Quarterly Report (10-q)

Date : 05/14/2019 @ 1:32PM
Source : Edgar (US Regulatory)
Stock : Trio Tech International (TRT)
Quote : 3.4  0.02 (0.59%) @ 7:31PM

Quarterly Report (10-q)

 

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended March 31, 2019
 
OR
 
     
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)
 
 
 
16139 Wyandotte Street
 
 
Van Nuys, California
 
91406
(Address of principal executive offices)
 
(Zip Code)
 
           Registrant's Telephone Number, Including Area Code:   818-787-7000
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  No   
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes    No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non­accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b­2 of the Exchange Act. (Check one):
 
 Large Accelerated Filer
 
 
Accelerated Filer
 
 
 
 
 
 Non-Accelerated Filer 
 
 
Smaller reporting company 
 
 
 
Emerging growth company
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No
  
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class of registered securities
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, no par value
 
 
TRT
 
NYSE MKT
 
As of May 1, 2019, there were 3,673,055 shares of the issuer’s Common Stock, no par value, outstanding.
 

 
 
 
 
 
TRIO-TECH IN T ERNATIONAL
 
INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE
 
 
 
Page
 
 
 
 
 
2
 
3
 
5
 
6
 
7
31
46
46
 
 
 
 
 
 
 
47
47
47
47
47
47
47
 
 
 
48
 
 
 
 
FORWARD-LOOKING STATEMENTS
 
The discussions of Trio-Tech International’s (the “Company”) business and activities set forth in this Form 10-Q and in other past and future reports and announcements by the Company may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and assumptions regarding future activities and results of operations of the Company. In light of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the following factors, among others, could cause actual results to differ materially from those reflected in any forward-looking statements made by or on behalf of the Company: market acceptance of Company products and services; changing business conditions or technologies and volatility in the semiconductor industry, which could affect demand for the Company’s products and services; the impact of competition; problems with technology; product development schedules; delivery schedules; changes in military or commercial testing specifications which could affect the market for the Company’s products and services; difficulties in profitably integrating acquired businesses, if any, into the Company; risks associated with conducting business internationally and especially in Asia, including currency fluctuations and devaluation, currency restrictions, local laws and restrictions and possible social, political and economic instability; changes in U.S. and global financial and equity markets, including market disruptions and significant interest rate fluctuations; and other economic, financial and regulatory factors beyond the Company’s control. Other than statements of historical fact, all statements made in this Quarterly Report are forward-looking, including, but not limited to, statements regarding industry prospects, future results of operations or financial position, and statements of our intent, belief and current expectations about our strategic direction, prospective and future financial results and condition. In some cases, you can identify forward-looking statements by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” “believes,” “can impact,” “continue,” or the negative thereof or other comparable terminology. Forward-looking statements involve risks and uncertainties that are inherently difficult to predict, which could cause actual outcomes and results to differ materially from our expectations, forecasts and assumptions.
 
Unless otherwise required by law, we undertake no obligation to update forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events. You are cautioned not to place undue reliance on such forward-looking statements.
 
 
 
-1-
 
PART I. FI N ANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT NUMBER OF SHARES)
 
 
 
March 31,
2019
 
 
June 30,
2018
 
ASSETS
 
(Unaudited)
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
Cash and cash equivalents
  $ 4,602  
  $ 6,539  
Short-term deposits
    3,646  
    653  
Trade accounts receivable, less allowance for doubtful accounts of $256 and $259
    7,120  
    7,747  
Other receivables
    1,034  
    881  
Inventories, less provision for obsolete inventory of $660 and $695
    2,918  
    2,930  
Prepaid expenses and other current assets
    307  
    208  
Assets held for sale
    90  
    91  
 Total current assets
    19,717  
    19,049  
NON-CURRENT ASSETS:
       
       
Deferred tax asset
    335  
    400  
Investment properties, net
    828  
    1,146  
Property, plant and equipment, net
    12,687  
    11,935  
Other assets
    1,728  
    2,249  
Restricted term deposits
    1,705  
    1,695  
          Total non-current assets
    17,283  
    17,425  
TOTAL ASSETS
  $ 37,000  
  $ 36,474  
 
       
       
LIABILITIES
       
       
CURRENT LIABILITIES:
       
       
Lines of credit
  $ 622  
  $ 2,043  
Accounts payable
    3,021  
    3,704  
Accrued expenses
    3,882  
    3,172  
Income taxes payable
    404  
    285  
Current portion of bank loans payable
    492  
    367  
Current portion of capital leases
    257  
    250  
 Total current liabilities
    8,678  
    9,821  
NON-CURRENT LIABILITIES: 
       
       
Bank loans payable, net of current portion
    2,442  
    1,437  
Capital leases, net of current portion
    325  
    524  
Deferred tax liabilities
    343  
    327  
Income taxes payable
    613  
    828  
Other non-current liabilities
    32  
    36  
           Total non-current liabilities
    3,755  
    3,152  
TOTAL LIABILITIES
  $ 12,433  
  $ 12,973  
 
       
       
EQUITY
       
       
TRIO-TECH INTERNATIONAL’S SHAREHOLDERS' EQUITY:
       
       
Common stock, no par value, 15,000,000 shares authorized; 3,673,055 shares issued and outstanding as at March 31, 2019, and 3,553,055 shares as at June 30, 2018
  $ 11,424  
  $ 11,023  
Paid-in capital
    3,261  
    3,249  
Accumulated retained earnings
    6,621  
    5,525  
Accumulated other comprehensive gain-translation adjustments
    2,055  
    2,182  
 Total Trio-Tech International shareholders' equity
    23,361  
    21,979  
Non-controlling interest
    1,206  
    1,522  
          TOTAL EQUITY
  $ 24,567  
  $ 23,501  
TOTAL LIABILITIES AND EQUITY
  $ 37,000  
  $ 36,474  
 
See notes to condensed consolidated financial statements.
 
