TRIO-TECH INTERNATIONAL - Quarter Report: 2021 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, 2021

 

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 May 1, 2021, there were 3,913,055 shares of the issuer’s Common Stock, no par value, outstanding.

 

 

TRIO-TECH INTERNATIONAL

INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE

 

 

		Page
Part I.	Financial Information
Item 1.	Financial Statements
	(a) Condensed Consolidated Balance Sheets as of March 31, 2021 (Unaudited) and June 30, 2020	1
	(b) Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended March 31, 2021 (Unaudited) and March 31, 2020 (Unaudited)	2
	(c) Condensed Consolidated Statements of Shareholders’ Equity for the Nine Months Ended March 31, 2021 (Unaudited) and the March 31, 2020 (Unaudited)	4
	(d) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2021 (Unaudited) and March 31, 2020 (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	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; 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)

 

	March 31, 2021	June 30, 2020
ASSETS	(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$5,178	$4,150
Short-term deposits	7,146	6,838
Trade accounts receivable, less allowance for doubtful accounts of $318 and $314, respectively	6,997	5,951
Other receivables	678	998
Inventories, less provision for obsolete inventories of $676 and $678, respectively	2,602	1,922
Prepaid expenses and other current assets	367	341
Total current assets	22,968	20,200
NON-CURRENT ASSETS:
Deferred tax assets	337	247
Investment properties, net	688	690
Property, plant and equipment, net	9,690	10,310
Operating lease right-of-use assets	1,994	944
Other assets	1,709	1,609
Restricted term deposits	1,739	1,660
Total non-current assets	16,157	15,460
TOTAL ASSETS	$39,125	$35,660
LIABILITIES
CURRENT LIABILITIES:
Lines of credit	$184	$172
Accounts payable	2,997	2,590
Accrued expenses	3,467	3,005
Income taxes payable	348	344
Current portion of bank loans payable	435	370
Current portion of finance leases	216	231
Current portion of operating leases	659	477
Current portion of PPP loan	121	54
Total current liabilities	8,427	7,243
NON-CURRENT LIABILITIES:
Bank loans payable, net of current portion	1,732	1,836
Finance leases, net of current portion	291	435
Operating leases, net of current portion	1,335	467
Income taxes payable	385	430
PPP loan, net of current portion	-	67
Other non-current liabilities	34	36
Total non-current liabilities	3,777	3,271
TOTAL LIABILITIES	$12,204	$10,514
EQUITY
TRIO-TECH INTERNATIONAL’S SHAREHOLDERS' EQUITY:
Common stock, no par value, 15,000,000 shares authorized; 3,913,055 shares issued      outstanding as at March 31, 2021 and 3,673,055 shares as at June 30, 2020, respectively	$12,178	$11,424
Paid-in capital	3,507	3,363
Accumulated retained earnings	8,441	8,036
Accumulated other comprehensive income-translation adjustments	2,259	1,143
Total Trio-Tech International shareholders' equity	26,385	23,966
Non-controlling interest	536	1,180
TOTAL EQUITY	$26,921	$25,146
TOTAL LIABILITIES AND EQUITY	$39,125	$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		Nine Months Ended
	Mar. 31,	Mar. 31,	Mar. 31,	Mar. 31,
	2021	2020	2021	2020
Revenue
Manufacturing	$3,130	$2,519	$9,324	$8,881
Testing services	3,504	3,741	10,018	12,018
Distribution	1,467	2,225	3,790	6,338
Real estate	11	16	22	49
	8,112	8,501	23,154	27,286
Cost of Sales
Cost of manufactured products sold	2,148	1,851	6,855	6,789
Cost of testing services rendered	2,651	2,937	7,651	9,046
Cost of distribution	1,234	1,909	3,142	5,454
Cost of real estate	19	18	58	54
	6,052	6,715	17,706	21,343
Gross Margin	2,060	1,786	5,448	5,943
Operating Expenses:
General and administrative	1,923	1,754	5,245	5,319
Selling	123	181	356	547
Research and development	79	79	277	280
Impairment loss on long-lived assets	-	139	-	139
Gain on disposal of property, plant and equipment	-	-	(1)	(24)
Total operating expenses	2,125	2,153	5,877	6,261
Loss from Operations	(65)	(367)	(429)	(318)
Other Income / (Expenses)
Interest expenses	(25)	(63)	(96)	(186)
Gain on sale of asset held for sale	-	-	-	1,172
Other income, net	273	440	627	590
Total other income	248	377	531	1,576
Income from Continuing Operations before Income Taxes	183	10	102	1,258
Income Tax (Expenses) / Benefits	(118)	8	(125)	(112)
Income / (loss) from continuing operations before non-controlling interest, net of tax	65	18	(23)	1,146
Discontinued Operations
Income / (loss) from discontinued operations, net of tax	1	(21)	(26)	(21)
NET INCOME / (LOSS)	66	(3)	(49)	1,125
Less: net (loss) / income attributable to non-controlling interest	(112)	(73)	(454)	356
Net Income Attributable to Trio-Tech International Common Shareholders	$178	$70	$405	$769
Amounts Attributable to Trio-Tech International Common Shareholders:
Income from continuing operations, net of tax	177	81	418	780
Income / (loss) from discontinued operations, net of tax	1	(11)	(13)	(11)
Net Income Attributable to Trio-Tech International Common Shareholders	$178	$70	$405	$769
Basic Earnings per Share:
Basic per share from continuing operations attributable to Trio-Tech International	$0.05	$0.02	$0.11	$0.21
Basic earnings per share from discontinued operations attributable to Trio-Tech International		$-	$-	$-
Basic Earnings per Share from Net Income
Attributable to Trio-Tech International	$0.05	$0.02	$0.11	$0.21
Diluted Earnings per Share:
Diluted earnings per share from continuing operations attributable to Trio-Tech International	$0.04	$0.02	$0.10	$0.21
Diluted earnings per share from discontinued operations attributable to Trio-Tech International	$-	$-	$-	$-
Diluted Earnings per Share from Net Income
Attributable to Trio-Tech International	$0.04	$0.02	$0.10	$0.21
Weighted average number of common shares outstanding
Basic	3,913	3,673	3,913	3,673
Dilutive effect of stock options	133	86	117	61
Number of shares used to compute earnings per share diluted	4,046	3,759	4,030	3,734

