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, 2018
 
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 Large Accelerated Filer
 
 
  Accelerated Filer
 
 
 
 
 
 Non-Accelerated Filer 
 
 
  Smaller reporting company
(Do not check if a smaller reporting company)
 
 
 
  Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No
 
As of May 1, 2018, there were 3,553,055 shares of the issuer’s Common Stock, no par value, outstanding.
 
 

 
 
TRIO-TECH INTERNATIONAL
INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE
 
 
 
 
Page
 
 
 
 
 
  
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51
 
 
 
 
52
 
 

 
 
 
-i-
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. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT NUMBER OF SHARES)
 
 
 
March 31,
2018
 
 
June 30,
2017
 
ASSETS
 
(Unaudited)
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
Cash and cash equivalents
 $5,376 
 $4,772 
Short-term deposits
  678 
  787 
Trade accounts receivable, less allowance for doubtful accounts of $262 and $247
  8,617 
  9,009 
Other receivables
  392 
  401 
Inventories, less provision for obsolete inventories of $706 and $686
  2,369 
  1,756 
Prepaid expenses and other current assets
  219 
  226 
Asset held for sale
  96 
  86 
 Total current assets
  17,747 
  17,037 
NON-CURRENT ASSETS:
    
    
Deferred tax assets
  453 
  375 
Investment properties, net
  1,231 
  1,216 
Property, plant and equipment, net
  12,881 
  11,291 
Other assets
  2,315 
  1,922 
Restricted term deposits
  1,761 
  1,657 
          Total non-current assets
  18,641 
  16,461 
TOTAL ASSETS
 $36,388 
 $33,498 
 
    
    
LIABILITIES
    
    
CURRENT LIABILITIES:
    
    
Lines of credit
 $1,311 
 $2,556 
Accounts payable
  2,099 
  3,229 
Accrued expenses
  4,648 
  3,043 
Income taxes payable
  1,117 
  233 
Current portion of bank loans payable
  376 
  260 
Current portion of capital leases
  260 
  228 
 Total current liabilities
  9,811 
  9,549 
NON-CURRENT LIABILITIES: 
    
    
Bank loans payable, net of current portion
  1,593 
  1,552 
Capital leases, net of current portion
  614 
  531 
Deferred tax liabilities
  404 
  295 
Other non-current liabilities
  43 
  44 
           Total non-current liabilities
  2,654 
  2,422 
TOTAL LIABILITIES
 $12,465 
 $11,971 
 
    
    
 
    
    
EQUITY
    
    
TRIO-TECH INTERNATIONAL’S SHAREHOLDERS' EQUITY:
    
    
Common stock, no par value, 15,000,000 shares authorized; 3,553,055 and 3,523,055 shares issued and outstanding, respectively, as at March 31, 2018, and June 30, 2017
 $11,023 
 $10,921 
Paid-in capital
  3,246 
  3,206 
Accumulated retained earnings
  4,850 
  4,341 
Accumulated other comprehensive gain-translation adjustments
  3,248 
  1,633 
 Total Trio-Tech International shareholders' equity
  22,367 
  20,101 
Non-controlling interest
  1,556 
  1,426 
         TOTAL EQUITY
 $23,923 
 $21,527 
TOTAL LIABILITIES AND EQUITY
 $36,388 
 $33,498 
 
 
See notes to condensed consolidated financial statements.
 
 
 
 
-2-
TRIO-TECH INTERNATIONAL 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,
 
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Manufacturing
 $3,124 
 $4,230 
 $11,862 
 $11,221 
Testing services
  4,913 
  3,977 
  14,454 
  12,204 
Distribution
  2,033 
  1,581 
  5,175 
  4,360 
Others
  34 
  37 
  110 
  115 
 
  10,104 
  9,825 
  31,601 
  27,900 
Cost of Sales
    
    
    
    
Cost of manufactured products sold
  2,530 
  3,345 
  9,246 
  8,762 
Cost of testing services rendered
  3,491 
  2,597 
  9,881 
  8,069 
Cost of distribution
  1,821 
  1,407 
  4,598 
  3,899 
Others
  30 
  29 
  89 
  71 
 
  7,872 
  7,378 
  23,814 
  20,801 
 
    
    
    
    
Gross Margin
  2,232 
  2,447 
  7,787 
  7,099 
 
    
    
    
    
Operating Expenses:
    
    
    
    
General and administrative
  1,773 
  1,659 
  5,339 
  5,178 
Selling
  181 
  222 
  612 
  587 
Research and development
  75 
  51 
  377 
  156 
(Gain) / Loss on disposal of property, plant and equipment
  (31)
  30 
  (20)
  38 
Total operating expenses
  1,998 
  1,962 
  6,308 
  5,959 
 
    
    
    
    
Income from Operations
  234 
  485 
  1,479 
  1,140 
 
    
    
    
    
Other (Expenses) / Income
    
    
    
    
Interest expense
  (64)
  (43)
  (174)
  (149)
Other income, net
  111 
  45 
  311 
  358 
Total other income
  47 
  2 
  137 
  209 
 
    
    
    
    
Income from Continuing Operations before Income Taxes
  281 
  487 
  1,616 
  1,349 
 
    
    
    
    
Income Tax  Expenses
  (980)
  (106)
  (1,035)
  (256)
 
    
    
    
    
Income from continuing operations before non-controlling interest, net of tax
  (699)
  381 
  581 
  1,093 
 
    
    
    
    
Discontinued Operations (Note 19)
    
    
    
    
Loss from discontinued operations, net of tax
  (6)
  (1)
  (11)
  (4)
NET (LOSS)/INCOME
  (705)
  380 
  570 
  1,089 
 
    
    
    
    
Less: income attributable to non-controlling interest
  34
  30 
  61 
  126 
Net (Loss) / Income Attributable to Trio-Tech International Common Shareholder
 $(739)
 $350 
 $509 
 $963 
 
    
    
    
    
Amounts Attributable to Trio-Tech International Common Shareholders:
    
    
    
    
(Loss) / Income from continuing operations, net of tax
  (736)
  351 
  520 
  970 
Loss from discontinued operations, net of tax
  (3)
  (1)
  (11)
  (7)
Net (Loss) / Income Attributable to Trio-Tech International Common Shareholders
 $(739)
 $350 
 $509 
 $963 
 
    
    
    
    
 
 
 
-3-
 
Basic Earnings per Share:
 
 
 
 
 
 
 
 
 
 
 
 
Basic per share from continuing operations attributable to Trio-Tech International
 $(0.21)
 $0.10 
 $0.15 
 $0.28 
Basic earnings per share from discontinued operations attributable to Trio-Tech International
 $- 
 $- 
 $- 
 $- 
Basic Earnings per Share from Net Income
Attributable to Trio-Tech International
 $(0.21)
 $0.10 
 $0.15 
 $0.28 
 
    
    
    
    
Diluted Earnings per Share:
    
    
    
    
Diluted earnings per share from continuing operations attributable to Trio-Tech International
 $(0.20)
 $0.10 
 $0.14 
 $0.27 
Diluted earnings per share from discontinued operations attributable to Trio-Tech International
 $- 
 $- 
 $- 
 $- 
Diluted Earnings per Share from Net Income
    
    
    
    
Attributable to Trio-Tech International
 $(0.20)
 $0.10 
 $0.14 
 $0.27 
 
    
    
    
    
Weighted average number of common shares outstanding
    
    
    
    
Basic
  3,553 
  3,523 
  3,553 
  3,523 
Dilutive effect of stock options
  219 
  116 
  225 
  54 
Number of shares used to compute earnings per share diluted
  3,772 
  3,639 
  3,778 
  3,577 
 
 
See notes to condensed consolidated financial statements.
 
 
 
-4-
 
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
UNAUDITED (IN THOUSANDS)
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
Mar. 31,
2018
 
 
Mar. 31,
2017
 
 
Mar. 31,
2018
 
 
Mar. 31,
2017
 
Comprehensive Income Attributable to Trio-Tech International Common Shareholders: 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) / income
 $(705)
 $380 
 $570 
 $1,089 
Foreign currency translation, net of tax
  849 
  290 
  1,809
  (1,087)
Comprehensive Income
  144 
  670 
  2,379
  2 
Less: comprehensive income / (loss)attributable to non-controlling interest
  142 
  (38)
  255 
  (75)
Comprehensive Income Attributable to Trio-Tech International Common Shareholders
 $2 
 $708 
 $2,124
 $77 
 
    
    
    
    
 
See notes to condensed consolidated financial statements.
 
 
 
 
-5-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS) 
 
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 consultant
  10 
  51 
  - 
  - 
  - 
  - 
  51 
Translation adjustment
  - 
  - 
  - 
  - 
  1,615 
  194 
  1,809 
Balance at Mar. 31, 2018
  3,553 
  11,023 
  3,246 
  4,850 
  3,248 
  1,556 
  23,923 
 
Nine Months ended March 31, 2017
 
 
 
Common
Stock
 
 
Additional Paid-in
 
 
Accumulated Retained
 
 
Accumulated Other
Comprehensive
 
 
Non- Controlling
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Earnings
 
 
Income
 
 
Interest
 
 
Total
 
 
 
 
 
 
 
 
Balance at June 30, 2016
  3,513 
 $10,882 
  3,188 
 $3,025 
  2,162 
 $1,614 
 $20,871 
Stock option expenses
  - 
  - 
  16 
  - 
  - 
  - 
  16 
Net income
  - 
  - 
  - 
  963 
  - 
  126 
  1,089 
Dividend declared by subsidiary
  - 
  - 
  - 
  - 
  - 
  (177)
  (177)
Issue of restricted shares to consultant
  10 
  39 
  - 
  - 
  - 
  - 
  39 
Translation adjustment
  - 
  - 
  - 
  - 
  (886)
  (201)
  (1,087)
Balance at Mar. 31, 2017
  3,523 
  10,921 
  3,204 
  3,988 
  1,276 
  1,362 
  20,751 
 
 
See notes to condensed consolidated financial statements.
 
