backlog
|
316 | 102 | ||||||
| $ | 10,446 | $ | 12,829 | |||||
Based
upon our past experience, we do not anticipate any significant cancellations or
renegotiation of sales. Because the purchase orders for
manufacturing, testing and distribution businesses generally require delivery
within 12 months from the date of the purchase order, and certain costs are
incurred before that delivery, we require our customers to reimburse us for all
costs incurred in the event of a cancellation of a confirmed purchase
order. We do not anticipate any difficulties in meeting delivery
schedules.
Materials and
Supplies
Our
products are designed by our engineers and are assembled and tested at our
facilities in California, China and Singapore. We purchase all parts
and certain components from outside vendors for assembly purposes. We
have no written contracts with any of our key suppliers. As these
parts and components are available from a variety of sources, we believe that
the loss of any one of our suppliers would not have a material adverse effect on
our results of operations taken as a whole.
Competition
There are
numerous testing laboratories in the areas where we operate that perform a range
of testing services similar to those offered by us. However, recent severe
competition in the South Asia testing and burn-in services industry has reduced
the total number of our competitors. As we have sold and will
continue to sell our products to competing laboratories, and other test products
are available from many other manufacturers, our competitors are able to offer
the same testing capabilities. The relevant testing equipment is also
available to semiconductor manufacturers and users who might otherwise use third
party testing laboratories, including us, to perform testing. The
existence of competing laboratories and the purchase of testing equipment by
semiconductor manufacturers and users are potential threats to our future
testing services revenue and earnings. Although these laboratories and new
competitors may challenge us at any time, we believe that other factors,
including reputation, long service history and strong customer relationships,
are more important than pricing in determining our position in the
market.
The
distribution segment sells a wide range of equipment to be used for testing
products. We believe that the equipment, components trading and
equipment servicing markets are key growth
areas in Southeast Asia and hence have focused our marketing efforts on
Asia. As the semiconductor equipment industry is highly competitive,
the distribution operation faces stiff price competition if the equipment is
sold piecemeal. Thus, "add value" has been a key phrase in our sales
mission for the past several years. We
believe that “add value” will continue to dominate as the key focal point
as we offer integrated solutions that draw on the strengths of our technical
specialists who have undergone intensive training with our
vendors. Equipment is brought into Singapore from various vendors,
and depending on customers' specific requirements, is tested and system
integrated before distribution, delivery and installation.
The
demand for electronic components in fiscal 2008 was relatively strong in
Southeast Asia, driven by a greater demand in high-end personal computers,
notebooks and server chips. Many Original Equipment Manufacturers
(OEM) customers have been outsourcing for connectors and specialized
sockets. However, as our target customers are mainly multinational
contract manufacturers with a worldwide database of suppliers, the most commonly
used components became extremely price competitive. The components
division of our distribution segment has been in competition on the market with
various distribution methods, including direct online ordering systems put in
place by vendors for the products they are distributing. However, we
do not believe that such online competition is a major competitive factor to our
business, as we offer good credit facilities and believe that we have maintained
excellent business relationships with our long-term customers.
The
semiconductor equipment manufacturing industry is highly competitive and most of
our competitors for such equipment are located in Southeast
Asia. Some of our electronic device manufacturing customers in
Southeast Asia increased their capital equipment in order to meet the increase
in production capacity for electronic products. There is no assurance
that competition will not increase or that our technological advantages may not
be reduced or lost as a result of technological advances by competitors or
changes in semiconductor processing technology. In the United States,
our manufacturing segment focused on marketing used and refurbished equipment,
which some customers are more willing to purchase since it is less expensive
than new equipment.
We
believe that the principal competitive factors in the manufacturing industry
include product performance, reliability, service and technical support, product
improvements, price, established relationships with customers and product
familiarity. We make every effort to compete favorably with respect
to each of these factors. Although we have competitors for our
various products, we believe that our products compete favorably with respect to
each of the above factors. We have been in business for more than 50
years and have operation facilities mostly located in Southeast
Asia. We believe that those factors combined have helped us to
establish long-term relationships with customers and will allow us to continue
doing business with our existing customers upon their relocation to other
regions where we have a local presence or are able to reach.
Patents
The
manufacturing segment holds a United States patent granted in 1994 on certain
aspects of our Artic temperature test systems. In 2001, we registered
a new United States patent (for 20 years) for several aspects of our new range
of Artic Temperature Controlled Chucks. Although we believe that
these patents are an integral part of our manufacturing segment, the capitalized
cost of the patents was written off in fiscal 2002 because of the impairment
assessed by our management. In fiscal 2006, 2007 and 2008 we did not
register any patents within the U.S.
It is
typical in the semiconductor industry to receive notices from time to time
alleging infringement of patents or other intellectual property rights of
others. We do not believe that we infringe the intellectual property
rights of any others. However, should any claims be brought against
us, the cost of litigating such claims and any damages could materially and
adversely affect our business, financial condition, and results of
operations.
Employees
As of
June 30, 2008 we had approximately 10 employees in the United States and 470 in
Southeast Asia for a total of approximately 480 employees. None of
our employees are represented by a labor union. As of June 30, 2008,
there were approximately 300 employees in the testing segment, 117 employees in
the manufacturing segment, 61 employees in the distribution segment, and 2 in
the corporate office.
ITEM
1A ─ RISK FACTORS
The following are certain risk factors that could impact
our business, financial results and results of operations. Investing
in our Common Stock involves risks, including those described
below. The risk factors below, among others, should be considered by prospective and current investors in
our Common Stock before making or evaluating an investment in our
securities. These risk factors could cause actual results and
conditions to differ materially from those projected herein. If the risks we
face, including those listed below, actually occur, our business, financial
condition or results of operations could be negatively impacted, and the trading
price of our Common Stock could decline, which could cause you to lose all or
part of your investment.
Our
operating results are affected by a variety of factors
Our
operating results are affected by a wide variety of factors that could
materially affect revenue and profitability or lead to significant variability
of quarterly or annual operating results. These factors include,
among others, components relating to:
|
·
|
economic
and market conditions in the semiconductor
industry;
|
|
·
|
market
acceptance of our products and
services;
|
|
·
|
changes
in technology in the semiconductor industry, which could affect demand for
our products and services;
|
|
·
|
changes
in testing processes;
|
|
·
|
the
impact of competition;
|
|
·
|
the
lack of long-term purchase or supply agreements with customers and
vendors;
|
|
·
|
changes
in military or commercial testing specifications, which could affect the
market for our products and
services;
|
|
·
|
difficulties
in profitably integrating acquired businesses, if any, into the
Company;
|
|
·
|
the
loss of key personnel or the shortage of available skilled
employees;
|
|
·
|
international
political or economic events;
|
|
·
|
currency
fluctuations; and
|
|
·
|
other
technological, economic, financial and regulatory factors beyond our
control.
|
Unfavorable
changes in these or other factors could materially and adversely affect our
financial condition or results of operations. We may not be able to
generate revenue growth, and any revenue growth that is achieved may not be
sustained. Our business, results of operations and financial
condition would be materially adversely affected if operating expenses increased
and were not subsequently followed by increased revenues.
Semiconductor industry cycles affect
our business
Our
business depends primarily upon the capital expenditures of semiconductor
manufacturers, assemblers and other testing companies
worldwide. These industries in turn depend on the current and
anticipated market demand for integrated circuits and products utilizing
semiconductor devices. The global semiconductor industry generally,
and the semiconductor testing equipment industry in particular, are volatile and
cyclical, with periodic capacity shortages and excess capacity. In
periods of excess capacity, the industry sharply cuts its purchases of capital
equipment, including our distributed products, and reduces testing volumes,
including our testing services. Excess capacity also causes downward
pressure on the selling prices of our products and services.
Our
operating results have been adversely affected by past downturns and
slowdowns. There is no assurance that there will not be downturns or
slowdowns in the future that may adversely affect our financial condition or
operating results. In addition, if one or more of our primary
customers reduces its or their purchases or use of our products or testing
services, our financial results could be materially and adversely
affected. We anticipate that we will continue to be primarily
dependent on the semiconductor industry for the foreseeable
future.
Rapid
technological changes may make our products obsolete or result in decreased
prices or increased expenses
Technology
changes rapidly in the semiconductor industry and may make our services or
products obsolete. Advances in technology may lead to significant
price erosion for products that we test with our older testing
technologies. Our success will depend in part on our ability to
develop and offer more advanced testing technologies and processes in the
future, to anticipate both future demand and the technology to supply that
demand, to enhance our current products and services, to provide those products
and services at competitive prices on a timely and cost-effective basis and to
achieve market acceptance of those products and services. To
accomplish these goals, we may be required to incur significant engineering
expenses. As new products or services are introduced, we may
experience warranty claims or product returns. We may not be able to
accomplish these goals correctly or timely enough. If we fail in our
efforts, our products and services may become less competitive or
obsolete.
Our
dependence on international sales involves significant risk
Sales and
services to customers outside the United States accounted for approximately 88%,
86% and 91% of our sales for fiscal 2008, 2007 and 2006,
respectively. Approximately 98%, 98% and 90% of our net revenues in
fiscal 2008, 2007and 2006, respectively, were generated from business in
Southeast Asia. We expect that our non-U.S. sales and services will
continue to generate the majority of our future revenue. Testing
services in Southeast Asia were performed primarily for American companies, and
to a lesser extent German companies, selling products and doing business in
those regions. International business operations may be adversely
affected by many factors, including fluctuations in exchange rates, imposition
of government controls, trade restrictions, political, economic and business
events and social and cultural differences.
We
may incur losses due to foreign currency fluctuations
Significant
portions of our revenue are denominated in Singapore and Euro dollars, Malaysian
ringgit, Thai baht, Chinese yuan and other currencies. Consequently,
a portion of our costs, revenue and operating margins may be affected by
fluctuations in exchange rates, primarily between the U.S. dollar and such
foreign currencies. We are also affected by fluctuations in exchange
rates because our reporting currency is the U.S. dollar whereas the functional
currencies in our Southeast Asia operations are non-U.S.
dollars. Foreign currency translation adjustments resulted in an
increase of $1,548 to shareholders’ equity for fiscal 2008, an increase of $911
to shareholders’ equity for fiscal 2007, and a decrease of $190 to shareholders’
equity for fiscal 2006.
We try to
reduce our risk of foreign currency fluctuations by purchasing certain equipment
and supplies in U.S. dollars and seeking payment, when possible, in U.S.
dollars. However, we may not be successful in our attempts to
mitigate our exposure to exchange rate fluctuations. Those
fluctuations could have a material adverse effect on the Company's financial
results.
We
do not rely on patents to protect our products or technology
We hold
U.S. patents relating to our pressurization humidity testing equipment and
certain aspects of our Artic Temperature test systems. Additionally,
in fiscal 2001, we were granted patents for certain aspects of our new range of
Artic Temperature Controlled Chucks. However, although we believe our
patents are integral to the business of our manufacturing segment, generally we
do not rely on patent or trade secret protection for our products or
technology. Competitors may develop technologies similar to or more
advanced than ours. We cannot assure that our current or future
products will not be copied or will not infringe on the patents of
others. Moreover, the cost of litigation of any claim or damages
resulting from infringement of patents or other intellectual property could
adversely affect our business, financial condition and results of
operations.
Intense
competition can adversely affect our operating results
The
semiconductor equipment and testing industries are intensely
competitive. Significant competitive factors include price, technical
capabilities, quality, automation, reliability, product availability and
customer service. We face competition from established and potential
new competitors, many of whom have greater financial, engineering, manufacturing
and marketing resources than us. New products or testing facilities
offered by our competitors could cause a decline in our revenue or a loss of
market acceptance of our existing products and services. Increased
competitive pressure could also lead to intensified price-based
competition. Price-based competition may result in lower prices,
adversely affecting our operating results.
Loss, reduction or delay of orders
from significant customers could adversely affect our financial
condition
The
semiconductor manufacturing industry is highly concentrated, with a relatively
small number of large manufacturers and assemblers accounting for a substantial
portion of our revenue from product sales and testing revenue. Our
experience has been that sales to particular customers may fluctuate
significantly from quarter to quarter and year to year. In fiscal
2008, 2007, and 2006, sales of equipment and services to our three largest
customers accounted for approximately 80%, 77% and 71%, respectively, of our
total net revenue. Our ability to maintain close, satisfactory
relationships with our customers is essential to our stability and
growth. The loss of or reduction or delay in orders from our
significant customers, or delays in collecting accounts receivable from our
significant customers, could adversely affect our financial condition and
results of operations.
Our
testing products and services may be adversely affected by our sales of testing
equipment
If our
testing equipment is purchased by semiconductor manufacturers and assemblers, it
may reduce the likelihood that they will make further purchases of such
equipment or use our laboratories for testing services. Although
military or other specifications require certain testing to be done by
independent laboratories, over time other current customers may have less need
of our testing services. We believe that there is a growing trend
toward outsourcing of the integrated circuit testing process. As a
result, we anticipate continued growth in the test laboratory
business. However, there is no assurance that this trend will
continue. In an attempt to diversify our sales mix, we may seek to
develop and introduce new or advanced products, and to acquire other companies
in the semiconductor equipment manufacturing business.
Acquisition and integration of new
businesses could disrupt our ongoing business, distract management and
employees, increase our expenses or adversely affect our
business
A portion
of any future growth may be accomplished through the acquisition of other
entities. The success of those acquisitions will depend, in part, on
our ability to integrate the acquired personnel, operations, products, services
and technologies into our organization, to retain and motivate key personnel of
the acquired entities and to retain the customers of those
entities. We may not be able to identify suitable acquisition
opportunities, obtain financing on acceptable terms to bring the acquisition to
fruition or to integrate such personnel, operations, products or
services. The process of identifying and closing acquisition
opportunities and integrating acquisitions into our operations may distract our
management and employees, disrupt our ongoing business, increase our expenses
and materially and adversely affect our operations. We may also be
subject to certain other risks if we acquire other entities, such as the
assumption of additional liabilities. We may issue additional equity
securities or incur debt to pay for future acquisitions.
We
do not have contracts with key suppliers
We have
no written contracts with any of our suppliers. Our suppliers may
terminate their relationships with us at any time without
notice. There can be no assurance that we will be able to find
satisfactory replacement suppliers or that new suppliers will not be more
expensive than the current suppliers if any of our suppliers were to terminate
their relationship with us.
We
are highly dependent on key personnel
Our
success has depended, and to a large extent will depend, on the continued
services of S. W. Yong, our Chief Executive Officer and President, Victor H. M.
Ting, our Vice President and Chief Financial Officer, our other key senior
executives, and engineering, marketing, sales, production and other
personnel. We do not have an employment agreement with Mr. Yong or
Mr. Ting, but we are the beneficiary of “key man” life insurance in the amount
of $6 million on Mr. Yong and $2 million on Mr. Ting. The loss of
these key personnel, who would be difficult to replace, could harm our business
and operating results. Competition for management in our industry is
intense and we may be unsuccessful in attracting and retaining the executive
management and other key personnel that we require.
Our
management has significant influence over corporate decisions
As of
September 20, 2008, our officers and directors and their affiliates beneficially
owned approximately 29.94% of the outstanding shares of Common Stock, including
options held by them that are exercisable within 60 days of the date of filing
of this 10-K. As a result, they may be able to significantly
influence matters requiring approval of the shareholders, including the election
of directors, and may be able to delay or prevent a change in control of the
Company.
We
may not pay cash dividends in the future
We
declared a cash dividend of eleven cents (U.S. $0.11) per share payable to the
shareholders of record on February 25, 2008, a cash dividend of ten cents (U.S.
$0.10) per share payable to the shareholders of record on December 15, 2006 and
a cash dividend of fifty cents (U.S. $0.50) per share payable to the
shareholders of record on January 10, 2006. However, there is no
assurance that we will, or that we will be able to, pay any cash dividends on
our Common Stock in the future. We anticipate that future earnings,
if any, will be retained for use in the business or for other corporate
purposes. Additionally, California law prohibits the payment of
dividends if the Company does not have sufficient retained earnings or cannot
meet certain asset to liability ratios.
The
market price for our Common Stock is subject to fluctuation
The
trading price of our Common Stock has from time to time fluctuated
widely. The trading price may similarly fluctuate in the future in
response to quarter-to-quarter variations in our operating results,
announcements of innovations or new products by us or our competitors, general
conditions in the semiconductor industry and other events or
factors. In addition, in recent years, broad stock market indices in
general, and the securities of technology companies in particular, have
experienced substantial price fluctuations on a daily
basis. Fluctuations in the trading price of our Common Stock may
adversely affect our liquidity.
Our
results may be affected by interest rate fluctuations
We do not
use derivative financial instruments in our investment portfolio. Our
investment portfolio is generally comprised of cash deposits. Our
policy is to place these investments in instruments that meet high credit
quality standards. These securities are subject to interest rate risk
and could decline in value if interest rates fluctuate, and thus subject us to
market risk due to those fluctuations. Due to the short duration and
conservative nature of our investment portfolio, we do not expect any material
loss with respect to our investment portfolio, though no assurances can be given
that material losses will not occur.
The
interest rates on our loans and lines of credit range from 5.25% to 6.02% per
annum. As of June 30, 2008, the outstanding aggregate principal
balance on these loans and lines of credit was approximately
$3,023. These interest rates are subject to change and we cannot
predict an increase or decrease in rates, if any. However, an
increase in interest rates could have an adverse effect on our financial
results.
ITEM 1B – UNRESOLVED STAFF
COMMENTS
Not
applicable.
ITEM
2 – PROPERTIES
As of the
date of filing of this Form 10-K, we believe that we are utilizing approximately
92% of our fixed property capacity. We also believe that our existing
facilities are under-utilized and are adequate and suitable to cover any sudden
increase in our needs in the foreseeable future.
The
following table presents the relevant information regarding the location and
general character of our principal manufacturing and testing
facilities:
|
Owned
(O)
|
|||
|
Approx.
|
or
Leased (L)
|
||
|
Sq.
Ft.
|
&
Expiration
|
||
|
Location
|
Principal
Use/Segment
|
Occupied
|
Date
|
|
16139
Wyandotte Street, Van Nuys,
|
Headquarters/
|
5,200
|
(L)
Dec. 2010
|
|
CA
91406, United States of America
|
Trio-Tech
Systems
|
||
|
1004,
Toa Payoh North, Singapore
|
|||
|
HEX
07-01/07,
|
Testing
|
6,864
|
(L)
Sept. 2009
|
|
HEX
07-01/07, (ancillary site)
|
Testing
|
2,339
|
(L)
Sept. 2009
|
|
HEX
03-01/02/03,
|
Testing/Manufacturing
|
2,959
|
(L)
Sept. 2009
|
|
HEX
01-08/15,
|
Testing/Manufacturing
|
6,864
|
(L)
Jan. 2009
|
|
HEX
01-08/15, (ancillary site)
|
Testing/Manufacturing
|
1,980
|
(L)
Jan. 2009
|
|
HEX
01-16/17,
|
Testing
|
1,983
|
(L)
Jan. 2009
|
|
HEX
02-08/09/10,
|
Testing
|
2,959
|
(L)
Aug. 2008*2
|
|
HEX
02-11/12/14/15,
|
Testing
|
3,905
|
(L)
Apr. 2011
|
|
HEX
03-08/10,
|
Manufacturing
|
2,959
|
(L)
May. 2010
|
|
HEX
03-06/07
|
Testing/Manufacturing
|
1,953
|
(L)
Jan. 2009*2
|
|
HEX
03-06/07 (ancillary site)
|
Testing/Manufacturing
|
266
|
(L)
Jan. 2009*2
|
|
HEX
03-06/07 (ancillary site)
|
Testing/Manufacturing
|
101
|
(L)
Jan. 2009*2
|
|
HEX
04-05/07
|
Manufacturing
|
2,929
|
(L)
May. 2009*1
|
|
HEX
04-08/09/10
|
Manufacturing
|
2,959
|
(L)
Dec. 2009*2
|
|
HEX
04-11/12
|
Manufacturing
|
1,953
|
(L)
Nov. 2010*2
|
|
1008,
Toa Payoh North, Singapore
|
|||
|
HEX
03-01/06,
|
Testing
|
7,345
|
(L)
Feb. 2009*2
|
|
HEX
03-09/17,
|
Logistics/Universal
(FE)
|
6,099
|
(L)
Jan. 2009 *1
|
|
HEX
03-09/17, (ancillary site)
|
Logistics/Universal
(FE)
|
70
|
(L)
Jan. 2009*1
|
|
HEX
07-17/18,
|
Testing
|
4,315
|
(L)
Nov. 2009
|
|
HEX
07-17/18, (ancillary site)
|
Testing
|
25
|
(L)
Nov. 2009
|
|
HEX
07-01,
|
Testing
|
3,466
|
(L)
Jan. 2010
|
|
HEX
02-17
|
Universal
(FE)
|
832
|
(L)
Jun. 2010
|
|
HEX
02-18
|
Universal
(FE)
|
3,466
|
(L)
Nov. 2009
|
|
HEX
02-15/16
|
Universal
(FE)
|
1,400
|
(L)
Jul. 2010
|
|
HEX
01-09/10/11
|
Universal
(FE)
|
2,202
|
(L)
Nov. 2009
|
|
HEX
01-15/16
|
Universal
(FE)
|
1,400
|
(L)
Sept. 2008*1
|
|
HEX
03-07/08
|
Testing
|
1,765
|
(L)
Nov. 2010*2
|
|
HEX
03-07/08, (ancillary site)
|
Testing
|
144
|
(L)
Nov. 2010
|
|
HEX
01-08
|
Universal
(FE)
|
603
|
(L)
Jun. 2009
|
|
Plot
1A, Phase 1
|
Subleased
|
42,013
|
(O)
*3
|
|
Bayan
Lepas Free Trade Zone
|
|||
|
11900
Penang
|
|||
|
Lot
No. 11A, Jalan SS8/2,
|
Testing
|
19,334
|
(L)
Aug. 2009
|
|
Sungai
Way Free Industrial Zone,
|
|||
|
47300
Petaling Jaya,
|
|||
|
Selangor
Darul Ehsan, Malaysia
|
|||
|
Lot
No. 4, Kawasan MIEL
|
14,432
|
(L)
Nov. 20108*3
|
|
|
Sungai
Way Baru Free Industrial Zone, Phsdr
Phase
III,
|
Subleased
|
||
|
Phase
III, Selangor Darul Ehsan, Malaysia
|
Dynamics,
Malaysia
|
||
|
327,
Chalongkrung Road,
|
Testing
|
34,433
|
(O)
|
|
Lamplathew,
Lat Krabang,
|
|||
|
Bangkok
10520, Thailand
|
|||
|
No.
5, Xing Han Street, Block A
|
Testing
|
9,957
|
(L)
Oct. 2008*2
|
|
#04-13/14,
Suzhou Industrial Park
|
|||
|
China
215021
|
|||
|
No.
5, Xing Han Street, Block A
|
Testing
|
9,957
|
(L)
Oct. 2008*1
|
|
#04-15/16,
Suzhou Industrial Park
|
|||
|
China
215021
|
|||
|
No.
273, Debao Road Factory No.58
|
Testing
|
7,158
|
(L)
Aug. 2010
|
|
Level
1 (West) Waigaoqiao Free Trade Zone, Pudong 200131 Shanghai,
China
|
|||
|
Zone,
Pudong 200131 Shanghai, China
|
|||
|
No.
5, Xing Han Street, Block A
|
Testing
|
3,606
|
(L)
Nov. 2008*1
|
|
#04-11/12,
Suzhou Industrial Park
|
|||
|
China
215021
|
|||
|
26-4/5,
Future International Building.
|
Office
|
2125
|
(L)
Sep. 2010
|
|
No.
6 North Jianxin Road 1st
Road.
|
|||
|
Jiangbei
District Chongqing China 400020
|
|||
|
|
*1
With respect to the various leases that expire during fiscal 2009, the
Company anticipates that the landlord will offer similar terms on each
such lease at renewal and does not believe that material expenses will be
incurred.
|
|
|
*2
The Company intends to return the indicated leased premises to the
landlord at the end of the lease
period.
|
|
|
*3
The premises are subleased to a third
party.
|
ITEM
3 – LEGAL PROCEEDINGS
The
Company is, from time to time, the subject of litigation claims and assessments
arising out of matters occurring in its normal business
operations. In the opinion of management, resolution of these matters
will not have a material adverse effect on our financial
statements.
There are
no material proceedings to which any director, officer or affiliate of the
Company, any beneficial owner of more than five percent of the Company’s Common
Stock, or any associate of such person is a party that is adverse to the Company
or its properties.
|
There
was no litigation relating to environmental action which arose from our
operations.
|
ITEM
4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART
II
|
ITEM 5
|
- MARKET FOR REGISTRANT'S COMMON
EQUITY, RELATED
|
|
|
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
|
Our
Common Stock is traded on the American Stock Exchange under the symbol
“TRT.” The following table sets forth, for the periods indicated, the
range of high and low sales prices of our Common Stock as quoted by
AMEX:
|
Quarter
Ended
|
High
|
Low
|
||||||
|
Fiscal
2007
|
||||||||
|
September
30, 2006
|
$
|
11.96 | $ | 5.95 | ||||
|
December
31, 2006
|
$ | 15.40 | $ | 10.45 | ||||
|
March
31, 2007
|
$ | 17.15 | $ | 10.68 | ||||
|
June
30, 2007
|
$ | 21.93 | $ | 14.25 | ||||
|
Fiscal
2008
|
||||||||
|
September
30, 2007
|
$
|
23.81
|
$
|
9.79
|
||||
|
December
31, 2007
|
$
|
12.50
|
$
|
8.26
|
||||
|
March
31, 2008
|
$
|
9.44
|
$
|
5.28
|
||||
|
June
30, 2008
|
$
|
6.50
|
$
|
5.08
|
||||
Stockholders
As of June 30, 2008, there were 3,226,430 shares of our
Common Stock issued and outstanding, and the Company had approximately 167
record holders of Common Stock.
Dividend
Policy
On
December 2, 2005, our Board of Directors declared a cash dividend of fifty cents
(U.S. $0.50) per share payable to the shareholders of record on January 10,
2006. The total number of shares issued and outstanding as of January
10, 2006 was 3,215,532 and the total amount of the cash dividends paid on
January 25, 2006 was approximately $1,607,766. The source of cash was
from the proceeds from disposition of the property located in Dublin,
Ireland.
On
December 5, 2006, our Board of Directors declared a cash dividend of ten cents
(U.S. $0.10) per share payable to the shareholders of record on December 15,
2006. The total number of shares issued and outstanding as of
December 15, 2006 was 3,225,242 and the total amount of the cash dividends paid
on January 15, 2007 was approximately $322,524.
On
February 12, 2008, the Board of Directors declared a cash dividend of eleven
cents (U.S. $0.11) per share payable to the shareholders of record on February
25, 2008. The total number of shares issued and outstanding as of
February 25, 2008 was 3,226,430 and total cash dividends paid on March 25, 2008
were $354,907.
The
determination as to whether to pay any future cash dividends will depend upon
our earnings and financial position at that time and other factors as the Board
of Directors may deem appropriate. California law prohibits the
payment of dividends if a corporation does not have sufficient retained
earnings or cannot meet certain asset to liability ratios. There is
no assurance that dividends will be paid to
holders of Common Stock in the foreseeable future.
