Trio-Tech International - 10-Q quarterly report FY

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

FORM 10-Q

 

TRIO-TECH   INTERNATIONAL

818-787-7000

(None)

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 R No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    

Yes  o   No o

 

 

TRIO-TECH    INTERNATIONAL

 

 

           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; changes in U.S. and global financial and equity markets, including market disruptions and significant interest rate fluctuations; and other economic, financial and regulatory factors beyond the Company’s control. 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. 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.

    Unless otherwise required by law, we undertake no obligation to update forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events. Important factors that could cause or contribute to such material differences include those discussed in “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K. You are cautioned not to place undue reliance on such forward-looking statements.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

 

See accompanying notes to condensed consolidated financial statements.

See accompanying notes to condensed consolidated financial statements.

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

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:

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP” hereafter) 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 US GAAP 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 nine months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2009.  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, 2008.

Reclassification: — Certain reclassifications have been made to the previous year’s financial statements to conform to current year presentation, with no effect on previously reported net income.

 

Change in Estimate:During the second quarter of fiscal year 2009, our Singapore operations reversed approximately $159 in accruals based on new and updated information.  This was related to the bonuses provision and annual leave provision that were included in accrued expenses at September 30, 2008.  The provision for bonuses in the amount of $118 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 2009, and employee headcount on June 30, 2008.  As our Singapore operations suffered higher than expected operating losses during the six months ended December 31, 2008, management believed that the Singapore operations would not be able to meet the criteria of the initial financial objectives created at the beginning of fiscal 2009.  The Company does not have any legal or contractual obligation for the payment of bonuses. Accordingly, the over-provision of $159 was reversed during the second quarter of fiscal 2009.

These changes in estimate decreased the cost of sales by $84 and decreased general and administrative expenses by $75. The net impact was an increase in net income for the nine months ended March 31, 2009 of $159, or $0.05 per basic and diluted share.

2.           NEW ACCOUNTING PRONOUNCEMENTS

 

In April 2009, the FASB issued Staff Position (“FSP”) FAS 157-4, Determining Fair Value When the Volume or Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP FAS157-4”). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have significantly decreased and requires that companies provide interim and annual disclosures of the inputs and valuation technique(s) used to measure fair value. FSP FAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009 and is to be applied prospectively. The Company does not expect the adoption of FSP FAS 157-4 to have a significant impact on its financial statements.

 

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-than-Temporary Impairments. FSP FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment guidance to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP FAS 115-2 and FAS 124-2 are effective for interim and annual reporting periods ending after June 15, 2009. The Company does not expect the adoption of FSP FAS 115-2 and FAS 124-2 to have a significant impact on its financial statements.

 

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. FSP FAS 107-1 and APB 28-1 require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP FAS 107-1 and APB 28-1 are effective for interim and annual reporting periods ending after June 15, 2009. Company does not believe that the  adoption of FSP 107-1 and APB 28-1 will have an impact on the Company’s financial statements.

We adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“SFAS”) No. 157, Fair Value Measurements(“SFAS 157”) on July 1, 2008 for financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. SFAS 157 defines fair value, establishes a framework for measuring fair value as required by other accounting pronouncements and expands fair value measurement disclosures. The provisions of SFAS 157 are applied prospectively upon adoption and do not have a material impact on our consolidated financial statements. The disclosures required by SFAS 157 are included in Note 11, Fair Value Measurement, to these consolidated financial statements.

 

We adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115 (“SFAS 159”) as of July 1, 2008. SFAS 159 permits entities to elect to measure many financial instruments and certain other items at fair value. We did not elect the fair value option for any assets or liabilities which were not previously carried at fair value. Accordingly, the adoption of SFAS 159 had no impact on our consolidated financial statements.

In April 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. SFAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP SFAS 142-3”). FSP SFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). FSP SFAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and must be applied prospectively to intangible assets acquired after the effective date. The adoption of this statement is not expected to have a material impact on our consolidated financial position or results of operations.

In March 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. This statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with U.S. GAAP. This statement is effective from November 2008 when the SEC approved the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The implementation of this statement did not have an impact on the Company’s results of operations or financial position.

In March 2008, The Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company has not completed its evaluation of the potential impact, if any, of the adoption of SFAS No. 161 on its consolidated financial position, results of operations and cash flows.

