TRIO-TECH INTERNATIONAL - Quarter Report: 2019 March (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 March 31, 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)
16139 Wyandotte Street
Van Nuys, California		91406
(Address of principal executive offices)		(Zip Code)

 

           Registrant's Telephone Number, Including Area Code:  818-787-7000

 

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 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 ☒

  

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

Title of each class of registered securities		Trading Symbol		Name of each exchange on which registered
Common Stock, no par value		TRT		NYSE MKT

 

 

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 March 31, 2019 (Unaudited) and June 30, 2018	2
	(b)  Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended March 31, 2019 (Unaudited) and March 31, 2018 (Unaudited)	3
	(c)  Condensed Consolidated Statements of Shareholders Equity for the Three and Nine Months Ended March 31, 2019 (Unaudited) and the March 31, 2018 (Unaudited)	5
	(d)  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2019 (Unaudited) and March 31, 2018 (Unaudited)	6
	(e) Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	46
Item 4.	Controls and Procedures	46
Part II.	Other Information
Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3.	Defaults upon Senior Securities	47
Item 4.	Mine Safety Disclosures	47
Item 5.	Other Information	47
Item 6.	Exhibits	47
Signatures		48

 

 

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; 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)

 

	March 31, 2019	June 30, 2018
ASSETS	(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$4,602	$6,539
Short-term deposits	3,646	653
Trade accounts receivable, less allowance for doubtful accounts of $256 and $259	7,120	7,747
Other receivables	1,034	881
Inventories, less provision for obsolete inventory of $660 and $695	2,918	2,930
Prepaid expenses and other current assets	307	208
Assets held for sale	90	91
Total current assets	19,717	19,049
NON-CURRENT ASSETS:
Deferred tax asset	335	400
Investment properties, net	828	1,146
Property, plant and equipment, net	12,687	11,935
Other assets	1,728	2,249
Restricted term deposits	1,705	1,695
Total non-current assets	17,283	17,425
TOTAL ASSETS	$37,000	$36,474
LIABILITIES
CURRENT LIABILITIES:
Lines of credit	$622	$2,043
Accounts payable	3,021	3,704
Accrued expenses	3,882	3,172
Income taxes payable	404	285
Current portion of bank loans payable	492	367
Current portion of capital leases	257	250
Total current liabilities	8,678	9,821
NON-CURRENT LIABILITIES:
Bank loans payable, net of current portion	2,442	1,437
Capital leases, net of current portion	325	524
Deferred tax liabilities	343	327
Income taxes payable	613	828
Other non-current liabilities	32	36
Total non-current liabilities	3,755	3,152
TOTAL LIABILITIES	$12,433	$12,973
EQUITY
TRIO-TECH INTERNATIONAL’S SHAREHOLDERS' EQUITY:
Common stock, no par value, 15,000,000 shares authorized; 3,673,055 shares issued and outstanding as at March 31, 2019, and 3,553,055 shares as at June 30, 2018	$11,424	$11,023
Paid-in capital	3,261	3,249
Accumulated retained earnings	6,621	5,525
Accumulated other comprehensive gain-translation adjustments	2,055	2,182
Total Trio-Tech International shareholders' equity	23,361	21,979
Non-controlling interest	1,206	1,522
TOTAL EQUITY	$24,567	$23,501
TOTAL LIABILITIES AND EQUITY	$37,000	$36,474

 

See notes to condensed consolidated financial statements.

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)

 

