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TrioTech International Reports Operating Results (10-Q)

May 14, 2009 | About:

TrioTech International (TRT) filed Quarterly Report for the period ended 2009-03-31.

TRIO-TECH INTERNATIONAL is a designer producer and marketer of environmental testing equipment used to test the structural integrity of semiconductor devices that must meet high reliability specifications and rate of turn test equipment for aerospace geographical laboratory and other applfeaications. In addition it owns and operates facilities where a broad range of structural and electronic tests are performed for manufacturers and end-users of merchant and high-reliability semiconductor devices. TrioTech International has a market cap of $6.3 million; its shares were traded at around $1.94 with and P/S ratio of 0.2.

Highlight of Business Operations:

In June 2007, Trio-Tech International Pte., Ltd. established a subsidiary in Chongqing, China. This subsidiary, Trio-Tech (Chongqing) Co., Ltd., has registered capital of RMB 20,000 (Chinese yuan), or approximately $2,600, and is wholly owned by Trio-Tech International Pte., Ltd. On August 27, 2007, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement with JiaSheng Property Development Co., Ltd. (JiaSheng) to jointly develop a piece of property with 24.91 acres owned by JiaSheng located in Chongqing City, China, which is intended for sale after the completion of development. In fiscal 2008, the Company invested an aggregate of RMB 15,000, equivalent to approximately $2,195 based on the exchange rate on March 31, 2009 published by the Federal Reserve System on this project. In the fourth quarter of 2008, the investment of RMB 5,000, or approximately $732 was returned to the Company, which reduced the investment in this project to $1,463. The Company also recorded a profit of RMB 750, approximately $110 in investment income in the fourth quarter of 2008. In October 2008, the Company received a second return on investment principal of RMB 1,988, or $291 and investment income of RMB 1,312, or $192 from JiaSheng. In accordance with APB 18, The Equity Method of Accounting for Investments in Common Stock, management recorded the transaction using the cost method of accounting.

On October 23, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement with JiaSheng to purchase four units of commercial property and two units of residential property, totaling 1,391.70 square meters located in Chongqing, China. The total purchase price was RMB 7,042, equivalent to approximately $1,030 based on the exchange rate as of March 31, 2009 published by the Federal Reserve System. In October 2008, the Company made a cash down payment of 10% in the amount of RMB 704, or $103. In November 2008, the Company paid an additional RMB 2,908 in cash, or $426, from internally generated funds of the Company. The remaining balance was offset by the investment return the Company earned related to the No. B48 property. The Company and JiaSheng agreed to offset the investment return from the No. B48 property in the BeiPei district of Chongqing City against the purchase price of this commercial and residential property. In addition, the Company charged JiaSheng RMB130, or $19, as penalties for the delay in the payment of investment principal and investment income. The penalty was also used to also offset the purchase price of the commercial and residential property. As of March 31, 2009, the Company paid cash in the amount of $529, and offset amounts of $290 as the return of investment principal, $192 as investment income and $19 as the penalties charged for this new commercial and residential property totaling $1,030.

Net sales for the nine and three months ended March 31, 2009 were $15,370 and $3,578, respectively, a decrease of $18,006 and $4,877, respectively, when compared to the same periods of the prior year. As a percentage, total net sales decreased by 53.9% for the nine months and decreased by 57.7% for the three months ended March 31, 2009, 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) decreased by $17,639 to $11,641 and by $4,151 to $3,252 for the nine months and three months ended March 31, 2009, respectively, compared to the same period of the prior year. This decrease was primarily due to a drop in sales in our Singapore and China operations as a result of the instability of the financial markets and their influence on the global economy . Net sales into and within the United States were $3,729 and $326 for the nine and three months ended March 31, 2009, respectively, a decrease of $367 and $726, respectively, when compared to the same periods of the prior year.

General and administrative expenses decreased by $972, or 46.8%, compared to the same period of fiscal 2008, from $2,075 to $1,103 for the three months ended March 31, 2009. The decrease was attributable to a decrease in payroll expenses and a decrease in officer and executive compensation in the third quarter of fiscal 2009. Since the third quarter of fiscal 2008 ending March 31, 2008, we undertook several cost reduction actions. We reduced our headcount by approximately 65 employees since September 30, 2008. In the second quarter of 2009, we implemented four-day work weeks for all the employees in the Singapore operation, which reduced our employee compensation by approximately 20%. On February 27, 2008, in view of anticipated reductions in service revenue for fiscal 2008, our Chief Executive Officer, Chief Financial Officer and directors voluntarily decreased their base salary to 50% of the base salary agreed to in July 2007. As a result, our compensation for the officers and executives decreased by $99 in the third quarter of fiscal 2009.

The impairment loss decreased by $346 for the three months ended March 31, 2009, from $441 to $95 compared to the same quarter of fiscal 2008. The impairment loss of $95 in the third quarter of fiscal year 2009 was for some testing equipment in our Malaysia operation, which was beyond repairable conditions. The impairment loss for the three months ended March 31, 2008 consisted of $221 from certain advanced burn-in testing equipment in the Singapore operations as a result of the termination of the advanced burn-in testing service contract with one of our major customers. An impairment of $75 related to the burn-in testing system in our existing burn-in facilities in China due to change in demand for certain burn-in services, which in turn made certain of our existing burn-in facilities obsolete. An impairment of $57 related to the building renovations for certain testing projects due to a decrease in a customer s order in our Shanghai operations in China. The remaining impairment of $88 related to certain testing machinery equipment in our Singapore operation due to a decrease our testing backlog and projected future sales.

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