Stock Performance
Graph
The graph
below compares our cumulative total shareholder return of the Common Stock of
the Company with that of the Standard & Poor’s 500 Index and the AMEX
Composite Index for the five-year period ending June 30, 2008. The
graph assumes an investment of $100 on June 30, 2003 in the AMEX Composite Index
and in the S&P 500 Index. The graph also assumes reinvestment of
dividends, if any. The historical stock performance shown on the
following graph should not be considered indicative of future shareholder
returns, and we will not make or endorse any predictions of future shareholder
returns.
$100 invested on 06/30/03 in stock or
index-including reinvestment of dividends. Fiscal year ends June
30.
| 6/03 | 6/04 | 6/05 | 6/06 | 6/07 | 6/08 | |||||||||||||||||||
|
TRIO
TECH INTL
|
$ | 100 | $ | 178 | $ | 155 | $ | 250 | $ | 816 | $ | 208 | ||||||||||||
|
S
& P 500
|
$ | 100 | $ | 117 | $ | 122 | $ | 130 | $ | 154 | $ | 131 | ||||||||||||
|
AMEX
|
$ | 100 | $ | 129 | $ | 159 | $ | 199 | $ | 243 | $ | 243 |
ITEM
6 – SELECTED FINANCIAL DATA
(In
thousands, except per share data)
|
June
30,
|
June
30,
|
June
30,
|
June
30,
|
June
30,
|
||||||||||||||||||||
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||||||
|
Consolidated
Statements of Operations
|
||||||||||||||||||||||||
|
Net
Sales
|
$ | 40,314 | $ | 46,750 | $ | 29,099 | (1 | ) | $ | 25,061 | (2 | ) | $ | 18,661 | ||||||||||
|
Income
(loss) from Operations
|
(41 | ) | 4,197 | 487 | 359 | 56 | ||||||||||||||||||
|
Net
Income (loss) from
|
||||||||||||||||||||||||
|
Continuing
Operations
|
(956 | ) | 3,308 | 597 | 216 | 162 | ||||||||||||||||||
|
Net
Income (loss) from
|
||||||||||||||||||||||||
|
Discontinued
Operations
|
- | - | 8,459 | 5 | 58 | |||||||||||||||||||
|
Total
Net Income (loss)
|
(956 | ) | 3,308 | 9,056 | 221 | 220 | ||||||||||||||||||
|
Basic
Earnings (loss) per Share:
|
||||||||||||||||||||||||
|
Continuing
Operations
|
(0.30 | ) | 1.03 | 0.19 | 0.07 | 0.06 | ||||||||||||||||||
|
Discontinued
Operations
|
0.00 | 0.00 | 2.72 | 0.00 | 0.01 | |||||||||||||||||||
|
Total
Net Income (loss)
|
(0.30 | ) | 1.03 | 2.91 | 0.07 | 0.07 | ||||||||||||||||||
|
Diluted
Earnings (loss) per Share :
|
||||||||||||||||||||||||
|
Continuing
Operations
|
(0.30 | ) | 1.02 | 0.19 | 0.07 | 0.05 | ||||||||||||||||||
|
Discontinued
Operations
|
0.00 | 0.00 | 2.71 | 0.00 | 0.02 | |||||||||||||||||||
|
Total
Net Income (loss)
|
(0.30 | ) | 1.02 | 2.90 | 0.07 | 0.07 | ||||||||||||||||||
|
Weighted
Average Common
|
||||||||||||||||||||||||
|
Stocks
Outstanding
|
||||||||||||||||||||||||
|
Basic
|
3,226 | 3,223 | 3,113 | 2,964 | 2,935 | |||||||||||||||||||
|
Diluted
|
3,226 | 3,233 | 3,126 | 3,029 | 2,993 | |||||||||||||||||||
|
Consolidated
Balance Sheets
|
||||||||||||||||||||||||
|
Current
Assets
|
$ | 23,431 | $ | 24,673 | $ | 21,831 | $ | 10,645 | $ | 12,798 | ||||||||||||||
|
Current
Liabilities
|
7,528 | 8,228 | 8,536 | 5,836 | 5,624 | |||||||||||||||||||
|
Working
Capital
|
15,903 | 16,445 | 13,295 | 4,809 | 7,174 | |||||||||||||||||||
|
Total
Assets
|
34,759 | 32,788 | 29,384 | 18,345 | 18,000 | |||||||||||||||||||
|
Long-term
Debt and
|
||||||||||||||||||||||||
|
Capital
Leases
|
1,763 | 294 | 874 | 744 | 793 | |||||||||||||||||||
|
Shareholders'
Equity
|
$ | 22,141 | $ | 21,431 | $ | 17,392 | $ | 9,297 | $ | 9,024 | ||||||||||||||
|
Cash
Dividend Paid per Share
|
$ | 0.11 | $ | 0.10 | $ | 0.50 | $ | - | $ | - | ||||||||||||||
|
(1)
|
The
net sales included the sales from the business acquired in
Shanghai.
|
|
(2)
|
The
net sales included the sales from the business acquired in
Malaysia.
|
|
(3)
|
The
income from the discontinued operations was significant in fiscal 2006.
There was no income from discontinued operations in fiscal 2007 and fiscal
2008 and the Company does not expect income from discontinued operations
going forward.
|
ITEM
7 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (IN THOUSANDS, EXCEPT PERCENTAGES AND SHARE AMOUNTS)
The
following discussion and analysis should be read in conjunction with our
disclaimer on “Forward-Looking Statements,” “Item 1. Business,” “Item
1A. Risk Factors,” “Item 6. Selected Financial Data” and Consolidated Financial
Statements, the notes to those statements and other financial information
contained elsewhere in this Annual Report on Form 10-K.
Overview
Trio-Tech
International operates in three distinct segments:
distribution, manufacturing and testing. We provide third-party semiconductor testing and
burn-in services primarily through our laboratories in Southeast
Asia. At or from our facilities in California and Southeast Asia, we
also design, manufacture and market equipment and systems to be used in the
testing and production of semiconductors, and distribute semiconductor
processing and testing equipment manufactured by other vendors.
Geographically,
we operate in the U.S., Singapore, Malaysia, Thailand and China. Our
major operation activities are conducted in our Singapore
location. Our customers are mainly concentrated in Southeast Asia and
they are either semiconductor chip manufacturers or testing facilities that
purchase our testing equipment.
In August
2005, we established a winding-down plan to close the testing operation in
Dublin, Ireland. In November 2005, we completed the sale of property
located in Dublin, Ireland and recorded a gain on the sale of property of
$8,909. As a result, this discontinued operation reported income of
$8,459, which consisted of the gain from the sale of property of $8,909 offset
by an operating loss from the discontinued operation of $450. For
basis of comparison, the financial statements related to the discontinued
operation are now presented separately in this report under discontinued
operations.
In the
management’s discussion and analysis of financial condition and results of
operations, for basis of comparison, the amounts used in comparison have been
reclassified to exclude the amounts from discontinued operations, which have
been discussed as a separate line item listed on the statements of
income.
In
January 2006, we completed the acquisition of a burn-in testing division in
Shanghai. Beginning on January 3, 2006, the operating results of this
subsidiary were included in the consolidated financial statement of the
Company.
In June
2007, we established a subsidiary in Chongqing, China. This newly
established subsidiary, 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.
In fiscal
2008, Trio-Tech (Chongqing) Co., Ltd. invested an aggregate of RMB 15,000, equivalent to
approximately $2,187 based on the exchange rate on June 30, 2008 published by
the Federal Reserve System, to jointly develop a 24.91
acre parcel owned by Jiasheng Property Development Co., Ltd. (Jiasheng
hereafter) located in Chongqing City, China. The joint venture intends to sell
the property after the completion of development. The Company
initially held a 16% equity interest in the joint venture. In
accordance with APB 18, the
Equity Method of Accounting for Investments in Common Stock, and given
the Company’s 16% equity interest in the joint venture project, the Company was
required to consider several factors regarding its investment in accounting for
this investment. Those factors included the primary beneficiary,
decision making power and representation on the Board of
Directors. Specifically, the Company took into consideration the fact
that Jiasheng is responsible for the daily business operations and development
of that project and the Company does not have decision making power and has
played a passive investor role since the inception of this joint
venture. Based on the foregoing, management believes that the cost
method of accounting is appropriate for its investment in this joint
venture. In the fourth quarter of
fiscal 2008, the investment of RMB 5,000, approximately $729, was
returned to the Company, which reduced the aggregate investment in this project
to $1,458. The Company also recorded a profit of RMB 750,
approximately $103, in investment income in the fourth quarter of
2008.
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 high office building located in
Chongqing, China. The total cash purchase price was RMB 5,554
(Chinese yuan), equivalent to approximately U.S. $809 based on the exchange rate
as of June 30, 2008 published by the Federal Reserve System. Under
the terms of the agreement, the Company paid the purchase price in full on
January 4, 2008. The Company rented this property out to a third
party on July 13, 2008. The term of the rent agreement is five years
with a monthly rental income of RMB 39 (approximately $5.7) for the first three
years, with an increase of 8% in the fourth year and another 8% in the fifth
year.
In the
third quarter of fiscal 2008, one of our major customers ceased their advanced
burn-in testing service contract with us due to one of their product lines
reaching the end of its life cycle earlier than expected. Management
took immediate actions to reduce the costs to match our expenses with the
anticipated reduced future cash flows as a result of the loss of this testing
revenue. All these cost saving actions benefited the Company starting
from April 1, 2008. The Company is in the early stages of developing
new customer relationships in China and Malaysia to replace the lost testing
revenue from this contract.
In
January 2008, our U.S. office moved to a new location. Our new address is 16139
Wyandotte Street, Van Nuys, California 91406. Our corporate phone number is
still 818-787-7000.
Fiscal
2008 Highlights
|
·
|
Total
revenue decreased by $6,436, or 13.8%, from $46,750 for fiscal 2007 to
$40,314.
|
|
·
|
Manufacturing
segment revenue decreased by $2,325, or 9.7%, from $24,056 for fiscal 2007
to $21,731.
|
|
·
|
Testing
segment revenue decreased by $2,711, or 13.0%, to $18,172, compared to
$20,883 for fiscal 2007.
|
|
·
|
Distribution
segment revenue decreased by $1,400, or 77.3%, to $411, compared to $1,811
for fiscal 2007.
|
|
·
|
Income
from continuing operations decreased by $4,264 to a loss of $956, compared
to an income of $3,308 for fiscal
2007.
|
|
·
|
Gross
profit margins decreased by 3.7% to 22.0% for fiscal 2008, compared with
gross profit margins of 25.7% for fiscal year
2007.
|
|
·
|
General
and administrative expenses were 19.5% of revenue, as compared to 14.5% in
fiscal year 2007.
|
|
·
|
Selling
expenses were 1.6% of revenue, as compared to 1.7% in fiscal year
2007.
|
|
·
|
We
recorded $450, or $0.14 per diluted share, in impairment loss due
primarily to the phase-out of an advanced
burn
|
in
testing service provided by our facilities in Singapore and China.
|
●
|
Total
assets increased 6.0% to $34,759 as compared to $32,788 in fiscal
2007.
|
|
·
|
Total
liabilities increased 10.3% to $9,810 as compared to $8,895 in fiscal
2007.
|
|
·
|
Shareholders’
equity increased 3.3% to $22,141 as compared to $21,434 in fiscal
2007.
|
|
·
|
We
distributed a cash dividend of $0.11 per share on March 25, 2008, totaling
$354.
|
|
·
|
We
purchased an office space in Chong Qing for RMB 5,554 (Chinese yuan),
equivalent to approximately U.S. $809 on January 4,
2008.
|
The
highlights above are intended to identify some of our more significant events
and transactions during our fiscal year 2008, and recent events that occurred
after the fiscal year end. However, these highlights are not intended to be a
full discussion of our results for the year. These highlights should
be read in conjunction with the following discussion of “Results of Operations”
and “Liquidity and Capital Resources” and with our consolidated financial
statements and footnotes accompanying this Annual Report.
Subsequent
Events
The
Company rented out the office space purchased in Chongqing, China to a third
party on July 13, 2008. The term of the rent agreement is five years with a
monthly rental income of RMB 39 (or approximately $5.7) for the first three
years, with an increase of 8% in the fourth year and another 8% in the fifth
year.
On July
11, 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 of $4.81 (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. The Company
also granted 60,000 shares of stock options pursuant to the 2007 Directors Plan
at the same exercise price. The fair market value of these stock options was
estimated to be approximately $320 based on the Black Scholes option pricing
model.
On August
24, 2008, Trio-Tech (Malaysia) Sdn. Bhd. obtained a long-term loan of RM 9,625,
or approximately $4,010, offered by CIMB Bank Berhad in
Malaysia. This non-revolving long-term loan has a term of fifteen
years from the date of the first draw down. The bank offered an
interest rate at the bank‘s prime rate plus 1.5% per annum or a fixed rate of
7.12% per annum in the first five years and the bank’s prime rate plus 1.5% per
annum thereafter. The Company has not yet made a decision on these
interest options.
General
Financial Information
During
the fiscal year ended June 30, 2008, total assets increased by $1,971 from
$32,788 at June 30, 2007 to $34,759 at June 30, 2008. The increase
was in inventory, investment, property, plant and equipment, other receivable
and other assets, but offset with a decrease primarily in trade accounts
receivables, cash and cash equivalents.
Cash and
short-term deposits at June 30, 2008 totaled $14,346, a decrease of $604, or 4.0%, as compared to a total of $14,950 as of June 30, 2007. The
decrease in cash and short-term deposits was mainly due to a decrease in net
cash provided by operating activities as a result of a net loss during fiscal
2008, the investment in Chongqing, China of $2,267 and capital expenditures of
$3,357. Income from continuing operations in fiscal 2008 decreased by $4,264 to
a loss of $956 as compared to income of $3,308 in fiscal year 2007 due to a
decrease in sales from the manufacturing, testing and distribution
segments. This decrease was partially offset by an increase in
proceeds from long-term loans. In the first quarter of fiscal 2008,
we obtained a new term loan of $3,822 (based on the exchange rate of June 30,
2008 published by
the Federal Reserve System) to support our long-term investment and the
opportunities for potential business expansion.
Accounts
receivables at June 30, 2008 were $5,702, representing a decrease of $1,708, or 23.0%, compared to $7,410
at June 30, 2007. The decrease was attributable mainly to a decrease
in sales due to the loss of a major customer in fiscal 2008, as discussed
previously. Total sales from all of the segments in fiscal 2008 were $40,314, a
decrease of $6,436, or 13.8%, compared to total sales of $46,750 in fiscal
2007. We believe that the loss of our major customer will continue to
have a negative impact on our revenue in the future if we are unable to
compensate for the loss of this source of revenue. The turnover of
accounts receivables was 59 days for fiscal 2008, a decrease of 3 days, compared
to 62 days for fiscal 2007. The decrease in the accounts receivable
turnover rate was primarily due to improvements in collections at the Singapore
operations.
Prepaid
expenses and other current assets at June 30, 2008 were $796, an increase of
$551 from that balance at June 30, 2007, due primarily to an increase of $120 in
prepayment to suppliers and an increase of $222 of prepaid Singapore General
Sales Tax related to an increase in material purchase.
Inventory
at June 30, 2008 was $2,449, an increase of $503, or 25.8%, compared to $1,946
at June 30, 2007. The increase in inventory was mainly from an
increase in work-in-progress inventories. Our manufacturing segment
built up additional inventory in the fourth quarter of fiscal 2008 for the
expected product shipments in the first quarter of fiscal 2009. The
turnover of inventory was 26 days for fiscal 2008, reflecting an increase of 3
days compared with a turnover rate of 23 days for fiscal 2007.
Property,
plant and equipment at June 30, 2008 were $8,136, an increase of $678, or 9.1%,
compared to $7,458 at June 30, 2007 due to an increase in capital
expenditures. Capital expenditures were $3,453 ($3,357 in cash, and
$96 in capital lease) in fiscal 2008, compared with $2,864 ($2,812 in cash, and
$52 in capital lease) for fiscal 2007. The increase in capital
expenditures was mainly due to purchases of machinery and equipment in the
amount of $2,998 during fiscal year 2008 for the Malaysia testing operations in
order to meet specifications from our customers.
In the
fourth quarter of 2008, we disposed of the asset held for sale in the Malaysia
operation. The proceeds of this sale transaction were $216. We
recorded a loss of $5 based on the book value of that asset on the transaction
date.
Depreciation
and amortization was $2,715 for fiscal 2008, compared with $2,857 for fiscal
2007. The decrease in depreciation expenses was due to the write down
of certain fixed assets in the Singapore operations starting in the third
quarter of fiscal 2008, thus reducing our depreciation expenses related to those
assets. However, this reduction was partially offset by an increase
in depreciation expenses of some property, plant and equipment that were newly
put into use.
Other
assets at June 30, 2008 increased by $368 to $813, compared to $445 at June 30,
2007. The increase in other assets was primarily due to an increase
of the down payment for fixed assets in the Malaysia operations of $402 and
partially offset by a decrease of $29 in deposits for rent and utilities in the
China operations.
On August
27, 2007 and November 15, 2007, Trio-Tech (Chongqing) Co., Ltd. entered into a
Memorandum Agreement and a Supplement Agreement, respectively, with Jiasheng
Property Development Co., Ltd. to jointly develop a 24.91 acres parcel owned by
Jiasheng located in Chongqing, China. Pursuant to the Memorandum
Agreement, an investment of $1,458 was transferred into a special bank account
jointly monitored by both Trio-Tech (Chongqing) Co., Ltd. and
Jiasheng.
Pursuant
to the Supplement Agreement, Trio-Tech (Chongqing) Co., Ltd. transferred RMB
5,000, approximately $729, from its bank account into the special bank account
on December 17, 2007. In the fourth quarter of 2008, the investment
of RMB 5,000, approximately $729, was returned to the Company, which reduced the
investment in this project back to $1,458.
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 high office building located in
Chongqing, China. The total cash purchase price was RMB 5,554
(Chinese yuan), equivalent to approximately U.S. $809 based on the exchange rate
as of June 30, 2008 published by the Federal Reserve System. The
Company rented this property out to a third party on July 13,
2008. The term of the lease agreement is five years (starting from
July 13, 2008) with a monthly rental income of RMB 39 (approximately $5.7) for
the first three years, with an increase of 8% in the fourth year and another 8%
in the fifth year. As of June 30, 2008, the total of all the
Company’s investments in Chongqing, China was $2,267.
Total
liabilities at June 30, 2008 were $9,810, an increase of $915, or 10.3%,
compared to $8,895 at June 30, 2007. The increase in liabilities was
mainly due to the increase in accounts payable, notes payable and deferred tax
liabilities, but partially offset by the decrease in accrued expenses and income
tax payable.
Accounts
payable increased by $321 from $2,265 at June 30, 2007 to $2,586 at June 30,
2008. The increase in accounts payable was a result of the increase
in material purchases in the fourth quarter of 2008 due to a higher backlog in
the Singapore distribution segment.
Accrued
expenses decreased by $1,318 from $4,354 at June 30, 2007 to $3,036 at June 30,
2008. The decrease in accrued expenses was mainly due to a decrease
in accrued payroll expenses as the result of a decrease in headcount in the
Singapore operation and a reduction of performance bonuses, which were based on
the group performance. In addition, provision for sales tax, warranty
cost and commission also decreased due to a decrease in revenue in fiscal 2008
as compared to fiscal 2007.
Critical
Accounting Estimates & Policies
The
discussion and analysis of the Company’s financial condition presented in this
section are based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States. During the preparation of the consolidated financial
statements, we are required to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenue and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing basis,
we evaluate our estimates and judgments, including those related to sales,
returns, pricing concessions, bad debts, inventories, investments, fixed assets,
intangible assets, income taxes and other contingencies. We
base our estimates on historical experience and on various other assumptions
that we believe are reasonable under current conditions. Actual
results may differ from these estimates under different assumptions or
conditions.
In
response to the SEC’s Release No. 33-8040, Cautionary Advice Regarding
Disclosure about Critical Accounting Policy, we have identified the most
critical accounting policies upon which our financial status
depends. We determined that those critical accounting policies are
related to the inventory valuation, allowance for doubtful accounts, revenue
recognition, and income tax. These accounting policies are discussed in the
relevant sections in this management’s discussion and analysis, including the
Recently Issued Accounting Pronouncements discussed below.
Accounts
Receivable and Allowance for Doubtful Accounts
During
the normal course of business, we extend unsecured credit to our
customers. Typically, credit terms require payment to be made between
30 to 60 days of the sale. We do not require collateral from our
customers. We maintain our cash accounts at credit worthy financial
institutions.
We
regularly evaluate and monitor the creditworthiness of each customer on a
case-by-case basis. We include any account balances that are
determined to be uncollectible, along with a general reserve, in the overall
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 management, we
believe that our allowance for doubtful accounts was adequate as of June 30,
2008.
Inventory
Valuation
Our
inventories are stated at the lower of cost (on a first-in, first-out basis) or
market value. Our industry is characterized by rapid technological
change, short-term customer commitments and rapid changes in
demand. We make provisions for estimated excess and obsolete
inventory based on our regular reviews of inventory quantities on hand and the
latest forecasts of product demand and production requirements from our
customers. We write down inventories for not saleable, excess or
obsolete raw materials, works-in-process and finished goods by charging such
write-downs to cost of sales. In addition to write-downs based on
newly introduced parts, statistics and judgments are used for assessing
provision of the remaining inventory based on salability and
obsolescence.
Revenue
Recognition
Revenue
from sales of the Company’s products is recognized upon shipment or delivery,
depending upon the terms of the sales order, provided that persuasive evidence
of a sales arrangement exists, title and risk of loss have transferred to the
customer, the sales amount is fixed and determinable and collection of the
revenue is reasonably assured. We allocate a portion of the invoice
value to products sold and the remaining portion of invoice value to
installation and training work in proportion to the fair value of products sold
and installation and training work to be performed. The fair value
determination of products sold and the installation and training work is also
based on our specific historical experience of the relative fair values of the
elements if there is no easily observable market price to be considered. A significant portion of
the Company’s sales is generated by testing services. Revenue derived
from testing service is recognized when testing services are
rendered.
The
Company reduces revenue based on estimates of future credits to be granted to
customers. Credits are granted for reasons such as product returns due to
quality issues, volume-based incentives, and other special pricing
arrangements.
Income
Tax
We
recognize deferred tax liabilities and assets for the future tax consequence
attributable to the difference between the tax bases of assets and liabilities
and their reported amounts in the financial statements. Deferred tax
assets and liabilities are measured using the enacted tax rate expected to apply
to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in the period that
included the enactment date.
During
the process of determining tax liabilities, we have to deal with uncertainties
involved in the application of complex tax laws. Our foreign
subsidiaries are subject to income taxes in the regions or countries where they
operate. Because of the different income tax jurisdictions, net
losses generated in the U.S. cannot be utilized to offset the taxable income
generated in foreign countries. Therefore, we may incur certain
income tax expenses in any fiscal year while the Company, on a consolidated
basis, may report a loss before income taxes. Although we believe
that our estimates are reasonable, no assurance can be given that the final
outcome of these matters will not be different from what is reflected in the
historical income tax provisions and accruals.
We assess
the likelihood that our deferred tax assets can be recovered. If
recovery is not likely, the provision for taxes must be increased by recording a
reserve in the form of a valuation allowance for the deferred tax assets that
are estimated not to be ultimately recoverable. In this process,
certain relevant criteria are evaluated including the existence of deferred tax
liabilities that can be used to absorb deferred tax assets, the taxable income
that can be used to absorb net operating losses and credit carry-backs, and
taxable income in future years. Our judgment regarding future
profitability may change due to future market conditions, changes in U.S. or
international tax laws and other factors. These changes, if any, may
require material adjustments to these deferred tax assets and an accompanying
reduction or increase in net income in the period when such determinations are
made. For U.S. income
tax purposes, no provision has been made for U.S. taxes on undistributed
earnings of overseas subsidiaries with which the Company intends to continue to
reinvest.
In
addition to the risks described above, the effective tax rate is based on
current enacted tax law. Significant changes during the year in
enacted tax law could affect these estimates.
Comparison of Operation
Results
Comparison
of Fiscal 2008 and 2007
The
following table presents certain data from the consolidated statements of income
as a percentage of net sales for the fiscal years
ended June 30, 2008 and 2007:
|
Years
Ended June 30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Net
Sales
|
100.0 | % | 100.0 | % | ||||
|
Cost
of Sales
|
78.0 | % | 74.3 | % | ||||
|
Gross
Margin
|
22.0 | % | 25.7 | % | ||||
|
Operating
Expenses
|
||||||||
|
General
and administrative
|
19.5 | % | 14.5 | % | ||||
|
Selling
|
1.6 | % | 1.7 | % | ||||
|
Research
and development
|
0.1 | % | 0.1 | % | ||||
|
Impairment
loss
|
1.1 | % | 0.4 | % | ||||
|
Loss
on disposal of PP&E
|
(0.2 | %) | 0.0 | % | ||||
|
Total
Operating Expenses
|
22.1 | % | 16.7 | % | ||||
|
Income
from Operations
|
(0.1 | %) | 9.0 | % | ||||
Overall
Revenue
The
overall revenue is composed of the revenues from the manufacturing, testing and
distribution segments. The following table presents the
components of the overall revenue realized in fiscal 2008 and 2007 in percentage
format, respectively.
|
Years
Ended June 30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Revenues:
|
||||||||
|
Manufacturing
|
53.9 | % | 51.551.4642.77 | % | ||||
|
Testing
|
45.1 | % | 44.7 | % | ||||
|
Distribution
|
1.0 | % | 3.8 | % | ||||
|
Total
|
100.0 | % | 100.0 | % | ||||
Net sales
for fiscal 2008 were $40,314, a decrease of $6,436, or 13.8%, compared to
$46,750 for fiscal 2007. The decrease in net sales can be discussed
within the three segments.
As a
percentage of total revenue, the revenue generated by the manufacturing segment
in fiscal 2008 accounted for 53.9% of total sales, representing an increase of
2.4%, compared to 51.5% in fiscal 2007. But in terms of dollar
amount, the revenue for fiscal 2008 was $21,731, reflecting a decrease of
$2,325, or 9.7%, compared to $24,056 for fiscal 2007. The decrease in
revenue generated by the manufacturing segment was due to the fact that fewer
orders were placed by one of our major customers, which was the result of slower
movement of that customer’s product line and equipment capacity. We
believe that the loss of our major customer will continue to have a negative
impact on our revenue in the future if we are unable to compensate for the loss
of this source of revenue.
The
backlog in the manufacturing segment decreased by 49.6%, from $6,275 in fiscal
2007 to $3,165 in fiscal 2008, due to the decrease in demand
from one of our major customers.
As a
percentage of total revenue, the revenue generated by the testing segment in
fiscal 2008 accounted for 45.1% of total sales, an
increase of 0.4%, compared to 44.7% in fiscal year 2007. In
terms of dollar amount, the revenue for fiscal year 2008 was $18,172, reflecting a decrease of $2,711, or 13.0%,
compared to $20,883 for fiscal 2007. This decrease in revenue was due
to a significant drop in orders from one of our main customers due to one of
their product lines reaching the end of its life cycle earlier than expected,
rendering our testing services in the Singapore, Thailand and China operations
for that product no longer necessary. This decrease was partially
offset by an increase in demand for testing services in the Malaysia
operation. The revenue in the Malaysia subsidiary was $5,283, an
increase of $1,870 or 54.8%, compared to $3,413 in fiscal
2007. Demand for testing services varies from country to country
depending on changes taking place in the market and our customers’
forecasts. Since it is difficult to accurately forecast fluctuations
in the market, it is necessary to maintain testing facilities in close proximity
to our customers in order to make it convenient for them to send us their newly
manufactured parts for testing and enable us to maintain a share of the
market. It was necessary to shut down testing facilities in certain
locations with the loss of one of our major customers.