 
 
-2-
 
TRIO-TECH IN T ERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
  
 
 Mar. 31,
 
 
 Mar. 31,
 
 
 Mar. 31,
 
 
 Mar. 31,
 
 
 
    2019  
 
 
    2018  
 
 
    2019  
 
 
    2018  
 
 Revenue
 
       
 
 
       
 
 
       
 
 
       
 
   Manufacturing
  $ 3,097  
  $ 3,124  
  $ 10,086  
  $ 11,862  
   Testing services
    3,989  
    4,913  
    12,819  
    14,454  
   Distribution
    1,727  
    2,033  
    5,587  
    5,175  
   Real Estate
    25  
    34  
    81  
    110  
  
    8,838  
    10,104  
    28,573  
    31,601  
 Cost of Sales
       
       
       
       
    Cost of manufactured products sold
    2,303  
    2,530  
    7,806  
    9,247  
    Cost of testing services rendered
    2,862  
    3,491  
    9,351  
    9,881  
    Cost of distribution
    1,483  
    1,821  
    4,831  
    4,598  
    Cost of real estate
    16  
    30  
    52  
    88  
  
    6,664  
    7,872  
    22,040  
    23,814  
  
       
       
       
       
 Gross Margin
    2,174  
    2,232  
    6,533  
    7,787  
  
       
       
       
       
 Operating Expenses:
       
       
       
       
   General and administrative
    1,742  
    1,773  
    5,223  
    5,339  
   Selling
    246  
    181  
    580  
    612  
   Research and development
    76  
    75  
    270  
    377  
   Gain on disposal of property, plant and equipment
    (13 )
    (31 )
    (13 )
    (20 )
            Total operating expenses
    2,051  
    1,998  
    6,060  
    6,308  
  
       
       
       
       
 Income from Operations
    123  
    234  
    473  
    1,479  
  
       
       
       
       
 Other Income / (Expenses)
       
       
       
       
   Interest expenses
    (74 )
    (64 )
    (250 )
    (174 )
   Other income, net
    128  
    111  
    220  
    311  
   Gain on sale of assets held for sale
    685  
    -  
    685  
    -  
   Total other income
    739  
    47  
    655  
    137  
  
       
       
       
       
 Income from Continuing Operations before Income Taxes
    862  
    281  
    1,128  
    1,616  
  
       
       
       
       
 Income Tax  Expenses
    (209 )
    (980 )
    (159 )
    (1,035 )
  
       
       
       
       
 Income / (loss) from continuing operations before non-controlling interest, net of tax
    653  
    (699 )
    969  
    581  
  
       
       
       
       
 Discontinued Operations
       
       
       
       
 Income / (loss) from discontinued operations, net of tax
    2  
    (6 )
    (2 )
    (11 )
 NET INCOME / (LOSS)
    655  
    (705 )
    967  
    570  
  
       
       
       
       
 Less: net (loss) / income attributable to non-controlling interest
    (28 )
    34  
    (129 )
    61  
 Net Income / (Loss) Attributable to Trio-Tech International Common Shareholders
  $ 683  
  $ (739 )
  $ 1,096  
  $ 509  
  
       
       
       
       
 Amounts Attributable to Trio-Tech International Common Shareholders:
       
       
       
       
 Income / (loss) from continuing operations, net of tax
    682  
    (736 )
    1,097  
    520  
 Income / (loss) from discontinued operations, net of tax
    1  
    (3 )
    (1 )
    (11 )
 
Net Income / (Loss) Attributable to Trio-Tech International Common Shareholders
  $ 683
 
  $ (739 )
  $ 1,096  
  $ 509  
 
       
       
       
       
Basic Earnings per Share:
       
       
       
       
Basic per share from continuing operations attributable to Trio-Tech International
  $ 0.19
 
  $ (0.21 )
  $ 0.30  
  $ 0.15  
Basic earnings per share from discontinued operations attributable to Trio-Tech International
  $ -  
  $ -  
  $ -  
  $ -  
Basic Earnings per Share from Net Income
       
       
       
       
Attributable to Trio-Tech International
  $ 0.19  
  $ (0.21 )
  $ 0.30  
  $ 0.15  
 
       
       
       
       
Diluted Earnings per Share:
       
       
       
       
Diluted earnings per share from continuing operations attributable to Trio-Tech International
  $ 0.19  
  $ (0.20 )
  $ 0.29  
  $ 0.14  
Diluted earnings per share from discontinued operations attributable to Trio-Tech International
  $ -  
  $ -  
  $ -  
  $ -  
Diluted Earnings per Share from Net Income
       
       
       
       
Attributable to Trio-Tech International
  $ 0.19  
  $ (0.20 )
  $ 0.29  
  $ 0.14  
 
       
       
       
       
Weighted average number of common shares outstanding
       
       
       
       
Basic
    3,673  
    3,553  
    3,673  
    3,553  
Dilutive effect of stock options
    12  
    219  
    73  
    225  
Number of shares used to compute earnings per share diluted
    3,685  
    3,772  
    3,746  
    3,778  
 
See notes to condensed consolidated financial statements.
 
 
 
 
TRIO-TECH IN T ERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
UNAUDITED (IN THOUSANDS)
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
Mar. 31,
 
 
Mar. 31,
 
 
Mar. 31,
 
 
Mar. 31,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Comprehensive Income Attributable to Trio-Tech International Common Shareholders: 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income / (loss)
  $ 655  
  $ (705 )
  $ 967  
  $ 570  
Foreign currency translation, net of tax
    401  
    849  
    (189 )
    1,809  
Comprehensive Income
    1,056  
    144  
    778  
    2,379  
Less: comprehensive income / (loss) attributable to non-controlling interest
    1  
    142  
    (191 )
    255  
Comprehensive Income attributable to Trio-Tech International Common Shareholders
  $ 1,055  
  $ 2  
  $ 969  
  $ 2,124  
 
       
       
       
       
 
  See notes to condensed consolidated financial statements.
 
