TRIO-TECH INTERNATIONAL - Quarter Report: 2020 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, 2020

 

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, 2020, there were 3,710,555 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	1
	(a) Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and June 30, 2020	1
	(b) Condensed Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended September 30, 2020 (Unaudited) and September 30, 2019 (Unaudited)	2
	(c) Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended September 30, 2020 (Unaudited) and the September 30, 2019 (Unaudited)	4
	(d) Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2020 (Unaudited) and September 30, 2019 (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	28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37
Item 4.	Controls and Procedures	37
Part II.	Other Information
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	38
Signatures		39

 

 

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; public health issues related to the COVID-19 pandemic; the 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, 2020	June 30, 2020
ASSETS	(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$4,849	$4,150
Short-term deposits	6,678	6,697
Trade accounts receivable, less allowance for doubtful accounts of $318 and $314, respectively	5,745	5,951
Other receivables	905	998
Inventories, less provision for obsolete inventories of $692 and $678, respectively	1,872	1,922
Prepaid expenses and other current assets	417	482
Total current assets	20,466	20,200
NON-CURRENT ASSETS:
Deferred tax assets	276	247
Investment properties, net	699	690
Property, plant and equipment, net	10,135	10,310
Operating lease right-of-use assets	819	944
Other assets	1,738	1,609
Restricted term deposits	1,695	1,660
Total non-current assets	15,362	15,460
TOTAL ASSETS	$35,828	$35,660
LIABILITIES
CURRENT LIABILITIES:
Lines of credit	$-	$172
Accounts payable	2,024	2,590
Accrued expenses	3,549	3,005
Income taxes payable	360	344
Current portion of bank loans payable	425	370
Current portion of finance leases	224	231
Current portion of operating leases	425	477
Current portion of PPP loan	121	54
Total current liabilities	7,128	7,243
NON-CURRENT LIABILITIES:
Bank loans payable, net of current portion	1,956	1,836
Finance leases, net of current portion	394	435
Operating leases, net of current portion	394	467
Income taxes payable	385	430
PPP loan, net of current portion	-	67
Other non-current liabilities	33	36
Total non-current liabilities	3,162	3,271
TOTAL LIABILITIES	$10,290	$10,514
EQUITY
TRIO-TECH INTERNATIONAL’S SHAREHOLDERS' EQUITY:
Common stock, no par value, 15,000,000 shares authorized; 3,685,555 shares issued outstanding as at September 30 and June 30, 2020 and 3,673,055 shares as at June 30,2020, respectively	$11,458	$11,424
Paid-in capital	3,369	3,363
Accumulated retained earnings	8,028	8,036
Accumulated other comprehensive income-translation adjustments	1,747	1,143
Total Trio-Tech International shareholders' equity	24,602	23,966
Non-controlling interest	936	1,180
TOTAL EQUITY	$25,538	$25,146
TOTAL LIABILITIES AND EQUITY	$35,828	$35,660

 

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,
	2020	2019
Revenue
Manufacturing	$2,625	$3,317
Testing services	2,954	4,390
Distribution	1,258	2,099
Real estate	4	17
	6,841	9,823
Cost of Sales
Cost of manufactured products sold	1,937	2,555
Cost of testing services rendered	2,322	3,191
Cost of distribution	1,047	1,807
Cost of real estate	17	18
	5,323	7,571
Gross Margin	1,518	2,252
Operating Expenses:
General and administrative	1,660	1,788
Selling	111	190
Research and development	75	76
Gain on disposal of property, plant and equipment	(1)	(24)
Total operating expenses	1,845	2,030
(Loss)/Income from Operations	(327)	222
Other Income/(Expenses)
Interest expenses	(37)	(68)
Other income, net	211	110
Total other income	174	42
(Loss)/ Income from Continuing Operations before Income Taxes	(153)	264
Income Tax Expenses	(7)	-
(Loss)/ Income from Continuing Operations before Non-controlling Interest, Net of Tax	(160)	264
Discontinued Operations
Loss from discontinued operations, net of tax	(6)	(1)
NET (LOSS)/ INCOME	(166)	263
Less: Net loss attributable to the non-controlling interest	(158)	(10)
Net (Loss)/ Income Attributable to Trio-Tech International Common Shareholders	$(8)	$273
Amounts Attributable to Trio-Tech International Common Shareholders:
Loss from continuing operations, net of tax	(5)	274
Loss from discontinued operations, net of tax	(3)	(1)
Net Loss Attributable to Trio-Tech International Common Shareholders	$(8)	$273
Basic Earnings per Share:
Basic earnings per share from continuing operations attributable to Trio-Tech International	$-	$0.07
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
Diluted Earnings per Share:
Diluted earnings per share from continuing operations attributable to Trio-Tech International	$-	$0.07
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
Weighted average number of common shares outstanding
Basic	3,686	3,673
Dilutive effect of stock options	80	17
Number of shares used to compute earnings per share diluted	3,766	3,690