 
 
 
-6-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
UNAUDITED (IN THOUSANDS)
 
 
 
Nine Months Ended
 
 
 
Mar. 31,
 
 
Mar. 31,
 
 
 
2018
 
 
2017
 
 
 
(Unaudited)
 
 
(Unaudited)
 
Cash Flow from Operating Activities
 
 
 
 
 
 
Net income
 $570 
 $1,089 
Adjustments to reconcile net income to net cash flow provided by operating activities
    
    
   Depreciation and amortization
  1,594
  1,358 
   Stock option expenses
  40 
  16 
   Issue of restricted shares to consultant
  51 
  39 
Reversal of provision for obsolete inventories
  (4)
  (5)
   Bad debt recovery, net
  - 
  (15)
   Accrued interest expense, net of accrued interest income
  148 
  132 
(Gain) / Loss on sale of property, plant and equipment - continued operations
  (20)
  8 
Write-off of property, plant and equipment
  - 
  30 
   Warranty recovery, net
  1 
  (6)
   Deferred tax provision
  33 
  88 
Changes in operating assets and liabilities, net of acquisition effect
    
    
   Trade accounts receivable
  392 
  491 
   Other receivables
  9 
  286 
   Other assets
  (327)
  (199)
   Inventories
  (506)
  (729)
   Prepaid expenses and other current assets
  7 
  (44)
   Accounts payable and accrued expenses
  250 
  491 
   Income tax payable
  884 
  (17)
Net Cash Provided by Operating Activities
  3,122
  3,013 
 
    
    
Cash Flow from Investing Activities
    
    
Proceeds from maturing of unrestricted and restricted term deposits and short-term deposits, net
  484 
  488 
Investments in restricted and unrestricted deposits
  (281)
  (421)
Additions to property, plant and equipment
  (2,050)
  (1,467)
Proceeds from disposal of plant, property and equipment
  42 
  83 
Net Cash Used in Investing Activities
  (1,805)
  (1,317)
 
    
    
Cash Flow from Financing Activities
    
    
Repayment on lines of credit
  (7,397)
  (6,171)
Proceeds from bank loans and capital leases
  6,570 
  5,850 
Proceeds from exercising of stock options
  51 
  - 
Dividends paid to non-controlling interest
  (125)
  (177)
Repayment of bank loans and capital leases
  (554)
  (547)
Net Cash Used in Financing Activities
  (1,455)
  (1,045)
 
    
    
Effect of Changes in Exchange Rate
  742 
  (449)
 
    
    
NET INCREASE IN CASH AND CASH EQUIVALENTS
  604 
  202 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
  4,772 
  3,807 
CASH AND CASH EQUIVALENTS, END OF PERIOD
 $5,376 
 $4,009 
 
    
    
Supplementary Information of Cash Flows
    
    
Cash paid during the period for:
    
    
Interest
 $138 
 $132 
Income taxes
 $225 
 $122 
 
    
    
Non-Cash Transactions
    
    
  Capital lease of property, plant and equipment
 $228 
 $49 
 
 
See notes to condensed consolidated financial statements.
 
 
 
 
-7-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AND NUMBER OF SHARES)
 
1. ORGANIZATION AND BASIS OF PRESENTATION
 
Trio-Tech International (“the Company” or “TTI” hereafter) was incorporated in fiscal year 1958 under the laws of the State of California.  TTI provides third-party semiconductor testing and burn-in services primarily through its laboratories in Southeast Asia. In addition, TTI operates testing facilities in the United States.  The Company also designs, develops, manufactures and markets a broad range of equipment and systems used in the manufacturing and testing of semiconductor devices and electronic components. In the third quarter of fiscal year 2018, 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.
100%
Bangkok, Thailand
(49% owned by Trio-Tech International Pte. Ltd. and 51% owned by Trio-Tech International (Thailand) Co. Ltd.)
       
 
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 (Suzhou) Co., Ltd. *
100%
Suzhou, China
Trio-Tech (Chongqing) Co. Ltd. *
100%
Chongqing, China
SHI International Pte. Ltd. (Dormant)
(55% owned by Trio-Tech International Pte. Ltd)
55%
Singapore
PT SHI Indonesia (Dormant)
(100% owned by SHI International Pte. Ltd.)
55%
Batam, Indonesia
 
Trio-Tech (Tianjin) Co., Ltd. *
100%
Tianjin, China
  * 100% owned by Trio-Tech International Pte. Ltd.
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. 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 U.S. 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 nine months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2018.  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, 2017.
 
The Company’s operating results are presented based on the translation of foreign currencies using the respective quarter’s average exchange rate.
 
 
 
-8-
 
2.   NEW ACCOUNTING PRONOUNCEMENTS
 
These amendments in ASU 2018-02 ASC Topic 220: Income Statement – Reporting Comprehensive Income. The amendments 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). For public companies, these amendments are effective 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 2017-09 — Compensation—Stock Compensation (ASC Topic 718 ): Scope of Modification Accounting: These amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. For public companies, these amendments are effective for annual periods beginning after December 15, 2017, 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 2017-07 ASC Topic 715 — 'Compensation — Retirement Benefits: These amendments improve the presentation of net periodic pension Cost and Net Periodic Postretirement Benefit Cost. For public companies, these amendments are effective for annual periods beginning after December 15, 2017, 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 2017-05 ASC Subtopic 610-20 — 'Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (“ASC Subtopic 610-20”): These amendments clarify the scope of asset derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. For public companies, these amendments are effective for annual periods beginning after December 15, 2017, 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: These amendments 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.
 
 
 
 
-9-
 
The amendments in ASU 2017-01 ASC Topic 805 — 'Business Combinations: These amendments clarify the definition of a business. The amendments affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. For public companies, these amendments are effective for annual periods beginning after December 15, 2017, 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 will have no effect on the Company’s presentation of consolidated financial position or results of operations.
 
The amendments in ASU 2016-18 ASC Topic 230 — 'Statement of Cash Flows: These amendments provide cash flow statement classification guidance. For public business entities, these amendments are effective for fiscal years beginning after December 15, 2017, 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 presentation of consolidated financial position and statement of cash flows.
 
The amendments in ASU 2016-17 ASC Topic 810 — Consolidation: These amendments require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. For public business entities, these amendments are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. While early application is permitted, including interim reporting periods within those annual reporting periods, 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 2016-15 ASC Topic 230 —Statement of Cash Flows: These amendments provide cash flow statement classification guidance. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2017, 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 2016-13 ASC Topic 326: Financial Instruments Credit losses 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.
 
The amendments in ASU 2016-02 ASC Topic 842: Leases require companies to recognize the following for all leases (with the exception of short-term leases) at the commencement date of the applicable lease: (a) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset, which is as an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. These amendments become effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for a variety of entities including a public company. While early adoption is permitted, 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 2016-01 ASC Financial Instruments ─ Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities: The amendments among other things –(a) requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, (b) Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables), (c) Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. For public companies, these amendments are effective for fiscal years beginning after December 15, 2017, including 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.
 
 
 
 
-10-
 
The Financial Accounting Standards Board (“FASB”) has issued converged standards on revenue recognition. Specifically, the Board has issued ASU 2014-09, ASC Topic 606 (“ASU 2014-09”). ASU 2014-09 affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). ASU 2014-09 will supersede the revenue recognition requirements in ASC Topic 605, Revenue Recognition (“ASC Topic 605”), and most industry-specific guidance. ASU 2014-09 also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of non-financial assets that are not in a contract with a customer (e.g., assets within the scope of ASC Topic 360, Property, Plant, and Equipment, (“ASC Topic 360”), and intangible assets within the scope of Topic 350, Intangibles—Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in ASU 2014-09. For a public entity, the amendments in ASU 2014-09 would be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. However, ASU 2015-14 ASC Topic 606: Deferral of the Effective Date (“ASC Topic 606”) defers the effective date of ASU 2014-09 for all entities by one year. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company has not adopted these standards. As the new standards, will supersede substantially all existing revenue guidance affecting the Company under GAAP, it could impact revenue and cost recognition on sales across all the Company's business segments. The Company carried out an initial evaluation of the impact of this standard on its business and concluded the adoption of this standard will have no effect on its Consolidated Financial Statements. While we are continuing to assess all potential impacts, the Company has not presently selected a transition method as we believe there will not be any significant impact of this new guidance on the Company.
 
Other new pronouncements issued but not yet effective until after March 31, 2018 are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
 
3.   TERM DEPOSITS
 
 
 
Mar. 31,
2018
(Unaudited)
 
 
June 30,
2017
 
 
 
 
 
 
 
 
Short-term deposits
 $602 
 $824 
Currency translation effect on short-term deposits
  76 
  (37)
Total short-term deposits
  678 
  787 
Restricted term deposits
  1,662 
  1,722 
Currency translation effect on restricted term deposits
  99 
  (65)
Total restricted term deposits
  1,761 
  1,657 
Total Term deposits
 $2,439 
 $2,444 
 
Restricted term 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 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 that 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 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 potentially will 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 believes the allowance for doubtful accounts as of March 31, 2018, and June 30, 2017 was adequate.  
 
