e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended December 31, 2007
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification Number) |
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16139 Wyandotte |
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Van Nuys, California
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91406 |
(Address of principle executive offices)
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(Zip Code) |
Registrant’s Telephone Number, Including Area Code: 818-787-7000
14731 Califa Street, Van Nuys, California 91411
(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report)
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. Yes
þ No o
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 the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting
company þ |
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(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Number of shares of common stock outstanding as of February 1, 2008 is 3,225,930
TRIO-TECH INTERNATIONAL
INDEX TO CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION
AND SIGNATURE
2
FORWARD-LOOKING STATEMENTS
The discussions of Trio-Tech International’s (the “Company”) business and activities set forth
in this Form 10-Q 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 statements 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. World-wide oil prices increased
caused companies to incur higher costs. We believe customers have tightened and will continue to
tighten their spending resulting in a decline in the demand for electronic products and
semiconductor equipment. We anticipate that this chain effect will hit the Company’s business
gradually in the future. See the discussions elsewhere in this Form 10-Q, including under the
heading “Certain Risks That May Affect Our Future Results,” 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.
3
PART I. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT NUMBER OF SHARES)
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December 31, |
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June 30, |
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2007 |
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2007 |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS: |
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Cash |
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$ |
5,316 |
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$ |
7,135 |
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Short-term deposits |
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8,890 |
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7,815 |
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Trade accounts receivable, less allowance for doubtful accounts of $42 and $42 |
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10,633 |
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7,410 |
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Other receivables |
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364 |
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245 |
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Inventories, less provision for obsolete inventory
of $816 and $786 |
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2,473 |
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1,946 |
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Prepaid expenses and other current assets |
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283 |
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122 |
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Asset held for sale |
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212 |
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— |
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Total current assets |
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28,171 |
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24,673 |
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INVESTMENT IN CHINA (Note 10) |
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2,057 |
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— |
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PROPERTY, PLANT AND EQUIPMENT, Net |
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7,667 |
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7,458 |
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OTHER INTANGIBLE ASSETS, Net |
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166 |
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212 |
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OTHER ASSETS |
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404 |
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445 |
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TOTAL ASSETS |
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$ |
38,465 |
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$ |
32,788 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
3,386 |
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$ |
2,265 |
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Accrued expenses |
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3,533 |
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4,354 |
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Advances from buyer |
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21 |
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— |
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Income taxes payable |
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836 |
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|
948 |
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Current portion of notes payable |
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1,428 |
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536 |
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Current portion of capital leases |
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112 |
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125 |
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Total current liabilities |
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9,316 |
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8,228 |
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NOTES PAYABLE, net of current portion |
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2,179 |
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139 |
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CAPITAL LEASES, net of current portion |
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118 |
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155 |
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DEFERRED TAX LIABILITIES |
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396 |
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373 |
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TOTAL LIABILITIES |
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$ |
12,009 |
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$ |
8,895 |
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MINORITY INTEREST |
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2,830 |
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2,459 |
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SHAREHOLDERS’ EQUITY: |
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Common stock; no par value, 15,000,000 shares authorized;
3,225,930 shares issued and outstanding as of December 31, 2007,
and at June 30, 2007 |
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10,361 |
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10,361 |
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Paid-in capital |
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818 |
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460 |
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Retained earnings |
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11,051 |
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10,135 |
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Accumulated other comprehensive income |
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1,396 |
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478 |
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Total shareholders’ equity |
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23,626 |
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21,434 |
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
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$ |
38,465 |
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$ |
32,788 |
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See accompanying notes to condensed consolidated financial statements.
4
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
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Six Months Ended |
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Three Months Ended |
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Dec. 31, |
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Dec. 31, |
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Dec. 31, |
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Dec. 31, |
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2007 |
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2006 |
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2007 |
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2006 |
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(Unaudited) |
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(Unaudited) |
|
(Unaudited) |
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(Unaudited) |
Revenue |
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Products |
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$ |
13,708 |
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$ |
14,772 |
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$ |
7,201 |
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$ |
8,794 |
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Services |
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11,213 |
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9,171 |
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5,670 |
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5,273 |
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24,921 |
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23,943 |
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12,871 |
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14,067 |
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Cost of Sales |
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Cost of products sold |
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11,468 |
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12,461 |
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5,939 |
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7,648 |
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Cost of services rendered |
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7,216 |
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5,658 |
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3,737 |
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3,069 |
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18,684 |
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18,119 |
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9,676 |
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10,717 |
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Gross Margin |
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6,237 |
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5,824 |
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3,195 |
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3,350 |
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Operating Expenses |
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General and administrative |
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4,069 |
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3,150 |
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2,424 |
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1,704 |
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Selling |
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277 |
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|
398 |
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|
153 |
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|
207 |
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Research and development |
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38 |
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34 |
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19 |
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17 |
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Impairment loss |
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16 |
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172 |
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16 |
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172 |
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|
|
|
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Total operating expenses |
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4,400 |
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|
|
3,754 |
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|
2,612 |
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|
2,100 |
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|
|
|
|
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|
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Income from Operations |
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1,837 |
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|
2,070 |
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|
583 |
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|
1,250 |
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Other Income (Expenses) |
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Interest expense |
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|
(164 |
) |
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|
(66 |
) |
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|
(79 |
) |
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|
(37 |
) |
Other (expense) income |
|
|
(191 |
) |
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|
110 |
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(141 |
) |
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73 |
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|
|
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|
|
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|
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Total other (expense) income |
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(355 |
) |
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44 |
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(220 |
) |
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36 |
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Income Before Income Taxes |
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1,482 |
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|
2,114 |
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|
363 |
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1,286 |
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Income Tax Provision |
|
|
314 |
|
|
|
478 |
|
|
|
142 |
|
|
|
453 |
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|
|
|
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|
|
|
|
|
|
|
|
|
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|
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|
|
|
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Income Before Minority Interest |
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1,168 |
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|
1,636 |
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|
|
221 |
|
|
|
833 |
|
Minority interest |
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(252 |
) |
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|
(81 |
) |
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|
(56 |
) |
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|
(34 |
) |
|
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|
|
|
|
|
|
|
|
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|
|
Net Income Attributed to Common Shares |
|
|
916 |
|
|
|
1,555 |
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|
|
165 |
|
|
|
799 |
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|
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EARNINGS PER SHARE: |
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Basic earnings per share |
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$ |
0.28 |
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$ |
0.48 |
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$ |
0.05 |
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$ |
0.25 |
|
Diluted earnings per share |
|
$ |
0.28 |
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|
$ |
0.48 |
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|
$ |
0.05 |
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|
$ |
0.25 |
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Weighted Average Shares Outstanding: |
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Basic |
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|
3,226 |
|
|
|
3,220 |
|
|
|
3,226 |
|
|
|
3,221 |
|
Diluted |
|
|
3,259 |
|
|
|
3,232 |
|
|
|
3,228 |
|
|
|
3,233 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
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Net income |
|
$ |
916 |
|
|
$ |
1,555 |
|
|
$ |
165 |
|
|
$ |
799 |
|
Foreign currency translation adjustment |
|
|
918 |
|
|
|
508 |
|
|
|
702 |
|
|
|
482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income |
|
$ |
1,834 |
|
|
$ |
2,063 |
|
|
$ |
867 |
|
|
$ |
1,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
5
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, UNAUDITED (IN THOUSANDS)
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|
|
Dec. 31, |
|
|
Dec. 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(unaudited) |
|
(unaudited) |
Cash Flow from Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
916 |
|
|
$ |
1,555 |
|
Adjustments to reconcile net income to
net cash flow (used in) provided by operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,528 |
|
|
|
1,124 |
|
Bad debts expense, net |
|
|
— |
|
|
|
119 |
|
Inventory provision |
|
|
35 |
|
|
|
144 |
|
Accrued interest expense net accrued interest income |
|
|
(53 |
) |
|
|
(45 |
) |
Impairment loss |
|
|
16 |
|
|
|
172 |
|
Stock compensation |
|
|
358 |
|
|
|
3 |
|
Gain on sale of property |
|
|
— |
|
|
|
(40 |
) |
Deferred tax provision |
|
|
23 |
|
|
|
21 |
|
Minority interest |
|
|
265 |
|
|
|
81 |
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
Accounts receivables |
|
|
(3,223 |
) |
|
|
(3,424 |
) |
Other receivables |
|
|
(119 |
) |
|
|
99 |
|
Other assets |
|
|
41 |
|
|
|
(146 |
) |
Inventories |
|
|
(562 |
) |
|
|
(2,334 |
) |
Prepaid expenses and other liabilities |
|
|
(161 |
) |
|
|
(50 |
) |
Accounts payable and accrued liabilities |
|
|
321 |
|
|
|
2,810 |
|
Income tax payable |
|
|
(112 |
) |
|
|
221 |
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(727 |
) |
|
|
310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Investing Activities |
|
|
|
|
|
|
|
|
Proceeds from short-term deposits matured |
|
|
21,443 |
|
|
|
7,063 |
|
Investments in short-term deposits |
|
|
(22,416 |
) |
|
|
(4,707 |
) |
Additions to property, plant and equipment |
|
|
(1,493 |
) |
|
|
(2,020 |
) |
Proceeds from sale of equipment |
|
|
— |
|
|
|
49 |
|
Investment in Chongqing, China |
|
|
(2,057 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(4,523 |
) |
|
|
385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities |
|
|
|
|
|
|
|
|
Net borrowings on lines of credit |
|
|
|
|
|
|
1,831 |
|
Repayment of bank loans and capital leases |
|
|
(854 |
) |
|
|
(463 |
) |
Proceeds from long-term bank loans and capital leases |
|
|
3,687 |
|
|
|
6 |
|
Proceeds from exercising stock options |
|
|
— |
|
|
|
16 |
|
Proceeds from 10% shareholder on the short swing profit of the Company stock |
|
|
— |
|
|
|
118 |
|
Dividends paid to minority interest |
|
|
— |
|
|
|
(42 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
2,833 |
|
|
|
1,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Changes in Exchange Rate |
|
|
598 |
|
|
|
309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH |
|
|
(1,819 |
) |
|
|
2,470 |
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
7,135 |
|
|
|
2,551 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
5,316 |
|
|
$ |
5,021 |
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Dec. 31, |
|
|
Dec. 31, |
|
|
|
2007 |
|
|
2006 |
|
Supplementary Information Of Cash Flows |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
117 |
|
|
$ |
66 |
|
Income taxes |
|
$ |
477 |
|
|
$ |
254 |
|
|
|
|
|
|
|
|
|
|
Non-Cash Transactions |
|
|
|
|
|
|
|
|
Capital lease of property, plant and equipment |
|
$ |
— |
|
|
$ |
30 |
|
Declaration of cash dividends to be paid |
|
$ |
— |
|
|
$ |
323 |
|
Assets held for sale |
|
$ |
(212 |
) |
|
$ |
— |
|
Carrying value of property reclassified from property, plant and equipment |
|
$ |
212 |
|
|
$ |
— |
|
See accompanying notes to condensed consolidated financial statements.