	Three Months Ended		Nine Months Ended
	Mar. 31,	Mar. 31,	Mar. 31,	Mar. 31,
	2019	2018	2019	2018
Revenue
Manufacturing	$3,097	$3,124	$10,086	$11,862
Testing services	3,989	4,913	12,819	14,454
Distribution	1,727	2,033	5,587	5,175
Real Estate	25	34	81	110
	8,838	10,104	28,573	31,601
Cost of Sales
Cost of manufactured products sold	2,303	2,530	7,806	9,247
Cost of testing services rendered	2,862	3,491	9,351	9,881
Cost of distribution	1,483	1,821	4,831	4,598
Cost of real estate	16	30	52	88
	6,664	7,872	22,040	23,814
Gross Margin	2,174	2,232	6,533	7,787
Operating Expenses:
General and administrative	1,742	1,773	5,223	5,339
Selling	246	181	580	612
Research and development	76	75	270	377
Gain on disposal of property, plant and equipment	(13)	(31)	(13)	(20)
Total operating expenses	2,051	1,998	6,060	6,308
Income from Operations	123	234	473	1,479
Other Income / (Expenses)
Interest expenses	(74)	(64)	(250)	(174)
Other income, net	128	111	220	311
Gain on sale of assets held for sale	685	-	685	-
Total other income	739	47	655	137
Income from Continuing Operations before Income Taxes	862	281	1,128	1,616
Income Tax  Expenses	(209)	(980)	(159)	(1,035)
Income / (loss) from continuing operations before non-controlling interest, net of tax	653	(699)	969	581
Discontinued Operations
Income / (loss) from discontinued operations, net of tax	2	(6)	(2)	(11)
NET INCOME / (LOSS)	655	(705)	967	570
Less: net (loss) / income attributable to non-controlling interest	(28)	34	(129)	61
Net Income / (Loss) Attributable to Trio-Tech International Common Shareholders	$683	$(739)	$1,096	$509
Amounts Attributable to Trio-Tech International Common Shareholders:
Income / (loss) from continuing operations, net of tax	682	(736)	1,097	520
Income / (loss) from discontinued operations, net of tax	1	(3)	(1)	(11)

Net Income / (Loss) Attributable to Trio-Tech International Common Shareholders	$683	$(739)	$1,096	$509
Basic Earnings per Share:
Basic per share from continuing operations attributable to Trio-Tech International	$0.19	$(0.21)	$0.30	$0.15
Basic earnings per share from discontinued operations attributable to Trio-Tech International	$-	$-	$-	$-
Basic Earnings per Share from Net Income
Attributable to Trio-Tech International	$0.19	$(0.21)	$0.30	$0.15
Diluted Earnings per Share:
Diluted earnings per share from continuing operations attributable to Trio-Tech International	$0.19	$(0.20)	$0.29	$0.14
Diluted earnings per share from discontinued operations attributable to Trio-Tech International	$-	$-	$-	$-
Diluted Earnings per Share from Net Income
Attributable to Trio-Tech International	$0.19	$(0.20)	$0.29	$0.14
Weighted average number of common shares outstanding
Basic	3,673	3,553	3,673	3,553
Dilutive effect of stock options	12	219	73	225
Number of shares used to compute earnings per share diluted	3,685	3,772	3,746	3,778

 

See notes to condensed consolidated financial statements.

 

 

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

UNAUDITED (IN THOUSANDS)

 

	Three Months Ended		Nine Months Ended
	Mar. 31,	Mar. 31,	Mar. 31,	Mar. 31,
	2019	2018	2019	2018
Comprehensive Income Attributable to Trio-Tech International Common Shareholders:
Net income / (loss)	$655	$(705)	$967	$570
Foreign currency translation, net of tax	401	849	(189)	1,809
Comprehensive Income	1,056	144	778	2,379
Less: comprehensive income / (loss) attributable to non-controlling interest	1	142	(191)	255
Comprehensive Income attributable to Trio-Tech International Common Shareholders	$1,055	$2	$969	$2,124

 

 See notes to condensed consolidated financial statements.

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(IN THOUSANDS) 

 

 

	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	-	-	12	-	-	-	12
Net income	-	-	-	1,096	-	(129)	967
Dividend declared by subsidiary	-	-	-	-	-	(125)	(125)
Exercise of stock options	120	401	-	-	-	-	401
Translation adjustment	-	-	-	-	(127)	(62)	(189)
Balance at Mar. 31, 2019	3,673	11,424	3,261	6,621	2,055	1,206	24,567

 

Nine Months ended March 31, 2018

 

	Common Stock		Additional Paid-in	Accumulated Retained	Accumulated Other Comprehensive	Non- Controlling
	Shares	Amount	Capital	Earnings	Income	Interest	Total
Balance at June 30, 2017	3,523	$10,921	$3,206	$4,341	$1,633	$1,426	$21,527
Stock option expenses	-	-	40	-	-	-	40
Net income	-	-	-	509	-	61	570
Dividend declared by subsidiary	-	-	-	-	-	(125)	(125)
Exercise of options	20	51	-	-	-	-	51
Issue of restricted shares to service provider	10	51	-	-	-	-	51
Translation adjustment	-	-	-	-	1,615	194	1,809
Balance at Mar. 31, 2018	3,553	11,013	3,246	4,850	3,248	1,556	23,923

 

See notes to condensed consolidated financial statements.