 

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,
	2020	2019
Comprehensive Income (Loss) Attributable to Trio-Tech International Common Shareholders:
Net (loss)/income	(166)	263
Foreign currency translation, net of tax	640	(563)
Comprehensive Income/(Loss)	474	(300)
Less: Comprehensive (loss)/income attributable to the non-controlling interests	(122)	9
Comprehensive Income/(Loss) Attributable to Trio-Tech International Common Shareholders	$596	$(309)

 

 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, 2020	Common Stock		Paid-in	Accumulated Retained	Accumulated Other Comprehensive	Non- controlling
	Shares	Amount	Capital	Earnings	Income	Interest	Total
		$	$	$	$	$	$
Balance at June 30, 2020	3,673	11,424	3,363	8,036	1,143	1,180	25,146
Stock option expenses	-	-	6	-	-	-	6
Net loss	-	-	-	(8)	-	(158)	(166)
Dividend declared by subsidiary	-	-	-	-	-	(122)	(122)
Exercise of stock option	13	34	-	-	-	-	34
Translation adjustment	-	-	-	-	604	36	640
Balance at Sept. 30, 2020	3,686	11,458	3,369	8,028	1,747	936	25,538

 

Three Months ended September 30, 2019	Common Stock		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

 

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,
	2020	2019
	(Unaudited)	(Unaudited)
Cash Flow from Operating Activities
Net (loss) / income	$(166)	$263
Adjustments to reconcile net income to net cash flow provided by operating activities
Depreciation and amortization	702	786
Stock compensation	-	8
Addition / (Reversal) of provision for obsolete inventories	6	(5)
Stock option expense	6	-
Bad debt recovery	(5)	(13)
Accrued interest expense, net accrued interest income	-	(10)
Payment of interest portion of finance lease	(10)	-
Warranty recovery, net	-	(1)
Gain on sale of property, plant and equipment- continuing operations	(1)	(24)
Deferred tax benefit	(19)	(4)
Changes in operating assets and liabilities, net of acquisition effects
Trade accounts receivable	219	(386)
Other receivables	93	61
Other assets	(67)	98
Inventories	67	707
Prepaid expenses and other current assets	71	(59)
Accounts payable and accrued expenses	(236)	(136)
Income taxes payable	(23)	(93)
Operating lease liabilities	(174)	(202)
Net Cash Provided by Operating Activities	463	990
Cash Flow from Investing Activities
Investment in unrestricted term deposits, net (Note 1a)	-	(1,165)
Short-term advances	(6)
Additions to property, plant and equipment	(87)	(500)
Net Cash Used in Investing Activities	(93)	(1,665)
Cash Flow from Financing Activities
Payment on lines of credit	(174)	(604)
Payment of bank loans	(103)	(122)
Payment of finance leases	(54)	(65)
Dividends paid on non-controlling interest	(122)	-
Proceeds from exercising stock options	34	-
Proceeds from lines of credit	-	410
Proceeds from bank loans	208	-
Proceeds from principal of finance lease	-	44
Net Cash Used in Financing Activities	(211)	(337)
Effect of Changes in Exchange Rate	575	(173)
Net increase/(decrease) in cash, cash equivalents, and restricted cash	734	(1,185)
Cash, cash equivalents, and restricted cash at beginning of period	5,810	6,569
Cash, cash equivalents, and restricted cash at end of period	$6,544	$5,384
Supplementary Information of Cash Flows
Cash paid during the period for:
Interest	$67	$61
Income taxes	$45	$124
Non-Cash Transactions
Finance lease of property, plant and equipment	$-	$44

Reconciliation of cash, cash equivalents, and restricted cash
Cash	4,849	3,710
Restricted term-deposits in non-current assets	1,695	1,674
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	$6,544	$5,384

 

See notes to condensed consolidated financial statements. 