7
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS, EXCEPT PER
SHARE AND NUMBER OF SHARES)
1. |
|
ORGANIZATION AND BASIS OF PRESENTATION |
|
|
|
Trio-Tech International (“the Company” or “TTI” hereafter) was incorporated in fiscal 1958
under the laws of the State of California. TTI provides third-party semiconductor testing
and burn-in services primarily through its laboratories in Southeast Asia. In addition, TTI
operates testing facilities in the United States. The Company also designs, develops,
manufactures and markets a broad range of equipment and systems used in the manufacturing and
testing of semiconductor devices and electronic components. TTI conducts business in 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 |
|
|
|
|
(Operation ceased on November 1, 2005) |
|
100% |
|
Dublin, Ireland |
|
|
|
|
|
Trio-Tech International Pte. Ltd. |
|
100% |
|
Singapore |
Universal (Far East) Pte. Ltd. |
|
100% |
|
Singapore |
Trio-Tech Thailand |
|
100% |
|
Bangkok, Thailand |
Trio-Tech Bangkok |
|
100% |
|
Bangkok, Thailand |
Trio-Tech Malaysia |
|
55% |
|
Penang and Selangor, Malaysia |
Trio-Tech Kuala Lumpur — 100% owned by |
|
55% |
|
Selangor, Malaysia |
Trio-Tech Malaysia |
|
|
|
|
Prestal Enterprise Sdn. Bhd. |
|
76% |
|
Selangor, Malaysia |
Trio-Tech (SIP) Co. Ltd. |
|
100% |
|
Suzhou, China |
Trio-Tech (Shanghai) Co. Ltd. |
|
100% |
|
Shanghai, China |
Trio-Tech (Chongqing) Co. Ltd. |
|
100% |
|
Chongqing, China |
The accompanying unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. All significant inter-company
accounts and transactions have been eliminated in consolidation. The unaudited consolidated
financial statements are presented in U.S. dollars. The accompanying financial statements do
not include all the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for fair presentation have
been included. Operating results for the six months ended December 31, 2007 are not
necessarily indicative of the results that may be expected for the fiscal year ending June
30, 2008. For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company’s annual report for the fiscal year ended June 30,
2007.
Certain prior year balances on the Statement of Operations and Comprehensive Income have been
reclassified to conform to the current presentation. The reclassification had no impact on
net income for the six months ended December 31, 2006.
Change in Estimate: During the third quarter of fiscal 2007 ended March 30, 2007,
management determined that the useful life of 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 $233, or $0.07 per diluted share in the six months ended
December 31, 2007. These assets will be fully depreciated as of June 30, 2008.
In the first quarter of fiscal year 2008, our Singapore operation reversed approximately $255
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.
8
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 $255 were over-accrued.
Accordingly, the over-provision of $255 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 the
six months ended December 31, 2007 by $255, or $0.08 per diluted share.
In addition, during the six months ended December 31, 2007, the Singapore operation reversed
commission expenses of $82. 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 the one expected, the accrued commission liability should be reduced and
the commission expenses should be reversed accordingly. Based on management review in the
six months ended December 31, 2007, 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 $82 in commissions. This change in estimate
increased the net income for the six months ended December 31, 2007 by $82, or $0.03 per
diluted shares.
2. |
|
SUBSEQUENT EVENT |
|
|
|
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
RMB5,554 (Chinese yuan), equivalent to approximately US$762 based on the exchange rate on
December 31, 2007 published by the Federal Reserve System. Under the terms of the agreement,
the Company paid the purchase price in full on January 4, 2008. |
3. |
|
NEW ACCOUNTING PRONOUNCEMENTS |
|
|
|
In December 2007, the Financial Accounting Standards Board (“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
has not completed our evaluation of the potential impact, if any, of the adoption of SFAS No.
160 on its consolidated financial position, results of operations and cash flows. |
|
|
|
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. |
|
|
|
In June 2007, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 06-11,
“Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards” (EITF 06-11).
EITF 06-11 requires that tax benefits generated by dividends paid during the vesting period on certain equity-classified share-based
compensation awards be classified as additional paid-in capital and included in a pool of
excess tax benefits available to absorb tax deficiencies from share- |
9
|
|
based payment awards. EITF 06-11 will be effective on July 1, 2008 and is to be applied on a prospective basis.
The Company does not expect that the adoption of this EITF will have a material impact on its
consolidated results of operations or financial position. |
4. |
|
INVENTORIES |
|
|
|
Inventories consisted of the following: |
|
|
|
|
|
|
|
|
|
|
|
Dec. 31, |
|
|
|
|
|
|
2007 |
|
|
June 30, |
|
|
|
(Unaudited) |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Raw materials |
|
$ |
1,529 |
|
|
$ |
1,295 |
|
Work in progress |
|
|
1,501 |
|
|
|
1,210 |
|
Finished goods |
|
|
259 |
|
|
|
222 |
|
Less: provision for obsolete inventory |
|
|
(816 |
) |
|
|
(781 |
) |
|
|
|
|
|
|
|
|
|
$ |
2,473 |
|
|
$ |
1,946 |
|
|
|
|
|
|
|
|
5. |
|
STOCK OPTIONS |
|
|
|
As of December 31, 2007, the Company had 13,050 shares of stock options outstanding under the
1998 Employee Option Plan, which was terminated on December 2, 2005 by the Company’s Board of
Directors. |
|
|
|
On September 24, 2007, the Company’s Board of Directors unanimously adopted the 2007 Employee
Stock Option Plan and the 2007 Directors Equity Incentive Plan, which were approved by the
shareholders on December 3, 2007. The 2007 Employee Stock Option Plan provides for awards of
up to 300,000 shares of the Company’s Common Stock to employees, consultants and advisors.
The 2007 Directors Equity Incentive Plan provides for awards of up to 200,000 shares of the
Company’s Common Stock to the members of the Board of Directors in the forms 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 fair value for these awards was estimated using the Black-Scholes option pricing model
with the following weighted average assumptions, assuming no expected dividends:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Year Ended |
|
|
December 31, 2007 |
|
June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility |
|
|
110.91 |
% |
|
|
73.22-98.51 |
% |
Risk free interest rate |
|
|
3.1 |
% |
|
|
4.5 |
% |
Expected life (years) |
|
|
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 stock options to its employees of up to 300,000
shares of Common Stock. Under the 2007 Employee Plan, all options must be granted with an
exercise price of not less than “fair market value” as of the grant date and the options
10
granted should be exercisable within maximum ten years after the date of grant, or such
lesser period of time as is set forth in the stock option agreements. They shall be
exercisable (a) immediately as of the effective date of the stock option agreement granting
the Option, or (b) in accordance with a schedule related to the date of the grant of the
Option, the date of first employment, or such other date as may be set by the Compensation
Committee. Generally, options granted under the 2007 Employee Plan are exercisable within
five years after the date of grant, and vest over the period as follows: 25% vesting on the
grant date and the remaining balance vesting in equal installments on the next three
succeeding anniversaries of the grant date. The share-based compensation will be recognized
in terms of the grade method over the vesting period. Certain option awards provide for
accelerated vesting if there is a change in control (as defined in the 2007 Employee Plan).
During the second quarter of fiscal 2008, pursuant to the 2007 Employee Plan, 50,000 shares
of stock options were granted to certain officers and employees with an exercise price equal
to the fair market value of the Company’s Common Stock (as defined under the 2007 Employee
Plan in conformity with Regulation 409A of the Internal Revenue Code of 1986, as amended) at
the date of grant. These options vest over the period as follows: 25% vesting on the grant
date, and the balance vesting in equal installments on the next three succeeding
anniversaries of the grant date. The fair market value of 50,000 shares of the Company’s
Common Stock issuable upon exercise of stock options granted was approximately $277 based on
the fair value of $5.55 per share determined by using the Black Scholes option pricing model.
There were no options exercised during the six months ended December 31, 2007.
The Company recognized stock-based compensation expense of approximately $80 in the three
months ended December 31, 2007 under the 2007 Employee Plan. Unamortized stock-based
compensation of $197 based on fair value on the grant date related to options granted under
the 2007 Employee Plan is expected to be recognized over a period of three years.
As of December 31, 2007, there were 12,500 shares of vested employees’ stock options. The
weighted-average exercise price was $9.57, and the weighted average remaining contractual
term was 4.93 years. The total intrinsic value of vested employees’ stock options during the
six months ended December 31, 2007 was zero. A summary of option activities under the 2007
Employee Plan during the six months of fiscal 2008 ended December 31, 2007 is presented as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Options |
|
|
Price |
|
|
Term (Years) |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 1, 2007 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
50,000 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
50,000 |
|
|
$ |
9.57 |
|
|
|
4.93 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007 |
|
|
12,500 |
|
|
$ |
9.57 |
|
|
|
4.93 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the status of the Company’s non-vested employees’ stock options during the six
month period ended December 31, 2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Grant-Date |
|
|
|
Options |
|
|
Fair Value |
|
Non-vested at July 1, 2007 |
|
|
— |
|
|
|
— |
|
Granted |
|
|
50,000 |
|
|
$ |
5.55 |
|
Vested |
|
|
(12,500 |
) |
|
$ |
5.55 |
|
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
Non-vested at December 31, 2007 |
|
|
37,500 |
|
|
$ |
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 200,000 shares of Common Stock to its duly elected
non-employee directors in forms of non-qualified options and restricted stock. The exercise
price of the non-qualified options is 100% of the fair market value of the underlying shares
on the grant date. The options have five-year contractual terms and are generally
exercisable immediately as of the grant date.
11
During the second quarter of 2007, pursuant to the 2007 Directors Plan, 50,000 shares of
stock options 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 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 the Black Scholes option pricing model. There were no options exercised during
the six month period ended December 31, 2007. The Company recognized stock-based
compensation expense of $277 in the three months ended December 31, 2007 under the 2007
Directors Plan.
A summary of option activities under the 2007 Directors Plan during the six month period
ended December 31, 2007 is presented as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
Remaining |
|
|
Aggregate
|
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Options |
|
|
Price |
|
|
Term (Years) |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 1, 2007 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
50,000 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
50,000 |
|
|
$ |
9.57 |
|
|
|
4.93 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007 |
|
|
50,000 |
|
|
$ |
9.57 |
|
|
|
4.93 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998 Stock Option Plan
A summary of option activities under the 1998 Plan during the six month period ended December
31, 2007 is presented as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Options |
|
|
Price |
|
|
Term (Years) |
|
|
Value |
|
|
Outstanding at July 1, 2007 |
|
|
13,050 |
|
|
$ |
3.03 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
13,050 |
|
|
$ |
3.03 |
|
|
|
0.74 |
|
|
$ |
80,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007 |
|
|
13,050 |
|
|
$ |
3.03 |
|
|
|
0.74 |
|
|
$ |
80,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the status of the non-vested stock options under the 1998 Plan during the six
month period ended December 31, 2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Grant Date |
Non-vested Options |
|
Shares |
|
Fair Value |
|
Non-vested at July 1, 2007 |
|
|
1,375 |
|
|
$ |
1.31 |
|
Granted |
|
|
— |
|
|
|
— |
|
Vested |
|
|
(1,375 |
) |
|
$ |
1.31 |
|
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
|
Non-vested at December 31, 2007 |
|
|
— |
|
|
|
— |
|
|
|
|
12
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 113,050 shares of Common Stock at exercise prices ranging from $2.66 to
$9.57 per share were outstanding as of December 31, 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 33,000 shares and are presented in the following table for
earnings per share calculation purposes.