 

 

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)

 

	Nine Months Ended
	Mar. 31,	Mar. 31,
	2019	2018
	(Unaudited)	(Unaudited)
Cash Flow from Operating Activities
Net income	$967	$570
Adjustments to reconcile net income to net cash flow provided by operating activities
Gain on sale of assets held for sale	(685)	-
Depreciation and amortization	1,777	1,594
Stock compensation	12	40
Usage of provision for obsolete inventory	(37)	(4)
Reversal of income tax provision	(145)	-
Bad debt recovery	1	-
Accrued interest expense, net accrued interest income	34	148
Gain on sale of property, plant and equipment – continued operations	(13)	(20)
Issuance of shares to service provider	-	51
Warranty recovery, net	(35)	1
Fixed assets written off	(33)	-
Deferred tax benefit / (provision)	78	33
Changes in operating assets and liabilities, net of acquisition effects
Trade accounts receivable	626	392
Other receivables	(153)	9
Other assets	489	(327)
Inventories	60	(506)
Prepaid expenses and other current assets	(99)	7
Accounts payable and accrued expenses	60	250
Income taxes payable	58	884
Net Cash Provided by Operating Activities	2,962	3,122
Cash Flow from Investing Activities
Proceeds from sale of assets held for sale	943	-
Proceeds from maturing of unrestricted term deposits and short-term deposits, net	-	484
Proceeds from disposal of property, plant and equipment	3	42
Investments in restricted and unrestricted deposits	(2,939)	(281)
Addition to property, plant and equipment	(2,576)	(2,050)
Net Cash Used in Investing Activities	(4,569)	(1,805)
Cash Flow from Financing Activities
Repayment on lines of credit	(7,316)	(7,397)
Repayment of bank loans and capital leases	(625)	(554)
Dividends paid on non-controlling interest	(125)	(125)
Proceeds from exercising stock options	401	51
Proceeds from bank loans and capital leases	7,470	6,570
Net Cash Used in Financing Activities	(195)	(1,455)
Effect of Changes in Exchange Rate	(125)	742
Net (Decrease) / Increase in Cash, Cash Equivalents, and Restricted Cash	(1,927)	604
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period	8,234	4,772
Cash, Cash Equivalents, and Restricted Cash at End of Period	$6,307	$5,376
Supplementary Information of Cash Flows
Cash paid during the period for:
Interest	$217	$138
Income taxes	$114	$225
Non-Cash Transactions
Capital lease of property, plant and equipment	$-	$228

 

See notes to condensed consolidated financial statements.

 

 

Reconciliation of Cash, Cash Equivalents, and Restricted Cash
Cash	4,602	6,539
Restricted Term-Deposits in Non-Current Assets	1,705	1,695
Total Cash, Cash Equivalents, and Restricted Cash Shown in Statement of Cash Flows	$6,307	$8,234

 

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 third quarter of fiscal year 2019, TTI conducted business in four business segments: Manufacturing, Testing Services, Distribution and Real Estate. TTI has subsidiaries in the U.S., Singapore, Malaysia, Thailand and China as follows:

 

	Ownership	Location
Express Test Corporation (Dormant)	100%	Van Nuys, California
Trio-Tech Reliability Services (Dormant)	100%	Van Nuys, California
KTS Incorporated, dba Universal Systems (Dormant)	100%	Van Nuys, California
European Electronic Test Centre (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. (49% owned by Trio-Tech International Pte. Ltd. and 51% owned by Trio-Tech International (Thailand) Co. Ltd.)	100%	Bangkok, Thailand
Trio-Tech (Malaysia) Sdn. Bhd. (55% owned by Trio-Tech International Pte. Ltd.)	55%	Penang and Selangor, Malaysia
Trio-Tech (Kuala Lumpur) Sdn. Bhd. (100% owned by Trio-Tech Malaysia Sdn. Bhd.)	55%	Selangor, Malaysia
Prestal Enterprise Sdn. Bhd. (76% owned by Trio-Tech International Pte. Ltd.)	76%	Selangor, Malaysia
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 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 and nine months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2019. 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, 2018.