 
 
-4-
 
TRIO-TECH I N TERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS) 
 
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
    -  
    -  
    -  
    1,096  
    -  
    (129 )
    967  
Dividend declared by subsidiary
    -  
    -  
    -  
    -  
    -  
    (125 )
    (125 )
Exercise of stock options
    120  
    401  
    -  
    -  
    -  
    -  
    401  
Translation adjustment
    -  
    -  
    -  
    -  
    (127 )
    (62 )
    (189 )
Balance at Mar. 31, 2019
    3,673  
    11,424  
    3,261  
    6,621  
    2,055  
    1,206  
    24,567  
 
Nine Months ended March 31, 2018
 
 
 
Common
Stock
 
 
Additional Paid-in
 
 
Accumulated Retained
 
 
Accumulated Other
Comprehensive
 
 
Non- Controlling
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Earnings
 
 
Income
 
 
Interest
 
 
Total
 
 
 
 
     
     
     
     
     
     
Balance at June 30, 2017
    3,523  
  $ 10,921  
  $ 3,206  
  $ 4,341  
  $ 1,633  
  $ 1,426  
  $ 21,527  
Stock option expenses
    -  
    -  
    40  
    -  
    -  
    -  
    40  
Net income
    -  
    -  
    -  
    509  
    -  
    61  
    570  
Dividend declared by subsidiary
    -  
    -  
    -  
    -  
    -  
    (125 )
    (125 )
Exercise of options
    20  
    51  
    -  
    -  
    -  
    -  
    51  
Issue of restricted shares to service provider
    10  
    51  
    -  
    -  
    -  
    -  
    51  
Translation adjustment
    -  
    -  
    -  
    -  
    1,615  
    194  
    1,809  
Balance at Mar. 31, 2018
    3,553  
    11,013  
    3,246  
    4,850  
    3,248  
    1,556  
    23,923  
 
See notes to condensed consolidated financial statements.
 
 
 
 
 
-5-
 
 
 
 
 
 
 
 
 
TRIO-TECH INTERNATI O NAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
 
 
 
Nine Months Ended
 
 
 
Mar. 31,
 
 
Mar. 31,
 
 
 
2019
 
 
2018
 
 
 
(Unaudited)
 
 
(Unaudited)
 
Cash Flow from Operating Activities
 
 
 
 
 
 
Net income
  $ 967  
  $ 570  
Adjustments to reconcile net income to net cash flow provided by operating activities
       
       
   Gain on sale of assets held for sale
    (685 )
    -  
   Depreciation and amortization
    1,777  
    1,594  
   Stock compensation
    12  
    40  
   Usage of provision for obsolete inventory
    (37 )
    (4 )
   Reversal of income tax provision
    (145 )
    -  
   Bad debt recovery
    1  
    -  
   Accrued interest expense, net accrued interest income
    34  
    148  
Gain on sale of property, plant and equipment – continued operations
    (13 )
    (20 )
Issuance of shares to service provider
    -  
    51  
   Warranty recovery, net
    (35 )
    1  
   Fixed assets written off
    (33 )
    -  
   Deferred tax benefit / (provision)
    78  
    33  
Changes in operating assets and liabilities, net of acquisition effects
       
       
   Trade accounts receivable
    626  
    392  
   Other receivables
    (153 )
    9  
   Other assets
    489  
    (327 )
   Inventories
    60  
    (506 )
   Prepaid expenses and other current assets
    (99 )
    7  
   Accounts payable and accrued expenses
    60  
    250  
   Income taxes payable
    58  
    884  
Net Cash Provided by Operating Activities
    2,962  
    3,122  
 
       
       
Cash Flow from Investing Activities
       
       
Proceeds from sale of assets held for sale
    943  
    -  
Proceeds from maturing of unrestricted term deposits and short-term deposits, net
    -  
    484  
Proceeds from disposal of property, plant and equipment
    3  
    42  
Investments in restricted and unrestricted deposits
    (2,939 )
    (281 )
Addition to property, plant and equipment
    (2,576 )
    (2,050 )
Net Cash Used in Investing Activities
    (4,569 )
    (1,805 )
 
       
       
Cash Flow from Financing Activities
       
       
Repayment on lines of credit
    (7,316 )
    (7,397 )
Repayment of bank loans and capital leases
    (625 )
    (554 )
Dividends paid on non-controlling interest
    (125 )
    (125 )
Proceeds from exercising stock options
    401  
    51  
Proceeds from bank loans and capital leases
    7,470  
    6,570  
Net Cash Used in Financing Activities
    (195 )
    (1,455 )
 
       
       
Effect of Changes in Exchange Rate
    (125 )
    742  
 
       
       
Net (Decrease) / Increase in Cash, Cash Equivalents, and Restricted Cash
    (1,927 )
    604  
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period
    8,234  
    4,772  
Cash, Cash Equivalents, and Restricted Cash at End of Period
  $ 6,307  
  $ 5,376  
 
       
       
Supplementary Information of Cash Flows
       
       
Cash paid during the period for:
       
       
Interest
  $ 217  
  $ 138  
Income taxes
  $ 114  
  $ 225  
 
       
       
Non-Cash Transactions
       
       
  Capital lease of property, plant and equipment
  $ -  
  $ 228  
 
See notes to condensed consolidated financial statements.
 
 
Reconciliation of Cash, Cash Equivalents, and Restricted Cash
 
 
 
 
 
 
Cash
    4,602  
    6,539  
Restricted Term-Deposits in Non-Current Assets
    1,705  
    1,695  
Total Cash, Cash Equivalents, and Restricted Cash Shown in Statement of Cash Flows
  $ 6,307  
  $ 8,234  

 
1)
Amounts reflecting adoption of ASU 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230) beginning in the first quarter of 2019.
 
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-
 
T R IO-TECH INTERNATIONAL AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AND NUMBER OF SHARES)
 
1. ORGANIZATION AND BASIS OF PRESENTATION
 
Trio-Tech International (“the Company” or “TTI” hereafter) was incorporated in fiscal year 1958 under the laws of the State of California. TTI provides third-party semiconductor testing and burn-in services primarily through its laboratories in Southeast Asia. In addition, TTI operates testing facilities in the United States. The Company also designs, develops, manufactures and markets a broad range of equipment and systems used in the manufacturing and testing of semiconductor devices and electronic components. In the third quarter of fiscal year 2019, TTI conducted business in four business segments: Manufacturing, Testing Services, Distribution and Real Estate. TTI has subsidiaries in the U.S., Singapore, Malaysia, Thailand and China as follows:
 