Options to purchase 15,800 shares of Common Stock at exercise prices ranging from $2.66 to
$4.40 per share were outstanding as of December 31, 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 resulting common shares
equivalents were approximately 12,000 shares and are presented in the following table for
earnings per share calculation purposes.
The following table is a reconciliation of the weighted average shares used in the
computation of basic and diluted EPS for the years presented herein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Three Months Ended |
|
|
|
Dec. 31, |
|
|
Dec. 31, |
|
|
Dec. 31, |
|
|
Dec. 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shares |
|
$ |
916 |
|
|
$ |
1,555 |
|
|
$ |
165 |
|
|
$ |
799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share |
|
$ |
0.28 |
|
|
$ |
0.48 |
|
|
$ |
0.05 |
|
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share |
|
$ |
0.28 |
|
|
$ |
0.48 |
|
|
$ |
0.05 |
|
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding — basic |
|
|
3,226 |
|
|
|
3,221 |
|
|
|
3,226 |
|
|
|
3,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options |
|
|
33 |
|
|
|
12 |
|
|
|
2 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used to compute earnings per share — diluted |
|
|
3,259 |
|
|
|
3,233 |
|
|
|
3,228 |
|
|
|
3,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. |
|
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS |
Accounts receivable are customer obligations due under normal trade terms. The Company sells
products and services to manufacturers in the semiconductor industry. The Company performs
continuing credit evaluations of our customers’ financial conditions, although the Company
generally does not require collateral, letters of credit may be required from our customers
in certain circumstances.
Senior management of the Company reviews accounts receivable on a monthly basis to determine
if any receivables will potentially be uncollectible. The Company includes any accounts
receivable balances that are determined to be uncollectible in 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, the Company believes that its
allowance for doubtful accounts for the six months ended December 31, 2007 and the twelve
months ended June 30, 2007 was adequate.
13
The following table represents the changes in the allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
Dec. 31, |
|
|
|
|
|
|
2007 |
|
|
June 30, |
|
|
|
(Unaudited) |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Beginning |
|
$ |
42 |
|
|
$ |
225 |
|
|
|
|
|
|
|
|
|
|
Additions charged to expenses |
|
|
15 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
Recovered |
|
|
(15 |
) |
|
|
(159 |
) |
Actual write-offs |
|
|
— |
|
|
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending |
|
$ |
42 |
|
|
$ |
42 |
|
|
|
|
|
|
|
|
The Company provides for the estimated costs that may be incurred under its warranty program
at the time the sale is recorded. The Company provides warranty for products manufactured in
the term of one year. The Company estimates the warranty costs based on the historical rates
of warranty returns. The Company periodically assesses the adequacy of its recorded warranty
liability and adjusts the amounts as necessary.
|
|
|
|
|
|
|
|
|
|
|
Dec. 31, |
|
|
|
|
|
|
2007 |
|
|
June 30, |
|
|
|
(Unaudited) |
|
|
2007 |
|
|
Beginning |
|
$ |
211 |
|
|
$ |
142 |
|
Additional accruals |
|
|
— |
|
|
|
74 |
|
Warranty expenses incurred |
|
|
(14 |
) |
|
|
(3 |
) |
Reverse |
|
|
(7 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
Ending |
|
$ |
190 |
|
|
$ |
211 |
|
|
|
|
|
|
|
|
In April 2007, Trio-Tech International Pte. Ltd in Singapore entered a new loan agreement
with a local bank in Singapore. The term loan facility was SGD 5,500, or approximately
US$3,687, with a fixed interest rate of 3% plus the Market Reference Rate based on the
inter-bank offered rate. The loan has a term of three years from the date of draw down. On
August 1, 2007, the Company began to draw down the money on this loan. The loan is due with
35 monthly principle payments of SGD153 (US$107) with a final principle payment due on August
1, 2010 of SGD145 (US$101). The payment schedule of this loan for the next three years is
presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
Year 2007 |
|
|
Calendar Year 2008 |
|
|
Calendar Year 2009 |
|
|
Thereafter |
|
|
Total |
|
|
Fair Value |
|
Loan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominated in
Singapore dollars;
interest is at the
bank’s prime rate
(2.51% at December
31, 2007) plus 3.0%
per annum |
|
$ |
1,329 |
|
|
$ |
1,279 |
|
|
$ |
846 |
|
|
$ |
— |
|
|
$ |
3,454 |
|
|
$ |
3,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company adopted the provisions of FIN 48 on July 1, 2007 and has had no material
adjustments to its liabilities for unrecognized income tax benefits since its adoption. The
Company has not included any uncertain tax positions as defined by FIN 48 in its currently
filed federal or state income tax returns. As of June 30, 2007, and the adoption date, the
Company had $256 of income tax liability related to the allocation of corporate management
expenses to its Singapore operations. The Company has not recognized any income tax benefit
for this position during the current quarter in accordance with the provisions of FIN 48.
14
11. |
|
INVESTMENT IN CHONGQING, CHINA |
|
|
|
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 RMB20,000 (Chinese yuan), or equivalent to approximately US$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 of disposing 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 RMB10,000, equivalent to
approximately $1,371 based on the exchange rate on December 31, 2007 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 cost method as the
Company accounted for less than 20% equity of this joint venture. |
|
|
|
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 were 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 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 RMB9,000, or approximately
US$1,234 based on the exchange rate as of December 31, 2007 published by the Federal Reserve
Statistical Release. By infusing the additional capital of RMB9,000, 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 RMB4,000 less than the estimated costs
of RMB9,000. Accordingly, the Company only transferred RMB5,000, approximately $686, 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%. As Jiasheng is responsible for the daily business
operations and development of that project and the Company has been a passive investor role
since the inception of this joint venture, the cost method of accounting was still
applicable. There was no operating activity in Trio-Tech (Chongqing) Co., Ltd in the six
months ended December 31, 2007, and there was no income generated from the entity during this
period. |
|
12. |
|
ASSETS HELD FOR SALE |
|
|
|
In the first quarter of fiscal 2008, the Company initiated a plan to sell the property
located in Malaysia and ceased the depreciation of that property in accordance with SFAS No.
144. The book value of this asset was $217 at December 31, 2007. In late December 2007, the
Company entered into a definite sale and purchase agreement with a buyer with a selling price
of RM700 (Malaysia ringgit), equivalent to approximately to US$212, and received a deposit of
RM70, equivalent to approximately US$21, based on the exchange rate as of December 31, 2007
published by the Federal Reserve Statistical Release. It is anticipated that the sale will
be consummated in the third quarter of fiscal 2008. Accordingly, the Company believes that
the assets held for sale should be presented as part of current assets. In accordance with
SFAS No 144, the asset held for sale was recorded at the lower of fair value less cost to
sell of $212. Impairment loss of $5 was recorded for the six months ended December 31, 2007. |
|
13. |
|
BUSINESS SEGMENTS |
|
|
|
The Company operates principally in three industry segments; the testing service industry
(which performs structural and electronic tests of semiconductor devices), the designing and
manufacturing of equipment (which equipment tests the structural integrity of integrated
circuits and other products) and 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 allocation of the cost of equipment, the current year investment in new equipment and
depreciation expense have been made based on the primary purpose for which the equipment was
acquired. |
15
|
|
All inter-segment sales were sales from the manufacturing segment to the testing and
distribution segments. Total inter-segment sales were $92 and $61 for the six months ended
December 31, 2007 and 2006, respectively. Corporate assets mainly consisted of cash and
prepaid expenses. Corporate expenses mainly consisted of salaries, insurance, professional
expenses and directors’ fees. |
The following segment information is unaudited:
Business Segment Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
|
|
|
Operating |
|
|
|
|
|
Depr. |
|
|
|
|
Ended |
|
Net |
|
Income |
|
Total |
|
and |
|
Capital |
|
|
Dec. 31 |
|
Sales |
|
(loss) |
|
Assets |
|
Amort. |
|
Expenditures |
Manufacturing |
|
|
2007 |
|
|
$ |
7,085 |
|
|
$ |
466 |
|
|
$ |
4,086 |
|
|
$ |
67 |
|
|
$ |
182 |
|
|
|
|
2006 |
|
|
$ |
8,196 |
|
|
$ |
250 |
|
|
$ |
3,698 |
|
|
$ |
52 |
|
|
$ |
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Testing Services |
|
|
2007 |
|
|
|
5,670 |
|
|
|
645 |
|
|
|
33,445 |
|
|
|
664 |
|
|
|
757 |
|
|
|
|
2006 |
|
|
|
5,273 |
|
|
|
942 |
|
|
|
31,101 |
|
|
|
610 |
|
|
|
1,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution |
|
|
2007 |
|
|
|
116 |
|
|
|
(61 |
) |
|
|
566 |
|
|
|
(8 |
) |
|
|
9 |
|
|
|
|
2006 |
|
|
|
598 |
|
|
|
28 |
|
|
|
811 |
|
|
|
4 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and |
|
|
2007 |
|
|
|
— |
|
|
|
(467 |
) |
|
|
368 |
|
|
|
— |
|
|
|
— |
|
Unallocated |
|
|
2006 |
|
|
|
— |
|
|
|
30 |
|
|
|
562 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company |
|
|
2007 |
|
|
$ |
12,871 |
|
|
$ |
583 |
|
|
$ |
38,465 |
|
|
$ |
723 |
|
|
$ |
948 |
|
|
|
|
2006 |
|
|
$ |
14,067 |
|
|
$ |
1,250 |
|
|
$ |
36,172 |
|
|
$ |
666 |
|
|
$ |
1,745 |
|
Business Segment Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months |
|
|
|
|
|
Operating |
|
|
|
|
|
Depr. |
|
|
|
|
Ended |
|
Net |
|
Income |
|
Total |
|
and |
|
Capital |
|
|
Dec. 31 |
|
Sales |
|
(loss) |
|
Assets |
|
Amort. |
|
Expenditures |
Manufacturing |
|
|
2007 |
|
|
$ |
13,481 |
|
|
$ |
792 |
|
|
$ |
4,086 |
|
|
$ |
107 |
|
|
$ |
215 |
|
|
|
|
2006 |
|
|
$ |
13,679 |
|
|
$ |
690 |
|
|
$ |
3,698 |
|
|
$ |
94 |
|
|
$ |
148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Testing Services |
|
|
2007 |
|
|
|
11,213 |
|
|
|
1,663 |
|
|
|
33,445 |
|
|
|
1,412 |
|
|
|
1,267 |
|
|
|
|
2006 |
|
|
|
9,171 |
|
|
|
1,344 |
|
|
|
31,101 |
|
|
|
1,022 |
|
|
|
1,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution |
|
|
2007 |
|
|
|
227 |
|
|
|
(83 |
) |
|
|
566 |
|
|
|
9 |
|
|
|
9 |
|
|
|
|
2006 |
|
|
|
1,093 |
|
|
|
(9 |
) |
|
|
811 |
|
|
|
8 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and |
|
|
2007 |
|
|
|
— |
|
|
|
(535 |
) |
|
|
368 |
|
|
|
— |
|
|
|
2 |
|
Unallocated |
|
|
2006 |
|
|
|
— |
|
|
|
45 |
|
|
|
562 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company |
|
|
2007 |
|
|
$ |
24,921 |
|
|
$ |
1,837 |
|
|
$ |
38,465 |
|
|
$ |
1,528 |
|
|
$ |
1,493 |
|
|
|
|
2006 |
|
|
$ |
23,943 |
|
|
$ |
2,070 |
|
|
$ |
36,172 |
|
|
$ |
1,124 |
|
|
$ |
2,050 |
|
16
Geographic Area Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimin- |
|
|
|
|
Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ations |
|
|
|
|
Ended |
|
United |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
