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, 2020
 
OR
 
    
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
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, 2020, there were 3,673,055 shares of the issuer’s Common Stock, no par value, outstanding.
 
 

 
 
 
TRIO-TECH INTERNATIONAL
 
INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE
 
 
 
Page
Part I.
Financial Information
 
 
 
 
Item 1.
Financial Statements
 2
  
(a) Condensed Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and June 30, 2019
 2
 
(b) Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended March 31, 2020 (Unaudited) and March 31, 2019 (Unaudited)
 3
 
(c) Condensed Consolidated Statements of Shareholders Equity for the Three and Nine Months Ended March 31, 2020 (Unaudited) and March 31, 2019 (Unaudited)
 5
 
(d) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2020 (Unaudited) and March 31, 2019 (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
 47
Item 4.
Controls and Procedures
 47
 
 
 
Part II.
Other Information
 
 
 
 
Item 1.
Legal Proceedings
 
Item 1A.
Risk Factors
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 3.
Defaults upon Senior Securities
 
Item 4.
Mine Safety Disclosures
 
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; 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.
 
 
 
 
-1-
 
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,
2020
 
 
June 30,
2019
 
ASSETS
 
(Unaudited)
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
     Cash and cash equivalents
 $4,370 
 $4,863 
     Short-term deposits
  6,309 
  4,144 
     Trade accounts receivable, less allowance for doubtful accounts of $315 and $263, respectively
  6,397 
  7,113 
     Other receivables
  1,065 
  817 
     Inventories, less provision for obsolete inventory of $656 and $673, respectively
  2,226 
  2,427 
     Prepaid expenses and other current assets
  267 
  287 
     Assets held for sale
  - 
  89 
 Total current assets
  20,634 
  19,740 
NON-CURRENT ASSETS:
    
    
     Deferred tax asset
  565 
  390 
     Investment properties, net
  705 
  782 
     Property, plant and equipment, net
  10,597 
  12,159 
     Operating lease right-of-use assets
  1,073 
  - 
     Other assets
  1,595 
  1,750 
     Restricted term deposits
  1,627 
  1,706 
          Total non-current assets
  16,162 
  16,787 
TOTAL ASSETS
 $36,796 
 $36,527 
 
    
    
LIABILITIES
    
    
CURRENT LIABILITIES:
    
    
     Lines of credit
 $398 
 $187 
     Accounts payable
  3,129 
  3,272 
     Accrued expenses
  3,065 
  3,486 
     Income taxes payable
  396 
  417 
     Current portion of bank loans payable
  378 
  488 
     Current portion of finance leases
  246 
  283 
     Current portion of operating leases
  541 
  - 
 Total current liabilities
  8,153 
  8,133 
NON-CURRENT LIABILITIES: 
    
    
     Bank loans payable, net of current portion
  1,919 
  2,292 
     Finance leases, net of current portion
  486 
  442 
     Operating leases, net of current portion
  532 
  - 
     Deferred tax liabilities
  375 
  327 
     Income taxes payable
  430 
  439 
     Other non-current liabilities
  34 
  33 
           Total non-current liabilities
  3,776 
  3,533 
TOTAL LIABILITIES
 $11,929 
 $11,666 
 
    
    
EQUITY
    
    
TRIO-TECH INTERNATIONAL’S SHAREHOLDERS' EQUITY:
    
    
     Common stock, no par value, 15,000,000 shares authorized; 3,673,055 shares issued outstanding as at March 31, 2020 and June 30, 2019, respectively
 $11,424 
 $11,424 
     Paid-in capital
  3,357 
  3,305 
     Accumulated retained earnings
  7,839 
  7,070 
     Accumulated other comprehensive gain-translation adjustments
  796 
  1,867 
 Total Trio-Tech International shareholders' equity
  23,416 
  23,666 
     Non-controlling interest
  1,451 
  1,195 
TOTAL EQUITY
 $24,867 
 $24,861 
TOTAL LIABILITIES AND EQUITY
 $36,796 
 $36,527 
 
 See notes to condensed consolidated financial statements. 
 
 
-2-
 
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,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Manufacturing
 $2,519 
 $3,097 
 $8,881 
 $10,086 
Testing Services
  3,741 
  3,989 
  12,018 
  12,819 
Distribution
  2,225 
  1,727 
  6,338 
  5,587 
Real Estate
  16 
  25 
  49 
  81 
 
  8,501 
  8,838 
  27,286 
  28,573 
Cost of Sales
    
    
    
    
Cost of manufactured products sold
  1,851 
  2,303 
  6,789 
  7,806 
Cost of testing services rendered
  2,937 
  2,862 
  9,046 
  9,351 
Cost of distribution
  1,909 
  1,483 
  5,454 
  4,831 
Cost of real estate
  18 
  16 
  54 
  52 
 
  6,715 
  6,664 
  21,343 
  22,040 
 
    
    
    
    
Gross Margin
  1,786 
  2,174 
  5,943 
  6,533 
 
    
    
    
    
Operating Expenses:
    
    
    
    
General and administrative
  1,754 
  1,742 
  5,319 
  5,223 
Selling
  181 
  246 
  547 
  580 
Research and development
  79 
  76 
  280 
  270 
Impairment loss on long-lived assets
  139 
  - 
  139 
  - 
Gain on disposal of property, plant and equipment
  - 
  (13)
  (24)
  (13)
Total operating expenses
  2,153 
  2,051 
  6,261 
  6,060 
 
    
    
    
    
(Loss) / Income from Operations
  (367)
  123 
  (318)
  473 
 
    
    
    
    
Other Income
    
    
    
    
Interest expenses
  (63)
  (74)
  (186)
  (250)
Gain on sale of asset held for sale
  - 
  685 
  1,172 
  685 
Other income, net
  440 
  128 
  590 
  220 
Total other income
  377 
  739 
  1,576 
  655 
 
    
    
    
    