 
Ownership
Location
Express Test Corporation (Dormant)
100%
Van Nuys, California
Trio-Tech Reliability Services (Dormant)
100%
Van Nuys, California
KTS Incorporated, dba Universal Systems (Dormant)
100%
Van Nuys, California
European Electronic Test Centre (Dormant)
100%
Dublin, Ireland
Trio-Tech International Pte. Ltd.
100%
Singapore
Universal (Far East) Pte. Ltd.  *
100%
Singapore
Trio-Tech International (Thailand) Co. Ltd. *
100%
Bangkok, Thailand
Trio-Tech (Bangkok) Co. Ltd.
(49% owned by Trio-Tech International Pte. Ltd. and 51% owned by Trio-Tech International (Thailand) Co. Ltd.)  
100%
Bangkok, Thailand
Trio-Tech (Malaysia) Sdn. Bhd.
(55% owned by Trio-Tech International Pte. Ltd.)
55%
Penang and Selangor, Malaysia
Trio-Tech (Kuala Lumpur) Sdn. Bhd.
(100% owned by Trio-Tech Malaysia Sdn. Bhd.)
55%
Selangor, Malaysia
Prestal Enterprise Sdn. Bhd.
(76% owned by Trio-Tech International Pte. Ltd.)
76%
Selangor, Malaysia
Trio-Tech (SIP) Co. Ltd. *
100%
Suzhou, China
Trio-Tech (Chongqing) Co. Ltd. *
100%
Chongqing, China
SHI International Pte. Ltd. (Dormant)
(55% owned by Trio-Tech International Pte. Ltd.)
55%
Singapore
PT SHI Indonesia (Dormant)
(100% owned by SHI International Pte. Ltd.)
55%
 
Batam, Indonesia
 
Trio-Tech (Tianjin) Co., Ltd. *
100%
Tianjin, China
    * 100% owned by Trio-Tech International Pte. Ltd.
 
The accompanying un-audited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All significant inter-company accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements are presented in U.S. dollars. The accompanying condensed consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the three and nine months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2019. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report for the fiscal year ended June 30, 2018.
 
Except as otherwise specifically noted in this Form 10-Q, the Company’s operating results are presented based on the translation of foreign currencies using the respective quarter’s average exchange rate.
 
Certain reclassifications have been made to prior period amounts to conform to the current presentation.
 
 
 
-7-
2.    NEW ACCOUNTING PRONOUNCEMENTS
 
The amendments in ASU 2018-19 ASC Topic 326: Codification Improvements to Financial Instruments – Credit Losses clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the lease’s standard. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
 
The amendments in ASU 2018-18 ASC Topic 808: Collaborative Arrangements: Clarifying the Interaction between Topic 808 and Topic 606 provide more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. It allows organizations to only present units of account in collaborative arrangements that are within the scope of the revenue recognition standard together with revenue accounted for under the revenue recognition standard. The parts of the collaborative arrangement that are not in the scope of the revenue recognition standard should be presented separately from revenue accounted for under the revenue recognition standard. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
 
The amendments in ASU 2018-13 ASC Topic 820: Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement modify the disclosure requirements on fair value measurements based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
 
The amendments in ASU 2018-09 Codification Improvements represent changes to clarify, correct errors in, or make minor improvements to the Codification, eliminating inconsistencies and providing clarifications in current guidance. The amendments in this ASU include those made to: Income Statement-Reporting Comprehensive Income-Overall; Debt-Modifications and Extinguishments; Distinguishing Liabilities from Equity-Overall; Compensation-Stock Compensation-Income Taxes; Business Combinations-Income Taxes; Derivatives and Hedging-Overall; Fair Value Measurement-Overall; Financial Services-Brokers and Dealers-Liabilities; and Plan Accounting-Defined Contribution Pension Plans-Investments-Other. The amendments are effective for all entities for annual periods beginning after December 15, 2018. The effectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
 
The amendments in ASU 2018-02 ASC Topic 220: Income Statement – Reporting Comprehensive Income provide financial statement preparers with an option to reclassify stranded tax effects within Accumulated Other Comprehensive Income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The amendments in ASC Topic 220 are effective for public business entities for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
 
The amendments in Accounting Standards Update (“ASU”) 2017-11: Earnings Per Share (Topic 260) ; Distinguishing Liabilities from Equity (Topic 480) ; Derivatives and Hedging (Topic 815) are effective for public companies for annual periods beginning after December 15, 2018, including interim periods within those periods. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s presentation of consolidated financial position or results of operations.
 
The amendments in ASU 2017-04 ASC Topic 350 — ' Intangibles - Goodwill and Other (“ASC Topic 350”) simplify the test for goodwill impairment. For public companies, these amendments are effective for annual periods beginning after December 15, 2019, including interim periods within those periods. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s presentation of consolidated financial position or results of operations.
 
 
 
 
-8-
 
 
The amendments in ASU 2016-13 ASC Topic 326: Financial Instruments — Credit losses (“ASC Topic 326”) are issued for the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. For public companies that are not SEC filers, ASC Topic 326 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. While early application will be permitted for all organizations for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018, the Company has not yet determined if it will early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
 
In February 2016, the FASB issued an ASU 2016-12 ASC Topic 842: Leases , which amends a number of aspects of the existing accounting standards for leases which require lessees to recognize operating leased assets and corresponding liabilities on the balance sheet for all leases with lease terms of more than 12 months. In July 2018, ASU 2018-10: Codification Improvements to Leases addressed stakeholders’ questions about how to apply certain aspects of the new guidance in Accounting Standards Codification (ASC) 842: Leases . The clarifications address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. Besides, the amendments in ASU 2018-11 ASC Topic 842: Leases: Targeted Improvements related to transition relief on comparative reporting at adoption affect all entities with lease contracts that choose the additional transition method and separating components of a contract affect only lessors whose lease contracts qualify for the practical expedient. In July 2018, the amendments in ASU 2018-20 ASC Topic 842: Leases: Narrow-Scope Improvements for Lessors addressed the following issues facing lessors when applying this lease standard: (1) sales taxes and other similar taxes collected from lessees, (2) certain lessor costs and (3) recognition of variable payments for contracts with lease and non-lease components. On 5 March 2019, ASU 2019-01 issued to exempt both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard. The amendments are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. While early application is permitted and allows for either a modified retrospective adoption or a retrospective adoption by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, the Company has not elected to early adopt. The Company will adopt these standards starting in the first quarter of fiscal year 2020 on a modified retrospective approach at the beginning of the period through a cumulative-effect adjustment. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements and expects that there will be an increase in assets and liabilities on the Consolidated Balance Sheets at adoption due to the recognition of right-of-use assets and related lease liabilities. Upon adoption, the Company expects that its financial statement disclosure will be expanded to present additional details of its leasing arrangements.
 