Total |
|
|
Dec. 31 |
|
States |
|
China |
|
Countries |
|
Singapore |
|
Thailand |
|
Malaysia |
|
Other |
|
Company |
Net sales to |
|
|
2007 |
|
|
$ |
1,584 |
|
|
$ |
553 |
|
|
$ |
529 |
|
|
$ |
7,140 |
|
|
$ |
559 |
|
|
$ |
2,539 |
|
|
$ |
(33 |
) |
|
$ |
12,871 |
|
customers |
|
|
2006 |
|
|
$ |
3,486 |
|
|
$ |
2,008 |
|
|
$ |
43 |
|
|
$ |
6,313 |
|
|
$ |
634 |
|
|
$ |
1,636 |
|
|
$ |
(53 |
) |
|
$ |
14,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
2007 |
|
|
|
102 |
|
|
|
45 |
|
|
|
37 |
|
|
|
579 |
|
|
|
45 |
|
|
|
242 |
|
|
|
(467 |
) |
|
|
583 |
|
Income |
|
|
2006 |
|
|
|
277 |
|
|
|
178 |
|
|
|
4 |
|
|
|
560 |
|
|
|
56 |
|
|
|
145 |
|
|
|
30 |
|
|
|
1,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived |
|
|
2007 |
|
|
|
4 |
|
|
|
1,019 |
|
|
|
— |
|
|
|
2,456 |
|
|
|
858 |
|
|
|
3,536 |
|
|
|
(40 |
) |
|
|
7,833 |
|
Assets |
|
|
2006 |
|
|
|
14 |
|
|
|
903 |
|
|
|
— |
|
|
|
4,082 |
|
|
|
774 |
|
|
|
2,688 |
|
|
|
(40 |
) |
|
|
8,421 |
|
Geographic Area Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimin- |
|
|
|
|
Months |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ations |
|
|
|
|
Ended |
|
United |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
Total |
|
|
Dec. 31 |
|
States |
|
China |
|
Countries |
|
Singapore |
|
Thailand |
|
Malaysia |
|
Other |
|
Company |
Net sales to |
|
|
2007 |
|
|
$ |
3,044 |
|
|
$ |
772 |
|
|
$ |
917 |
|
|
$ |
12,712 |
|
|
$ |
1,073 |
|
|
$ |
6,495 |
|
|
$ |
(92 |
) |
|
$ |
24,921 |
|
customers |
|
|
2006 |
|
|
$ |
3,851 |
|
|
$ |
3,391 |
|
|
$ |
225 |
|
|
$ |
12,537 |
|
|
$ |
1,146 |
|
|
$ |
2,854 |
|
|
$ |
(61 |
) |
|
$ |
23,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
2007 |
|
|
|
225 |
|
|
|
71 |
|
|
|
78 |
|
|
|
1,171 |
|
|
|
107 |
|
|
|
720 |
|
|
|
(535 |
) |
|
|
1,837 |
|
Income |
|
|
2006 |
|
|
|
247 |
|
|
|
301 |
|
|
|
10 |
|
|
|
1,112 |
|
|
|
102 |
|
|
|
253 |
|
|
|
45 |
|
|
|
2,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived |
|
|
2007 |
|
|
|
4 |
|
|
|
1,019 |
|
|
|
— |
|
|
|
2,456 |
|
|
|
858 |
|
|
|
3,536 |
|
|
|
(40 |
) |
|
|
7,833 |
|
Assets |
|
|
2006 |
|
|
|
14 |
|
|
|
903 |
|
|
|
— |
|
|
|
4,082 |
|
|
|
774 |
|
|
|
2,688 |
|
|
|
(40 |
) |
|
|
8,421 |
|
17
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
|
|
|
ITEM 2. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (IN
THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
The following should be read in conjunction with the condensed consolidated financial statements
and notes in Item I above and with the audited consolidated financial statements and notes, and
with the information under the headings “Risk Factors” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in the most recent Annual Report on Form 10-K.
Overview
Founded in 1958, Trio-Tech International provides third-party semiconductor testing and burn-in
services primarily through its laboratories in Southeast Asia. The Company also designs,
manufactures and markets equipment and systems, and distributes semiconductor processing and
testing equipment manufactured by others. The Company operates in three business segments: Testing
Services, Manufacturing and Distribution.
We own and operate facilities that provide testing services for semiconductor devices and other
electronic components to meet the requirements of military, aerospace, industrial and commercial
applications. We currently operate six testing facilities, one in the United States, three in
Southeast Asia and two in China. The Company uses its own proprietary equipment for certain
burn-in, centrifugal and leak tests, and commercially available equipment for various other
environmental tests. The Company conducts the majority of its testing operations in Southeast Asia
and China with facilities in Singapore, Malaysia, Thailand and China. Our facilities require
substantial investment to construct and are largely fixed-costs assets once in operation. Because
we own most of the testing capacity, a significant portion of our operating costs is fixed. In
general, these costs do not decline with reductions in customer demand or the utilization of our
testing capacity, and can adversely affect profit margins as a result. Conversely, as product
demand rises and factory utilization increases, the fixed costs are spread over the increased
output, which should improve profit margins.
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.
In the United States, our manufacturing segment focused on marketing used and refurbished
equipment, which some of our customers are more willing to purchase since it is less expensive than
new equipment.
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.
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.
Recent Events
Corporate Headquarters change of location
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.
Purchase of an office space in Chongqing
On January 4, 2008, Trio-Tech (Chongqing) Co. Ltd. entered into a Memorandum Agreement with MaoYe
Property Ltd., a Chinese company, to purchase an office space of 827.2 square meters on the 35th
floor of a 40 story office building located in Chongqing, China. The total cash purchase price was
RMB5,554 (Chinese yuan), equivalent to approximately US$762 based on the exchange rate on December
31, 2007 published by the Federal Reserve System. Under the terms of the agreement, the Company
paid the purchase price in full on January 4, 2008 using internally generated funds of the Company.
18
Second Quarter Fiscal 2008 Highlights
|
• |
|
Total revenue decreased 8.5% to $12,871 for the second quarter of fiscal 2008,
compared with revenue of $14,067 for the second quarter of fiscal 2007 as the result
of reduced revenue from product sales. |
|
|
• |
|
Testing segment revenue increased by $397, or 7.5%, to $5,670 compared with $5,273
for the second quarter of fiscal 2007. |
|
|
• |
|
Manufacturing segment revenue decreased by $1,111, or 13.6%, to $7,085 compared
with $8,196 for the second quarter of fiscal 2007. |
|
|
• |
|
Distribution segment revenue decreased by $482, or 80.6%, to $116 compared with
$598 for the second quarter of fiscal 2007. |
|
|
• |
|
Income from operations decreased by $667, or 53.4%, to $583 compared with $1,250
for the second quarter of fiscal 2007. |
|
|
• |
|
Gross profit margins improved by 1.0% to 24.8% from 23.8% for the second quarter of
fiscal 2007. |
|
|
• |
|
Selling expenses decreased by 0.3% from 1.5% of revenue for the second quarter of
fiscal 2008. |
|
|
• |
|
General and administrative expenses increased by 6.7% from 12.1% of revenue for the
second quarter of fiscal 2007. |
|
|
• |
|
General and administrative expenses in the second quarter of fiscal 2008 include
stock options expenses of $358 related to 100,000 options we granted on December 4,
2007. |
|
|
• |
|
On November 15, 2007, Trio-Tech (Chongqing) Co., Ltd. entered into a Supplement
Agreement to the Memorandum Agreement dated August 27, 2007 with Jiasheng. Under the
terms of the Supplement Agreement, the Company agreed to invest an additional
RMB9,000, or approximately US$1,234 based on the exchange rate as of December 31, 2007
published by the Federal Reserve Statistical Release. By infusing the additional
capital of RMB9,000, 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 for additional
costs incurred for this project, which were RMB4,000 less than the estimated costs of
RMB9,000. Accordingly, the Company only transferred RMB5,000, approximately $686,
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%. The investment in China
increased to $2,057. |
The highlights above are intended to identify some of our more significant events and transactions
during the quarter ended December 31, 2007. These highlights are not intended to be a full
discussion of our operating results for this quarter. These highlights should be read in
conjunction with the following discussion and with our unaudited consolidated financial statements
and notes thereto accompanying this Quarterly Report.
Results of Operations and Business Outlook
The following table sets forth our revenue components for the six and three months ended December
31, 2007 and 2006, respectively.
Revenue Components
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, |
|
Three Months Ended December 31, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing |
|
|
54.09 |
% |
|
|
57.13 |
% |
|
|
55.05 |
% |
|
|
58.26 |
% |
Testing |
|
|
45.00 |
|
|
|
38.30 |
|
|
|
44.05 |
|
|
|
37.49 |
|
Distribution |
|
|
0.91 |
|
|
|
4.57 |
|
|
|
0.90 |
|
|
|
4.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales for the six months and three months ended December 31, 2007 were $24,921 and $12,871,
respectively, an increase of $978 and a decrease of $1,196, respectively, when compared to the same
sales periods of the prior year. As a percentage, total net sales increased by 4.1% for the six
months and decreased by 8.5% for the three months ended December 31, 2007, respectively, when
compared to total net sales for the same periods of the prior year.
Net sales into and within China and the Southeast Asia regions and other countries (except sales
into and within the United Sates) increased by $1,785 to $21,877 and by $706 to $11,287 for the six
months and three months ended December 31, 2007, respectively, compared to the same period of the
prior year. This increase was primarily due to sales improvement in the testing segment in our
Malaysia operation and China operations. Net sales into and within the United States were $3,044
and $1,584 for the six months and three months ended December 31, 2007, respectively, a decrease of $807 and
$1,902, respectively, when compared to the same periods of the prior year.
19
The increase in net sales in the six months ended December 31, 2007 and a decrease in net sales in
the second quarter of fiscal 2008 can be discussed within three segments as follows:
Manufacturing Segment
Net sales in the manufacturing segment as a percentage of total net sales were 54.09% and 55.05%
for the six months and three months ended December 31, 2007, respectively, a decrease of 3.04% and
3.21% of total net sales, respectively, when compared to the same periods of the prior year. The
absolute amount of net sales were $13,481 and $7,085 for the six months and three months ended
December 31, 2007, respectively, a decrease of $198 and $1,111, respectively, when compared to the
same periods of the prior year. 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 slowing in that customer’s product line and equipment capacity.
Testing Segment
Net sales in the testing segment as a percentage of total net sales were 45.00% and 44.05% for the
six months and three months ended December 31, 2007, respectively, an increase of 6.70% and 6.56%,
respectively, of total net sales when compared to the same periods of the prior year. The absolute
amount of net sales in the testing segment increased by $2,042 to $11,213 and by $397 to $5,670 for
the six months and three months ended December 31, 2007, respectively, compared to the same periods
of fiscal 2007. We believe the testing segment continued to show improvement in revenue due to an
increase in demand for testing services in Asia, which resulted from the strong economic growth and
robust development in the electronics manufacturing industries in China and an improvement in
performance by our testing operations in Southeast Asia. Furthermore, our China testing operation
in Suzhou, which started its testing operation in the second quarter of fiscal 2007, achieved a
better sales performance compared to their performance in the same period in fiscal 2007 due to a
hike in demand for testing services in Southeast Asia. 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.
