10-Q 1 trt10q_09302020.htm QUARTERLY REPORT trt10q_09302020

 

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended September 30, 2020
 
OR
 
    
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 November 1, 2020, there were 3,710,555 shares of the issuer’s Common Stock, no par value, outstanding.
 

 
 

 
 
TRIO-TECH INTERNATIONAL
 
INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE
 
 
 
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39
 
  
 
 
FORWARD-LOOKING STATEMENTS
 
The discussions of Trio-Tech International’s (the “Company”) business and activities set forth in this Form 10-Q and in other past and future reports and announcements by the Company may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and assumptions regarding future activities and results of operations of the Company.  In light of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the following factors, among others, could cause actual results to differ materially from those reflected in any forward-looking statements made by or on behalf of the Company: market acceptance of Company products and services; changing business conditions or technologies and volatility in the semiconductor industry, which could affect demand for the Company’s products and services; the impact of competition; problems with technology; product development schedules; delivery schedules; changes in military or commercial testing specifications which could affect the market for the Company’s products and services; difficulties in profitably integrating acquired businesses, if any, into the Company; risks associated with conducting business internationally and especially in Asia, including currency fluctuations and devaluation, currency restrictions, local laws and restrictions and possible social, political and economic instability; changes in U.S. and global financial and equity markets, including market disruptions and significant interest rate fluctuations; public health issues related to the COVID-19 pandemic; the trade tension between U.S. and China; and other economic, financial and regulatory factors beyond the Company’s control. Other than statements of historical fact, all statements made in this Quarterly Report are forward-looking, including, but not limited to, statements regarding industry prospects, future results of operations or financial position, and statements of our intent, belief and current expectations about our strategic direction, prospective and future financial results and condition. In some cases, you can identify forward-looking statements by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” “believes,” “can impact,” “continue,” or the negative thereof or other comparable terminology.  Forward-looking statements involve risks and uncertainties that are inherently difficult to predict, which could cause actual outcomes and results to differ materially from our expectations, forecasts and assumptions.
 
Unless otherwise required by law, we undertake no obligation to update forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events. You are cautioned not to place undue reliance on such forward-looking statements.
 
 
 
PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT NUMBER OF SHARES)
 
 
 
September 30,
2020
 
 
June 30,
2020
 
ASSETS
 
(Unaudited)
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
Cash and cash equivalents
 $4,849 
 $4,150 
Short-term deposits
  6,678 
  6,697 
Trade accounts receivable, less allowance for doubtful accounts of $318 and $314, respectively
  5,745 
  5,951 
Other receivables
  905 
  998 
Inventories, less provision for obsolete inventories of $692 and $678, respectively
  1,872 
  1,922 
Prepaid expenses and other current assets
  417 
  482 
Total current assets
  20,466 
  20,200 
NON-CURRENT ASSETS:
    
    
Deferred tax assets
  276 
  247 
Investment properties, net
  699 
  690 
Property, plant and equipment, net
  10,135 
  10,310 
Operating lease right-of-use assets
  819 
  944 
Other assets
  1,738 
  1,609 
Restricted term deposits
  1,695 
  1,660 
Total non-current assets
  15,362 
  15,460 
TOTAL ASSETS
 $35,828 
 $35,660 
 
    
    
LIABILITIES
    
    
CURRENT LIABILITIES:
    
    
Lines of credit
 $- 
 $172 
Accounts payable
  2,024 
  2,590 
Accrued expenses
  3,549 
  3,005 
Income taxes payable
  360 
  344 
Current portion of bank loans payable
  425 
  370 
Current portion of finance leases
  224 
  231 
Current portion of operating leases
  425 
  477 
Current portion of PPP loan
  121 
  54 
Total current liabilities
  7,128 
  7,243 
NON-CURRENT LIABILITIES: 
    
    
Bank loans payable, net of current portion
  1,956 
  1,836 
Finance leases, net of current portion
  394 
  435 
Operating leases, net of current portion
  394 
  467 
Income taxes payable
  385 
  430 
PPP loan, net of current portion
  - 
  67 
Other non-current liabilities
  33 
  36 
Total non-current liabilities
  3,162 
  3,271 
TOTAL LIABILITIES
 $10,290 
 $10,514 
 
    
    
EQUITY
    
    
TRIO-TECH INTERNATIONAL’S SHAREHOLDERS' EQUITY:
    
    
Common stock, no par value, 15,000,000 shares authorized; 3,685,555 shares issued outstanding as at September 30 and June 30, 2020 and 3,673,055 shares as at June 30,2020, respectively
 $11,458 
 $11,424 
Paid-in capital
  3,369 
  3,363 
Accumulated retained earnings
  8,028 
  8,036 
Accumulated other comprehensive income-translation adjustments
  1,747 
  1,143 
Total Trio-Tech International shareholders' equity
  24,602 
  23,966 
Non-controlling interest
  936 
  1,180 
TOTAL EQUITY
 $25,538 
 $25,146 
TOTAL LIABILITIES AND EQUITY
 $35,828 
 $35,660 
 
See notes to condensed consolidated financial statements.

 
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / (LOSS)
UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
 
 
 
Three Months Ended
 
 
 
Sept. 30,
 
 
Sept. 30,
 
 
 
2020
 
 
2019
 
Revenue
 
 
 
 
 
 
   Manufacturing
 $2,625 
 $3,317 
   Testing services
  2,954 
  4,390 
   Distribution
  1,258 
  2,099 
   Real estate
  4 
  17 
 
  6,841 
  9,823 
Cost of Sales
    
    
   Cost of manufactured products sold
  1,937 
  2,555 
   Cost of testing services rendered
  2,322 
  3,191 
   Cost of distribution
  1,047 
  1,807 
    Cost of real estate
  17 
  18 
 
  5,323 
  7,571 
Gross Margin
  1,518 
  2,252 
 
    
    
Operating Expenses:
    
    
   General and administrative
  1,660 
  1,788 
   Selling
  111 
  190 
   Research and development
  75 
  76 
   Gain on disposal of property, plant and equipment
  (1)
  (24)
           Total operating expenses
  1,845 
  2,030 
 
    
    
(Loss)/Income from Operations
  (327)
  222 
 
    
    
Other Income/(Expenses)
    
    
   Interest expenses
  (37)
  (68)
   Other income, net
  211 
  110 
            Total other income
  174 
  42 
 
    
    
 (Loss)/ Income from Continuing Operations before Income Taxes
  (153)
  264 
 
    
    
Income Tax Expenses
  (7)
  - 
 
    
    
(Loss)/ Income from Continuing Operations before Non-controlling Interest, Net of Tax
  (160)
  264 
 
    
    
Discontinued Operations
    
    
Loss from discontinued operations, net of tax
  (6)
  (1)
NET (LOSS)/ INCOME
  (166)
  263 
 
    
    