Income from Continuing Operations before Income Taxes
  10 
  862 
  1,258 
  1,128 
 
    
    
    
    
Income tax benefits / (expenses)
  8 
  (209)
  (112)
  (159)
 
    
    
    
    
Income from continuing operations before non-controlling interest, net of tax
  18 
  653 
  1,146 
  969 
 
    
    
    
    
Discontinued Operations
    
    
    
    
(Loss) / Income from discontinued operations, net of tax
  (21)
  2 
  (21)
  (2)
NET INCOME
  (3
  655 
  1,125 
  967 
 
    
    
    
    
Less: net (loss) / income attributable to non-controlling interest
  (73)
  (28)
  356 
  (129)
Net Income Attributable to Trio-Tech International Common Shareholders
 $70 
 $683 
 $769 
 $1096 
 
    
    
    
    
Amounts Attributable to Trio-Tech International Common Shareholders:
    
    
    
    
Income from continuing operations, net of tax
  81 
  682 
  780 
  1,097 
(Loss) / income from discontinued operations, net of tax
  (11)
  1 
  (11)
  (1)
Net Income Attributable to Trio-Tech International Common Shareholders
 $70 
 $683 
 $769 
 $1,096 
 
    
    
    
    
Basic Earnings per Share:
    
    
    
    
Basic earnings per share from continuing operations attributable to Trio-Tech International
 $0.02 
 $0.19 
 $0.21 
 $0.30 
Basic earnings per share from discontinued operations attributable to Trio-Tech International
 $- 
 $- 
 $- 
 $- 
Basic Earnings per Share from Net Income
    
    
    
    
Attributable to Trio-Tech International
 $0.02 
 $0.19 
 $0.21 
 $0.30 
 
    
    
    
    
Diluted Earnings per Share:
    
    
    
    
Diluted earnings per share from continuing operations attributable to Trio-Tech International
 $0.02 
 $0.19 
 $0.21 
 $0.29 
Diluted earnings per share from discontinued operations attributable to Trio-Tech International
 $- 
 $- 
 $- 
 $- 
Diluted Earnings per Share from Net Income
    
    
    
    
Attributable to Trio-Tech International
 $0.02 
 $0.19 
 $0.21 
 $0.29 
 
    
    
    
    
Weighted average number of common shares outstanding
    
    
    
    
Basic
  3,673 
  3,673 
  3,673 
  3,673 
Dilutive effect of stock options
  86 
  12 
  61 
  73 
Number of shares used to compute earnings per share diluted
  3,759 
  3,685 
  3,734 
  3,746 
 
See notes to condensed consolidated financial statements.
 
 
-3-
 
 
 
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,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
Comprehensive Income Attributable to Trio-Tech International Common Shareholders: 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net  (loss) / income
 $(3)
 $655 
 $1,125 
 $967 
Foreign currency translation, net of tax
  (1,013)
  401 
  (1,051)
  (189)
Comprehensive (Loss) / Income
  (1,016)
  1,056 
  74 
  778 
Less: comprehensive (loss) / income attributable to non-controlling interest
  (64)
  1 
  376 
  (191)
Comprehensive (Loss) / Income Attributable to Trio-Tech International Common Shareholders
 $(952)
 $1,055 
 $(302
 $969 
 
See notes to condensed consolidated financial statements.
 
 
 
 
 
-4-
 
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS) 
 
Nine Months ended March 31, 2020
 
 
Common
Stock
 
 
Additional Paid-in
 
 
Accumulated Retained
 
 
Accumulated Other
Comprehensive
 
 
Non- Controlling
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Earnings
 
 
Income
 
 
Interest
 
 
Total
 
 
 
 
 $
 
 $
 
 $
 
 $
 
 $
 
 $
 
Balance at June 30, 2019
  3,673 
  11,424 
  3,305 
  7,070 
  1,867 
  1,195 
  24,861 
Stock option expenses
  - 
  - 
  52 
  - 
  - 
    
  52 
Net income
  - 
  - 
  - 
  769 
  - 
  356 
  1,125 
Dividend declared by subsidiary
  - 
  - 
  - 
  - 
  - 
  (120)
  (120)
Exercise of stock option
  - 
  - 
  - 
  - 
  - 
  - 
  - 
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 
 
Nine Months ended March 31, 2019
 
 
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 / (loss)
  - 
  - 
  - 
  1,096 
  - 
  (129)
  967 
Dividend declared by subsidiary
  - 
  - 
  - 
  - 
  - 
  (125)
  (125)
Exercise of stock option
  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 
 
See notes to condensed consolidated financial statements.
 
 
 
-5-
 
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
 
 
 
Nine Months Ended
 
 
 
Mar. 31,
 
 
Mar. 31,
 
 
 
2020
 
 
2019
 
 
 
(Unaudited)
 
 
(Unaudited)
 
Cash Flow from Operating Activities
 
 
 
 
 
 
Net Income
 $1,125 
 $967 
Adjustments to reconcile net income to net cash flow provided by operating activities
    
    
Gain on sale of assets held for sale
  (1,172)
  (685)
Depreciation and amortization
  2,350 
  1,777 
Impairment loss on long-lived assets
  139 
  - 
Stock compensation
  52 
  12 
Provision for obsolete inventory
  5 
  (37)
Reversal of income tax provision
  - 
  (145)
Payment of operating leases
  (398)
  - 
Payment of interest portion of finance leases (Note 1b)
  (43)
  (32)
Allowance for doubtful debts
  62 
  1 
Accrued interest expense, net accrued interest income
  (35)
  34 
Gain on sale of property, plant and equipment – continued operations
  (24)
  (13)
Warranty recovery, net
  - 
  (35)
Fixed assets written off
  - 
  (33)
Deferred tax benefit / (provision)
  (132)
  78 
Changes in operating assets and liabilities, net of acquisition effects
    