Backlog
in the testing segment at June 30, 2008 was $6,965, an increase of $513 or 8.0%, compared to $6,452
at June 30, 2007, mainly from our subsidiary in Malaysia due to an increase in
testing service demands in our Malaysia operations.
As a
percentage of total revenue, the revenue generated by the distribution segment
in fiscal year 2008 accounted for 1.0%, a decrease
of 2.8%, compared to 3.8% in fiscal year 2007. In terms of
dollar amount, revenue for fiscal year 2008 was $411, a decrease of $1,400, or 77.3%, compared to
$1,811 for fiscal year 2007. The drop in revenue was mainly
attributable to lower demand in the current market for back-end products such as
Vibration equipment and chambers and a saturation of equipment and electronic
components in the current market. It is the strategy of management to
focus on the sales of our own manufactured products. We believe this will help
us to reduce our exposure to multiple risks arising from being a mere
distributor of manufactured products from others. Product volume for
the distribution segment depends on sales activities such as placing orders,
queries on products and backlog. Equipment and electronic component
sales are very competitive, as the products are readily available in the
market.
The
backlog in the distribution segment at June 30, 2008 was $316, reflecting an increase of $214, or 209.8%, compared to the
backlog of $102 at June 30, 2007, as we believe there will be an increase in
market demand for environmental and mechanical testing chambers in Asia in
fiscal year 2009.
Overall
Gross Margin
Overall
gross margin as a percentage of revenue decreased by 3.7%, from 25.7% in fiscal
year 2007 to 22.0% in fiscal year 2008. The lower margin was due
primarily to a decrease in the gross margin in the testing and manufacturing
segments. In terms of dollar value, the overall gross margin for fiscal 2008 was
$8,875, a decrease of $3,147, or 26.2%, compared to $12,022 for fiscal
2007.
The gross
profit margin as a percentage of revenue in the manufacturing segment decreased
by 1.2%, from 16.0% in fiscal 2007 to 14.8% in fiscal 2008. The
decrease in the gross margin was due to a decrease in average selling prices of
burn-in-boards and burn-in systems as a result of strong competition in the
market place. In terms of dollar amounts, gross profits in fiscal
2008 were $3,217, a decrease of $641, or 16.6%, compared to $3,858 in fiscal
2007.
The gross
profit margin as a percentage of revenue in the testing segment decreased by
7.0%, from 37.5% in fiscal 2007 to 30.5% in fiscal 2008. In terms of
dollar amounts, gross margin in the testing segment in fiscal 2008 was $5,549,
a decrease of $2,286, or 29.2%, compared to
$7,835 in fiscal 2007. The decrease in the gross margin was primarily
due to a drop in the average selling price of services in the Singapore testing
operations. Our customers changed their demands and specifications
for burn-in hours, which resulted in a lower average unit selling price for
burn-in services. Another factor contributing to the decline in gross
margin was the fact that significant portions of our operating costs are fixed
in the testing segment; thus as product demands decrease and factory utilization
decreases, the fixed costs are spread over the decreased output, resulting in a
drop in profit margin. Management believes that our gross margin in the testing
segment will be lower in the future compared with previous years if we are
unable to increase our testing revenue and increase the utilization of our
facilities
The gross
margin as a percentage of revenue in the distribution segment improved by 8.3%,
from 18.2% for fiscal 2007 to 26.5% for fiscal 2008. The improvement
in the gross profit as a percentage of sales was due to an increase in average
sales prices compared to related expenses in fiscal 2008 compared to fiscal
2007. However, in terms of dollar amount, gross margin in the
distribution segment decreased by 66.9%, from $329 for fiscal 2007 to $109 for
fiscal 2008, due to a decrease in revenue, as previously discussed. The gross
margin in the distribution segment fluctuated during past periods. The gross
margin of the distribution segment is 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.
Operating
Expenses
Operating
expenses for the fiscal years ended June 30, 2008 and 2007 were as
follows:
|
Years
Ended June 30,
|
||||||||
|
(In
Thousands)
|
2008
|
2007
|
||||||
|
General
and administrative
|
$ | 7,844 | $ | 6,793 | ||||
|
Selling
|
$ | 645 | $ | 788 | ||||
|
Research
and development
|
$ | 55 | $ | 69 | ||||
|
Impairment
loss
|
$ | 450 | $ | 176 | ||||
|
(Gain)
Loss on disposal of PP&E
|
$ | (78 | ) | $ | (1 | ) | ||
| $ | 8,916 | $ | 7,825 | |||||
During
fiscal year 2008, we reclassified $387 in selling expenses to $297 in general
and administrative expenses and reclassified $90 to cost of sales, in order to
reflect a more accurate presentation of our operations. Accordingly, $303 of
selling expenses was reclassified to general and administrative expenses and
cost of sales in fiscal 2007 for the purpose of comparison. General
and administrative expenses increased by $1,051, or 15.5%, from $6,793 for
fiscal 2007 to $7,844 for fiscal year 2008. The increase was
attributable to an increase in payroll and related expenses in the Malaysia
operation to handle a rise in sales volume and an increase of $56 in
unemployment benefits in the Singapore operations. In order to reduce
our cost to match with production activity, we terminated the employment of 65
employees in our Singapore operation in March 2008. Share based
compensation expenses, as a result of the stock options granted in the second
quarter of fiscal 2008, increased by $463 compared to such expenses in fiscal
2007.
Selling
expenses decreased by $143, or 18.0%, to $645 for fiscal year 2008, from $788
for fiscal 2007, mainly due to a decrease in the warranty costs and commission
expenses attributable to the decrease in sales in fiscal 2008, as compared to
such expenses for fiscal 2007.
Research
and development expenses were $55 for fiscal 2008, a decrease of $14, or 20.3%,
from $69 for fiscal 2007. The decrease was primarily due to a decrease in full
time employee headcount in the U.S. operation.
Impairment
loss increased by $274, or 155.7%, from $176 for fiscal 2007 to $450 for fiscal
2008. The impairment loss of $450 in fiscal year 2008 consisted of
$316 from certain advanced burn-in testing equipment in the Singapore operation
utilized in connection with the contract that was terminated and also due to a
decrease in our testing backlog and projected future sales in our Singapore
operation. An impairment of $72 related to the burn-in board testing
system in our Shanghai operation in China due to change in demand for certain
burn-in services, which in turn made certain of our existing burn-in facilities
obsolete. An impairment of $57 related to the building renovations
for certain testing projects due to a decrease in the same major customer’s
order in our Shanghai operation in China, while $5 was related to the asset held
for sale in Malaysia, which was sold in the fourth quarter of 2008.
The
impairment loss in fiscal 2007 consisted of machinery and equipment (pertaining
to the Singapore operation) due to the decrease in demand for the slower speed
microprocessor chips, as those of our existing burn-in facility assets used for
testing chips became obsolete. Since there will be no future cash
flows from those assets, the carrying value of these assets was written down to
zero and the impairment loss was recorded. We review the carrying
amount of assets held for use and those to be disposed of whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable.
Gain on
disposal of property, plant and equipment was $78 for fiscal 2008, an increase
of $77 as compared to a gain of $1 for fiscal 2007.
Income
from Operations
Income
from operations as a percentage of total revenue decreased by 9.1% from an
income of 9% for fiscal 2007 to a loss of 0.1% for fiscal 2008. In
terms of dollar amount, income from operations decreased by $4,238 from an
income of $4,197 for fiscal 2007 to a loss of $41 for fiscal 2008 due to a
decrease in sales in all segments and an increase in operating expenses, as
previously discussed.
Interest
Expenses
The
interest expenses for fiscal years 2008 and 2007 were as follows:
|
Years
Ended June 30,
|
||||||||
|
(In
Thousands)
|
2008
|
2007
|
||||||
|
Interest
expenses
|
$ | 296 | $ | 139 | ||||
Interest
expenses increased by $157, or 112.9%, to $296 for fiscal year 2008 from $139 to
$296 in fiscal 2007 due to a new term loan facility of $3,822 entered into
during the first quarter of fiscal 2008 to support the expansion plans and
potential business opportunities of the Singapore and China
operations.
Other
(Expenses) Income
Other
(expenses) income for fiscal years 2008 and 2007 was as follows:
|
Years
Ended June 30,
|
||||||||
|
(In
Thousands)
|
2008
|
2007
|
||||||
|
Other
(expenses) income
|
$ | (53 | ) | $ | 178 | |||
Other
expenses/income decreased by $231, or 129.8%, from an income of $178 for fiscal
2007 to expenses of $53 for fiscal 2008 primarily due to an increase in the
currency transaction loss, but partially offset by an increase in investment
income generated from the investment in Chongqing, short-term deposits and
rental income. Currency transaction loss increased by $563, from a
translation gain of $2 in fiscal 2007 to a translation loss of $561 in fiscal
2008. This was attributable to the weakening of the U.S. dollar
against foreign currencies with regard to transactions denominated in U.S.
dollars. Investment income increased from the investment in
Chongqing. Interest income increased by $109 from $149 for fiscal
2007 to $258 for fiscal 2008 due to an increase in short-term deposits, as the
idle cash was placed into income generating investments. Rental
income, which was mainly from the rental of space located in Malaysia to third
party tenants, increased by $43 to $162 for fiscal 2008 from $119 for fiscal
2007.
(Loss)
Income from Continuing Operations before Minority Interest and Income
Tax
Loss from
continuing operations before minority interest increased by $4,626, from an
income of $4,236 in fiscal 2007 to a loss of $390 in fiscal 2008. The
result of a decrease in net income was mainly due to a decrease in revenue, an
increase in operating expenses and interest expenses, and a decrease in other
income, as previously discussed.
Income
Tax
Income
tax provision decreased by $549, or 71.8%, from $765 in fiscal 2007 to $216 in
fiscal 2008. The decrease was primarily attributable to a loss
suffered by our Singapore operations. The Singapore operations generated a loss
of $1,135 in fiscal 2008 compared with a profit of $3,403 in fiscal
2007.
Minority
Interest
As of
June 30, 2008 we held a 55% interest in Trio-Tech Malaysia. The
minority interest for fiscal 2008, in the net income of subsidiaries, was $350,
an increase of $187 compared to the minority interest of $163 for fiscal
2007. The increase in the minority interest was attributable to the
improvement in the net income generated from the Malaysia testing operation due
to stronger market demands from our customers there.
Earnings
per Share
The basic
loss per share for fiscal 2008 decreased by $1.33 to a loss of $0.30 per share
from an earning of $1.03 per share in fiscal 2007, and the diluted loss per
share decreased by $1.32 to a loss of $0.30 per share from an earning of $1.02
per diluted share as compared to fiscal 2007.
Segment
Information
The
revenue, gross margin and income from each segment for fiscal 2008 and fiscal
2007, 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
|
Manufacturing
Segment
|
Years
Ended June 30,
|
|||||||
|
(In
Thousands)
|
2008
|
2007
|
||||||
|
Revenue
|
$ | 21,731 | $ | 24,056 | ||||
|
Gross
margin
|
14.8 | % | 16.0 | % | ||||
|
Income
(loss) from operations
|
$ | (46 | ) | $ | 965 | |||
Income
from operations in the manufacturing segment decreased by $1,011, to a loss of
$46 in fiscal 2008 from an operating income of $965 in fiscal
2007. The decrease in operating income was attributable to a decrease
of $641 in gross profit and an increase of $370 in operating
expenses. Operating expenses for the manufacturing segment were
$3,263 and $2,893 for fiscal 2008 and 2007, respectively. The
increase in operating expenses was mainly attributable to the impairment loss of
$87 related to certain machinery and equipment in our Singapore operation due to
a decrease in our backlog and projected future sales.
Testing
Segment
|
Testing
Segment
|
Years
End June 30,
|
|||||||
|
(In
Thousands)
|
2008
|
2007
|
||||||
|
Revenue
|
$ | 18,172 | $ | 20,883 | ||||
|
Gross
margin
|
30.5 | % | 37.5 | % | ||||
|
Income
from operations
|
$ | 427 | $ | 3,330 | ||||
Income
from operations in the testing segment in fiscal 2008 was $427, a decrease of 2,903 or 87.2%, compared to $3,330
in fiscal 2007. The decrease was attributable to a drop in gross
profit of $2,286 due to a decline in sales in the Singapore testing operation
and an increase in operating expenses of $617. The increase in
operating expense was mainly due to an increase of $189 in impairment loss, from
$175 in fiscal 2007 to $364 in fiscal 2008, as a result of the termination of
the advanced burn-in testing service contract with one of our major
customers. The other contributing factor for the increase in
operation expenses was an increase in payroll and related expenses in the
testing segment in the Malaysia operation in order to handle the rise in sales
volume there.
Distribution
Segment
|
Distribution
Segment
|
Years
Ended June 30,
|
|||||||
|
(In
Thousands)
|
2008
|
2007
|
||||||
|
Revenue
|
$ | 411 | $ | 1,811 | ||||
|
Gross
margin
|
26.5 | % | 18.2 | % | ||||
|
Loss
from operations
|
$ | (249 | ) | $ | (66 | ) | ||
Loss from
operations in the distribution segment increased by $183 to $249 in fiscal 2008,
compared to $66 for fiscal 2007. The increase in operating loss was
mainly due to a decrease in gross margin of $220, but partially offset by a
decrease in operating expenses of $36 resulting from a decrease in commission
expenses, which was a corresponding effect from the decrease in commissionable
sales.
Corporate
The loss
from operations for Corporate in fiscal 2008 and 2007 was as
follows:
|
Years
Ended June 30,
|
||||||||
|
(In
Thousands)
|
2008
|
2007
|
||||||
|
Loss
from operations
|
$ | (173 | ) | $ | (32 | ) | ||
Corporate
operating loss increased by $141 from $32 in fiscal 2007 to $173 in fiscal
2008. In March 2008, we increased the corporate management fee which
is based on the percentage of revenue imposed on all the subsidiaries due to a
decrease in the revenue from subsidiaries. The revenue percentage
charged on subsidiaries is a reimbursement to the corporate office to cover its
operating expenses. Management reviews this percentage periodically to make sure
the amount charged is sufficient to cover its corporate expenses. In terms of
dollar amount, there was an increase of $538 in the fees we imposed on all the
subsidiaries in fiscal 2008 as compared to fiscal 2007. However, this increase
was offset by an increase in corporate expenses, primarily due to an increase of
$463 in stock option compensation expenses, as a result of the stock options
granted in the second quarter of fiscal 2008. The stock compensation
expenses were included in the general and administrative expenses of
Corporate.
Comparison
of Fiscal 2007 and 2006
The
following table presents certain data from the consolidated statements of income
as a percentage of net sales for fiscal years 2007 and 2006 ended June
30:
|
Years
Ended June 30,
|
||||||||
|
2007
|
2006
|
|||||||
|
Net
Sales
|
100.0 | % | 100.0 | % | ||||
|
Cost
of Sales
|
74.3 | % | 72.9 | % | ||||
|
Gross
Margin
|
25.7 | % | 27.1 | % | ||||
|
Operating
Expenses
|
||||||||
|
General
and administrative
|
14.5 | % | 22.4 | % | ||||
|
Selling
|
1.7 | % | 2.6 | % | ||||
|
Research
and development
|
0.1 | % | 0.2 | % | ||||
|
Impairment
loss
|
0.4 | % | 0.2 | % | ||||
|
Loss
(Gain) on disposal of PP&E
|
0.0 | % | 0.1 | % | ||||
|
Total
Operating Expenses
|
16.7 | % | 25.5 | % | ||||
|
Income
from Operations
|
9.0 | % | 1.8 | % | ||||
Overall
Revenue
The
overall revenue is composed of the revenues from the manufacturing, testing and
distribution segments. The following table presents the
components of the overall revenue realized in fiscal 2007 and 2006 in percentage
format, respectively.
|
Years
Ended June 30,
|
||||||||
|
2007
|
2006
|
|||||||
|
Revenues:
|
||||||||
|
Manufacturing
|
51.5 | % | 42.8 | % | ||||
|
Testing
|
44.7 | 49.7 | ||||||
|
Distribution
|
3.8 | 7.5 | ||||||
|
Total
|
100.00 | % | 100.00 | % | ||||
Net sales
for fiscal 2007 were $46,750, an increase of $17,651, or 60.6%, compared to
$29,099 for fiscal 2006. The increase in net sales can be discussed
within three segments.
As a
percentage of the total revenue, the revenue generated by the manufacturing
segment in fiscal 2007 accounted for 51.5% of total sales, representing an
increase of 8.7%, compared to 42.8% in fiscal 2006. In terms of
dollar amount, the revenue for fiscal 2007 was $24,056, reflecting an increase
of $11,612, or 93.3%, compared to $12,444 for fiscal 2006. We believe
that the increase in revenue generated by the manufacturing segment was due to
greater demand from the personal computer market in Asia, which in turn led to
greater demand for our products. The demand for our burn-in systems
appeared to increase concurrently with the demand for more microprocessor chips
in Southeast Asia. The increase primarily resulted from an increase
in demand from one of our major customers, which was a result of that customer’s
growing share in the market for microprocessor chips. Due to the
competitive environment in the manufacturing segment, we anticipate that we 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.
The
backlog in the manufacturing segment increased by 68.2%, from $3,729 in fiscal
2006 to $6,275 in fiscal 2007, correlative to the increase in demand for more
high-speed microprocessor chips in Southeast Asia.
As a
percentage of the total revenue, the revenue generated by the testing segment in
fiscal 2007 accounted for 44.7% of total sales, a
decrease of 5.0%, compared to 49.7% in fiscal 2006. In terms
of dollar amount, the revenue for fiscal 2007 was $20,883, reflecting an increase of $6,428, or 44.5%,
compared to $14,455 for fiscal 2006. The testing segment continued to
show improvement in revenue compared to last fiscal year due to a hike in demand
for testing services in Southeast Asia, which resulted from the strong economic
growth and robust development in the electronics manufacturing industries in
China. The increase in revenue generated by the testing segment was
the result of an improvement in performance by our testing operations in
Southeast Asia. Furthermore, our China operation in Suzhou started
its testing operation in the second quarter of fiscal 2007, which contributed to
this increase in testing revenue. Demand for testing services varies
from time to time depending on changes taking place in the market and our
customers’ forecasts. We anticipate that our customers will continue
to request our services to perform “burn-in” on chips to be used in wireless
handsets, automotive applications and wired communications, which chips are
currently in high demand in their respective markets.
Backlog
in the testing segment at June 30, 2007 was $6,452, a decrease of $5,578, or 46.4%, compared to
$12,030 at June 30, 2007 due to a decrease in demand for testing services from
one of our major customers in Singapore.
As a
percentage of the total revenue, the revenue generated by the distribution
segment in fiscal 2007 accounted for 3.8%, a
decrease of 3.7%, compared to 7.5% in fiscal 2006. In terms of
dollar amount, revenue for fiscal 2007 was $1,811, a decrease of $389, or 17.7%, compared to $2,200
for fiscal 2006. The decrease in revenue was mainly attributable to
fewer bookings from customers resulting from what we believe is a saturation of
equipment and electronic components in the current market. Product volume for
the distribution segment depends on sales activities such as bookings, queries
on products and backlog. Equipment and electronic component sales are
very competitive, as the products are readily available in the
market.
We
continued to focus our marketing efforts on Asia, as we believe that the
recovery of equipment sales in that region is improving more rapidly than sales
within the U.S. Equipment sales in the U.S. continue to decline as we
believe that many companies are still conservative in capital equipment
spending. The distribution operation located in Singapore will focus
on selling Wet Process Stations primarily to research institutions and local
universities
The
backlog in the distribution segment at June 30, 2007 was $102, reflecting a decrease of $433, or 81.0%, compared to the
backlog of $535 at June 30, 2006, due to a lower demand for back-end products,
such as Vibration equipment, chambers and wafer fabricator.
Overall
Gross Margin
Overall
gross margin, as a percentage of net sales, dropped by 1.4% from 27.1% for
fiscal 2006 to 25.7% for fiscal 2007. The lower margin was due
primarily to the fact that sales in terms of dollar amount from the
manufacturing segment increased faster than the increase in sales in terms of
dollar amount from the testing segment in fiscal 2007. This led to the fact that
the manufacturing segment accounted for 51.5% of total sales and the testing
segment accounted for 44.7%, while the gross margin in the manufacturing segment
was lower than the gross margin in the testing segment. In addition,
the gross margin in the manufacturing segment decreased due to an increase in
sales of low margin products, which was offset by the improvement in gross
margin in the testing and distribution segments. In terms of dollar
amount, gross margin for fiscal 2007 was $12,022, an increase of $4,150, or 52.7%, compared to
$7,872 for fiscal 2006, as a result of better sales performances by the
manufacturing and testing segments.
Gross
margin as a percentage of revenue in the manufacturing segment was decreased by
3.1%, from 19.1% in fiscal 2006 to 16.0% in fiscal 2007. The decrease
in the gross margin was due to an increase in sales of low margin burn-in
systems pass-through products in fiscal 2007 compared with fiscal
2006. Neither the increase in the absolute dollar amount of sales of
burn-in boards and burn-in systems nor the increase in the quantity of burn-in
systems sold in fiscal 2007 was sufficient to maintain or increase the gross
margin in the manufacturing segment due to the decrease in sales prices for
burn-in boards and burn-in systems as a result of strong competition in the
market place. However, the Company currently intends to continue
manufacturing low-margin burn-in systems and boards in order to maintain market
share of these products with its current customers. In absolute
amount, gross profits from the manufacturing segment in fiscal 2007 was $3,858,
an increase of $1,478, or 62.1%, compared
to $2,380 in fiscal 2006, as the result of an increase in revenue, as previously
discussed.
Gross
margin as a percentage of revenue in the testing segment improved by 2.3%, from
35.2% in fiscal 2006 to 37.5% in fiscal 2007. In terms of dollar
amount, gross margin in the testing segment in fiscal 2007 was $7,835, an increase of $2,743, or 53.9%, compared to
$5,092 in fiscal 2006. The increase in the gross margin was primarily
due to higher sales volume with lower overhead costs, especially in the China
operation. Significant portions of our operating costs are fixed in
the testing segment, thus as service demands rise and factory utilization
increases, the fixed costs are spread over the increased output, which improves
profit margin. However, this was offset by a drop in the average
selling price of services in the Singapore testing operation. Our
customers changed their demands and specifications for burn-in hours, which
resulted in a lower average unit selling price for burn-in
services. We expect that the effect of such trend may be offset in
the future by increases in our burn-in services for the faster microprocessor
chips, the demand for which chips appears to be
increasing.
Gross
margin as a percentage of revenue in the distribution segment remained constant
in fiscal 2007 and 2006 at 18.2%. In terms of dollar amount, gross
margin in the distribution segment decreased by 17.8%, from $400 for fiscal 2006
to $329 for fiscal 2007, due to a decrease in revenue, as previously
discussed.
Operating
Expenses
Operating
expenses for fiscal years ended June 30, 2007 and 2006,
respectively:
|
Years
Ended June 30,
|
||||||||
|
(In
Thousands)
|
2007
|
2006
|
||||||
|
General
and administrative
|
$ | 6,793 | $ | 6,514 | ||||
|
Selling
|
$ | 788 | $ | 718 | ||||
|
Research
and development
|
$ | 69 | $ | 70 | ||||
|
Impairment
loss
|
$ | 176 | $ | 61 | ||||
|
Loss
on disposal of PP&E
|
$ | (1 | ) | $ | 22 | |||
| $ | 7,825 | $ | 7,385 | |||||
General
and administrative expenses increased by $279, or 4.3%, from $6,514 for fiscal
2006 to $6,793 for fiscal year 2007. The increase was attributable to
a hike in payroll and related expenses due to a rise in headcount in the
Singapore operation and the China operation in Suzhou, and also an increase in
general and administrative expenses in the Suzhou operation, which commenced its
testing operations in the second quarter of fiscal 2007. However,
such an increase was offset by a decrease in bonus expenses in fiscal year
2007. In fiscal year 2006, general and administrative expenses
included directors’ and officers’ bonuses of $779 as a result of the gain
related primarily to the sale of the property in Dublin, Ireland. The
Company had no comparable bonus expenses for fiscal 2007.
Selling
expenses increased by $70, or 9.6%, to $788 for fiscal year 2007 from $718 for
fiscal 2006, mainly due to an increase in the provision for warranty costs,
traveling expenses related with sales efforts and commission expenses
attributable to the increase in commissionable sales from the Singapore
manufacturing segment in fiscal 2007, as compared to fiscal
2006.
Research
and development was $69 for fiscal 2007, decreased slightly by $1, or 1.4%, from
$70 for fiscal 2006.
Impairment
loss increased by $115, or 188.5%, from $61 for fiscal 2006 to $176 for fiscal
2007. The impairment loss consisted of machinery and equipment
(pertaining to the Singapore operation) due to the decrease in demand for the
slower speed microprocessor chips, as those of our existing burn-in facility
assets used for testing such chips became obsolete. Since there will
be no future cash flows from those assets, the carrying value of these assets
was written down to zero, and the impairment loss was recorded. The
Company reviews the carrying amount of assets held for use and those to be
disposed of whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable.
Loss on
disposal of property, plant and equipment was $22 for fiscal 2006, which mainly
resulted from the disposal of certain fixed assets at a loss. The
Company had no such loss for fiscal 2007.
Income
from Operations
Income
from operations as a percentage of total revenue improved by 7.3%, from 1.7% for
fiscal 2006 to 9.0% for fiscal 2007. In terms of dollar amount,
income from operations increased by $3,710, or 762%, from $487 for fiscal 2006
to $4,197 for fiscal 2007, due to an increase in gross profit of $4,162, offset
with a net increase in operating expenses of $452.
Interest
Expenses
The
interest expenses for fiscal years ended June 30, 2007 and 2006 were as
follows:
|
Years
Ended June 30,
|
||||||||
|
(In
Thousands)
|
2007
|
2006
|
||||||
|
Interest
expenses
|
$ | 139 | $ | 142 | ||||
Interest
expenses decreased by $3, or 2.1%, for fiscal 2007, from $142 to $139 compared
with fiscal 2006 due mainly to a lower usage of lines of credit facilities in
the Singapore operation as the result of the improved cash flow from operating
activities.
Other
Income
Other
income for fiscal years ended June 30, 2007 and 2006 was as
follows:
|
Years
Ended June 30,
|
||||||||
|
(In
Thousands)
|
2007
|
2006
|
||||||
|
Other
income
|
$ | 178 | $ | 598 | ||||
Other
income decreased by $420, or 70.2%, from $598 for fiscal 2006 to $178 for fiscal
2007, primarily due to a decrease in interest income generated from short-term
deposits and a decrease in other items, but offset by an increase in rental
income and currency transactional gain. Interest income in fiscal
2007 decreased by $64 due to a decrease in interest income generated from
short-term deposits as the result of a decrease in short-term deposits
throughout the year. The decrease in the short-term deposits was because the
short-term deposits in fiscal year 2006 were from the proceeds from the sale of
property in Dublin, Ireland, whereas there was no such activity in fiscal
2007. Other items decreased by $436, which was mainly due to the
reversal of a provision of $269 in the fourth quarter of fiscal year 2006 related to the value
added tax assessment incurred in our Bangkok testing operation in fiscal
1996. Also contributing to the decrease in other items was the
provision for the value added tax of $115 for our China operation in Suzhou in
fiscal 2007 due to a change in the local tax policy and a refund of $39 from the
Ireland government in fiscal year 2006 due to redundant payments made in prior years by our Ireland testing operation prior to its closure. The Company had no similar other
income in fiscal 2007. Rental income, which
consisted mainly of space in our Malaysia operation rented to outside vendors,
increased by $27 from $87 for fiscal year 2006 to $114 for fiscal year
2007. Currency transaction gain improved by $48, from a translation
loss of $46 for fiscal 2006 to a translation gain of $2 for fiscal 2007, due to
fluctuations in the exchange rates.