Less: Net loss attributable to the non-controlling interest
  (158)
  (10)
Net (Loss)/ Income Attributable to Trio-Tech International Common Shareholders
 $(8)
 $273 
 
    
    
Amounts Attributable to Trio-Tech International Common Shareholders:
    
    
Loss from continuing operations, net of tax
  (5)
  274 
Loss from discontinued operations, net of tax
  (3)
  (1)
Net Loss Attributable to Trio-Tech International Common Shareholders
 $(8)
 $273 
 
    
    
Basic Earnings per Share:
    
    
Basic earnings per share from continuing operations attributable to Trio-Tech International
 $- 
 $0.07 
Basic earnings per share from discontinued operations attributable to Trio-Tech International
 $- 
 $- 
Basic Earnings per Share from Net Income
    
    
Attributable to Trio-Tech International
 $- 
 $0.07 
 
    
    
Diluted Earnings per Share:
    
    
Diluted earnings per share from continuing operations attributable to Trio-Tech International
 $- 
 $0.07 
Diluted earnings per share from discontinued operations attributable to Trio-Tech International
 $- 
 $- 
Diluted Earnings per Share from Net Income
    
    
Attributable to Trio-Tech International
 $- 
 $0.07 
 
    
    
Weighted average number of common shares outstanding
    
    
Basic
  3,686 
  3,673 
Dilutive effect of stock options
  80 
  17 
Number of shares used to compute earnings per share diluted
  3,766 
  3,690 
 
See notes to condensed consolidated financial statements.
 
 
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)
 
 
 
Three Months Ended
 
 
 
Sept. 30,
 
 
Sept. 30,
 
 
 
2020
 
 
2019
 
Comprehensive Income (Loss) Attributable to Trio-Tech International Common Shareholders: 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss)/income
  (166)
  263 
Foreign currency translation, net of tax
  640 
  (563)
Comprehensive Income/(Loss)
  474 
  (300)
Less: Comprehensive (loss)/income attributable to the non-controlling interests
  (122)
  9 
Comprehensive Income/(Loss) Attributable to Trio-Tech International Common Shareholders
 $596 
 $(309)
 
    
    
 
 See notes to condensed consolidated financial statements.
 
 
 
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS) 
 
Three Months ended September 30, 2020
 
Common Stock
 
 
 Paid-in
 
 
Accumulated Retained
 
 
Accumulated Other
Comprehensive
 
 
Non- controlling
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Earnings
 
 
Income
 
 
Interest
 
 
Total

    
 $  
 $  
 $  
 $  
 $  
 $  
Balance at June 30, 2020
  3,673 
  11,424 
  3,363 
  8,036 
  1,143 
  1,180 
  25,146 
Stock option expenses
  - 
  - 
  6 
  - 
  - 
  - 
  6 
Net loss
  - 
  - 
  - 
  (8)
  - 
  (158)
  (166)
Dividend declared by subsidiary
  - 
  - 
  - 
  - 
  - 
  (122)
  (122)
Exercise of stock option
  13 
  34 
  - 
  - 
  - 
  - 
  34 
Translation adjustment
  - 
  - 
  - 
  - 
  604 
  36 
  640 
Balance at Sept. 30, 2020
  3,686 
  11,458 
  3,369 
  8,028 
  1,747 
  936 
  25,538 
 
Three Months ended September 30, 2019
 
Common Stock
 
 
 Paid-in
 
 
Accumulated Retained
 
 
Accumulated Other
Comprehensive
 
 
Non- controlling
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Earnings
 
 
Income
 
 
Interest
 
 
Total
 
    
 $  
 $  
 $  
 $  
 $  
 $  
Balance at June 30, 2019
  3,673 
  11,424 
  3,305 
  7,070 
  1,867 
  1,195 
  24,861 
Stock option expenses
  - 
  - 
  8 
  - 
  - 
  - 
  8 
Net income / (loss)
  - 
  - 
  - 
  273 
  - 
  (10)
  263 
Dividend declared by subsidiary
  - 
  - 
  - 
  - 
  - 
  - 
  - 
Exercise of stock option
  - 
  - 
  - 
  - 
  - 
  - 
  - 
Translation adjustment
  - 
  - 
  - 
  - 
  (582)
  19 
  (563)
Balance at Sept. 30, 2019
  3,673 
  11,424 
  3,313 
  7,343 
  1,285 
  1,204 
  24,569 
 
See notes to condensed consolidated financial statements.
 
 
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
 
 
 
Three Months Ended
 
 
 
Sept. 30,
 
 
Sept. 30,
 
 
 
2020
 
 
2019
 
 
 
(Unaudited)
 
 
(Unaudited)
 
Cash Flow from Operating Activities
 
 
 
 
 
 
Net (loss) / income
 $(166)
 $263 
Adjustments to reconcile net income to net cash flow provided by operating activities
    
    
    Depreciation and amortization
  702 
  786 
    Stock compensation
  - 
  8 
    Addition / (Reversal) of provision for obsolete inventories
  6 
  (5)
    Stock option expense
  6 
  - 
    Bad debt recovery
  (5)
  (13)
    Accrued interest expense, net accrued interest income
  - 
  (10)
    Payment of interest portion of finance lease
  (10)
  - 
    Warranty recovery, net
  - 
  (1)
     Gain on sale of property, plant and equipment- continuing operations
  (1)
  (24)
    Deferred tax benefit
  (19)
  (4)
Changes in operating assets and liabilities, net of acquisition effects
    
    
    Trade accounts receivable
  219 
  (386)
    Other receivables
  93 
  61 
    Other assets
  (67)
  98 
    Inventories
  67 
  707 
    Prepaid expenses and other current assets
  71 
  (59)
    Accounts payable and accrued expenses
  (236)
  (136)
    Income taxes payable
  (23)
  (93)
    Operating lease liabilities
  (174)
  (202)
Net Cash Provided by Operating Activities
  463 
  990 
 
    
    
Cash Flow from Investing Activities
    
    
Investment in unrestricted term deposits, net (Note 1a)
  - 
  (1,165)
Short-term advances
  (6)
    
Additions to property, plant and equipment
  (87)
  (500)
Net Cash Used in Investing Activities
  (93)
  (1,665)
 
    
    
Cash Flow from Financing Activities
    
    
Payment on lines of credit
  (174)
  (604)
Payment of bank loans
  (103)
  (122)
Payment of finance leases
  (54)
  (65)
Dividends paid on non-controlling interest
  (122)
  - 
Proceeds from exercising stock options
  34 
  - 
Proceeds from lines of credit
  - 
  410 
Proceeds from bank loans
  208 
  - 
Proceeds from principal of finance lease
  - 
  44 
Net Cash Used in Financing Activities
  (211)
  (337)
 
    
    
Effect of Changes in Exchange Rate
  575 
  (173)
 
    
    
Net increase/(decrease) in cash, cash equivalents, and restricted cash
  734 
  (1,185)
Cash, cash equivalents, and restricted cash at beginning of period
  5,810 
  6,569 
Cash, cash equivalents, and restricted cash at end of period
 $6,544 
 $5,384 
 
    
    
Supplementary Information of Cash Flows
    
    
Cash paid during the period for:
    
    
Interest
 $67 
 $61 
Income taxes
 $45 
 $124 
 
    
    
Non-Cash Transactions
    
    
    Finance lease of property, plant and equipment
 $- 
 $44 
 
Reconciliation of cash, cash equivalents, and restricted cash
 
 
 
 
 
 
Cash
  4,849 
  3,710 
Restricted term-deposits in non-current assets
  1,695 
  1,674 
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows
 $6,544 
 $5,384 
 
See notes to condensed consolidated financial statements. 
 
