TRIO-TECH INTERNATIONAL - Quarter Report: 2019 September (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended September 30, 2019

 

OR

 

 

For the Transition Period from ___ to ___

 

Commission File Number 1-14523

 

TRIO-TECH INTERNATIONAL

(Exact name of Registrant as specified in its Charter)

 

California		95-2086631
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)
Block 1008 Toa Payoh North
Unit 03-09 Singapore		318996
(Address of principal executive offices)		(Zip Code)

 

           Registrant's Telephone Number, Including Area Code:  (65) 6265 3300

 

Securities registered pursuant to Section 12(b) of the Act:

		Name of each exchange
Title of each class	Trading Symbol	On which registered
Common Stock, no par value	TRT	NYSE American

 

Securities registered pursuant to Section 12(g) of the Act: 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 ☒ No ☐  

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted 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 ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non­accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b­2 of the Exchange Act. (Check one):

 

Large Accelerated Filer	☐		Accelerated Filer	☐
Non-Accelerated Filer	☐		Smaller reporting company	☒
			Emerging growth company	☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

 

As of November 1, 2019, there were 3,673,055 shares of the issuer’s Common Stock, no par value, outstanding.

 

TRIO-TECH INTERNATIONAL

INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE

 

		Page
Part I.	Financial Information
Item 1.	Financial Statements
	(a) Condensed Consolidated Balance Sheets as of September 30, 2019 (Unaudited) and June 30, 2019	1
	(b) Condensed Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended September 30, 2019 (Unaudited) and September 30, 2018 (Unaudited)	2
	(c) Condensed Consolidated Statements of Shareholders Equity for the Three Months Ended September 30, 2019 (Unaudited) and the September 30, 2018 (Unaudited)	4
	(d) Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2019 (Unaudited) and September 30, 2018 (Unaudited)	5
	(e) Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38
Item 4.	Controls and Procedures	38
Part II.	Other Information
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	40
Signatures		41

 

FORWARD-LOOKING STATEMENTS

 

The discussions of Trio-Tech International’s (the “Company”) business and activities set forth in this Form 10-Q and in other past and future reports and announcements by the Company may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and assumptions regarding future activities and results of operations of the Company.  In light of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the following factors, among others, could cause actual results to differ materially from those reflected in any forward-looking statements made by or on behalf of the Company: market acceptance of Company products and services; changing business conditions or technologies and volatility in the semiconductor industry, which could affect demand for the Company’s products and services; the impact of competition; problems with technology; product development schedules; delivery schedules; changes in military or commercial testing specifications which could affect the market for the Company’s products and services; difficulties in profitably integrating acquired businesses, if any, into the Company; risks associated with conducting business internationally and especially in 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; trade tension between U.S. and China; and other economic, financial and regulatory factors beyond the Company’s control. Other than statements of historical fact, all statements made in this Quarterly Report are forward-looking, including, but not limited to, statements regarding industry prospects, future results of operations or financial position, and statements of our intent, belief and current expectations about our strategic direction, prospective and future financial results and condition. 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.  Forward-looking statements involve risks and uncertainties that are inherently difficult to predict, which could cause actual outcomes and results to differ materially from our expectations, forecasts and assumptions.

 

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. 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

CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT NUMBER OF SHARES)

 

	September 30, 2019	June 30, 2019
ASSETS	(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$3,710	$4,863
Short-term deposits	5,222	4,144
Trade accounts receivable, less allowance for doubtful accounts of $268 and $263, respectively	7,520	7,113
Other receivables	756	817
Inventories, less provision for obsolete inventory of $669 and $673, respectively	1,688	2,427
Prepaid expenses and other current assets	346	287
Assets held for sale	88	89
Total current assets	19,330	19,740
NON-CURRENT ASSETS:
Deferred tax asset	383	390
Investment properties, net	736	782
Property, plant and equipment, net	11,787	12,159
Operating lease right-of-use assets	614	-
Other assets	1,594	1,750
Restricted term deposits	1,674	1,706
Total non-current assets	16,788	16,787
TOTAL ASSETS	$36,118	$36,527
LIABILITIES
CURRENT LIABILITIES:
Lines of credit	$-	$187
Accounts payable	3,170	3,272
Accrued expenses	3,374	3,486
Income taxes payable	333	417
Current portion of bank loans payable	360	488
Current portion of finance leases	206	283
Current portion of operating leases	362	-
Total current liabilities	7,805	8,133
NON-CURRENT LIABILITIES:
Bank loans payable, net of current portion	2,259	2,292
Finance leases, net of current portion	479	442
Operating leases, net of current portion	219	-
Deferred tax liabilities	321	327
Income taxes payable	430	439
Other non-current liabilities	36	33
Total non-current liabilities	3,744	3,533
TOTAL LIABILITIES	$11,549	$11,666
EQUITY
TRIO-TECH INTERNATIONAL’S SHAREHOLDERS' EQUITY:
Common stock, no par value, 15,000,000 shares authorized; 3,673,055 shares issued      outstanding as at September 30 and June 30, 2019, respectively	$11,424	$11,424
Paid-in capital	3,313	3,305
Accumulated retained earnings	7,343	7,070
Accumulated other comprehensive gain-translation adjustments	1,285	1,867
Total Trio-Tech International shareholders' equity	23,365	23,666
Non-controlling interest	1,204	1,195
TOTAL EQUITY	$24,569	$24,861
TOTAL LIABILITIES AND EQUITY	$36,118	$36,527

