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TRIO TECH INTERNATIONAL - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Edgar Glimpses Via Acquire Media NewsEdge) Overview
The following should be read in conjunction with the condensed consolidated
financial statements and notes in Item I above and with the audited consolidated
financial statements and notes, the information under the headings "Risk
Factors" and "Management's discussion and analysis of financial condition and
results of operations" in the our Annual Report on Form 10-K for the fiscal year
ended June 30, 2011.
Trio-Tech International ("TTI") was incorporated in 1958 under the laws of the
State of California. As used herein, the term "Trio-Tech" or "Company" or "we"
or "us" or "Registrant" includes Trio-Tech International and its subsidiaries
unless the context otherwise indicates. Our mailing address and executive
offices are located at 16139 Wyandotte Street, Van Nuys, California 91406, and
our telephone number (818) 787-7000.
The Company is a provider of environmental and reliability test equipment and
services to the semiconductor industry. Our customers rely on us to verify that
their semiconductor components meet or exceed the rigorous reliability standards
demanded for aerospace, communications and other electronics products.
TTI generates more than 90% of its revenue from its three core business segments
in the test and measurement industry, i.e. manufacturing of test equipment,
testing services and distribution of test equipment. In 2007, we added a real
estate revenue segment and in 2009, and a fabrication segment when we ventured
into providing fabrication service for oil and gas equipment industry.
Manufacturing
TTI develops and manufactures an extensive range of test equipment used in the
"front end" and the "back end" manufacturing processes of semiconductors. Our
equipment includes leak detectors, autoclaves, centrifuges, burn-in systems and
boards, HAST testers, temperature controlled chucks, wet benches and more.
Testing
TTI provides comprehensive electrical, environmental, and burn-in testing
services to semiconductor manufacturers in our testing laboratories in Southeast
Asia and the United States. Our customers include both manufacturers and
end-users of semiconductor and electronic components who look to us when they do
not want to establish their own facilities. The independent tests are performed
to industry and customer specific standards.
Distribution
In addition to our own products and services, TTI also provides an extensive
range of complementary environmental and reliability test equipment from
reputable manufacturers through our distribution operations. Such equipment
include temperature cycling and shock test chambers, reflow ovens, mechanical
shock testers, drop testers and more.
Real Estate
In 2007, TTI invested in real property in Chongqing, China, which generated
investment returns as well as investment income from real estate development
projects and rental income from properties.
Fabrication
To mitigate concentration risks arising from industry concentration and customer
concentration in our core businesses, TTI invested in a new business that
provides, product and services to the oil and gas industry. This business
operates from a yard facility in Indonesia and fabricates steel structures, pipe
spools, skid equipment packages and modules, heat transfer and process
equipment.
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Table of Contents
Second Quarter Fiscal 2012 Highlights
· Manufacturing segment revenue decreased by $2,071, or 39.2%, to $3,216 for the
second quarter of fiscal 2012, compared to $5,287 for the same period in
fiscal 2011.
· Testing segment revenue decreased by $378, or 11.8%, to $2,815 for the second
quarter of fiscal 2012, compared to $3,193 for the same period in fiscal 2011.
· Distribution segment revenue decreased by $119, or 58.3%, to $85 for the
second quarter of fiscal 2012, compared to $204 for the same period in fiscal
2011.
· Real estate segment revenue decreased by $724, or 93.8%, to $48 for the second
quarter of fiscal 2012, compared to $772 for the same period in fiscal 2011.
· Fabrication Services segment revenue increased by $362, or 389.2%, to $455 for
the second quarter of fiscal 2012, compared to $93 for the same period in
fiscal 2011.
· The overall gross profit margins decreased by 18.8% to 11.4% for the second
quarter of fiscal 2012, from 30.2% for the same period in fiscal 2011.
· Loss from operations increased by $1,977 to $1,606 for the second quarter of
fiscal 2012, compared to an income of $371 for the same period in fiscal 2011.
· General and administrative expenses as a percentage of revenue increased by
8.6% to 32.7% for the second quarter of fiscal 2012, from 24.1% for the same
period in fiscal 2011.
· Selling expenses as a percentage of revenue increased by 0.6% to 1.9% for the
second quarter of fiscal 2012, from 1.3% for the same period in fiscal 2011.
· Net loss for the second quarter of 2012 was $1,203 as compared to a net income
of $187 for the same period in fiscal 2011.
Results of Operations and Business Outlook
The following table sets forth our revenue components for the three and six
months ended December 31, 2011 and 2010, respectively.
Three Months Ended Six Months Ended
Revenue Components December 31, December 31,
2011 2010 2011 2010
Revenue:
Manufacturing 48.6 % 55.4 % 39.0 % 63.2 %Testing Services 42.5 33.4 39.6 29.6
Fabrication Services 6.9
1.0 18.2 1.1
Distribution 1.3 2.1 2.6 1.9
Real Estate 0.7 8.1 0.6 4.2
Total 100.0 % 100.0 % 100.0 % 100.0 %
Revenue for the three months and six months ended December 31, 2011 was $6,619
and $15,418, respectively, a decrease of $2,930 and $7,160, respectively, when
compared to the revenue for the same periods of the prior fiscal year. As a
percentage, revenue decreased by 30.7% and 31.7% for the three and six months
ended December 31, 2011, respectively, when compared to total revenue for the
same periods of the prior year.
Revenue into and within China, the Southeast Asia regions and other countries
(except revenue into and within the United States) decreased by $2,682, or
29.9%, to $6,283 and by $7,006, or 32.3%, to $14,674 for the three months and
six months ended December 31, 2011, respectively, as compared with $8,965 and
$21,680 for the same periods of last fiscal year. The decrease was primarily due
to a decrease in revenue in the manufacturing segment in our Singapore
operation, in the testing segment in our Malaysia operation and in the real
estate segment in our China operation, but partially offset by an increase in
revenue in the fabrication services segment in our Indonesia operation. Revenue
into and within the United States was $336 and $744 for the three months and six
months ended December 31, 2011, respectively, a decrease of $248 and $154,
respectively, from $584 and $898 for the same periods of the prior year. The
decrease in three months result was mainly due to a decrease in market demand
for our products in the U.S. market in the second quarter of fiscal 2012 as
compared to the same period in fiscal 2011.
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Revenue for the three and six months ended December 31, 2011 can be discussed
within the five segments as follows:
Manufacturing Segment
Revenue in the manufacturing segment as a percentage of total revenue was 48.6%
and 39.0% for the three and six months ended December 31, 2011, respectively, a
decrease of 6.8% and 24.2% of total revenue, respectively, when compared to the
same periods of the last fiscal year. The absolute amount of revenue decreased
by $2,071 and $8,247 to $3,216 and $6,014 for the three and six months ended
December 31, 2011, respectively, compared to the same periods of the last fiscal
year.