 

See notes to condensed consolidated financial statements.

 

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)

 

	Three Months Ended		Nine Months Ended
	Mar. 31,	Mar. 31,	Mar. 31,	Mar. 31,
	2021	2020	2021	2020
Comprehensive (Loss)/ Income Attributable to Trio-Tech International Common Shareholders:
Net income / (loss)	$66	$(3)	$(49)	$1,125
Foreign currency translation, net of tax	(468)	(1,013)	1,115	(1,051)
Comprehensive (Loss)/ Income	(402)	(1,016)	1,066	74
Less: comprehensive (loss) / income attributable to non-controlling interest	(136)	(64)	(455)	376
Comprehensive (Loss)/ Income Attributable to Trio-Tech International Common Shareholders	$(266)	$(952)	$1,521	$(302)

 

See notes to condensed consolidated financial statements.

 

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(IN THOUSANDS) 

 

Nine months ended March 31, 2021

	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	-	-	144	-	-	-	144
Net income / (loss)	-	-	-	405	-	(454)	(49)
Dividend declared by subsidiary	-	-	-	-	-	(189)	(189)
Exercise of stock option	240	754	-	-	-	-	754
Translation adjustment	-	-	-	-	1,116	(1)	1,115
Balance at Mar. 31, 2021	3,913	12,178	3,507	8,441	2,259	536	26,921

 

Nine months ended March 31, 2020

	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	-	-	52	-	-		52
Net income	-	-	-	769	-	356	1,125
Dividend declared by subsidiary	-	-	-	-	-	(120)	(120)
Exercise of stock options	-	-	-	-	-	-	-
Translation adjustment	-	-	-	-	(1,071)	20	(1,051)
Balance at Mar. 31, 2020	3,673	11,424	3,357	7,839	796	1,451	24,867

 