 

See notes to condensed consolidated financial statements.

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / (LOSS)

UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)

 

	Three Months Ended
	Sept. 30,	Sept. 30,
	2019	2018
Revenue
Manufacturing	$3,317	$3,637
Testing services	4,390	4,437
Distribution	2,099	1,944
Real estate	17	27
	9,823	10,045
Cost of Sales
Cost of manufactured products sold	2,555	2,857
Cost of testing services rendered	3,191	3,383
Cost of distribution	1,807	1,686
Cost of real estate	18	18
	7,571	7,944
Gross Margin	2,252	2,101
Operating Expenses:
General and administrative	1,788	1,759
Selling	190	147
Research and development	76	72
Gain on disposal of property, plant and equipment	(24)	-
Total operating expenses	2,030	1,978
Income from Operations	222	123
Other Income/(Expenses)
Interest expenses	(68)	(78)
Other income, net	110	43
Total other income/(expenses)	42	(35)
Income from Continuing Operations before Income Taxes	264	88
Income Tax Expenses	-	(74)
Income from Continuing Operations before Non-controlling Interest, Net of Tax	264	14
Discontinued Operations
Loss from discontinued operations, net of tax	(1)	(8)
NET INCOME	263	6
Less: net loss attributable to the non-controlling interest	(10)	(59)
Net Income Attributable to Trio-Tech International Common Shareholder	$273	$65
Amounts Attributable to Trio-Tech International Common Shareholders:
Income from continuing operations, net of tax	274	69
Loss from discontinued operations, net of tax	(1)	(4)
Net Income Attributable to Trio-Tech International Common Shareholders	$273	$65
Basic Earnings per Share:
Basic per share from continuing operations attributable to Trio-Tech International	$0.07	$0.02
Basic earnings per share from discontinued operations attributable to Trio-Tech International	$-	$-
Basic Earnings per Share from Net Income
Attributable to Trio-Tech International	$0.07	$0.02
Diluted Earnings per Share:
Diluted earnings per share from continuing operations attributable to Trio-Tech International	$0.07	$0.02
Diluted earnings per share from discontinued operations attributable to Trio-Tech International	$-	$-
Diluted Earnings per Share from Net Income
Attributable to Trio-Tech International	$0.07	$0.02
Weighted average number of common shares outstanding
Basic	3,673	3,608
Dilutive effect of stock options	17	124
Number of shares used to compute earnings per share diluted	3,690	3,732

 

See notes to condensed consolidated financial statements.

 

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)

 

	Three Months Ended
	Sept. 30,	Sept. 30,
	2019	2018
Comprehensive Income (Loss) Attributable to Trio-Tech International Common Shareholders:
Net income	263	6
Foreign currency translation, net of tax	(563)	(539)
Comprehensive Loss	(300)	(533)
Less: comprehensive income (loss) attributable to the non-controlling interests	9	(135)
Comprehensive Loss Attributable to Trio-Tech International Common Shareholders	$(309)	$(398)

 

 See notes to condensed consolidated financial statements.

 

 

 

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(IN THOUSANDS) 

 

Three Months ended September 30, 2019

 

	Common Stock		Additional Paid-in	Accumulated Retained	Accumulated Other Comprehensive	Non- Controlling
	Shares	Amount	Capital	Earnings	Income	Interest	Total
Balance at June 30, 2019	3,673	$11,424	$3,305	$7,070	$1,867	$1,195	$24,861
Stock option expenses	-	-	8	-	-	-	8
Net income / (loss)	-	-	-	273	-	(10)	263
Dividend declared by subsidiary	-	-	-	-	-	-	-
Exercise of stock option	-	-	-	-	-	-	-
Translation adjustment	-	-	-	-	(582)	19	(563)
Balance at Sept. 30, 2019	3,673	11,424	3,313	7,343	1,285	1,204	24,569

 

Three Months ended September 30, 2018

 

	Common Stock		Additional Paid-in	Accumulated Retained	Accumulated Other Comprehensive	Non- Controlling
	Shares	Amount	Capital	Earnings	Income	Interest	Total
Balance at June 30, 2018	3,553	$11,023	$3,249	$5,525	$2,182	$1,522	$23,501
Stock option expenses	-	-	2	-	-	-	2
Net income / (loss)	-	-	-	65	-	(59)	6
Dividend declared by subsidiary	-	-	-	-	-	(2)	(2)
Exercise of stock option	55	199	-	-	-	-	199
Translation adjustment	-	-	-	-	(463)	(76)	(539)
Balance at Sept. 30, 2018	3,608	11,222	3,251	5,590	1,719	1,385	23,167

 

 

 See notes to condensed consolidated financial statements.