Income
Tax
Income
tax provision increased by $507, or 196.5%, from $258 in fiscal 2006 to $765 in
fiscal 2007. The increase was primarily attributable to higher
taxable income generated from the Singapore location. The Singapore
operations generated a profit of $3,403 in fiscal 2007, up from $1,416 in fiscal
2006. The income tax provision included a utilization of deferred tax
assets of $160 in the Malaysia operation due to the utilization of the operating
loss carried forward in fiscal 2007. The Malaysia operations
generated a profit of $520 in fiscal 2007, an increase of $420, as compared to
$100 for fiscal 2006. The reversal of deferred tax assets in Malaysia
was offset by a reversal of the deferred tax liability of $226 in the Singapore
operations. The statutory income tax rate in Singapore decreased to
18% in fiscal 2007 from 20% in fiscal 2006.
Minority
Interest
As of
June 30, 2007 we held a 55% interest in Trio-Tech Malaysia. The
minority interest for fiscal 2007, in the net income of subsidiaries, was $163,
an increase of $75 compared to the minority interest of $88 for fiscal
2006. The increase in the minority interest was attributable to the
improvement in the net income generated from the Malaysia testing
operation.
Income
from Discontinued Operations
The
income from discontinued operations of $8,459 for fiscal year 2006 represented
gain from the sale of property located in Dublin, Ireland of $8,909, which was
completed in November 2005, offset by the loss from discontinued operations of
$450. The Company had no similar transactions for fiscal
2007.
Income
from Continuing Operations before Minority Interest and Net Income
Income
from continuing operations before minority interest increased by $2,786 as the
result of an increase in income from operations and a decrease in interest
expenses, but offset by a decrease in other income and an increase in tax
provision, as previously discussed. Net income for fiscal 2007 was
$3,308, a decrease of $5,748 compared to $9,056 in fiscal 2006. The
decrease was primarily due to a drop in income from discontinued operations of
$8,459, as there was no income generated from discontinued operations in fiscal
2007.
Earnings
per Share
Basic and
diluted earnings per share from continuing operations were $1.03 and $1.02,
respectively, in fiscal 2007, an increase of $0.84 and $0.83, respectively,
compared with $0.19 for fiscal 2006. There was no income or loss from
discontinued operations for fiscal 2007. Basic and diluted earnings
per share attributable to discontinued operations for fiscal 2006 were $2.72 and
$2.71, respectively.
Segment
Information
The
revenue, gross margin and income from each segment for fiscal 2007 and fiscal
2006, 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
|
Manufacturing
Segment
|
Years
Ended June 30,
|
|||||||
|
(In
Thousands)
|
2007
|
2006
|
||||||
|
Revenue
|
$ | 24,056 | $ | 12,444 | ||||
|
Gross
margin
|
16.0 | % | 19.1 | % | ||||
|
Loss
from operations
|
$ | 965 | $ | (78 | ) | |||
Income from operations in the
manufacturing segment increased by $1,043 to $965 in fiscal 2007 from an
operating loss of $78 in fiscal 2006. The improvement in operating
profit was attributable to the $1,478 increase in gross profit, but offset by an
increase in operating expenses of $435. Operating expenses for the
manufacturing segment were $2,893 and $2,458 for fiscal 2007 and 2006,
respectively. The increase in operating expenses was mainly
attributable to an increase in payroll and related expenses as a result of the
rise in headcount in the Singapore operations in fiscal 2007.
Testing
Segment
|
Testing
Segment
|
Years
Ended June 30,
|
|||||||
|
(In
Thousands)
|
2007
|
2006
|
||||||
|
Revenue
|
$ | 20,883 | $ | 14,455 | ||||
|
Gross
margin
|
37.5 | % | 35.2 | % | ||||
|
Income
from operations
|
$ | 3,330 | $ | 1,454 | ||||
Income
from operations in the testing segment in fiscal 2007 was $3,330, an increase of $1,876, or 129.0%, compared to
$1,454 in fiscal 2006. The increase was due primarily to an increase
of $2,743 in gross profit, but offset by an increase of $867 in operating
expenses. Operating expenses in the testing segment were $4,505 and
$3,638 for fiscal 2007 and 2006, respectively. The increase in
operating expenses was primarily due to an
increase in payroll and related expenses as a result of the increase in
headcount in the Singapore operations and an increase in operating expenses in
the newly started China operation in Suzhou, which began its testing operation
in the second quarter of fiscal 2007.
Distribution
Segment
|
Distribution
Segment
|
Years
Ended June 30,
|
|||||||
|
(In
Thousands)
|
2007
|
2006
|
||||||
|
Revenue
|
$ | 1,811 | $ | 2,200 | ||||
|
Gross
margin
|
18.2 | % | 18.2 | % | ||||
|
Loss
from operations
|
$ | (66 | ) | $ | (118 | ) | ||
Loss from
operations in the distribution segment decreased from $118 in fiscal 2006 to $66
in fiscal 2007. Lower operating loss in fiscal year 2007 was attributable to a
decrease in operating expenses of $123, but offset by a drop in gross profit of
$71. Operating expenses were $395 and $518 for fiscal 2007 and fiscal
2006, respectively. The decrease in operating expenses was due to a
decrease in provision for doubtful debts, as some doubtful debts from customers
provided in fiscal 2006 were recovered in fiscal 2007, and lower commission
expenses as a result of the decrease in commissionable sales.
Corporate
The loss
from operations for Corporate for the fiscal years 2007 and 2006 were as
follows:
|
Corporate
|
Years
Ended June 30,
|
|||||||
|
(In
Thousands)
|
2007
|
2006
|
||||||
|
Loss
from operations
|
$ | (32 | ) | $ | (771 | ) | ||
Corporate
operating loss decreased by $739, from fiscal 2006 to $32 in fiscal
2007. Such decrease in corporate income was attributable to the fee
imposed on all the subsidiaries on a fixed percentage of revenue, which income
increased as the result of increased revenue from
subsidiaries. Another factor was operation expenses in fiscal 2006
included accrued director and corporate officer bonuses of $859 mainly
attributable to bonuses based on the gain from the sale of real property in
Dublin, Ireland. The Company had no comparable bonuses for fiscal
2007. The director and corporate officer bonuses were $350 in fiscal
2007 and $859 in fiscal 2006.
Liquidity
Comparison
Comparison
of Fiscal 2008 and 2007
Net cash
provided by operating activities during fiscal 2008 was $1,905, a decrease of
$6,033 from net cash flow of $7,938 in fiscal 2007. The decrease in net cash
provided by operating activities in fiscal 2008 was primarily due to a decrease
in net income of $4,264 in fiscal year 2008 as compared to net income of $3,308
in fiscal year 2007 and a decrease in operating assets and liabilities of $2,018
in fiscal year 2008.The net income for fiscal 2008 decreased by $4,264 to a loss
of $956 as previously discussed. However, an increase in non-cash impairment
loss of $274 and stock compensation of $463, which were included as adjustments
to net income in fiscal 2008, offset the decrease in net cash provided by
operating activities by an aggregate of $737 (positive cash flow).
Net cash
used in investing activities increased by $2,603 to $5,271for fiscal 2008 from
$2,668 for fiscal 2007. The increase in net cash used by investing
activities was primarily due to an increase in investment in
China. We invested an aggregate of $2,996 in Chongqing, China in
fiscal 2008 to jointly develop with Jiasheng Property Development Co., Ltd. a
24.91 acre parcel and to purchase an office space of 827.2 square meters in
Chongqing. In the fourth quarter of 2008, we received a return of RMB
5,750; RMB 5,000 (approximately $729) in initial investment and an additional
RMB 750 in profit.
Net cash
provided by financing activities in fiscal 2008 was $1,818, representing an
increase of $3,092 compared to the net cash used in financing activities of
$1,274 in fiscal 2007. The increase was mainly due to proceeds
from the long-term bank loans of $3,822 entered into in fiscal 2008 as compared
to bank loans of $6 in fiscal 2007. However, this increase was offset
primarily by an increase of $711 in repayment of bank loans and capital
leases.
We
believe we have the necessary financial resources to meet our projected cash
requirement for at least the next twelve months.
Comparison
of Fiscal 2007 and 2006
Net cash
provided by operating activities during fiscal 2007 was $7,938, an increase of
$8,788 from net cash outflows of $850 in fiscal 2006. The increase in
net cash provided by operating activities in fiscal 2007 was primarily due to
the following reasons: an increase of $2,711 in income from continuing
operations, an increase of $10, 460 in non-cash items and an increase of $4,076
in cash flow from changes in operating assets and liabilities. The
net income for fiscal 2007 decreased by $5,748 to $3,308 compared with $9,056
for fiscal 2006. However, a non-cash gain of $8,909 from discontinued
operations on the sale of property in Dublin, Ireland was included as an
adjustment to net income in fiscal 2006. Depreciation and
amortization expenses as a non-cash item for fiscal 2007 also made a significant
impact of $2,857 (positive cash flow). Simultaneously, changes in the
accounts receivables for fiscal 2007 resulted in a positive cash flow of $967
compared to a negative cash flow of $4,515 for fiscal 2006, which was reduced
primarily by negative cash outflow of $276 from other assets.
Net cash
used in investing activities increased by $5,401 to $2,668 for fiscal 2007 from
a cash inflow of $2,733 for fiscal 2006. The increase in net cash used by
investing activities was primarily due to an increase in capital expenditures
from $1,255 in fiscal 2006 to $2,812 in fiscal 2007, and proceeds of $8,401
received from the sale of the Ireland property in fiscal 2006. The
increase in capital expenditure was primarily for the purchase of machinery and
equipment in fiscal 2007 in the Singapore and China operations in order to meet
customers’ demands. Offsetting the increase in net cash used by
investing activities was an increase of $4,562 in the net proceeds from maturing
short-term deposits.
Net cash
used in financing activities increased by $228, from $1,046 for fiscal 2006 to
$1,274 for fiscal 2007. The increase was mainly due to a drop of
$1,056 in proceeds from long-term bank loans and capital leases, and a decrease
of $761 in proceeds from exercising stock options. Furthermore,
dividends paid to minority interests also increased by $14. However,
these were offset by (i) dividends of $323 paid to shareholders in fiscal 2007
compared to $1,608 in fiscal 2006; (ii) proceeds of $118 received in fiscal 2007
from a 10% shareholder from disgorgement of short-swing profits from prohibited
transactions in our common shares pursuant to section 16(b) of the Securities
and Exchange Act of 1934; (iii) a decrease of $104 in net payment on lines of
credit; and (iv) a decrease of $96 in repayment of bank loans and capital
leases.
We
believe we have the necessary financial resources to meet our projected cash
requirement for at least the next twelve months.
Capital
Resources
Our
working capital (defined as current assets minus current liabilities) has
historically been generated primarily from the following sources: operating cash
flow, availability under our revolving line of credit and short-term
loans. The working capital was $15,903 as of June 30, 2008,
representing a decrease of $542, or 3.3%, compared to working capital of $16,445
as of June 30, 2007 mainly due to a decrease in cash, accounts receivables and
an increase in notes payable as discussed above.
The
majority of our capital expenditures are based on the demands from our
customers, as we are operating in a capital intensive industry. In
the past three years, our capital expenditures ranged from $1.7 million to $3.4
million. We financed our capital expenditures and other operating
expenses through operating cash flows, our revolving line of credit and
long-term debts. While in fiscal 2008 we had no current outstanding
borrowings under our revolving lines of credit, we obtained a loan
of $3,822 and capitalized leases of $96.
Our
credit rating provides us with ready and adequate access to funds in global
markets. At June 30, 2008, we had available unused short-term lines
of credit totaling $13,014.
|
Entity
with
|
Type
of
|
Interest
|
Expiration
|
Credit
|
Unused
|
||||||
|
Facility
|
Facility
|
Rate
|
Date
|
Limitation
|
Credit
|
||||||
|
Trio-Tech
Malaysia
|
Line
of Credit
|
Prime
rate (6.75% as of June 30, 2008) plus 2.5% per annum
|
May
2009
|
$ | 132 | $ | 132 | ||||
|
Trio-Tech
Bangkok
|
Line
of Credit
|
Prime
rate (6.5% as of June 30, 2008) plus 1% per annum
|
October
2008
|
139 | 139 | ||||||
|
Trio-Tech
Singapore
|
Line
of Credit
|
Prime
rate (5.75% as of June 30, 2008) plus 0.25% per annum
|
May
2009
|
12,743 | 12,743 | ||||||
|
Total
|
$ | 13,014 | $ | 13,014 | |||||||
We
believe that projected cash flows from operations, borrowing availability under
our revolving lines of credit, cash on hand, and trade credit will provide the
necessary capital to meet our projected cash requirements for at least the next
12 months. Should we find attractive capital investment, we may seek additional
debt or equity financing in order to fund the transaction, in the form of bank
financing, convertible debt, or the issuance of Common Stock.
Contractual
Obligations
The
following contractual obligations servicing table describes our overall future
cash obligation based on various current contracts in the next five
years:
|
Payments
Due by Period (at June 30, 2008) (In Thousands)
|
||||||||||||||||
|
Less
than
|
1 - 3 |
After
|
||||||||||||||
|
Total
|
1
Year
|
Years
|
3
Years
|
|||||||||||||
|
Notes
Payable
|
3,023 | 1,403 | 1,620 | - | ||||||||||||
|
Interest
on Notes Payable
|
$ | 188 | $ | 134 | $ | 54 | $ | - | ||||||||
|
Capital
Leases
|
249 | 106 | 143 | - | ||||||||||||
|
Operating
Leases
|
709 | 516 | 193 | - | ||||||||||||
|
Total
|
$ | 4,169 | $ | 2,159 | $ | 2,010 | $ | - | ||||||||
Corporate
Guarantee Arrangement
The
Company provides a corporate guarantee of approximately $1,837 to one of its
subsidiaries in Southeast Asia to secure line-of-credit and term loans from a
bank to finance the operations of such subsidiary. With the strong
financial position of the subsidiary company, the Company believes this
corporate guarantee arrangement will have no material impact on its liquidity or
capital resources.
Foreign Currency Exchange Rate
Risk
Although the majority of our sales, cost of
manufacturing and marketing are transacted in U.S. dollars, significant portions of our revenue are
denominated in Singapore and Euro dollars, Malaysian ringgit, Thai baht, Chinese
yuan and other currencies. Consequently, a portion of our costs,
revenue and operating margins may be affected by fluctuations in exchange
rates, primarily between the U.S. dollar and such foreign
currencies. Our financial position and results of operations are also
affected by fluctuations in exchange rates between reporting currency (which is
in U.S. dollars) and functional currencies used in our
operations. Foreign currency translation adjustments resulted in an
increase of $1,548 in fiscal 2008, an increase of $911 in fiscal 2007 and a
decrease of $190 in fiscal 2006 to shareholders’
equity.
We try to reduce our risk of foreign currency fluctuations by purchasing certain
equipment and supplies in U.S. dollars and seeking payment, when possible, in
U.S. dollars. However, we may not be successful in our attempts to
mitigate our exposure to exchange rate fluctuations. Those fluctuations
could have a material adverse effect on the Company's financial
results.
Interest
Rate Risk
We do not
use derivative financial instruments in our investment portfolio. Our investment
portfolio is generally comprised of cash deposits. Our policy is to
place these investments in instruments that meet high credit quality standards.
These securities are subject to interest rate risk and could decline in value if
interest rates fluctuate, and thus subject us to market risk due to those
fluctuations. Due to the short duration and conservative nature of
our investment portfolio, we do not expect any material loss with respect to our
investment portfolio, though no assurances can be given that material losses
will not occur.
The
interest rates on our loans range from 5.250% to 6.017% per
annum. These interest rates are subject to change and we cannot
predict an increase or decrease in rates, if any. As of June 30, 2008, the
outstanding aggregate principal balance on these loans was approximately
$3,023.
|
Fiscal
year ending June 30,
|
2009
|
2010
|
2011
|
Thereafter
|
Total
|
Fair
Value
|
||||||||||||||||||
|
Loans:
|
||||||||||||||||||||||||
|
Denominated
in Singapore dollars; interest is at the bank’s prime rate (2.517% at June
30, 2008 and 2.4768% at June 30, 2007) plus 3.5% per annum
|
$ | 54 | - | - | - | $ | 54 | $ | 54 | |||||||||||||||
|
Denominated
in Singapore dollars; interest is at the bank's prime rate (4.25% at June
30, 2008 and 2007) plus 1% per annum
|
$ | 1,349 | $ | 1,349 | $ | 271 | - | $ | 2,969 | $ | 2,969 | |||||||||||||
|
Total
|
$ | 1,403 | $ | 1,349 | $ | 271 | $ | - | $ | 3,023 | $ | 3,023 | ||||||||||||
ITEM
8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
information called for by this item is included in the Company's consolidated
financial statements beginning on page 45 of this Annual Report on Form
10-K.
ITEM
9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A (T) – CONTROLS AND
PROCEDURES
An
evaluation was carried out by the Company’s Chief Executive Officer and Chief
Financial Officer (the principal executive and principal financial officers,
respectively, of the Company) of the effectiveness of the Company’s disclosure
controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) promulgated
under the Securities Exchange Act of 1934, as amended) as of June 30, 2008, the
end of the period covered by this Form 10-K. Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective as of June 30,
2008.
Additionally,
management has the responsibility for establishing and maintaining adequate
internal control over financial reporting for the Company and thus also assessed
the effectiveness of our internal controls over financial reporting as of June
30, 2008. Management used the framework set forth in the report
entitled “Internal Control – Integrated Framework” published by the Committee of
Sponsoring Organizations of the Treadway Commission to evaluate the
effectiveness of the Company’s internal control over financial
reporting.
Internal
control over financial reporting refers to the process designed by, or under the
supervision of, our Chief Executive Officer and Chief Financial Officer, and
effected by our Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purpose in accordance with U.S.
generally accepted accounting principles, and includes those policies and
procedures that:
|
1.
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the
Company;
|
|
2.
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally
accepted accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorization of management
and directors of the Company; and
|
|
3.
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial
statements.
|
Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company’s internal controls over financial
reporting were effective as of June 30, 2008.
Internal
control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent
limitations. Internal control over financial reporting is a process
that involves human diligence and compliance and is subject to lapses in
judgment and breakdowns resulting from human failures. Internal
control over financial reporting also can be circumvented by collusion or
improper management override. Because of such limitations, there is a
risk that material misstatements may not be prevented or detected on a timely
basis by internal control over financial reporting. However, these
inherent limitations are known features of the financial reporting
process. Therefore, it is possible to design into the process
safeguards to reduce, though not eliminate, the risk. Management is responsible
for establishing and maintaining adequate internal control over financial
reporting for the Company.
This
annual report does not include an attestation report of the Company’s registered
independent public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
Company’s independent registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to
provide only management’s report in this annual report.
ITEM
9B – OTHER INFORMATION
Not
applicable.
PART
III
The
information required by Items 10 through 14 of Part III of this Form 10-K
(information regarding our directors and executive officers, executive
compensation, security ownership of certain beneficial owners, management,
related stockholder matters, and certain relationships and related transactions
and principal accountant fees and services, respectively) is hereby incorporated
by reference from the Company's Proxy Statement to be filed with the Securities
and Exchange Commission within 120 days after the end of fiscal
2008.
PART
IV
ITEM
15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1
and
2) FINANCIAL
STATEMENTS AND SCHEDULES:
|
|
The
following financial statements, including notes thereto and the
independent auditors' report with respect thereto, are filed as part of
this Annual Report on Form 10-K, starting on page 49
hereof:
|
1. Management’s
Report on Internal Control over Financial Reporting
2 Report
of Independent Public Registered Accounting Firm
3 Consolidated
Balance Sheets
4. Consolidated
Statements of Income and Comprehensive Income
5. Consolidated
Statements of Shareholders' Equity
6. Consolidated
Statements of Cash Flows
7. Notes
to Consolidated Financial Statements
(b) EXHIBITS:
Number Description
|
3.1
|
Articles
of Incorporation, as currently in effect. [Incorporated by reference to
Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for June 30,
1988.]
|
|
3.2
|
Bylaws,
as currently in effect. [Incorporated by reference to Exhibit
3.2 to the Registrant’s Annual Report on Form 10-K for June 30,
1988.]
|
|
10.1
|
Credit
Facility Letter dated January 4, 2001, between Trio-Tech International
Pte. Ltd. and Standard Chartered Bank. [Incorporated by reference to Exhibit 10.9 to the
Registrant’s Annual Report on Form 10-K for June 30,
2001.]
|
|
10.2
|
1998
Stock Option Plan. [Incorporated by reference to Exhibit 1 to
the Company’s proxy statement filed under regulation 14A on October 27,
1997.] **
|
|
10.3
|
Directors
Stock Option Plan. [Incorporated by reference to Exhibit 2 to
the Company’s proxy statement filed under regulation 14A on October 27,
1997.] **
|
|
10.4
|
Real
Estate Lease dated February 1, 1999 between Martinvale Development Company
and Universal Systems. [Incorporated by reference to Exhibit 10.12 to the
Registrant’s Annual Report on Form 10-K for June 30,
1999.]
|
|
10.5
|
Real
Estate Lease dated February 16, 2001 between JTC Corporation and Trio-Tech
International Pte. Ltd. for Block 1004 Toa Payoh
North #07-01/07 and #03-01/03. [Incorporated by
reference to Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K
for June 30, 2001.]
|
|
10.6
|
Real
Estate Lease dated May 13, 1999 between JTC Corporation and Trio-Tech
International Pte. Ltd. for Block 1004 Toa Payoh
North #03-16/17. [Incorporated by reference to
Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K for June 30,
2001.]
|
|
10.7
|
Real
Estate Lease dated October 13, 1999 between JTC Corporation and Trio-Tech
International Pte. Ltd. for Block 1004 Toa Payoh
North #01-08/15. [Incorporated by reference to Exhibit 10.15 to
the Registrant’s Annual Report on Form 10-K for June 30,
2001.]
|
|
10.8
|
Real
Estate Lease dated December 7, 2000 between JTC Corporation and Trio-Tech
International Pte. Ltd. for Block 1004 Toa Payoh
North #01-16/17. [Incorporated by reference to Exhibit 10.16 to
the Registrant’s Annual Report on Form 10-K for June 30,
2001.]
|
|
10.9
|
Real
Estate Lease dated January 3, 2000 between JTC Corporation and Trio-Tech
International Pte. Ltd. for Block 1008 Toa Payoh
North #03-01/06. [Incorporated by reference to Exhibit 10.17 to
the Registrant’s Annual Report on Form 10-K for June 30,
2001.]
|
|
10.10
|
Real
Estate Lease dated October 13, 1999 between JTC Corporation and Trio-Tech
International Pte. Ltd. for Block 1008 Toa Payoh
North #03-09/15 and #03-16/18. [Incorporated by reference to
Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K for June 30,
2001.]
|
|
10.11
|
Real
Estate Lease dated May 2, 2000 between JTC Corporation and Trio-Tech
International Pte. Ltd. for Block 1008 Toa Payoh
North #01-08. [Incorporated by reference to Exhibit
10.19 to the Annual Report on Form 10-K for June 30,
2001.]
|
|
10.12
|
Real
Estate Lease dated September 12, 2000 between JTC Corporation and
Trio-Tech International Pte. Ltd. for Block 1008 Toa Payoh
North #07-17/18. [Incorporated by reference to
Exhibit 10.20 to the Registrant’s Annual Report on Form 10-K for June 30,
2001.]
|
|
10.13
|
Real
Estate Lease dated October 30, 2000 between JTC Corporation and Trio-Tech
International Pte. Ltd. for Block 1008 Toa Payoh North #07-01.
[Incorporated by reference to Exhibit 10.21 to the Registrant’s Annual
Report on Form 10-K for June 30,
2001.]
|
|
10.14
|
Real
Estate Lease dated February 26, 2002 between JTC Corporation and Trio-Tech
International Pte. Ltd. for Block 1004 Toa Payoh North #02-11/15.
[Incorporated by reference to Exhibit 10.14 to the Registrant’s Annual
Report on Form 10-K for June 30,
2002.]
|
|
10.15
|
Real
Estate Lease dated June 10, 2002 between JTC Corporation and Trio-Tech
International Pte. Ltd. for Block 1004 Toa Payoh North
#02-08/10. [Incorporated by reference to Exhibit 10.15 to the
Registrant’s Annual Report on Form 10-K for June 30,
2002.]
|
|
10.16
|
Credit
Facility Letter dated November 16, 2001 and June 24, 2002, between
Trio-Tech International Pte. Ltd. and Standard Chartered Bank.
[Incorporated by reference to Exhibit 10.16 to the Registrant’s Annual
Report on Form 10-K for June 30,
2002.]
|
|
|
|
10.17
|
Credit
Facility Letter dated July 24, 2002, between Trio-Tech International Pte.
Ltd. and OCBC Bank. [Incorporated by reference to Exhibit 10.17 to the
Registrant’s Annual Report on Form 10-K for June 30,
2002.]
|
|
10.18
|
Credit Facility Letter dated May
21, 2002, between Trio-Tech (M) Sdn Bhd and HSBC Bank Malaysia Berhad.
[Incorporated by reference to Exhibit 10.18 to the Registrant’s Annual
Report on Form 10-K for June 30,
2002.]
|
|
10.19
|
Credit Facility Letter dated
January 22, 2002, between Trio-Tech (KL) Sdn Bhd and Public Bank Berhad.
[Incorporated by reference to Exhibit 10.19 to the Registrant’s Annual
Report on Form 10-K for June 30,
2002.]
|
|
|
|
10.20
|
Real
Estate Lease dated November 8, 2001 between Elbar Investments, L.P. and
Trio-Tech International for 14731 Califa Street, Van Nuys. [Incorporated
by reference to Exhibit 23.1 to the Registrant’s Annual Report on Form
10-K for June 30,
2002.]
|
|
10.21
|
Amendment
to the Directors Stock Option Plan [Incorporated by reference to Exhibit
10.21 to the Registrant’s Annual Report on Form 10-K for June 30,
2002.] **
|
|
10.22
|
Credit Facility Letter dated
January 28, 2003, between Trio-Tech (M) Sdn Bhd and HSBC Bank Malaysia
Berhad [Incorporated by reference to Exhibit 10.22 to the Registrant’s
Annual Report on Form 10-K for June 30,
2003.]
|
|
10.23
|
Credit Facility Letter dated
September 20, 2002, between KTS Incorporated and Bank of America.