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,
	2021	2020
	(Unaudited)	(Unaudited)
Cash Flow from Operating Activities
Net (loss) / income	$(49)	$1,125
Adjustments to reconcile net income to net cash flow provided by operating activities
Depreciation and amortization	2,224	2,350
Impairment loss on long-lived assets	-	139
Stock compensation	144	52
Addition / (reversal) of provision for obsolete inventories	(2)	5
Bad debt (recovery) expenses	(15)	-
Allowance for doubtful debt	-	62
Accrued interest expense, net accrued interest income	(18)	(35)
Payment of interest portion of finance lease	(32)	(43)
Gain on sale of asset held for sale	-	(1,172)
Gain on sale of property, plant and equipment	(1)	(24)
Dividend income	(32)	-
Dividend received	32	-
Deferred tax benefit	(70)	(132)
Changes in operating assets and liabilities, net of acquisition effects
Trade accounts receivable	(1,013)	664
Other receivables	320	(248)
Other assets	(33)	101
Inventories	(624)	108
Prepaid expenses and other current assets	(76)	20
Accounts payable and accrued expenses	754	(449)
Income taxes payable	(44)	(29)
Operating lease liabilities	(565)	(398)
Net Cash Provided by Operating Activities	900	2,096
Cash Flow from Investing Activities
Proceeds from disposal of property, plant and equipment	-	39
Proceeds from sale of asset held for sale	-	1,261
Withdrawal of unrestricted deposit	1,166	-
Investment in unrestricted term deposits, net	(1,370)	(2,393)
Additions to property, plant and equipment	(621)	(848)
Net Cash Used in Investing Activities	(825)	(1,941)
Cash Flow from Financing Activities
Payment on lines of credit	(174)	(1,922)
Payment of bank loans	(296)	(372)
Payment of principal portion of finance leases	(192)	(251)
Dividends paid on non-controlling interest	(189)	(120)
Proceeds from bank loans	189	-
Proceeds from exercise stock options	754	-
Proceeds from lines of credit	187	2,090
Proceeds from principal of finance leases	-	279
Net Cash Used in Financing Activities	279	(296)
Effect of Changes in Exchange Rate	753	(431)
Net Increase/(Decrease) in Cash, Cash Equivalents, and Restricted Cash	1,107	(572)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period	5,810	6,569
Cash, Cash Equivalents, and Restricted Cash at End of Period	$6,917	$5,997
Supplementary Information of Cash Flows
Cash paid during the period for:
Interest	$69	$186
Income taxes	$203	$124
Non-Cash Transactions
Finance lease of property, plant and equipment	$-	$279

 

Reconciliation of Cash, Cash Equivalents, and Restricted Cash
Cash	5,178	4,370
Restricted Term-Deposits in Non-Current Assets	1,739	1,627
Total Cash, Cash Equivalents, and Restricted Cash Shown in the Statements of Cash Flows	$6,917	$5,997

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, 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.

 

 

 

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 third 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 unaudited 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 and nine months ended March 31, 2021 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 March 31, 2021 and through the Quarterly Report dated May 14, 2021 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 March 31, 2021, 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 March 31, 2021, the Company had cash and cash equivalents and short-terms deposits totaling $12,324 and unused lines of credit of $5,520. 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 periods 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 December 2019, FASB issued ASU 2019-12 ASC Topic 740: Income Taxes: Simplifying Accounting for Income Taxes, which removes specific exceptions to the general principles in topic 740 in US GAAP. The amendments eliminate the need for an organization to analyze whether the specific exceptions apply in a given period, improve financial statement preparers’ application of income tax related guidance and simplify GAAP. The amendments are effective for all entities for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. The Company is currently evaluating the impacts of the provisions of ASU 2019-12 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.

 

In May 2021, FASB issued ASU 2021-04 ASC Topic 260: Earnings Per Share, Subtopic 470-50: Debt—Modifications and Extinguishments, ASC Topic 718: Compensation-Stock Compensation and Subtopic 815-40: Derivatives and Hedging- Contracts in Entity’s Own Equity for the Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) How an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) How an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) How an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. ASC Topic 326 is effective for the Company for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt the amendments in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. 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 March 31, 2021 are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

 

3.   TERM DEPOSITS

	Mar. 31,  2021 (Unaudited)	June 30,  2020
Short-term deposits	$7,285	$7028
Currency translation effect on short-term deposits	(139)	(190)
Total short-term deposits	7,146	6,838
Restricted term deposits	1,772	1,712
Currency translation effect on restricted term deposits	(33)	(52)
Total restricted term deposits	1,739	1,660
Total term deposits	$8,885	$8,498

 

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 March 31, 2021 and June 30, 2020 was adequate.  

 

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

	Mar. 31,  2021 (Unaudited)	June 30,  2020
Beginning	$314	$263
Additions charged to expenses	-	351
Recovered	-	(284)
Write-off	(15)	(9)
Currency translation effect	19	(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 March 31, 2021.

 

	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				304
Less: allowance for doubtful receivables				(2,000	)			(304	)
Net loan receivables from property development projects				-				-
Long-term loan receivables
Jun Zhou Zhi Ye	Oct. 31, 2016			5,000				760
Less: transfer – down-payment for purchase of investment property				(5,000	)			(760	)
Net loan receivables from property development projects				-				-

 

The short-term loan receivables amounting to renminbi (“RMB”) 2,000, or approximately $304, 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 March 31, 2021 or for the fiscal year ended June 30, 2020. TTCQ is in the legal process of recovering the outstanding amount of approximately $304.