Distribution Segment
Net sales in the distribution segment accounted for 0.91% and 0.90% of total net sales for the six
months and three months ended December 31, 2007, respectively, a decrease of 3.66% and 3.35%,
respectively, compared to the same periods in fiscal 2007. The absolute amount of net sales
decreased by $866 to $227 and by $482 to $116 for the six months and three months ended December
31, 2007, respectively, compared to the same periods in fiscal 2007. The drop in revenue was due
to lower demand in the current market for back-end products such as Vibration equipment and
chambers and, we believe, a saturation of equipment and electronic components in the current
market. 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 prevalent in the market.
Uncertainties and Remedies
There are several influencing factors which create uncertainties when forecasting performance, such
as the ever-changing nature of technology, specific requirements from the customer, declines in
demand for certain types of burn-in devices or equipment, and other similar factors. One of these
factors is the highly competitive nature of the semiconductor industry. Another is that some
customers are unable to provide a forecast of the products required in the upcoming weeks; hence it
is difficult to plan for the resources needed to meet these customers’ requirements due to short
lead time and last minute order confirmation. This will normally result in a lower margin for
these products, as it is more expensive to purchase materials in a short time frame. However, we
have taken certain actions and formulated certain plans to deal with and to help mitigate these
unpredictable factors. For example, in order to meet customers’ demands upon short notice, we
maintain higher inventories, but continue to work closely with our customers to avoid stock piling.
We continue to cut costs by upgrading some of our existing facilities to cater to the changing
requirements of customers and by maintaining a lean headcount, while still keeping quality high so
as to sell new products at a competitive price. We have also been improving our customer service
by keeping our staff updated with regard to the newest technology and stressing the importance of
understanding and meeting the stringent requirements of our customers. We believe customers have
tightened and will continue to tighten their spending resulting in a decline in the demand for
electronic products and semiconductor equipment. We anticipate that this chain effect will hit the
Company’s business gradually in the future. We are exploring new markets and products, looking for
new customers, and upgrading and improving burn-in technology while at the same time searching for
improved testing methods of higher technology chips.
20
Comparison of the Second Quarters Ended December 31, 2007 and 2006
The following table sets forth certain consolidated statements of income data as a percentage of
net sales for the second quarters of fiscal 2008 and 2007, respectively:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
2007 |
|
2006 |
Net Sales |
|
|
100 |
% |
|
|
100.0 |
% |
Cost of sales |
|
|
75.2 |
% |
|
|
76.2 |
% |
|
|
|
|
|
|
|
|
|
Gross Margin |
|
|
24.8 |
% |
|
|
23.8 |
% |
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
General and administrative |
|
|
18.8 |
% |
|
|
12.2 |
% |
Selling |
|
|
1.2 |
% |
|
|
1.5 |
% |
Research and development |
|
|
0.1 |
% |
|
|
0.1 |
% |
Impairment loss |
|
|
0.1 |
% |
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
20.2 |
% |
|
|
15.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations |
|
|
4.6 |
% |
|
|
8.8 |
% |
|
|
|
|
|
|
|
|
|
Overall Gross Margin
Overall gross margin as a percentage of revenue increased slightly by 1.0% for the three months
ended December 31, 2007, from 23.8% in the second quarter of fiscal 2007 to 24.8%, due primarily to
the improvement in gross margin in the manufacturing segments. However, this was offset by a
decrease in gross margin in the testing segment. In terms of dollar value, the overall gross
margin decreased by $155 for the three months ended December 31, 2007, from $3,350 to $3,195,
compared to the same quarter of fiscal 2007 resulting from the decrease in revenue.
Gross profit margin as a percentage of revenue in the manufacturing segment increased by 4.8% for
the three months ended December 31, 2007, from 12.6% in the second quarter of fiscal 2007 to 17.4%
in the second quarter of fiscal 2008. The increase in gross margin was due to a decrease in sales
of lower margin burn-in systems and pass-through products in the second quarter of fiscal 2008
compared with the same period of fiscal 2007. In absolute amounts, gross profits increased by $200
to $1,233 for the three months ended December 31, 2007, from $1,033 for the three months ended
December 31, 2006.
Gross profit margin as a percentage of revenue in the testing segment decreased by 8.1% for the
three months ended December 31, 2007, from 41.8% to 34.1%, compared to the same quarter of fiscal
2007. In terms of dollar amount, gross margin in the testing segment in the second quarter of
fiscal 2008 was $1,933, a decrease of $271, or 12.3% compared to $2,204 in the same period of
fiscal 2007. The decrease in the gross margin was due primarily 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.
Gross profit margin as a percentage of revenue in the distribution segment improved by 6.1% to
25.0% for the second quarter of fiscal 2008, from 18.9% in the second quarter of fiscal 2007.
However, in absolute amounts, gross margin was $29, a decrease of $84 compared to $113 in the same
period of fiscal 2007. The decrease in the gross profit was due to a drop in sales volume and
revenue, as previously discussed.
Operating Expenses
Operating expenses for the second quarters of fiscal 2008 and 2007 were as follow:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
(In Thousands, unaudited) |
|
2007 |
|
|
2006 |
|
|
|
|
General and administrative |
|
$ |
2,424 |
|
|
$ |
1,704 |
|
Selling |
|
$ |
153 |
|
|
$ |
207 |
|
Research and development |
|
$ |
19 |
|
|
$ |
17 |
|
Impairment loss |
|
$ |
16 |
|
|
$ |
172 |
|
|
|
|
|
|
|
|
Total |
|
$ |
2,612 |
|
|
$ |
2,100 |
|
|
|
|
|
|
|
|
21
During the second quarter of fiscal 2008, we reclassified $98 of selling expenses into general and
administrative expenses and cost of sales to reflect a better presentation of our operations.
Accordingly, $67 of selling expenses was reclassified into general and administrative expenses and
cost of sales in the second quarter of fiscal 2007 for the purpose of comparison. General and
administrative expenses increased by $720, or 42.3% compared to the same period of fiscal 2007,
from $1,704 to $2,424 for the three months ended December 31, 2007. The increase was attributable
to an increase in payroll and related expenses in the testing segment in the Singapore and Malaysia
operations to handle the rise in sales volume of the testing segment. In addition, share based
compensation expenses, as a result of granting stock options in the second quarter of fiscal 2008,
increased by $357 when compared to the same quarter of fiscal 2007.
Selling expenses decreased by $54, or 26.1%, for the three months ended December 31, 2007, from
$207 to $153 compared to the same quarter of fiscal 2007, mainly due to a decrease in commission
expenses as a result of fewer commissionable sales in the distribution segment and a reversal of
$39 in overprovided commission expenses in the manufacturing and the distribution segments. Part
of our commission payable was based on the estimated profit margin of sales when the sales were
recorded, and it was reduced when the actual profit margin decreased due to an increase in
unexpected service expenses following the sales.
Research and development expenses were $19 compared to $17 for the second quarter of fiscal 2007,
due to an increase in payroll expenses in the U.S. operation.
The impairment loss decreased by $156, or 90.7%, for the three months ended December 31, 2007, from
$172 to $16 compared to the same quarter of fiscal 2007. The impairment loss of $16 consisted of a
loss of $11 related to the disposal of certain fixed assets in our China operation in Suzhou, while
$5 was related to the asset held for sale in Malaysia. In the first quarter of fiscal 2008, we
initiated a plan to sell this property. In late December 2007, we entered a definite sale and
purchase agreement with a buyer with a selling price of RM 700 (Malaysia ringgit), or equivalent to
US$212, and received a deposit of RM70, equivalent to US$21 based on the exchange rate as of
December 31, 2007 published by the Federal Reserve Statistical Release. Impairment loss of $5 was
recorded in the second quarter of fiscal 2008. The impairment loss in the second quarter of fiscal
2007 consisted of machinery and equipment with a cost of $423 and related accumulated depreciation
in the amount of $251. Due to the decrease in demand for the slower speed microprocessor chips,
those of our existing burn-in facility assets in the Singapore operations used for testing such
chips became obsolete. Since there will be no future cash flows from those assets, their carrying
value was written down to zero, and the impairment cost was recorded.
Income from Operations
Income from operations decreased by $667, or 53.4%, from $1,250 for the three months ended December
31, 2006 to $583 for the three months ended December 31, 2007, mainly due to a decrease in sales in
the manufacturing and distribution segments and an increase in operating expenses, as previously
discussed.
Interest Expense
Interest expense for the second quarters of fiscal 2008 and 2007 were as follow:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
(In Thousands, unaudited) |
|
2007 |
|
2006 |
|
|
|
Interest expense |
|
$ |
79 |
|
|
$ |
37 |
|
Interest expenses increased by $42 for the three months ended December 31, 2007, from $37 to $79,
primarily due to a new term loan facility of $3,687 taken up in 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 the second quarters of fiscal 2008 and 2007 were as follow:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
(In Thousands, unaudited) |
|
2007 |
|
2006 |
|
|
|
Other (expenses) income |
|
$ |
(141 |
) |
|
$ |
73 |
|
Other expenses increased by $214 to $141 for the three months ended December 31, 2007 from an
income of $73 in the same quarter of fiscal 2007, primarily due to an increase in the currency
transaction loss and an increase in provision for the value added tax, but offset by an increase in
investment income generated from short-term deposits and rental income. Currency transaction loss
increased by $261 for the three months ended December 31, 2007, from an exchange gain of $48 to an
exchange loss of $213, compared to the same quarter of fiscal 2007. This was attributable to the
weakening of the U.S. dollar against foreign currency with regard to the transactions denominated
in U.S. dollars. The provision for the value added tax was $40, which was the result
22
of a change in the local tax policy in our China operations in Suzhou. Investment income was $75
for the three months ended December 31, 2007 and was $59 higher than the interest income generated
in the same quarter of fiscal 2007 due to an increase in short-term deposits by placing the idle
cash into income generating investments.
Income Tax
The provision for income taxes for the three months ended December 31, 2007 was $142, a decrease of
$311 compared to the income tax provision of $453 for the three months ended December 31, 2006.
The decrease in the income tax provision is mainly due to the decrease in income from the Singapore
operations. The Singapore operations generated a profit of $522 for the three months ended
December 31, 2007, a decrease of $777 compared to the profit of $1,299 for the three months ended
December 31, 2006.
We assessed our income tax liability of $314 as of December 31, 2007 in accordance with FIN 48,
which was related to the allocation of corporate management expenses to our Singapore operation in
terms of Singapore tax law. We did not see any potential benefits arising from this tax position.
Accordingly, no impact of this tax position was recognized in the statement of operations for this
quarter of fiscal 2008. We did not include any potential income tax position in federal and state
income tax returns currently filed.
Minority Interest
As of December 31, 2007, we held a 55% interest in Trio-Tech Malaysia. In the second quarter of
fiscal 2008, minority interest in the net income of subsidiaries was $56, an increase of $22, or
64.7%, compared to a minority interest in the net income of $34 for the same quarter of 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.
Net Income
Net income was $165 in the second quarter of fiscal 2008, representing a decrease of $634, or
79.3%, from a net income of $799 during the same period of fiscal 2007. The decrease in net income
was mainly due to a decrease in revenue, an increase in operating expenses, interest expense and a
decrease in other income, as previously discussed.