[Incorporated by reference to Exhibit 10.23 to the Registrant’s Annual
Report on Form 10-K for June 30,
2003.]
|
|
10.24
|
Real Estate Lease dated January
12, 2001 between JTC Corporation and Trio-Tech International Pte. Ltd. for
Toa Payoh North #01-S3/S4. [Incorporated by reference to Exhibit 10.24 to
the Registrant’s Annual Report on Form 10-K for June 30,
2003.]
|
|
10.25
|
Sales
and Purchase Agreement, dated March 29, 2004 between TS Matrix BHD. and
Trio Tech (Malaysia) SDN BHD. [Incorporated by reference to Exhibit 99.1
to the Registrant’s Form 8-K filed on July 15,
2004.]
|
|
10.26
|
Real
Estate Sublease, dated July 1, 2004 between TS Matrix BHD. and Trio Tech
(Malaysia) SDN. BHD. for factory lot no. 11A Kawansan MIEL Sungai Way Baru
(FTZ), Phase III Selangor Darul Ehsan. [Incorporated by reference to
Exhibit 10.1 to the Registrant’s Amended Form 8-K filed on August 20,
2004.]
|
|
10.27
|
Real Estate Lease dated April 28,
2004 between JTC Corporation and Trio-Tech International Pte. Ltd. for
Block 1004 Toa Payoh North #04-14/16 and #04-17. [Incorporated
by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form
10-K for June 30,
2004.]
|
|
10.28
|
Real Estate Lease dated April 28,
2004 between JTC Corporation and Trio-Tech International Pte. Ltd. for
Block 1004 Toa Payoh North #03-08/10. [Incorporated by
reference to Exhibit 10.28 to the Registrant’s Annual Report on Form 10-K
for June 30, 2004.]
|
|
10.29
|
Real Estate Lease dated April 19,
2004 between JTC Corporation and Trio-Tech International Pte. Ltd. for
Block 1008 Toa Payoh North #02-17. [Incorporated by reference
to Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K for June
30, 2004.]
|
|
10.30
|
Real Estate Lease dated May 26,
2004 between JTC Corporation and Trio-Tech International Pte. Ltd. for
Block 1008 Toa Payoh North #02-15/16. [Incorporated by
reference to Exhibit 10.30 to the Registrant’s Annual Report on Form 10-K
for June 30,
2004.]
|
|
10.31
|
Credit Facility Letter dated July
7, 2003, between Trio-Tech International Pte. Ltd, and Hong Leong Finance
Limited. [Incorporated by reference to Exhibit 10.31 to the Registrant’s
Annual Report on Form 10-K for June 30,
2004.]
|
|
10.32
|
Credit Facility Letter dated
October 2, 2003, between Trio-Tech Bangkok and Kasikornbank Public Company
Limited. [Incorporated by reference to Exhibit 10.32 to the Registrant’s
Annual Report on Form 10-K for June 30,
2004.]
|
|
10.33
|
Credit Facility Letter dated
October 7, 2003, between Trio-Tech International Pte. Ltd, and DBS Bank
Ltd. [Incorporated by reference to Exhibit 10.33 to the Registrant’s
Annual Report on Form 10-K for June 30,
2004.]
|
|
10.34
|
Credit Facility Letter dated
August 11, 2003 between Trio-Tech International Pte. Ltd. and Standard
Chartered Bank. [Incorporated by reference to Exhibit 10.34 to the
Registrant’s Annual Report on Form 10-K for June 30,
2004.]
|
|
10.35
|
Letter
of Offer, dated June 3, 2005 between Globetronics Technology BHD. and Trio
Tech International PTE. LTD.. [Incorporated by reference to
Exhibit 99.1 to the Registrant’s Form 8-K filed on June 8,
2005.]
|
|
10.36
|
Real
Estate Lease, dated December 1, 2003 between Trio Tech (Malaysia) SDN.
BHD. and Amphenol Malaysia Sdn. Bhd. for factory plot no. 1A Phase 1,
Bayan Lepas Free Trade Zone, 11900 Pulau Pinang. [Incorporated
by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form
10-K for June 30,
2005.]
|
|
10.37
|
Real
Estate Lease dated December 6, 2004 between Malaysian Industrial Estates
Berhad and Trio Tech (Malaysia) SDN. BHD. for factory lot no. 4 Kawansan
MIEL Sungai Way Baru (FTZ), Phase III Selangor Darul Ehsan.[Incorporated
by reference to Exhibit 10.37 to the Registrant’s Annual Report on Form
10-K for June 30,
2005.]
|
|
10.38
|
Real
Estate Lease dated September 28, 2004 between Ascendas-Xinsu Development
(Suzhou) Co., Ltd. and Trio Tech (SIP) Co., Ltd. for Block B #05-01/02
room 6 in Suzhou Industrial Park, China 215021. [Incorporated by reference
to Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K for June
30, 2005.]
|
|
10.39
|
Real
Estate Lease, dated November 8, 2004 between JTC Corporation and Trio-Tech
International Pte. Ltd. for Block 1008 Toa Payoh North #03-07/08.
[Incorporated by reference to Exhibit 10.39 to the Registrant’s Annual
Report on Form 10-K for June 30,
2005.]
|
|
10.40
|
Real
Estate Lease, dated September 10, 2003 between JTC Corporation and
Trio-Tech International Pte. Ltd. for Block 1008 Toa Payoh North
#01-09/11. [Incorporated by reference to Exhibit 10.40 to the
Registrant’s Annual Report on Form 10-K for June 30,
2005.]
|
|
10.41
|
Credit
Facility Letter dated May 10, 2005, between Trio-Tech International Pte.
Ltd, and DBS Bank Ltd. [Incorporated by
reference to Exhibit 10. 41 to the
Registrant’s Annual Report on Form 10-K for June 30,
2006.]
|
|
10.42
|
Real
Estate Lease, dated July 5, 2005 between JTC Corporation and Universal
(Far East) Pte. Ltd. for Block 1008 Toa Payoh North #01-15/16. [Incorporated by reference to Exhibit 10. 42 to the Registrant’s Annual
Report on Form 10-K for June 30,
2006.]
|
|
10.43
|
Credit
Facility Letter dated September 15, 2005 between Trio-Tech International
Pte. Ltd. and Standard Chartered Bank.
[Incorporated by reference to Exhibit 10. 43 to the Registrant’s Annual
Report on Form 10-K for June 30,
2006.]
|
|
10.44
|
Real
Estate Lease, dated November 11, 2005 between JTC Corporation and
Trio-Tech International Pte Ltd for Block 1004 Toa Payoh North
#03-06/07. [Incorporated by
reference to Exhibit 10. 44 to the
Registrant’s Annual Report on Form 10-K for June 30,
2006.]
|
|
10.45
|
Real
Estate Lease, dated March 10, 2006 between JTC Corporation and Trio-Tech
International Pte Ltd for Block 1004 Toa Payoh North #04-05/07. [Incorporated by reference to Exhibit 10. 45 to the Registrant’s Annual
Report on Form 10-K for June 30,
2006.]
|
|
10.46
|
Credit
Facility Letter dated April 6, 2006, between Trio-Tech International Pte.
Ltd, and Standard Chartered Bank. [Incorporated by reference to Exhibit 10. 46 to
the Registrant’s Annual
Report on Form 10-K for June 30,
2006.]
|
|
10.47
|
Credit
Facility Letter dated April 6, 2006, between Trio-Tech International Pte.
Ltd, and Standard Chartered Bank. [Incorporated by reference to Exhibit 10. 47 to
the Registrant’s Annual Report on Form 10-K for June 30,
2006.]
|
|
10.48
|
Credit
Facility Letter dated July 26, 2006, between Trio-Tech International Pte.
Ltd, and DBS Bank Ltd. [Incorporated by reference to Exhibit
10. 48 to the Registrant’s Annual Report on Form 10-K for June 30,
2006.]
|
|
10.49
|
Credit
Facility Letter dated April 19, 2007, between Trio-Tech International Pte.
Ltd, and Standard Chartered Bank. [Incorporated by reference to Exhibit 10. 49 to
the Registrant’s Annual Report on Form 10-K for June 30,
2007.]
|
|
10.50
|
Real
Estate Lease, dated February 20, 2006 between JTC Corporation and
Trio-Tech International Pte Ltd for Block 1004 Toa Payoh North
#01-08/09/10/11/12/13/14/15 (Ancillary). [Incorporated by reference to Exhibit 10. 50 to
the Registrant’s Annual Report on Form 10-K for June 30,
2007.]
|
|
10.51
|
Real
Estate Lease, dated July 31, 2006 between JTC Corporation and Trio-Tech
International Pte Ltd for Block 1004 Toa Payoh North #03-06/07
(Ancillary). [Incorporated by reference to Exhibit 10. 51 to
the Registrant’s Annual Report on Form 10-K for June 30,
2007.]
|
|
10.52
|
Real
Estate Lease, dated September 26, 2006 between JTC Corporation and
Trio-Tech International Pte Ltd for Block 1004 Toa Payoh North
#03-01/02/03. [Incorporated by reference to Exhibit 10. 52 to
the Registrant’s Annual
Report on Form 10-K for June 30,
2007.]
|
|
10.53
|
Real
Estate Lease, dated September 26, 2006 between JTC Corporation and
Trio-Tech International Pte Ltd for Block 1004 Toa Payoh North
#03-16.
|
|
10.54
|
Real
Estate Lease, dated October 11, 2006 between JTC Corporation and Trio-Tech
International Pte Ltd for Block 1004 Toa Payoh North #04-08/09/10.
[Incorporated by reference to Exhibit 10. 54 to
the Registrant’s Annual Report on Form 10-K for June 30, 2007.]
|
|
10.55
|
Real
Estate Lease, dated October 26, 2006 between JTC Corporation and Trio-Tech
International Pte Ltd for Block 1004 Toa Payoh North
#07-01/02/03/04/08/06/07 and its ancillary sites. [Incorporated by reference to Exhibit 10. 55 to
the Registrant’s Annual Report on Form 10-K for June 30,
2007.]
|
|
10.56
|
Real
Estate Lease, dated May 2, 2007 between JTC Corporation and Trio-Tech
International Pte Ltd for Block 1004 Toa Payoh North #04-17, #04-14/15/16
and #03-08/09/10. [Incorporated by reference to Exhibit 10. 56 to
the Registrant’s Annual Report on Form 10-K for June 30,
2007.]
|
|
10.57
|
Real
Estate Lease, dated December 20, 2005 between JTC Corporation and
Trio-Tech International Pte Ltd for Block 1008 Toa Payoh North #03-07/08
(Ancillary). [Incorporated by reference to Exhibit 10. 57 to
the Registrant’s Annual
Report on Form 10-K for June 30,
2007.]
|
|
10.58
|
Real
Estate Lease, dated May 9, 2006 between JTC Corporation and Trio-Tech
International Pte Ltd for Block 1008 Toa Payoh North
#03-09/10/11/12/14/15/16/17. [Incorporated by reference to Exhibit 10. 58 to the Registrant’s Annual
Report on Form 10-K for June 30,
2007.]
|
|
10.59
|
Real
Estate Lease, dated July 20, 2006 between JTC Corporation and Trio-Tech
International Pte Ltd for
Block 1008 Toa Payoh North
#01-08. [Incorporated by reference to Exhibit 10. 59 to the Registrant’s Annual
Report on Form 10-K for June 30,
2007.]
|
|
10.60
|
Real
Estate Lease, dated September 22, 2006 between JTC Corporation and
Trio-Tech International Pte Ltd for Block 1008 Toa Payoh North
#02-03/04/05/06. [Incorporated
by reference to Exhibit 10. 60 to the Registrant’s Annual
Report on Form 10-K for June 30,
2007.]
|
|
10.61
|
Real
Estate Lease, dated September 22, 2006 between JTC Corporation and
Trio-Tech International Pte Ltd for Block 1008 Toa Payoh North
#02-18. [Incorporated
by reference to Exhibit 10. 61 to the Registrant’s Annual
Report on Form 10-K for June 30,
2007.]
|
|
10.62
|
Real
Estate Lease, dated January 18, 2007 between JTC Corporation and Trio-Tech
International Pte Ltd for Block 1008 Toa Payoh North #07-01. [Incorporated
by reference to Exhibit 10. 62 to the Registrant’s Annual
Report on Form 10-K for June 30,
2007.]
|
|
10.63
|
Real
Estate Lease, dated January 29, 2007 between JTC Corporation and Trio-Tech
International Pte Ltd for Block 1008 Toa Payoh North #07-17/18 and its
ancillary site. * [Incorporated by reference to Exhibit 10. 63 to
the Registrant’s Annual Report on Form 10-K for June 30,
2007.]
|
|
10.64
|
Real
Estate Lease, dated February 21, 2007 between JTC Corporation and
Universal (Far East) Pte Ltd for Block 1008 Toa Payoh North #01-09/10/11.
[Incorporated by reference to Exhibit 10. 64
to the Registrant’s Annual Report on Form 10-K for June 30,
2007.]
|
|
10.65
|
Real
Estate Lease, dated August 2, 2007 between JTC Corporation and Universal
(Far East) Pte Ltd for Block 1008 Toa Payoh North #02-17. [Incorporated by reference to Exhibit 10. 65 to
the Registrant’s Annual Report on Form 10-K for June 30,
2007.]
|
|
10.66
|
Real
Estate Lease, dated August 2, 2006 between Ascendas-Xinsu Development
(Suzhou) Co., Ltd. and Trio Tech(SIP) Co., Ltd. for Block A #04-13/16 No.
5 Xing Han Street in Suzhou Industrial Park, China 215021. [Incorporated by reference to Exhibit 10. 66 to
the Registrant’s Annual Report on Form 10-K for June 30,
2007.]
|
|
10.67
|
Real
Estate Lease, dated August 16, 2006 between Ascendas-Xinsu Development
(Suzhou) Co., Ltd. and Trio Tech (SIP)
Co., Ltd. for Block A #04-11/12 No. 5 Xing Han Street in Suzhou Industrial
Park, China 215021. Incorporated by reference to Exhibit 10. 67 to the
Registrant’s Annual Report on Form 10-K for June 30,
2007.]
|
|
10.68
|
Credit
Facility Letter dated April 4, 2007, between Trio Tech (Malaysia) Sdn Bhd
and CIMB Bank (formerly knownas Bumiputra-Commerce Bank
Berhad) [Incorporated by
reference to Exhibit 10. 68 to the Registrant’s Annual
Report on Form 10-K for June 30,
2007.]
|
|
10.69
|
Credit Facility Letter dated May
21, 2007, between Trio Tech (Malaysia) Sdn Bhd and HSBC Bank Malaysia
Berhad. [Incorporated by reference to Exhibit 10. 69 to the
Registrant’s Annual
Report on Form 10-K for June 30,
2007.]
|
|
10.70
|
Land
Development Agreement dated August 27, 2007 between Trio Tech (Chongqing)
Co. Ltd. and JiaSheng Real Property Development Ltd. [Incorporated by
reference to Exhibit 10.1 to the Registrant’s Form 8K dated August 30,
2007.]
|
|
10.71
|
Real
Estate Lease, dated August 2, 2006 between Charmant Belt Inc. and
Trio-Tech International (U.S. office)
for 16139 Wyandotte street, Van Nuys, CA
91406. [Incorporated by reference to Exhibit
10. 2 to the Registrant’s Quarterly
Report on Form 10-Q for December 31,
2007.]
|
|
10.72
|
Sales
and purchase agreement, dated January 4, 2008, between Trio-Tech
(Chongqing) Co. Ltd AND MaoYe Property Ltd. for office units at Jiang Bei
No. 21 Road, Chongqing, China. [Incorporated
by reference to Exhibit 10. 1 to the Registrant’s Quarterly
Report on Form 10-Q for December 31,
2007.]
|
|
10.73
|
Real
Estate Lease dated October 27, 2007 between JTC Corporation and Trio-Tech
International Pte. Ltd. for Unit#04-11/12 BLK1004 Toa Payoh
North. *
|
|
10.74
|
Real
Estate Lease dated September 20, 2007 between JTC Corporation and
Trio-Tech International Pte. Ltd. for Unit#04-11/12 BLK1004 Toa Payoh
North Industry Estate Singapore 318995
*
|
|
10.75
|
Real
Estate Lease dated August 15, 2007 between Lijing Corporation and
Trio-Tech (Chongqing) Co. Ltd for Unit#26-04/05 in Chongqing China
*
|
|
10.76
|
Real
Estate Lease dated August 31, 2007 between Shanghai (Waigaoqiao) FTZ New
Development Company Ltd. and Trio-Tech (ShangHai) Co. Ltd for No. 273
Debao Road Factory No. 58 in Shanghai China
*
|
|
10.77
|
Real
Estate Lease dated May 9, 2008, between Chongqing JiangBei Weige Bridal
and Trio-Tech (Chongqing) Co., Ltd. for JiangBei MaoYe DongFang Square No.
31st floor 15 units of floor space in Shanghai China
*
|
|
10.78
|
Credit
Facility Letter dated August 24, 2008, between Trio-Tech (M) Sdn Bhd and
CIMB Bank Malaysia
Berhad*
|
|
21.1
|
Subsidiaries
of the Registrant (100% owned by the Registrant except as otherwise
stated):
|
Trio-Tech
International Pte. Ltd., a Singapore Corporation
Universal
(Far East) Pte. Ltd., a Singapore Corporation
Trio-Tech
Reliability Services, a California Corporation
Express
Test Corporation, a California Corporation
European
Electronic Test Center. Ltd. a Cayman Islands Corporation
Trio-Tech
Malaysia, a Malaysia Corporation (55% owned by the Registrant)
Trio-Tech
Kuala Lumpur, a Malaysia Corporation (100% owned by Trio-Tech
Malaysia)
Trio-Tech
Bangkok, a Thailand Corporation
Trio-Tech
Thailand, a Thailand Corporation
Prestal
Enterprise Sdn. Bhd., a Malaysia Corporation (76% owned by the
Registrant)
KTS
Incorporated, dba Universal Systems, a California Corporation
Trio-Tech
(Suzhou) Co. Ltd., a China Corporation
Trio-Tech
(Shanghai) Co. Ltd., a China Corporation
Trio-Tech (ChongQing) Co. Ltd (100% owned by
Trio-Tech International Pte. Ltd., a
Singapore Corporation)
|
23.1
|
Consent
of Independent Registered Public Accounting
Firm*
|
31.1 Rule
13a-14(a) Certification of Principal Executive Officer of
Registrant*
31.2 Rule
13a-14(a) Certification of Principal Financial Officer of
Registrant*
32 Section
1350 Certification. *
* Filed
electronically herewith.
**
Indicates management contracts or compensatory plans or arrangements required to
be filed as an exhibit to this report.
Pursuant
to the requirements of Section 13 or 15(d) 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
Date:
September 26, 2008
Pursuant
to the requirement of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacity and on the dates indicated.
|
|
/s/
A. Charles Wilson
|
September 26, 2008 |
A.Charles Wilson,
Director
Chairman of the
Board
|
|
/s/
S. W. Yong, Director
|
September
26, 2008
|
S. W. Yong,
Director
President, Chief
Executive Officer
(Principal
Executive Officer)
|
/s/
Victor H.M. Ting
|
September 26, 2008 |
Victor H.M.
Ting
Vice President,
Chief Financial Officer
(Principal
Financial Officer)
|
|
/s/
Jason T. Adelman
|
September 26, 2008 |
Jason T. Adelman,
Director
|
|
/s/
Richard M. Horowitz
|
September 26, 2008 |
Richard M.
Horowitz, Director
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders
Trio-Tech
International
Van Nuys,
California
We have
audited the accompanying consolidated balance sheets of Trio-Tech International
and Subsidiaries (the “Company”) as of June 30, 2008 and 2007, and the
related consolidated statements of operations and comprehensive income,
shareholders' equity and cash flows for each of the three years in the
period ended June 30, 2008. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Trio-Tech International and
Subsidiaries at June 30, 2008 and 2007, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2008
in conformity with accounting principles generally accepted in the United States
of America.
BDO
Raffles
_/s_/ BDO
Raffles
Singapore
September
26, 2008
TRIO-TECH
INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS (IN THOUSANDS, EXCEPT NUMBER OF SHARES)
|
June
30,
|
June
30,
|
||||||||
|
2008
|
2007
|
||||||||
|
ASSETS
|
|||||||||
|
CURRENT
ASSETS:
|
|||||||||
|
Cash
|
$ | 6,600 | $ | 7,135 | |||||
|
Short-term
deposits
|
7,746 | 7,815 | |||||||
|
Trade
accounts receivable, less allowance for doubtful
|
5,702 | 7,410 | |||||||
|
accounts of $51 and $42
|
|
||||||||
|
Other
receivables
|
796 | 245 | |||||||
|
Inventories,
less provision for obsolete inventory
|
|||||||||
|
of $880 and $781
|
|
2,449 | 1,946 | ||||||
|
Prepaid
expenses and other current assets
|
138 | 122 | |||||||
|
Total
current assets
|
|
23,431 | 24,673 | ||||||
|
INVESTMENT
IN CHINA
|
2,267 | - | |||||||
|
PROPERTY,
PLANT AND EQUIPMENT, Net
|
8,136 | 7,458 | |||||||
|
OTHER
INTANGIBLE ASSETS, Net
|
112 | 212 | |||||||
|
OTHER
ASSETS
|
813 | 445 | |||||||
|
TOTAL
ASSETS
|
$ | 34,759 | $ | 32,788 | |||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||||||
|
CURRENT
LIABILITIES:
|
|||||||||
|
Lines
of credit
|
$ | - | $ | - | |||||
|
Accounts
payable
|
2,586 | 2,265 | |||||||
|
Accrued
expenses
|
3,036 | 4,354 | |||||||
|
Income
taxes payable
|
397 | 948 | |||||||
|
Current
portion of bank loans payable
|
1,403 | 536 | |||||||
|
Current
portion of capital leases
|
106 | 125 | |||||||
|
Total
current liabilities
|
|
7,528 | 8,228 | ||||||
|
BANK
LOANS PAYABLE, net of current portion
|
1,620 | 139 | |||||||
|
CAPITAL
LEASES, net of current portion
|
143 | 155 | |||||||
|
DEFERRED
TAX LIABILITIES
|
510 | 373 | |||||||
|
OTHER NON-CURRENT
LIABILITIES
|
9 | - | |||||||
|
TOTAL
LIABILITIES
|
$ | 9,810 | $ | 8,895 | |||||
|
MINORITY
INTEREST
|
2,808 | 2,459 | |||||||
|
SHAREHOLDERS'
EQUITY:
|
|||||||||
|
Common
Stock; no par value, 15,000,000 shares authorized;
|
|||||||||
| 3,226,430 and 3,225,930 shares issued and outstanding |
|
10,362 | 10,361 | ||||||
| at June 30, 2008 and 2007, respectively |
|
||||||||
|
Paid-in
capital
|
928 | 460 | |||||||
|
Accumulated
retained earnings
|
8,825 | 10,135 | |||||||
|
Accumulated
other comprehensive loss-translation adjustments
|
2,026 | 478 | |||||||
| Total shareholders' equity |
|
22,141 | 21,434 | ||||||
|
TOTAL
LIABILITIES AND
|
|||||||||
|
SHAREHOLDERS'
EQUITY
|
$ | 34,759 | $ | 32,788 | |||||
TRIO-TECH
INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
|
Years
Ended June 30,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Revenue
|
||||||||||||
|
Products
|
$ | 22,142 | $ | 25,867 | $ | 14,644 | ||||||
|
Services
|
18,172 | 20,883 | 14,455 | |||||||||
| 40,314 | 46,750 | 29,099 | ||||||||||
|
Cost
of Sales
|
||||||||||||
|
Cost
of products sold
|
18,816 | 21,679 | 11,864 | |||||||||
|
Cost
of services rendered
|
12,623 | 13,049 | 9,363 | |||||||||
| 31,439 | 34,728 | 21,227 | ||||||||||
|
Gross
Margin
|
8,875 | 12,022 | 7,972 | |||||||||
|
Operating
Expenses
|
||||||||||||
|
General
and administrative
|
7,844 | 6,793 | 6,514 | |||||||||
|
Selling
|
645 | 788 | 718 | |||||||||
|
Research
and development
|
55 | 69 | 70 | |||||||||
|
Impairment
loss
|
450 | 176 | 61 | |||||||||
|
(Gain)
Loss on disposal of property, plant and equipment
|
(78 | ) | (1 | ) | 22 | |||||||
|
Total
Operating Expenses
|
8,916 | 7,825 | 7,385 | |||||||||
|
(Loss)
Income from Operations
|
(41 | ) | 4,197 | 487 | ||||||||
|
Other
Income (Expenses)
|
||||||||||||
|
Interest
expense
|
(296 | ) | (139 | ) | (142 | ) | ||||||
|
Other
income
|
(53 | ) | 178 | 598 | ||||||||
|
Total
Other Income (Expense)
|
(349 | ) | 39 | 456 | ||||||||
|
(Loss)
Income from Continuing Operations
|
||||||||||||
|
before
Income Tax
|
(390 | ) | 4,236 | 943 | ||||||||
|
Income
Tax Provision
|
216 | 765 | 258 | |||||||||
|
(Loss)
Income from Continuing Operations before
|
||||||||||||
|
Minority
Interest
|
(606 | ) | 3,471 | 685 | ||||||||
|
Minority
interest
|
(350 | ) | (163 | ) | (88 | ) | ||||||
|
(Loss)
Income from Continuing Operations
|
(956 | ) | 3,308 | 597 | ||||||||
|
Discontinued
Operations (Note 18)
|
||||||||||||
|
Income
from discontinued operations
|
- | - | 8,459 | |||||||||
|
Net
(Loss) Income Attributed to Common Shares
|
$ | (956 | ) | $ | 3,308 | $ | 9,056 | |||||
|
BASIC
EARNINGS PER SHARE:
|
||||||||||||
|
Basic
earnings per share from continuing operations
|
$ | (0.30 | ) | $ | 1.03 | $ | 0.19 | |||||
|
Basic
earnings per share from discontinued operations
|
- | - | 2.72 | |||||||||
|
Basic
earnings per share
|
$ | (0.30 | ) | $ | 1.03 | $ | 2.91 | |||||
|
DILUTED
EARNINGS PER SHARE:
|
||||||||||||
|
Diluted
earnings per share from continuing operations
|
$ | (0.30 | ) | $ | 1.02 | $ | 0.19 | |||||
|
Diluted
earnings per share from discontinued operations
|
- | - | 2.71 | |||||||||
|
Diluted
earnings per share
|
$ | (0.30 | ) | $ | 1.02 | $ | 2.90 | |||||
|
Weighted
Average Shares Outstanding
|
||||||||||||
|
Basic
|
3,226 | 3,223 | 3,113 | |||||||||
|
Diluted
|
3,226 | 3,233 | 3,126 | |||||||||
|
COMPREHENSIVE
INCOME:
|
||||||||||||
|
Net
income
|
(956 | ) | 3,308 | 9,056 | ||||||||
|
Foreign
currency translation adjustment
|
1,548 | 911 | (190 | ) | ||||||||
|
COMPREHENSIVE
INCOME
|
$ | 592 | $ | 4,219 | $ | 8,866 | ||||||
See
accompanying notes to consolidated financial statements.