 

 

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)

 

	Three Months Ended
	Sept. 30,	Sept. 30,
	2019	2018
	(Unaudited)	(Unaudited)
Cash Flow from Operating Activities
Net income	$263	$6
Adjustments to reconcile net income to net cash flow provided by operating activities
Depreciation and amortization	786	555
Stock compensation	8	2
(Reversal)/addition of provision for obsolete inventory	(5)	1
Bad debt recovery	(13)	(2)
Accrued interest expense, net accrued interest income	(10)	13
Warranty recovery, net	(1)	(13)
Gain on sale of property, plant & equipment-Continued operations	(24)	-
Deferred tax benefit	(4)	21
Changes in operating assets and liabilities, net of acquisition effects
Trade accounts receivable	(386)	(372)
Other receivables	61	(8)
Other assets	98	517
Inventories	707	535
Prepaid expenses and other current assets	(59)	(122)
Operating leases right-of-use assets	(18)	-
Accounts payable and accrued expenses	(136)	(473)
Income taxes payable	(93)	(102)
Net Cash Provided by Operating Activities	1,174	558
Cash Flow from Investing Activities
Investment in unrestricted term deposits, net (Note 1a)	(1,165)	(358)
Additions to property, plant and equipment(Note 1b)	(500)	(1,214)
Proceeds from disposal of property, plant and equipment	-	3
Net Cash Used in Investing Activities	(1,665)	(1,569)
Cash Flow from Financing Activities
Repayment on lines of credit	(604)	(3,728)
Repayment of bank loans, operating leases and finance leases	(371)	(182)
Dividends paid on non-controlling interest	-	(2)
Proceeds from exercising stock options	-	199
Proceeds from lines of credit	410	3,877
Proceeds from principal of finance lease	44	-
Proceeds from bank loans	-	1,475
Net Cash (Used in)/Generated from Financing Activities	(521)	1,639
Effect of Changes in Exchange Rate	(173)	(76)
Net (decrease)/increase in cash, cash equivalents, and restricted cash(Note 1a)	(1,185)	552
Cash, cash equivalents, and restricted cash at beginning of period (Note 1a)	6,569	8,234
Cash, cash equivalents, and restricted cash at end of period (Note 1a)	$5,384	$8,786
Supplementary Information of Cash Flows
Cash paid during the period for:
Interest	$61	$65
Income taxes	$124	$24
Non-Cash Transactions
Finance lease of property, plant and equipment	$44	$-

Reconciliation of Cash, cash equivalents, and restricted cash (Note 1a)
Cash	3,710	7,101
Short-term deposits	5,222	1,011
Restricted term-deposits in non-current assets	1,674	1,685
Total Cash, cash equivalents, and restricted cash shown in statement of cash flows	$10,606	$9,797

 

 

Note 1a-Amounts reflecting adoption of ASU 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230) beginning in the first quarter of 2019. Note 1b-Amount reflecting additions of property, plant & equipment amounted to $539 offset by a trade-in value of $39 from the disposal during the three months ended September 30, 2019

Amounts included in restricted deposits represent the amount of cash pledged to secure loans payable or trade financing granted by financial institutions and serve as collateral for public utility agreements such as electricity and water. Restricted deposits are classified as non-current assets, as they relate to long-term obligations and will become unrestricted only upon discharge of the obligations.

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AND NUMBER OF SHARES)

 

1. ORGANIZATION AND BASIS OF PRESENTATION

 

Trio-Tech International (“the Company” or “TTI” hereafter) was incorporated in fiscal year 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. In the first quarter of fiscal year 2020, TTI conducted business in four business segments: Manufacturing, Testing Services, Distribution and Real Estate. TTI has subsidiaries in the U.S., Singapore, Malaysia, Thailand, Indonesia and China as follows:

 