    
Trade accounts receivable
  664 
  626 
Other receivables
  (248)
  (153)
Other assets
  101 
  489 
Inventories
  108 
  60 
Prepaid expenses and other current assets
  20 
  (99)
Accounts payable and accrued expenses
  (449)
  60 
Income taxes payable
  (29)
  58 
Net Cash Provided by Operating Activities
  2,096 
  2,930 
 
    
    
Cash Flow from Investing Activities
    
    
Proceeds from sale of assets held for sale
  1,261 
  943 
Proceeds from disposal of property, plant and equipment
  39 
  3 
Investments in restricted and unrestricted deposits
  (2,393)
  (2,939)
Addition to property, plant and equipment
  (848)
  (2,576)
Net Cash Used in Investing Activities
  (1,941)
  (4,569)
 
    
    
Cash Flow from Financing Activities
    
    
Payment on lines of credit
  (1,922)
  (7,348)
Payment of bank loans
  (372)
  (421)
Payment of principal portion of finance leases
  (251)
  (172)
Dividends paid on non-controlling interest
  (120)
  (125)
Proceeds from exercising stock options
  - 
  401 
Proceeds from lines of credit
  2,090 
  5,995 
Proceeds from bank loans
  - 
  1,475 
Proceeds from finance leases
  279 
  32 
Net Cash Used in Financing Activities
  (296)
  (163)
 
    
    
Effect of Changes in Exchange Rate
  (431)
  (125)
 
    
    
Net Decrease in Cash, Cash Equivalents, and Restricted Cash
  (572)
  (1,927)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period
  6,569 
  8,234 
Cash, Cash Equivalents, and Restricted Cash at End of Period
 $5,997 
 $6,307 
 
    
    
Supplementary Information of Cash Flows
    
    
Cash paid during the period for:
    
    
Interest
 $186 
 $217 
Income taxes
 $124 
 $114 
 
    
    
Non-Cash Transactions
    
    
  Finance lease of property, plant and equipment
 $279 
 $32 
Reconciliation of Cash, Cash Equivalents, and Restricted Cash (Note 1a)
    
    
Cash
  4,370 
  4,602 
Short-Term Deposits
  6,309 
  3,646 
Restricted Term-Deposits in Non-current Assets
  1,627 
  1,705 
Total Cash, Cash Equivalents, and Restricted Cash Shown in Statement of Cash Flows
 $12,306 
 $9,953 
 
 
See notes to condensed consolidated financial statements.
 
 
Note 1a-
Amounts reflecting adoption of ASU 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230) beginning in the first quarter of 2019.
Note 1b-
Reclassification of repayment of interest portion of finance lease from financing activities in accordance with ASC 842-20-45-5
 
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.
 
 
 
 
-6-
 
 
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 2020, TTI conducted business in four business segments: Manufacturing, Testing Services, Distribution and Real Estate. TTI has subsidiaries in the U.S., Singapore, Malaysia, Thailand, Indonesia and China as follows:
 
 
Ownership
Location
Express Test Corporation (Dormant)
100%
Van Nuys, California
Trio-Tech Reliability Services (Dormant)
100%
Van Nuys, California
KTS Incorporated, dba Universal Systems (Dormant)
100%
Van Nuys, California
European Electronic Test Centre (Dormant)
100%
Dublin, Ireland
Trio-Tech International Pte. Ltd.
100%
Singapore
Universal (Far East) Pte. Ltd.  *
100%
Singapore
Trio-Tech International (Thailand) Co. Ltd. *
100%
Bangkok, Thailand
Trio-Tech (Bangkok) Co. Ltd.*
100%
Bangkok, Thailand
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 and nine months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2020. Certain accounting matters that generally require consideration of forecasted financial information were assessed regarding impacts from the COVID-19 pandemic as of March 31, 2020 and through the date of this Quarterly Report 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, 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 March 31, 2020, the Company had cash and cash equivalents and short-terms deposits totalling $10,609 and unused line of credit of $5,897. 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, 2019.
 
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.
 
 
 
 
-7-
 
 
Basis of Presentation and Summary of Significant Accounting Policies
 
Comparability
 
Effective as of first day of fiscal 2020, the Company adopted Accounting Standards Update 2016-02, Leases (“ASC 842”). Prior periods were not retrospectively restated, and accordingly, the consolidated balance sheet as of June 30, 2019, and the condensed consolidated statements of operations for the nine months ended March 31, 2019 were prepared using accounting standards that were different than those in effect for the nine months ended March 31, 2020.
 
Leases-Company as Lessee
 
Accounting Standards Codification ("ASC") Topic 842 introduced 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 provides an alternative modified retrospective transition method. Under this method, the cumulative effect adjustment to the opening balance of retained earnings is recognized on the effective 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 effective date of adoption, i.e. July 1, 2019.
 
The Company applies the guidance in ASC 842 to its individual leases of assets. When the Company receives substantially all of the economic benefits from and directs the use of specified property, plant and equipment, the 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 under the non-current asset portion of our consolidated balance sheets and under this current portion and non-current liabilities portion of 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 related lease. Finance leases are included in property, plant and equipment under the non-current asset portion of our consolidated balance sheets and under the current portion and non-current liabilities portion of 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:
 
whether any expired or existing contracts are or contain leases;
the lease classification for any expired or existing leases;
treatment of initial direct costs relating to any existing leases.
 
When discount rates implicit in leases cannot be readily determined, the Company uses the applicable incremental borrowing rate at lease commencement to perform lease classification tests on lease components and to measure lease liabilities and ROU assets. The incremental borrowing rate used by the Company was based on baseline rates and adjusted by the credit spreads commensurate with the Company’s secured borrowing rate over a similar term. At each reporting period when there is a new lease initiated, the rates established for that quarter will be used.
 
In applying the alternative modified retrospective transition method, the Company measured lease liabilities at the present value of the sum of remaining minimum rental payments (as defined under ASC Topic 840). The present value of lease liabilities has been measured using the Company’s incremental borrowing rates as of July 1, 2019 (the date of initial application). Additionally, ROU assets for these operating leases have been measured as the initial measurement of application lease liabilities adjusted for reinstatement liabilities.
 