 

Except as otherwise specifically noted in this Form 10-Q, the Company’s operating results are presented based on the translation of foreign currencies using the respective quarter’s average exchange rate.

 

Certain reclassifications have been made to prior period amounts to conform to the current presentation.

 

2.    NEW ACCOUNTING PRONOUNCEMENTS

The amendments in ASU 2018-19 ASC Topic 326: Codification Improvements to Financial Instruments – Credit Losses clarifies 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 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 Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.

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. It allows 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 Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.

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 2018-09 Codification Improvements represent changes to clarify, correct errors in, or make minor improvements to the Codification, eliminating inconsistencies and providing clarifications in current guidance. The amendments in this ASU include those made to: Income Statement-Reporting Comprehensive Income-Overall; Debt-Modifications and Extinguishments; Distinguishing Liabilities from Equity-Overall; Compensation-Stock Compensation-Income Taxes; Business Combinations-Income Taxes; Derivatives and Hedging-Overall; Fair Value Measurement-Overall; Financial Services-Brokers and Dealers-Liabilities; and Plan Accounting-Defined Contribution Pension Plans-Investments-Other. The amendments are effective for all entities for annual periods beginning after December 15, 2018. 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 2018-02 ASC Topic 220: Income Statement – Reporting Comprehensive Income provide financial statement preparers with an option to reclassify stranded tax effects within Accumulated Other Comprehensive Income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The amendments in ASC Topic 220 are effective for public business entities for fiscal years beginning after December 15, 2018 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 Accounting Standards Update (“ASU”) 2017-11: Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815) are effective for public companies for annual periods beginning after December 15, 2018, 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 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 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 not SEC filers, ASC Topic 326 is effective for fiscal years beginning after December 15, 2020, and 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 effectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

In February 2016, the FASB issued an ASU 2016-12 ASC Topic 842: Leases, which amends a number of aspects of the existing accounting standards for leases which require lessees to recognize operating leased assets and corresponding liabilities on the balance sheet for all leases with lease terms of more than 12 months. In July 2018, ASU 2018-10: Codification Improvements to Leases addressed stakeholders’ questions about how to apply certain aspects of the new guidance in Accounting Standards Codification (ASC) 842: Leases. The clarifications address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. Besides, the amendments in ASU 2018-11 ASC Topic 842: Leases: Targeted Improvements related to transition relief on comparative reporting at adoption affect all entities with lease contracts that choose the additional transition method and separating components of a contract affect only lessors whose lease contracts qualify for the practical expedient. In July 2018, the amendments in ASU 2018-20 ASC Topic 842: Leases: Narrow-Scope Improvements for Lessors addressed the following issues facing lessors when applying this lease standard: (1) sales taxes and other similar taxes collected from lessees, (2) certain lessor costs and (3) recognition of variable payments for contracts with lease and non-lease components. On 5 March 2019, ASU 2019-01 issued to exempt both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard. The amendments are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. While early application is permitted and allows for either a modified retrospective adoption or a retrospective adoption by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, the Company has not elected to early adopt. The Company will adopt these standards starting in the first quarter of fiscal year 2020 on a modified retrospective approach at the beginning of the period through a cumulative-effect adjustment. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements and expects that there will be an increase in assets and liabilities on the Consolidated Balance Sheets at adoption due to the recognition of right-of-use assets and related lease liabilities. Upon adoption, the Company expects that its financial statement disclosure will be expanded to present additional details of its leasing arrangements.

Other new pronouncements issued but not yet effective until after March 31, 2019 are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

3.   TERM DEPOSITS

	Mar. 31,  2019 (Unaudited)	June 30,  2018
Short-term deposits	$3,615	$606
Currency translation effect on short-term deposits	31	47
Total short-term deposits	3,646	653
Restricted term deposits	1,690	1,664
Currency translation effect on restricted term deposits	15	31
Total restricted term deposits	1,705	1,695
Total term deposits	$5,351	$2,348

 

Restricted deposits represent the amount of cash pledged to secure loans payable 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. Short-term deposits represent bank deposits, which do not qualify as cash equivalents.