Earnings per Share
Basic and diluted earnings per share for the three months ended December 31, 2007 were $0.05, a
decrease of $0.20 from $0.25 in the same quarter of the prior year
Segment Information
The revenue, gross margin and income from each segment for the second quarter of fiscal 2008 and
the second quarter of 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
The revenue, gross margin and income from operations for the manufacturing segment for the second
quarters of fiscal 2008 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
(In Thousands, unaudited) |
|
2007 |
|
2006 |
|
|
|
Revenue |
|
$ |
7,085 |
|
|
$ |
8,196 |
|
Gross margin |
|
|
17.4 |
% |
|
|
12.6 |
% |
Income from operations |
|
$ |
466 |
|
|
$ |
250 |
|
Income from the manufacturing segment increased by $216, or 86.4%, to $466 for the three months
ended December 31, 2007 from $250 in the same quarter of fiscal 2007. The increase in operating
income was attributable to an increase in gross profit of $200 and a decrease in operating expenses
of $16. Operating expenses for the manufacturing segment were $767 and $783 for the three months
ended December 31, 2007 and 2006, respectively. The decrease in operating expenses was mainly due
to a reversal of $23 in warranty liability in the second quarter of fiscal 2008 during our periodic
assessment of the adequacy of recorded warranty liability based on the historical rate of warranty
expense incurred.
23
Testing Segment
The revenue, gross margin and income from operations for the testing segment for the second
quarters of fiscal 2008 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
(In Thousands, unaudited) |
|
2007 |
|
2006 |
|
|
|
Revenue |
|
$ |
5,670 |
|
|
$ |
5,273 |
|
Gross margin |
|
|
34.1 |
% |
|
|
41.8 |
% |
Income from operations |
|
$ |
645 |
|
|
$ |
942 |
|
Income from operations in the testing segment in the second quarter of fiscal 2008 was $645, a
decrease of $297, or 31.5%, compared to $942 in the same period of fiscal 2007. The decrease in
operating income was attributable to a decrease in gross profit of $271 due to a drop in the
average selling price of services in the Singapore testing operation and an increase in operating
expenses of $26. Operating expenses were $1,288 and $1,262 for the three months ended December 31,
2007 and 2006, respectively. This increase in operating expenses was due to a hike in payroll and
related expenses in the testing segment in the Singapore and Malaysia operations to handle the rise
in sales volume.
Distribution Segment
The revenue, gross margin and loss from operations for the distribution segment for the second
quarters of fiscal 2008 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
(In Thousands, unaudited) |
|
2007 |
|
2006 |
|
|
|
Revenue |
|
$ |
116 |
|
|
$ |
598 |
|
Gross margin |
|
|
25.0 |
% |
|
|
18.9 |
% |
(Loss) Income from operations |
|
$ |
(61 |
) |
|
$ |
28 |
|
Loss from operations in the distribution segment increased by $89 for the three months ended
December 31, 2007, from an operating income of $28 in the second quarter of fiscal 2007 to a loss
of $61 in the second quarter of fiscal 2008. The increase in operating loss was mainly due to a
decrease in gross margin of $84 as the result of a decrease in revenue and an increase in operating
expenses of $5. Operating expenses were $90 and $85 for the three months ended December 31, 2007
and 2006, respectively. The increase in operating expenses was mainly attributable to an increase
in general and administrative expenses in the distribution segment in our Singapore operations due
to an increase in employee headcount.
Corporate
The income (loss) from operations for corporate for the second quarters of fiscal 2008 and 2007
were as follow:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
(In Thousands, unaudited) |
|
2007 |
|
2006 |
|
|
|
Income (loss) from operations |
|
$ |
(467 |
) |
|
$ |
30 |
|
Corporate operating loss increased by $497 to an operating loss of $467 for the three months ended
December 31, 2007, from an operating income of $30 in the same period of the prior year. The
increase in operating loss from corporate was mainly due to an increase of $68 in the remuneration
for executive officers, and an increase of $357 in stock option compensation expenses.
24
Comparison of the Six Months Ended December 31, 2007 and 2006
The following table sets forth certain consolidated statements of (loss) income data as a
percentage of net sales for the six months ended December 31, 2007 and 2006, respectively:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, |
|
|
2007 |
|
2006 |
Net Sales |
|
|
100 |
% |
|
|
100.0 |
% |
Cost of sales |
|
|
75.0 |
% |
|
|
75.7 |
% |
|
|
|
|
|
|
|
|
|
Gross Margin |
|
|
25.0 |
% |
|
|
24.3 |
% |
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
General and administrative |
|
|
16.3 |
% |
|
|
13.1 |
% |
Selling |
|
|
1.1 |
% |
|
|
1.6 |
% |
Research and development |
|
|
0.2 |
% |
|
|
0.2 |
% |
Impairment loss |
|
|
0.1 |
% |
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
17.7 |
% |
|
|
15.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
7.3 |
% |
|
|
8.7 |
% |
|
|
|
|
|
|
|
|
|
Overall Gross Margin
Overall gross margin as a percentage of revenue increased slightly by 0.7% to 25.0% for the six
months ended December 31, 2007, from 24.3% for the same period of fiscal 2007. The increase in the
overall gross margin was primarily due to the improvement in gross margins in the manufacturing
segment. However, this was offset by a decrease in gross margin in the testing segment. In terms of
dollar value, the overall gross margin increased by $413, or 7.1%, for the six months ended
December 31, 2007, from $5,824 to $6,237 compared to the same period of fiscal 2007, as a result of
better sales performance in the testing segment.
Gross profit margin as a percentage of revenue in the manufacturing segment increased by 0.7% for
the six months ended December 31, 2007 compared to the same period of fiscal 2007, from 15.5% to
16.2%. In absolute amounts, gross profit was $2,183, an increase of $65, or 3%, for the six months
ended December 31, 2007, from $2,118 in the same period of fiscal 2007. The increase in gross
margin was mainly due to a decrease in sales of lower margin burn-in systems pass-through products
in the six months ended December 31, 2007 compared to the same period of fiscal 2007.
Gross profit margin in the testing segment decreased by 2.7% for the six months ended December 31,
2007 compared to the same period of the prior year, from 38.3% to 35.6%, due primarily to a drop in
the average selling price of services, as compared to related expenses. In absolute amount, gross
profits in the testing segment were $3,996, an increase of $483, or 13.7%, for the six months ended
December 31, 2007, from $3,513 in the same period of fiscal 2007. The improvement in the gross
margin in absolute amount was primarily due to a hike in revenue in the six months ended December
31, 2007, as previously discussed.
Gross profit margin as a percentage of revenue in the distribution segment improved by 7.9%, from
17.7% for the six months ended December 31, 2006 to 25.6% in the same period this fiscal year. The
improvement in the gross profit as a percentage of sales was due to an increase in average sale
price compared to the related expenses in the first two quarters of fiscal 2008 compared to the
same period of fiscal 2007. Gross profits decreased by $135, or 70.0%, to $58 for the six months
ended December 31, 2007 from $193 for the six months ended December 31, 2006, due to a drop in
sales volume and revenue, as previously discussed.
Operating Expenses
The following table presents the operating expenses for the six months ended December 31, 2007 and
2006, respectively:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, |
|
(In Thousands, unaudited) |
|
2007 |
|
|
2006 |
|
|
|
|
General and administrative |
|
$ |
4,069 |
|
|
$ |
3,150 |
|
Selling |
|
|
277 |
|
|
|
398 |
|
Research and development |
|
|
38 |
|
|
|
34 |
|
Impairment loss |
|
|
16 |
|
|
|
172 |
|
|
|
|
|
|
|
|
Total |
|
$ |
4,400 |
|
|
$ |
3,754 |
|
|
|
|
|
|
|
|
25
During the six months ended December 31, 2007, we reclassified payroll expenses of $186 from
selling expenses to general and administrative expenses and cost of sales to reflect a better
presentation of our operation. Accordingly, $138 of selling expenses was reclassified to general
and administrative expenses and cost of sales in the six months ended December 31, 2007 for the
purpose of comparison. General and administrative expenses increased by $919, or 29.2%, from $3,150
to $4,069 for the six months ended December 31, 2007, compared to the same period of fiscal 2007.
The increase was attributable to a hike in payroll and related expenses in the testing segment in
the Singapore and Malaysia operations to handle the rise in sales volume, an increase of $137 in
the remuneration for executive officers, and an increase of $356 in stock option compensation
expenses. The increase in general and administrative expenses was offset by a reversal of bonus
provision of $154 for fiscal year 2007 in the first quarter of fiscal 2008 due to a change in
estimate as discussed in Note 1.
Selling expenses decreased by $121, or 30.4%, for the six months ended December 31, 2007, from
$398 to $277, compared to the same period of fiscal 2007 year. This was mainly due to a decrease
in commission expenses as a result of fewer commissionable sales in the distribution segment and a
reversal of $82 in overprovided commission expenses in the manufacturing segment and distribution
segment. Part of our commission payable was based on the estimated profit margin of sales when the
sales were recorded, and it was reduced when the actual profit margin decreased as the result of an
increase in unexpected service expenses following the sales.
Research and development costs increased slightly from $34 in the six months ended December 31,
2007 to $38 in the six months ended December 31, 2007 due primarily to the increase in payroll
expenses in the U.S. operation
The impairment loss decreased by $156 for the six months ended December 31, 2007, from $172 to $16,
compared to the same period of fiscal 2007. The impairment loss of $16 consisted of a loss of $11
related to the disposal of certain fixed assets in our China operation in Suzhou, China, while $5
was related to the asset held for sale in Malaysia. In the first quarter of fiscal 2008, we
initiated a plan to sell this property. In late December 2007, we entered into a definite sale and
purchase agreement with a buyer with a selling price of RM700 (Malaysia ringgit), or equivalent to
US$212, and received a deposit of RM70, equivalent to US$21, based on the exchange rate as of
December 31, 2007 published by the Federal Reserve Statistical Release. Impairment loss of $5 was
recorded for the six months ended December 31, 2007. The impairment loss in the six months ended
December 31, 2006 consisted of machinery and equipment with a cost of $423 and related accumulated
depreciation in the amount of $251. Due to the decrease in demand for the slower speed
microprocessor chips, those of our existing burn-in facility assets in the Singapore operation used
for testing such chips became obsolete. Since there will be no future cash flows from those
assets, their carrying value was written down to zero, and the impairment cost was recorded.
Income from Operations
Income from operations decreased by $233 to $1,837 for the six months ended December 31, 2007, from
$2,070 for the same period of fiscal year 2007. The decrease in income from operations was due to
an increase in operating expense of $646 as the result of an increase in general and administrative
expenses, but offset by an increase in gross margin of $413, as previously discussed.
Interest Expense
The following table presents the interest expenses for the six months ended December 31, 2007 and
2006, respectively:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, |
(In Thousands, unaudited) |
|
2007 |
|
2006 |
|
|
|
Interest expense |
|
$ |
164 |
|
|
$ |
66 |
|
Interest expenses increased by $98 during the six months ended December 31, 2007, from $66 to $164
compared to the same period of fiscal 2007, primarily due to a higher usage of credit line
facilities and term loan facilities to support the expansion plans and potential business
opportunities of the Singapore and China operations. The other contributing factor was an interest
loss of $49 in the six months ended December 31, 2007 due to an interest swap agreement on one of
our loans that we entered into during the first quarter of fiscal 2008.