The decrease in revenue generated by the manufacturing segment in the second
quarter of fiscal 2012 was primarily due to a decrease in capital spending by
one of our major customers for the testing and production of their
semiconductors compared to the same period of last fiscal year. The revenue in
the manufacturing segment from this major customer accounted for 53.6% and 70.0
%, and 50.3% and 80.6% of our total revenue in the manufacturing segment for the
three months and six months ended December 31, 2011 and 2010, respectively. The
future revenue in our manufacturing segment will be significantly affected by
the purchase and capital expenditure plans of this major customer, if the
customer base cannot be increased.
Testing Services Segment
Revenue in the testing segment as a percentage of total revenue was 42.5% and
39.6% for the three and six months ended December 31, 2011, respectively, an
increase of 9.1% and 10.1%, respectively, of total revenue when compared to the
same periods of the last fiscal year. Although there was an increase in
percentage of total revenue from the testing segment, there was a decrease in
revenue in absolute dollar amount as compared to the same period in last fiscal
year. The absolute amount of revenue decreased by $378 to $2,815 and by $561 to
$6,106 for the three and six months ended December 31, 2011, respectively,
compared to the same periods of the last fiscal year.
The decrease in revenue generated by the testing segment was primarily due to a
decrease in testing volume in our Malaysia and Thailand operations, but
partially offset by an increase in testing volume in our China operations. The
decrease in testing volume in our Singapore, Malaysia and Thailand operations
was mainly caused by our major customers reducing their orders due to the
prevailing global market slowdown. Malaysia operation, despite lower volume,
incurred higher cost to meet the major customer's quality standard requirement.
Additionally, our Thailand operation was affected by a slowdown caused by severe
flooding in Thailand, during second quarter in fiscal 2012. Demand for testing
services varies from country to country depending on changes taking place in the
market and our customers' forecasts. As it is difficult to accurately forecast
fluctuations in the market, management believes it is necessary to maintain
testing facilities in close proximity to our customers in order to make it
convenient for them to send us their newly manufactured parts for testing and to
enable us to maintain a share of the market.
Distribution Segment
Revenue in the distribution segment accounted for 1.3% and 2.6% of total revenue
for the three and six months ended December 31, 2011, respectively, a decrease
of 0.8% and an increase of 0.7%, respectively, when compared to the same periods
of the prior year. The absolute amount of revenue decreased by $119 to $85 and
by $30 to $403 for the three and six months ended December 31, 2011,
respectively, compared to the same periods of the last fiscal year. The decrease
in revenue was mainly due to a decrease in the orders from our existing
customers, which was partially offset by orders from new customers.
Real Estate Segment
The real estate segment accounted for 0.7% and 0.6% of total net revenue for the
three and six months ended December 31, 2011, respectively, a decrease of
7.4% and 3.6% compared to the same periods in fiscal 2011. The absolute amount
of net revenue in the real estate segment decreased by $724 to $48 and by $864
to $95 for the three and six months ended December 31, 2011, respectively,
compared to the same periods of fiscal 2011. The decrease was primarily due to a
decrease in our investment income and rental income in the real estate segment
for the three and six months ended December 31, 2011 as described below.
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The two main revenue components for the real estate segment were investment
income and rental income.
We received an investment income of RMB 4,668 and RMB 5,293 for investment in
property development, or approximately $694 and $786 for the three months and
six months ended December 31, 2010, respectively, while there was no such
investment income for the three and six months ended December 31, 2011, since
the entire investment was progressively received by the end of December 31,
2010.
Income from certain of our property development investments were reclassified to
loan receivable in accordance with ASC Topic 310-10-25 Receivables. Such income
is included in "Other Income".
Rental income for the three and six months ended December 31, 2011 was RMB305
and RMB609 or approximately $47 and $95, respectively, based on the exchange
rate as on December 31, 2011 published by the Monetary Authority of Singapore.
The decrease was primarily due to the disposal of rental property during the
third quarter of fiscal 2011 as compared to RMB528 and RMB1,172 or approximately
$79 and $174, respectively for the same period of the last fiscal year.
"Investment in unconsolidated joint venture" as shown in the balance sheet
consists of the cost of an investment in a joint venture, in which we have a
10.89% interest. Prior to the first quarter of fiscal 2012, the 10.89% ownership
in this China affiliate was recorded on the equity basis. In the first quarter
of fiscal 2012, we concluded that we could no longer exert significant influence
the operating and financial activities of the joint venture. Therefore, we began
accounting for this investment using cost method effective September 29, 2011.
The carrying value of this investment at December 31, 2011 was $771, which
approximates our pro rate share of the underlying value of the joint venture.
Based on ASC Topic 323 - Investment - Other, Cost Method Investments, the
existing cost, after evaluating for impairment, the carrying value of the
investment has been considered to be the cost of investment.
Fabrication Services Segment
As a percentage of total revenue, the revenue generated by the fabrication
services segment accounted for 6.9% and 18.2% of total revenue for the three and
six months ended December 31, 2011, respectively, as compared to 1.0% and 1.1%
of total revenue for the same periods of last fiscal year. The absolute amount
of revenue was $455 and $2,800 for the three and six months ended December 31,
2011, respectively, an increase of $362 and $2,542 as compared to $93 and $258
for the same period of last fiscal year. The increase in revenue generated by
the segment was due to two fabrication projects in the three and six months
ended December 31, 2011. Although we have been in the fabrication business for
only two years, we believe we are starting to penetrate the market with these
new projects.
Revenue in the fabrication segment decreased by $1,890, or 80.6%, for the second
quarter of fiscal 2012, compared to $2,345 for the first quarter of fiscal 2012.
Revenue in this segment is recognized based on the percentage of completion. The
decrease in revenue was primarily due to the completion of 100% of the two
projects during the first quarter of fiscal 2012. The Company is currently
handling another project which is expected to be completed by the end of the
third quarter of fiscal 2012 and is working on securing further projects.
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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, and decline in demand for certain types
of burn-in devices or equipment, decline in demand for testing services and
fabrication services and other similar factors. One factor that influences
uncertainty is the highly competitive nature of the semiconductor
industry. Another is that some customers are unable to provide a forecast of
the products required in the upcoming weeks; hence it is difficult to plan for
the resources needed to meet these customers' requirements due to short lead
time and last minute order confirmation. This will normally result in a lower
margin for these products, as it is more expensive to purchase materials in a
short time frame. However, the Company has taken certain actions and formulated
certain plans to deal with and to help mitigate these unpredictable factors. For
example, in order to meet manufacturing customers' demands upon short notice,
the Company maintains higher inventories, but continues to work closely with its
customers to avoid stock piling. We have also been improving customer service
from staff by keeping our staff up to date on the newest technology and
stressing the importance of understanding and meeting the stringent requirements
of our customers. Finally, the Company is exploring new markets and products,
looking for new customers, and upgrading and improving burn-in technology while
at the same time searching for improved testing methods of higher technology
chips.
There are several influencing factors which create uncertainties when
forecasting performance of our real estate segment, such as obtaining the rights
by the joint venture to develop the real estate projects in China, inflation in
China, currency fluctuations and devaluation, changes in Chinese laws,
regulations, or their interpretation.