 
 
 
-11-
 
The following table represents the changes in the allowance for doubtful accounts:
 
 
 
Mar. 31,
 2018
(Unaudited)
 
 
June 30,
 2017
 
Beginning
 $247 
 $270 
Additions charged to expenses
  - 
  65 
Recovered
  (1)
  (78)
Write-off
  - 
  (2)
Currency translation effect
  16 
  (8)
Ending
 $262 
 $247 
 
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, 2018. 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 at March 31, 2018.
 
 
 
Loan Expiry
Date
 
 
Loan Amount
(RMB)
 
 
Loan Amount
(U.S. Dollars)
 
Short-term loan receivables
 
 
 
 
 
 
 
JiangHuai (Project – Yu Jin Jiang An)
May 31, 2013
  2,000 
  325 
Less: allowance for doubtful receivables
 
  (2,000)
  (325)
Net loan receivables from property development projects
 
  - 
  - 
 
    
    
Long-term loan receivables
 
    
    
Jun Zhou Zhi Ye
Oct 31, 2016
  5,000 
  814 
Less: transfer – down-payment for purchase of investment property
 
  (5,000)
  (814)
Net loan receivables from property development projects
 
  - 
  - 
 
The following table presents TTCQ’s loan receivable from property development projects in China as of June 30, 2017. 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 at June 30, 2017.
 
 
 
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, 2018, or for the fiscal year ended June 30, 2017. 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. TTCQ is in the legal process of recovering the outstanding amount of $325.
 
 
 
-12-
 
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 down payment for purchase of investment property that is being developed in the Singapore Themed Resort Project (see Note 8).
 
6.  INVENTORIES
 
Inventories consisted of the following:
 
 
 
Mar. 31,
 2018
 (Unaudited)
 
 
June 30,
 2017
 
 
 
 
 
 
 
 
Raw materials
 $1,293 
 $1,047 
Work in progress
  1,294 
  1,045 
Finished goods
  362 
  365 
Less: provision for obsolete inventories
  (706)
  (686)
Currency translation effect
  126 
  (15)
 
 $2,369 
 $1,756 
 
 The following table represents the changes in provision for obsolete inventories:
 
 
 
 
 
Mar. 31,
2018
(Unaudited)
 
 
June 30,
2017
 
 
 
 
 
 
 
 
Beginning
 $686 
 $697 
Additions charged to expenses
  - 
  6 
Usage - disposition
  (4)
  (6)
Currency translation effect
  24 
  (11)
Ending
 $706 
 $686 
 
7. ASSET HELD FOR SALE
 
During the fourth quarter of 2015, the operations in Malaysia planned to sell its factory building in Penang, Malaysia. In May 2015, Trio-Tech Malaysia was approached by a potential buyer to purchase the factory building. Negotiation is still ongoing and is subject to approval by Penang Development Corporation. 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 $92, to asset held for sale, since there was an intention to sell the factory building. The net book values of the building were RM 371, or approximately $96, as at March 31, 2018 and RM 371, or approximately $86, as at June 30, 2017. As at end of March 31, 2018, management is still actively looking for a suitable buyer.
 
 
 
 
-13-
 
8. INVESTMENTS
 
Investments were nil as at March 31, 2018 and June 30, 2017.
 
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 based on the exchange rate as of March 31, 2014, published by the Monetary Authority of Singapore, 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 agreement stipulated that the Company would nominate two of the five members of the Board of Directors of the joint venture and had the ability to assign two members of management to the joint venture. The agreement also stipulated that the Company would receive a fee of RMB 10,000, or approximately $1,606 based on the exchange rate as of March 31, 2014, published by the Monetary Authority of Singapore, 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 based on the exchange rate published by the Monetary Authority of Singapore as of March 31, 2014. 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 based on the exchange rate as of March 31, 2014, published by the Monetary Authority of Singapore, received in cash from JiaSheng, the controlling venturer in the joint venture, as a partial return of the Company’s initial investment of RMB10,000, or approximately $1,606 based on the exchange rate as of March 31, 2014, published by the Monetary Authority of Singapore. Therefore, the RMB 5,000 received in cash was offset against the initial investment of RMB 10,000, 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 based on exchange rates published by the Monetary Authority of Singapore as of March 31, 2014.
 
“Investments” in the real estate segment were the cost of an investment in a joint venture in which we had a 10% interest. During the second quarter of fiscal year 2014, TTCQ disposed of its 10% interest in the joint venture. The joint venture had to raise funds for the development of the project. As a joint-venture partner, TTCQ was required to stand guarantee for the funds to be borrowed; considering the amount of borrowing, the risk involved was higher than the investment made and hence TTCQ decided to dispose of the 10% interest in the joint venture investment. On October 2, 2013, TTCQ entered into a 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 based on exchange rates published by the Monetary Authority of Singapore as of October 2, 2013, by non-monetary consideration and (2) the remaining RMB 8,000, or approximately $1,307 based on exchange rates published by the Monetary Authority of Singapore as of October 2, 2013, by cash consideration. The consideration consisted of (1) commercial units measuring 668 square meters to be delivered in June 2017 and (2) sixteen quarterly equal installments of RMB500 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. TTCQ performed a valuation on a certain commercial unit and its market value was higher than the carrying amount. The first three installments, amounting 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 had received RMB 100 during May 2014.
 
 
 
 
-14-
 
On October 14, 2014, TTCQ and Jun Zhou Zhi Ye entered into a memorandum of understanding. Based on the memorandum of understanding, both parties have 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 subsequent discussions with the developer and the overall China market outlook, the completion date is currently estimated to be December 31, 2019.
 
The share transfer (10% interest in the joint venture) was registered with the relevant authorities in China as of end October 2016.
 
9.   INVESTMENT PROPERTIES
 
The following table presents the Company’s investment in properties in China as of March 31, 2018. The exchange rate is based on the market exchange rate as of March 31, 2018.
 
 
 
Investment Date
 
 
Investment
Amount
(RMB)
 
 
Investment Amount
(U.S. Dollars)
 
Purchase of rental property – Property I - MaoYe
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
 
  - 
  (28)
Gross investment in rental property
 
  13,179 
  2,094 
Accumulated depreciation on rental property
  Mar 31, 2018
  (5,431)
  (863)
Net investment in property – China
 
  7,748 
  1,231 
 
 
 
 
-15-
 
The following table presents the Company’s investment in properties in China as of June 30, 2017. The exchange rate is based on the exchange rate as of June 30, 2017, published by the Monetary Authority of Singapore.
 
 
 
Investment Date
 
 
Investment
Amount
(RMB)
 
 
Investment Amount
(U.S. Dollars)
 
Purchase of rental property – Property I - MaoYe
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
 
  - 
  (178)
Gross investment in rental property
 
  13,179 
  1,944 
Accumulated depreciation on rental property
  Jun 30, 2017
  (4,937)
  (728)
Net investment in property – China
 
  8,242 
  1,216 
 
The following table presents the Company’s investment properties in Malaysia as of March 31, 2018 and June 30, 2017. 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
(RM)
 
 
Investment Amount
(U.S. Dollars)
 
Reclassification of rental property – Penang Property I
Dec 31, 2012
  681 
  181 
Gross investment in rental property
 
  681 
  181 
Accumulated depreciation on rental property
  June 30, 2015
  (310)
  (83)
Reclassified as “Asset held for sale”
 June 30, 2015
  (371)
  (98)
Net investment in property – Malaysia
 
  - 
  - 
 
Rental Property I – MaoYe
 
In fiscal 2008, TTCQ purchased an office in Chongqing, China from MaoYe Property Ltd. (“MaoYe”), for a total cash purchase price of RMB 5,554, or approximately $894. TTCQ identified a new tenant and signed a new rental agreement (653 square meters at a monthly rental of RMB 39, or approximately $6) on August 1, 2015. This rental agreement provides for a rent increase of 5% every year on January 31, commencing with 2017 until the rental agreement expires on July 31, 2020. The tenant terminated the contract in end July 2015, due to the downsizing of their overall operations. TTCQ signed a new rental agreement (451 square meters at a monthly rental of RMB 27, or approximately $4) on January 29, 2016. This rental agreement provides for a rent increase of 5% every year on January 29, commencing with 2017 until the rental agreement expires on February 28, 2019.
 
Property purchased from MaoYe generated a rental income of $22 and $75 for the three and nine months ended March 31, 2018, respectively, and $24 and $76 for the same periods in the last fiscal year, 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 rented all of these commercial units to a third party until the agreement expired in January 2012. TTCQ then rented three of the eight commercial units to another party during the fourth quarter of fiscal year 2013 under a rental agreement that expired on March 31, 2014. Currently all the units are 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. In August 2016, TTCQ performed a valuation on one of the commercial units and its market value was higher than the carrying amount.
 
Property purchased from JiangHuai did not generate any rental income during the three and nine months ended March 31, 2018 and for the same periods in the last fiscal year.
 