Other new pronouncements issued but not yet effective until after March 31, 2019 are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
 
3.    TERM DEPOSITS
 
 
 
Mar. 31,
 2019
(Unaudited)
 
 
June 30,
 2018
 
 
 
 
 
 
 
 
Short-term deposits
  $ 3,615  
  $ 606  
Currency translation effect on short-term deposits
    31  
    47  
Total short-term deposits
    3,646  
    653  
Restricted term deposits
    1,690  
    1,664  
Currency translation effect on restricted term deposits
    15  
    31  
Total restricted term deposits
    1,705  
    1,695  
Total term deposits
  $ 5,351  
  $ 2,348  
 
Restricted deposits represent the amount of cash pledged to secure loans payable granted by financial institutions and serve as collateral for public utility agreements such as electricity and water. Restricted deposits are classified as non-current assets, as they relate to long-term obligations and will become unrestricted only upon discharge of the obligations. Short-term deposits represent bank deposits, which do not qualify as cash equivalents.
 
4.   TRADE ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
 
Accounts receivable consists of customer obligations due under normal trade terms. Although management generally does not require collateral, letters of credit may be required from the customers in certain circumstances. Management periodically performs credit evaluations of customers’ financial conditions.
 
Senior management reviews accounts receivable on a periodic basis to determine if any receivables will potentially be uncollectible. Management includes any accounts receivable balances that are determined to be uncollectible in the allowance for doubtful accounts. After all reasonable attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available, management believed the allowance for doubtful accounts as of March 31, 2019 and June 30, 2018 was adequate.  
 
 
 
-9-
 
The following table represents the changes in the allowance for doubtful accounts:  
 
 
Mar. 31,
 2019
(Unaudited)
 
 
June 30,
 2018
 
Beginning
  $ 259  
  $ 247  
Additions charged to expenses
    85  
    8  
Recovered
    (84 )
    (1 )
Currency translation effect
    (4 )
    5  
Ending
  $ 256  
  $ 259  
 
5.   LOANS RECEIVABLE FROM PROPERTY DEVELOPMENT PROJECTS
 
The following table presents Trio-Tech (Chongqing) Co. Ltd. (“TTCQ”)’s loan receivable from property development projects in China as of March 31, 2019. The exchange rate is based on the date published by the Monetary Authority of Singapore as of March 31, 2015, since the net loan receivable was “nil” as of March 31, 2019.
 
Loan Expiry
Date
 
Loan Amount
(RMB)
 
 
Loan Amount
(U.S. Dollars)
 
Short-term loan receivables
 
 
 
 
 
 
 
JiangHuai (Project – Yu Jin Jiang An)
May 31, 2013
    2,000  
    325  
Less: allowance for doubtful receivables
 
    (2,000 )
    (325 )
Net loan receivables from property development projects
 
    -  
    -  
 
       
       
Long-term loan receivables
 
       
       
Jun Zhou Zhi Ye
Oct 31, 2016
    5,000  
    814  
Less: transfer – down-payment for purchase of investment property
 
    (5,000 )
    (814 )
Net loan receivables from property development projects
 
    -  
    -  
 
On November 1, 2010, TTCQ entered into a Memorandum Agreement with JiangHuai Property Development Co. Ltd. (“JiangHuai”) to invest in their property development projects (Project - Yu Jin Jiang An) located in Chongqing City, China. Due to the short-term nature of the investment, the amount was classified as a loan based on ASC Topic 310-10-25 Receivables , amounting to renminbi (“RMB”) 2,000, or approximately $325. The loan was renewed, but expired on May 31, 2013. TTCQ is in the legal process of recovering the outstanding amount of $325. TTCQ did not generate other income from JiangHuai for the quarter ended March 31, 2019 or for the fiscal year ended June 30, 2018. Based on TTI’s financial policy, a provision for doubtful receivables of $325 on the investment in JiangHuai was recorded during the second quarter of fiscal 2014 based on TTI’s financial policy.
 
On November 1, 2010, TTCQ entered into a Memorandum Agreement with JiaSheng Property Development Co. Ltd. (“JiaSheng”) to invest in their property development projects (Project B-48 Phase 2) located in Chongqing City, China. Due to the short-term nature of the investment, the amount was classified as a loan based on ASC Topic 310, amounting to RMB 5,000, or approximately $814 based on the exchange rate as at March 31, 2015 published by the Monetary Authority of Singapore. The amount was unsecured and repayable at the end of the term. The loan was renewed in November 2011 for a period of one year, which expired on October 31, 2012 and was again renewed in November 2012 and expired in November 2013. On November 1, 2013 the loan was transferred by JiaSheng to, and is now payable by, Chong Qing Jun Zhou Zhi Ye Co. Ltd. (“Jun Zhou Zhi Ye”), and the transferred agreement expired on October 31, 2016. Prior to the second quarter of fiscal year 2015, the loan receivable was classified as a long-term receivable. The book value of the loan receivable approximates its fair value. In the second quarter of fiscal year 2015, the loan receivable was transferred to the down payment for the purchase of an investment property that is being developed in the Singapore Themed Resort Project (see Note 8).
 
 6.  INVENTORIES
 
 Inventories consisted of the following:
 
 
Mar. 31,
2019
 (Unaudited)
 
 
June 30,
 2018
 
Raw materials
  $ 1,206  
  $ 1,153  
Work in progress
    1,839  
    1,947  
Finished goods
    520  
    505  
Currency translation effect
    13  
    20  
Less: provision for obsolete inventory
    (660 )
    (695 )
 
  $ 2,918  
  $ 2,930  
   
 
 
The following table represents the changes in provision for obsolete inventory:
 
 
 
Mar. 31,
 2019
(Unaudited)
 
 
June 30,
 2018
 
 
 
 
 
 
 
 
Beginning
  $ 695  
  $ 686  
Additions charged to expenses
    5  
    9  
Usage – disposition
    (42 )
    (5 )
Currency translation effect
    2  
    5  
Ending
  $ 660  
  $ 695  
 
7.   ASSETS HELD FOR SALE
 
Penang Property
 
During the fourth quarter of 2015, the operations in Malaysia planned to sell its factory building in Penang, Malaysia. In accordance with ASC Topic 360, during fiscal year 2015 the property was reclassified from investment property, which had a net book value of RM 371, or approximately $98, to assets held for sale, since there was an intention to sell the factory building. In May 2015, Trio-Tech Malaysia was approached by a potential buyer to purchase the factory building. On September 14, 2015, application to sell the property was rejected by Penang Development Corporation (PDC). The rejection was because the business activity of the purchaser was not suitable to the industry that is being promoted on said property. PDC made an offer to purchase the property, which was not at the expected value and the offer expired on March 28, 2016 and no further conversations with PDC have occurred since. Management received an expression of interest from a potential buyer in acquiring the property during second quarter of fiscal year 2019 and the sale is still under negotiation with the potential buyer during third quarter of fiscal year 2019. The completion of the sale is also subject to the approval by Penang Development Corporation. The net book values of the building was RM371, or $90, as at March 31, 2019 and RM371, or $91, as at June 30, 2018.
 