 

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 CONDENSED 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 2021, 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
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, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2021. Certain accounting matters that generally require consideration of forecasted financial information were assessed regarding impacts from the COVID-19 pandemic as of September 30, 2020 and through the Quarterly Report dated November 13, 2020 using reasonably available information as of those dates. Those accounting matters assessed included, but were not limited to, allowance for doubtful accounts, the carrying value of long-lived tangible assets and the valuation allowances for tax assets. While the assessments resulted in no material impacts to the consolidated financial statements as of and for the quarter ended September 30, 2020, the Company believes the full impact of the pandemic remains uncertain and the Company will continue to assess if ongoing developments related to the pandemic may cause future material impacts to our consolidated financial statements. As of September 30, 2020, the Company had cash and cash equivalents and short-terms deposits totalling $11,527 and unused line of credit of $5,621. We finance operations primarily through our existing cash balances, cash collected from operations, bank borrowings and capital lease financing. We believe these sources are sufficient to fund our operations for the foreseeable future. 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, 2020.

 

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

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 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.

 

Leases-Lessor

 

For the Company as lessor, all 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

 

In October 2020, FASB issued ASU2020-10: Codification Improvements. This update contains amendments that improve the consistency of the Codification by including all disclosure guidance in the appropriate Disclosure Section (Section 50). Many of the amendments arose because the Board provided an option to give certain information either on the face of the financial statements or in the notes to financial statements and that option only was included in the Other Presentation Matters Section (Section 45) of the Codification. The option to disclose information in the notes to financial statements should have been codified in the Disclosure Section as well as the Other Presentation Matters Section (or other Section of the Codification in which the option to disclose in the notes to financial statements appears). The amendments in this Update do not change GAAP and, therefore, are not expected to result in a significant change in practice. The amendments are effective for the Company for fiscal years beginning after December 15, 2020, including interim period within those fiscal years. Early adoption is permitted. Adoption shall be applied retrospectively. The Company is currently evaluating the impacts of the provisions of ASU 2020-10 on its consolidated financial statements and related disclosures. 

 

In August 2020, the FASB issued ASU 2020-06: Debt – Debt with Conversion and Other options (Subtopic 470-20) and Derivative and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusion. In addition, this ASU improves and amends the related EPS guidance. These amendments are effective for the Company for fiscal years beginning after December 15, 2023, including interim period within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Adoption is either a modified retrospective method or a fully retrospective method of transition. The Company is currently evaluating the impacts of the provisions of ASU 2020-06 on its consolidated financial statements and related disclosures.

 

 

 

In March 2020, FASB issued ASU 2020-04 ASC Topic 848: Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The amendments are effective for all entities as of March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impacts of the provisions of ASU 2020-04 on its consolidated financial statements and related disclosures.

In June 2016, FASB issued ASU 2016-13 ASC Topic 326: Financial Instruments — Credit Losses (“ASC Topic 326”) 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. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. ASC Topic 326 is effective for the Company for annual periods beginning after December 15, 2022. 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, 2020 are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

3.   TERM DEPOSITS

	Sep. 30,  2020 (Unaudited)	June 30,  2020
Short-term deposits	$6,696	$6,887
Currency translation effect on short-term deposits	(18)	(190)
Total short-term deposits	6,678	6,697
Restricted term deposits	1,661	1,712
Currency translation effect on restricted term deposits	34	(52)
Total restricted term deposits	1,695	1,660
Total term deposits	$8,373	$8,357

 

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, 2020 and June 30, 2020 was adequate.  

 

 

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

	Sept. 30,  2020 (Unaudited)	June 30,  2020
Beginning	$314	$263
Additions charged to expenses	-	351
Recovered	(5)	(284)
Write-off	-	(9)
Currency translation effect	9	(7)
Ending	$318	$314

 

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, 2020.