 

 
 
-16-
 
Other Properties III – Fu Li
 
In fiscal 2010, TTCQ entered into a Memorandum of 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. 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 $649. The development was completed and the property was handed over during 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 which will expire in April 2019 which provides for a rent increase of 5% every year on May 1, commencing with 2017 until the rental agreement expires on April 30, 2019 and the other of which will expire in March 31, 2018 which provides for a rent increase of 5% every year on April 1, commencing with 2016 until the rental agreement will expire on March 31, 2018. Management is actively looking for a suitable tenant.
 
Properties purchased from Fu Li generated a rental income of $12 and $35 for the three and nine months ended March 31, 2018, respectively, while it generated a rental income of $13 and $39, respectively, for the same periods in the last fiscal year.
 
Penang Property I
 
During the fourth quarter of 2015, TTM planned to sell its factory building in Penang, Malaysia. In accordance to ASC Topic 360, 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, TTM 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 based on the business activity of the purchaser not suitable to the industry that is being promoted on the 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. However, management is still actively looking for a suitable buyer. As of March 31, 2018 the net book value was RM 369, or approximately $96.
 
Summary
 
Total rental income for all investment properties in China was $34 and $110 for the three and nine months ended March 31, 2018, respectively, and was $37 and $115, respectively, for the same periods in the last fiscal year.
 
Depreciation expenses for all investment properties in China were $25 and $74 for the three and nine months ended March 31, 2018, respectively, and were $24 and $71, respectively, for the same periods in the last fiscal year.
 
10. OTHER ASSETS
 
Other assets consisted of the following:
 
 
 
Mar. 31, 2018
(Unaudited)
 
 
June 30, 2017
 
 
Down-payment for purchase of investment properties
 $1,645 
 $1,645 
Down-payment for purchase of property, plant and equipment
  515 
  280 
Deposits for rental and utilities
  140 
  139 
Currency translation effect
  15 
  (142)
Total
 $2,315 
 $1,922 
 
 
 
 
 
 
-17-
 
11. LINES OF CREDIT
 
The 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.
 
As of March 31, 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 1.8% to 5.5%
  - 
 $4,730 
 $4,390 
Trio-Tech (Malaysia) Sdn. Bhd.
Lines of Credit
Ranging from 3.6% to 5%
  - 
 $816 
 $816 
Trio-Tech (Tianjin) Co., Ltd. 
Lines of Credit
Ranging from 4.9% to 6.3% 
  - 
 $1,589 
 $618 
 
 
As of June 30, 2017, 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%
  -
 
 $4,496 
 $2,815 
Trio-Tech (Malaysia) Sdn. Bhd.
Lines of Credit
Ranging from 3.6% to 5%
  -
 
 $734 
 $734 
Trio-Tech (Tianjin) Co., Ltd.
Lines of Credit
5.22%
  - 
 $885 
 $10 
 
12. ACCRUED EXPENSES
 
Accrued expenses consisted of the following:
 
 
 
Mar. 31, 2018
(Unaudited)
 
 
 
June 30, 2017
 
Payroll and related costs
 $1,292 
 $1,568 
Commissions
  125 
  107 
Customer deposits
  620 
  218 
Legal and audit
  327 
  283 
Sales tax
  10 
  80 
Utilities
  127 
  142 
Warranty
  49 
  49 
Accrued purchase of materials and property, plant and equipment
  1,305 
  33 
Provision for re-instatement
  289 
  295 
Other accrued expenses
  280 
  319 
Currency translation effect
  224 
  (51)
Total
 $4,648 
 $3,043 
 
 
 
 
 
-18-
 
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,
 2018
(Unaudited)
 
 
June 30,
 2017
 
Beginning
 $48 
 $76 
Additions charged to cost and expenses
  19 
  46 
Utilization / reversal
  (18)
  (73)
Currency translation effect
  1 
  (1)
Ending
 $50 
 $48 
 
14.   BANK LOANS PAYABLE
  
Bank loans payable consisted of the following:
 
Mar. 31, 2018
(Unaudited)
 
 
June 30, 2017
 
Note payable denominated in RM for expansion plans in Malaysia, maturing in August 2024, bearing interest at the bank’s prime rate less 1.50% (5% and 5.25% at March 31, 2018 and June 30, 2017) per annum, with monthly payments of principal plus interest through August 2024, collateralized by the acquired building with a carrying value of $2,931 and 2,671, as at March 31, 2018 and June 30, 2017, respectively.
  1,805 
  1,735 
 
    
    
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% and 3.96% for March 31, 2018 and June 30, 2017) with monthly payments of principal plus interest through June 2020. This note payable is secured by plant and equipment with a carrying value of $219 and $224, as at March 31, 2018 and June 30, 2017, respectively.
  342 
  196 
 
    
    
Total Bank loans payable
  2,147 
  1,931 
 
    
    
Current portion of bank loans payable
  399 
  271 
Currency translation effect on current portion of bank loans
  (23)
  (11)
                              Current portion of bank loan payable
  376 
  260 
Long term portion of bank loans payable
  1,748 
  1,660 
Currency translation effect on long-term portion of bank loans
  (155)
  (108)
                           Long term portion of bank loans payable
 $1,593 
 $1,552 
 
Future minimum payments (excluding interest) as at March 31, 2018 were as follows: 
 
2018
 $376 
2019
  393 
2020
  277 
2021
  262 
2022
  67 
Thereafter
 594 
Total obligations and commitments
 $1,969 
 
Future minimum payments (excluding interest) as at June 30, 2017 were as follows: 
 
2018
 $260 
2019
  273 
2020
  274 
2021
  225 
2022
  236 
Thereafter
  544 
Total obligations and commitments
 $1,812 
 
 
 
 
-19-
 
15.   COMMITMENTS AND CONTINGENCIES
 
TTM has capital commitments for the purchase of equipment and other related infrastructure costs amounting to RM 99, or approximately $26, based on the exchange rate as at March 31, 2018 as compared to the capital commitment as at June 30, 2017 amounting to RM 684, or approximately $159.
 
Trio-Tech (Tianjin) Co. Ltd. in China has capital commitments for the purchase of equipment and other related infrastructure costs amounting to RMB 274, or approximately $44, based on the exchange rate as at March 31, 2018 as compared to the capital commitment as at June 30, 2017 amounting to RMB 1,260, or approximately $186.
 
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 2018, 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 on the basis of 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 $85 and $766 for the three and nine months ended March 31, 2018, respectively, as compared to $20 and $302, respectively, 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.
 
 
-20-
 
 
The following segment information is unaudited for the nine months ended March 31:
 
 
Business Segment Information: 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months
 
 
 
 
 
Operating
 
 
 
 
 
Depr.
 
 
 
 
 
 
 
 
Ended
 
 
Net
 
 
Income /
 
 
Total
 
 
and
 
 
Capital
 
 
 
 
 
Mar. 31
 
 
Revenue
 
 
(Loss)
 
 
Assets
 
 
Amort.
 
 
Expenditures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Manufacturing
 
2018
 
 $11,862 
 $188 
 $7,035 
 $86 
 $63
     
2017 
 $11,221 
 $(153)
 $8,321 
 $141 
 $89 
    
    
    
    
    
    
    
 
Testing Services
 
2018 
  14,454 
  1,281 
  24,790 
  1,432 
  1,987 
    
2017 
  12,204 
  990 
  18,814 
  1,141 
  1,378 
    
     
    
    
    
    
    
 
Distribution
 
2018 
  5,175 
  337 
  631 
  - 
  - 
     
2017 
  4,360 
  235 
  679 
  2 
  - 
    
     
    
    
    
    
    
 
Real Estate
 
2018 
  110 
  (38)
  3,732 
  76 
  - 
     
2017 
  115 
  (20)
  3,229 
  74 
  - 
    
     
    
    
    
    
    
 
Fabrication 
 
2018 
  - 
  - 
  28 
  - 
  - 
 
Services*
 
2017 
  - 
  - 
  28 
  - 
  - 
    
     
    
    
    
    
    
 
Corporate &
 
2018 
  - 
  (289)
  172 
  - 
  - 
 
Unallocated
 
2017 
  - 
  88 
  464 
  - 
  - 
    
     
    
    
    
    
    
 
Total
 
2018 
 $31,601 
 $1,479 
 $36,388 
 $1,594 
 $2,050 
     
2017 
 $27,900 
 $1,140 
 $31,535 
 $1,358 
 $1,467 
 
 
 
 
 
-21-
 
The following segment information is unaudited for the three months ended March 31:
 
 
Business Segment Information: 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months
 
 
 
 
 
Operating
 
 
 
 
 
Depr.
 
 
 
 
 
 
 
 
Ended
 
 
Net
 
 
Income /
 
 
Total
 
 
and
 
 
Capital
 
 
 
 
 
Mar. 31
 
 
Revenue
 
 
(Loss)
 
 
Assets
 
 
Amort.
 