Comparison of the Second Quarter Ended December 31, 2011 ("Q2 2012") and
December 31, 2010 ("Q2 2011")
The following table sets forth certain consolidated statements of income data as
a percentage of revenue for the second quarters of fiscal 2012 and 2011,
respectively:
Three Months Ended
December 31,
2011 2010
Revenue 100.0 % 100.0 %
Cost of sales 88.6 69.8
Gross Margin 11.4 % 30.2 %
Operating expenses :
General and administrative 32.7 % 24.1 %
Selling 1.9 1.3
Research and development 1.1 0.9
Impairment loss 0.0 0.0
Gain on disposal of PP&E 0.0 0.0
Total operating expenses 35.7 % 26.3 %
(Loss)/Income from Operations (24.3) % 3.9 %
Overall Gross Margin
Overall gross margin as a percentage of revenue decreased by 18.8% to 11.4% for
the three months ended December 31, 2011, from 30.2% in the same period of the
last fiscal year primarily due to a decrease in the gross profit margin in the
testing, distribution and real estate segments. That decrease was partially
offset by an increase in gross profit margin in the manufacturing and
fabrication services segments.
Gross profit margin as a percentage of revenue in the manufacturing segment
increased by 2.1% to 17.3% for the three months ended December 31, 2011, from
15.2% in the same period of the last fiscal year. The increase of gross profit
margin was primarily due to higher decrease in material and labour cost as
compared with the decrease in revenue in Singapore operation. The decrease in
material cost was due to the reduction in the procurement to manage the decrease
in revenue. The decrease in revenues was primarily due to decrease in orders
from one major customer as discussed above. In absolute dollar amounts, gross
profits in the manufacturing segment decreased by $249 to $557 for the three
months ended December 31, 2011 from $806 for the same period of the last fiscal
year.
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Gross profit margin as a percentage of revenue in the testing segment decreased
by 35.9% to 8.8% for the three months ended December 31, 2011, from 44.7% in the
same period of the last fiscal year. The decrease was primarily due to a
decrease in testing volume. Significant portions of our cost of goods sold are
fixed in the testing segment. Thus, as the demand of services and factory
utilization decrease, the fixed costs are spread over the decreased output,
which reduces gross profit margin. Our Malaysia operation, despite lower volume,
incurred higher cost to meet the major customer's quality standard requirement.
Although the Thailand operation was affected by a slowdown in Thailand due to
floods during second quarter in fiscal 2012, the fixed cost therefore remained.
Our Tianjin operation was setup with the certain expected testing volume and
incurred fixed costs. However the inflow of testing volume was slower than
expected, reducing gross margin in our Tianjin operation. All of the foregoing
contributed to lower margin in this segment. In absolute dollar amounts, gross
profit in the testing segment decreased by $1,178, to $249 for the three months
ended December 31, 2011 from $1,427 for the same period of the last fiscal year.
Gross profit margin as a percentage of revenue in the distribution segment
decreased by 23.8% to 1.2% for the three months ended December 31, 2011, from
25.0% for the same period of the last fiscal year. The decrease was due to the
change in product mix, as we sold more products with a lower profit margin in
the distribution segment as compared to the same period of last fiscal year. In
terms of absolute dollar amounts, gross profit in the distribution segment for
the three months ended December 31, 2011 was $1, a decrease of $50, compared to
$51 in the same period of the last fiscal year. The decrease in the gross profit
was primarily due to the decrease in the revenue and lower gross margin. The
gross profit margin of the distribution segment was not only affected by the
market price of our products, but also our product mix, which changes frequently
as a result of changes in market demand.
Gross profit margin as a percentage of revenue in the real estate segment was
45.8% for the three months ended December 31, 2011, a decrease of 44.1% as
compared to 89.9% for the same period in the last fiscal year. In absolute
dollar amounts, gross profit in the real estate segment for the three months
ended December 31, 2011 was $22, a decrease of $672, from $694 in the same
period of the last fiscal year. The decrease in the gross profit margin as a
percentage of revenue in the real estate segment was mainly because the
investment in property development reached maturity by the end of the second
quarter of fiscal 2011. There was no investment income for the three months
ended December 31, 2011, as compared to the same period in the last fiscal year.
Because of the short term nature of the investment, the investment was
reclassified as loan receivable since third quarter of the last fiscal year.
Hence the investment income of $65 was recorded as other income for the three
months ended December 31, 2011.
Gross profit margin as a percentage of revenue in the fabrication services
segment was negative 16.0% for the three months ended December 31, 2011, an
improvement of 86.2% as compared to negative margin of 102.2% for the same
period of the last fiscal year. In absolute dollar amounts, gross profit in the
fabrication services segment for the three months ended December 31, 2011 was
negative $73, an improvement of $22, from negative $95 in the same period of the
last fiscal year. The subsidiary started its operating activities late calendar
year 2009. The nature of the industry is such that it takes a few years
initially to optimize the full capacity. The revenue generated from the initial
few orders could not cover the entire fixed cost of the operation, resulting in
a negative gross margin due to underutilization of the plant capacity. The cost
of sales in this segment mainly consisted of rental expenses, depreciation
expenses and cost of direct labor.
Operating Expenses
Operating expenses for the second quarters of fiscal 2012 and 2011 were as
follows:
Three Months Ended
December 31,
(Unaudited) 2011 2010
General and administrative $ 2,166 $ 2,304
Selling 123 121
Research and development 73 87
Total $ 2,362 $ 2,512
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General and administrative expenses decreased by $138 or 6.0%, from $2,304 to
$2,166 for the three months ended December 31, 2011 compared to the same quarter
of last fiscal year. The decrease in general and administrative expenses was
mainly attributable to the decrease in stock option expenses in the corporate
for the second quarter of fiscal 2012 as compared to the same period of last
fiscal year, which was offset by an increase in travel expenses in the corporate
expenses allocation in the Tianjin and Singapore operations.
Selling expenses increased by $2 or 1.7%, for the three months ended December
31, 2011, from $121 to $123 compared to the same quarter of the last fiscal
year. The increase was mainly due to an increase in currency translation loss,
partially offset by a decrease in travel expenses and commission expenses as the
commissionable revenue decreased.
Research and development expenses decreased by $14 or 16.1%, for the three
months ended December 31, 2011, from $87 to $73 compared to the same quarter of
last fiscal year, mainly due to a decrease in research and development efforts
from our Singapore manufacturing operations considering the slowdown.
(Loss) / Income from Operations
Loss from operations was $1,606 for the three months ended December 31, 2011 as
compared to an income from operations of $371 for the three months ended
December 31, 2010, mainly due to the decrease in revenue and gross margins, as
previously discussed.
Interest Expense
Interest expense for the second quarter of fiscal 2012 and 2011 was as follows:
Three Months Ended
December 31,
(Unaudited) 2011 2010
Interest expenses $ (70 ) $ (59 )
Interest expense increased by $11 to $70 for the three months ended December 31,
2011, primarily due to new bank credit facilities by the Singapore operation for
working capital. We are trying to keep our debt at a minimum in order to save
financing costs. As of December 31, 2011, the Company had an unused line of
credit of $3,388.