 

	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	294
Less: allowance for doubtful receivables		(2,000)	(294)
Net loan receivables from property development projects		-	-
Long-term loan receivables
Jun Zhou Zhi Ye	Oct 31, 2016	5,000	734
Less: transfer – down-payment for purchase of investment property		(5,000)	(734)
Net loan receivables from property development projects		-	-

 

The short-term loan receivables amounting to renminbi (“RMB”) 2,000, or approximately $294 arose due to TTCQ entering 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 $294 on the investment in JiangHuai was recorded during fiscal 2014. TTCQ did not generate other income from JiangHuai for the quarter ended September 30, 2020 or for the fiscal year ended June 30, 2020. TTCQ is in the legal process of recovering the outstanding amount of $294.

 

The loan amounting to RMB 5,000, or approximately $734 arose due to TTCQ entering 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 8).

 

6.  INVENTORIES

 Inventories consisted of the following:

	Sept. 30,  2020  (Unaudited)	June 30,  2020
Raw materials	$1,238	$1,281
Work in progress	1,009	968
Finished goods	278	422
Inventories in transit	7	-
Currency translation effect	32	(71)
Less: provision for obsolete inventories	(692)	(678)
	$1,872	$1,922

 

 

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

	Sept. 30,  2020 (Unaudited)	June 30,  2020
Beginning	$678	$673
Additions charged to expenses	6	26
Usage – disposition	-	(8)
Currency translation effect	8	(13)
Ending	$692	$678

 

7.   INVESTMENT PROPERTIES

The following table presents the Company’s investment in properties in China as of September 30, 2020. The exchange rate is based on the market rate as of September 30, 2020.

 

	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, 2019	(5,554)	(807)
Reclassification from “Assets held for sale”	Mar 31, 2020	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		-	(113)
Gross investment in rental property		9,649	1,416
Accumulated depreciation on rental property	Sep 30, 2020	(6,678)	(984)
Reclassified as “Assets held for sale”-Mao Ye Property	July 01, 2019	2,822	410
Reclassification from “Assets held for sale”-Mao Ye Property	Mar 31, 2020	(1,029)	(143)
		(4,885)	(717)
Net investment in property – China		4,764	699

 

The following table presents the Company’s investment in properties in China as of June 30, 2020. The exchange rate is based on the market rate as of June 30, 2020.

 

	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, 2019	(5,554)	(807)
Reclassification from “Assets held for sale”	Mar 31, 2020	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		-	(166)
Gross investment in rental property		9,649	1,363
Accumulated depreciation on rental property	June 30, 2020	(6,558)	(940)
Reclassified as “Assets held for sale”-Mao Ye Property	July 01, 2019	2,822	410
Reclassification from “Assets held for sale”-Mao Ye Property	Mar 31, 2020	(1,029)	(143)
		(4,765)	(673)
Net investment in property – China		4,884	690

 

 

 

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.

 

Property purchased from MaoYe generated a rental income of $nil during the three months ended September 30, 2020 as compared to $8 for the same period in last fiscal year.

 

Depreciation expense for MaoYe was $4 for the three months ended September 30, 2020 and 2019, respectively.

 

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. TTCQ had yet to receive the title deed for these properties. TTCQ was in the legal process of obtaining the title deed until the developer encountered cash flow difficulties in the recent years. Since fiscal year 2018, JiangHuai has been under liquidation and is now undergoing asset distribution. Nonetheless, this is not expected to affect the property’s market value but, in view of the COVID-19 pandemic and current economic situation, it is likely to be more tedious and time-consuming for the Court in their execution of the sale.

 

Property purchased from JiangHuai did not generate any rental income for the three months ended September 30, 2020 and 2019.

Depreciation expense for JiangHuai was $6 for the three months ended September 30, 2020 and 2019, respectively.

 

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, the property was handed over to TTCQ in April 2013 and the title deed was received during the third quarter of fiscal 2014.

 

One of the two commercial properties was leased by TTCQ to a third party under a lease providing for a rent increase of 6% every year on May 1, commencing in 2019 until the rental agreement expires on April 30, 2021. The agreement was terminated in April 2020 due to the current slow and cautious market rental conditions. Management is still actively looking for a tenant for this property.