	Ownership	Location
Express Test Corporation (Dormant)	100%	Van Nuys, California
Trio-Tech Reliability Services (Dormant)	100%	Van Nuys, California
KTS Incorporated, dba Universal Systems (Dormant)	100%	Van Nuys, California
European Electronic Test Centre (Dormant)	100%	Dublin, Ireland
Trio-Tech International Pte. Ltd.	100%	Singapore
Universal (Far East) Pte. Ltd.  *	100%	Singapore
Trio-Tech International (Thailand) Co. Ltd. *	100%	Bangkok, Thailand
Trio-Tech (Bangkok) Co. Ltd.	100%	Bangkok, Thailand
(49% owned by Trio-Tech International Pte. Ltd. and 51% owned by Trio-Tech International (Thailand) Co. Ltd.)
Trio-Tech (Malaysia) Sdn. Bhd. (55% owned by Trio-Tech International Pte. Ltd.)	55%	Penang and Selangor, Malaysia
Trio-Tech (Kuala Lumpur) Sdn. Bhd.	55%	Selangor, Malaysia
(100% owned by Trio-Tech Malaysia Sdn. Bhd.)
Prestal Enterprise Sdn. Bhd.	76%	Selangor, Malaysia
(76% owned by Trio-Tech International Pte. Ltd.)
Trio-Tech (SIP) Co., Ltd. *	100%	Suzhou, China
Trio-Tech (Chongqing) Co. Ltd. *	100%	Chongqing, China
SHI International Pte. Ltd. (Dormant) (55% owned by Trio-Tech International Pte. Ltd)	55%	Singapore
PT SHI Indonesia (Dormant) (100% owned by SHI International Pte. Ltd.)	55%	Batam, Indonesia
Trio-Tech (Tianjin) Co., Ltd. *	100%	Tianjin, China

  * 100% owned by Trio-Tech International Pte. Ltd.

 

The accompanying un-audited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All significant inter-company accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements are presented in U.S. dollars. The accompanying condensed consolidated financial statements do not include all the information and footnotes required by 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 three months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2020. 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, 2019.

 

The Company’s operating results are presented based on the translation of foreign currencies using the respective quarter’s average exchange rate.

 

Basis of Presentation and Summary of Significant Accounting Policies

Comparability

Effective on the first day of fiscal 2020, the company adopted Accounting Standards Update 2016-02, Leases (“ASC 842”). Prior periods were not retrospectively restated, and accordingly, the consolidated balance sheet as of June 30, 2019, and the condensed consolidated statements of operations for the three months ended September 30, 2018 were prepared using accounting standards that were different than those in effect for the three months ended September 30, 2019.

 

 

Leases-Lessee

 

Accounting Standards Codification ("ASC") Topic 842 introduces new requirements to increase transparency and comparability among organizations for leasing transactions for both lessees and lessors. It requires a lessee to record a right-of-use asset and a lease liability for all leases with terms longer than 12 months. These leases will be either finance or operating, with classification affecting the pattern of expense recognition.

 

The standard provided an alternative modified retrospective transition method. Under this method, the cumulative effect adjustment to the opening balance of retained earnings is recognized on the date of adoption (July 1, 2019). The Company adopted ASC 842 as of July 1, 2019, and applied the alternative modified retrospective transition method requiring application of the new guidance to all leases existing at, or entered into on or after, the date of adoption, i.e. July 1, 2019.

 

The Company applies the guidance in ASC 842 to individual leases of assets. When the Company receives substantially all of the economic benefits from and directs the use of specified property, plant and equipment, transactions give rise to leases. The Company’s classes of assets include real estate leases.

 

Operating leases are included in operating lease right-of-use ("ROU") assets, current portion and long term portion of operating leases in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Finance leases are included in plant and equipment, current portion and long term portion of finance leases in our consolidated balance sheets.

 

The Company has elected the practical expedient within ASC 842 to not separate lease and non-lease components within lease transactions for all classes of assets. Additionally, the Company has elected the short-term lease exception for all classes of assets, does not apply the recognition requirements for leases of 12 months or less, and recognizes lease payments for short-term leases as expense either straight-line over the lease term or as incurred depending on whether the lease payments are fixed or variable. These elections are applied consistently for all leases.

 

As part of applying the transition method, the Company has elected to apply the package of transition practical expedients within the new guidance. As required by the new standard, these expedients have been elected as a package and are consistently applied across the Company’s lease portfolio. Given this election, the Company need not reassess:

 

 

When discount rates implicit in leases cannot be readily determined, the Company uses the applicable incremental borrowing rate at lease commencement to perform lease classification tests on lease components and to measure lease liabilities and ROU assets. The incremental borrowing rate used by the Company was based on baseline rates and adjusted by the credit spreads commensurate with the Company’s secured borrowing rate, over a similar term. At each reporting period when there is a new lease initiated, the rates established for that quarter will be used.

 

In applying the alternative modified retrospective transition method, the Company measured lease liabilities at the present value of the sum of remaining minimum rental payments (as defined under ASC Topic 840). The present value of lease liabilities has been measured using the Company’s incremental borrowing rates as of July 1, 2019 (the date of initial application). Additionally, ROU assets for these operating leases have been measured as the initial measurement of application lease liabilities adjusted for reinstatement liabilities.