Amounts included in restricted deposits represent the amount of cash pledged to secure loans payable or trade financing granted by financial institutions and serve as collateral for public utility agreements such as electricity and water. Restricted deposits are classified as non-current assets as they relate to long-term obligations and will become unrestricted only upon discharge of the obligations.
 
 
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AND NUMBER OF SHARES)
 
1. ORGANIZATION AND BASIS OF PRESENTATION
 
Trio-Tech International (“the Company” or “TTI” hereafter) was incorporated in fiscal year 1958 under the laws of the State of California. TTI provides third-party semiconductor testing and burn-in services primarily through its laboratories in Southeast Asia. In addition, TTI operates testing facilities in the United States. The Company also designs, develops, manufactures and markets a broad range of equipment and systems used in the manufacturing and testing of semiconductor devices and electronic components. In the first quarter of fiscal year 2021, TTI conducted business in four business segments: Manufacturing, Testing Services, Distribution and Real Estate. TTI has subsidiaries in the U.S., Singapore, Malaysia, Thailand, Indonesia and China as follows:
 
 
Ownership
Location
Express Test Corporation (Dormant)
100%
Van Nuys, California
Trio-Tech Reliability Services (Dormant)
100%
Van Nuys, California
KTS Incorporated, dba Universal Systems (Dormant)
100%
Van Nuys, California
European Electronic Test Centre (Dormant)
100%
Dublin, Ireland
Trio-Tech International Pte. Ltd.
100%
Singapore
Universal (Far East) Pte. Ltd.  *
100%
Singapore
Trio-Tech International (Thailand) Co. Ltd. *
100%
Bangkok, Thailand
Trio-Tech (Bangkok) Co. Ltd.
100%
Bangkok, Thailand
Trio-Tech (Malaysia) Sdn. Bhd.
(55% owned by Trio-Tech International Pte. Ltd.)
55%
Penang and Selangor, Malaysia
Trio-Tech (Kuala Lumpur) Sdn. Bhd.
55%
Selangor, Malaysia
(100% owned by Trio-Tech Malaysia Sdn. Bhd.)
 
 
Prestal Enterprise Sdn. Bhd.
76%
Selangor, Malaysia
(76% owned by Trio-Tech International Pte. Ltd.)
 
 
Trio-Tech (SIP) Co., Ltd. *
100%
Suzhou, China
Trio-Tech (Chongqing) Co. Ltd. *
100%
Chongqing, China
SHI International Pte. Ltd. (Dormant)
(55% owned by Trio-Tech International Pte. Ltd)
55%
Singapore
PT SHI Indonesia (Dormant)
(100% owned by SHI International Pte. Ltd.)
55%
 
Batam, Indonesia
 
Trio-Tech (Tianjin) Co., Ltd. *
100%
Tianjin, China
  * 100% owned by Trio-Tech International Pte. Ltd.
 
The accompanying un-audited condensed consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All significant inter-company accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements are presented in U.S. dollars. The accompanying condensed consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the three months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2021. Certain accounting matters that generally require consideration of forecasted financial information were assessed regarding impacts from the COVID-19 pandemic as of September 30, 2020 and through the Quarterly Report dated November 13, 2020 using reasonably available information as of those dates. Those accounting matters assessed included, but were not limited to, allowance for doubtful accounts, the carrying value of long-lived tangible assets and the valuation allowances for tax assets. While the assessments resulted in no material impacts to the consolidated financial statements as of and for the quarter ended September 30, 2020, the Company believes the full impact of the pandemic remains uncertain and the Company will continue to assess if ongoing developments related to the pandemic may cause future material impacts to our consolidated financial statements. As of September 30, 2020, the Company had cash and cash equivalents and short-terms deposits totalling $11,527 and unused line of credit of $5,621. We finance operations primarily through our existing cash balances, cash collected from operations, bank borrowings and capital lease financing. We believe these sources are sufficient to fund our operations for the foreseeable future. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report for the fiscal year ended June 30, 2020.
 
The Company’s operating results are presented based on the translation of foreign currencies using the respective quarter’s average exchange rate.
 
 
 
Basis of Presentation and Summary of Significant Accounting Policies
 
Leases-Lessee
 
Accounting Standards Codification ("ASC") Topic 842 introduces new requirements to increase transparency and comparability among organizations for leasing transactions for both lessees and lessors. It requires a lessee to record a right-of-use asset and a lease liability for all leases with terms longer than 12 months. These leases will be either finance or operating, with classification affecting the pattern of expense recognition.
 
The standard provided an alternative modified retrospective transition method. Under this method, the cumulative effect adjustment to the opening balance of retained earnings is recognized on the date of adoption (July 1, 2019). The Company adopted ASC 842 as of July 1, 2019, and applied the alternative modified retrospective transition method requiring application of the new guidance to all leases existing at, or entered into on or after, the date of adoption, i.e., July 1, 2019.
 
The Company applies the guidance in ASC 842 to individual leases of assets. When the Company receives substantially all the economic benefits from and directs the use of specified property, plant and equipment, transactions give rise to leases. The Company’s classes of assets include real estate leases.
 
Operating leases are included in operating lease right-of-use ("ROU") assets, current portion and long-term portion of operating leases in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Finance leases are included in plant and equipment, current portion and long-term portion of finance leases in our consolidated balance sheets.
 
The Company has elected the practical expedient within ASC 842 to not separate lease and non-lease components within lease transactions for all classes of assets. Additionally, the Company has elected the short-term lease exception for all classes of assets, does not apply the recognition requirements for leases of 12 months or less, and recognizes lease payments for short-term leases as expense either straight-line over the lease term or as incurred depending on whether the lease payments are fixed or variable. These elections are applied consistently for all leases.
 
As part of applying the transition method, the Company has elected to apply the package of transition practical expedients within the new guidance. As required by the new standard, these expedients have been elected as a package and are consistently applied across the Company’s lease portfolio. Given this election, the Company need not reassess:
 
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.
 
Leases-Lessor
 
For the Company as lessor, all our leases will continue to be classified as operating leases under the new standard. We do not expect the new standard to have a material effect on our financial statements and we do not expect a significant change in our leasing activities between now and adoption.
 