 

The loan amounting to RMB 5,000, or approximately $760, 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:

	Mar. 31,  2021  (Unaudited)	June 30,  2020
Raw materials	$1,157	$1,281
Work in progress	1,785	968
Finished goods	281	422
Currency translation effect	55	(71)
Less: provision for obsolete inventories	(676)	(678)
	$2,602	$1,922

 

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

	Mar. 31,  2021 (Unaudited)	June 30,  2020
Beginning	$678	$673
Additions charged to expenses	6	26
Usage – disposition	(23)	(8)
Currency translation effect	15	(13)
Ending	$676	$678

 

 

 

7.   INVESTMENT PROPERTIES

The following table presents the Company’s investment in properties in China as of March 31, 2021. The exchange rate is based on the market rate as of March 31, 2021.

 

	Investment Date / Reclassification Date	Investment Amount (RMB)	Investment Amount (U.S. Dollars)
Purchase of rental property – Property I – MaoYe Property	Jan. 04, 2008	5,554	894
Currency translation		-	(87)
Reclassification as “Assets held for sale”	July 01, 2018	(5,554)	(807)
Reclassification from “Assets held for sale”	Mar. 31, 2019	2,024	301
		2,024	301
Purchase of rental property – Property II - JiangHuai	Jan. 06, 2010	3,600	580
Purchase of rental property – Property III - FuLi	Apr. 08, 2010	4,025	648
Currency translation		-	(55)
Gross investment in rental property		9,649	1,474
Accumulated depreciation on rental property	Mar. 31, 2021	(6,920)	(1,053)
Reclassified as “Assets held for sale”- Mao Ye Property	July 01, 2018	2,822	410
Reclassification from “Assets held for sale”- Mao Ye Property	Mar. 31, 2019	(1,029)	(143)
		(5,127)	(786)
Net investment in property – China		4,522	688

 

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, 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 - FuLi	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, 2018	2,822	410
Reclassification from “Assets held for sale”- Mao Ye Property	Mar. 31, 2019	(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 $6 and $9 during the three and nine months ended March 31, 2021 as compared to $8 and $24 for the same periods, respectively, in last fiscal year.

 

Depreciation expense for MaoYe was $4 and $11 for the three and nine months ended March 31, 2021, respectively as compared to $4 and $12 for the same periods in the 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. TTCQ has 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 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 and nine months ended March 31, 2021 and 2020.

 

Depreciation expense for JiangHuai was $6 and $19 for the three and nine months ended March 31, 2021, respectively as compared to $6 and $20 for the same periods in last fiscal year.

 

Rental Property III – FuLi

In fiscal 2010, TTCQ entered into a Memorandum Agreement with Chongqing FuLi Real Estate Development Co. Ltd. (“FuLi”) to purchase two commercial properties totaling 311.99 square meters (“office space”) located in Jiang Bei District Chongqing. The total purchase price committed and paid was RMB 4,025, or approximately $648. The development was completed, 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 two years lease to rent out the 154.49 square meter at a monthly rate of RMB9, or approximately $1, commencing from May 21, 2021 to May 23, 2023.

 

For the other leased property, TTCQ renewed the lease agreement to rent out the 161 square meter space at a monthly rate of RMB 10, or approximately $1, from November 1, 2019 to October 31, 2020. After which, TTCQ renewed the lease agreement at a monthly rate of RMB 10, or approximately $1, from November 1, 2020 to April 30, 2021 and May 1, 2021 to October 31, 2021.

 

Properties purchased from FuLi generated a rental income of $5 and $12 for the three and nine months ended March 31, 2021, respectively, as compared to $8 and $25 for the same periods in the last fiscal year.

 

Depreciation expense for FuLi was $7 and $22 for the three and nine months ended March 31, 2021, respectively, as compared to $7 and $20 for the same periods in the last fiscal year.

 

Summary

Total rental income for all investment properties in China was $11 and $21 for the three and nine months ended March 31, 2021, respectively, as compared to $16 and $49 for the same periods, respectively, in the last fiscal year.

 

Depreciation expenses for all investment properties in China were $17 and $52 for the three and nine months ended March 31, 2021, respectively, as compared to $17 and $52 same periods, respectively, in the last fiscal year.