 

The adoption of this new standard at July 1, 2019, and the application of the modified retrospective transition approach resulted in the following changes in the Company’s financial report:

 

 

Leases-Lessor

For the Company as a lessor, all of our leases will continue to be classified as operating leases under the new standard. We do not expect the new standard to have a material effect on our financial statements and we do not expect a significant change in our leasing activities between now and adoption.

 

 

2.    NEW ACCOUNTING PRONOUNCEMENTS

 

The amendments in ASU 2019-07 Codification Updates to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplifications to improve, update, and simplify its regulations on financial reporting and disclosure. The amendments are effective for all entities upon addition to the FASB Codification.

 

The amendments in ASU 2018-18 ASC Topic 808: Collaborative Arrangements: Clarifying the Interaction between Topic 808 and Topic 606 provide more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. The amendments allow organizations to only present units of account in collaborative arrangements that are within the scope of the revenue recognition standard together with revenue accounted for under the revenue recognition standard. The parts of the collaborative arrangement that are not in the scope of the revenue recognition standard should be presented separately from revenue accounted for under the revenue recognition standard. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

 

The amendments in ASU 2018-13 ASC Topic 820: Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement modify the disclosure requirements on fair value measurements based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

The amendments in ASU 2017-04 ASC Topic 350 — 'Intangibles - Goodwill and Other (“ASC Topic 350”) simplify the test for goodwill impairment. For public companies, these amendments are effective for annual periods beginning after December 15, 2019, including interim periods within those periods. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s presentation of consolidated financial position or results of operations.

The amendments in ASU 2019-05 ASC Topic 326: Financial Instruments — Credit Losses (“ASC Topic 326”): Targeted Transition Relief is issued to provide option to measure certain types of assets at fair value which allows companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of ASC 326-20 if the instruments are eligible for the fair value option under ASC 825-10. The amendments in ASU 2018-19 ASC Topic 326: Codification Improvements to Financial Instruments – Credit Losses clarify that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the lease’s standard. The amendments in ASU 2016-13 ASC Topic 326: Financial Instruments — Credit losses (“ASC Topic 326”) are issued for the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. For public companies that are SEC filers, ASC Topic 326 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. While early application will be permitted for all organizations for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018, the Company has not yet determined if it will early adopt. The Company is currently evaluating the potential impact of this accounting standard update on its consolidated financial statements.

 

Other new pronouncements issued but not yet effective until after September 30, 2019 are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

 

3.   TERM DEPOSITS

	Sep. 30,  2019 (Unaudited)	June 30,  2019
Short-term deposits	$5,322	$4,143
Currency translation effect on short-term deposits	(100)	1
Total short-term deposits	5,222	4,144
Restricted term deposits	1,708	1,701
Currency translation effect on restricted term deposits	(34)	5
Total restricted term deposits	1,674	1,706
Total term deposits	$6,896	$5,850

 

Restricted deposits represent the amount of cash pledged to secure loans payable to financial institutions and serve as collateral for public utility agreements such as electricity and water and performance bonds related to customs duty payable. Restricted deposits are classified as non-current assets, as they relate to long-term obligations and will become unrestricted only upon discharge of the obligations. Short-term deposits represent bank deposits, which do not qualify as cash equivalents.

 

4.   TRADE ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

Accounts receivable are customer obligations due under normal trade terms. The Company performs continuing credit evaluations of its customers’ financial conditions, and although management generally does not require collateral, letters of credit may be required from the customers in certain circumstances.

 

Senior management reviews accounts receivable on a periodic basis to determine if any receivables will potentially be uncollectible. Management includes any accounts receivable balances that are determined to be uncollectible in the allowance for doubtful accounts. After all reasonable attempts to collect a receivable have failed, the receivable is written off against the allowance.  Based on the information available, management believed the allowance for doubtful accounts as of September 30, 2019 and June 30, 2019 was adequate.  

 

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

	Sept. 30,  2019 (Unaudited)	June 30,  2019
Beginning	$263	$259
Additions charged to expenses	28	94
Recovered	(15)	(84)
Currency translation effect	(8)	(6)
Ending	$268	$263

 

 

 

 

5.   LOANS RECEIVABLE FROM PROPERTY DEVELOPMENT PROJECTS

The following table presents Trio-Tech (Chongqing) Co. Ltd (“TTCQ”)’s loan receivable from property development projects in China as of September 30, 2019. The exchange rate is based on the historical rate published by the Monetary Authority of Singapore as of March 31, 2015, since the net loan receivable was “nil” as of September 30, 2019.