2.    NEW ACCOUNTING PRONOUNCEMENTS
 
In October 2020, FASB issued ASU2020-10: Codification Improvements. This update contains amendments that improve the consistency of the Codification by including all disclosure guidance in the appropriate Disclosure Section (Section 50). Many of the amendments arose because the Board provided an option to give certain information either on the face of the financial statements or in the notes to financial statements and that option only was included in the Other Presentation Matters Section (Section 45) of the Codification. The option to disclose information in the notes to financial statements should have been codified in the Disclosure Section as well as the Other Presentation Matters Section (or other Section of the Codification in which the option to disclose in the notes to financial statements appears). The amendments in this Update do not change GAAP and, therefore, are not expected to result in a significant change in practice. The amendments are effective for the Company for fiscal years beginning after December 15, 2020, including interim period within those fiscal years. Early adoption is permitted. Adoption shall be applied retrospectively. The Company is currently evaluating the impacts of the provisions of ASU 2020-10 on its consolidated financial statements and related disclosures. 
 
In August 2020, the FASB issued ASU 2020-06: Debt – Debt with Conversion and Other options (Subtopic 470-20) and Derivative and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusion. In addition, this ASU improves and amends the related EPS guidance. These amendments are effective for the Company for fiscal years beginning after December 15, 2023, including interim period within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Adoption is either a modified retrospective method or a fully retrospective method of transition. The Company is currently evaluating the impacts of the provisions of ASU 2020-06 on its consolidated financial statements and related disclosures.
 


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

In June 2016, FASB issued ASU 2016-13 ASC Topic 326: Financial Instruments — Credit Losses (“ASC Topic 326”) for the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. ASC Topic 326 is effective for the Company for annual periods beginning after December 15, 2022. The Company is currently evaluating the potential impact of this accounting standard update on its consolidated financial statements.
 
Other new pronouncements issued but not yet effective until after September 30, 2020 are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
 
3.   TERM DEPOSITS
 
 
Sep. 30,
 2020
(Unaudited)
 
 
June 30,
 2020
 
 
 
 
 
 
 
 
Short-term deposits
 $6,696 
 $6,887 
Currency translation effect on short-term deposits
  (18)
  (190)
Total short-term deposits
  6,678 
  6,697 
Restricted term deposits
  1,661 
  1,712 
Currency translation effect on restricted term deposits
  34 
  (52)
Total restricted term deposits
  1,695 
  1,660 
Total term deposits
 $8,373 
 $8,357 
 
Restricted deposits represent the amount of cash pledged to secure loans payable to financial institutions and serve as collateral for public utility agreements such as electricity and water, and performance bonds related to customs duty payable. Restricted deposits are classified as non-current assets, as they relate to long-term obligations and will become unrestricted only upon discharge of the obligations. Short-term deposits represent bank deposits, which do not qualify as cash equivalents.
 
4.   TRADE ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
 
Accounts receivable are customer obligations due under normal trade terms. The Company performs continuing credit evaluations of its customers’ financial conditions, and although management generally does not require collateral, letters of credit may be required from the customers in certain circumstances.
 
Senior management reviews accounts receivable on a periodic basis to determine if any receivables will potentially be uncollectible. Management includes any accounts receivable balances that are determined to be uncollectible in the allowance for doubtful accounts. After all reasonable attempts to collect a receivable have failed, the receivable is written off against the allowance.  Based on the information available, management believed the allowance for doubtful accounts as of September 30, 2020 and June 30, 2020 was adequate.  
 
 
The following table represents the changes in the allowance for doubtful accounts: 
 
 
Sept. 30,
 2020
(Unaudited)
 
 
June 30,
 2020
 
Beginning
 $314 
 $263 
Additions charged to expenses
  - 
  351 
Recovered
  (5)
  (284)
Write-off
  - 
  (9)
Currency translation effect
  9 
  (7)
Ending
 $318 
 $314 
 
5.   LOANS RECEIVABLE FROM PROPERTY DEVELOPMENT PROJECTS
 
The following table presents Trio-Tech (Chongqing) Co. Ltd (“TTCQ”)’s loan receivable from property development projects in China as of September 30, 2020.
 
 
  Loan
Expiry
Date
 
 
Loan Amount
(RMB)
 
 
Loan Amount
(U.S. Dollars)
 
Short-term loan receivables
 
 
 
 
 
 
 
JiangHuai (Project – Yu Jin Jiang An)
May 31, 2013
  2,000 
  294 
Less: allowance for doubtful receivables
 
  (2,000)
  (294)
Net loan receivables from property development projects
 
  - 
  - 
 
    
    
Long-term loan receivables
 
    
    
Jun Zhou Zhi Ye
Oct 31, 2016
  5,000 
  734 
Less: transfer – down-payment for purchase of investment property
 
  (5,000)
  (734)
Net loan receivables from property development projects
 
  - 
  - 
 
The short-term loan receivables amounting to renminbi (“RMB”) 2,000, or approximately $294 arose due to TTCQ entering into a Memorandum Agreement with JiangHuai Property Development Co. Ltd. (“JiangHuai”) to invest in their property development projects (Project - Yu Jin Jiang An) located in Chongqing City, China in fiscal 2011. Based on TTI’s financial policy, a provision for doubtful receivables of $294 on the investment in JiangHuai was recorded during fiscal 2014. TTCQ did not generate other income from JiangHuai for the quarter ended September 30, 2020 or for the fiscal year ended June 30, 2020. TTCQ is in the legal process of recovering the outstanding amount of $294.
 
The loan amounting to RMB 5,000, or approximately $734 arose due to TTCQ entering into a Memorandum Agreement with JiaSheng Property Development Co. Ltd. (“JiaSheng”) to invest in their property development projects (Project B-48 Phase 2) located in Chongqing City, China in fiscal 2011. The amount was unsecured and repayable at the end of the term. The book value of the loan receivable approximates its fair value. During fiscal year 2015, the loan receivable was transferred to down payment for purchase of investment property that is being developed in the Singapore Themed Resort Project (See Note 8).
 
6.  INVENTORIES
 
 Inventories consisted of the following:
 
 
Sept. 30,
 2020
 (Unaudited)
 
 
June 30,
 2020
 
 
 
 
 
 
 
 
Raw materials
 $1,238 
 $1,281 
Work in progress
  1,009 
  968 
Finished goods
  278 
  422 
Inventories in transit
  7 
  - 
Currency translation effect
  32 
  (71)
Less: provision for obsolete inventories
  (692)
  (678)
 
 $1,872 
 $1,922 
 
 
 
The following table represents the changes in provision for obsolete inventories:
 
 
Sept. 30,
 2020
(Unaudited)
 
 
June 30,
 2020
 
 
 
 
 
 
 
 
Beginning
 $678 
 $673 
Additions charged to expenses
  6 
  26 
Usage – disposition
  - 
  (8)
Currency translation effect
  8 
  (13)
Ending
 $692 
 $678 
 
7.   INVESTMENT PROPERTIES
 
The following table presents the Company’s investment in properties in China as of September 30, 2020. The exchange rate is based on the market rate as of September 30, 2020.
 