 
Expenditures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Manufacturing
 
  
2018
 $3,124 
 $(105)
 $7,035 
 $30 
 $26 
     
  2017 
 $4,230 
 $169 
 $8,321 
 $42 
 $11 
    
    
    
    
    
    
    
 
Testing Services
 
  2018 
  4,913 
  428 
  24,790 
  519 
  517 
     
  2017 
  3,977 
  200 
  18,814 
  376 
  692 
    
     
    
    
    
    
    
 
Distribution
 
  2018 
  2,033 
  117 
  631 
  - 
  - 
     
  2017 
  1,581 
  101 
  679 
  - 
  - 
    
     
    
    
    
    
    
 
Real Estate
 
  2018 
  34 
  (18)
  3,732
  26 
  - 
     
  2017 
  37 
  (14)
  3,229 
  24 
  - 
    
     
    
    
    
    
    
 
Fabrication 
 
  2018 
  - 
  - 
  28 
  - 
  - 
 
Services*
 
  2017 
  - 
  - 
  28 
  - 
  - 
    
     
    
    
    
    
    
 
Corporate &
 
  2018 
  - 
  (188)
  172 
  - 
  - 
 
Unallocated
 
  2017 
  - 
  29 
  464 
  - 
  - 
    
     
    
    
    
    
    
 
Total
 
  2018 
 $10,104 
 $234 
 $36,388
 $575 
 $543 
     
  2017 
 $9,825 
 $485 
 $31,535 
 $442 
 $703 
 
 * Fabrication services is a discontinued operation (Note 19).
 
17. OTHER INCOME, NET
 
Other income / (expenses) consisted of the following:
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
Mar. 31,
 
 
Mar. 31,
 
 
Mar. 31,
 
 
Mar. 31,
 
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
 
 
Unaudited
 
 
Unaudited
 
 
Unaudited
 
 
Unaudited
 
Interest income
  19 
  14 
  39 
  26 
Other rental income
  28 
  24 
  81 
  74 
Exchange (loss)/ gain
  (5)
  (88)
  (27)
  93 
Other miscellaneous income
  69 
  95 
  218 
  165 
      Total
 $111 
 $45 
 $311 
 $358 
 
 

 
 
-22-
 
18.  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 2017 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 reduced the U.S. federal corporate tax rate from 35% to 21%, eliminated corporate Alternative Minimum Tax, modified rules for expensing capital investment, and limits the deduction of interest expense for certain companies. The Tax 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.
 
As the Company has a June 30 fiscal year end, the lower corporate income tax rate will be phased in, resulting in a lower US statutory federal rate. Accounting Standard Codification (“ASC”) 740 requires filers to record the effect of tax law changes in the period enacted. The Company recognized income tax expenses of $900 related to the one-time deemed repatriation. No expenses have been recognized related to the deferred tax re-measurement and minimum tax on low tax foreign earnings.
 
Discussion of the certain material provisions affecting the Company is provided below.
 
One-Time Mandatory Repatriation
 
One of the effects of the Tax Act is to transition from world wide to territorial tax system, The Tax Act requires a mandatory one-time repatriation of certain post-1986 earnings and profits that were deferred from US taxation by Company’s foreign subsidiaries. The Company recognized an income tax expense and payable of $900 for the three and nine months ended March 31, 2018. The basis of the tax is on cash held and specified assets which are taxed at 15.5% and 8.0%, respectively. The Company may elect to pay the repatriation tax over an 8-year period.
 
The computation of the post-1986 earning and profits used estimates and are preliminary amounts which will be finalized during the measurement period.
 
Minimum Tax on Low Tax Foreign Earnings
 
The Tax Act implemented the inclusion in gross income for the “global intangible low-tax income” for any taxable year beginning on or after January 1, 2018. This provision significantly expands current taxation of foreign subsidiary corporate earnings. The Company must generally include in current income all earnings of the foreign subsidiaries in excess of the assumed deemed return on tangible assets of the foreign subsidiaries. The Company has not computed the impact of the provisions to determine whether to elect to either provide for the minimum tax as future income tax expense as a period expense or as a deferred tax on the related investment in foreign subsidiaries.
 
Deferred Tax Re-Measurement
 
The re-measurement is based on the expected reversals of the deferred taxes at the estimated US federal tax rates of 28% for current fiscal year and 21% for future fiscal years. As the Company established a full valuation allowance on the US deferred tax assets, the Company has not recognized any income tax effects for the deferred tax re-measurement under the Tax Act.
 
Effective Tax Rate Effects
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
Mar. 31,
 
 
Mar. 31,
 
 
Mar. 31,
 
 
Mar. 31,
 
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
 
 
Unaudited
 
 
Unaudited
 
 
Unaudited
 
 
Unaudited
 
Income before Income Taxes
 $281 
 $487 
 $1,616 
 $1,349 
Income Taxes Expenses
 $980 
 $106 
 $1,035 
 $256 
Effective tax rate
  348.75%
  21.77%
  64%
  18.98%
 
 
 
 
-23-
 
The Act impacted the Company’s effective tax rate which recorded at 348.75% for fiscal 2018 compared to 21.77% for fiscal 2017. This tax effects were primarily due to estimated charge of $900 recorded as a component of provision for income taxes from continuing operations.
 
The Company had an income tax expense of $980 and $1,035 for the three and nine months ended March 31, 2018, respectively, as compared to income tax expense of $106 and $256, respectively, for the same periods in the last fiscal year. The increase in income tax expenses was mainly due to higher incomes generated by the subsidiaries which has carry forward tax losses which was partially offset by increase in deferred tax for timing differences recorded by Singapore and Malaysia operation. The income tax expenses included withholding tax held by related companies that were not recoverable from the Inland Revenue Board in Singapore.
 
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 not accrued any penalties or interest expenses relating to unrecognized benefits at March 31, 2018 and June 30, 2017.
 
As per the Staff Accounting Bulletin No. 118 (“SAB 118”) issued by SEC “no related provisional amount would be included in an entity’s financial statements for those specific income tax effects for which a reasonable estimate cannot be determined”. Based on the SAB 118 guidance, the company did not provide for tax payable in Q2 of the financial year 2018 as it was unable to determine a reasonable estimate to be included as provisional amounts.
 
19.   DISCONTINUED OPERATION AND CORRESPONDING RESTRUCTURING PLAN
 
The Company’s Indonesia operation and the Indonesia operation’s immediate holding company, which comprise the fabrication services segment, suffered continued operating losses from fiscal year 2010 to 2014, and the cash flow was minimal from fiscal year 2009 to 2014. The Company established a restructuring plan to close the fabrication services operation, and in accordance with ASC Topic 205, Presentation of Financial Statement Discontinued Operations (“ASC Topic 205”), from fiscal year 2015 onwards, the Company presented the operation results from fabrication services as a discontinued operation as the Company believed that no continued cash flow would be generated by the discontinued component and that the Company would have no significant continuing involvement in the operations of the discontinued component.
 
In accordance with the restructuring plan, the Company’s Indonesia operation is negotiating with its suppliers to settle the outstanding balance of accounts payable of $58 and has no collection for accounts receivable. The Company’s fabrication operation in Batam, Indonesia is in the process of winding up the operations. The Company anticipates that it may incur costs and expenses when the winding up of the subsidiary in Indonesia takes place. Management has assessed the costs and expenses to be immaterial, thus no accrual has been made.
 
The discontinued operations in Indonesia did not incur general and administrative expenses for either the three or nine months ended March 31, 2018 and 2017. The Company anticipates that it may incur additional costs and expenses when the winding up of the business of the subsidiary through which the facilities operated takes place. Management has assessed the costs and expenses to be immaterial, thus no accrual has been made.
 
Loss from discontinued operations was as follows:
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
Mar. 31, 2018
 
 
Mar. 31, 2017
 
 
Mar. 31, 2018
 
 
Mar. 31, 2017
 
 
 
Unaudited
 
 
Unaudited
 
 
Unaudited
 
 
Unaudited
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 $- 
 $- 
 $- 
 $- 
Cost of sales
  - 
  - 
  - 
  - 
Gross margin
  - 
  - 
  - 
  - 
 
    
    
    
    
Operating expenses:
    
    
    
    
General and administrative
  - 
  - 
  - 
  1 
      Total
  - 
  - 
  - 
  1 
 
    
    
    
    
Other expenses
  (3)
  - 
  (5)
  (3)
 
    
    
    
    
Loss from discontinued operations
  (3)
  - 
  (5)
  (1)
 
    
    
    
    
Less: Loss attributable to Non-controlling interest
  (3)
  (1)
  (6)
  - 
 
    
    
    
    
Loss from discontinued operations
 $(6)
 $(1)
 $(11)
 $(4)
 
The Company does not provide a separate cash flow statement for the discontinued operation, as the impact of the discontinued operation was immaterial.
 
 
 
-24-
 
20.   EARNINGS PER SHARE
 
The Company adopted ASC Topic 260, Earnings Per Share. Basic earnings per share (“EPS”) are 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.
 