3.            INVENTORIES

 

4.            STOCK OPTIONS

As of March 31, 2009, the Company had 2,750 shares of stock options outstanding under the 1998 Employee Option Plan, which plan was terminated on December 2, 2005 by the Company’s Board of Directors.

On September 24, 2007, the Company’s Board of Directors unanimously adopted the 2007 Employee Stock Option Plan and the 2007 Directors Equity Incentive Plan, which were approved by the shareholders on December 3, 2007.  The 2007 Employee Stock Option Plan provides for awards of up to 300,000 shares of the Company’s Common Stock to employees, consultants and advisors.  The 2007 Directors Equity Incentive Plan provides for awards of up to 200,000 shares of the Company’s Common Stock to the members of the Board of Directors in the form of non-qualified options and restricted stock. These two plans are administered by the Board, which also establishes the terms of the awards.

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 were 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.

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.

The Company’s 2007 Employee Stock Option Plan (the “2007 Employee Plan”), which is shareholder-approved, permits the grant of stock options to its employees of up to 300,000 shares of Common Stock.  Under the 2007 Employee Plan, all options must be granted with an exercise price of not less than “fair market value” as of the grant date and the options granted should be exercisable within a maximum of ten years after the date of grant, or such lesser period of time as is set forth in the stock option agreements. 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 first quarter of fiscal 2009, pursuant to the 2007 Employee Plan, 50,000 shares of stock options were granted to certain officers and employees with an exercise price equal to the fair market value of the Company’s Common Stock (as defined under the 2007 Employee Plan in conformity with Regulation 409A of the Internal Revenue Code of 1986, as amended) at the date of grant.  These options vest over the period as follows: 25% vesting on the grant date, and the balance vesting in equal installments on the next three succeeding anniversaries of the grant date.  The fair market value of 50,000 shares of the Company’s Common Stock issuable upon exercise of stock options granted was approximately $136 based on the fair value of $2.71 per share determined by using the Black Scholes option pricing model.

The Company recognized stock-based compensation expense of approximately $138 in the nine months ended March 31, 2009 under the 2007 Employee Plan.  Unamortized stock-based compensation of $105 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 March 31, 2009, there were 32,750 shares of vested employee stock options. The weighted-average exercise price was $7.79 and the weighted average remaining contractual term was 4.05 years. The total intrinsic value of vested employee stock options during the three months ended March 31, 2009 was zero.  A summary of option activities under the 2007 Employee Plan during the nine months ended March 31, 2009 is presented as follows:

The 2007 Directors Equity Incentive Plan (the “2007 Directors Plan”), which is shareholder-approved, permits the grant of 200,000 shares of Common Stock to its duly elected non-employee directors in the form of non-qualified options and restricted stock. The exercise price of the non-qualified options is 100% of the fair market value of the underlying shares on the grant date.  The options have five-year contractual terms and are generally exercisable immediately as of the grant date.

During the first quarter of 2009, pursuant to the 2007 Directors Plan, 60,000 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 60,000 shares of the Company’s Common Stock issuable upon exercise of stock options granted was approximately $163 based on the fair value of $2.71 per share determined by the Black Scholes option pricing model.  There were no options exercised during the nine month period ended March 31, 2009.  The Company recognized stock-based compensation expense of $163 in the nine month period ended March 31, 2009 under the 2007 Directors Plan.

The intrinsic value of 2,750 options exercisable was zero. Cash received from options exercised in the nine month period ended March 31, 2009 was approximately $3. There were no unvestedstock options under the 1998 Plan as of March 31, 2009.

5.            EARNINGS PER SHARE

The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,Earnings per Share(“EPS”).  Basic EPS are computed by dividing net income available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period.  Diluted EPS give effect to all dilutive potential common shares outstanding during a period.  In computing diluted EPS, the average price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options and warrants.

Options to purchase 214,750 shares of Common Stock at exercise prices ranging from $4.40 to $9.57 per share as of March 31, 2009 were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.

Options to purchase 112,550 shares of Common Stock at exercise prices ranging from $2.66 to $9.57 per share were outstanding as of March 31, 2008 and were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.

 

 

6.       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 nine months ended March 31, 2009 and the twelve months ended June 30, 2008 was adequate.

The following table represents the changes in the allowance for doubtful accounts:

 

7.           WARRANTY ACCRUAL

The Company provides for the estimated costs that may be incurred under its warranty program at the time the sale is recorded.  The Company provides warranty for products manufactured in the term of one year.  The Company estimates the warranty costs based on the historical rates of warranty returns.  The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary.