TRIO-TECH
INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
|
Common
Stock
|
Additional
Paid-in
|
Retained
Earnings/
Accumulated
|
Accumulated
Other
Comprehensive
|
|||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
Income
(Loss)
|
Total
|
|||||||||||||||||||
|
Balance,
June 30, 2005
|
2,974 | $ | 9,554 | $ | 284 | $ | (298 | ) | $ | (243 | ) | $ | 9,297 | |||||||||||
|
Cash
received from stock
|
||||||||||||||||||||||||
|
options
exercised
|
243 | 784 | 837 | |||||||||||||||||||||
|
Stock
option expenses
|
53 | |||||||||||||||||||||||
|
Net
income
|
9,056 | 9,056 | ||||||||||||||||||||||
|
Dividend
declared
|
(1,608 | ) | (1,608 | ) | ||||||||||||||||||||
|
Translation
adjustment
|
(190 | ) | (190 | ) | ||||||||||||||||||||
|
Balance,
June 30, 2006
|
3,217 | 10,338 | 337 | 7,150 | (433 | ) | 17,392 | |||||||||||||||||
|
Cash
received from stock
|
||||||||||||||||||||||||
|
options
exercised
|
9 | 23 | 146 | |||||||||||||||||||||
|
Stock
option expenses
|
123 | 0 | ||||||||||||||||||||||
|
Net
income
|
3,308 | 3,308 | ||||||||||||||||||||||
|
Dividend
declared
|
(323 | ) | (323 | ) | ||||||||||||||||||||
|
Translation
adjustment
|
911 | 911 | ||||||||||||||||||||||
|
Balance,
June 30, 2007
|
3,226 | 10,361 | 460 | 10,135 | 478 | 21,434 | ||||||||||||||||||
|
Cash
received from stock
|
- | 1 | 1 | |||||||||||||||||||||
|
options
exercised
|
468 | |||||||||||||||||||||||
|
Stock
option expenses
|
468 | |||||||||||||||||||||||
|
Net
loss
|
(956 | ) | (956 | ) | ||||||||||||||||||||
|
Dividend
declared
|
(354 | ) | (354 | ) | ||||||||||||||||||||
|
Translation
adjustment
|
1,548 | 1,548 | ||||||||||||||||||||||
|
Balance,
June 30, 2008
|
3,226 | $ | 10,362 | $ | 928 | $ | 8,825 | $ | 2,026 | $ | 22,141 | |||||||||||||
See
accompanying notes to consolidated financial statements.
TRIO-TECH
INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOW (IN THOUSANDS)
|
Years
Ended June 30,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Cash
Flow from Operating Activities
|
||||||||||||
|
Net
income (loss)
|
$ | (956 | ) | $ | 3,308 | $ | 9,056 | |||||
|
Adjustments
to reconcile from net income to
|
||||||||||||
|
net
cash flow provided by (used in) operating activities
|
||||||||||||
|
Depreciation
and amortization
|
2,715 | 2,857 | 1,758 | |||||||||
|
Bad
debts expense, net
|
9 | 141 | 175 | |||||||||
|
Inventory
provision
|
98 | 333 | 20 | |||||||||
|
Accrued
interest expense net accrued interest income
|
(128 | ) | (109 | ) | (199 | ) | ||||||
|
Impairment
loss
|
450 | 176 | 61 | |||||||||
|
Stock
compensation
|
468 | 5 | 53 | |||||||||
|
Gain
on sale of property - discontinued operations
|
- | - | (8,909 | ) | ||||||||
|
(Gain)
Loss on sale of equipment
|
(78 | ) | (1 | ) | 13 | |||||||
|
Deferred
tax provision
|
(119 | ) | (49 | ) | (4 | ) | ||||||
|
Minority
interest
|
350 | 163 | 88 | |||||||||
|
Changes
in operating assets and liabilities,
|
||||||||||||
|
net
of acquisition effects
|
||||||||||||
|
Accounts
receivables
|
1,699 | 967 | (4,515 | ) | ||||||||
|
Other
receivables
|
(551 | ) | 61 | (157 | ) | |||||||
|
Other
assets
|
(152 | ) | (276 | ) | (31 | ) | ||||||
|
Inventories
|
(601 | ) | 168 | (883 | ) | |||||||
|
Prepaid
expenses and other liabilities
|
(16 | ) | 48 | (94 | ) | |||||||
|
Accounts
payable and accrued liabilities
|
(997 | ) | (235 | ) | 2,575 | |||||||
|
Other
payables
|
9 | - | - | |||||||||
|
Income
tax payable
|
(295 | ) | 381 | 143 | ||||||||
|
Net
cash provided (used) by operating activities
|
1,905 | 7,938 | (850 | ) | ||||||||
|
Cash
Flow from Investing Activities
|
||||||||||||
|
Proceeds
from short-term deposits matured
|
29,499 | 19,728 | 20,409 | |||||||||
|
Investments
in short-term deposits
|
(29,252 | ) | (19,595 | ) | (24,838 | ) | ||||||
|
Additions
to property, plant and equipment
|
(3,357 | ) | (2,812 | ) | (1,255 | ) | ||||||
|
Acquisition
of a company in China
|
- | (138 | ) | |||||||||
|
Investment
in Chongqing, China
|
(2,267 | ) | - | - | ||||||||
|
Proceeds
from sale of equipment-continuing operations
|
106 | 11 | 154 | |||||||||
|
Proceeds
from sale of property-discontinued operations
|
- | - | 8,401 | |||||||||
|
Net
cash used (provided) by investing activities
|
(5,271 | ) | (2,668 | ) (2,628) | 2,733 | |||||||
|
Cash
Flow From Financing Activities
|
||||||||||||
|
Net
borrowings (payments) on lines of credits
|
- | (116 | ) | (220 | ) | |||||||
|
Repayment
of bank loans and capital leases
|
(1,651 | ) | (940 | ) | (1,036 | ) | ||||||
|
Proceeds
from long-term bank loans and capital leases
|
3,822 | 6 | 1,062 | |||||||||
|
Proceeds
from exercising stock options
|
1 | 23 | 784 | |||||||||
|
Proceeds
from 10% shareholder on the short swing profit of the company
stock
|
- | 118 | - | |||||||||
|
Dividends
paid to minority interest
|
- | (42 | ) | (28 | ) | |||||||
|
Dividends
paid to shareholders
|
(354 | ) | (323 | ) | (1,608 | ) | ||||||
|
Net
cash used (provided) by financing activities
|
1,818 | (1,274 | ) | (1,046 | ) | |||||||
|
Effect
of Changes in Exchange Rate
|
1,013 | 588 | 275 | |||||||||
|
NET
INCREASE IN CASH
|
(535 | ) | 4,584 | 1,112 | ||||||||
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
7,135 | 2,551 | 1,439 | |||||||||
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
$ | 6,600 | $ | 7,135 | $ | 2,551 | ||||||
|
Supplementary
Information of Cash Flows
|
||||||||||||
|
Cash
paid during the period for:
|
||||||||||||
|
Interest
|
$ | 248 | $ | 137 | $ | 142 | ||||||
|
Income
taxes
|
$ | 745 | $ | 398 | $ | 2,197 | ||||||
|
Capital
lease of property, plant and equipment
|
$ | 96 | $ | 52 | $ | 290 | ||||||
See
accompanying notes to consolidated financial statements.
TRIO-TECH
INTERNATIONAL AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED JUNE 30, 2008, 2007 AND 2006 (IN THOUSANDS, EXCEPT PER SHARE AND NUMBER OF
SHARES)
|
1.
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES.
|
Basis
of Presentation and Principles of Consolidation 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 three
business segments: Testing Services, Manufacturing and
Distribution. TTI has subsidiaries in the U.S., Singapore, Malaysia,
Thailand, and China 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
|
100%
|
Dublin,
Ireland
|
|
(Operation
ceased on November 1, 2005)
|
||
|
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
|
The
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America, which include the
accounts of the Company and its subsidiaries. All significant
inter-company accounts and transactions have been eliminated in
consolidation. The consolidated financial statements are presented in
U.S. dollars.
Foreign Currency Translation and
Transactions — The Singapore dollar, the
national currency of Singapore, is the primary currency of the economic
environment in which the operations in Singapore are conducted. The
Company also operates in Malaysia, Thailand and China, of which the Malaysian
ringgit, Thai bath and Chinese renminbi, respectively, are the national
currencies. The Company uses the United States dollar (“U.S.
dollars”) for financial reporting purposes.
The
Company translates assets and liabilities of its subsidiaries outside the U.S.
into U.S. dollars using the rate of exchange prevailing at the balance sheet
date, and the statement of income is translated at average rates during the
reporting period. Adjustments resulting from the translation of the
subsidiaries’ financial statements from foreign currencies into U.S. dollars are
recorded in shareholders' equity as part of accumulated comprehensive loss -
translation adjustments. Gains or losses resulting from transactions
denominated in currencies other than functional currencies of the Company’s
subsidiaries are reflected in income for the reporting period.
Use of Estimates — The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Among the more significant estimates
included in these financial statements are the estimated accounts receivable
allowance for doubtful accounts, reserve for obsolete inventory, reserve for
warranty, and the deferred income tax asset allowance. Actual results
could materially differ from those estimates.
In the
first quarter of fiscal year 2008, the Company’s Singapore operation reversed
approximately $270 in employee bonuses payable that were accrued during the
fiscal year ended June 30, 2007. The provision for bonuses was based
on the Company’s policy and guidelines related to bonuses, the financial results
of the Singapore operation, group objectives and individual employee performance
set up at the beginning of fiscal year 2007 and employee headcount on June 30,
2007. According to the Company’s guidelines, the Singapore operation
accrued $1,110 in bonuses payable, and 420 employees were covered under the
bonus provision.
Prior to
the time for payment of bonuses accrued, the Company determined (a) that in the
first quarter of fiscal year 2008, 51 (12.4%) employees on the bonus list for
fiscal year 2007 had left the Company and thus were not entitled to such
bonuses, and (b) based
on the employee performance review conducted at the end of September 2007,
management noted that among more than 350 employees who were still on the bonus
list, a number of employees did not qualify for the bonus of the full three
months of base salary. As a result of combining the aforementioned
factors, bonuses totaling $270 were over-accrued. Accordingly, the
over-provision of $270 was reversed in the first quarter of fiscal 2008 as a
result of the change in estimate. This change in estimate increased
the net income for fiscal 2008 by $270, or $0.08 per diluted share.
In
addition, during fiscal 2008, the Singapore operation reversed commission
expenses of $97. A portion of the commission payable by the Company is based on
the estimated profit margin of sales when sales are
recorded. Management reviews the commission liability periodically
with the appropriate personnel. When the actual profit margin is
lower than expected, the accrued commission liability should be reduced and the
commission expenses should be reversed accordingly. Based on
management review in fiscal 2008, it was determined that the actual profit
margin for some sales was less than expected due to an increase in unexpected
service expenses following the sales. Accordingly, the Company reversed $97 in
commissions. This change in estimate increased the net income for
fiscal 2008 by $97, or $0.03 per diluted share.
In the
third quarter of fiscal 2008, one of the Company’s major customers sent a notice
to the Company that, starting from April 1, 2008, their advanced burn-in testing
service contract with the Company would cease. After receiving such
notice, management performed an impairment test on the advanced burn-in testing
assets utilized in connection with that contract and decided to write down the
book value of these assets to zero. The Company recorded an
impairment loss of $220 on the advanced burn-in testing equipment, which will
not be recoverable.
During
fiscal 2007, management determined that the useful life of the fixed assets for
smart burn-in projects was shorter than originally expected. Revised
useful life of these assets resulted in an additional depreciation expense of
$224, or $0.07 per diluted share, in fiscal 2007. The additional depreciation
related to these fixed assets for fiscal year 2008 was $449, and these fixed
assets were fully depreciated as of June 30, 2008.
Revenue Recognition — Revenue derived from
testing services is recognized when testing services are rendered. Revenues
generated from sales of products in the manufacturing and distribution segments
are recognized when persuasive evidence of an arrangement exists, delivery of
the products has occurred, customer acceptance has been obtained (which means
the significant risks and rewards of ownership have been transferred to the
customer), the price is fixed or determinable and collectability is reasonably
assured. Certain products sold (in the manufacturing segment) require
installation and training to be performed.
Revenue
from product sales is also recorded in accordance with the provisions of
Emerging Issues Task Force (EITF) Statement 00-21 Revenue Arrangements with Multiple
Deliverables and Staff Accounting Bulletin (SAB) 104 Revenue Recognition in Financial
Statements which generally requires revenue earned on product sales
involving multiple-elements to be allocated to each element based on the
relative fair values of those elements. Accordingly, the Company
allocates revenue to each element in a multiple-element arrangement based on the
element’s respective fair value, with the fair value determined by the price
charged when that element is sold and specifically defined in a quotation or
contract. The Company allocates a portion of the invoice value to
products sold and the remaining portion of invoice value to installation work in
proportion to the fair value of products sold and installation work to be
performed. Training elements are valued based on hourly rates,
which the Company charges for these services when sold apart from product
sales. The fair value determination of products sold and the
installation and training work is also based on our specific historical
experience of the relative fair values of the elements if there is no easily
observable market price to be considered. In fiscal 2008 and 2007, the
installation revenues generated in connection with product sales were immaterial
and included in the product sales revenue line on the consolidated statements of
income. The Company estimates an allowance for sales returns based on historical
experience with product returns.
Accounts Receivable and Allowance
for Doubtful Accounts — During the normal course of business, the Company
extends unsecured credit to its customers. Typically, credit terms
require payment to be made between 30 to 60 days from the date of the
sale. We do not require collateral from our customers. The
Company maintains its cash accounts at credit worthy financial
institutions.
The
Company regularly evaluates and monitors the creditworthiness of each customer
on a case-by-case basis. The Company includes any account balances
that are determined to be uncollectible, along with a general reserve, in the
overall 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 management, the
Company believed that its allowance for doubtful accounts was adequate as of
June 30, 2008.
Warranty Costs — The Company provides for
the estimated costs that may be incurred under its warranty program at the time
the sale is recorded. The Company estimates 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.
Short Term Deposits — Short-term deposits consist
of bank balances and interest bearing deposits having maturity of 1 to 12
months. As of June 30, 2008, the
Company held approximately $1,277 of short-term deposits in the Company’s
55% owned Malaysian subsidiary, all of
which were denominated in the currency of Malaysia. The entire amount
is available for dividend distribution, which is subject to the sufficiency
requirement of retained earnings under Malaysia laws and
regulations. As of June 30, 2008, the
Company held approximately $6 of short-term deposits as reserved funds in
the Company’s 100% owned Trio Tech Thailand, which was denominated in the
currency of Thailand. This amount is not available for dividend
distribution according to Thailand regulations.
Inventories — Inventories
consisting principally of raw materials, works in progress, and finished goods
are stated at the lower of cost, using the first-in, first-out (FIFO) method, or
market value. The semiconductor industry is characterized by rapid
technological change, short-term customer commitments and rapid changes in
demand. Provisions for estimated excess and obsolete inventory are
based on our regular reviews of inventory quantities on hand and the latest
forecasts of product demand and production requirements from our
customers. Inventories are written down for not saleable, excess or
obsolete raw materials, works-in-process and finished goods by charging such
write-downs to cost of sales. In addition to write-downs based on newly
introduced parts, statistics and judgments are used for assessing provisions of
the remaining inventory based on salability and obsolescence.
Property, Plant and Equipment —
Property, plant and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation is provided for over the
estimated useful lives of the assets using the straight-line method.
Amortization of leasehold improvements is provided for over the lease terms or
the estimated useful lives of the assets, whichever is the shorter, using the
straight-line method.
Maintenance,
repairs and minor renewals are charged directly to expense as
incurred. Additions and improvements to property and equipment are
capitalized. When assets are disposed of, the related cost and
accumulated depreciation thereon are removed from the accounts and any resulting
gain or loss is included in the statement of operations.
Other Intangible Assets — In accordance with FASB No.
141 (Revised 2007), Business
Combinations, the Company identified a customer relationship as the only
intangible asset with a finite life of five years during the process of
acquiring the testing business in Malaysia in July 2005. The
estimated fair value of this intangible asset was approximately $482 and is
being amortized over a five-year period on a straight-line basis. No
impairment loss was recorded during fiscal 2008, 2007 and 2006.
Impairment of Long-Lived Assets —
The Company applies the provisions of Statement of Financial Accounting
Standard No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (“SFAS No. 144”), to property, plant
and equipment, and other intangible assets such as customer
relationships. SFAS No. 144 requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable through the
estimated undiscounted cash flows expected to result from the use and eventual
disposition of the assets. Whenever any such impairment exists, an
impairment loss will be recognized for the amount by which the carrying value
exceeds the fair value.
In fiscal
2008, the Company recorded an impairment loss of approximately $450 based on its
examination of future undiscounted cash flows, which were generated by the
subsidiaries where certain long-lived assets (certain fixed assets) were
used. Of such amount, an impairment loss of $5 was recorded in the
second quarter of fiscal year 2008, which related to the assets held for sale in
Malaysia that was sold in the fourth quarter of fiscal 2008, and impairment loss
of $316 was for certain advanced burn-in testing equipment located in the
Singapore operation utilized in connection with the contract that was
terminated, and also due to a decrease in our testing backlog and projected
future sales in our Singapore operation. An additional $72 of impairment
loss was for the burn-in board testing service in our Shanghai operation in
China due to the change in demand for certain burn-in testing services, which in
turn made certain of our existing burn-in facilities obsolete. A
further impairment loss of $57 was for building renovations for certain testing
projects due to a decrease in orders from the same major customer in our
Shanghai operation in China.
In fiscal
2007, the Company recorded an impairment loss of approximately $176 based on its
examination of future undiscounted cash flows, which were generated by the
subsidiaries where certain long-lived assets (certain fixed assets) were
used. Of such amount, there was
recorded an impairment loss of $174, mainly for burn-in equipment related
to Dynamic burn-in device memory (DRAM) services (pertaining to the Singapore
operation) due to changes in demand for certain burn-in services, which in turn
made certain of our existing burn-in facilities obsolete. The Company also recorded an impairment loss of $2 in
building renovations pertaining to the China operation in Suzhou. The
building renovation was impaired as we moved to a new office unit in order to
accommodate the needs of the testing operation.
In fiscal
2006, the Company recorded an impairment loss of approximately $61 based on its
examination of future undiscounted cash flows, which were generated by the
subsidiaries where certain long-lived assets (certain fixed assets) were
used. The impairment loss of $61 mainly provided for burn-in ovens
and leasehold improvements (pertaining to the Singapore operations) due to
changes in demand for certain burn-in services, which in turn made certain of
our existing burn-in facilities obsolete.
Leases — The Company
leased certain property, plant and equipment in the ordinary course of
business. The leases had varying terms. Some may have
included renewal and/or purchase options, escalation clauses, restrictions,
penalties or other obligations that the Company considered in determining
minimum lease payments. The leases were classified as either capital
leases or operating leases, as appropriate. The Company records monthly rent
expense equal to the total amount of the payments due in the reporting period
over the lease term in accordance with accounting principles accepted by the
United States of America. The difference between rent expense
recorded and the amount paid is credited or charged to deferred rent, which is
included in accrued expenses in the accompanying balance sheet.
Management
expects that in the normal course of business, operating leases will be renewed
or replaced by other leases. The future minimum operating lease
payments, for which the Company is contractually obligated as of June 30,
2008, are disclosed in the notes to the financial statements.
Assets
under capital leases are capitalized using interest rates appropriate at the
inception of each lease and are depreciated over either the estimated useful
life of the asset or the lease term on a straight-line basis. The
present value of the related lease payments is recorded as a contractual
obligation. The future minimum annual capital lease payments are
included in the total future contractual obligations as disclosed in the notes
to the financial statements.
Comprehensive Income (Loss)
— The Company adopted
Statement of Financial Accounting Standard No. 130, Reporting Comprehensive
Income, (“SFAS No. 130”) issued by the FASB. SFAS No. 130
establishes standards for reporting and presentation of comprehensive income
(loss) and its components in a full set of general-purpose financial statements.
The Company has chosen to report comprehensive income (loss) in the statements
of operations and comprehensive income (loss). Comprehensive income
(loss) is comprised of net income (loss) and all changes to shareholders’ equity
except those due to investments by owners and distributions to
owners.
Income Taxes — The Company
accounts for income taxes using the liability method in accordance with
Statement of Financial Accounting Standards No 109, Accounting for Income Taxes
(“SFAS No. 109”). SFAS No. 109 requires an entity to recognize
deferred tax liabilities and assets. Deferred taxes assets and
liabilities are recognized for the future tax consequence attributable to the
difference between the tax bases of assets and liabilities and their reported
amounts in the financial statements, which will result in taxable or deductible
amounts in future years. Further, the effects of enacted tax laws or
rate changes are included as part of deferred tax expenses or benefits in the
period that covers the enactment date. Management believed that it
was more likely than not that the future benefits from these timing differences
would not be realized. Accordingly, a full valuation allowance was
provided as of June 30, 2008 and 2007.
For U.S.
income tax purposes no provision has been made for U.S. taxes on undistributed
earnings of overseas subsidiaries with which the Company intends to continue to
reinvest. It is not practicable to estimate the amount of additional
tax that might be payable on the foreign earnings if they were remitted as
dividends or lent to the Company, or if the Company should sell its stock in the
subsidiary. However, the Company believes that the existing U.S.
foreign tax credits and net operating losses available would substantially
eliminate any additional tax effects.
Retained Earnings — It is the
intention of the Company to reinvest earnings of its foreign subsidiaries in the
operations of those subsidiaries. Accordingly, no provision has been
made for U.S. income and foreign withholding taxes that would result if such
earnings were repatriated. These taxes are undeterminable at this
time. The amount of earnings retained in subsidiaries
was
$15,439
and $15,363 at June 30, 2008 and 2007, respectively.
Research and Development Costs
— The Company incurred research and development costs of $55 in fiscal
2008, $69 in fiscal 2007, and $70 in fiscal 2006, which were charged to
operating expenses as incurred.
Stock Based Compensation —
Effective July 1, 2005, the Company adopted the fair value recognition
provisions under SFAS No. 123R Share Based Payments, using
the modified prospective application method. Under this transition method,
compensation cost recognized during the twelve months ended June 30, 2008
included the applicable amounts of: (a) compensation cost of all
share-based payments granted prior to, but not yet vested as of, July 1,
2005 (based on the grant-date fair value estimated in accordance with the
original provisions of SFAS No. 123) and (b) compensation cost for all
share-based payments granted subsequent to June 30, 2005.
Earnings per Share
— Computation of basic earnings per share is conducted by
dividing net income available to common shares (numerator) by the weighted
average number of common shares outstanding (denominator) during a reporting
period. Computation of diluted earnings per share gives effect to all
dilutive potential common shares outstanding during a reporting
period. In computing diluted earnings per share, the average market
price of common shares for a reporting period is used in determining the number
of shares assumed to be purchased from the exercise of stock
options. In fiscal year 2008, all the outstanding options were
excluded in the computation of diluted EPS since they were anti-dilutive. In
fiscal year 2007, no options were excluded in the determination of common shares
equivalents, because the average market price of common shares was greater than
the exercise price of the stock options. The resulting common shares
equivalents were approximately 10,000 shares. In fiscal year 2006, no
options were excluded in the determination of common shares equivalents, because
the average market price of common shares was greater than the exercise price of
the stock options. The resulted common shares equivalents were approximately
13,000 shares.
Fair Values of Financial Instruments
— Carrying value of trade accounts receivable, accounts payable, accrued
liabilities, and short-term deposits approximate their fair value due to their
short-term maturities. Carrying values of the Company’s lines of
credit and long-term debt are considered to approximate their fair value because
the interest rates associated with the lines of credit and long-term debt are
adjustable in accordance with market situations when the Company tries to borrow
funds with similar terms and remaining maturities.
Concentration of Credit Risk
— Financial
instruments that subject the Company to credit risk compose accounts
receivable. Concentration of credit risk with respect to accounts
receivable is generally diversified due to the number of entities composing the
Company’s customer base and their geographic dispersion. The Company
performs ongoing credit evaluations of its customers for potential credit
losses. The Company generally does not require
collateral. The Company believes that its credit policies do not
result in significant adverse risk and historically it has not experienced
significant credit related losses.
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. NEW
ACCOUNTING PRONOUNCEMENTS
In March
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. This statement identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with U.S. GAAP. This statement is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. The Company
does not expect the implementation of this statement to have an impact on its
results of operations or financial position.
In March
2008, The Financial Accounting Standards Board (“FASB”) issued FASB Statement
No. 161, Disclosures about
Derivative Instruments and Hedging Activities. The new standard is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. The Company
does not expect the implementation of this statement to have a material impact
on its results of operations or financial position.
In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141 (Revised 2007), Business
Combinations, or SFAS No. 141R. SFAS No. 141R will change the
accounting for business combinations in a number of areas including the
treatment of contingent considerations, pre-acquisition contingencies,
transaction costs, in-process research and development, and restructuring
costs. Under SFAS No. 141R, an acquiring entity will be required to
recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. SFAS No.
141R applies prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008. The Company believes the adoption of
SFAS 141R will have an impact on the accounting for future
acquisitions.
In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
160, Noncontrolling Interests
in Consolidated Financial Statements — An Amendment of ARB No. 51,
or SFAS No. 160. SFAS No. 160 establishes new accounting and
reporting standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal
years beginning on or after December 15, 2008. The Company is
currently evaluating the impact adoption may have on its financial condition or
results of operations.
In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, The Fair Value Option for
Financial Assets and Financial Liabilities, or SFAS No.
159. SFAS No. 159 permits, but does not require, entities to
choose to measure eligible items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007. Early adoption is permitted as of the beginning of a
fiscal year that begins on or before November 15, 2007, provided that a company
also elects to apply the provisions of SFAS No. 157, Fair Value
Measurements. Management is in the process of assessing if
this statement will have a material impact on the Company’s financial statements
once adopted.
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Value
Measurements, or SFAS No. 157. SFAS No. 157 clarifies the
definition of fair value, establishes a framework for measuring fair value and
expands the disclosures on fair value measurements. SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007. There
is partial delay in applying FAS 157 to non-financial assets and liabilities
measured on a non-recurring basis. The Company is currently evaluating the
impact adoption may have on its financial condition or results of
operations.
3. INVENTORIES
Inventories
consisted of the following:
|
June
30,
|
June
30,
|
|||||||
|
2008
|
2007
|
|||||||
|
Raw
materials
|
$ | 1,297 | $ | 1,295 | ||||
|
Works
in progress
|
1,797 | 1,210 | ||||||
|
Finished
goods
|
235 | 222 | ||||||
|
Provision
for obsolete inventory
|
(880 | ) | (781 | ) | ||||
| $ | 2,449 | $ | 1,946 | |||||
4. STOCK
OPTIONS
As of
June, 2008, the Company had outstanding stock options covering 12,550 shares of
Common Stock granted under the 1998 Employee Option Plan. This 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,
each of which was approved by the Company’s 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 in the form of incentive stock options and options not qualifying for
favorable tax treatment under Section 422 of the Internal Revenue Code of 1986,
as amended (“non-qualified options”). 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.
Effective
July 1, 2005, the Company adopted the fair value recognition provisions of
Statement of Financial Accounting Standard No. 123R, Share-Based Payment (SFAS No
123R), which requires the measurement and recognition of compensation expense
for all stock-based payment awards made to the Company’s employees and directors
including stock options and employee stock purchases. Stock-based
compensation expense for stock options and employee stock purchases granted
subsequent to July 1, 2005 was based on the grant-date fair value estimated in
accordance with the provisions of SFAS No. 123R. During the process
of estimating the fair value of the stock options granted and recognizing
share-based compensation, the following assumptions were adopted.
Assumptions
The
disclosure of the above fair value for these awards was estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions, assuming no expected dividends:
|
Years
Ended June 30,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Expected
volatility
|
110.91-117.70 | % | 73.22-98.51 | % | 49.51-51.53 | % | ||||||
|
Risk-free
interest rate
|
2.90 | % | 4.5 | % | 3.71 | % | ||||||
|
Expected
life (years)
|
2.00 | 2.00 | 2.00 | |||||||||
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 life of stock options is based on the
historical experience of similar stock options granted and
observed. 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 both incentive and non-qualified
stock options to its employees covering an aggregate 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 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 date of grant thereof, or (b) in accordance with a
schedule related to the date of the grant thereof, the date of first employment,
or such other date as may be set by the Board of
Directors. 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).