The adoption of this new standard as of July 1, 2019 and the application of the modified retrospective transition approach resulted in the following changes in the Company’s financial report:
 
(1)
assets increased by $1,073, primarily representing the recognition of ROU assets for operating leases;
(2)
liabilities increased by $1,073, primarily representing the recognition of lease liabilities for operating leases.
 
Leases- Company as Lessor
 
All of the leases under which the Company is the lessor will continue to be classified as operating leases under the new standard. The new standard did not have a material effect on our financial statements and will not have a significant change in our leasing activities.
 
 
 
 
-8-
 
 
2.    NEW ACCOUNTING PRONOUNCEMENTS
 
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.
 
The amendments in ASU 2019-12 ASC Topic 740: Income Taxes: Simplifying Accounting for Income Taxes remove specific exceptions to the general principles in Topic 740 in Generally Accepted Accounting Principles (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. 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 2018-18 ASC Topic 808: Collaborative Arrangements: Clarifying the Interaction between Topic 808 and Topic 606 provide more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. The amendments allow organizations to only present units of account in collaborative arrangements that are within the scope of the revenue recognition standard together with revenue accounted for under the revenue recognition standard. The parts of the collaborative arrangement that are not in the scope of the revenue recognition standard are to be presented separately from revenue accounted for under the revenue recognition standard. The amendments are effective for all entities for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company's consolidated financial position or results of operations.
 
The amendments in ASU 2018-13 ASC Topic 820: Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement modify the disclosure requirements on fair value measurements based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty are to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments are to be applied retrospectively to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
 
The amendments in ASU 2017-04 ASC Topic 350 — Intangibles - Goodwill and Other 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 consolidated financial position or results of operations.
 
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 consoldiated financial statements.
  
Other new pronouncements issued but not yet effective until after March 31, 2020 are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
 
 
 
 
-9-
 
 
3.   TERM DEPOSITS
 
 
 
Mar. 31,
 2020
(Unaudited)
 
 
June 30,
 2019
 
 
 
 
 
 
 
 
Short-term deposits
 $6,587 
 $4,143 
Currency translation effect on short-term deposits
  (278)
  1 
Total short-term deposits
  6,309 
  4,144 
Restricted term deposits
  1,711 
  1,701 
Currency translation effect on restricted term deposits
  (84)
  5 
Total restricted term deposits
  1,627 
  1,706 
Total term deposits
 $7,936 
 $5,850 
 
Restricted deposits represent the amount of cash pledged to secure loans payable to financial institutions and serve as collateral for public utility agreements such as electricity and water and performance bonds related to customs duty payable. Restricted deposits are classified as non-current assets, as they relate to long-term obligations and will become unrestricted only upon discharge of the obligations. Short-term deposits represent bank deposits, which do not qualify as cash equivalents.
 
4.   TRADE ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
 
Accounts receivable are customer obligations due under normal trade terms. The Company performs continuing credit evaluations of its customers’ financial conditions, and although management generally does not require collateral, letters of credit may be required from the customers in certain circumstances.
 
Senior management reviews accounts receivable on a periodic basis to determine if any receivables will potentially be uncollectible. Management includes any accounts receivable balances that are determined to be uncollectible in the allowance for doubtful accounts. After all reasonable attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available, management believed the allowance for doubtful accounts as of March 31, 2020, and June 30, 2019 was adequate.  
 
The following table represents the changes in the allowance for doubtful accounts: 
 
 
 
Mar. 31,
 2020
(Unaudited)
 
 
June 30,
 2019
 
Beginning
 $263 
 $259 
Additions charged to expenses
  338 
  94 
Recovered
  (270)
  (84)
Written off
  (6)
  - 
Currency translation effect
  (10)
  (6)
Ending
 $315 
 $263 
  
 
 
-10-
 
 
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, 2020. The exchange rate is based on the historical rate published by the Monetary Authority of Singapore as of March 31, 2015, since the net loan receivable was “nil” as of March 31, 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
 
 
 
325
 
Less: allowance for doubtful receivables
 
 
 
(2,000
)
 
 
(325
)
Net loan receivables from property development projects
 
 
 
-
 
 
 
-
 
 
 
 
 
 
 
 
 
 
 
Long-term loan receivables
 
 
 
 
 
 
 
 
 
Jun Zhou Zhi Ye
Oct 31, 2016
 
 
5,000
 
 
 
814
 
Less: transfer – down-payment for  purchase of investment property
 
 
 
(5,000
)
 
 
(814
)
Net loan receivables from property development projects
 
 
 
-
 
 
 
-
 
 
The short-term loan receivables of renminbi (“RMB”) 2,000, or approximately $325 based on the historical rate, arose from 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 $325 on the investment in JiangHuai was recorded during fiscal 2014. TTCQ did not generate other income from JiangHuai for the quarter ended March 31, 2020 or for the fiscal year ended June 30, 2019. TTCQ is in the legal process of recovering the outstanding amount of $325.
 
The long-term loan receivable of RMB 5,000, or approximately $814 based on the historical rate, arose from TTCQ entering into a Memorandum Agreement with JiaSheng Property Development Co. Ltd. (“JiaSheng”) to invest in JiaSheng’s property development projects (Project B-48 Phase 2) located in Chongqing City, China in fiscal 2011. The loan receivable was unsecured and repayable at the end of the term. The book value of the loan receivable approximates its fair value. During fiscal year 2015, the loan receivable was transferred to down payment for purchase of investment property that is being developed in the Singapore Themed Resort Project (See Note 9).
 