 

4.   TRADE ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

Accounts receivable consists of customer obligations due under normal trade terms. Although management generally does not require collateral, letters of credit may be required from the customers in certain circumstances. Management periodically performs credit evaluations of customers’ financial conditions.

 

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 March 31, 2019 and June 30, 2018 was adequate.  

 

 

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

	Mar. 31,  2019 (Unaudited)	June 30,  2018
Beginning	$259	$247
Additions charged to expenses	85	8
Recovered	(84)	(1)
Currency translation effect	(4)	5
Ending	$256	$259

 

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 March 31, 2019. The exchange rate is based on the date published by the Monetary Authority of Singapore as of March 31, 2015, since the net loan receivable was “nil” as of March 31, 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		-	-

 

On November 1, 2010, 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. Due to the short-term nature of the investment, the amount was classified as a loan based on ASC Topic 310-10-25 Receivables, amounting to renminbi (“RMB”) 2,000, or approximately $325. The loan was renewed, but expired on May 31, 2013. TTCQ is in the legal process of recovering the outstanding amount of $325. TTCQ did not generate other income from JiangHuai for the quarter ended March 31, 2019 or for the fiscal year ended June 30, 2018. Based on TTI’s financial policy, a provision for doubtful receivables of $325 on the investment in JiangHuai was recorded during the second quarter of fiscal 2014 based on TTI’s financial policy.

 

On November 1, 2010, 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. Due to the short-term nature of the investment, the amount was classified as a loan based on ASC Topic 310, amounting to RMB 5,000, or approximately $814 based on the exchange rate as at March 31, 2015 published by the Monetary Authority of Singapore. The amount was unsecured and repayable at the end of the term. The loan was renewed in November 2011 for a period of one year, which expired on October 31, 2012 and was again renewed in November 2012 and expired in November 2013. On November 1, 2013 the loan was transferred by JiaSheng to, and is now payable by, Chong Qing Jun Zhou Zhi Ye Co. Ltd. (“Jun Zhou Zhi Ye”), and the transferred agreement expired on October 31, 2016. Prior to the second quarter of fiscal year 2015, the loan receivable was classified as a long-term receivable. The book value of the loan receivable approximates its fair value. In the second quarter of fiscal year 2015, the loan receivable was transferred to the down payment for the purchase of an investment property that is being developed in the Singapore Themed Resort Project (see Note 8).

 6.  INVENTORIES

 Inventories consisted of the following:

	Mar. 31, 2019  (Unaudited)	June 30,  2018
Raw materials	$1,206	$1,153
Work in progress	1,839	1,947
Finished goods	520	505
Currency translation effect	13	20
Less: provision for obsolete inventory	(660)	(695)
	$2,918	$2,930

  

 

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

	Mar. 31,  2019 (Unaudited)	June 30,  2018
Beginning	$695	$686
Additions charged to expenses	5	9
Usage – disposition	(42)	(5)
Currency translation effect	2	5
Ending	$660	$695

 

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. Management received an expression of interest from a potential buyer in acquiring the property during second quarter of fiscal year 2019 and the sale is still under negotiation with the potential buyer during third quarter of fiscal year 2019. The completion of the sale is also subject to the approval by Penang Development Corporation. The net book values of the building was RM371, or $90, as at March 31, 2019 and RM371, or $91, as at June 30, 2018.

Mao Ye Property

 

During the first quarter of 2019, management decided to sell Mao Ye Property, which is one of our earlier investment properties. In order to monetize the capital gain on property, TTCQ appointed a sole agent for 6 months as of September 1, 2018 to search for suitable buyers for this property. The Company has completed the sale of thirteen of the fifteen units constituting the Mao Ye Property as the end of the third quarter 2019 which contributed the gain of $685. During the third quarter 2019, considering the current market conditions in China, management has decided not to sell the remaining two units of Mao Ye properties and as of third quarter 2019, the properties were reclassified to investment property from assets held for sale.