During
the second quarter of fiscal 2008, pursuant to the 2007 Employee Plan, stock
options covering an aggregate of 50,000 shares of Common Stock 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 $277
based on the fair value of $5.55 per share determined by using the Black Scholes
option pricing model.
The
Company recognized stock-based compensation expensed of approximately $135 in
the twelve months ended June 30, 2008 under the 2007 Employee
Plan. In the fourth quarter of 2008, 6,000 options were forfeited due
to employee turnover. The balance of unamortized stock-based
compensation of $118 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
June 30, 2008, there were outstanding stock options covering 11,000 shares of
Common Stock that were fully vested. The weighted-average exercise
price was $9.57, and the weighted average remaining contractual term was 4.43
years. The total intrinsic value of vested employees’ stock options
during the year ended June 30, 2008 was zero. A summary of option
activities under the 2007 Employee Plan during the year ended June 30, 2008 is
presented as follows:
|
Weighted-
Average Exercise
|
Weighted
- Average Remaining Contractual
|
Aggregate
Intrinsic
|
||||||||||||||
|
Options
|
Price
|
Term
(Years)
|
Value
|
|||||||||||||
|
|
|
|||||||||||||||
|
Outstanding
at July 1, 2007
|
-- | -- | ||||||||||||||
|
Granted
|
50,000 | $ | 9.57 | |||||||||||||
|
Exercised
|
-- | -- | ||||||||||||||
|
Forfeited
or expired
|
(6,000 | ) | $ | 9.57 | ||||||||||||
|
Outstanding
at June 30, 2008
|
44,000 | $ | 9.57 | 4.43 | -- | |||||||||||
|
Exercisable
at June 30, 2008
|
11,000 | $ | 9.57 | 4.43 | -- | |||||||||||
A summary
of the status of the Company’s employee stock options that were outstanding but
not vested during the year ended June 30, 2008 is presented below:
|
Weighted-Average
Grant-Date
|
||||||||
|
Options
|
Fair
Value
|
|||||||
|
Non-vested
at July 1, 2007
|
-- | -- | ||||||
|
Granted
|
50,000 | $ | 5.55 | |||||
|
Vested
|
(11,000 | ) | $ | 5.55 | ||||
|
Forfeited
|
(6,000 | ) | $ | 5.55 | ||||
|
Non-vested
at June 30, 2008
|
33,000 | $ | 5.55 | |||||
2007 Directors Equity
Incentive Plan
The 2007
Directors Equity Incentive Plan (the “2007 Directors Plan”), which is
shareholder-approved, permits the grant of awards to acquire up to 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 Company’s Common
Stock on the grant date. The options have five-year contractual terms
and are generally exercisable immediately as of the grant date.
During
the second quarter of 2008, pursuant to the 2007 Directors Plan, stock options
covering an aggregate of 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 60,000 shares of the Company’s Common
Stock issuable upon exercise of stock options granted was approximately $333
based on the fair value of $5.55 per share determined by the Black Scholes
option pricing model. There were no options exercised during the
fiscal year ended June 30, 2008. The Company recognized stock-based
compensation expense of $333 for the period ended June 30, 2008 under the 2007
Directors Plan.
A summary
of option activities under the 2007 Directors Plan during the nine month period
ended June 30, 2008 is presented as follow:
|
Weighted-
Average Exercise
|
Weighted
- Average Remaining Contractual
|
Aggregate
Intrinsic
|
||||||||||||||
|
Options
|
Price
|
Term
(Years)
|
Value
|
|||||||||||||
|
|
|
|||||||||||||||
|
Outstanding
at July 1, 2007
|
-- | |||||||||||||||
|
Granted
|
60,000 | $ | 9.57 | |||||||||||||
|
Exercised
|
-- | -- | ||||||||||||||
|
Forfeited
or expired
|
-- | -- | ||||||||||||||
|
Outstanding
at June 30, 2008
|
60,000 | $ | 9.57 | 4.43 | -- | |||||||||||
|
Exercisable
at June 30,
2008
|
60,000 | $ | 9.57 | 4.43 | -- | |||||||||||
1998 Stock Option
Plan
A summary
of option activities under the 1998 Plan during the fiscal year ended June 30,
2008 is presented as follow:
|
Weighted-
Average Exercise
|
Weighted
- Average Remaining Contractual
|
Aggregate
Intrinsic
|
||||||||||||||
|
Options
|
Price
|
Term (Years)
|
Value
|
|||||||||||||
|
Outstanding
at July 1, 2007
|
13,050 | $ | 3.03 | |||||||||||||
|
Granted
|
-- | -- | ||||||||||||||
|
Exercised
|
(500 | ) | -- | |||||||||||||
|
Forfeited
or expired
|
-- | -- | ||||||||||||||
|
Outstanding
at June 30, 2008
|
12,550 | $ | 3.03 | 0.24 | $ | 25,586 | ||||||||||
|
Exercisable
at June 30, 2008
|
12,550 | $ | 3.03 | 0.24 | $ | 25,586 | ||||||||||
The
intrinsic value of the option covering 500 shares of the Company’s Common Stock,
which was exercised in fiscal 2008, was $2. Cash received from options exercised
in the third quarter of 2008 was approximately $1. A summary of the status of
the non-vested stock options under the 1998 Plan during the fiscal year ended
June 30, 2008 is presented below.
|
Non-vested
Options
|
Shares
|
Weighted
Average Grant Date
Fair
Value
|
||||||
|
Non-vested
at July 1, 2007
|
1,375 | $ | 1.31 | |||||
|
Granted
|
-- | -- | ||||||
|
Vested
|
(1,375 | ) | $ | 1.31 | ||||
|
Forfeited
|
-- | -- | ||||||
|
Non-vested
at June 30, 2008
|
-- | -- | ||||||
5. EARNINGS PER
SHARE
The
Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings per Share
(“EPS”). 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.
In August
2007, the American Stock Exchange notified the Company that there had been an
overstatement of the Company’s Common Stock outstanding in the amount of 2,062
shares since fiscal year 1998. The overstatement resulted from an
error when the Company had incorrectly issued shares in that amount to an
employee. This employee returned the wrongly issued share certificate
and the matter remained pending until it was finally cleared in the first
quarter of fiscal 2008. At that time the shares were canceled, and
the number of outstanding shares was corrected.
Options
to purchase 116,550 shares of Common Stock at exercise prices ranging from $2.66
to $9.57 per share were outstanding as of June 30, 2008. All the outstanding
options were excluded in the computation of diluted EPS for fiscal 2008 since
they were anti-dilutive.
Options
to purchase 13,050 shares of Common Stock at exercise prices ranging from $2.66
to $4.40 per share were outstanding as of June 30, 2007. No options
were excluded in the determination of common shares equivalents, because the
average market price of common shares was greater than the exercise price of the
stock options. The resulting common shares equivalents were
approximately 10,000 shares and are presented in the following table
for earnings per share calculation purposes.
Stock
options to purchase 28,885 shares at exercise prices ranging from $2.66 to $4.40
per share were outstanding as of June 30, 2006. No options were
excluded in the determination of common shares equivalents, because the average
market price of common shares was greater than the exercise price of the stock
options. The resulted common shares equivalents were approximately
13,000 shares and were presented in the following table for earnings
per share calculation purposes. However, 13,288 options were excluded
in the computation of diluted EPS for fiscal 2006 since 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 years presented
herein:
|
Years
Ended June 30,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
(Loss)
Income from Continuing Operations
|
$ | (956 | ) | $ | 3,308 | $ | 597 | |||||
|
Income
from Discontinued Operations
|
$ | - | $ | - | $ | 8,459 | ||||||
|
Net
(loss) Income
|
$ | (956 | ) | $ | 3,308 | $ | 9,056 | |||||
|
Net
(loss) Income Attributable to Common Shares
|
$ | (956 | ) | $ | 3,308 | $ | 9,056 | |||||
|
Basic
Earnings Per Share
|
||||||||||||
|
Basic
earnings per share from continuing operations
|
(0.30 | ) | 1.03 | 0.19 | ||||||||
|
Basic
earnings per share from discontinued operations
|
- | - | 2.72 | |||||||||
|
Basic
earnings per share from Net Income
|
(0.30 | ) | 1.03 | 2.91 | ||||||||
|
Diluted
Earnings Per Share
|
||||||||||||
|
Diluted
earnings per share from continuing operations
|
(0.30 | ) | 1.02 | 0.19 | ||||||||
|
Diluted
earnings per share from discontinued operations
|
- | - | 2.71 | |||||||||
|
Diluted
earnings per share from net income
|
(0.30 | ) | 1.02 | 2.90 | ||||||||
|
Weighted
average number of common shares outstanding - basic
|
3,226 | 3,223 | 3,113 | |||||||||
|
Dilutive
effect of stock options
|
- | 10 | 13 | |||||||||
|
Number
of shares used to compute earnings per share - diluted
|
3,226 | 3,233 | 3,126 | |||||||||
6. PROPERTY,
PLANT AND EQUIPMENT
|
|
Property,
plant and equipment consisted of the
following:
|
|
Estimated
Useful
|
June
30,
|
|||||||||||
|
Life
in Years
|
2008
|
2007
|
||||||||||
|
Building
and improvements
|
3-20 | $ | 319 | $ | 378 | |||||||
|
Leasehold
improvements
|
3-27 | 3,689 | 3,765 | |||||||||
|
Machinery
and equipment
|
3-7 | 9,458 | 9,757 | |||||||||
|
Furniture
and fixtures
|
3-5 | 877 | 486 | |||||||||
|
Equipment
under capital leases
|
3-5 | 786 | 889 | |||||||||
| 15,130 | 15,275 | |||||||||||
|
Less:
|
||||||||||||
|
Accumulated
depreciation and amortization
|
6,686 | 7,543 | ||||||||||
|
Accumulated
amortization on equipment under capital leases
|
308 | 274 | ||||||||||
| $ | 8,136 | $ | 7,458 | |||||||||
Depreciation
and amortization expenses during fiscal 2008, 2007 and 2006 were $2,715 (of
which $106 related to intangible assets), $2,857 and $1,758,
respectively.
7. ACCOUNTS
RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts
receivable are customer obligations due under normal trade terms. The
Company sells its products and services to manufacturers in the semiconductor
industry. The Company performs continuing credit evaluations of our
customers’ financial conditions, and although we generally do not require
collateral, letters of credit may be required from our customers in certain
circumstances.
Senior
management reviews accounts receivable on a monthly basis to determine if any
receivables will potentially be uncollectible. We include any
accounts receivable balances that are determined to be uncollectible in our
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, we believe our
allowance for doubtful accounts for the twelve months ended June 30, 2008 and
2007 was adequate.
The
following table represents the changes in the allowance for doubtful
accounts:
|
Years
Ended June 30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Beginning
|
$ | 42 | $ | 225 | ||||
|
Additions
charged to cost and expenses
|
24 | 18 | ||||||
|
Recovered
|
(15 | ) | (159 | ) | ||||
|
Actual
write-offs
|
- | (42 | ) | |||||
|
Ending
|
$ | 51 | $ | 42 | ||||
8. ACCRUED
EXPENSES
|
|
Accrued
expenses consisted of the
following:
|
|
June
30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Payroll
and related costs
|
$ | 1,360 | $ | 2,517 | ||||
|
Commissions
|
96 | 143 | ||||||
|
Customer
deposits
|
108 | 69 | ||||||
|
Legal
and audit
|
182 | 172 | ||||||
|
Sales
tax
|
7 | 45 | ||||||
|
Utilities
|
198 | 406 | ||||||
|
Warranty
|
113 | 211 | ||||||
|
Accrued
purchase of materials and fixed assets
|
72 | 154 | ||||||
|
Provision
for re-installment cost
|
167 | 202 | ||||||
|
Director
board fees and bonuses
|
- | 36 | ||||||
|
Insurance
|
2 | - | ||||||
|
Withholding
tax
|
7 | 8 | ||||||
|
Other
professional fees
|
288 | - | ||||||
|
Production
expenses
|
90 | - | ||||||
|
Provision
for productivity funds
|
54 | - | ||||||
|
Other
accrued expenses
|
292 | 391 | ||||||
|
Total
|
$ | 3,036 | $ | 4,354 | ||||
9. 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 one-year warranty coverage for certain products manufactured by
the Company. The Company estimates the warranty costs based on the historical
rate of warranty returns. The Company periodically assesses the adequacy of its
recorded warranty liability and adjusts the amounts as necessary.
|
June
30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Beginning
|
$ | 211 | $ | 142 | ||||
|
Additions
charged to cost and expenses
|
- | 74 | ||||||
|
Reversal
|
(80 | ) | (3 | ) | ||||
|
Actual
usage
|
(18 | ) | (2 | ) | ||||
|
Ending
|
$ | 113 | $ | 211 | ||||
10. BANK
LOANS PAYABLE
|
|
Notes
payable consisted of the following:
|
|
June
30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Note
payable denominated in Singapore dollars to a commercial bank for
infrastructure investment, matured in July 2007, bearing interest at the
bank’s prime rate (4.25% at June 30, 2007) plus 1% per annum, with monthly
payments of principal and interest of $16 through July 2007,
collateralized by fixed deposits.
|
- | 16 | ||||||
|
Note
payable denominated in Singapore dollars to a commercial bank for
infrastructure investment, maturing in February 2008, bearing interest at
the bank’s prime rate (4.25% at June 30, 2007) plus 1% per annum, with
monthly payments of principal plus interest of $18 through February 2008,
collateralized by fixed deposits.
|
- | 150 | ||||||
|
Note
payable denominated in Thailand baht to a commercial bank for extension of
a building, maturing in December 2007, bearing interest at the bank’s
prime rate (7.00% at June 30, 2007) per annum, with monthly payments of
principal and interest of $6 through December 2007,
collateralized by land.
|
- | 39 | ||||||
|
Note
payable denominated in Singapore dollars to a commercial bank for
purchasing certain equipment, maturing in November 2008, bearing interest
at the bank's prime rate (2.4768% at June 30, 2007) plus 3.5% per annum,
with monthly payments of principle plus interest of $20 through November
2008, (paid off in full in August 2007) collateralized by fixed deposits
and existing corporate guarantee granted by the Company to one of the
subsidiaries.
|
- | 309 | ||||||
|
Note
payable denominated in Singapore dollars to a commercial bank for
infrastructure investment, maturing in April 2009, bearing interest at the
bank’s prime rate (4.25% at June 30, 2008 and June 30, 2007) plus 1% per
annum, with monthly payments of principal plus interest through April
2009, collateralized by fixed deposits.
|
54 | 161 | ||||||
|
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 (2.517% at June 30, 2008) plus 3.5% per
annum, with monthly payments of principal plus interest of $124 through
April 2009, collateralized by Corporate Guarantee.
|
2,969 | - | ||||||
| 3,023 | 675 | |||||||
|
Current
portion
|
(1,403 | ) | (536 | ) | ||||
|
Long
term portion of notes payable
|
$ | 1,620 | $ | 139 | ||||
Maturities
of notes payable as of June 30, 2008 were as follows:
|
Years
Ending June 30,
|
||||
|
2009
|
$ | 1,403 | ||
|
2010
|
1,349 | |||
|
Thereafter
|
271 | |||
| $ | 3,023 | |||
11. ADOPTION
OF FIN 48
The
Company adopted FASB Interpretation No. 48 Accounting for Uncertainty in Income
Taxes (FIN 48), on July 1, 2007. The Company recorded a charge to the
beginning balance of retained earnings of $256 as a result of implementing FIN
48. A reconciliation of the beginning and ending amounts of
unrecognized tax benefits is as follows:
|
(In
thousands)
|
||||
|
Balance
at adoption, July 1, 2007
|
(256 | ) | ||
|
Additions
based on current year tax positions
|
(74 | ) | ||
|
Additions
for prior year(s) tax positions
|
(32 | ) | ||
|
Reductions
for prior year(s) tax positions
|
- | |||
|
Settlements
|
- | |||
|
Expiration
of statute of limitations
|
- | |||
|
Balance
at June 30, 2008
|
(362 | ) | ||
The
Company accrues penalties and interest on 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 July 1, 2007 and June 30,
2008.
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 year 2002 to 2008 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.
12. INCOME
TAXES
The
Company generates income or loss before income taxes and minority interest in
the U.S., Singapore, Thailand and Malaysia, respectively, and files income tax
returns in these countries. The summarized income or loss before
income taxes and minority interest in the U.S. and foreign countries for fiscal
2008, 2007 and 2006 were as follows:
|
Years
Ended June 30,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
U.S.
|
$ | (243 | ) | $ | (128 | ) | $ | (902 | ) | |||
|
Foreign
|
(147 | ) | 4,364 | 1,845 | ||||||||
|
Total
|
$ | (390 | ) | $ | 4,236 | $ | 943 | |||||
On a
consolidated basis, the Company’s net income tax provisions (benefits) were as
follows:
|
Years
Ended June 30,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | - | $ | - | $ | 2 | ||||||
|
State
|
5 | (5 | ) | 4 | ||||||||
|
Foreign
|
74 | 783 | 256 | |||||||||
| 79 | 778 | 262 | ||||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
- | - | - | |||||||||
|
State
|
- | - | - | |||||||||
|
Foreign
|
137 | (13 | ) | (4 | ) | |||||||
| $ | 216 | $ | 765 | $ | 258 | |||||||
The
reconciliation between the U.S. federal tax rate and the effective income tax
rate was as follows:
|
Years
Ended June 30,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Statutory
federal tax rate
|
(34 | ) % | 34 | % | 34 | % | ||||||
|
State
taxes, net of federal benefit
|
(6 | ) | 6 | 6 | ||||||||
|
Foreign
tax rate reduction
|
69 | (23 | ) | (10 | ) | |||||||
|
Other
|
18 | 8 | 5 | |||||||||
|
Changes
in valuation allowance
|
8 | (7 | ) | (8 | ) | |||||||
|
Effective
rate
|
55 | % | 18 | % | 27 | % | ||||||
At June
30, 2008, the Company had net operating loss carry forwards of approximately
$209 and $ 1,598 for federal and state tax purposes, respectively, expiring
through 2028. The Company also had tax credit carry forwards of
approximately $726 for federal income tax purposes expiring through
2015. Management of the Company is uncertain whether it is more
likely than not that these future benefits will be
realized. Accordingly, a full valuation allowance has been
established.
The
components of deferred income tax assets (liabilities) were as
follows:
|
June
30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Net
operating losses and credits
|
$ | 1,004 | $ | 913 | ||||
|
Inventory
valuation
|
171 | 163 | ||||||
|
Depreciation
|
1 | 5 | ||||||
|
Provision
for bad debts
|
2 | 2 | ||||||
|
Accrued
vacation
|
12 | 13 | ||||||
|
Accrued
expenses
|
12 | 6 | ||||||
|
Other
|
24 | - | ||||||
|
Total
deferred tax assets
|
1,226 | 1,102 | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Depreciation
|
(534 | ) | (373 | ) | ||||
|
Other
|
- | - | ||||||
|
Total
deferred income tax liabilities
|
(534 | ) | (373 | ) | ||||
|
Subtotal
|
692 | 729 | ||||||
|
Valuation
allowance
|
(1,202 | ) | (1,102 | ) | ||||
|
Net
deferred tax liabilities
|
$ | (510 | ) | $ | (373 | ) | ||
The
valuation allowance increased by $101 and decreased by $323 in fiscal 2008 and
2007, respectively.
13. COMMITMENTS
AND CONTINGENCIES
The
Company leases certain of its facilities and equipment under long-term
agreements expiring at various dates through fiscal 2011 and thereafter. Certain
of these leases require the Company to pay real estate taxes and insurance and
provide for escalation of lease costs based on certain
indices. Future minimum payments under capital leases and
non-cancelable operating leases as of June 30, 2008 net rental income under
non-cancelable sub-leased properties were as follows:
|
Capital
|
Operating
|
Minimum
|
Net
Operating
|
|||||||||||||
|
Years
Ending June 30,
|
Leases
|
Leases
|
Rental
Income
|
Leases
|
||||||||||||
|
2009
|
$ | 49 | $ | 516 | $ | 125 | $ | 391 | ||||||||
|
2010
|
- | 152 | 61 | 91 | ||||||||||||
|
2011
|
- | 41 | - | 41 | ||||||||||||
|
2012
|
- | - | - | - | ||||||||||||
|
2013
|
- | - | - | - | ||||||||||||
|
Total
future minimum lease payments
|
49 | $ | 709 | $ | 186 | $ | 523 | |||||||||
|
Less
amount representing interest
|
(200 | ) | ||||||||||||||
|
Present
value of net minimum lease payments
|
249 | |||||||||||||||
|
Less
current portion of capital lease obligations
|
(106 | ) | ||||||||||||||
|
Long-term
obligations under capital leases
|
$ | 143 | ||||||||||||||
The
Company entered two sublease agreements with third parties to rent out the
properties in Malaysia in December 2007 and March 2008, respectively, which
expired in November 2008 and June 2010, respectively. Total rental
income from subleases amounted to $156 in fiscal 2008, $114 in fiscal 2007 and
$87 in fiscal 2006.
Total
rental expense on all operating leases, cancelable and non-cancelable, amounted
to $907 in fiscal 2008, $1,088 in fiscal 2007, and $866 in fiscal
2006.
The
Company is, from time to time, the subject of litigation claims and assessments
arising out of matters occurring in its normal business
operations. In the opinion of management, resolution of these matters
will not have a material adverse effect on the Company’s financial
statements.
14. TRANSACTIONS
IN SHAREHOLDERS’ EQUITY
Fiscal
2008
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 in the form of
incentive and non-qualified stock options. 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.
On
December 4, 2007, the Board of Directors granted options to acquire up to an
aggregate of 50,000 shares of the Company’s Common Stock pursuant to the 2007
Employee Stock Option Plan and options to acquire up to an aggregate of 60,000
shares of stock under the 2007 Directors Equity Inventive Plan, all with an
exercise price of $9.57 per share (equal to the market price at the grant
date). The options granted to directors vested in full on the grant
date. The options granted to the employee have a five-year
contractual life and vested 25% on the grant date and will vest as to an
additional 25% at each anniversary date. Under the Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 123R, Share-Based Payments, using
the modified prospective application method, the compensation cost recognized
was $468.
Fiscal
2007
The Company did not grant any stock options
during fiscal 2007. On December 2, 2005, the Board of Directors
terminated the 1998 Stock Option Plan and Directors’ Option Plan.
Fiscal
2006
On July
7, 2005, the Board of Directors’ granted options under the 1998 Plan, covering
30,000 shares of Common Stock to four directors under the Directors Plan, all
with an exercise price of $3.75 per share (equal to the market price at the
grant date). The options granted to directors vested in full on the
grant date. Under the Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payments, using
the modified prospective application method, the compensation cost recognized
was $34.
On
November 14, 2005, an option to purchase 750 shares of the Company’s Common
Stock was issued to a consultant in connection with his services rendered to the
Company. The stock option was not issued pursuant to the 1998 Plan or
the Directors’ Plan. The exercise price under the option was $2.66,
which was lower than the fair market value of the stock on the grant date of the
option and was exercisable immediately upon grant. The fair value of
750 shares of the Company’s Common Stock issuable upon exercise of stock options
granted was approximately $2 based on the fair value at $2.92 per share
determined by the Black Scholes option pricing model.
15. CONCENTRATION
OF CUSTOMERS
The
Company had three major customers that accounted for the following accounts
receivable and sales during the fiscal years ended:
|
Years
Ended June 30,
|
2008
|
2007
|
2006
|
|||||||||
|
Sales
|
||||||||||||
|
-
Customer A
|
42 | % | 60 | % | 50 | % | ||||||
|
-
Customer B
|
34 | % | 15 | % | 16 | % | ||||||
|
-
Customer C
|
4 | % | 2 | % | 5 | % | ||||||
|
Accounts
Receivable
|
||||||||||||
|
-
Customer A
|
17 | % | 47 | % | 66 | % | ||||||
|
-
Customer B
|
52 | % | 29 | % | 7 | % | ||||||
|
-
Customer C
|
9 | % | 4 | % | 4 | % | ||||||
Fiscal
2006
On
January 3, 2006, the Company acquired a
100% interest in Globetronics (Shanghai) Co., Ltd. pursuant to the
Definitive Agreement dated November 18, 2005. Globetronics (Shanghai)
Co., Ltd. (hereafter “Globetronics”) was a
China-based, wholly owned foreign investment enterprise (WOFIE) conducting
business in the burn-in testing service segment. The name of
Globetronics (Shanghai) Co., Ltd. was changed to Trio-Tech (Shanghai) Co., Ltd.
upon closing of the acquisition
transaction. The purpose of acquiring the burn-in testing
business was to enhance the Company’s future growth opportunities, expand the
Company’s present operations, and develop our market share in testing services
in China. Beginning on January 3, 2006, the operating results of this
subsidiary were included in the consolidated financial statements of the
Company. This acquisition transaction was not considered significant
to the Company.
Pursuant
to the Definitive Agreement, the purchase price was $153, which covered certain
fixed assets and testing services provided to the existing customers and covered
any other assets or liabilities of the acquired entity. In addition,
the Company is not responsible for any disclosed or undisclosed liabilities
incurred prior to the acquisition completion date. The Definitive
Agreement also included a management service agreement, in which the Company
appointed the Seller to provide accounting services to the acquired entity for
$37 during a three-month transitional period commencing on the acquisition
completion date.