The following table represents the changes in the warranty accrual:

 

8.         FASB INTERPRETATION NO. 48 (“FIN 48”)

The Company accrues penalties and interest on unrecognized tax benefits when necessary as a component of penalties and interest expenses, respectively.  The Company had not accrued any penalties or interest expenses relating to unrecognized benefits at July 1, 2008 and March 31, 2009.

9.        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 RMB 20,000 (Chinese yuan), or equivalent to approximately U.S. $2,600, and is wholly owned by Trio-Tech International Pte., Ltd. In June 2007, Trio-Tech International Pte., Ltd. infused $2,600 to Trio-Tech (Chongqing) Co., Ltd. to fulfill the capital injection obligation of  Trio-Tech (Chongqing) Co., Ltd. The source of the funds was from the proceeds from the disposition of short-term deposits by Trio-Tech International Pte., Ltd.

On August 27, 2007, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement with JiaSheng Property Development Co., Ltd. (JiaSheng hereafter) to jointly develop a piece of property with 24.91 acres owned by JiaSheng located in Chongqing City, China, which is intended for sale after the completion of development.  Pursuant to the signed agreement, the capital to be invested by Trio-Tech (Chongqing) Co., Ltd. was RMB 10,000, equivalent to approximately U.S. $1,463 based on the exchange rate on March 31, 2009 published by the Federal Reserve System.  On August 28, 2007, Trio-Tech (Chongqing) Co., Ltd. transferred the required amount from its bank account into a special bank account jointly monitored by both Trio-Tech (Chongqing) Co., Ltd. and JiaSheng.  The investment was accounted under the cost method.

On October 22, 2007, the parties received approval from the Chinese District Zoning Regulation Bureau to increase the square meters of the buildings specified in the original Memorandum Agreement dated August 27, 2007 by 9,885 square meters.  As a result, the construction costs of the proposed building project also increased.  On November 15, 2007, Trio-Tech (Chongqing) Co., Ltd. entered into a Supplement Agreement to the Memorandum Agreement dated August 27, 2007 with JiaSheng.  The purpose of this Supplement Agreement was to document another agreement reached by both parties regarding the additional capital infusion to be committed by the respective parties in order to finance the increase in construction costs. The Supplement Agreement did not modify the terms and obligations of both parties specified in the original Memorandum Agreement.  Under the terms of the Supplement Agreement, the Company agreed to invest an additional RMB 9,000, or approximately U.S. $1,317 based on the exchange rate as of March 31, 2009 published by the Federal Reserve System.   On December 17, 2007, Trio-Tech (Chongqing) Co., Ltd. received a list of additional costs incurred for this project, which were RMB 4,000 less than the estimated cost of RMB 9,000.  Accordingly, the Company only transferred RMB 5,000, approximately U.S. $732, from its bank account into the special bank account jointly monitored by both Trio-Tech (Chongqing) Co., Ltd. and JiaSheng.  After that additional capital infusion, the equity ratio owned by the Company in that joint venture was 20%.

In the fourth quarter of 2008, the investment of RMB 5,000, approximately U.S. $732 based on the exchange rate as of March 31, 2009 published by the Federal Reserve System, was returned to the Company, which reduced the investment in this project to $1,463.  After that return of investment, the equity ratio owned by the Company in that joint venture was 15%. The Company also recorded a profit of RMB 750, approximately $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.  The investment income was part of the return on investment based on the total investment amount of RMB 15,000, or $2,195.  After the second return of investment, the equity ratio owned by the Company in that joint venture was 13%.  This investment return was used to offset the purchase of new commercial and residential investment property from JiaSheng as discussed below.

In accordance with APB 18, The Equity Method of Accounting for Investments in Common Stock, management believes that the cost method of accounting is appropriate.

On January 4, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement with MaoYe Property Ltd. to purchase an office space of 827.2 square meters on the 35th floor of a 40 story high office building located in Chongqing, China.  The total cash purchase price was RMB 5,554 (Chinese yuan), equivalent to approximately U.S. $813 based on the exchange rate as of March 31, 2009 published by the Federal Reserve System.  Under the terms of the agreement, the Company paid the purchase price in full on January 4, 2008.  The Company rented this property to a third party on July 13, 2008. The term of the rental agreement is five years with a monthly rental income of RMB 39, or approximately $6 for the first three years, with an increase of 8% in the fourth year and another 8% in the fifth year. In the nine months ended March 31, 2009, this property generated a rental income of $54.