8.  INVESTMENTS

During the second quarter of fiscal year 2011, the Company entered into a joint venture agreement with JiaSheng to develop real estate projects in China. The Company invested RMB 10,000, or approximately $1,606 for a 10% interest in the newly formed joint venture, which was incorporated as a limited liability company, Chong Qing Jun Zhou Zhi Ye Co. Ltd. (the “joint venture”), in China. The Company would receive a fee of RMB 10,000, or approximately $1,606 for the services rendered in connection with bidding in certain real estate projects from the local government. Upon signing of the agreement, JiaSheng paid the Company RMB 5,000 in cash, or approximately $803. The remaining RMB 5,000, which was not recorded as a receivable as the Company considered the collectability uncertain, would be paid over 72 months commencing in 36 months from the date of the agreement when the joint venture secured a property development project stated inside the joint venture agreement. The Company considered the RMB 5,000, or approximately $803 received in cash from JiaSheng, the controlling venturer in the joint venture, as a partial return of the Company’s initial investment, resulting in a net investment of RMB 5,000 as of March 31, 2014. The Company further reduced its investments by RMB 137, or approximately $22, towards the losses from operations incurred by the joint venture, resulting in a net investment of RMB 4,863, or approximately $781. Transaction amounts in this paragraph were translated into US dollars based on the exchange rate as of March 31, 2014 published by the Monetary Authority of Singapore.

 

During the second quarter of fiscal year 2014, TTCQ decided to dispose of its 10% interest in the joint venture after TTCQ revalued certain monetary risks relating to the development of the project. On October 2, 2013, TTCQ entered into a share transfer agreement (the “Share Transfer Agreement”) with Zhu Shu. Based on the agreement, the purchase price was to be paid by (1) RMB 10,000 worth of commercial property in Chongqing China, or approximately $1,634 consisting of commercial units measuring 668 square meters to be delivered in June 2016, and (2) the remaining RMB 8,000, or approximately $1,307 by cash consideration to be paid in sixteen quarterly equal instalments of RMB 500 per quarter commencing from January 2014. Based on ASC Topic 845 Non-monetary Consideration, the Company deferred the recognition of the gain on disposal of the 10% interest in joint venture investment until such time that the consideration is paid, so that the gain can be ascertained. The recorded value of the disposed investment amounting to $783, based on exchange rates published by the Monetary Authority of Singapore as of June 30, 2014, is classified as “other assets” under non-current assets, because it is considered a down payment for the purchase of the commercial property in Chongqing. The first three instalments, amounting to RMB 500 each due in January 2014, April 2014 and July 2014, were all outstanding until the date of disposal of the investment in the joint venture. Out of the outstanding RMB 8,000, TTCQ received RMB 100 during May 2014. Except as otherwise noted, transaction amounts in this paragraph were translated into US dollars based on the exchange rate as of October 2, 2013 published by the Monetary Authority of Singapore

 

 

On October 14, 2014, TTCQ and Jun Zhou Zhi Ye entered into a memorandum of understanding. Based on the memorandum of understanding, both parties agreed to register a sales and purchase agreement upon Jun Zhou Zhi Ye obtaining the license to sell the commercial property (the Singapore Themed Resort Project) located in Chongqing, China. The proposed agreement is for the sale of shop lots with a total area of 1,484.55 square meters as consideration for the outstanding amounts owed to TTCQ by Jun Zhou Zhi Ye as follows:

 

a) Long term loan receivable RMB 5,000, or approximately $814, as disclosed in Note 5, plus the interest receivable on long term loan receivable of RMB 1,250;

b) Commercial units measuring 668 square meters, as mentioned above; and

c) RMB 5,900 for the part of the unrecognized cash consideration of RMB 8,000 relating to the disposal of the joint venture.

 

The consideration does not include the remaining outstanding amount of RMB 2,000, or approximately $326, which will be paid to TTCQ in cash.

 

The shop lots are to be delivered to TTCQ upon completion of the construction of the shop lots in the Singapore Themed Resort Project. The initial targeted date of completion was December 31, 2016. Based on discussions with the developers, the completion date is currently estimated to be December 31, 2021.

 

The Share Transfer Agreement (10% interest in the joint venture) was registered with the relevant authorities in China during October 2016.

 

9.   INVESTMENT PROPERTIES

The following table presents the Company’s investment in properties in China as of March 31, 2019. The exchange rate is based on the market rate as of March 31, 2019.