The following table is a reconciliation of the weighted average shares used in the computation of basic and diluted EPS for the years presented herein: 
 
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
Mar. 31,
 
 
Mar. 31,
 
 
Mar. 31,
 
 
Mar. 31,
 
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
 
 
(Unaudited)
 
 
(Unaudited)
 
 
(Unaudited)
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income attributable to Trio-Tech International common shareholders from continuing operations, net of tax
 $(736)
  351 
  520 
  970 
Loss attributable to Trio-Tech International common shareholders from discontinued operations, net of tax
  (3)
  (1)
  (11)
  (7)
Net Income Attributable to Trio-Tech International Common Shareholders
 $(739)
  350 
  509 
  963 
 
    
    
    
    
Weighted average number of common shares outstanding - basic
  3,553 
  3,523 
  3,553 
  3,523 
 
    
    
    
    
Dilutive effect of stock options
  219 
  116 
  225 
  54 
Number of shares used to compute earnings per share - diluted
  3,772 
  3,639 
  3,778 
  3,577 
 
    
    
    
    
Basic earnings per share from continuing operations attributable to Trio-Tech International
 $(0.21)
  0.10 
  0.15 
  0.28 
Basic earnings per share from discontinued operations attributable to Trio-Tech International
  - 
  - 
  - 
  - 
Basic earnings per share from net income attributable to Trio-Tech International
 $(0.21)
 $0.10 
 $0.15 
 $0.28 
 
    
    
    
    
Diluted earnings per share from continuing operations attributable to Trio-Tech International
 $(0.20)
  0.10 
  0.14 
  0.27 
Diluted earnings per share from discontinued operations attributable to Trio-Tech International
  - 
  - 
  - 
    
Diluted earnings per share from net income attributable to Trio-Tech International
 $(0.20)
 $0.10 
 $0.14 
 $0.27 
 
21.  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 by the Board in 2010 to increase the number of shares covered thereby, which amendments were approved by the shareholders on December 14, 2010. The Board also amended the 2007 Directors Plan in November 2013 to further increase the number of shares covered thereby from 400,000 shares to 500,000 shares, which amendment was approved by the shareholders on December 9, 2013. These two plans are administered by the Board, which also establishes the terms of the awards.
 
 
 
 
-25-
 
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. At present, the 2017 Employee Plan provides for awards of up to 300,000 shares of the Company’s Common Stock to its employees, consultants and advisors. At present, the 2017 Directors Plan provides for awards of up to 300,000 shares of the Company’s Common Stock to the members of the Company’s Board of Directors in the form of non-qualified options and restricted stock. These two plans are administered by the Board, which also establishes the terms of the awards.
 
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: 
 
 
Nine Months Ended
 
March 31,
 
 
2018 
 
 
  2017
 
Expected volatility
 
47.29% to 104.94%
 
 
47.29% to 104.94%
 
Risk-free interest rate
 
0.30% to 1.05%
 
 
0.30% to 1.05%
 
Expected life (years)
  2.50 – 3.25 
  2.50 – 3.25 
 
The expected volatilities are based on the historical volatility of the Company’s stock. Due to higher volatility, the observation is made on a daily basis. 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).
 
On March 23, 2018, the Company granted options to purchase 60,000 shares of its Common Stock to employee directors pursuant to the 2017 Employee Plan during the nine month ended March 31, 2018. The Company recognized stock-based compensation expenses of $4 in the nine months ended March 31, 2018 under the 2017 Employee Plan. The balance of unamortized stock-based compensation of $11 based on fair value on the grant date related to options granted under the 2017 Employee Plan is to be recognized over a period of three years. No stock options were exercised during the three and nine months ended March 31, 2017.
 
As of March 31, 2018, there were vested employee stock options covering a total of 15,000 shares of Common Stock. The weighted-average exercise price was $5.98 and the weighted average contractual term was 4.98 years. The total fair value of vested employee stock options was $90 and remains outstanding as of March 31, 2018.
 
 
 
 
-26-
 
A summary of option activities under the 2017 Employee Plan during the Nine-month period ended March 31, 2018 is presented as follows:
 
 
 
Options
 
 
Weighted Average
Exercise
Price
 
 
Weighted Average Remaining
Contractual
Term (Years)
 
 
Aggregate
Intrinsic
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at July 1, 2017
  - 
 $- 
  - 
 $- 
Granted
  60,000 
  5.98 
  4.98 
  - 
Exercised
  - 
  - 
  - 
  - 
Forfeited or expired
  - 
  - 
  - 
  - 
Outstanding at March 31, 2018
  60,000 
  5.98 
  4.98 
  - 
Exercisable at March 31, 2018
  60,000 
  5.98 
  4.98 
  - 
 
A summary of the status of the Company’s non-vested employee stock options during the nine months ended March 31, 2018 is presented below: 
 
 
 
Options
 
 
Weighted Average Grant-Date
Fair Value
 
 
 
 
 
 
 
 
Non-vested at July 1, 2017
  - 
 $- 
Granted
  60,000 
  5.98 
Vested
  (15,000)
  5.98 
Forfeited
  - 
  - 
Non-vested at March 31, 2018
  45,000 
 $3.83 
 
2007 Employee Stock Option Plan
 
The Company’s 2007 Employee Plan terminated by its terms on September 24, 2017 and no further options may be granted thereunder. However, the options outstanding thereunder continue to remain outstanding and in effect in accordance with their terms. The Employee Plan permitted the grant of stock options to its employees covering up to an aggregate of 600,000 shares of Common Stock. Under the 2007 Employee Plan, all options were required to be granted with an exercise price of not less than fair value as of the grant date and the options granted were required to 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 were permitted to 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 2007 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 2007 Employee Plan).
 
The Company did not grant any options pursuant to the 2007 Employee Plan during the nine months ended March 31, 2018. There were no options exercised during the nine months ended March 31, 2018. The Company recognized stock-based compensation expenses of $3 in the nine months ended March 31, 2018 under the 2007 Employee Plan. The balance unamortized stock-based compensation of $2 based on fair value on the grant date related to options granted under the 2007 Employee Plan is to be recognized over a period of three years.
 
On March 30, 2017, the Company granted options to purchase 37,500 shares of its Common Stock to employee directors pursuant to the 2007 Employee Plan during the nine months ended March 31, 2017. The Company recognized stock-based compensation expenses of $4 in the nine months ended March 31, 2017 under the 2007 Employee Plan. The balance of unamortized stock-based compensation of $6 based on fair value on the grant date related to options granted under the 2007 Employee Plan is to be recognized over a period of three years. No stock options were exercised during the three and nine months ended March 31, 2017.
 
 
 
 
-27-
 
As of March 31, 2018, there were vested employee stock options covering a total of 98,750 shares of Common Stock. The weighted-average exercise price was $3.43 and the weighted average contractual term was 1.98 years.
 
As of March 31, 2017, there were vested employee stock options covering a total of 79,375 shares of Common Stock. The weighted-average exercise price was $3.36 and the weighted average contractual term was 2.61 years.
 
A summary of option activities under the 2007 Employee Plan during the Nine-month period ended March 31, 2018 is presented as follows:
 
 
 
Options
 
 
Weighted Average
Exercise
Price
 
 
Weighted Average Remaining
Contractual
Term (Years)
 
 
Aggregate
Intrinsic
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at July 1, 2017
  127,500 
 $3.52 
  3.10 
 $187 
Granted
  - 
  - 
  - 
  - 
Exercised
  - 
  - 
  - 
  - 
Forfeited or expired
  - 
  - 
  - 
  - 
Outstanding at March 31, 2018
  127,500 
  3.52 
  2.35 
  285 
Exercisable at March 31, 2018
  98,750 
  3.43 
  1.98 
  230 
 
A summary of option activities under the 2007 Employee Plan during the Nine-month period ended March 31, 2017 is presented as follows:
 
 
 
Options
 
 
Weighted Average
Exercise
Price
 
 
Weighted Average Remaining
Contractual
Term (Years)
 
 
Aggregate
Intrinsic
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at July 1, 2016
  90,000 
 $3.26 
  3.42 
 $30 
Granted
  37,500 
  4.14 
  5.00 
  - 
Exercised
  - 
  - 
  - 
  - 
Forfeited or expired
  - 
  - 
  - 
  - 
Outstanding at March 31, 2017
  127,500 
 $3.52 
  3.35 
 $79 
Exercisable at March 31, 2017
  79,375 
 $3.36 
  2.61 
 $62 
 
A summary of the status of the Company’s non-vested employee stock options during the nine months ended March 31, 2018 is presented below: 
 
 
 
Options
 
 
Weighted Average Grant-Date
Fair Value
 
 
 
 
 
 
 
 
Non-vested at July 1, 2017
  48,125 
 $3.77 
Granted
  - 
  - 
Vested
  (19,375)
  (3.43)
Forfeited
  - 
  - 
Non-vested at March 31, 2018
  28,750 
 $3.83 
 
 
 
-28-
 
A summary of the status of the Company’s non-vested employee stock options during the nine months ended March 31, 2017 is presented below: 
 
 
 
Options
 
 
Weighted Average Grant-Date
Fair Value
 
 
 
 
 
 
 
 
Non-vested at July 1, 2016
  38,750 
 $3.22 
Granted
  37,500 
  4.14 
Vested
  (28,125)
  (3.19)
Forfeited
  - 
  - 
Non-vested at March 31, 2017
  48,125 
 $3.77 
 
2017 Directors Equity Incentive Plan
 
The 2017 Directors Plan permits the grant of options covering up to an aggregate of 300,000 shares of Common Stock to its directors in the form of non-qualified options and restricted stock. The exercise price of the non-qualified options is 100% of the fair value of the underlying shares on the grant date. The options have five-year contractual terms and are generally exercisable immediately as of the grant date.
 
On March 23, 2018, the Company granted options to purchase 80,000 shares of its Common Stock to directors pursuant to the 2017 Directors Plan with an exercise price equal to the fair market value of Common Stock (as defined under the 2017 Directors Plan in conformity with Regulation 409A or the Internal Revenue Code of 1986, as amended) at the date of grant. The fair value of the options granted to purchase 80,000 shares of the Company’s Common Stock was approximately $478 based on the fair value of $5.98 per share determined by the Black Scholes option pricing model. As all of the stock options granted under the 2017 Directors Plan vest immediately at the date of grant, there were no unvested stock options granted under the 2017 Directors Plan as of March 31, 2018. The Company recognized stock-based compensation expenses of $33 in the nine months ended March 31, 2018 under the 2017 Directors Plan.
 