Other (Expenses) / Income, Net
Other (expenses) / income, net for the second quarter of fiscal 2012 and 2011
were as follows:
Three Months Ended
December 31,
(Unaudited) 2011 2010Other (expenses) / income, net $ (23 ) $ 183
Other expenses was $23 for the three months ended December 31, 2011 as compared
to other income of $183 in the same period of the last fiscal year, primarily
attributable to foreign currency transaction loss, which was partially offset by
interest income from the loan receivable in the real estate segment.
Income Tax Benefit / (Expenses)
Income tax benefit for the three months ended December 31, 2011 was $136, as
compared to income tax expenses of $162 for the same quarter last fiscal year.
The increase in income tax benefit was mainly due to losses generated by the
China, Thailand and Malaysia operations, which was partially offset by the
deferred tax for the timing difference recorded for the three months
ended December 31, 2011 as compared to the same period in the previous fiscal
year.
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Loss from Discontinued Operations
Loss from discontinued operations increased by $1 for the three months ended
December 31, 2011 from nil for the same periods of the last fiscal year. The
increase in the loss from discontinued operations was primarily due to an
increase in general and administrative expenses to maintain the dormant company.
Non-controlling Interest
As of December 31, 2011, we held a 55% interest in Trio-Tech (Malaysia) Sdn.
Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd. Singapore,
PTSHI Indonesia and a 76% interest in Prestal Enterprise Sdn. Bhd. The
non-controlling interest for the three months ended December 31, 2011, in the
net loss of subsidiaries, was $361, an increase of $507 compared to the
non-controlling interest in the net income of $146 for the same period of the
previous fiscal year. The increase in the non-controlling interest in the net
loss of subsidiaries was attributable to the increase in net loss generated from
the Malaysia testing operation as a result of a decrease in revenue and a net
loss generated by the fabrication segment of the SHI Singapore and its
subsidiary PT SHI Indonesia operation as compared to the same period in the
previous fiscal year.
Net (Loss) / Income
Net loss was $1,203 for the three months ended December 31, 2011, as compared to
a net income of $187 for the three months ended December 31, 2010. The increase
in net loss was mainly due to a decrease in revenue, gross margin and an
increase in operating expenses, as previously discussed.
(Loss) / Income per Share
Basic loss per share from continuing operations for the three months ended
December 31, 2011, was $0.36 compared to basic earnings per share of $0.06 in
the same period of the last fiscal year. The loss from discontinued operations
was $1 and nil for the three months ended December 31, 2011 and 2010,
respectively. Basic loss per share attributable to discontinued operations for
the three months ended December 31, 2011 and 2010 was nil per share,
respectively.
Diluted loss per share from continuing operations for the three months ended
December 31, 2011, was $0.36 compared to diluted earnings per share of $0.05 in
the same period of the last fiscal year. The loss from discontinued operations
was $1 and nil for the three months ended December 31, 2011 and 2010,
respectively. Diluted loss per share attributable to discontinued operations for
the three months ended December 31, 2011 was nil per share, respectively.
Segment Information
The revenue, gross margin and income from each segment for the second quarter of
fiscal 2012 and the second quarter of fiscal 2011, respectively, are presented
below. As the revenue and gross margin for each segment have been discussed in
the previous section, only the comparison of income from operations is discussed
below.
Manufacturing Segment
The revenue, gross margin and loss from operations for the manufacturing segment
for the second quarter of fiscal 2012 and 2011 were as follows:
Three Months Ended
December 31,
(Unaudited) 2011 2010
Revenue $ 3,216 $ 5,287
Gross margin 17.3 % 15.2 %
Loss from operations $ (265 ) $ (142 )
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Loss from operations from the manufacturing segment increased by $123 to $265
for the three months ended December 31, 2011 from $142 in the same period of the
last fiscal year, primarily due to a decrease in revenue and gross margin, as
discussed earlier. Operating expenses for the manufacturing segment were $822
and $948 for the three months ended December 31, 2011 and 2010,
respectively. The decrease in operating expenses of $126 was mainly due to a
lower allocation percentage of the corporate charges, decrease in research and
development expenses, decrease in selling expenses due to lower warranty
provision and lower traveling and entertainment expenses in this segment for the
three months ended December 31, 2011, as compared to the same period of last
fiscal year. In the third quarter of fiscal 2011, we decreased the corporate
charge, which is based on the percentage of revenue from all the subsidiaries.
Management reviews its corporate charges percentage periodically to ensure the
amount charged is adequate to cover the corporate expenses.
Testing Segment
The revenue, gross margin and (loss) / income from operations for the testing
segment for the second quarter of fiscal 2012 and 2011 were as follows:
Three Months Ended
December 31,
(Unaudited) 2011 2010
Revenue $ 2,815 $ 3,193
Gross margin 8.8 % 44.7 %(Loss) / Income from operations $ (800 ) $ 571
Loss from operations in the testing segment for the three months ended December
31, 2011 was $800, an increase of $1,371, compared to an income of $571 in the
same period of the last fiscal year. The increase in operating loss was
attributable to a decrease of $1,178 in gross margin, as discussed earlier, and
an increase of $193 in operating expenses. Operating expenses were $1,049 and
$856 for the three months ended December 31, 2011 and 2010, respectively. The
increase in operating expenses was mainly attributable to an increase in
expenses in the Malaysia testing operation due to the higher manpower cost, as
compared to the same period of last fiscal year.
Distribution Segment
The revenue, gross margin and (loss) / income from operations for the
distribution segment for the second quarter of fiscal 2012 and 2011 were as
follows:
Three Months Ended
December 31,
(Unaudited) 2011 2010
Revenue $ 85 $ 204
Gross margin 1.2 % 25.0 %(Loss) / Income from operations $ (12 ) $ 28
Loss from operations in the distribution segment increased by $40 to $12 for the
three months ended December 31, 2011, from an income of $28 in the same period
of the last fiscal year. The increase in operating loss was mainly due to a
decrease in revenue and decrease in gross profit of $50, which was offset by a
decrease in selling expenses and corporate charges. Operating expenses were $13
and $23 for the three months ended December 31, 2011 and 2010, respectively. The
$10 decrease in operating expenses was mainly due to a decrease in commission
expenses, due to decrease in commissionable revenue.
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Real Estate Segment
The revenue, gross margin and (loss)/income from operations for the real estate
segment for the second quarters of fiscal 2012 and 2011 were as follows:
Three Months Ended
December 31,
(Unaudited) 2011 2010
Revenue $ 48 $ 772
Gross margin 45.8 % 89.9 %
(Loss)/Income from operations $ (9 ) $ 594
Loss from operations in the real estate segment for the three months ended
December 31, 2011 was $9, an increase of $603, compared to an income of $594 for
the same period of the last fiscal year. The increase in operating loss was
mainly due to a decrease in revenue and decrease in gross profit of $672, which
was offset by a decrease in operating expenses of $69. The operating expenses
were $31 and $100 for the three months ended December 31, 2011 and 2010,
respectively. The decrease in operating expenses as compared to the same quarter
in last fiscal year, was primarily due to decrease in travel expenses as a
result of less travel by management to the China office, decrease in corporate
charges due to lower revenue, decrease in rental expenses due to the relocation
of the office.