On October 23, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement with JiaSheng to purchase four units of commercial property and two units of residential property, totaling 1,391.70 square meters, at JiaSheng Jingyun Huafu Project located at No. 17 Puyun Avenue in Chongqing, China. The total purchase price was RMB 7,042, approximately $1,030 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 Company and JiaSheng agreed to offset the remaining purchase price for this commercial and residential property with the investment returns from the No. B48 property in the BeiPei district of Chongqing City. In addition, the Company charged JiaSheng RMB 130, or $19, in penalties for the delay in the payment of investment principal and investment income. The penalty was also used to 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 $1,031. The Company has not received the title for this property as of the filing date of this Form 10-Q, as the seller is in the process of making the payments of all taxes due so that the documents can be received and the transfer can take place.

On October 23, 2008 the Company entered into a lease agreement with JiaSheng for the six units purchased from JiaSheng pursuant to the Memorandum Agreement.  The lease provides for a two year term with an annual rental income of RMB 1,392, or approximately $204. The lease started on November 1, 2008.

 

 

 

 

 

In September 2006, the Financial Accounting Standards Board issued SFAS 157, Fair Value Measurements.  SFAS 157 provides enhanced guidance for using fair value to measure assets and liabilities.  Under the standard, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between participants in the market in which the reporting entity transacts its business.  SFAS 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability.  In support of this principle, SFAS 157 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.  Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy.  Effective July 1, 2008, the Company adopted the provisions of SFAS 157 as it relates to financial assets and financial liabilities. The adoption of SFAS 157 did not have a material effect on our results of operations, financial position or liquidity.

The following table provides a summary of the assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2009:

12.           MINORITY INTEREST

 

Minority interest represents the minority stockholders’ proportionate share of 45% of the equity of Trio-Tech Malaysia.

13.         LOAN COVENANT VIOLATION     

As the Company suffered a loss in the first three quarters of fiscal 2009, the Singapore operations did not fulfill one of their loan covenants which requires the Company to maintain the debt to EBITDA ratio of no more than 2.5 times at all times during the term of the loan. As a result, the Company has classified all long-term debt as current liabilities. Management has communicated to the bank and requested a waiver of this particular loan covenant. As of the filing date of this Form 10-Q, the bank is still in the process of reviewing the Company’s request.

14.         IMPAIRMENT LOSS

The Company applies the provisions of Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”) to property, plant and equipment, and other intangible assets. SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the asset.  Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

For the nine months ended March 31, 2009, the Company recorded an impairment loss of $615, or $0.19 per diluted share, based on its examination of future undiscounted cash flows. Of this amount, an impairment loss of $296 was related to the fixed assets located in our Shanghai operation, $224 was for certain testing equipment located in our Suzhou operation in China and the remaining $95 was for certain testing equipment located in our Malaysia operation.  We believe that due to the change in demand for certain burn-in testing services, the negative impact of the international economic financial crisis and the semiconductor industry recession, our existing burn-in testing facilities in the Shanghai operation became obsolete. There was little business activity in the Shanghai operation during the six months ended December 31, 2008, and there were also no secured orders or backlogs for subsequent periods. Therefore, as we expect no future cash flows from those assets based on our best estimate, the carrying value of these assets was written down to zero and the impairment loss was recorded. Business in the Suzhou operation began to slow down in the fourth quarter of fiscal 2008, and suffered losses in the last four quarters. The operation is currently only providing line support, maintenance and training services for one customer.  Based on our best estimate, there will be no future cash flows from certain identified testing equipment. Therefore, the carrying value of these assets was written down to zero and an impairment loss was recorded. Some testing equipment in our Malaysia operation was beyond repairable conditions and hence was fully impaired as no future cash flows will be generated.

15.       RELATED PARTY TRANSACTIONS

During the second quarter of fiscal 2009, the Company purchased four units of commercial property and two units of residential property in Chongqing China from JiaSheng.  JiaSheng and the Company were parties to the Agreement entered into on August 27, 2007 and the Supplement Agreement entered into on November 15, 2007 relating to an investment in the No. B48 lot in the BeiPei district of Chongqing, China as discussed in Note 9to the unaudited financial statements included in this Form 10-Q.  The purchase price was approximately $1,030.