In
accordance with the Statement of Financial Accounting Standard (SFAS) No. 141,
Business Combinations,
the Company allocated the purchase price to the tangible assets and identifiable
intangible assets acquired based on their estimated fair values. The
Company estimated that the book value of the fixed assets acquired approximated
the fair value of similar assets available on the market based on the
information management received. The Company attributed $133 to
various items of fixed assets acquired, $8 to other receivables and $12 to an
identifiable intangible customer relationship. The excess purchase price over
the fair value of tangible assets acquired was $12, which was attributed to the
customer relationship obtained along with the acquisition transaction based on
estimates and assumptions determined by management. The economic life of this
identified intangible asset was estimated to be about one year based on
management assumptions. Therefore, the value of $12 will be amortized
over one year on the straight-line method. No goodwill was
recognized. The following total presents the allocation of purchase
price (in thousands):
|
Purchase
price (paid in cash)
|
$ | 153504 | ||
|
Property,
plant and equipment
|
||||
|
Plant
and equipment
|
$ | 121 | ||
|
Office
equipment
|
6 | |||
|
Motor
vehicle
|
6 | |||
|
Subtotal
|
133 | |||
|
Other
receivables
|
8 | |||
|
Total
fair value of tangible assets acquired
|
$ | 141 | ||
|
Identifiable
intangible asset-customer relationship
|
12 | |||
|
Purchase
price
|
$ | 153 |
Pro
Forma Financial Information
The
following pro forma financial information is presented only for informational
purposes and is not necessarily indicative of the results of operations that
would have been achieved had the acquisition taken place on July 1, 2005 or
2004. The unaudited pro forma combined statements of operations
combine the historical results of the Company and the historical results of the
acquired entity for the periods described below.
|
UNAUDITED
PRO FORMA STATEMENT OF OPERATIONS
|
||||||||||||||||
|
FOR
THE YEAR ENDED JUNE 30, 2006
|
||||||||||||||||
|
Historical
Information of
|
(a)
|
|||||||||||||||
|
The
|
Acquired
|
Pro
Forma
|
Pro
Forma
|
|||||||||||||
|
Company
|
Operation
|
Adjustments
|
Results
|
|||||||||||||
|
Net
sales
|
$ | 29,099 | $ | 107 | $ | - | $ | 29,206 | ||||||||
|
Net
income
|
$ | 9,056 | $ | 1 | $ | (6 | ) | $ | 9,051 | |||||||
|
Basic
earnings per share
|
$ | 2.91 | $ | 2.91 | ||||||||||||
|
Diluted
earnings per share
|
$ | 2.90 | $ | 2.89 | ||||||||||||
|
Basic
weighted average common shares outstanding
|
3,115 | 3,115 | ||||||||||||||
|
Diluted
weighted average common shares outstanding
|
3,128 | 3,128 | ||||||||||||||
Note: The
currency exchange rate is based on the average exchange rate of the related
period.
|
(a)
|
Since
the Company acquired the testing operation in Shanghai on January 3, 2006,
the operation results of the testing operation in Shanghai have been
included in the consolidated statement of income since that
date. The purpose of pro forma is to demonstrate as if the
acquisition occurred on July 1, 2005. Accordingly, the pro
forma adjustment was based on the assumption that the fair value of the
identified customer relationship needed to be amortized over a one-year
period of time, assuming the acquisition took place on July 1,
2005.
|
|
UNAUDITED
PRO FORMA STATEMENT OF OPERATIONS
|
||||||||||||||||
|
FOR
THE YEAR ENDED JUNE 30, 2005
|
||||||||||||||||
|
Historical
Information of
|
(a)
|
|||||||||||||||
|
The
|
Acquired
|
Pro
Forma
|
Pro
Forma
|
|||||||||||||
|
Company
|
Operation
|
Adjustments
|
Results
|
|||||||||||||
|
Net
sales
|
$ | 25,061 | $ | 194 | $ | - | $ | 25,255 | ||||||||
|
Net
income (loss)
|
$ | 221 | $ | (17 | ) | $ | (12 | ) | $ | 192 | ||||||
|
Basic
earnings per share
|
$ | 0.07 | $ | 0.06 | ||||||||||||
|
Diluted
earnings per share
|
$ | 0.07 | $ | 0.06 | ||||||||||||
|
Basic
weighted average common shares outstanding
|
2,966 | 2,966 | ||||||||||||||
|
Diluted
weighted average common shares outstanding
|
3,031 | 3,031 | ||||||||||||||
Note: The
currency exchange rate is based on the average exchange rate of the related
period.
|
(b)
|
Since
the Company acquired the testing operation in Shanghai on January 3, 2006,
the operation results of the testing operation in Shanghai have been
included in the consolidated statement of income since that
date. The purpose of pro forma is to demonstrate as if the
acquisition occurred on July 1, 2004. Accordingly, the pro
forma adjustment was based on the assumption that the fair value of the
identified customer relationship needed to be amortized over a one-year
period of time, assuming the acquisition took place on July 1,
2004.
|
17. INVESTMENT
IN CHONGQING, CHINA
The
following table presents the Company’s investment in China in fiscal 2008. The
exchange rate is based on the exchange rate on June 30, 2008 published by the
Federal Reserve System.
|
Investment
Date
|
Investment
Amount
|
Investment
Amount
|
|||||||
|
(RMB)
|
(U.S.
Dollars)
|
||||||||
|
Investment
in property with Jiasheng
|
08/28/07
|
10,000 | 1,458 | ||||||
|
Investment
in property with Jiasheng
|
12/17/07
|
5,000 | 729 | ||||||
|
Purchase
on investment property
|
01/04/08
|
5,554 | 809 | ||||||
|
Return
on investment in property with Jiasheng
|
06/26/08
|
(5,000 | ) | (729 | ) | ||||
|
Total
investment in China
|
RMB
20,554
|
$ | 2,267 | ||||||
In June
2007, Trio-Tech International Pte., Ltd. established a subsidiary in Chongqing,
China. This newly established subsidiary, 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. In June 2007, Trio-Tech International Pte., Ltd. infused $2,600 to
Trio-Tech (Chongqing) Co., Ltd. to fulfill its capital injection
obligation. The source of the funds was from the proceeds from the
disposition of short-term deposits 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 hereafter) 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, the capital to be
invested by Trio-Tech (Chongqing) Co., Ltd. was RMB 10,000, equivalent to
approximately U.S. $1,458 based on the exchange rate on June 30, 2008 published
by the Federal Reserve System. On August 28, 2007, Trio-Tech
(Chongqing) Co., Ltd. transferred the required amount from its bank account into
a special bank account jointly monitored by both Trio-Tech (Chongqing) Co., Ltd.
and Jiasheng. The investment was accounted under the cost
method.
On
October 22, 2007, the parties received approval from the Chinese District Zoning
Regulation Bureau to increase the square meters of the buildings specified in
the original Memorandum Agreement dated August 27, 2007 by 9,885 square
meters. As a result, the construction costs of the proposed building
project also increased. On November 15, 2007, Trio-Tech (Chongqing)
Co., Ltd. entered into a Supplement Agreement to the Memorandum Agreement dated
August 27, 2007 with Jiasheng. The purpose of this Supplement
Agreement was to document another agreement reached by both parties regarding
the additional capital infusion to be committed by the respective parties in
order to finance the increase in construction costs. The Supplement Agreement
does not modify the terms and obligations of both parties specified in the
original Memorandum Agreement. Under the terms of the Supplement
Agreement, the Company agreed to invest an additional RMB 9,000, or
approximately U.S. $1,312 based on the exchange rate as of June 30, 2008
published by the Federal Reserve System. By infusing the additional
capital of RMB 9,000, the Company increased its equity ratio from 16% to 24% of
the total capital infused by both parties. However, the profit
sharing percentage remains at 20% as specified in the original Memorandum
Agreement because management of the Company believes that the return on the
total investment is still reasonable. On December 17, 2007, Trio-Tech
(Chongqing) Co., Ltd. received a list of additional costs incurred for this
project, which were RMB 4,000 less than the estimated cost of RMB
9,000. Accordingly, the Company only transferred RMB 5,000,
approximately U.S. $729, from its bank account into the special bank account
jointly monitored by both Trio-Tech (Chongqing) Co., Ltd. and
Jiasheng. After that extra infusion, the equity ratio owned by the
Company in that joint venture was 20%.
In the
fourth quarter of 2008, the investment of RMB 5,000, approximately $729, was
returned to the Company, which reduced the investment in this project to
$1,458. 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
accordance with APB 18, the
Equity Method of Accounting for Investments in Common Stock, with the
initial investment of 16% equity interest in the joint venture project, the
Company considered several factors including primary beneficiary, decision
making power and representation on the Board of Directors. As Jiasheng is
responsible for the daily business operations and development of that project
and the Company does not have decision making power and has played a passive
investor role since the inception of this joint venture, management believes
that the cost method of accounting is appropriate.
The
investment income of RMB 750 (or approximately $103) generated by Trio-Tech
(Chongqing) Co., Ltd. in fiscal 2008 was classified as investment income, which
was included in other income in the Consolidated Statements of Operations and
Comprehensive Income for the year ended June 30, 2008.
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 high office building located in
Chongqing, China. The total cash purchase price was RMB 5,554
(Chinese yuan), equivalent to approximately U.S. $809 based on the exchange rate
as of June 30, 2008 published by the Federal Reserve System. 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 rent agreement is five years with a monthly
rental income of RMB 39, or approximately $5 for the first three years, with an
increase of 8% in the fourth year and another 8% in the fifth year.
18 DIVIDEND
PAID TO SHAREHOLDERS
On
February 12, 2008, the Board of Directors of Registrant declared a cash dividend
of eleven cents ($0.11) per share payable to the shareholders of record on
February 25, 2008. The total number of shares issued and outstanding as of
February 25, 2008 was 3,226,430 and the total amount of the cash dividends paid
on March 25, 2008 was $354.
On
December 5, 2006, the Board of Directors of Registrant declared a cash dividend
of ten cents ($0.10) per share payable to the shareholders of record on December
15, 2006. The total number of shares issued and outstanding as of
December 15, 2006 was 3,225,242 and the total amount of the cash dividends paid on January 15,
2007 was $323.
On
December 2, 2005, the Board of Directors of Registrant declared a cash dividend
of fifty cents ($0.50) per share payable to the shareholders of record on
January 10, 2006. The total number of shares issued and outstanding
as of January 10, 2006 was 3,215,532 and the total amount of the cash dividends paid on January 25,
2006 was $1,608. The source of
cash was from the proceeds from deposition of the property located in Dublin,
Ireland.
19. OTHER
(EXPENSES) / INCOME
Other
(expenses) income consisted of the following:
|
Years
Ended June 30,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Interest
income
|
$ | 258 | $ | 149 | $ | 213 | ||||||
|
Rental
income
|
162 | 119 | 91 | |||||||||
|
Dividend
income
|
- | 7 | 4 | |||||||||
|
Exchange
(loss) gain
|
(561 | ) | 2 | (46 | ) | |||||||
|
Other
miscellaneous (loss) income
|
88 | (99 | ) | 336 | ||||||||
|
Total
|
$ | (53 | ) | $ | 178 | $ | 598 | |||||
20. DISCONTINUED
OPERATIONS
The
Company’s Ireland operation, as a component of the testing segment, suffered
continued operating losses in the three fiscal years prior to 2005 and the cash
flow was minimal for those three years. In August 2005, the Company
established a winding-down plan to close the testing operation in Dublin,
Ireland. This fact was initially disclosed in the Form 10-K for the
fiscal year ended June 30, 2005. Based on the restructuring plan and
in accordance with EITF 03-13, the Company presented the operation results from
Ireland as a discontinued operation, as the Company believed that no continued
cash flow would be generated by the disposed component (Ireland subsidiary) and
that the Company would have no significant continuing involvement in the
operation of the discontinued component. Management of the Company
initiated a plan to sell the property located in Dublin, Ireland in August 2005
and ceased the depreciation of the property in accordance with SFAS No.
144. In accordance with the restructuring plan, the Company
transferred the relevant machinery and equipment to Singapore and paid off the
outstanding balance on the equipment loans, collected accounts receivable and
paid-off accounts.
In late
September 2005, the Company entered into a Definite Sale and Purchase Agreement
to sell the Ireland building with a buyer through an auction process with a
selling price of €8.85 million (equivalent to $10,574 U.S.) and received a
deposit of €885 (equivalent to $1,057 U.S.). The sale was consummated
on November 1, 2005. In accordance with SFAS No. 144, the asset held
for sale was recorded at historical carrying value of the property of $261 as of
September 30, 2005, which was lower than its fair value, less the cost to
sell.
During
the process of winding down the Company’s operation in Dublin, Ireland, the
Company incurred general and administrative expenses of approximately $126 and
one-time employment termination benefits of approximately $330 (of which $107
were paid in the quarter ended September 30, 2005) for the nine months ended
March 31, 2006. In connection with the sale of the property located
in Dublin, Ireland, the Company also incurred the following direct expenses,
including professional fees of approximately $92, commissions and other selling
related expenses of approximately $40, and incurred a liability
estimated at $86 to refund the industrial development agency grant by the
Irish government agency. The estimated amount of $86 was subject to the
clearance of the Irish government agency. These expenses were
directly offset against the proceeds from selling property, as these expenses
were deemed as cost to sell. The tax on capital gain in Ireland from
the sale of property was approximately $1,955, which was deducted from the gross
proceeds from selling the property after the taxable gain was
determined. The Company considered the inter-period tax allocation
noting the impact of allocation was minimal, as there was a loss of $450 in the
Ireland entity before considering the gain from selling property and there were
significant net operating losses carried forward which could not be used to
offset the taxable capital gain. The gain realized through disposing
the property in November 2005 was presented as part of income from discontinued
operations in the statement of operations for the nine months ended March 31,
2006.
Under the
provision of SFAS No. 52, translation adjustments that result when a foreign
entity’s financial statements are translated into a parent company’s or an
investor’s reporting currency are separately reported in the parent company’s
other comprehensive income. Foreign currency translation adjustments
that are accumulated in other comprehensive income are reclassified to income
only when they are realized, if the investment in the foreign entity is sold or
is substantially or completely liquidated. Accordingly, the foreign
currency translation adjustments on the balance sheet of the Dublin, Ireland
subsidiary as of November 1, 2005 in the amount of approximately $769 were
reclassified into the process of disposing of the property presented
below.
There was
no income from discontinued operations for fiscal 2007 and
2008. Income from discontinued operations for fiscal 2006 was as
follows:
|
June
30,
|
||||
|
2006
|
||||
|
REVENUES
|
$ | 78 | ||
|
COST
OF SALES
|
63 | |||
|
GROSS
PROFIT
|
15 | |||
|
OPERATING
EXPENSES:
|
||||
|
General
and administrative
|
120 | |||
|
Employment
termination benefits
|
330 | |||
|
Gain
on sale of PP&E
|
- | |||
|
Total
|
450 | |||
| (435 | ) | |||
|
OTHER
INCOME (EXPENSE)
|
||||
|
Interest
expense
|
(3 | ) | ||
|
Other
(expense) income
|
(12 | ) | ||
|
Total
|
(15 | ) | ||
|
(Loss)
Income from discontinued operations before
|
(450 | ) | ||
|
income
tax
|
||||
|
Gain
on sale of property net of capital gain tax
|
8,909 | |||
|
Income
tax provision
|
- | |||
|
INCOME
FROM DISCONTINUED OPERATIONS
|
$ | 8,459 | ||
|
Breakdown
of gain on sale of property
|
||||
|
Gross
proceeds
|
10,574 | |||
|
Net
book value of the property
|
(261 | ) | ||
|
Grant
payable to Ireland government
|
(86 | ) | ||
|
Professional
fees
|
(92 | ) | ||
|
Commissions
and related selling expenses
|
(40 | ) | ||
| 10,095 | ||||
|
Capital
gain tax
|
(1,955 | ) | ||
| 8,140 | ||||
|
Foreign
currency translation adjustments
|
769 | |||
|
Gain
on sale of property
|
$ | 8,909 | ||
As the
Company does not provide a separate cash flow statement for the discontinued
operation, the details of cash flow from the discontinued operation in Ireland
in fiscal year 2006 are summarized as follows: the gross proceeds were
approximately $10,574, cost to sell was $218, and disbursement for capital gain
tax was $1,955, resulting in net proceeds of $8,401. The loss from
discontinued operations of $450 was deemed as cash outflow from operating
activities of the discontinued operation; the net proceeds provided by investing
activities were $8,401 from the sale of the property; the cash used in financing
activities was the disbursement to pay off the outstanding equipment loan of
$88. The Company believes there will not be any future significant
cash flows from the discontinued operation, as the outstanding accounts
receivable and accounts payable are immaterial to the Company’s financial
position and liquidity.
Before
moving out of Ireland, the Company wired the remaining cash of approximately
$7,800 to its Singapore subsidiary, where the main operations are
located. Subsequently, approximately $1,608 out of the $7,800 was
wired to the U.S. corporate office for distribution of dividends to
shareholders, which were paid on January 25, 2006. In addition, $705
of the $7,800 was used for bonuses to the directors and corporate officers paid
in December 2005 and January 2006.
|
21.
|
IMPAIRMENT
LOSS
|
The
Company applies the provisions of Statement of Financial Accounting Standard No.
144, Accounting for the
Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”) to property,
plant and equipment, and other intangible assets. SFAS No. 144 requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable through the estimated undiscounted cash flows expected to result
from the use and eventual disposition of the asset. Whenever any such
impairment exists, an impairment loss will be recognized for the amount by which
the carrying value exceeds the fair value.
In
fiscal, 2008, the Company recorded an impairment loss of $450, or $0.14 per
diluted share, based on its examination of future undiscounted cash flows. Of
such amount, an impairment loss of $5 was recorded in the second quarter of
fiscal year 2008, which related to the assets held for sale in Malaysia that
were sold in the fourth quarter of fiscal 2008, and an impairment loss of $316
was from certain advanced burn-in testing equipment located in
the Singapore operation utilized in connection with the contract that
was terminated, and also due to a decrease in our testing backlog and projected
future sales in our Singapore operation. An additional $72 of
impairment loss was for the burn-in board testing service in our Shanghai
operation in China due to the change in demand for certain burn-in testing
services, which in turn made certain of our existing burn-in facilities
obsolete. A further impairment loss of $57 was for building
renovations for certain testing projects due to a decrease in orders from the
same major customer in our Shanghai operation in China.
22. BUSINESS
SEGMENTS
The
Company operates principally in three industry segments: the testing service
industry (that performs structural and electronic tests of semiconductor
devices), the designing and manufacturing of equipment (that tests the
structural integrity of integrated circuits and other products), and the
distribution of various products from other manufacturers in Singapore and
Southeast Asia. The following net sales were based on customer
location rather than subsidiary location.
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 were 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 segment. Total inter-segment sales were $133 in fiscal 2008, $146
in fiscal 2007, and $117 in fiscal 2006. Corporate assets mainly
consisted of cash and prepaid expenses. Corporate expenses mainly
consisted of salaries, insurance, professional expenses and directors'
fees.
|
Business
Segment Information:
|
|||||||||||||||||||||
|
Years
|
Operating
|
Depr.
|
|||||||||||||||||||
|
Ended
|
Net
|
Income
|
Total
|
and
|
Capital
|
||||||||||||||||
|
Jun.
30
|
Sales
|
(Loss)
|
Assets
|
Amort.
|
Expenditures
|
||||||||||||||||
|
Manufacturing
|
2008
|
$ | 21,731 | $ | (46 | ) | $ | 3,721 | $ | 229 | $ | 345 | |||||||||
|
2007
|
24,056 | 965 | 3,447 | 198 | 295 | ||||||||||||||||
|
2006
|
12,444 | (78 | ) | 3,852 | 133 | 348 | |||||||||||||||
|
Testing
Services
|
2008
|
18,172 | 427 | 30,244 | 2,467 | 3,091 | |||||||||||||||
|
2007
|
20,883 | 3,330 | 28,581 | 2,643 | 2,568 | ||||||||||||||||
|
2006
|
14,455 | 1,454 | 24,351 | 1,610 | 1,329 | ||||||||||||||||
|
Distribution
|
2008
|
411 | (249 | ) | 417 | 19 | 15 | ||||||||||||||
|
2007
|
1,811 | (66 | ) | 634 | 16 | 1 | |||||||||||||||
|
2006
|
2,200 | (118 | ) | 772 | 15 | 1 | |||||||||||||||
|
Corporate
and
|
2008
|
- | (173 | ) | 377 | - | 2 | ||||||||||||||
|
Unallocated
|
2007
|
- | (32 | ) | 126 | - | - | ||||||||||||||
|
2006
|
- | (771 | ) | 409 | - | - | |||||||||||||||
|
Total
Company
|
2008
|
$ | 40,314 | $ | (41 | ) | $ | 34,759 | $ | 2,715 | $ | 3,453 | |||||||||
|
2007
|
$ | 46,750 | $ | 4,197 | $ | 32,788 | $ | 2,857 | $ | 2,864 | |||||||||||
|
2006
|
$ | 29,099 | $ | 487 | $ | 29,384 | $ | 1,758 | $ | 1,678 | |||||||||||
|
Years
Ended
|
|||||||||||||||||||
|
Jun.
30,
|
United
States
|
China
|
Singapore
|
Thailand
|
Malaysia
|
Other
Countries
|
Elimini.
and Other
|
Total
Company
|
|||||||||||
|
Net
sales to
|
2008
|
$
|
4,713
|
$
|
1,075
|
$
|
17,113
|
$
|
2,009
|
$
|
13,629
|
$
|
1,908
|
$
|
(133)
|
$
|
40,314
|
||
|
Customers
|
2007
|
6,368
|
$
|
4,837
|
25,624
|
2,413
|
$
|
6,894
|
$
|
760
|
$
|
(146)
|
$
|
46,750
|
|||||
|
2006
|
2,603
|
2,523
|
16,732
|
1,896
|
5,048
|
414
|
(117)
|
29,099
|
|||||||||||
|
Operating
|
2008
|
(51)
|
6
|
99
|
12
|
80
|
(14)
|
(173)
|
(41)
|
||||||||||
|
Income
(loss)
|
2007
|
456
|
458
|
2,416
|
228
|
652
|
19
|
(32)
|
4,197
|
||||||||||
|
2006
|
(60)
|
134
|
880
|
100
|
268
|
(64)
|
(771)
|
487
|
|||||||||||
|
Long-lived
|
2008
|
$
|
7
|
$
|
926
|
$
|
1,663
|
$
|
702
|
$
|
4,990
|
$
|
-
|
$
|
(40)
|
$
|
8,248
|
||
|
Assets
|
2007
|
$
|
7
|
$
|
862
|
$
|
3,121
|
$
|
859
|
$
|
2,861
|
$
|
-
|
$
|
(40)
|
$
|
7,670
|
||
|
2006
|
$
|
21
|
$
|
143
|
$
|
3,646
|
$
|
808
|
$
|
2,806
|
$
|
-
|
$
|
(40)
|
$
|
7,384
|
|||
23. QUARTERLY
FINANCIAL DATA (UNAUDITED)
The
Company’s summarized quarterly financial data are as follows:
|
Year
ended June 30, 2007
|
Sep.
30,
|
Dec.
31,
|
Mar.
31,
|
Jun.
30,
|
|||||||||||||
|
Revenues
|
$ | 9,876 | $ | 14,067 | $ | 13,613 | $ | 9,194 | |||||||||
|
Expenses
|
9,047 | 12,781 | 12,277 |
(a)
|
8,408 | ||||||||||||
|
Income
before income taxes and minority interest
|
829 | 1,286 | 1,336 | 786 | |||||||||||||
|
Income
taxes
|
26 | 453 | 239 | 48 | |||||||||||||
|
Income
before minority interest
|
803 | 833 | 1,097 | 738 | |||||||||||||
|
Minority
interest
|
(47 | ) | (34 | ) | (16 | ) | (66 | ) | |||||||||
|
Net
income from continuing operations
|
$ | 756 | $ | 799 | $ | 1,081 | $ | 672 | |||||||||
|
Net
income from discontinued operations
|
- | - | - | - | |||||||||||||
|
Net
income
|
$ | 756 | $ | 799 | $ | 1,081 | $ | 672 | |||||||||
|
Basic
earnings per share
|
|||||||||||||||||
|
Continuing
operations
|
$ | 0.23 | $ | 0.25 | $ | 0.34 | $ | 0.21 | |||||||||
|
Discontinued
operations
|
- | - | - | - | |||||||||||||
|
Net
income
|
$ | 0.23 | $ | 0.25 | $ | 0.34 | $ | 0.21 | |||||||||
|
Diluted
earnings per share
|
|||||||||||||||||
|
Continuing
operations
|
$ | 0.23 | $ | 0.25 | $ | 0.33 | $ | 0.21 | |||||||||
|
Discontinued
operations
|
- | - | - | - | |||||||||||||
|
Net
income
|
$ | 0.23 | $ | 0.25 | $ | 0.33 | $ | 0.21 | |||||||||
|
Year
ended June 30, 2008
|
Sep.
30,
|
Dec.
31,
|
Mar.
31,
|
Jun.
30.
|
|||||||||||||
|
Revenues
|
$ | 12,050 | $ | 12,871 | $ | 8,455 | $ | 6,938 | |||||||||
|
Expenses
|
10,931 | 12,508 | 9,895 | 7,370 | |||||||||||||
|
Income
before income taxes and minority interest
|
1,119 | 363 | (1,440 | ) | (432 | ) | |||||||||||
|
Income
taxes
|
172 | 142 | (46 | ) | (52 | ) | |||||||||||
|
Income
before minority interest
|
947 | 221 | (1,394 | ) | (380 | ) | |||||||||||
|
Minority
interest
|
(196 | ) | (56 | ) | (17 | ) | (81 | ) | |||||||||
|
Net
income (loss) from continuing operations
|
$ | 751 | $ | 165 | $ | (1,411 | ) | $ | (461 | ) | |||||||
|
Net
income from discontinued operations
|
- | - | - | - | |||||||||||||
|
Net
(loss) income
|
$ | 751 | $ | 165 | $ | (1,411 | ) | $ | (461 | ) | |||||||
|
Basic
earnings (loss) per share
|
|||||||||||||||||
|
Continuing
operations
|
$ | 0.23 | $ | 0.05 | $ | (0.44 | ) | $ | (0.14 | ) | |||||||
|
Discontinued
operations
|
- | - | - | - | |||||||||||||
|
Net
income (loss)
|
$ | 0.23 | $ | 0.05 | $ | (0.44 | ) | $ | (0.14 | ) | |||||||
|
Diluted
earnings (loss) per share
|
|||||||||||||||||
|
Continuing
operations
|
$ | 0.23 | $ | 0.05 | $ | (0.44 | ) | $ | (0.14 | ) | |||||||
|
Discontinued
operations
|
- | - | - | - | |||||||||||||
|
Net
income (loss)
|
$ | 0.23 | $ | 0.05 | $ | (0.44 | ) | $ | (0.14 | ) | |||||||
(a) This
includes an additional depreciation expense of $224 due to a change in estimated
life of certain fixed assets for smart burn-in projects.
24. LINE
OF CREDIT
Our
credit rating provides us with ready and adequate access to funds in global
markets. At June 30, 2008, we had available unused short-term lines
of credit totaling $13,014. We only pay banks fees to maintain the
line of credit in Malaysia. In fiscal year 2007, we paid $2 for the unused line
of credit in Malaysia. There is no fee for the unused line of credit in Bangkok
and Singapore.
|
Entity
with
|
Type
of
|
Interest
|
Expiration
|
Credit
|
Unused
|
||||||
|
Facility
|
Facility
|
Rate
|
Date
|
Limitation
|
Credit
|
||||||
|
Trio-Tech
Malaysia
|
Line
of Credit
|
Prime
rate (6.75% as of June 30, 2008) plus 2.5% per annum
|
May
2009
|
$ | 132 | $ | 132 | ||||
|
Trio-Tech
Bangkok
|
Line
of Credit
|
Prime
rate (6.5% as of June 30, 2008) plus 1% per annum
|
October
2008
|
139 | 139 | ||||||
|
Trio-Tech
Singapore
|
Line
of Credit
|
Prime
rate (5.75% as of June 30, 2008) plus 0.25% per annum
|
May
2009
|
12,743 | 12,743 | ||||||
|
Total
|
$ | 13,014 | $ | 13,014 | |||||||
25. SUBSEQUENT
EVENTS
On July 11, 2008, pursuant
to the 2007 Employee Equity 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 of $4.81 (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. The Company also granted 60,000 shares of
stock options pursuant to the 2007 Directors Plan at the same exercise
price. The fair market value of these stock options was estimated to be
approximately $320 based on the Black Scholes option pricing model.
On August
24, 2008, Trio Tech (Malaysia) Sdn Bhd entered into a banking facility with CIMB
Bank Berhad in Malaysia for a loan of RM 9,625, or approximately
$4,010. This non-revolving long-term loan has a term of fifteen years
from the first draw down. The agreement provides for an interest rate
at the bank’s prime rate plus 1.5% per annum or a fixed rate of 7.12% per annum
in the first five years and the bank’s prime rate plus 1.5% per annum
thereafter. The Company has not made a decision on these interest
options yet.