 6.  INVENTORIES
 
 Inventories consisted of the following:
 
 
Mar. 31,
 2020
 (Unaudited)
 
 
June 30,
 2019
 
 
 
 
 
 
 
 
Raw materials
 $1,300 
 $1,190 
Work in progress
  1,330 
  1,306 
Finished goods
  360 
  591 
Currency translation effect
  (108)
  13 
Less: provision for obsolete inventory
  (656)
  (673)
 
 $2,226 
 $2,427 
 
The following table represents the changes in provision for obsolete inventory:
 
 
Mar. 31,
 2020
(Unaudited)
 
 
June 30,
 2019
 
 
 
 
 
 
 
 
Beginning
 $673 
 $695 
Additions charged to expenses
  9 
  17 
Usage – disposition
  (4)
  (42)
Currency translation effect
  (22)
  3 
Ending
 $656 
 $673 
 
 
 
 
-11-
 
 
7. ASSETS HELD FOR SALE
 
Penang Property
 
During the fourth quarter of fiscal year 2015, the operation in Malaysia planned to sell its factory building in Penang, Malaysia. In accordance with ASC Topic 360, during the fiscal year 2015, the property was reclassified from investment property, which had a net book value of RM 371, or approximately $98 (based on the exchange rate as of June 30, 2015 as published by the Monetary Authority of Singapore), 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, the 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 for 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. No further conversations with PDC have occurred since March 2016. During the fourth quarter of fiscal year 2019, management entered into a Sales and Purchase Agreement with a potential buyer. During the second quarter of fiscal year 2020, the Company obtained approval of the sale from PDC and the local government. The sale of the property was completed at the end of the second quarter of the fiscal year 2020. The sale price was RM 5,600, or $1,340. In connection with the sale of the property located in Malaysia, the Company also incurred the direct expenses of RM 330, or $79, which included professional fees, commissions, other selling related expenses and consent fees from the local government. These expenses were directly offset against the proceeds from selling the property, as these expenses were deemed as a cost of sales. The Company recognized a net gain of RM 4,901, or $1,172, in the second quarter of fiscal year 2020 excluding capital gain tax. The tax on the capital gain in Malaysia from the sale of the property was approximately $94 computed after the taxable gain was determined.
 
The following table presents the Company’s assets held for sale in Malaysia as of March 31, 2020 and June 30, 2019.
 
 
 
 
 
 
 
Mar. 31,
2020
(Unaudited)
 
 
June 30,
2019
 
 
Reclassification Date/
 
Investment Amount
 
 
Investment Amount
 
 
Investment Amount
 
 
Sale Date
 
 (RM)
 
 
(U.S. Dollars)
 
 
(U.S. Dollars)
 
Penang Property
 
 



Reclassification from investment property
June 30, 2015
  681 
  181*
  181*
Currency translation
 
  - 
  - 
  (15)
Derecognition
Dec 19,2019
  (681)
  (181)
  - 
 
  - 
  - 
  166 
Accumulated depreciation on rental property
June 30, 2015
  (310)
  (83)*
  (83)*
Currency translation
 
  - 
  - 
  6 
Derecognition
Dec 19,2019
  310 
  (83)
  - 
 
  - 
  - 
  (77)
Net investment in rental property - Malaysia
 
  - 
  - 
  89 
 
*The exchange rate is based on the exchange rate as of June 30, 2015 published by the Monetary Authority of Singapore.
 

 
 
 
-12-
 
 
8.   INVESTMENT PROPERTIES
 
The following table presents the Company’s investment in properties in China as of March 31, 2020. The exchange rate is based on the market rate as of March 31, 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 - Fu Li
Apr 08, 2010
  4,025 
  648 
Currency translation
 
  - 
  (170)
Gross investment in rental property
 
  9,649 
  1,359 
Accumulated depreciation on rental property
Mar 31, 2020
  (6,437)
  (921)
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)
 
  (4,644)
  (654)
Net investment in property – China
 
  5,005 
  705 
 
The following table presents the Company’s investment in properties in China as of June 30, 2019. The exchange rate is based on the market rate as of June 30, 2019.
 
 
Investment Date /
Reclassification Date
 
Investment
Amount (RMB)
 
 
Investment Amount
(U.S. Dollars)
 
Purchase of rental property – Property I – MaoYe Property
Jan 04, 2008
  5,554 
  894 
Currency translation
 
  - 
  (87)
Reclassification as “Assets held for sale”
July 01, 2018
  (5,554)
  (807)
Reclassification from “Assets held for sale”
Mar 31, 2019
  2,024 
  301 
 
  2,024 
  301 
Purchase of rental property – Property II - JiangHuai
Jan 06, 2010
  3,600 
  580 
Purchase of rental property – Property III - Fu Li
Apr 08, 2010
  4,025 
  648 
Currency translation
 
  - 
  (124)
Gross investment in rental property
 
  9,649 
  1,405 
Accumulated depreciation on rental property
June 30, 2019
  (6,075)
  (890)
Reclassified as “Assets held for sale”-Mao Ye Property
July 01, 2018
  2,822 
  410 
Reclassification from “Assets held for sale”-Mao Ye Property
Mar 31, 2019
  (1,029)
  (143)
 
  (4,282)
  (623)
Net investment in property – China
 
  5,367 
  782 
 
 
 
 
 
-13-
 
 
 
Rental Property I - Mao Ye Property
 
In fiscal 2008, TTCQ purchased an office in Chongqing, China from MaoYe Property Ltd. (“MaoYe”) for a total cash purchase price of RMB 5,554, or approximately $894. TTCQ identified a new tenant and signed a new rental agreement (653 square meters at a monthly rent of RMB 39, or approximately $6) on August 1, 2015, which expires on July 31, 2020. On April 1, 2019, a supplementary agreement was signed to revise the monthly rent to RMB 20, or approximately $3 for 403 square meters for the remaining 2 unsold units. During the fiscal year 2019, the Company sold thirteen of the fifteen units constituting the Mao Ye Property. Management has decided not to sell the remaining two units of Mao Ye properties in the near future, considering the market conditions in China.
 
Property purchased from MaoYe generated a rental income of $8 and $24 during the three and nine months ended March 31, 2020, respectively, as compared to $15 and $58 for the same periods in the last fiscal year.
 