 
  Investment Date / Reclassification Date 
 
Investment
Amount (RMB)
 
 
Investment Amount
(U.S. Dollars)
 
Purchase of rental property – Property I – MaoYe Property
Jan 04, 2008
  5,554 
  894 
Currency translation
 
  - 
  (87)
Reclassification as “Assets held for sale”
July 01, 2019
  (5,554)
  (807)
Reclassification from “Assets held for sale”
Mar 31, 2020
  2,024 
  301 
 
  2,024 
  301 
Purchase of rental property – Property II - JiangHuai
Jan 06, 2010
  3,600 
  580 
Purchase of rental property – Property III - Fu Li
Apr 08, 2010
  4,025 
  648 
Currency translation
 
  - 
  (113)
Gross investment in rental property
 
  9,649 
  1,416 
Accumulated depreciation on rental property
Sep 30, 2020
  (6,678)
  (984)
Reclassified as “Assets held for sale”-Mao Ye Property
July 01, 2019
  2,822 
  410 
Reclassification from “Assets held for sale”-Mao Ye Property
Mar 31, 2020
  (1,029)
  (143)
 
  (4,885)
  (717)
Net investment in property – China
 
  4,764 
  699 
 
The following table presents the Company’s investment in properties in China as of June 30, 2020. The exchange rate is based on the market rate as of June 30, 2020.
 
 
  Investment Date / Reclassification Date 
 
Investment
Amount (RMB)
 
 
Investment Amount
(U.S. Dollars)
 
Purchase of rental property – Property I – MaoYe Property
Jan 04, 2008
  5,554 
  894 
Currency translation
 
  - 
  (87)
Reclassification as “Assets held for sale”
July 01, 2019
  (5,554)
  (807)
Reclassification from “Assets held for sale”
Mar 31, 2020
  2,024 
  301 
 
  2,024 
  301 
Purchase of rental property – Property II - JiangHuai
Jan 06, 2010
  3,600 
  580 
Purchase of rental property – Property III - Fu Li
Apr 08, 2010
  4,025 
  648 
Currency translation
 
  - 
  (166)
Gross investment in rental property
 
  9,649 
  1,363 
Accumulated depreciation on rental property
June 30, 2020
  (6,558)
  (940)
Reclassified as “Assets held for sale”-Mao Ye Property
July 01, 2019
  2,822 
  410 
Reclassification from “Assets held for sale”-Mao Ye Property
Mar 31, 2020
  (1,029)
  (143)
 
  (4,765)
  (673)
Net investment in property – China
 
  4,884 
  690 
 
 
 
-10-
 
Rental Property I - Mao Ye Property
 
In fiscal 2008, TTCQ purchased an office in Chongqing, China from MaoYe Property Ltd. (“MaoYe”), for a total cash purchase price of RMB 5,554, or approximately $894.
 
Property purchased from MaoYe generated a rental income of $nil during the three months ended September 30, 2020 as compared to $8 for the same period in last fiscal year.
 
Depreciation expense for MaoYe was $4 for the three months ended September 30, 2020 and 2019, respectively.
 
Rental Property II - JiangHuai
 
In fiscal year 2010, TTCQ purchased eight units of commercial property in Chongqing, China from Chongqing JiangHuai Real Estate Development Co. Ltd. (“JiangHuai”) for a total purchase price of RMB 3,600, or approximately $580. TTCQ had yet to receive the title deed for these properties. TTCQ was in the legal process of obtaining the title deed until the developer encountered cash flow difficulties in the recent years. Since fiscal year 2018, JiangHuai has been under liquidation and is now undergoing asset distribution. Nonetheless, this is not expected to affect the property’s market value but, in view of the COVID-19 pandemic and current economic situation, it is likely to be more tedious and time-consuming for the Court in their execution of the sale.
 
Property purchased from JiangHuai did not generate any rental income for the three months ended September 30, 2020 and 2019.
Depreciation expense for JiangHuai was $6 for the three months ended September 30, 2020 and 2019, respectively.
 
Rental Property III – FuLi
 
In fiscal 2010, TTCQ entered into a Memorandum Agreement with Chongqing FuLi Real Estate Development Co. Ltd. (“FuLi”) to purchase two commercial properties totaling 311.99 square meters (“office space”) located in Jiang Bei District Chongqing. The total purchase price committed and paid was RMB 4,025, or approximately $648. The development was completed, the property was handed over to TTCQ in April 2013 and the title deed was received during the third quarter of fiscal 2014.
 
One of the two commercial properties was leased by TTCQ to a third party under a lease providing for a rent increase of 6% every year on May 1, commencing in 2019 until the rental agreement expires on April 30, 2021. The agreement was terminated in April 2020 due to the current slow and cautious market rental conditions. Management is still actively looking for a tenant for this property.
 
For the other leased property, TTCQ renewed the lease agreement to rent out the 161 square meter space at a monthly rate of RMB10, or approximately $1, from November 1, 2019 to October 31, 2020.
 
Properties purchased from Fu Li generated a rental income of $4 for the three months ended September 30, 2020, and $9 for the same period in the last fiscal year.
 
Depreciation expense for Fu Li was $7 for the three months ended September 30, 2020 and 2019, respectively.
 
Summary
 
Total rental income for all investment properties in China was $4 for the three months ended September 30, 2020 and $17 for the same period in the last fiscal year.
 
Depreciation expenses for all investment properties in China were $17 for the three months ended September 30, 2020 and $18 for the same period in the last fiscal year.
 
 
 
-11-
 
8.   OTHER ASSETS
 
Other assets consisted of the following:
  
 
Sept. 30, 2020
(Unaudited)
 
 
June 30,
2020
 
Down payment for purchase of investment properties *
 $1,645 
 $1,645 
Down payment for purchase of property, plant and equipment
  69 
  8 
Deposits for rental and utilities
  166 
  171 
Currency translation effect
  (142)
  (215)
Total
 $1,738 
 $1,609 
 
* Down payment for purchase of investment properties included:
 
  
 
RMB
 
 
US Dollars
 
Original investment (10% of Jun Zhou equity)
 $10,000 
 $1,606 
Less: Management Fee
  (5,000)
  (803)
Net Investment
  5,000 
  803 
Less: Share of loss on Joint Venture
  (137)
  (22)
Net Investment as down payment(Note *a)
  4,863 
  781 
Loans Receivable
  5,000 
  814 
Interest Receivable
  1,250 
  200 
Less: Impairment of Interest
  (906)
  (150)
Transferred to down payment(Note *b)
  5,344 
  864 
* Down payment for purchase of investment properties
  10,207 
  1,645 
 
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, Jun Zhou Co., Limited (“Joint Venture” or “Jun Zhou”) to joint develop the “Singapore Themed Park” project (the “project”), where the Company paid RMB10 million for the 10% investment in the joint venture. The Developer paid Company management fee of RMB5 million in cash upon signing of the agreement with a remaining fee of RMB5 million payable upon fulfilment of certain conditions in accordance with the agreement. The Company further reduced its investment by RMB137, or approximately $22 towards the losses from operations incurred by the joint venture.
 