Mao Ye Property
 
During the first quarter of 2019, management decided to sell Mao Ye Property, which is one of our earlier investment properties. In order to monetize the capital gain on property, TTCQ appointed a sole agent for 6 months as of September 1, 2018 to search for suitable buyers for this property. The Company has completed the sale of thirteen of the fifteen units constituting the Mao Ye Property as the end of the third quarter 2019 which contributed the gain of $685. During the third quarter 2019, considering the current market conditions in China, management has decided not to sell the remaining two units of Mao Ye properties and as of third quarter 2019, the properties were reclassified to investment property from assets held for sale.
 
8.  INVESTMENTS
 
During the second quarter of fiscal year 2011, the Company entered into a joint venture agreement with JiaSheng to develop real estate projects in China. The Company invested RMB 10,000, or approximately $1,606 for a 10% interest in the newly formed joint venture, which was incorporated as a limited liability company, Chong Qing Jun Zhou Zhi Ye Co. Ltd. (the “joint venture”), in China. The Company would receive a fee of RMB 10,000, or approximately $1,606 for the services rendered in connection with bidding in certain real estate projects from the local government. Upon signing of the agreement, JiaSheng paid the Company RMB 5,000 in cash, or approximately $803. The remaining RMB 5,000, which was not recorded as a receivable as the Company considered the collectability uncertain, would be paid over 72 months commencing in 36 months from the date of the agreement when the joint venture secured a property development project stated inside the joint venture agreement. The Company considered the RMB 5,000, or approximately $803 received in cash from JiaSheng, the controlling venturer in the joint venture, as a partial return of the Company’s initial investment, resulting in a net investment of RMB 5,000 as of March 31, 2014. The Company further reduced its investments by RMB 137, or approximately $22, towards the losses from operations incurred by the joint venture, resulting in a net investment of RMB 4,863, or approximately $781. Transaction amounts in this paragraph were translated into US dollars based on the exchange rate as of March 31, 2014 published by the Monetary Authority of Singapore.
 
During the second quarter of fiscal year 2014, TTCQ decided to dispose of its 10% interest in the joint venture after TTCQ revalued certain monetary risks relating to the development of the project. On October 2, 2013, TTCQ entered into a share transfer agreement (the “Share Transfer Agreement”) with Zhu Shu. Based on the agreement, the purchase price was to be paid by (1) RMB 10,000 worth of commercial property in Chongqing China, or approximately $1,634 consisting of commercial units measuring 668 square meters to be delivered in June 2016, and (2) the remaining RMB 8,000, or approximately $1,307 by cash consideration to be paid in sixteen quarterly equal instalments of RMB 500 per quarter commencing from January 2014. Based on ASC Topic 845 Non-monetary Consideration , the Company deferred the recognition of the gain on disposal of the 10% interest in joint venture investment until such time that the consideration is paid, so that the gain can be ascertained. The recorded value of the disposed investment amounting to $783, based on exchange rates published by the Monetary Authority of Singapore as of June 30, 2014, is classified as “other assets” under non-current assets, because it is considered a down payment for the purchase of the commercial property in Chongqing. The first three instalments, amounting to RMB 500 each due in January 2014, April 2014 and July 2014, were all outstanding until the date of disposal of the investment in the joint venture. Out of the outstanding RMB 8,000, TTCQ received RMB 100 during May 2014. Except as otherwise noted, transaction amounts in this paragraph were translated into US dollars based on the exchange rate as of October 2, 2013 published by the Monetary Authority of Singapore
 
 
 
-11-
 
 
On October 14, 2014, TTCQ and Jun Zhou Zhi Ye entered into a memorandum of understanding. Based on the memorandum of understanding, both parties agreed to register a sales and purchase agreement upon Jun Zhou Zhi Ye obtaining the license to sell the commercial property (the Singapore Themed Resort Project) located in Chongqing, China. The proposed agreement is for the sale of shop lots with a total area of 1,484.55 square meters as consideration for the outstanding amounts owed to TTCQ by Jun Zhou Zhi Ye as follows:
 
a) Long term loan receivable RMB 5,000, or approximately $814, as disclosed in Note 5, plus the interest receivable on long term loan receivable of RMB 1,250;
b) Commercial units measuring 668 square meters, as mentioned above; and
c) RMB 5,900 for the part of the unrecognized cash consideration of RMB 8,000 relating to the disposal of the joint venture.
 
The consideration does not include the remaining outstanding amount of RMB 2,000, or approximately $326, which will be paid to TTCQ in cash.
 
The shop lots are to be delivered to TTCQ upon completion of the construction of the shop lots in the Singapore Themed Resort Project. The initial targeted date of completion was December 31, 2016. Based on discussions with the developers, the completion date is currently estimated to be December 31, 2021.
 
The Share Transfer Agreement (10% interest in the joint venture) was registered with the relevant authorities in China during October 2016.
 
9.     INVESTMENT PROPERTIES
 
The following table presents the Company’s investment in properties in China as of March 31, 2019. The exchange rate is based on the market rate as of March 31, 2019.
 
 
Investment
Date / Reclassification Date
 
Investment
Amount   (RMB)
 
 
Investment Amount
(U.S. Dollars )
 
Purchase of rental property – Property I – Mao Ye Property
Jan 04, 2008
    5,554  
    894  
Currency translation
 
    -  
    (87 )
Reclassification as “Assets held for sale”
July 01, 2018
    (5,554 )
    (807 )
Reclassification from “Assets held for sale”
Mar 31, 2019
    2,024  
    301  
 
    2,024  
    301  
Purchase of rental property – Property II - JiangHuai
Jan 06, 2010
    3,600  
    580  
Purchase of rental property – Property III - Fu Li
Apr 08, 2010
    4,025  
    648  
Currency translation
 
    -  
    (93 )
Gross investment in rental property
 
    9,649  
    1,436  
Accumulated depreciation on rental property
Mar 31, 2019
    (5,879 )
    (875 )
Reclassified as “Assets held for sale”
July 01, 2018
    2,822  
    410  
Reclassification from “Assets held for sale”
Mar 31, 2019
    (1,029 )
    (143 )
 
    (4,086 )
    (608 )
Net investment in property – China
 
    5,563  
    828  
 
The following table presents the Company’s investment in properties in China as of June 30, 2018. The exchange rate is based on the market rate as of June 30, 2018.
 