Fabrication Services
The revenue, gross margin and loss from operations for the fabrication
services segment for the second quarters of fiscal 2012 and 2011 were as
follows:
Three Months Ended
December 31,
(Unaudited) 2011 2010
Revenue $ 455 $ 93
Gross margin (16.0) % (102.2) %
Loss from operations $ (278 ) $ (218 )
Loss from operations in the fabrication services segment was $278 for the three
months ended December 31, 2011, an increase of $60, compared to a loss of $218
for the same period of the last fiscal year. The increase in operating loss was
mainly due to an increase in operating expenses of $82, which was caused by
travel expenses and other project related expenses, partially offset by a
decrease in negative gross margin of $22. Operating expenses were $205 and $123
for the three months ended December 31, 2011 and 2010, respectively. Despite the
underutilization of the fabrication facilities, there was a significant
improvement in the gross margin loss was mainly due to a increase in revenue, as
previously discussed.
Corporate
The loss from operations for corporate for the second quarters of fiscal 2012
and 2011 were as follows:
Three Months Ended
December 31,
(Unaudited) 2011 2010
Loss from operations $ (242 ) $ (462 )
Corporate operating loss decreased by $220 to $242 for the three months ended
December 31, 2011, from $462 in the same period of the last fiscal year. The
decrease in operating loss was mainly due to a decrease in stock option expenses
which was partially offset by the increase in insurance, travel expenses and
decrease in corporate overhead recharged, as corporate overhead is recharged
based on percentage of revenue and during this period the revenue was lower. In
the second quarter of fiscal 2012, stock options covering 37,500 and 50,000
shares of our Common Stock were granted pursuant to the 2007 Employee Plan and
the 2007 Director Plan, respectively, recording a stock option expenses of $174.
In the second quarter of fiscal 2011. we granted 100,000 shares of stock options
pursuant to the 2007 Employee Plan and 150,000 shares of stock option pursuant
to Director Plan. Therefore, a stock option expense of $517 was recorded during
the three months ended December 31, 2010.
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Comparison of the Six Months Ended December 31, 2011 and December 31, 2010
Six Months Ended
December 31,
2011 2010
Revenue 100.0 % 100.0 %
Cost of sales 86.0 75.1
Gross Margin 14.0 % 24.9 %
Operating expenses :
General and administrative 27.7 % 18.3 %
Selling 1.7 1.1
Research and development 1.0 0.5
Impairment loss 0.0 0.0
Gain on disposal of PP&E 0.0 0.0
Total operating expenses 30.4 % 19.9 %(Loss) / Income from Operations (16.4 )% 5.0 %
Overall Gross Margin
Overall gross margin as a percentage of revenue decreased by 10.9% to 14.0% for
the six months ended December 31, 2011, from 24.9% in the same period of the
last fiscal year primarily due to a decrease in the gross profit margin in the
testing, distribution and real estate segments, which was partially offset by an
increase in gross profit margin in the manufacturing and fabrication services
segments.
Gross profit margin as a percentage of revenue in the manufacturing segment
increased by 2.6% to 17.0% for the six months ended December 31, 2011, from
14.4% in the same period of the last fiscal year. In terms of absolute dollar
amounts, gross profit decreased by $3,474 to $2,156 for the six months ended
December 31, 2011 as compared to $5,630 for the same period in last fiscal year.
The improvement in gross margin was primarily due to a decrease in labor cost as
we reduced our headcount in the manufacturing since first quarter of fiscal 2012
resulting in a decrease in fixed cost in our Singapore operations.
Gross profit margin as a percentage of revenue in the testing segment decreased
by 27.1% to 14.8% for the six months ended December 31, 2011 from 41.9% in the
same period of the last fiscal year. The decrease was primarily due to decrease
in testing revenue and Malaysia operation, despite lower volume, incurred higher
cost to meet the major customer's quality standard requirement. Although the
Thailand operation was affected by a slowdown in Thailand due to floods during
second quarter in fiscal 2012, the fixed cost therefore remained. Our Tianjin
operation was setup with certain expected testing volume and incurred fixed
costs. However the inflow of testing volume is slower than expected reducing
gross margin in our Tianjin operation. All of the foregoing contributed to lower
margin in this segment. Significant portions of our operating costs are fixed in
the testing segment. Thus, as the demand of services and factory utilization
decrease, the fixed costs are spread over the decreased output, which
deteriorate gross profit margin. In terms of absolute dollar amounts, gross
profit in the testing segment decreased by $1,886, to $906 for the six months
ended December 31, 2011 from $2,792 for the same period of the last fiscal year.
Gross profit margin as a percentage of revenue in the distribution segment
decreased by 12.8% to 11.2% for the six months ended December 31, 2011, from
24.0% for the same period of the last fiscal year. The decrease was due to the
product mix, as we sold more products with a lower profit margin in the
distribution segment as compared to the same period of last fiscal year. In
terms of absolute dollar amounts, gross profit in the distribution segment for
the six months ended December 31, 2011 was $45, a decrease of $59, compared to
$104 in the same period of the last fiscal year. The decrease in the gross
profit was primarily due to the decrease in the revenue and lower gross margin.
The gross profit margin of the distribution segment was not only affected by the
market price of our products, but also our product mix, which changes frequently
as a result of changes in market demand.
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Gross profit margin as a percentage of revenue in the real estate segment was
45.3% for the six months ended December 31, 2011, a decrease of 41.4% from 86.7%
for the same period in the last fiscal year. In terms of absolute dollar
amounts, gross profit in the real estate segment for the six months ended
December 31, 2011 was $43, a decrease of $788 from $831 in the same period of
the last fiscal year. The decrease in the gross profit margin as a percentage of
revenue in the real estate segment was mainly due to no investment income for
the six months ended December 31, 2011, as compared to $776 for the same period
in the previous fiscal year. Due to the short term nature of the investment, it
was classified as loan receivable since third quarter of the last fiscal year.
The investment income of $129 was recorded as other income for the six months
ended December 31, 2011.
Gross profit margin as a percentage of revenue in the fabrication services
segment was 5.0% for the six months ended December 31, 2011, an improvement of
61.2% from a negative margin of 56.2% for the same period of the last fiscal
year. In terms of absolute dollar amounts, gross profit in the fabrication
services segment for the six months ended December 31, 2011 was $140, an
increase of $285, from negative $145 in the same period of the last fiscal
year. Revenue in this segment increased by $2,542 to $2,800 for the six months
ended December 31, 2011, as compared to $258 for the same period of last fiscal
year primarily due to securing and completing the orders for two projects for
mobile offshore production units and living quarters for customers involved in
offshore oil exploration in Southeast Asia in the first quarter of fiscal 2012.
Revenue from these two projects is recognized based on the percentage of
completion. During the three months ended December 31, 2011, these two projects
were completed.