On October 2, 2013, the Company disposed its entire 10% interest in the joint venture. The Company recognized the disposal of its 10% investment in Jun Zhou based on the recorded net book value of RMB5 million or equivalent to US$803K, from net considerations paid, in accordance with US GAAP under ASC Topic 845 Non-monetary Consideration, and it’s presented under “Other Assets” as non-current assets to defer the recognition of the gain on the disposal of the 10% interest in joint venture investment until such time that the consideration is paid, so that the gain can be ascertained.
 
b)
Amounts of RMB 5,000 or approximately $814 as disclosed in Note 5, plus the interest receivable on long term loan receivable of RMB 1,250 or approximately $200 and impairment on interest of RMB 906 or approximately $150.
 
The shop lots are to be delivered to TTCQ upon completion of the construction of the shop lots in Singapore Themed Resort Project. The initial targeted date of completion was December 31, 2016. Based on discussion with the developers, the completion date is currently estimated to be December 31, 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.
 
 
-12-
 
9. LINES OF CREDIT
 
Carrying value of the Company’s lines of credit approximates its fair value because the interest rates associated with the lines of credit are adjustable in accordance with market situations when the Company borrowed funds with similar terms and remaining maturities.
 
The Company’s credit rating provides it with readily and adequate access to funds in global markets.
 
As of September 30, 2020, the Company had certain lines of credit that are collateralized by restricted deposits.
  
Entity with
Type of
Interest
 
Expiration
 
 
Credit
 
 
Unused
 
  Facility 
  Facility 
  Rate 
 
Date
 
 
Limitation
 
 
Credit
 
Trio-Tech International Pte. Ltd., Singapore   
 
Lines of Credit
 
Ranging from 1.85% to 5.5%,
SIBOR rate +1.25% and LIBOR rate +1.30%
  - 
 $4895 
 $4,895 
Trio-Tech International Pte. Ltd., Singapore  
Lines of Credit
  Ranging from 1.85% to 5.5%
  - 
 $365  
 $365  
 Trio-Tech Malaysia Sdn. Bhd.
Revolving Credit
   Cost of Funds Rate +2% 
  - 
 $361  
 $361  
  
As of June 30, 2020, the Company had certain lines of credit that are collateralized by restricted deposits.
 
Entity with
Type of
Interest
 
Expiration
 
 
Credit
 
 
Unused
 
  Facility 
  Facility 
  Rate 
 
Date
 
 
Limitation
 
 
Credit
 
  Trio-Tech International Pte. Ltd., Singapore 
 
Lines of Credit
 
Ranging from 1.85% to 5.5%,
SIBOR rate +1.25% and LIBOR rate +1.30%
  - 
 $4,806  
 $4,806 
 Universal (Far East) Pte. Ltd.
Lines of Credit
Ranging from 1.85% to 5.5%
  - 
 $359  
 $187  
 Trio-Tech Malaysia Sdn. Bhd.
Revolving Credit
Cost of Funds Rate +2%
  - 
 $350  
 $350  
 
10.  ACCRUED EXPENSES
 
Accrued expenses consisted of the following:
 
 
Sept. 30, 2020
(Unaudited)
 
 
June 30, 2020
 
 
Payroll and related costs
 $1,113 
 $1,185 
Commissions
  78 
  104 
Customer deposits
  18 
  30 
Legal and audit
  315 
  315 
Sales tax
  48 
  19 
Utilities
  81 
  80 
Warranty
  10 
  12 
Accrued purchase of materials and property, plant and equipment
  488 
  186 
Provision for re-instatement
  291 
  300 
Deferred income
  82 
  88 
Contract liabilities
  471 
  476 
Other accrued expenses
  354 
  287 
Currency translation effect
  200 
  (77)
Total
 $3,549 
 $3,005 
 
 
 
-13-
 
11.   WARRANTY ACCRUAL
 
The Company provides for the estimated costs that may be incurred under its warranty program at the time the sale is recorded.  The warranty period of the products manufactured by the Company is generally one year or the warranty period agreed with the customer.  The Company estimates the warranty costs based on the historical rates of warranty returns. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary.
 
 
 
Sept. 30,
 2020
(Unaudited)
 
 
June 30,
 2020
 
Beginning
 $12 
 $39 
Additions charged to cost and expenses
  - 
  1 
Reversal
  (2)
  (27)
Currency translation effect
  - 
  (1)
Ending
 $10 
 $12 
 
12.   BANK LOANS PAYABLE
 
 Bank loans payable consisted of the following:
 
 
 
Sept. 30, 2020
(Unaudited)
 
 
June 30, 2020
 
Note payable denominated in RM for expansion plans in Malaysia, maturing in August 2028, bearing interest at the bank’s prime rate less 2.00% (3.85% at September 30, 2020 and June 30, 2020, respectively) per annum, with monthly payments of principal plus interest through August 2028, collateralized by the acquired building with a carrying value of $2,621 and $2,543, as at September 30, 2020 and June 30, 2020, respectively.
  2,113 
  2,295 
 
    
    
Financing arrangement at fixed interest rate 3.2% per annum, with monthly payments of principal plus interest through July 2025.
  199 
  - 
 
    
    
      Total bank loans payable
 $2,312 
 $2,295 
 
Current portion of bank loans payable
  413 
  384 
Currency translation effect on current portion of bank loans
  12 
  (14)
                              Current portion of bank loans payable
  425 
  370 
Long-term portion of bank loans payable
  1,899 
  1,911 
Currency translation effect on long-term portion of bank loans
  57 
  (75)
                           Long-term portion of bank loans payable
 $1,956 
 $1,836 
 
Future minimum payments (excluding interest) as at September 30, 2020 were as follows: 
Remainder of fiscal 2021
 $429 
2022
  442 
2023
  457 
2024
  397 
2025
  201 
Thereafter
  455 
Total obligations and commitments
 $2,381 
 
Future minimum payments (excluding interest) as at June 30, 2020 were as follows: 
 
2021
 $370 
2022
  384 
2023
  400 
2024
  403 
2025
  158 
Thereafter
  491 
Total obligations and commitments
 $2,206 
 
 
 
-14-
 
13.   COMMITMENTS AND CONTINGENCIES
 
Trio-Tech (Malaysia) Sdn. Bhd. has capital commitments for the purchase of equipment and other related infrastructure costs amounting to RM 571, or approximately $188 as at September 30, 2020, as compared to no capital commitment as at June 30, 2020.
 