 

On October 23, 2008 the Company entered into a lease agreement with JiaSheng for the six units purchased from JiaSheng pursuant to the Memorandum Agreement.  The lease provides for a two year term with an annual rental income of RMB 1,392, or approximately $204. The lease started on November 1, 2008.

16.       SUBSEQUENT EVENTS

In April 2009, Trio-Tech International Pte., Ltd. set up a new entity, SHI International Pte Ltd. ("SHI"), in which Trio-Tech International Pte., Ltd holds 55% of the ownership interest. On April 07, 2009, SHI entered into a Share Purchase Agreement, pursuant to which SHI has agreed to acquire from Erni Susanto Susi, Dwi Kartikarini and PT SAS International shares of PT SAS Heavy Industry ("SASHI") for an aggregate cash purchase price of $10 , and a goodwill obligation of $100 . The shares of SASHI to be acquired by SHI pursuant to the Share Purchase Agreement represent approximately 95% of the outstanding shares of SASHI. The consummation of such purchase and sale is subject to the satisfaction of certain conditions. SASHI engages in business in the oil and gas industry.

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

 

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.

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 five testing facilities, one in the United States and four throughout in China and Southeast Asia.  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 with facilities in Singapore, Malaysia and Thailand.  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 may improve profit margins.

In the third quarter of fiscal 2008, one of our major customers ceased their advanced burn-in testing service contract with us due to one of their product lines reaching the end of its life cycle earlier than expected. The net sales in the testing segment decreased by $7,504 to $7,682 for the nine months ended March 31, 2009 as the result of the loss of revenue from this major customer.  Management took immediate action to reduce expenses in an effort to match future cash flows and is in the process of developing new customer relationships in China and Malaysia and exploring new business opportunities to offset the lost testing revenue from this contract.  

Recently, there has been widespread concern over the instability of the financial markets and their influence on the global economy. We believe that, as a result of the credit market crisis and other macro-economic challenges currently affecting the global economy, the orders from our customers in our testing operations in China were seriously reduced.  During the nine months ended March 31, 2009, there was minimal business activity in our Shanghai testing operation, and there were also no secured orders or backlogs for subsequent periods.  Therefore, we expect no future cash flows from the assets in the Shanghai operation.  The Company recorded an impairment loss of $296 on these assets based on its examination of future undiscounted cash flows in the second quarter of fiscal 2009. In addition, business in the Suzhou operation also began to slow down in the fourth quarter of fiscal 2008 and has suffered losses in the last three quarters. The operation is currently only providing line support, maintenance and training services for one customer.  Based on our estimated future undiscounted cash flows, an impairment loss of $224 was recorded for some of the testing equipment during the second quarter of fiscal 2009. During the third quarter of fiscal 2009, we also recorded an impairment loss of $95 for some testing equipment in our Malaysia operation, which was beyond repairable conditions.

In the second quarter of fiscal year 2009, we recorded  lease termination expenses of $164 related to the future minimum rent of two idle plants in the Singapore operation. The non-cancelable lease term for these two plants expires in March 2011 and April 2011, because neither of these plants have any economic benefit to the Company, management does not currently have further plans for these units, and the ability for the Company to sublease these units does not seem likely, according to SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, the Company accrued the entire future minimum rent up to the end of the lease period in the second quarter of fiscal 2009.  This provision for future rental expense increased our cost of goods sold by $164 in the second quarter of fiscal year 2009.

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.  It is the strategy of management to focus on the sales of our own manufactured products. We believe this will help us to reduce our exposure to multiple risks arising from being a mere distributor of manufactured products from others.

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 withJiaSheng Property Development Co., Ltd. (JiaSheng) to jointly develop a piece of property with 24.91 acres owned by JiaShenglocated 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 January 4, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement with MaoYe Property Ltd. to purchase office space of 827.2 square meters on the 35th floor of a 40 story high office building located in Chongqing, China.  The total cash purchase price was RMB 5,554 (Chinese yuan), equivalent to approximately $813 based on the exchange rate as of March 31, 2009 published by the Federal Reserve System.  The Company rented this property out to a third party on July 13, 2008.  The term of the rental agreement is five years with a monthly rental income of RMB 39, or approximately $6 for the first three years, with an increase of 8% in the fourth year and another 8% in the fifth year. During the nine months ended March 31, 2009, this property generated a rental income of  $54.