 
Investment Date
 
Investment
Amount   (RMB)
 
 
Investment Amount
(U.S. Dollars )
 
Purchase of rental property – Property I - Mao Ye Property
Jan 04, 2008
    5,554  
    894  
Purchase of rental property – Property II - JiangHuai
Jan 06, 2010
    3,600  
    580  
Purchase of rental property – Property III - Fu Li
Apr 08, 2010
    4,025  
    648  
Currency translation
 
    -  
    (131 )
Gross investment in rental property
 
    13,179  
    1,991  
Accumulated depreciation on rental property
  June 30, 2018
    (5,596 )
    (845 )
Net investment in property – China
 
    7,583  
    1,146  
 
 
 
 
-12-
 
 
The following table presents the Company’s investment properties in Malaysia as of March 31, 2019 and June 30, 2018. The exchange rate is based on the exchange rate as of June 30, 2015 published by the Monetary Authority of Singapore.
 
 
Investment Date
 
Investment
Amount
 
 
Investment Amount
 
 
 
 
(RM)
 
 
(U.S. Dollars)
 
Purchase of Penang Property
Dec 31, 2012
    681  
    181  
Currency translation
 
    -  
    (16 )
Reclassification as “Assets held for sale”
June 30, 2015
    (681 )
    (165 )
 
    -  
    -  
Accumulated depreciation on rental property
June 30, 2015
    (310 )
    (83 )
Currency translation
 
    -  
    7  
Reclassified as “Assets held for sale”
June 30, 2015
    (310 )
    (76 )
Net investment in rental property - Malaysia
 
    -  
    -  
 
Rental Property I - Mao Ye Property
 
In fiscal 2008, TTCQ purchased an office in Chongqing, China from Mao Ye Property Ltd. (“Mao Ye”), for a total cash purchase price of RMB 5,554, or approximately $894. TTCQ identified a new tenant and signed a new rental agreement (653 square meters at a monthly rent of RMB 39, or approximately $6) on August 1, 2015 which expires on July 31, 2020. TTCQ signed a new rental agreement (451 square meters at a monthly rent of RMB 24, or approximately $4) on February 1, 2018 which expires on January 31, 2021.
 
During the first quarter of 2019, management decided to sell Mao Ye Property, which is one of our earlier investment properties. In order to monetize the capital gain on property, TTCQ appointed a sole agent for 6 months as of September 1, 2018 to search for suitable buyers for this property. The Company has completed the sale of thirteen of the fifteen units constituting the Mao Ye Property as the end of third quarter 2019 which contributed the gain of $685. During the third quarter 2019, considering the current market conditions in China, management has decided not to sell the remaining two units of Mao Ye properties and as of third quarter 2019, the properties were reclassified to investment property from assets held for sale.
 
Property purchased from Mao Ye generated a rental income of $15 and $58 during the three and nine months ended March 31, 2019, respectively, and $22 and $75 for the same periods in last fiscal year.
 
Rental Property II - JiangHuai
 
In fiscal year 2010, TTCQ purchased eight units of commercial property in Chongqing, China from Chongqing JiangHuai Real Estate Development Co. Ltd. (“JiangHuai”) for a total purchase price of RMB 3,600, or approximately $580. Although these units were rented in the past, all eight units are currently vacant and TTCQ is working with the developer to find a suitable buyer to purchase all the commercial units. TTCQ has yet to receive the title deed for these properties; however, TTCQ has the vacancies in possession with the exception of two units, which are in the process of clarification. TTCQ is in the legal process to obtain the title deed, which is dependent on JiangHuai completing the entire project.
 
Property purchased from JiangHuai did not generate any rental income during the three and nine months ended March 31, 2019 or during the same period in the prior fiscal year.
 
Rental Property III – FuLi
 
In fiscal 2010, TTCQ entered into a Memorandum Agreement with Chongqing FuLi Real Estate Development Co. Ltd. (“FuLi”) to purchase two commercial properties totalling 311.99 square meters (“office space”) located in Jiang Bei District Chongqing. Although TTCQ currently rents its office premises from a third party, it intends to use the office space as its office premises. The total purchase price committed and paid was RMB 4,025, or approximately $648. The development was completed and the property was handed over in April 2013 and the title deed was received during the third quarter of fiscal 2014.
 
The two commercial properties were leased to third parties under two separate rental agreements. One of such leases provides for a rent increase of 5% every year on May 1, commencing in 2017 until the rental agreement expires on April 30, 2019. The rental agreement of this lease has been extended for 3 years, commencing from May 01, 2019 to Apr 30, 2021 with a term of rent increase of 6% every year.
 
For the other lease expired on March 31, 2018, TTCQ identified a new tenant and signed a new rental agreement (161 square meters at a monthly rent of RMB 62, or approximately $9) on November 1, 2018 which expires on October 31, 2019.
 
Properties purchased from Fu Li generated a rental income of $10 and $23 for the three and nine months ended March 31, 2019, respectively, while it generated a rental income of $12 and $35 for the same periods in the last fiscal year.
 

 
 
-13-
 
 
Summary
 
Total rental income for all investment properties in China was $25 and $81 for the three and nine months ended March 31, 2019, respectively, and were $34 and $110 for the same periods in the last fiscal year.
 
Depreciation expenses for all investment properties in China were $14 and $42 and for the three and nine months ended March 31, 2019, respectively, and were $25 and $74 for the same periods in the last fiscal year.
 