 

For the other leased property, TTCQ renewed the lease agreement to rent out the 161 square meter space at a monthly rate of RMB10, or approximately $1, from November 1, 2019 to October 31, 2020.

 

Properties purchased from Fu Li generated a rental income of $4 for the three months ended September 30, 2020, and $9 for the same period in the last fiscal year.

 

Depreciation expense for Fu Li was $7 for the three months ended September 30, 2020 and 2019, respectively.

 

Summary

Total rental income for all investment properties in China was $4 for the three months ended September 30, 2020 and $17 for the same period in the last fiscal year.

 

Depreciation expenses for all investment properties in China were $17 for the three months ended September 30, 2020 and $18 for the same period in the last fiscal year.

 

 

 

8.   OTHER ASSETS

Other assets consisted of the following:

	Sept. 30, 2020 (Unaudited)	June 30, 2020
Down payment for purchase of investment properties *	$1,645	$1,645
Down payment for purchase of property, plant and equipment	69	8
Deposits for rental and utilities	166	171
Currency translation effect	(142)	(215)
Total	$1,738	$1,609

 

* Down payment for purchase of investment properties included:

 

	RMB	US Dollars
Original investment (10% of Jun Zhou 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 down payment(Note *a)	4,863	781
Loans Receivable	5,000	814
Interest Receivable	1,250	200
Less: Impairment of Interest	(906)	(150)
Transferred to down payment(Note *b)	5,344	864
* Down payment for purchase of investment properties	10,207	1,645

 

 

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 it’s 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.

 

 

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, 2022. The delay was primarily due to the time needed by the developers to work with various parties to inject sufficient funds into this project.

 

 

As of September 30, 2020, 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%, SIBOR rate +1.25% and LIBOR rate +1.30%	-	$4895	$4,895
Trio-Tech International Pte. Ltd., Singapore	Lines of Credit	Ranging from 1.85% to 5.5%	-	$365	$365
Trio-Tech Malaysia Sdn. Bhd.	Revolving Credit	Cost of Funds Rate +2%	-	$361	$361

  

As of June 30, 2020, 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%, SIBOR rate +1.25% and LIBOR rate +1.30%	-	$4,806	$4,806
Universal (Far East) Pte. Ltd.	Lines of Credit	Ranging from 1.85% to 5.5%	-	$359	$187
Trio-Tech Malaysia Sdn. Bhd.	Revolving Credit	Cost of Funds Rate +2%	-	$350	$350

 

10.  ACCRUED EXPENSES

Accrued expenses consisted of the following:

	Sept. 30, 2020 (Unaudited)	June 30, 2020
Payroll and related costs	$1,113	$1,185
Commissions	78	104
Customer deposits	18	30
Legal and audit	315	315
Sales tax	48	19
Utilities	81	80
Warranty	10	12
Accrued purchase of materials and property, plant and equipment	488	186
Provision for re-instatement	291	300
Deferred income	82	88
Contract liabilities	471	476
Other accrued expenses	354	287
Currency translation effect	200	(77)
Total	$3,549	$3,005

 

 

11.   WARRANTY ACCRUAL

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

 

	Sept. 30,  2020 (Unaudited)	June 30,  2020
Beginning	$12	$39
Additions charged to cost and expenses	-	1
Reversal	(2)	(27)
Currency translation effect	-	(1)
Ending	$10	$12

 

12.   BANK LOANS PAYABLE

 Bank loans payable consisted of the following:

 

	Sept. 30, 2020 (Unaudited)	June 30, 2020
Note payable denominated in RM for expansion plans in Malaysia, maturing in August 2028, bearing interest at the bank’s prime rate less 2.00% (3.85% at September 30, 2020 and June 30, 2020, respectively) per annum, with monthly payments of principal plus interest through August 2028, collateralized by the acquired building with a carrying value of $2,621 and $2,543, as at September 30, 2020 and June 30, 2020, respectively.	2,113	2,295
Financing arrangement at fixed interest rate 3.2% per annum, with monthly payments of principal plus interest through July 2025.	199	-
Total bank loans payable	$2,312	$2,295