 

	Loan Expiry Date	Loan Amount (RMB)	Loan Amount (U.S. Dollars)
Short-term loan receivables
JiangHuai (Project – Yu Jin Jiang An)	May 31, 2013	2,000	325
Less: allowance for doubtful receivables		(2,000)	(325)
Net loan receivables from property development projects		-	-
Long-term loan receivables
Jun Zhou Zhi Ye	Oct 31, 2016	5,000	814
Less: transfer – down-payment for  purchase of investment property		(5,000)	(814)
Net loan receivables from property development projects		-	-

 

The short-term loan receivables amounted to renminbi (“RMB”) 2,000, or approximately $325 based on the historical rate arose due to TTCQ entered into a Memorandum Agreement with JiangHuai Property Development Co. Ltd. (“JiangHuai”) to invest in their property development projects (Project - Yu Jin Jiang An) located in Chongqing City, China in fiscal 2011. Based on TTI’s financial policy, a provision for doubtful receivables of $325 on the investment in JiangHuai was recorded during fiscal 2014. TTCQ did not generate other income from JiangHuai for the quarter ended September 30, 2019 or for the fiscal year ended June 30, 2019. TTCQ is in the legal process of recovering the outstanding amount of $325.

 

The loan amounted to RMB 5,000, or approximately $814 based on the historical rate arose due to TTCQ entered into a Memorandum Agreement with JiaSheng Property Development Co. Ltd. (“JiaSheng”) to invest in their property development projects (Project B-48 Phase 2) located in Chongqing City, China in fiscal 2011. The amount was unsecured and repayable at the end of the term. The book value of the loan receivable approximates its fair value. During fiscal year 2015, the loan receivable was transferred to down payment for purchase of investment property that is being developed in the Singapore Themed Resort Project (See Note 9).

 

 

 

 6.  INVENTORIES

 Inventories consisted of the following:

 

	Sept. 30,  2019  (Unaudited)	June 30,  2019
Raw materials	$1,182	$1,190
Work in progress	953	1,306
Finished goods	264	591
Currency translation effect	(42)	13
Less: provision for obsolete inventory	(669)	(673)
	$1,688	$2,427

 

The following table represents the changes in provision for obsolete inventory:

	Sept. 30,  2019 (Unaudited)	June 30,  2019
Beginning	$673	$695
Additions charged to expenses	9	17
Usage – disposition	(4)	(42)
Currency translation effect	(9)	3
Ending	$669	$673

 

7. ASSETS HELD FOR SALE

Penang Property

 

During the fourth quarter of 2015, the operations in Malaysia planned to sell its factory building in Penang, Malaysia. In accordance with ASC Topic 360, during fiscal year 2015 the property was reclassified from investment property, which had a net book value of RM 371, or approximately $98*, to assets held for sale, since there was an intention to sell the factory building. In May 2015, Trio-Tech Malaysia was approached by a potential buyer to purchase the factory building. On September 14, 2015, application to sell the property was rejected by Penang Development Corporation (PDC). The rejection was because the business activity of the purchaser was not suitable to the industry that is being promoted on said property. PDC made an offer to purchase the property, which was not at the expected value and the offer expired on March 28, 2016 and no further conversations with PDC have occurred since. During the fourth quarter of fiscal year 2019, Management entered into a Sales and Purchase Agreement with a potential buyer. The completion of sale is subject to the approval by local government. The net book value of the building was RM371, or $88, as at September 30, 2019 and RM371, or $89, as at June 30, 2019.

 

The following table presents the Company’s assets held for sale in Malaysia as of September 30, 2019 and June 30, 2019. *The exchange rate is based on the exchange rate as of June 30, 2015 published by the Monetary Authority of Singapore.

			Sept. 30, 2019 (Unaudited)	June 30, 2019
	Investment	Investment Amount	Investment Amount	Investment Amount
	Date / Reclassification Date	(RM)	(U.S. Dollars)	(U.S. Dollars)
Penang Property Reclassification from investment property	June 30, 2015	681	181*	181*
Currency translation		-	(18)	(15)
		681	163	166
Accumulated depreciation on rental property	June 30, 2015	(310)	(83)*	(83)*
Currency translation		-	8	6
		(310)	(75)	(77)
Net investment in rental property - Malaysia		371	88	89

 

 

 

8.   INVESTMENT PROPERTIES

The following table presents the Company’s investment in properties in China as of September 30, 2019. The exchange rate is based on the market rate as of September 30, 2019.