Other Income
The following table presents the other income for the six months ended December 31, 2007 and 2006,
respectively:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, |
(In Thousands, unaudited) |
|
2007 |
|
2006 |
|
|
|
Other (expenses) income |
|
$ |
(191 |
) |
|
$ |
110 |
|
26
Other expenses increased by $301 to $191 for the six months ended December 31, 2007, from an income
of $110 in the same quarter of the prior year, primarily due to an increase in the currency
transaction loss and an increase in provision for the value added tax, but offset by an increase in
investment income generated from short-term deposits and rental income. Currency transaction loss
increased by $352 for the six months ended December 31, 2007, from a currency transaction gain of
$21 to a currency transaction loss of $331, compared to the same period fiscal 2007. This was
attributable to the weakening of the U.S. dollar against foreign currency with regard to the
transactions denominated in U.S. dollars. The provision for the value added tax was $87, which was
the result of a change in the local tax policy in our China operation in Suzhou. Investment income
was $143 for the six months ended December 31, 2007 and was $90 higher than the investment income
generated in the same period of the prior year due to an increase in the placement of short-term
deposits by placing the idle cash into income generating investments. Rental income, which
consisted mainly of space in the Malaysia operation rented to outside vendors, increased by $21 to
$75 for the six months ended December 31, 2006 from $54 in the same period of fiscal 2007.
Income Tax
Income tax provision for the six months ended December 31, 2007 was $314, a decrease of $164
compared to an income tax provision of $478 for the same period of fiscal 2007. The decrease in
income tax provision was mainly due to a lower tax provision for the decreased income generated
from the Singapore operations in the six months ended December 31, 2007.
Minority Interest
As of December 31, 2007, we held a 55% interest in Trio-Tech Malaysia. The minority interest for
the six months ended December 31, 2007 in the net income of subsidiaries was $252, an increase of
$171 compared to a minority interest in the net income of $81 for the same period of the prior
year. 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.
Net Income
Net income for the six months ended December 31, 2007 was $916 a decrease of $639, or 43.1%,
compared to $1,555 in the same period of fiscal 2007. Such decrease was primarily due to an
increase in operating expenses and other expenses, but was offset by an increase in revenues and a
decrease in income tax expenses, as previously discussed.
Earnings per Share
Basic and diluted earnings per share for the six months ended December 31, 2007 were $0.28, a
decrease of $0.20 from $0.48 in the same period of the prior year.
Segment Information
The revenue, gross margin and income from each segment for the first half of fiscal 2008 and 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
The following table presents the revenue, gross margin and income from operations for the
manufacturing segment for the six months ended December 31, 2007 and 2006, respectively:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, |
(In Thousands, unaudited) |
|
2007 |
|
2006 |
|
|
|
Revenue |
|
$ |
13,481 |
|
|
$ |
13,679 |
|
Gross margin |
|
|
16.2 |
% |
|
|
15.5 |
% |
Income from operations |
|
$ |
792 |
|
|
$ |
690 |
|
Income from operations in the manufacturing segment increased by $102, or 14.8%, to $792 for the
six months ended December 31, 2007 from $690 in the same period of fiscal 2007. The improvement in
operating profit was attributable to an increase of $65 in gross profit, and a decrease of $37 in
operating expenses. Operating expenses for the manufacturing segment were $1,391 and $1,428 for the
six months ended December 31, 2007 and 2006, respectively. The decrease in operating expenses was
mainly due to a reversal of $43 in bonus provision for fiscal year 2007 as a result of a change in
estimate in the first quarter of fiscal 2008, as discussed in Note 1, and a reversal of $23 in
warranty liability in the second quarter of fiscal 2008 during our periodic assessment of the
adequacy of recorded warranty liability based on the historical rate of warranty expenses incurred.
27
Testing Segment
The following table presents the revenue, gross margin and income from operations for the testing
segment for the six months ended December 31, 2007 and 2006, respectively:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, |
(In Thousands, unaudited) |
|
2007 |
|
2006 |
|
|
|
Revenue |
|
$ |
11,213 |
|
|
$ |
9,171 |
|
Gross margin |
|
|
35.6 |
% |
|
|
38.3 |
% |
Income from operations |
|
$ |
1,663 |
|
|
$ |
1,344 |
|
Income from the testing segment increased by $319, or 23.7%, to $1,663 for the six months ended
December 31, 2007 from $1,344 in the same period fiscal 2007. Such increase in operating income
was attributable to an increase in gross profits of $483, but offset by an increase in operating
expenses of $164. Operating expenses were $2,333 and $2,169 for the six months ended December 31,
2007 and 2006, respectively. This increase in operating expenses was mainly due to an increase in
payroll and related expenses as a result of the rise in headcount in the Singapore and Malaysia
operations in the six months ended December 31, 2007 to handle the rise in sales volume, This was
offset by a reversal of $111 in bonus provision for fiscal 2007 as a result of a change in
estimate, as discussed in Note 1, in the first quarter of fiscal 2008.
Distribution Segment
The following table presents the revenue, gross margin and income (loss) from operations for the
distribution segment for the six months ended December 31, 2007 and 2006, respectively:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, |
(In Thousands, unaudited) |
|
2007 |
|
2006 |
|
|
|
Revenue |
|
$ |
227 |
|
|
$ |
1,093 |
|
Gross margin |
|
|
25.6 |
% |
|
|
17.7 |
% |
Loss from operations |
|
$ |
(83 |
) |
|
$ |
(9 |
) |
Loss from the distribution segment increased by $74 to $83 for the six months ended December 31,
2007 from an operating loss of $9 in the same period of fiscal 2007. The operating loss was
attributable to a decrease in gross profit of $135, but offset by a decrease in operating expenses
of $61. This decrease in operating expenses was mainly due to lower commission expenses due to a
drop in net sales. Operating expenses were $141 and $202 for the six months ended December 31, 2007
and 2006, respectively.
Corporate
The following table presents the income (loss) from operations for Corporate for the six months
ended December 31, 2007 and 2006, respectively:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, |
(In Thousands, unaudited) |
|
2007 |
|
2006 |
|
|
|
Income (loss) from operations |
|
$ |
(535 |
) |
|
$ |
45 |
|
Corporate operating loss increased by $580 for the six months ended December 31, 2007, from an
operating income of $45 in the same period of fiscal 2007 to an operating loss of $535 this fiscal
year. The increase in operating loss from corporate was mainly due to an increase of $137 in the
remuneration for executive officers and an increase of $356 in stock option compensation expenses
for the options we granted on December 4, 2007, as compared to the same period of fiscal 2007.
Financial Condition
During the six months ended December 31, 2007, total assets increased $5,677, or 17.3%, from
$32,788 at June 30, 2007 to $38,465 at December 31, 2007. The majority of the increase was in
accounts receivables, other receivables, inventory, prepaid expenses, investment and property,
plants and equipment, but offset by a decrease in cash, other intangible assets and other assets.
At December 31, 2007, total cash and short-term deposits were $14,206, a decrease of $744 from the
sum of those two balances at June 30, 2007. The decrease in cash was mainly due to a decrease in
net cash provided by operating activities as a result of a decrease in net income and an investment
in Chongqing, China of $2,057 and capital expenditure of $1,493 in the six months ended December
31, 2007. This decrease was offset by an increase in proceeds from long-term loans. In the first
quarter of fiscal 2008, we obtained a new term loan of $3,687 to support its long-term investment
and potential business expansion opportunities.
28
At December 31, 2007, accounts receivables balance increased by $3,223 from the balance at June 30,
2007 due primarily to an increase in sales in the second quarter of fiscal 2008 as compared to the
fourth quarter of fiscal 2007. The accounts receivables turnover was 66 days for the second
quarter of fiscal 2008, compared with 78 days for the fourth quarter of fiscal 2007. The decrease
in the accounts receivables turnover was due primarily to improvement in collections in the
Singapore operations.
Other receivables at December 31, 2007 increased by $119 from that balance at June 30, 2007, due
mainly to an increase of $130 in advanced payments to our vendors by the Singapore operation.
Inventory at December 31, 2007 was $2,473, reflecting an increase of $527, or 27.1%, compared to
that balance at June 30, 2007. The increase in inventory was mainly from an increase in
works-in-process and raw materials. The increase in inventory was a result of building up
inventory to support expected product shipments in the next two quarters of fiscal 2008. The
turnover of inventory was 22 days for the second quarter of fiscal 2008 compared with 23 days for
the fourth quarter of fiscal 2007.
Asset held for sale of $212 at December 31, 2007 was comprised of the market value of the property
located in Malaysia, which is subject to the terms under a definitive sales agreement dated
December 31, 2007, less the cost to sell, in accordance with SFAS No. 144.
Prepaid expenses and other current assets at December 31, 2007 were $283, an increase of $161 from
those balances at June 30, 2007, due primarily to an increase in prepaid insurance for the calendar
year 2008 in the Singapore operations.
In fiscal 2008, Trio-Tech (Chongqing) Co. Ltd. entered into a Memorandum Agreement and a Supplement
Agreement with Jiasheng Property Development Co. Ltd. to jointly develop a piece of property with
24.91 acres owned by Jiasheng located in Chongqing, China. Pursuant to the signed agreement, an
investment of $2,057 was transferred into a special bank account jointly monitored by both
Trio-Tech (Chongqing) Co. Ltd. and Jiasheng.
Property, plant and equipment increased by $209 from $7,458 at June 30, 2007 to $7,667 at December
31, 2007. Capital expenditures were $1,493 in the first six months of fiscal 2008, compared with
$2,050 for the first six months of fiscal 2007. The decrease in capital expenditures was mainly
due to higher purchases of machinery and equipment during the first six months of fiscal 2007 for
the Singapore Testing operation and China Testing operation in Suzhou in order to meet customers’
requirements at that time.
Depreciation and amortization was $1,528 for the six months ended December 31, 2007, compared with
$1,124 for the six months ended December 31, 2006. The increase in depreciation expenses was due
mainly to an increase in property, plant and equipment acquired after June 30, 2007.
Other assets were $404 at December 31, 2007, a decrease of $41 from that balance at June 30, 2007.
The decrease in other assets was due primarily to a decrease of $63 for a down payment of certain
fixed assets in the Singapore operation, but offset by an increase of $22 in deposits for rent and
utilities in the China operations.
Liquidity Comparison
Net cash used in operating activities increased by $1,037 to $727 for the six months ended December
31, 2007 from a net cash inflow of $310 in the same period of fiscal 2007. The increase in net
cash used in operating activities was primarily due to (i) a decrease of $639 in net income from
$1,555 to $916 during the six months ended December 31, 2007 as compared to the same period of the
prior year, and; (ii) the decrease of $2,489 in cash inflow from change in accounts payable and
accrued liabilities. Offsetting the increase in cash used in operating activities was an increase
in net impact of adjusting non-cash items. In the six months ended December 31, 2007, the
depreciation and amortization increased by $404 as compared with the same period of fiscal 2007.
The other non-cash item which offset the increase in cash used in operating activities was stock
option compensation expenses of $358 that we recognized in the second quarter of fiscal 2008 for
the 100,000 options granted on December 4, 2007.