Depreciation expense for Mao Ye was $4 and $12 for the three and nine months ended March 31, 2020, respectively, and $Nil 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 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 then, JiangHuai company is 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 during the three and nine months ended March 31, 2020 or during the same periods in the prior fiscal year.
 
Depreciation expense for JiangHuai was $6 and $20 for the three and nine months ended March 31, 2020, respectively, and $7 and $20 for the same periods in the 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 and the property was handed over to TTCQ in April 2013 and the title deed was received during the third quarter of fiscal 2014.
 
The two commercial properties were leased to third parties under two separate rental agreements. One of such leases provides for a rent increase of 6% every year on May 1, commencing in 2019 until the rental agreement expired on April 30, 2021. For the other leased property (which lease expired on March 31, 2018), TTCQ signed on November 1, 2018 a rental agreement to rent out the 161 square meter space at a monthly rent of RMB 10, or approximately $2, which lease was to expire on October 31, 2019. In September 2019, TTCQ renewed the lease agreement at the same monthly rent of RMB 10, or approximately $2, for a period of one year from November 1, 2019.
 
Properties purchased from Fu Li generated a rental income of $8 and $25 for the three and nine months ended March 31, 2020, respectively, and $10 and $23 for the same periods in the last fiscal year.
 
Depreciation expense for Fu Li was $7 and $20 for the three and nine months ended March 31, 2020, respectively, and $7 and $20 for the same periods in the last fiscal year.
 
Summary
 
Total rental income for all investment properties in China was $16 and $49 for the three and nine months ended March 31, 2020, respectively, and $25 and $81 for the same periods 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, 2020, respectively, and $14 and $42 for the same periods in the last fiscal year, due in part to the reclassification of the MaoYe property as noted above.
  
 
 
 
-14-
 
 
9.   OTHER ASSETS
 
Other assets consisted of the following:
 
 
Mar. 31, 2020
(Unaudited)
 
 
June 30,
2019
 
Down payment for purchase of investment properties *
 $1,645 
 $1,645 
Down payment for purchase of property, plant and equipment
  - 
  100 
Deposits for rental and utilities
  168 
  169 
Currency translation effect
  (218)
  (164)
Total
 $1,595 
 $1,750 
 
*Down payment for purchase of investment properties included:
 
 
 
RMB
 
 
U.S. Dollars
 
Original Investment (10% of Junzhou equity)
 $10,000 
 $1,606 
Less: Management Fee
  (5,000)
  (803)
Net Investment
  5,000 
  803 
Less: Share of loss on Joint Venture
  (137)
  (22)
Net Investment as 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 
 
a)
On December 2, 2010, the Company signed a Joint Venture agreement (“agreement”) with Jia Sheng Property Development Co. Ltd. (“Developer”) to form a new company, Junzhou Co. Limited (“Joint Venture” or “Junzhou”), to jointly develop the “Singapore Themed Park” project (the “project”). The Company paid RMB10 million for the 10% investment in the joint venture. The Developer paid the Company a management fee of RMB 5 million in cash upon signing of the agreement, with a remaining fee of RMB 5 million payable upon fulfilment of certain conditions in accordance with the agreement. The Company further reduced its investment by RMB 137, or approximately $22, through the losses from operations incurred by the Joint Venture.
 
On October 2, 2013, the Company disposed of its entire 10% interest in the Joint Venture but to date has not received payment in full therefor. The Company recognized that disposal based on the recorded net book value of RMB 5 million, or equivalent to US $803K, from net considerations paid, in accordance with GAAP under ASC Topic 845 Non-monetary Consideration. It is presented under “Other Assets” as non-current assets to defer the recognition of the gain on the disposal of the 10% interest in the joint venture investment until such time that the consideration is paid, so that the gain can be ascertained.
 
b)
Amounts of RMB 5,000, or approximately $814, as disclosed in Note 5, plus the interest receivable on long term loan receivable of RMB 1,250, or approximately $200, and impairment on interest of RMB 906, or approximately $150.
 
The shop lots in the Singapore Themed Resort Project being developed by the Developer under the agreement are to be delivered to TTCQ upon completion thereof. The initial targeted date of completion was December 31, 2016. Based on discussion with the Developer, 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, especially during the COVID-19 pandemic. Based on the available information, management believes that the Developer is capable of working with new investors to complete certain phases of this project.
 
 
 
 
-15-
 
 
 
10. LINES OF CREDIT
 
Carrying value of the Company’s lines of credit approximates its fair value because the interest rates associated with the lines of credit are adjustable in accordance with market situations when the Company borrowed funds with similar terms and remaining maturities.
 
The Company’s credit rating provides it with readily and adequate access to funds in global markets.
 
As of March 31, 2020, the Company had certain lines of credit that are collateralized by restricted deposits.
 

Type of
Interest
 
Expiration
 
 
Credit
 
 
Unused
 
 Entity with
 
Facility
 
 
Rate
 
 
Date
 
 
Limitation
 
 
Credit
 
Trio-Tech International Pte. Ltd., Singapore
Lines of Credit
Ranging from 1.83% to 5.5% and SIBOR rate +1.25%
  - 
 $4,706 
 $4,706 
Trio-Tech (Tianjin) Co., Ltd.
Lines of Credit
5.22% to 6.3%
  - 
 $845 
 $845 
Universal (Far East) Pte. Ltd.
Lines of Credit
Ranging from 1.85% to 5.5%
  - 
 $398 
 $- 
Trio-Tech Malaysia Sdn. Bhd.
Revolving Credit
Cost of Funds Rate +2%
  - 
 $346 
 $346 
 
On November 18, 2019, Trio-Tech International Pte. Ltd. signed an agreement with JECC Leasing (Singapore) Pte. Ltd. for an Accounts Receivable Financing facility for SGD 1,000, or approximately $742 based on the market exchange rate. Interest is charged at LIBOR rate +1.3% for USD financing and SIBOR rate +1.25% for SGD financing. The financing facility was set up to facilitate the working capital in our operations in Singapore. The Company started to use this facility in the second quarter of fiscal year 2020.
 