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.

On October 23, 2008, the Company entered into a lease agreement with JiaSheng for the six units purchased from JiaSheng pursuant to the Memorandum Agreement.  The lease provides for a two year term with an annual rental income of RMB 1,392, or approximately $204. The lease started on November 1, 2008.

The investment income generated by Trio-Tech (Chongqing) Co., Ltd. during the nine months ended March 31, 2009 was included in other income in the Consolidated Statements of Operations and Comprehensive Income.  There was no investment income during the nine months ended March 31, 2008.

In the context of a challenging economic environment, in order to achieve our goal of attaining a lower breakeven point, we undertook several cost reduction measures. Since the first quarter of fiscal 2009 ending September 30, 2008, we reduced our headcount by approximately 48 employees.  Also, on February 27, 2008, our Chief Executive Office, Chief Financial Officer and directors voluntarily decreased their base salary to 50% of the base salary agreed to in July 2007.  From the second quarter of 2009 ending December 31, 2008, we implemented four-day work weeks for all the employees in the Singapore operation, which reduced our employee compensation by approximately 20%. These cost cutting actions reduced our general and administrative expenses in the nine months ended March 31, 2009.

The highlights above are intended to identify some of our more significant events and transactions during the quarter ended March 31, 2009.  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.

Subsequent Events

In April 2009, Trio-Tech International Pte., Ltd. set up a new entity, SHI International Pte Ltd. ("SHI"), in which Trio-Tech International Pte., Ltd. holds 55% of the ownership interest. On April 07, 2009, SHI entered into a Share Purchase Agreement, pursuant to which SHI has agreed to acquire from Erni Susanto Susi, Dwi Kartikarini and PT SAS Internasional shares of PT SAS Heavy Industry ("SASHI") for an aggregate cash purchase price of $10 , and a goodwill obligation of $100  The shares of SASHI to be acquired by SHI pursuant to the Share Purchase Agreement represent approximately 95% of the outstanding shares of SASHI. The consummation of such purchase and sale is subject to the satisfaction of certain conditions. SASHI engages in business in the oil and gas industry.

During the second quarter of fiscal 2009, the Company purchased four units of commercial property and two units of residential property in Chongqing China from JiaSheng.  JiaSheng and the Company are parties to the Agreement entered into on August 27, 2007 and the Supplement Agreement entered into on November 15, 2007 relating to an investment in the NO.B48 lot in the BeiPei district of Chongqing, China. The purchase price was approximately $1,030.  This purchase was made on terms no less favorable to the Company than it could obtain in arms length transactions.  (See Note 16to the unaudited financial statements included in this Form 10-Q)

The following table sets forth our revenue components for the nine and three months ended March 31, 2009 and 2008, respectively.

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.

The decrease in net sales in the nine and three months ended March 31, 2009 can be discussed within three segments as follows:

Manufacturing Segment

Net sales in the manufacturing segment as a percentage of total net sales were 48.6% and 46.7% for the nine and three months ended March 31, 2009, respectively, representing a decrease of 4.9%, respectively, when compared to the same periods of the prior year.  The absolute amount of net sales were $7,473 and $1,673 for the nine and three months ended March 31, 2009 respectively, a decrease of $10,375 and $2,694, respectively, when compared to the same periods of the prior year. We believe that the current worldwide economic crisis and its influence on the international market have a negative effect on our business. The demand for our equipments decreased, which in turn reduced our revenue.

Testing Segment

Net sales in the testing segment as a percentage of total net sales were 50.0% and 51.9% for the nine and three months ended March 31, 2009, respectively, representing an increase of 4.5% and 4.9%, 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 decreased by $7,504 to $7,682 and by $2,117 to $1,856 for the nine and three months ended March 31, 2009, respectively, compared to the same periods of fiscal 2008.  We believe that the economic crisis is having a significant impact on the semiconductor industry and that China is experiencing a slowdown in its electronics manufacturing industries.  We believe the foregoing resulted in reduced demand in our testing services in China and Southeast Asia.