Trio-Tech (Tianjin) Co. Ltd. in China has no capital commitments for the purchase of equipment and other related infrastructure costs as at September 30, 2020, as compared to no capital commitment as at June 30, 2020.
 
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.
 
14.   BUSINESS SEGMENTS
 
The Company generates revenue primarily from 3 different segments: Manufacturing, Testing and Distribution. 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 based on 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.
 
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 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.
 
 
 
-15-
 
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 the required acceptance criteria, and when the installation of the system is deemed perfunctory).
 
Not all 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 renders 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 include 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 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 $92 for the three months ended September 30, 2020, as compared to $381 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.
 
 
 
-16-
 
The following segment information is unaudited for the three months ended September 30, 2020 and September 30, 2019:
 
Business Segment Information:
 
 
 
  Three Months
Ended
Sept. 30,
 
 
Net
Revenue
 
 Operating
Income / (Loss)
 
 
 Total
Assets
 
 
  Depr.
And
Amor.
 
 Captial
Expenditures
 
Manufacturing
   2020 
 $2,625 
  (18)
  10,383 
  106 
  67 

  2019 
 $3,317 
  (12
  9,434 
  86 
  19 
 
    
    
    
    
    
    
Testing Services
  2020 
  2,954 
  (337)
  20,848 
  579 
  20 

  2019 
  4,390 
  68 
  22,138 
  681 
  520 
 
    
    
    
    
    
    
Distribution
  2020 
  1,258 
  124 
  758 
  - 
  - 

  2019 
  2,099 
  204 
  785 
  1 
  - 
 
    
    
    
    
    
    
Real Estate
  2020 
  4 
  (27)
  3,722 
  17 
  - 

  2019 
  17 
  (17)
  3,577 
  18 
  - 
 
    
    
    
    
    
    
Fabrication 
  2020 
  - 
  - 
  25 
  - 
  - 
Services *
  2019 
  - 
  - 
  27 
  - 
  - 
 
    
    
    
    
    
    
Corporate &
  2020 
  - 
  (69)
  92 
  - 
  - 
Unallocated
  2019 
  - 
  (21)
  157 
  - 
  - 
 
    
    
    
    
    
    
Total Company
  2020 
 $6,841 
  (327
  35,828 
  702 
  87 

   2019 
 $9,823 
  222 
  36,118 
  786 
  539**
 
* Fabrication services is a discontinued operation.
 
**Amount reflecting additions of property, plant & equipment amounted to $539 offset by a trade-in value of $39 from the disposal during the three months ended September 30, 2019
 
 
15. OTHER INCOME
 
Other income consisted of the following:
 
 
Three Months Ended September 30,
 
 
 
2020
 
 
2019
 
Interest income
  40 
  32 
Other rental income
  21 
  30 
Exchange (gain)/loss
  (44)
  5 
Bad debt recovery
  - 
  11 
Dividend income
  2 
  - 
Government grant
  154 
  - 
Other miscellaneous income
  38 
  32 
Total
 $211 
 $110 
 
During the first quarter of fiscal year 2021, the Company received government grants amounting to $154, of which $142 were the financial assistance received from the Singapore and Malaysia governments amid the COVID-19 pandemic.
 
 
 
-17-
 
16.  INCOME TAX
 
The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining the provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws. The statute of limitations, in general, is open for years 2014 to 2020 for tax authorities in those jurisdictions to audit or examine income tax returns. The Company is under annual review by the tax authorities of the respective jurisdiction to which the subsidiaries belong.
 
The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017, and reduces the U.S. federal corporate tax rate from 35% to 21%, eliminated corporate Alternative Minimum Tax, modified rules for expensing capital investment, and limited the deduction of interest expense for certain companies. The Act is a fundamental change to the taxation of multinational companies, including a shift from a system of worldwide taxation with some deferral elements to a territorial system, current taxation of certain foreign income, a minimum tax on low tax foreign earnings, and new measures to curtail base erosion and promote U.S. production.
 
 
Due to the enactment of Tax Act, the Company is subject to a tax on global intangible low-taxed income (“GILTI”).  GILTI is a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. Companies subject to GILTI have the option to account for the GILTI tax as a period cost if and when incurred, or to recognize deferred taxes for temporary differences including outside basis differences expected to reverse as GILTI. The Company has elected to account for GILTI as a period cost. GILTI expense is $Nil for the period ended September 30, 2020.
 
The Company's income tax expense was $7 and $Nil for the three months ended September 30, 2020 and September 30, 2019, respectively. Our effective tax rate (“ETR”) from continuing operations was 5% and 0% for the quarter ended September 30, 2020 and September 30, 2019 respectively.
 
The Company accrues penalties and interest related to unrecognized tax benefits when necessary as a component of penalties and interest expenses, respectively. The Company had no unrecognized tax benefits or related accrued penalties or interest expenses at September 30, 2020.
 
In assessing the ability to realize the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on these criteria, management believes it is more likely than not the Company will not realize the benefits of the federal, state, and foreign deductible differences. Accordingly, a full valuation allowance has been established.
 
17.  CONTRACT BALANCES
 
The timing of revenue recognition, billings and collections may result in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities). The Company’s payment terms and conditions vary by contract type, although terms generally include a requirement of payment of 70% to 90% of total contract consideration within 30 to 60 days of shipment with the remainder payable within 30 days of acceptance. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that its contracts generally do not include a significant financing component.
 
Contract assets were recorded under other receivable while contract liabilities were recorded under accrued expenses in the balance sheet. 
 
The following table is the reconciliation of contract balances.
 
 
 
 Sept. 30, Jun 30,
 
 
 
2020
(Unaudited)
 
 
2020
 
 
Trade Accounts Receivable
  5,745 
  5,951 
Accounts Payable
  2,024 
  2,590 
Contract Assets
  255 
  216 
Contract Liabilities
  471 
  476 
 
Remaining Performance Obligation
 
As at September 30, 2020, the Company had $478 of remaining performance obligations, which represents our obligation to deliver products and services. Given the profile of contract terms, approximately 69 percent of this amount is expected to be recognized as revenue over the next two years with the remaining of the amount expected to be recognized between three and five years.
 
Refer to note 14 “Business Segments” of the Notes to Condensed Consolidated Financial Statements for information related to revenue.
 
18.   EARNINGS PER SHARE
 
The Company adopted ASC Topic 260, Earnings Per Share. Basic Earnings Per Share (“EPS”) is computed by dividing net income available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period.  Diluted EPS give effect to all dilutive potential common shares outstanding during a period.  In computing diluted EPS, the average price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options and warrants.
 
 
-18-
 
 
Options to purchase 751,000 shares of Common Stock at exercise prices ranging from $2.53 to $5.98 per share were outstanding as of September 30, 2020. 220,500 stock options were excluded in the computation of diluted EPS for the three months ended September 30, 2020 because they were anti-dilutive.
 