 

	Investment Date / Reclassification Date	Investment Amount (RMB)	Investment Amount (U.S. Dollars)
Purchase of rental property – Property I – Mao Ye 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		-	(93)
Gross investment in rental property		9,649	1,436
Accumulated depreciation on rental property	Mar 31, 2019	(5,879)	(875)
Reclassified as “Assets held for sale”	July 01, 2018	2,822	410
Reclassification from “Assets held for sale”	Mar 31, 2019	(1,029)	(143)
		(4,086)	(608)
Net investment in property – China		5,563	828

 

The following table presents the Company’s investment in properties in China as of June 30, 2018. The exchange rate is based on the market rate as of June 30, 2018.

	Investment Date	Investment Amount (RMB)	Investment Amount (U.S. Dollars)
Purchase of rental property – Property I - Mao Ye Property	Jan 04, 2008	5,554	894
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		-	(131)
Gross investment in rental property		13,179	1,991
Accumulated depreciation on rental property	June 30, 2018	(5,596)	(845)
Net investment in property – China		7,583	1,146

 

 

 

The following table presents the Company’s investment properties in Malaysia as of March 31, 2019 and June 30, 2018. The exchange rate is based on the exchange rate as of June 30, 2015 published by the Monetary Authority of Singapore.

	Investment Date	Investment Amount	Investment Amount
		(RM)	(U.S. Dollars)
Purchase of Penang Property	Dec 31, 2012	681	181
Currency translation		-	(16)
Reclassification as “Assets held for sale”	June 30, 2015	(681)	(165)
		-	-
Accumulated depreciation on rental property	June 30, 2015	(310)	(83)
Currency translation		-	7
Reclassified as “Assets held for sale”	June 30, 2015	(310)	(76)
Net investment in rental property - Malaysia		-	-

 

Rental Property I - Mao Ye Property

 

In fiscal 2008, TTCQ purchased an office in Chongqing, China from Mao Ye Property Ltd. (“Mao Ye”), 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. TTCQ signed a new rental agreement (451 square meters at a monthly rent of RMB 24, or approximately $4) on February 1, 2018 which expires on January 31, 2021.

 

During the first quarter of 2019, management decided to sell Mao Ye Property, which is one of our earlier investment properties. In order to monetize the capital gain on property, TTCQ appointed a sole agent for 6 months as of September 1, 2018 to search for suitable buyers for this property. The Company has completed the sale of thirteen of the fifteen units constituting the Mao Ye Property as the end of third quarter 2019 which contributed the gain of $685. During the third quarter 2019, considering the current market conditions in China, management has decided not to sell the remaining two units of Mao Ye properties and as of third quarter 2019, the properties were reclassified to investment property from assets held for sale.

 

Property purchased from Mao Ye generated a rental income of $15 and $58 during the three and nine months ended March 31, 2019, respectively, and $22 and $75 for the same periods 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; however, TTCQ has the vacancies in possession with the exception of two units, which are in the process of clarification. 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 and nine months ended March 31, 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 totalling 311.99 square meters (“office space”) located in Jiang Bei District Chongqing. Although TTCQ currently rents its office premises from a third party, it intends to use the office space as its office premises. 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 5% every year on May 1, commencing in 2017 until the rental agreement expires on April 30, 2019. The rental agreement of this lease has been extended for 3 years, commencing from May 01, 2019 to Apr 30, 2021 with a term of rent increase of 6% every year.

For the other lease expired on March 31, 2018, TTCQ identified a new tenant and signed a new rental agreement (161 square meters at a monthly rent of RMB 62, or approximately $9) on November 1, 2018 which expires on October 31, 2019.

Properties purchased from Fu Li generated a rental income of $10 and $23 for the three and nine months ended March 31, 2019, respectively, while it generated a rental income of $12 and $35 for the same periods in the last fiscal year.

 

 

Summary

Total rental income for all investment properties in China was $25 and $81 for the three and nine months ended March 31, 2019, respectively, and were $34 and $110 for the same periods in the last fiscal year.

 

Depreciation expenses for all investment properties in China were $14 and $42 and for the three and nine months ended March 31, 2019, respectively, and were $25 and $74 for the same periods in the last fiscal year.

10.   OTHER ASSETS

Other assets consisted of the following:

	Mar. 31, 2019 (Unaudited)	June 30, 2018
Down payment for purchase of investment properties	$1,645	$1,645
Down payment for purchase of property, plant and equipment	71	561
Deposits for rental and utilities	140	140
Currency translation effect	(128)	(97)
Total	$1,728	$2,249