 

	Investment Date / Reclassification Date	Investment Amount (RMB)	Investment Amount (U.S. Dollars)
Purchase of rental property – Property I – MaoYe Property	Jan 04, 2008	5,554	894
Currency translation		-	(87)
Reclassification as “Assets held for sale”	July 01, 2018	(5,554)	(807)
Reclassification from “Assets held for sale”	Mar 31, 2019	2,024	301
		2,024	301
Purchase of rental property – Property II - JiangHuai	Jan 06, 2010	3,600	580
Purchase of rental property – Property III - Fu Li	Apr 08, 2010	4,025	648
Currency translation		-	(175)
Gross investment in rental property		9,649	1,354
Accumulated depreciation on rental property	Sep 30, 2019	(6,196)	(885)
Reclassified as “Assets held for sale”-Mao Ye Property	July 01, 2018	2,822	410
Reclassification from “Assets held for sale”-Mao Ye Property	Mar 31, 2019	(1,029)	(143)
		(4,403)	(618)
Net investment in property – China		5,246	736

 

The following table presents the Company’s investment in properties in China as of June 30, 2019. The exchange rate is based on the market rate as of June 30, 2019.

 

	Investment Date / Reclassification Date	Investment Amount (RMB)	Investment Amount (U.S. Dollars)
Purchase of rental property – Property I – MaoYe Property	Jan 04, 2008	5,554	894
Currency translation		-	(87)
Reclassification as “Assets held for sale”	July 01, 2018	(5,554)	(807)
Reclassification from “Assets held for sale”	Mar 31, 2019	2,024	301
		2,024	301
Purchase of rental property – Property II - JiangHuai	Jan 06, 2010	3,600	580
Purchase of rental property – Property III - Fu Li	Apr 08, 2010	4,025	648
Currency translation		-	(124)
Gross investment in rental property		9,649	1,405
Accumulated depreciation on rental property	June 30, 2019	(6,075)	(890)
Reclassified as “Assets held for sale”-Mao Ye Property	July 01, 2018	2,822	410
Reclassification from “Assets held for sale”-Mao Ye Property	Mar 31, 2019	(1,029)	(143)
		(4,282)	(623)
Net investment in property – China		5,367	782

 

 

 

The following table presents the Company’s investment properties in Malaysia as of September 30, 2019 and June 30, 2019. The exchange rate is based on the exchange rate as of June 30, 2015 published by the Monetary Authority of Singapore.

 

			Sept. 30, 2019 (Unaudited)	June 30, 2019
	Investment	Investment Amount	Investment Amount	Investment Amount
	Date / Reclassification Date	(RM)	(U.S. Dollars)	(U.S. Dollars)
Purchase of Penang Property	Dec 31, 2012	681	181	181
Currency translation		-	(18)	(15)
Reclassification as “Assets held for sale”	June 30, 2015	(681)	(163)	(166)
		-	-	-
Accumulated depreciation on rental property	June 30, 2015	(310)	(83)	(83)
Currency translation		-	8	6
Reclassified as “Assets held for sale”	June 30, 2015	310	75	77
Net investment in rental property - Malaysia		-	-	-

 

Rental Property I - Mao Ye Property

 

In fiscal 2008, TTCQ purchased an office in Chongqing, China from MaoYe Property Ltd. (“MaoYe”), for a total cash purchase price of RMB 5,554, or approximately $894. TTCQ identified a new tenant and signed a new rental agreement (653 square meters at a monthly rent of RMB 39, or approximately $6) on August 1, 2015 which expires on July 31, 2020. On April 1, 2019, a supplementary agreement was signed to revise the monthly rent to RMB 20, or approximately $2.6 for 403 square meters for the remaining 2 unsold units. During the 2019 fiscal year, the Company sold thirteen of the fifteen units constituting the Mao Ye Property. Management has decided not to sell the remaining two units of Mao Ye properties, considering the market conditions in China.

 

Property purchased from MaoYe generated a rental income of $8 during the three months ended September 30, 2019 as compared to $22 for the same period in last fiscal year.

 

Rental Property II - JiangHuai

 

In fiscal year 2010, TTCQ purchased eight units of commercial property in Chongqing, China from Chongqing JiangHuai Real Estate Development Co. Ltd. (“JiangHuai”) for a total purchase price of RMB 3,600, or approximately $580. Although these units were rented in the past, all eight units are currently vacant and TTCQ is working with the developer to find a suitable buyer to purchase all the commercial units. TTCQ has yet to receive the title deed for these properties. TTCQ is in the legal process to obtain the title deed, which is dependent on JiangHuai completing the entire project.

 

Property purchased from JiangHuai did not generate any rental income during the three months ended September 30, 2019 or during the same period in the prior fiscal year.

 

Rental Property III – FuLi

In fiscal 2010, TTCQ entered into a Memorandum Agreement with Chongqing FuLi Real Estate Development Co. Ltd. (“FuLi”) to purchase two commercial properties totaling 311.99 square meters (“office space”) located in Jiang Bei District Chongqing. . The total purchase price committed and paid was RMB 4,025, or approximately $648. The development was completed and the property was handed over in April 2013 and the title deed was received during the third quarter of fiscal 2014.