A summary of option activities under the 2017 Directors Plan during the nine months ended March 31, 2018 is presented as follows: 
 
 
 
Options
 
 
Weighted Average
Exercise
Price
 
 
Weighted Average Remaining
Contractual
Term (Years)
 
 
Aggregate
Intrinsic
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at July 1, 2017
  - 
 $- 
  - 
 $- 
Granted
  80,000 
  5.98 
  4.98 
  - 
Exercised
  - 
  - 
  - 
  - 
Forfeited or expired
  - 
  - 
  - 
  - 
Outstanding at March 31, 2018
  80,000 
  5.98 
  4.98 
  - 
Exercisable at March 31, 2018
  80,000 
  5.98 
  4.98 
  - 
 
2007 Directors Equity Incentive Plan
 
The 2007 Directors Plan terminated by its terms on September 24, 2017 and no further options may be granted thereunder. However, the options outstanding thereunder continue to remain outstanding and in effect in accordance with their terms. The Director Plan permitted the grant of options covering up to an aggregate of 500,000 shares of Common Stock to its directors in the form of non-qualified options and restricted stock. The exercise price of the non-qualified options is 100% of the fair value of the underlying shares on the grant date. The options have five-year contractual terms and are generally exercisable immediately as of the grant date.
 
The Company did not grant any options pursuant to the 2007 Director Plan during the nine months ended March 31, 2018. There were 20,000 worth of stock options exercised during the nine month period ended March 31, 2018. The Company did not recognize any stock based compensation expenses during the nine months ended March 31, 2018.
 
On March 30, 2017, the Company granted options to purchase 50,000 shares of its Common Stock to directors pursuant to the 2007 Directors Plan with an exercise price equal to the fair market value of Common Stock (as defined under the 2007 Directors Plan in conformity with Regulation 409A or the Internal Revenue Code of 1986, as amended) at the date of grant. The fair value of the options granted to purchase 50,000 shares of the Company’s Common Stock was approximately $207 based on the fair value of $4.14 per share determined by the Black Scholes option pricing model. As all of the stock options granted under the 2007 Directors Plan vest immediately at the date of grant, there were no unvested stock options granted under the 2007 Directors Plan as of March 31, 2017. The Company recognized stock-based compensation expenses of $12 in the nine months ended March 31, 2017 under the 2007 Directors Plan. No stock options were exercised during the nine months ended March 31, 2017. There were 80,000 shares of Common Stock available for grant under the 2007 Directors Plan.
 
 
 
 
-29-
 
A summary of option activities under the 2007 Directors Plan during the nine months ended March 31, 2018 is presented as follows: 
 
 
 
Options
 
 
Weighted Average
Exercise
Price
 
 
Weighted Average Remaining
Contractual
Term (Years)
 
 
Aggregate
Intrinsic
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at July 1, 2017
  415,000 
 $3.36 
  2.93 
 $673 
Granted
 -
 -
  - 
  - 
Exercised
  (20,000)
  2.59 
  - 
  - 
Forfeited or expired
  (5,000)
  2.07 
  - 
  - 
Outstanding at March 31, 2018
 390,000 
  3.41
  2.30
  911 
Exercisable at March 31, 2018
 390,000 
  3.41
  2.30
  911 
 
A summary of option activities under the 2007 Directors Plan during the nine months ended March 31, 2017 is presented as follows: 
 
 
 
Options
 
 
Weighted Average
Exercise
Price
 
 
Weighted Average Remaining
Contractual
Term (Years)
 
 
Aggregate
Intrinsic
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at July 1, 2016
  415,000 
 $3.14 
  3.29 
 $198 
Granted
  50,000 
  4.14 
  5.00 
  - 
Exercised
  - 
  - 
  - 
  - 
Forfeited or expired
  (50,000)
  2.30 
  - 
  - 
Outstanding at March 31, 2017
  415,000 
 $3.36 
  3.18 
 $325 
Exercisable at March 31, 2017
  415,000 
 $3.36 
  3.18 
 $325 
 
22.  FAIR VALUE OF FINANCIAL INSTRUMENTS APPROXIMATE CARRYING VALUE
 
In accordance with the ASC Topic 825, the following presents assets and liabilities measured and carried at fair value and classified by level of the following fair value measurement hierarchy in accordance to ASC 820:
 
There were no transfers between Levels 1 and 2 during the three and nine months ended March 31, 2018 and 2017.
 
Term deposits (Level 2) – The carrying amount approximates fair value because of the short maturity of these instruments.
 
Restricted term deposits (Level 2) – The carrying amount approximates fair value because of the short maturity of these instruments.
 
Lines of credit (Level 3) – The carrying value of the lines of credit approximates fair value due to the short-term nature of the obligations.
 
Bank loans payable (Level 3) – The carrying value of the Company’s bank loan payables approximates its fair value as the interest rates associated with long-term debt is adjustable in accordance with market situations when the Company borrowed funds with similar terms and remaining maturities.
 

 
 
 
-30-
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
Overview
 
The following should be read in conjunction with the condensed consolidated unaudited financial statements and notes in Item I above and with the audited consolidated financial statements and notes, and the information under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2017.
 
Trio-Tech International (“TTI”) was incorporated in 1958 under the laws of the State of California. As used herein, the term “Trio-Tech” or “Company” or “we” or “us” or “Registrant” includes Trio-Tech International and its subsidiaries unless the context otherwise indicates. Our mailing address and executive offices are located at 16139 Wyandotte Street, Van Nuys, California 91406, and our telephone number is (818) 787-7000.
 
The Company is a provider of reliability test equipment and services to the semiconductor industry. Our customers rely on us to verify that their semiconductor components meet or exceed the rigorous reliability standards demanded for aerospace, communications and other electronics products.
 
TTI generated approximately 99.7% of its revenue from its three core business segments in the test and measurement industry, i.e. manufacturing of test equipment, testing services and distribution of test equipment during the three months ended March 31, 2018. To reduce our risks associated with sole industry focus and customer concentration, the Company expanded its business into the real estate investment and oil and gas equipment fabrication businesses in 2007 and 2009, respectively. The Company’s Indonesia operation and the Indonesia operation’s immediate holding company, which comprised the fabrication services segment, suffered continued operating losses since it commenced its operations, and the cash flow was minimal in the past years. The Company established a restructuring plan to close the fabrication services operation, and in accordance with ASC Topic 205, Presentation of Financial Statement Discontinued Operations (“ASC Topic 205”), the Company presented the operating results from fabrication services as a discontinued operation. The Real Estate segment contributed only 0.3% to the total revenue and has been insignificant since the property market in China has slowed down due to control measures in China.
 
Manufacturing
 
TTI develops and manufactures an extensive range of test equipment used in the "front end" and the "back end" manufacturing processes of semiconductors. Our equipment includes leak detectors, autoclaves, centrifuges, burn-in systems and boards, HAST testers, temperature controlled chucks, wet benches and more.
 
Testing
 
TTI provides comprehensive electrical, environmental, and burn-in testing services to semiconductor manufacturers in our testing laboratories in Asia and the United States (U.S.). Our customers include both manufacturers and end-users of semiconductor and electronic components, who look to us when they do not want to establish their own facilities. The independent tests are performed to industry and customer specific standards.
 
Distribution
 
In addition to marketing our proprietary products, we distribute complementary products made by manufacturers mainly from the U.S., Europe, Taiwan and Japan. The products include environmental chambers, handlers, interface systems, vibration systems, shaker systems, solder ability testers and other semiconductor equipment. Besides equipment, we also distribute a wide range of components such as connectors, sockets, LCD display panels and touch-screen panels. Furthermore, our range of products are mainly targeted for industrial products rather than consumer products whereby the life cycle of the industrial products can last from 3 years to 7 years.
 
Real Estate
 
Beginning in 2007, TTI has invested in real estate property in Chongqing, China, which has generated investment income from the rental revenue from real estate we purchased in Chongqing, China, and investment returns from deemed loan receivables, which are classified as other income. The rental income is generated from the rental properties in MaoYe and FuLi in Chongqing, China. In the second quarter of fiscal 2015, the investment in JiaSheng, which was deemed as loans receivable, was transferred to down payment for purchase of investment property in China.
 