Operating Expenses
Operating expenses for the six months ended December 31, 2011 and 2010 were as
follows:
Six Months Ended
December 31,
(Unaudited) 2011 2010
General and administrative $ 4,264 $ 4,134
Selling 267 249
Research and development 148 116
Impairment loss - -
Loss on disposal of PP&E 4 7
Total $ 4,683 $ 4,506
General and administrative expenses increased by $130, or 3.1%, from $4,134 to
$4,264 for the six months ended December 31, 2011 compared to the same period of
the last fiscal year, primarily in the testing segment and corporate. General
and administrative expenses increased mainly in the testing and fabrication
segment which was partially offset by a decrease in corporate, manufacturing and
real estate segment. The decrease in general and administrative expenses was
mainly attributable to decrease in stock option expenses in the Corporate for
the second quarter of fiscal 2012 as compared to the same period of last fiscal
year, which was offset by an increase in travel expenses. The fabrication
segment increased its general and administrative expenses in Singapore and
Indonesia operations mainly due to the increase in the travel and other expenses
to handle the projects.
Selling expenses increased by $18, or 7.2 %, for the six months ended December
31, 2011, from $249 to $267 compared to the same period of the last fiscal year,
mainly due to an increase in currency translation loss, which was partially
offset by a decrease in travel expenses and commission expenses as a result of
less commissionable sales in the distribution and testing segments.
Research and development increased by $32, or 27.6%, for the six months ended
December 31, 2011 from $116 to $148 as compared to the same period of the last
fiscal year, mainly due to an increase in research and development efforts from
our Singapore manufacturing operations in the first quarter. Our Singapore
operations increased efforts into research and development to provide solutions
for our customers and development of equipment to assist in the troubleshooting
and repair process.
Loss on disposal of property, plant and equipment was $4 for the six months
ended December 31, 2011, as compared to a loss of $7 for the same period of the
last fiscal year. The loss the six months ended December 31, 2011 mainly
resulted from the write off of obsolete electrical work for our plant in
the Singapore operation. There was a loss on disposal of an obsolete motor
vehicle in the Singapore operation during the six months ended December 31,
2010.
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(Loss)/Income from Operations
Loss from operations increased by $3,651 from an income of $1,124 to a loss of
$2,527 for the six months ended December 31, 2011 as compared to the same period
of the last fiscal year, mainly due to a decrease in revenue, a decrease in
gross profit margin and an increase in operating expenses.
Interest Expenses
Interest expenses for the six months ended December 31, 2011 and 2010 were as
follows:
Six Months Ended
December 31,
(Unaudited) 2011 2010
Interest expenses $ (131 ) $ (119 )
Interest expense increased by $12 to $131 from $119 for the six months ended
December 31, 2011, as compared to the same period of the last fiscal year due to
new bank credit facilities entered into by the Singapore operation for the
working capital.
Other Income / (Expenses), Net
Other income / (expenses), net for the six months ended December 31, 2011 and
2010 were as follows:
Six Months Ended
December 31,
(Unaudited) 2011 2010Other income / (expenses), net $ 21 $ 143
Other income decreased by $122 to $21 for the six months ended December 31, 2011
from $143 in the same period of the last fiscal year, primarily attributable to
foreign currency transaction loss which was partially offset by interest income
resulting from the reclassification of investment income from certain of
ourproperty development projects to a loan receivable.
Income Tax Benefit / (Expenses)
Income tax benefit for the six months ended December 31, 2011 was $99, an
increase of $257, compared to income tax expenses of $158 for the same period of
the last fiscal year. The increase in income tax benefit was mainly due to a
decrease in income in the China, Thailand, Malaysia and Singapore operations and
deferred tax due to timing difference for the six months ended December 31,
2011. It was partially offset by the operating loss carry forward in our
Singapore operation.
Loss from Discontinued Operations
Loss from discontinued operations was $2 for the six months ended December 31,
2011 and for the same period of the last fiscal year. The loss from discontinued
operations was primarily attributable to general and administrative expenses in
maintaining the dormant company in our Shanghai operation.
Non-controlling Interest
As of December 31, 2011, we held 55% interest in Trio-Tech Malaysia, Trio-Tech
(Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd., Singapore, PTSHI
Indonesia and 76% interest in Prestal Enterprise Sdn. Bhd. The non-controlling
interest for the six months ended December 31, 2011, in the net loss of
subsidiaries, was $544, an increase of $854 compared to the non-controlling
interest in the net income of $310 for the same period of fiscal 2011. The
increase in the non-controlling interest in the net loss of subsidiaries was
attributable to the increase in net loss generated from the Malaysia testing
operation as a result of a decrease in revenue and a net loss generated by the
fabrication segment of the SHI Singapore operation as compared to the same
period in the prior fiscal year.
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Net (Loss)/Income
Net loss was $2,007 for the six months ended December 31, 2011, an increase of
$2,685 from an income of $678 for the same period in the last fiscal year. The
increase in net loss was mainly due to a decrease in revenue and gross margin
and an increase in operating expenses, as discussed above.
(Loss) / Income per Share
Basic loss per share from continuing operations for the six months ended
December 31, 2011, was $0.60 compared to basic earnings per share of $0.21 in
the same period of the last fiscal year. The loss from discontinued operations
was $2 for the six months ended December 31, 2011 and 2010, respectively. Basic
loss per share attributable to discontinued operations for the six months ended
December 31, 2011 and 2010 were nil per share, respectively.
Diluted loss per share from continuing operations for the six months ended
December 31, 2011, was a loss of $0.60 compared to diluted earnings per share of
$0.20 in the same period of the last fiscal year. The loss from discontinued
operations was $2 for the six months ended December 31, 2011 and 2010,
respectively Diluted loss per share attributable to discontinued operations for
the six months ended December 31, 2011 and 2010 were nil per share,
respectively.
Segment Information
The revenue, gross profit margin and income or loss from each segment for the
six months ended December 31, 2011 and 2010, respectively, are presented
below. As the segment revenue and gross margin for each segment have been
discussed in the previous section, only the comparison of income from operations
is discussed below.
Manufacturing Segment
The revenue, gross margin and (loss)/income from operations for the
manufacturing segment for the six months ended December 31, 2011 and 2010 were
as follows:
Six Months Ended
December 31,
(Unaudited) 2011 2010
Revenue $ 6,014 $ 14,261
Gross margin 17.0 % 14.4 %(Loss)/Income from operations $ (580 ) $ 10
Loss from operations from the manufacturing segment increased by $590 to $580
for the six months ended December 31, 2011 from an income of $10 in the same
period of the last fiscal year, primarily due to a decrease in revenue and gross
profit of $1,026, as discussed earlier. Operating expenses for the manufacturing
segment were $1,602 and $2,038 for the six months ended December 31, 2011 and
2010, respectively. The decrease in operating expenses of $436 was mainly due to
a lower allocation percentage of corporate charges due to lower revenue in this
segment for Singapore operations for the six months ended December 31, 2011 as
compared to the same period of last fiscal year.