 

Distribution Segment

Net sales in the distribution segment accounted for 1.4% of total net sales for the nine and three months ended March 31, 2009, respectively, an increase of 0.4% and zero compared to the same periods in fiscal 2008.  The absolute amount of net sales decreased by $127 to $215 and by $66 to $49 for the nine and three months ended March 31, 2009, respectively, compared to the same periods in fiscal 2008.  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. Based on a number of economic indicators, it appears that growth in global economic activity has slowed substantially. At the present time, the rate at which the global economy will slow has become increasingly uncertain. A continued slowing of global economic growth will likely have a negative impact on our growth and results of operations. However, the Company has taken certain actions and formulated certain plans to deal with and to help mitigate these unpredictable factors. We continue to cut costs 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. This chain effect has hit the Company’s business, and we anticipate that will continue to affect the Company’s business 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.

Comparison of the Third Quarters Ended March 31, 2009 and 2008

The following table sets forth certain consolidated statements of income data as a percentage of net sales for the third quarters of fiscal 2009 and 2008, respectively:

Overall Gross Margin

Overall gross margin as a percentage of revenue increased by 4.0% for the three months ended March 31, 2009, from 16.7% in the third quarter of fiscal 2008 to 20.7%, due primarily to the increase in the gross margin in the manufacturing segment. In terms of dollar value, the overall gross margin decreased by $668 for the three months ended March 31, 2009, from $1,409 to $741, compared to the same quarter of fiscal 2008 resulting from a decrease in revenue.

Gross margin as a percentage of revenue in the manufacturing segment increased by 19.5% for the three months ended March 31, 2009, from 4.4% in the third quarter of fiscal 2008 to 23.8% in the third quarter of fiscal 2009.  The significant increase in gross margin was due to a decrease in sales of lower margin burn-in systems and pass-through products in the third quarter of fiscal 2009 compared with the same period of fiscal 2008. In addition, there was a decrease in the price of raw material in the third quarter of 2009 as some of our suppliers lowered their price as the result of heavy competition in the supplies market.  In absolute amounts, gross margin in the manufacturing segment increased by $208 to $399 for the three months ended March 31, 2009, from $191 for the three months ended March 31, 2008.

Gross margin as a percentage of revenue in the testing segment decreased by 11.6% for the three months ended March 31, 2009, from 29.6% to 18.0%, compared to the same quarter of fiscal 2008.  In terms of dollar amount, gross margin in the testing segment in the third quarter of fiscal 2009 was $335, a decrease of $840 compared to $1,175 in the same period of fiscal 2008.  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.  Another factor contributing to the decline in gross margin was the fact that significant portions of our operating costs are fixed in the testing segment; thus as product demands decrease and factory utilization decreases, the fixed costs are spread over the decreased output, resulting in a drop in profit margin.

Gross margin as a percentage of revenue in the distribution segment was 14.3% for the third quarter of fiscal 2009, a decrease by 23.1% from 37.4% in the third quarter of fiscal 2008.  The decrease in gross profit as a percentage of sales was due to a decrease in average sales prices in the third quarter of fiscal 2009 compared to the same period of fiscal 2008. In absolute amounts, gross margin was $7, a decrease of $36 from $43 in the same period of fiscal 2008. The gross margin in the distribution segment is not only affected by the market price of our products, but also our product mix, which changes frequently as a result of changes in market demand.

Operating Expenses

Operating expenses for the third quarters of fiscal 2009 and 2008 were as follows:

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.

Selling expenses decreased by $116, or 61.4%, for the three months ended March 31, 2009, from $189 to $73 compared to the same quarter of fiscal 2008, mainly due to a decrease in employee headcount and a decrease in commission expenses as a result of fewer commissionable sales in the distribution segment.

Research and development expenses were $10 compared to $7 for the third quarter of fiscal 2008. The decrease was primarily due to a decrease in full time employee headcount in the U.S. operation.

 

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.

Loss from Operations

Loss from operations decreased by $758 from $1,314 for the three months ended March 31, 2008 to $556 for the three months ended March 31, 2009, mainly due to an increase in gross margin and a decrease in operating expenses, as previously discussed.

Interest Expense

Interest expense for the third quarters of fiscal 2009 and 2008 were as follows:

Interest expenses decreased by $68 for the three months ended March 31, 2009, from $93 to $25, primarily due to a decrease in our loan payable and capital lease obligations. We are trying to keep our debt at a minimum in order to save financing costs. Our credit rating provides us with ready and adequate access to funds in global markets.  As of March 31, 2009, the Company had an unused line of credit of $15,089.

Other (Expenses) Income