Net cash used in investing activities increased by $4,908 to $4,526 for the six months ended
December 31, 2007 from a cash inflow of $385 for the same period of fiscal 2007. The proceeds from
maturing short-term deposits of $21,443 were not adequate to cover the higher investment in
short-term deposits of $22,416 in the six months ended December 31, 2007, thereby incurring a
negative cash flow. As we anticipated that funds would be required in the next two quarters of
fiscal 2008 for working capital purposes, we invested in short-term deposits to generate investment
income. We invested $2,057 in Chongqing, China in the first two quarters of fiscal 2008 to jointly
develop a piece of property with 24.91 acres with Jiasheng Property Development Co., Ltd.
Offsetting the increase in net cash used in investing activities was the $527 decrease in capital
expenditures as previously discussed.
Net cash provided by financing activities in the first two quarters of fiscal 2008 was $2,833,
representing an increase of $1,367 compared to the net cash provided by financing activities of
$1,466 during the first two quarters of fiscal 2007. The increase was mainly due to higher
proceeds from long-term bank loans of $3,687 during the first two quarters of fiscal 2008 as
compared to a
repayment of bank loans of $6 in the same period of fiscal 2007. However, this was offset by a
decrease of $1,831 from net borrowing on lines of credit.
29
We believe we have the necessary financial resources to meet our projected cash requirements for at
least the next twelve months.
Corporate Guarantee Arrangement
The Company provides a corporate guarantee of approximately $1,741 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.
Critical Accounting Estimates and Policies
There have been no significant changes in the critical accounting polices disclosed in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in
the most recent Annual Report on Form 10-K.
We prepare the consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial statements requires
the use of estimates and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the reporting period. Management periodically
evaluates the estimates and judgments made. Management bases its estimates and judgments on
historical experience and on various factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates as a result of different assumptions
or conditions.
30
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
New Office Lease Commitments
We entered into a lease agreement for our U.S. office space on October 10, 2007. The lease has a
term of three years, with a commencement date of January 1, 2008 and covers approximately 5,200
total rentable square feet. The annual rent is approximately $66 and the lease provides us with an
option to renew for an additional three-year terms at the then-current market rate.
As of December 31, 2007, the outstanding aggregate principal balance on these loans and capital
leases was approximately $3,837. The interest rates on our loans and lines of credit range from
0.81% to 7.00% per annum. These interest rates are subject to change and we cannot predict an
increase or decrease in rates, if any.
|
|
|
|
|
|
|
|
|
|
|
Dec.31, |
|
June 30, |
|
|
2007 |
|
2007 |
|
|
(unaudited) |
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
Denominated in Singapore dollars; interest is at the bank’s
prime rate (4.25% at December 31, 2007
and June 30, 2007) plus 1% per annum |
|
$ |
— |
|
|
$ |
16 |
|
|
|
|
|
|
|
|
|
|
Denominated in Singapore dollars; interest rate is at the
bank’s prime rate (4.25% at December 31, 2007 and June 30,
2007) plus 1% per annum |
|
|
40 |
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
Denominated in Thailand baht; interest is at the bank’s
prime rate (7.00% at December 31, 2007 and June 30, 2007) |
|
|
1 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
Denominated in Singapore dollars; interest is at the
bank’s prime rate (2.48% at December 31, 2007 and June 30,
2007) plus 3.5% per annum |
|
|
— |
|
|
|
309 |
|
|
|
|
|
|
|
|
|
|
Denominated in Singapore dollars; interest is at the
bank’s prime rate (4.25% at December 31, 2007 and June 30,
2007) plus 1% per annum |
|
|
112 |
|
|
|
161 |
|
|
|
|
|
|
|
|
|
|
Denominated in Singapore dollars; interest is at the
bank’s prime rate (2.51% at December 31, 2007) plus 3.0%
per annum |
|
|
3,454 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
$ |
3,607 |
|
|
$ |
675 |
|
|
|
|
Capital leases: |
|
|
|
|
|
|
|
|
Denominated in Singapore dollars
with a fixed interest rate ranging from 4.19% to 6.02% per
annum |
|
$ |
225 |
|
|
$ |
269 |
|
|
|
|
|
|
|
|
|
|
Denominated in Malaysia ringgit
with a fixed interest rate of 4.30% per annum |
|
|
2 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
Denominated in U.S. dollars
with a fixed interest rate of 0.81% per annum |
|
|
3 |
|
|
|
4 |
|
|
|
|
Subtotal |
|
$ |
230 |
|
|
$ |
280 |
|
|
|
|
Total |
|
$ |
3,837 |
|
|
$ |
955 |
|
|
|
|
31
In the six months ended December 31, 2007, we have entered into the following contractual
obligation with minimum annual payments for the indicated period as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar |
|
|
Calendar |
|
|
Calendar |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
Year |
|
|
Year |
|
|
|
|
|
|
|
|
|
|
Fair |
|
As of December 31, |
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Thereafter |
|
|
Total |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominated in
Singapore dollars;
interest is at the
bank’s prime rate
(2.51% at December
31, 2007) plus 3.0%
per annum |
|
$ |
1,329 |
|
|
$ |
1,279 |
|
|
$ |
846 |
|
|
$ |
— |
|
|
$ |
3,454 |
|
|
$ |
3,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The outstanding aggregate principal balance on these loans and capital leases was mainly utilized
by our Singapore operations. In the first quarter of fiscal 2008, the Company took out a new term
loan of $3,687 to support its long-term investment and potential business expansion opportunities
in Singapore and China. As the majority of our overall net sales were contributed from the
Singapore operations, we believe that the Singapore operations will be able to meet repayment of
its loans and capital obligations. The Thailand operation utilized term loans to finance the
extension of a building in Bangkok and it will be able to meet its obligations thereunder, as the
operation has been generating cash for the past few years.
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 dollars, European euros, Malaysian ringgit, Thai baht and other currencies. During the
six months ended December 31, 2007, we had no material derivative financial instruments or other
foreign exchange risk hedging devices. With or without hedges, a portion of our costs, revenues and
operating margins may be affected by fluctuations in exchange rates, primarily between the U.S.
dollar and such foreign currencies, although foreign exchange risks have not been material to our
financial position or results of operations to date. We are also affected by fluctuations in
exchange rates if there is a mismatch between our foreign currency denominated assets and
liabilities. Foreign currency translation adjustments resulted in an increase of $918 and $508 to
shareholders’ equity for the six months ended December 31, 2007 and 2006, respectively.
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.
ITEM 4T. CONTROLS AND PROCEDURES
An evaluation was carried out by the Company’s Chief Executive Officer and Chief Financial Officer
of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule
13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31,
2007, the end of the period covered by this Form 10-Q. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that these disclosure controls and
procedures were effective at a reasonable level.
Our internal control system is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles in the United States. There is no
assurance that our disclosure controls or our internal controls over financial reporting can
prevent all errors. An internal control system, no matter how well designed and operated, has
inherent limitations, including the possibility of human error. Because of the inherent
limitations in a cost-effective control system, misstatements due to error may occur and not be
detected. We monitor our disclosure controls and internal controls and make modifications as
necessary. Our intent in this regard is that our disclosure controls and our internal controls
will improve as systems change and conditions warrant.
During the period covered by this report, there have been no changes in the Company’s internal
control over financial reporting that have materially affected or are reasonably likely to
materially affect the Company’s internal control overall financial reporting.
32
TRIO-TECH INTERNATIONAL
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 1A. Risk Factors
CERTAIN RISKS THAT MAY AFFECT OUR FUTURE RESULTS
In addition to the other information set forth in this report, shareholders should carefully
consider the factors discussed in Item 1A Risk Factors in our Annual Report on Form 10-K for
the year ended June 30, 2007, which factors could materially affect our business, financial
condition and/or future results. The risks described in our Annual Report on Form 10-K are
not the only risks facing the Company. Additional risks and uncertainties not currently known
to us or that we currently deem to be immaterial also may materially adversely affect our
business, financial condition and/or operating results. In addition to the risks so noted,
we also note as follows:
Possible dilutive effect of outstanding options
As of December 31, 2007 there were 113,050 shares of Common Stock reserved for issuance upon
exercise of outstanding stock options. The outstanding options are currently exercisable at
exercise prices ranging from $2.66 to $9.57 per share. We anticipate that the trading price
of our Common Stock at the time of exercise of any such outstanding options will exceed the
exercise price under those options. Thus such exercise will have a dilutive effect on our
shareholders.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Malaysian and Singapore regulations prohibit the payment of dividends if the Company does not
have sufficient retained earnings and tax credit. In addition, the payment of dividends can
only be made after making deductions for income tax pursuant to the regulations. Furthermore,
the cash movements from the Company’s 55% owned Malaysian subsidiary to overseas are
restricted and must be authorized by the Central Bank of Malaysia. California law also
prohibits the payment of dividends if the Company does not have sufficient retained earnings
or cannot meet certain asset to liability ratios.
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to Vote of Security Holders
An annual meeting of shareholders was held on December 3, 2007. The matters voted on at the
annual meeting were the election of directors and approval of the 2007 Employee Stock Option
Plan and 2007 director Equity Incentive Plan. Proxies for the annual meeting were solicited
pursuant to Regulation 14A under the Securities Exchange Act of 1934. There was no
solicitation in opposition to management’s nominees for Directors as listed in the Proxy
Statement. All of such nominees were elected. The number of votes for each of such nominees
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director |
|
Votes For |
|
Votes Withheld |
|
No Vote |
|
Total |
Jason Adelman |
|
|
1,962,226 |
|
|
|
586,958 |
|
|
|
676,747 |
|
|
|
3,225,930 |
|
Richard Horowitz |
|
|
2,149,479 |
|
|
|
399,705 |
|
|
|
676,747 |
|
|
|
3,225,930 |
|
A. Charles Wilson |
|
|
2,049,219 |
|
|
|
483,465 |
|
|
|
693,247 |
|
|
|
3,225,930 |
|
Yong Siew Wai |
|
|
1,907,890 |
|
|
|
624,794 |
|
|
|
693,247 |
|
|
|
3,225,930 |
|
Both the 2007 Employee Stock Option Plan and 2007 Director Equity Incentive Plan were
approved and adopted in the meeting.
For the Company’s 2007 Employee Stock Option Plan, there were 292,616 shares in favor,
106,998 shares against, and 1,140 shares abstaining. The broker non-votes of 1,546,093 shares
were not included in the determination of the number of shares present at the meeting and
entitled to vote according to the Company’s Proxy Statement.
33
For the Company’s 2007 Director Equity Incentive Plan, there were 1,289,754 shares in favor,
110,090 shares against, and 910 shares abstaining. The broker non-votes of 1,546,093 shares
were not included in the determination of the number of shares present at the meeting and
entitled to vote according to the Company’s Proxy Statement
Item 5. Other Information
Not applicable
Item 6. Exhibits
|
10.1 |
|
Sales and purchase agreement on office units at Jiang Bei No. 21 Road, Chongqing |
|
|
10.2 |
|
Tenant lease of U.S. office |
|
|
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. |
34
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
TRIO-TECH INTERNATIONAL
|
|
|
By: |
/s/ Victor H.M. Ting
|
|
|
|
VICTOR H.M. TING |
|
|
|
Vice President and
Chief Financial Officer
(Principal Financial Officer) |
|
|
|
Dated: February 12, 2008 |
|
|
35