10.   OTHER ASSETS
 
Other assets consisted of the following:
 
 
Mar. 31, 2019
(Unaudited)
 
 
June 30,
2018
 
Down payment for purchase of investment properties
  $ 1,645  
  $ 1,645  
Down payment for purchase of property, plant and equipment
    71  
    561  
Deposits for rental and utilities
    140  
    140  
Currency translation effect
    (128 )
    (97 )
Total
  $ 1,728  
  $ 2,249  
 
11. 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, 2019, 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 1.83% to 5.5%
    -
 
  $ 4,206  
  $ 4,072  
Trio-Tech (Tianjin) Co., Ltd.
  Lines of Credit
  5.22% to 6.3%
    -  
  $ 1,490  
  $ 1,250  
Universal (Far East) Pte. Ltd.
  Lines of Credit
     Ranging from 1.83% to 5.5%
    -  
  $ 369  
  $ 121  
 
As of June 30, 2018, 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 1.6% to 5.5%
    -
 
  $ 4,183  
  $ 3,325  
Trio-Tech (Tianjin) Co., Ltd.
  Lines of Credit
  5.22%
    -  
  $ 1,511  
  $ 437  
Universal (Far East) Pte. Ltd.
  Lines of Credit
     Ranging from 1.6% to 5.5%
    -  
  $ 367  
  $ 256  
 
Trio-Tech International Pte. Ltd. signed an agreement with a bank to sub-allocate a portion of the facility thereunder to Universal (Far East) Pte. Ltd. for an Accounts Payable Financing facility for Singapore Dollar of 500, or approximately $369. Interest charged ranges between 1.83% and 5.5%. The financing facility was set up to facilitate the working capital in our operations in Singapore. The Company started to use this facility in fiscal year 2018.
 
 
 
 
-14-
 
 
12.  ACCRUED EXPENSES
 
Accrued expenses consisted of the following:
 
 
Mar. 31,
2019
(Unaudited)
 
 
June 30,
2018
 
 
Payroll and related costs
  $ 1,129  
  $ 1,545  
Commissions
    135  
    89  
Customer deposits
    1,117  
    17  
Legal and audit
    300  
    265  
Sales tax
    16  
    17  
Utilities
    117  
    130  
Warranty
    47  
    82  
Accrued purchase of materials and property, plant and equipment
    355  
    454  
Provision for re-instatement
    302  
    289  
Other accrued expenses
    363  
    203  
Currency translation effect
    1  
    81  
Total
  $ 3,882  
  $ 3,172  
 
13.   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.
 
 
 
Mar. 31,
 2019
(Unaudited)
 
 
June 30,
 2018
 
Beginning
  $ 82  
  $ 48  
Additions charged to cost and expenses
    11  
    64  
Reversal
    (46 )
    (30 )
Currency translation effect
    -  
    -  
Ending
  $ 47  
  $ 82  
 
 
 
14.   BANK LOANS PAYABLE
 
 Bank loans payable consisted of the following:
 
 
 
Mar. 31, 2019
(Unaudited)
 
 
June 30, 2018
 
Note payable denominated in RM for expansion plans in Malaysia, maturing in August 2028, bearing interest at the bank’s prime rate less 1.50% (5.00% at March 31, 2019 and June 30, 2018) per annum, with monthly payments of principal plus interest through August 2028, collateralized by the acquired building with a carrying value of $2,727 and $2,809, as at March 31, 2019 and June 30, 2018, respectively.
    2,779  
    1,615  
 
       
       
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, 2019 and June 30, 2018) with monthly payments of principal plus interest through June 2020. This note payable is secured by plant and equipment with a carrying value of $158 and $187, as at March 31, 2019 and June 30, 2018, respectively.
    180  
    293  
 
       
       
Currency translation effect on bank loan payable
    (25 )
    (104 )
 
       
       
Total bank loans payable
  $ 2,934  
  $ 1,804  
 
Current portion of bank loan payable
    495  
    380  
Currency translation effect on current portion of bank loan
    (3 )
    (13 )
Current portion of bank loan payable
    492  
    367  
Long term portion of bank loan payable
    2,465  
    1,528  
Currency translation effect on long-term portion of bank loan
    (23 )
    (91 )
Long term portion of bank loans payable
  $ 2,442  
  $ 1,437  
 
Future minimum payments (excluding interest) as at March 31, 2019 were as follows:  
2019
  $ 492  
2020
    383  
2021
    375  
2022
    394  
2023
    205  
Thereafter
    1,085  
Total obligations and commitments
  $ 2,934  
 
 
 
 
-16-
 
 
Future minimum payments (excluding interest) as at June 30, 2018 were as follows:  
 
2019
  $ 367  
2020
    372  
2021
    242  
2022
    254  
2023
    267  
Thereafter
    302  
Total obligations and commitments
  $ 1,804  
 
15.   COMMITMENTS AND CONTINGENCIES
 
Trio-Tech (Malaysia) Sdn. Bhd.   has capital commitments for the purchase of equipment and other related infrastructure costs amounting to RM 315, or approximately $77, based on the exchange rate as at March 31, 2019, as compared to the capital commitment as at June 30, 2018 amounting to RM 62, or approximately $16.
 
Trio-Tech (Tianjin) Co., Ltd. in China has capital commitments for the purchase of equipment and other related infrastructure costs amounting to RMB 265, or approximately $40, based on the exchange rate as at March 31, 2019, as compared to the capital commitment as at June 30, 2018 amounting to RMB 3,927, or approximately $593.
 
Trio-Tech (SIP) Co., Ltd. in China has capital commitments for the purchase of equipment and other related infrastructure costs amounting to RMB 632, or approximately $94, based on the exchange rate as at March 31, 2019 as compared to the capital commitment as at June 30, 2018 amounting to RMB 6,084, or approximately $919.
 
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.
 
16.     BUSINESS SEGMENTS
 
In fiscal year 2019, 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 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.
 
All inter-segment revenue was from the manufacturing segment to the testing and distribution segments. Total inter-segment revenue was $15 and $416 for the three and nine months ended March 31, 2019, as compared to $587 and $681 for the same periods 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.
 
 
 
-17-
 
The following segment information is un-audited for the three and nine months ended March 31, 2019 and March 31, 2018:
 
 
 
Business Segment Information:
 
Nine months
 
 
 
 
Operating
 
 
 
 
 
Depr.
 
 
 
 
 
Ended
 
Net
 
 
Income /
 
 
Total
 
 
and
 
 
Capital
 
 
Mar. 31
 
Revenue
 
 
(Loss)
 
 
Assets
 
 
Amort.
 
 
Expenditures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Manufacturing
2019
  $ 10,086  
  $ 175  
  $ 9,205  
  $ 88  
  $ 40  
 
2018
  $ 11,862  
  $ 188  
  $ 7,035  
  $ 86  
  $ 63  
 
       
       
       
       
       
Testing Services
2019
    12,819  
    (134 )
    22,842  
    1,647  
    2,535  
 
2018
    14,454  
    1,281  
    24,790