 

 

The two commercial properties were leased to third parties under two separate rental agreements. One of such leases provides for a rent increase of 6% every year on May 1, commencing in 2019 until the rental agreement expired on April 30, 2021. For the other leased property (which lease expired on March 31, 2018), TTCQ has signed a rental agreement to rent out the 161 square meters at a monthly rent of RMB 10, or approximately $2 on November 1, 2018 which expires on October 31, 2019. In September 2019, TTCQ has renewed the agreement at the same month rent of RMB 10 or approximately $2 for a period of one year.

 

Properties purchased from Fu Li generated a rental income of $9 for the three months ended September 30, 2019, and $5 for the same period in the last fiscal year.

 

Summary

Total rental income for all investment properties in China was $17 for the three months ended September 30, 2019 and $27 for the same period in the last fiscal year.

 

Depreciation expenses for all investment properties in China were $18 for the three months ended September 30, 2019 and $14 for the same period in the last fiscal year.

 

9.   OTHER ASSETS

Other assets consisted of the following:

 

	Sept. 30, 2019 (Unaudited)	June 30, 2019
Down payment for purchase of investment properties *	$1,645	$1,645
Down payment for purchase of property, plant and equipment	-	100
Deposits for rental and utilities	169	169
Currency translation effect	(220)	(164)
Total	$1,594	$1,750

 

*Down payment for purchase of investment properties included:

 

	RMB	US Dollars
Original investment( 10% if Junzhou equity)	$10,000	$1,606
Less: Management Fee	(5,000)	(803)
Net Investment	5,000	803
Less: Share of loss on Joint Venture	(137)	(22)
Net Investment as downpayment(Note *a)	4,863	781
Loans Receivable	5,000	814
Interest Receivable	1,250	200
Less:Impairment of Interest	(906)	(150)
Transferred to downpayment(Note *b)	5,344	864
* Down payment for purchase of investment properties	10,207	1,645

 

a) On December 2, 2010, the Company signed a Joint Venture agreement (“agreement”) with Jia Sheng Property Development Co. Ltd. (“Developer”) to form a new company, Junzhou Co., Limited (“Joint Venture” or “Junzhou”) to joint develop the “Singapore Themed Park” project (the “project”), where the Company paid RMB10 million for the 10% investment in the joint venture. The Developer paid Company management fee of RMB5 million in cash upon signing of the agreement with a remaining fee of RMB5 million payable upon fulfilment of certain conditions in accordance with the agreement. The Company further reduced its investment by RMB137, or approximately $22 towards the losses from operations incurred by the joint venture.

 

On October 2, 2013, the Company disposed its entire 10% interest in the joint venture. The Company recognized the disposal of its 10% investment in Jun Zhou based on the recorded net book value of RMB5 million or equivalent to US$803K, from net considerations paid, in accordance with US GAAP under ASC Topic 845 Non-monetary Consideration, and its presented under “Other Assets” as non-current assets to defer the recognition of the gain on the disposal of the 10% interest in joint venture investment until such time that the consideration is paid, so that the gain can be ascertained;

 

b) Amounts of RMB 5,000 or approximately $814 as disclosed in Note 5, plus the interest receivable on long term loan receivable of RMB 1,250 or approximately $200 and impairment on interest of RMB 906 or approximately $150.

 

The shop lots are to be delivered to TTCQ upon completion of the construction of the shop lots in Singapore Themed Resort Project. The initial targeted date of completion was December 31, 2016. Based on discussion with the developers, the completion date is currently estimated to be December 31, 2021. The delay was primarily due to the time needed by the developers to work with various parties to inject sufficient funds into this project. Based on the available information, management believes that the developer is capable of working with new investors to complete certain phases of this project.

 

 

 

 

10. LINES OF CREDIT

 

Carrying value of the Company’s lines of credit approximates its fair value because the interest rates associated with the lines of credit are adjustable in accordance with market situations when the Company borrowed funds with similar terms and remaining maturities.

 

The Company’s credit rating provides it with readily and adequate access to funds in global markets.

 

As of September 30, 2019, the Company had certain lines of credit that are collateralized by restricted deposits.

 

Entity with	Type of	Interest	Expiration	Credit	Unused
Facility	Facility	Rate	Date	Limitation	Credit
Trio-Tech International Pte. Ltd., Singapore	Lines of Credit	Ranging from 1.85% to 5.5%	-	$4,126	$4,126
Trio-Tech (Tianjin) Co., Ltd.	Lines of Credit	5.22% to 6.3%	-	$1,404	$1,404
Universal (Far East) Pte. Ltd	Lines of Credit	Ranging from 1.85% to 5.5%	-	$362	$362
Trio-Tech Malaysia Sdn. Bhd.	Revolving Credit	Cost of Funds Rate +2%	-	$358	$358