Options to purchase 673,500 shares of Common Stock at exercise prices ranging from $2.69 to $5.98 per share were outstanding as of September 30, 2019. 242,125 stock options were excluded in the computation of diluted EPS for the three months ended September 30, 2020 because they were anti-dilutive.
 
The following table is a reconciliation of the weighted average shares used in the computation of basic and diluted EPS for the period presented herein:  
 
 
 
Three Months Ended
 
 
 
September 30,
 
 
 
2020
(Unaudited)
 
 
2019
(Unaudited)
 
(Loss) / Income attributable to Trio-Tech International common shareholders from continuing operations, net of tax
 $(5)
 $274 
Loss attributable to Trio-Tech International common shareholders from discontinued operations, net of tax
  (3)
  (1)
Net (loss) / income attributable to Trio-Tech International common shareholders
 $(8)
 $273 
 
    
    
Weighted average number of common shares outstanding - basic
  3,686 
  3,673 
Dilutive effect of stock options
  80 
  17 
Number of shares used to compute earnings per share – diluted
  3,766 
  3,690 
 
    
    
Basic earnings per share from continuing operations attributable to Trio-Tech International
  - 
  0.07 
 
    
    
Basic earnings per share from discontinued operations attributable to Trio-Tech International
  - 
  - 
Basic earnings per share from net income attributable to Trio-Tech International
 $- 
 $0.07 
 
    
    
Diluted earnings per share from continuing operations attributable to Trio-Tech International
  - 
  0.07 
 
    
    
Diluted earnings per share from discontinued operations attributable to Trio-Tech International
  - 
  - 
Diluted earnings per share from net income attributable to Trio-Tech International
 $- 
 $0.07 
 
    
    
 
 
 
-19-
 
 
19.  STOCK OPTIONS
 
On September 24, 2007, the Company’s Board of Directors unanimously adopted the 2007 Employee Stock Option Plan (the “2007 Employee Plan”) and the 2007 Directors Equity Incentive Plan (the “2007 Directors Plan”) each of which was approved by the shareholders on December 3, 2007. Each of those plans was amended during the term of such plan to increase the number of shares covered thereby. As of the last amendment thereof, the 2007 Employee Plan covered an aggregate of 600,000 shares of the Company’s Common Stock and the 2007 Directors Plan covered an aggregate of 500,000 shares of the Company’s Common Stock. Each of those plans terminated by its respective terms on September 24, 2017. These two plans were administered by the Board, which also established the terms of the awards.
 
On September 14, 2017, the Company’s Board of Directors unanimously adopted the 2017 Employee Stock Option Plan (the “2017 Employee Plan”) and the 2017 Directors Equity Incentive Plan (the “2017 Directors Plan”) each of which was approved by the shareholders on December 4, 2017. Each of these plans is administered by the Board of Directors of the Company.
 
Assumptions
 
The fair value for the options granted were estimated using the Black-Scholes option pricing model with the following weighted average assumptions, assuming no expected dividends: 
 
 
 
Three Months Ended
September 30,
 
 
 
2020
 
 
2019
 
Expected volatility
 
45.38%to 65.49%
 
 
45.38%to 97.48%
 
Risk-free interest rate
 
0.30% to 2.35%
 
 
0.30% to 2.35%
 
Expected life (years)
    2.5 -3.25 
    2.5 -3.25 
 
The expected volatilities are based on the historical volatility of the Company’s stock. Due to lower volatility, the observation is made on a daily basis for the three months ended September 30, 2020. The observation period covered is consistent with the expected life of options. The expected life of the options granted to employees has been determined utilizing the “simplified” method as prescribed by ASC Topic 718 Stock Based Compensation, which, among other provisions, allows companies without access to adequate historical data about employee exercise behavior to use a simplified approach for estimating the expected life of a "plain vanilla" option grant. The simplified rule for estimating the expected life of such an option is the average of the time to vesting and the full term of the option. The risk-free rate is consistent with the expected life of the stock options and is based on the United States Treasury yield curve in effect at the time of grant.
 
2017 Employee Stock Option Plan
 
The Company’s 2017 Employee Plan permits the grant of stock options to its employees covering up to an aggregate of 300,000 shares of Common Stock. Under the 2017 Employee Plan, all options must be granted with an exercise price of not less than fair value as of the grant date and the options granted must be exercisable within a maximum of ten years after the date of grant, or such lesser period of time as is set forth in the stock option agreements. The options may be exercisable (a) immediately as of the effective date of the stock option agreement granting the option, or (b) in accordance with a schedule related to the date of the grant of the option, the date of first employment, or such other date as may be set by the Compensation Committee. Generally, options granted under the 2017 Employee Plan are exercisable within five years after the date of grant, and vest over the period as follows: 25% vesting on the grant date and the remaining balance vesting in equal installments on the next three succeeding anniversaries of the grant date. The share-based compensation will be recognized in terms of the grade method on a straight-line basis for each separately vesting portion of the award. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the 2017 Employee Plan).
 
During the first quarter of fiscal year 2021, the Company did not grant any options pursuant to the 2017 Employee Plan. There were no stock options exercised during the three-month period ended September 30, 2020. The Company recognized $6 stock-based compensation expenses during the three months ended September 30, 2020.
 
During the first quarter of fiscal year 2020, the Company did not grant any options pursuant to the 2017 Employee Plan. There were no stock options exercised during the three-month period ended September 30, 2019. The Company recognized $8 stock-based compensation expenses during the three months ended September 30, 2019.
 
As of September 30, 2020, there were vested stock options granted under the 2017 Employee Plan covering a total of 98,000 shares of Common Stock. The weighted-average exercise price was $4.44 and the weighted average remaining contractual term was 3.16 years.
 
As of September 30, 2019, there were vested stock options granted under the 2017 Employee Plan covering a total of 49,000 shares of Common Stock. The weighted-average exercise price was $4.97 and the weighted average remaining contractual term was 3.86 years.
 
 
-20-
 
 
A summary of option activities under the 2017 Employee Plan during the three months period ended September 30, 2020 is presented as follows:
 
 
 
Options
 
 
Weighted Average
Exercise
Price
 
 
Weighted Average Remaining
Contractual
Term (Years)
 
 
Aggregate
Intrinsic
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at July 1, 2020
  196,000 
 $3.92 
  3.72 
 $36 
Granted
  - 
  - 
  - 
  - 
Exercised
  - 
  - 
  - 
  - 
Forfeited or expired
  - 
  - 
  - 
  - 
Outstanding at September 30, 2020
  196,000 
  3.92 
  3.47 
  62 
Exercisable at September 30, 2020
  98,000 
  4.44 
  3.16 
  18 
 
A summary of the Company’s non-vested employee stock options during the three months ended September 30, 2020 is presented below:
 
 
 
Options
 
 
Weighted Average Grant-Date
Fair Value