During the third quarter of fiscal year 2020, the credit limit offered to Trio-Tech (Tianjin) Co.,Ltd. by the Fubon Bank decreased from RMB 10,000 to RMB 6,000.
 
As of June 30, 2019, the Company had certain lines of credit that are collateralized by restricted deposits.
 

Type of
Interest
 
Expiration
 
 
Credit
 
 
Unused
 
 Entity with
 
Facility
 
 
Rate
 
 
Date
 
 
Limitation
 
 
Credit
 
Trio-Tech International Pte. Ltd., Singapore
  Lines of Credit
  Ranging from 1.85% to 5.5%
  - 
 $4,213 
 $4,213 
Trio-Tech (Tianjin) Co., Ltd.
Lines of Credit
5.22% to 6.3%
  - 
 $1,492 
 $1,492 
Universal (Far East) Pte. Ltd.
Lines of Credit
Ranging from 1.85% to 5.5%
  - 
 $370 
 $183 
Trio-Tech Malaysia Sdn. Bhd.
Revolving Credit
Cost of Funds Rate +2%
  - 
 $363 
 $363 
 
11.  ACCRUED EXPENSES
 
Accrued expenses consisted of the following:
 
 
Mar. 31, 2020
(Unaudited)
 
 
June 30,2019
 
Payroll and related costs
 $1,132 
 $1,354 
Commissions
  76 
  107 
Customer deposits
  20 
  46 
Legal and audit
  268 
  299 
Sales tax
  11 
  9 
Utilities
  92 
  120 
Warranty
  38 
  39 
Accrued purchase of materials and property, plant and equipment
  165 
  362 
Provision for re-instatement
  300 
  302 
Deferred income
  91 
  61 
Contract liabilities
  646 
  501 
Other accrued expenses
  123 
  293 
Currency translation effect
  103 
  (7)
Total
 $3,065 
 $3,486 
 
 
 
 
-16-
 
 
12.   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 upon 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.
 
 
 
Mar. 31,
 2020
(Unaudited)
 
 
June 30,
 2019
 
Beginning
 $39 
 $82 
(Utilization) / additions charged to cost and expenses
  (2)
  15 
Reversal
  - 
  (58)
Currency translation effect
  1 
  - 
Ending
 $38 
 $39 
 
13.   BANK LOANS PAYABLE
 
 Bank loans payable consisted of the following:
 
 
Mar. 31, 2020
(Unaudited)
 
 
June 30, 2019
 
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% (4.85% and 5.00% at March 31, 2020 and June 30, 2019, respectively) per annum, with monthly payments of principal plus interest through August 2028, collateralized by the acquired building with a carrying value of $2,539 and $2,683 as at March 31, 2020 and June 30, 2019, respectively.
  2,271 
  2,638 
Note payable denominated in U.S. dollars for expansion plans in Singapore and its subsidiaries, maturing in April 2020, bearing interest at the bank’s lending rate (3.96% for March 31, 2020 and June 30, 2019) with monthly payments of principal plus interest through June 2020. This note payable is secured by plant and equipment with a carrying value of $121 and $148 as at March 31, 2020 and June 30, 2019, respectively.
  26 
  142 
      Total bank loans payable
 $2,297 
 $2,780 
 
Current portion of bank loan payable
  395 
  494 
Currency translation effect on current portion of bank loan
  (17)
  (6)
                              Current portion of bank loan payable
  378 
  488 
Long term portion of bank loan payable
  2,012 
  2,344 
Currency translation effect on long-term portion of bank loan
  (93)
  (52)
                           Long term portion of bank loans payable
 $1,919 
 $2,292 
 
Future minimum payments (excluding interest) as at March 31, 2020 were as follows: 
 
Remainder of fiscal 2020
 $288 
2021
  364 
2022
  380 
2023
  397 
2024
  282 
Thereafter
  586 
Total obligations and commitments
 $2,297 
 
Future minimum payments (excluding interest) as at June 30, 2019 were as follows: 
 
2020
 $488 
2021
  362 
2022
  380 
2023
  399 
2024
  407 
Thereafter
  744 
Total obligations and commitments
 $2,780 
  
 
 
 
-17-
 
 
14.   COMMITMENTS AND CONTINGENCIES
 
Trio-Tech (Malaysia) Sdn. Bhd. had capital commitments for the purchase of equipment and other related infrastructure costs amounting to RM 18, or approximately $4, as at March 31, 2020 and June 30, 2019.
 
Trio-Tech (Tianjin) Co. Ltd. in China did not have capital commitments for the purchase of equipment and other related infrastructure costs as at March 31, 2020, as compared to the capital commitments as at June 30, 2019 amounting to RMB 397, or approximately $58.
 
Trio-Tech (SIP) Co., Ltd. in China did not have capital commitments for the purchase of equipment and other related infrastructure costs as at March 31, 2020 and as at June 30, 2019.
 
Deposits with banks in China are not insured by the local government or agency and are consequently exposed to risk of loss. The Company believes the probability of a bank failure, causing loss to the Company, is remote.
 
The Company is, from time to time, the subject of litigation claims and assessments arising out of matters occurring in its normal business operations. In the opinion of management, resolution of these matters will not have a material adverse effect on the Company’s financial statements.
 
15.   BUSINESS SEGMENTS
 
Although the Company operates in four segments; the testing service industry (which performs structural and electronic tests of semiconductor devices), the designing and manufacturing of equipment (which equipment tests the structural integrity of integrated circuits and other products), distribution of various products from other manufacturers in Singapore and Southeast Asia, and the real estate segment in China, the Company generates revenue primarily from the manufacturing, testing and distribution segments. The Company accounts for a contract with a customer when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company’s revenues are measured based on consideration stipulated in the arrangement with each customer, net of any sales incentives and amounts collected on behalf of third parties, such as sales taxes. The revenues are recognized as separate performance obligations that are satisfied by transferring control of the product or service to the customer.
 