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Testing Segment
The revenue, gross margin and (loss)/income from operations for the testing
segment for the six months ended December 31, 2011 and 2010 were as follows:
Six Months Ended
December 31,
(Unaudited) 2011 2010
Revenue $ 6,106 $ 6,667
Gross margin 14.8 % 41.9 %(Loss)/Income from operations $ (1,142 ) $ 1,014
Loss from operations in the testing segment for the six months ended December
31, 2011 was $1,142, an increase of $2,156, compared to an income of $1,014 in
the same period of the last fiscal year. The operating loss was attributable to
a decrease of $1,886 in gross profit, which was partially offset by an increase
of $270 in operating expenses. Operating expenses were $2,048 and $1,778 for the
six months ended December 31, 2011 and 2010, respectively. The increase in
operating expenses was mainly attributable to an increase in operating expenses
in the newly incorporated Tianjin operation, which commenced operations in the
third quarter of fiscal 2011.
Distribution Segment
The revenue, gross margin and income from operations for the distribution
segment for the six months ended December 31, 2011 and 2010 were as follows:
Six Months Ended
December 31,
(Unaudited) 2011 2010
Revenue $ 403 $ 433
Gross margin 11.2 % 24.0 %
Income from operations $ 9 $ 59
Income from operations in the distribution segment decreased by $50 to $9 for
the six months ended December 31, 2011, from $59 for the same period of the last
year. The decrease in operating income was mainly due to a decrease in gross
profit of $59, and an increase in operating expenses of $9. Operating expenses
were $36 and $45 for the six months ended December 31, 2011 and 2010,
respectively. The decrease in operating expenses was mainly due to a decrease in
commission expenses, due to a decrease in commissionable revenue.
Real Estate Segment
The revenue, gross margin and (loss)/income from operations for the real estate
segment for the six months ended December 31, 2011 and 2010 were as follows:
Six Months Ended
December 31,
(Unaudited) 2011 2010
Revenue $ 95 $ 959
Gross margin 45.3 % 86.7 %(Loss)/Income from operations $ (15 ) $ 682
Loss from operations in the real estate segment for the six months ended
December 31, 2011 was $15, a decrease of $697 compared to an income of $682 for
the same period of the last fiscal year. The operating loss was mainly due to a
decrease in gross profit of $788, which was partially offset by a decrease in
operating expenses of $91. The operating expenses were $58 and $149 for the six
months ended December 31, 2011 and 2010, respectively. The decrease in operating
expenses was mainly due to a decrease in travel expenses due to lower travel to
China office, and a decrease in the corporate expenses recharged to the segments
due to lower revenue in this segment, as previously discussed.
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Fabrication Services
The revenue, gross profit margin and loss from operations for the fabrication
services segment for the six months ended December 31, 2011 and 2010 were as
follows:
Six Months Ended
December 31,
(Unaudited) 2011 2010
Revenue $ 2,800 $ 258
Gross margin 5.0 % (56.2) %Loss from operations $ (465 ) $ (404 )
Loss from operations in the fabrication services segment was $465 for the six
months ended December 31, 2011 compared to $404 for the same period of the last
fiscal year. The increase in operating loss was mainly due to an increase in
operating expenses by $346, partially offset by improvement in gross profit
margin of $285. The operating expense was $605 and $259 for the six months ended
December 31, 2011 and December 31, 2010, respectively. The increase in operating
expenses was mainly caused by an increase in travel expenses and other project
related expenses.
Corporate
The loss from operations for corporate for the six months ended December 31,
2011 and 2010 were as follows:
Six Months Ended
December 31,
(Unaudited) 2011 2010
Loss from operations $ (334 ) $ (237 )
Corporate operating loss increased by $97 to $334 for the six months ended
December 31, 2011, from $237 in the same period of the last fiscal year. The
increase in operating loss was mainly due to a decrease in recharge of corporate
expenses. Corporate expenses are recharged based on revenues generated by the
subsidiaries, hence since the revenue generated by the subsidiaries was lower as
compared to the same period of last fiscal year, for the six month ended
December 31, 2011, The corporate expenses recharged for the six months ended
December 31, 2011 were $311 as compared to $673 for the same period in last
fiscal year, resulting in a decrease of $362 which was offset by the decrease
in corporate stock option expenses. The stock option expenses for the six months
ended December 31, 2011 were $174 as compared to $598 for the same period in the
last fiscal year, resulting in a decrease of stock option expenses $424. Stock
options granted during the six months ended December 31, 2011 covered 37,500
shares of Common Stock options pursuant to the 2007 Employee Plan and 50,000
shares of Common Stock options pursuant to the 2007 Director Plan as compared to
the same period of last fiscal year during which we granted options covering
100,000 and 150,000 shares of Common Stock pursuant to the 2007 Employee Plan
and 2007 Directors Plan respectively.
Financial Condition
During the six months ended December 31, 2011, total assets increased by $293,
from $36,356 as at June 30, 2011 to $36,649 as at December 31, 2011. The
increase in total assets was primarily due to an increase in short-term
deposits, trade accounts receivables, other receivables, loan receivables from
property development projects and investments, which was partially offset by a
decrease in cash and cash equivalent, inventories, property, plant and
equipment, prepaid expenses and other assets, assets held for sales, investment
property in China, other assets and restricted term deposits.
Cash and cash equivalent were $2,250 as at December 31, 2011,
reflecting a decrease of $861 from $3,111 as at June 30, 2011, primarily due to
payment for the capital expenditure of $1,132 primarily in the Tianjin operation
in China and the Malaysia operation partially offset by withdrawal of the short
term deposits in our Thailand operation.
At December 31, 2011, short-term cash deposits were $1,499, reflecting an
increase of $1,300 from $199 as at June 30, 2011, primarily due to new placement
of the short term deposits during the second quarter of fiscal 2012 by our
Singapore operation from the loan received from a financial institution to meet
the working capital needs, is placed in short term deposit.
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At December 31, 2011, the trade accounts receivable balance increased by $1,071
to $7,883 from $6,812 as at June 30, 2011, primarily due to an increase in
account receivables in Singapore operation as revenue in manufacturing segment
generated towards the end of the second quarter which is not due yet. In
addition, accounts receivable balance increased in the newly incorporated
Tianjin operations and in Suzhou operations due to an increase in testing
segment revenue during the second quarter of fiscal 2012. The rate of turnover
of accounts receivables was 86 days at the end of the second quarter of fiscal
2012 compared with 96 days at fiscal year 2011. The decrease in accounts
receivable turnover was primarily due to improvement in collection for the six
months ended December 31, 2011
At December 31, 2011, other receivables were $532, reflecting an increase of
$223 from $309 as at June 30, 2011. The increase was primarily due to the
project related security deposit which is no longer required as the projects
have been successfully completed was considered as other receivables in the
Indonesian operations. In addition the advance payment to suppliers for the
renovation work in our Singapore operation resulted in the increase in other
receivables.
At December 31, 2011, loan receivable from property development projects was
$1,109, compared to $1083 as at June 30, 2011. The increase was primarily due to
the exchange fluctuation between Singapore dollars and U.S. dollars from June
30, 2011 to December 31, 2011. The loan receivable from property development
projects was primarily attributable to a loan receivable from property
development projects of RMB 5,000 and RMB 2,000, or approximately $792 and $317
based on the exchange rate as on December 31, 2011 published by Monetary
Authority of Singapore, from JiaSheng and JiangHuai, respectively. The
investment was classified as a loan based on ASC Topic 310-10-25 Receivables.