The revenue allocated to individual countries was based on where the customers were located. The allocation of the cost of equipment, the current year investment in new equipment and depreciation expense have been made on the basis of the primary purpose for which the equipment was acquired.
 
Significant Judgments
 
The Company’s arrangements with its customers include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. A product or service is considered distinct if it is separately identifiable from other deliverables in the arrangement and if a customer can benefit from it on its own or with other resources that are readily available to the customer.
 
The Company allocates the transaction price to each performance obligation on a relative standalone selling price basis (“SSP”). Determining the SSP for each distinct performance obligation and allocation of consideration from an arrangement to the individual performance obligations and the appropriate timing of revenue recognition are significant judgments with respect to these arrangements. The Company typically establishes the SSP based on observable prices of products or services sold separately in comparable circumstances to similar clients. The Company may estimate SSP by considering internal costs, profit objectives and pricing practices in certain circumstances.
 
Warranties, discounts and allowances are estimated using historical and recent data trends. The Company includes estimates in the transaction price only to the extent that a significant reversal of revenue is not probable in subsequent periods. The Company’s products and services are generally not sold with a right of return, nor has the Company experienced significant returns from or refunds to its customers.
 
 
 
 
-18-
 
 
Manufacturing
 
The Company primarily derives revenue from the sale of both front-end and back-end semiconductor test equipment and related peripherals, maintenance and support of all these products, installation and training services and the sale of spare parts. The Company’s revenues are measured based on considerations stipulated in the arrangement with each customer, net of any sales incentives and amounts collected on behalf of third parties, such as sales taxes.
 
The Company recognizes revenue at a point in time when the Company has satisfied its performance obligation by transferring control of the product to the customer. The Company uses judgment to evaluate whether the control has transferred by considering several indicators, including:
 
whether the Company has a present right to payment;
 
the customer has legal title;
 
the customer has physical possession;
 
the customer has significant risk and rewards of ownership; and
 
the customer has accepted the product, or whether customer acceptance is considered a formality based on history of acceptance of similar products (for example, when the customer has previously accepted the same equipment, with the same specifications, and when we can objectively demonstrate that the tool meets all of the required acceptance criteria, and when the installation of the system is deemed perfunctory).
 
Not all of the indicators need to be met for the Company to conclude that control has transferred to the customer. In circumstances in which revenue is recognized prior to the product acceptance, the portion of revenue associated with its performance obligations of product installation and training services are deferred and recognized upon acceptance.
 
The majority of sales under the Manufacturing segment include a standard 12-month warranty. The Company has concluded that the warranty provided for standard products are assurance type warranties and are not separate performance obligations. Warranty provided for customized products are service warranties and are separate performance obligations. Transaction prices are allocated to this performance obligation using cost plus method. The portion of revenue associated with warranty service is deferred and recognized as revenue over the warranty period, as the customer simultaneously receives and consumes the benefits of warranty services provided by the Company.
 
Testing
 
The Company rendered testing services to manufacturers and purchasers of semiconductors and other entities who either lack testing capabilities or whose in-house screening facilities are insufficient. The Company primarily derives testing revenue from burn-in services, manpower supply and other associated services. SSP is directly observable from the sales orders. Revenue is allocated to performance obligations satisfied at a point in time depending upon terms of the sales order. Generally, there is no other performance obligation other than what has been stated inside the sales order for each of these sales.
 
Terms of contract that may indicate potential variable consideration included warranty, late delivery penalty and reimbursement to solve non-conformance issues for rejected products. Based on historical and recent data trends, it is concluded that these terms of the contract do not represent potential variable consideration. The transaction price is not contingent on the occurrence of any future event.
 
Distribution
 
The Company distributes complementary products, particularly equipment, industrial products and components by manufacturers mainly from the U.S., Europe, Taiwan and Japan. The Company recognizes revenue from product sales at a point in time when the Company has satisfied its performance obligation by transferring control of the product to the customer. The Company uses judgment to evaluate whether the control has transferred by considering several indicators discussed above. The Company recognizes the revenue at a point in time, generally upon shipment or delivery of the products to the customer or distributors, depending upon terms of the sales order. 
 
All inter-segment revenue was from the manufacturing segment to the testing and distribution segments. Total inter-segment revenue was $36 for the three months ended March 31, 2020, as compared to $15 for the same period in the last fiscal year. Corporate assets mainly consisted of cash and prepaid expenses. Corporate expenses mainly consisted of stock option expenses, salaries, insurance, professional expenses and directors' fees. Corporate expenses are allocated to the four segments. The following segment information table includes segment operating income or loss after including the corporate expenses allocated to the segments, which gets eliminated in the consolidation.
 
 
 
 
-19-
 
 
The following segment information is un-audited for the nine months ended March 31, 2020 and March 31, 2019:
 
Business Segment Information:
 
 
  Nine Months Ended
 Mar. 31,
 
 
Net
 Revenue
 
 
Operating
Income / (Loss)
 
 
Total
 Assets
 
 
Depr.and
 Amort.
 
 
Capital
Expenditures
 
 
Manufacturing
 
 2020 
 $8,881 
  (201)
  9,871 
  297 
  124 

 2019
 $10,086 
 $175 
 $9,205 
 $88 
 $40 


    
    
    
    
    
 
Testing Services
 
2020
  12,018 
  (540)
  22,332 
  1,999 
  724 

2019
  12,819 
  (134)
  22,842 
  1,647 
  2,535 


    
    
    
    
    
 
Distribution
 
2020
  6,338 
  599 
  869 
  3 
  - 

2019
  5,587 
  492 
  780 
  - 
  - 


    
    
    
    
    
 
Real Estate
 
2020
  49 
  (82)