Inventory at December 31, 2011 was $1,988, a decrease of $442, or 18.2% compared
to $2,430 as at June 30, 2011. The decrease in inventory was mainly due to a
decrease in the raw material and work in progress in the Singapore operation as
a result of decreased procurement in the second quarter as compared to first
quarter in fiscal 2012, though partially offset by increase in inventory in
Suzhou operation, due to increased revenue in that operation. The turnover of
inventory was 74 days at the end of the second quarter of fiscal 2012 compared
to 61 days at fiscal year 2011. The increase in the inventory turnover rate was
due to a decrease in revenue in our manufacturing segment in the second quarter
of fiscal 2012 as compared to June 30, 2011.
Prepaid expenses and other current assets were $311 as at December 31, 2011
compared to $348 as at June 30, 2011. The decrease was primarily due to prepaid
utility expenses had been fully amortized in our Tianjin operations during
second quarter of fiscal 2012.
Assets held for sale at December 31, 2011 were $130, as compared to $137 as at
June 30, 2011, consisted solely of a building held for sale in Penang, Malaysia.
The decrease of $7 was due to the currency translation between Singapore dollars
and U.S. dollars from June 30, 2011 to December 31, 2011.
At December 31, 2011, investments were $771, an increase of $7, from $764 as at
June 30, 2011. We made a new investment under "investment in unconsolidated
joint ventures" in the second quarter of fiscal 2011. In the first quarter of
2012, due to the resignation of two directors representing Trio-Tech in the
board of joint venture, the Company concluded that it could no longer exert a
significant influence over Chong Qing Jun Zhou Zhi Ye Co Ltd., operating and
financial activities. Therefore, the Company began accounting for this
investment using the cost method effective September 29, 2011. An impairment
review was made during the quarter ended December 31, 2011 and the carrying
value of this investment at December 31, 2011, was $771, which approximates the
Company's pro rata share of Chong Qing Jun Zhou Zhi Ye Co Ltd. underlying value.
Investment properties in China at December 31, 2011 were $1,232, a decrease from
$1,238 as at June 30, 2011. The decrease was primarily due to depreciation
charged for the six month ended December 31, 2011, which partially offset by the
exchange fluctuation between Singapore dollars and U.S. dollars from June 30,
2011 to December 31, 2011.
Property, plant and equipment decreased by $698, from $14,951 as at June 30,
2011 to $14,253 as at December 31, 2011, mainly due to depreciation of $1,329,
which was partially offset by capital expenditures of $1,132 incurred mainly in
Tianjin and Malaysia operations, and the foreign currency exchange difference
between Singapore dollars and U.S. dollars for the six months ended December 31,
2011.
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Other assets as at December 31, 2011 decreased by $95 to $1,317, compared to
$1,412 at June 30, 2011. The decrease in other assets was primarily due to the
reclassification of a down payment on fixed assets to property, plant and
equipment, which partially offset by new additional down payment of fixed assets
in the Malaysia operation during the six months ended December 31, 2011.
Restricted cash as at December 31, 2011 decreased by $188 to $3,374, compared to
$3,562 at June 30, 2011. It was due to the foreign currency exchange difference
between Singapore dollars and U.S. dollars from June 30, 2011 to December 31,
2011.
Liquidity Comparison
Net cash provided by operating activities decreased by $5,100 to an outflow of
$1,754 for the six months ended December 31, 2011 from an inflow of $3,346 in
the same period of the last fiscal year. The decrease in net cash provided by
operating activities was primarily due to a decrease in net income of $3,539 and
due to an increase in other assets by $816, as previously discussed.
Net cash used in investing activities increased by $1,889, to an outflow of
$2,428 for the six months ended December 31, 2011 from an outflow of $539 for
the same period of the last fiscal year. The increase in cash used in investing
activities was primarily due to a additional placement of the short term
deposits of $1,400 by our Singapore operation during the second quarter of
fiscal 2012 using the cash received from the term loan.
Net cash provided by financing activities for the six months ended December 31,
2011 was $3,042, representing an increase of $3,906 compared to net cash outflow
of $864 during the six months ended December 31 2010. The increase was mainly
due to additional line of credit of $1,392 for our Singapore operation. In the
second quarter of fiscal 2012, our Singapore operation entered into a 3 - year
new loan agreement with a financial institution for the principal amount of
$1,875. The new loan is to finance the company existing and future business
activities.
We believe that our projected cash flows from operations, borrowing availability
under our revolving lines of credit, cash on hand, trade credit and the secured
bank loan will provide the necessary financial resources to meet our projected
cash requirements for at least the next 12 months.
Critical Accounting Estimates & Policies
Beside the accounting policy on revenue recognition 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 adopted the joint
venture, equity method, loan receivable and interest income in the second
quarter of fiscal year 2011.
Joint Venture - The Company analyzes its investments in joint ventures to
determine if the joint venture is a variable interest entity (a "VIE") and would
require consolidation. The Company (a) evaluates the sufficiency of the total
equity at risk, (b) reviews the voting rights and decision-making authority of
the equity investment holders as a group, and whether there are any guaranteed
returns, protection against losses, or capping of residual returns within the
group and (c) establish whether activities within the venture are on behalf of
an investor with disproportionately few voting rights in making this VIE
determination. The Company would consolidate a venture that is determined to be
a VIE if it was the primary beneficiary. Beginning January 1, 2010, a new
accounting standard became effective and changed the method by which the primary
beneficiary of a VIE is determined a primarily qualitative approach whereby the
variable interest holder, if any, has the power to direct the VIE's most
significant activities and is the primary beneficiary. To the extent that the
joint venture does not qualify as VIE, the Company further assess the existence
of a controlling financial interest under a voting interest model to determine
whether the venture should be consolidated.
Equity Method - The Company analyzes its investments in joint ventures to
determine if the joint venture should be accounted for using the equity method.
The management evaluates both Common Stock and in-substance Common Stock whether
they give the Company the ability to exercise significant influence over
operating and financial policies of the joint venture even though the Company
holds less than 50% of the Common Stock and in-substance Common Stock. The net
income of the joint venture will be reported as "Equity in earnings of
unconsolidated joint ventures, net of tax" in the Company's condensed
consolidated statements of operations and comprehensive income.
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Loan Receivables - The loan receivables are classified as current assets carried
at face value and are individually evaluated for impairment. The allowance for
loan losses reflects management's best estimate of probable losses determined
principally on the basis of historical experience and specific allowances for
known loan accounts. All loans or portions thereof deemed to be uncollectible or
to require an excessive collection cost are written off to the allowance for
losses.
Interest Income - Interest income on loans is recognized on an accrual basis.
Discounts and premiums on loans are amortized to income using the interest
method over the remaining period to contractual maturity. The amortization of
discounts into income is discontinued on loans that are contractually 90 days
past due or when collection of interest appears doubtful.
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.
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