 
 
-31-
 
Third Quarter Fiscal 2018 Highlights
 
Total revenue increased by $279, or 2.84%, to $10,104 for the third quarter of fiscal 2018, as compared to $9,825 for the same period in fiscal 2017.
Manufacturing segment revenue decreased by $1,106, or 26.15%, to $3,124 for the third quarter of fiscal 2018, as compared to $4,230 for the same period in fiscal 2017.
Testing segment revenue increased by $936, or 23.54%, to $4,913 for the third quarter of fiscal 2018, as compared to $3,977 for the same period in fiscal 2017.
Distribution segment revenue increased by $452, or 28.59%, to $2,033 for the third quarter of fiscal 2018, as compared to $1,581 for the same period in fiscal 2017.
Real estate segment revenue decreased by $3, or 8.1%, to $34 for the third quarter of fiscal 2018, as compared to $37 for the same period in fiscal 2017.
Gross profit margin in absolute dollars decreased by $215, or 8.79%, to $2,232 for the third quarter of fiscal 2018, as compared to $2,447 for the same period in fiscal 2017.
The overall gross profit margin decreased by 2.81% to 22.09% for the third quarter of fiscal 2018, from 24.90% for the same period in fiscal 2017.
Income from operations for the third quarter of fiscal 2018 was $234, a decrease of $251 or 51.75%, as compared to $485 for the same period in fiscal 2017.
General and administrative expenses increased by $114, or 6.87%, to $1,773 for the third quarter of fiscal year 2018, from $1,659 for the same period in fiscal year 2017.
Selling expenses decreased by $41, or 18.47%, to $181 for the third quarter of fiscal year 2018, from $222 for the same period in fiscal year 2017.
(Gain)/Loss on disposal of property, plant and equipment increased by $61 to gain of $31 for the third quarter of fiscal year 2018, from loss of $30.
Other income increased by $66 to $111 in the third quarter of fiscal year 2018 compared to $45 in the same period in fiscal year 2017.
Tax expenses for the third quarter of fiscal year 2018 was $980, an increase of $874, as compared to $106 in the same period in fiscal year 2017 due primarily to a one-time Repatriation Tax.
During the third quarter of fiscal year 2018, loss from continuing operations before non-controlling interest, net of tax was $699, a decrease of $1,080, as compared to income of $381 for the same period in fiscal year 2017.
Net income attributable to non-controlling interest for the third quarter of fiscal year 2018 was $34, as compared to $30 in the same period in fiscal year 2017.
Working capital increased by $448, or 18%, to $7,936 as of March 31, 2018,as compared to $7,488 as of June 30, 2017.
Loss per share for the three months ended March 31, 2018 was $(0.21), a decrease of $0.31, as compared to earning per share of $0.10 for the same period in fiscal year 2017.
Total assets increased by $2,890 or 8.63% to $36,388 as of March 31, 2018, as compared to $33,498 as of June 30, 2017.
Total liabilities increased by $494 or 4.13% to $12,465 as of March 31, 2018, as compared to $11,971 as of June 30, 2017.
 
 
 
 
 
-32-
 
Results of Operations and Business Outlook
 
The following table sets forth our revenue components for the three and nine months ended March 31, 2018 and 2017, respectively.
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
Mar. 31,
 
 
 Mar. 31,
 
 Mar. 31,
 
Mar. 31,
 
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Manufacturing
  30.9%
  43.1%
  37.5%
  40.2%
Testing Services
  48.7 
  40.5 
  45.7 
  43.7 
Distribution
  20.1 
  16.1 
  16.4 
  15.6 
Real Estate
  0.3 
  0.3 
  0.4 
  0.5 
 
    
    
    
    
Total
  100.0%
  100.0%
  100.0%
  100.0%
 
Revenue for the three and nine months ended March 31, 2018 was $10,104 and $31,601, respectively, an increase of $279 and $3,701 respectively, when compared to the revenue for the same periods of the prior fiscal year. As a percentage, revenue increased by 2.84% and 13.27% for the three and nine months ended March 31, 2018, respectively, when compared to total revenue for the same periods of the prior year.
 
For the three months ended March 31, 2018, the $279 increase in overall revenue was primarily due to
 
an increase in the testing segment in the Singapore, Malaysia and Tianjin operations.
an increase in the distribution segment in the Malaysia and Singapore operations  
 
These increases were partially offset by the
 
decrease in the manufacturing segment in the Singapore operations and U.S. operations,
decrease in the real estate segment in China operations.
 
For the nine months ended March 31, 2018, the $3,701 increase in overall revenue was primarily due to
 
an increase in the testing segment in the Singapore, Malaysia and China operations,
an increase in the distribution segment in the Singapore and Malaysia operations
an increase in the manufacturing segment in the U.S. operations
 
These increases were partially offset by the
 
decrease in the manufacturing segment in the Singapore operations, and
decrease in the real estate segment in China operations.  
 
Revenue into and within China, the Southeast Asia region and other countries (except revenue into and within the U.S.) increased by $397 (or 4.22%) to $9,803, and by $3,683 (or 13.77%) to $30,422 for the three and nine months ended March 31, 2018, respectively, as compared with $9,406 and $26,739, respectively, for the same periods of last fiscal year.  
 
Revenue into and within the U.S. was $300 and $1,179 for the three and nine months ended March 31, 2018, respectively, a decrease of $119 and an increase of $17, respectively, from $419 and $1,162 for the same periods of last fiscal year, respectively.
 
Revenue for the three and nine months ended March 31, 2018 is discussed within the four segments as follows:
 
Manufacturing Segment
 
Revenue in the manufacturing segment as a percentage of total revenue was 30.9% and 37.5% for the three and nine months ended March 31, 2018, respectively, a decrease of 12.2% and 2.78% of total revenue, respectively, when compared to the same periods of the last fiscal year.  The absolute amount of revenue decreased by $1,106 to $3,124 from $4,230 and increased by $641 to $11,862 from $11,221 for the three and nine months ended March 31, 2018, respectively, compared to the same periods of the last fiscal year. 
 
The revenue in the manufacturing segment from a major customer accounted for 47.4% and 55.9% of our total revenue in the manufacturing segment for the three months ended March 31, 2018 and 2017, respectively, and 47.4% and 56.0% of our total revenue in the manufacturing segment for the nine months ended March 31, 2018 and 2017, respectively.
 
The future revenue in our manufacturing segment will be significantly affected by the purchase and capital expenditure plans of this major customer, if the customer base cannot be increased.
 
 
 
-33-
 
Testing Services Segment
 
Revenue in the testing segment as a percentage of total revenue was 48.7% and 45.7% for the three and nine months ended March 31, 2018, an increase of 8.2% and 2.0%, respectively, of total revenue when compared to the same periods of the last fiscal year.  The absolute amount of revenue increased by $936 to $4,913 from $3,977 for the three months ended March 31, 2018 and by $2,250 to $14,454 from $12,204 for the nine months ended March 31, 2018, compared to the same periods of the last fiscal year. 
 
Demand for testing services varies from country to country depending on changes taking place in the market and our customers’ forecasts.  As it is difficult to accurately forecast fluctuations in the market, management believes it is necessary to maintain testing facilities in close proximity to our customers in order to make it convenient for them to send us their newly manufactured parts for testing and to enable us to maintain a share of the market.
 
Distribution Segment
 
Revenue in the distribution segment as a percentage of total revenue was 20.1% and 16.4% for the three and nine months ended March 31, 2018, an increase of 4.0% and 0.8%, respectively, when compared to the same periods of the prior fiscal year.  The absolute amount of revenue increased by $452 to $2,033 from $1,581, and increased by $815 to $5,175 from $4,360 for the three and nine months ended March 31, 2018, respectively, compared to the same periods of the last fiscal year. 
 
Demand in the distribution segment varies depending on the demand for our customers’ products and the changes taking place in the market and our customers’ forecasts.  Hence it is difficult to accurately forecast fluctuations in the market.
 
Real Estate Segment
 
The real estate segment accounted for 0.3% and 0.4% of total net revenue for the three and nine months ended March 31, 2018. The absolute amount of revenue in the real estate segment decreased by $3 to $34 from $37 and by $5 to $110 from $115 for the three and nine months ended March 31, 2018, respectively, compared to the same periods of the last fiscal year. The decrease was primarily due to a decrease in rental income in the real estate segment for the three and nine months ended March 31, 2018.
 
During fiscal year 2007, TTI invested in real estate property in Chongqing, China, which has generated investment income from rental revenue and investment returns from deemed loan receivables, which were classified as other income. The rental income is generated from the rental properties in MaoYe, JiangHuai and FuLi in Chongqing, China. In the second quarter of fiscal 2015, the investment in JiaSheng, which was deemed as loans receivable, was transferred to down payment for purchase of investment property in China.
 
Trio-Tech Chongqing Co., Ltd. (“TTCQ”) invested RMB 5,554 in rental properties in Maoye during fiscal year 2008, RMB 3,600 in rental properties in JiangHuai during fiscal year 2010 and RMB 4,025 in rental properties in FuLi during fiscal year 2010. The total investment in properties in China was RMB 13,179, or approximately $2,094 and $1,944 as at March 31, 2018 and June 30, 2017, respectively. The carrying value of these investment properties in China was RMB 7,748 and RMB 8,242, or approximately $1,231 and $1,216 as at March 31, 2018 and June 30, 2017, respectively. For the three and nine months ended March 31, 2018, these properties generated a total rental income of $34 and $110, respectively, as compared to $37 and $115, respectively, for the same periods of the last fiscal year. TTCQ’s investment in properties that generated rental income is discussed further in this Form 10-Q.
   
TTCQ has yet to receive the title deed for properties purchased from JiangHuai. TTCQ is in the legal process of obtaining the title deed, which is dependent on JiangHuai completing the entire project. JiangHuai property did not generate any income during the three and nine months ended March 31, 2018, and 2017.
 
 
 
 
-34-
 
“Investments” in the real estate segment were the cost of an investment in a joint venture in which we had a 10% interest. During the second quarter of fiscal year 2014, TTCQ disposed of its 10% interest in the joint venture. The joint venture had to raise funds for the development of the project. As a joint-venture partner, TTCQ was required to stand guarantee for the funds to be borrowed; considering the amount of borrowing, the risk involved was higher than the investment made and hence TTCQ decided to dispose of the 10% interest in the joint venture investment. On October 2, 2013, TTCQ entered into a 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 based on exchange rates published by the Monetary Authority of Singapore as of October 2, 2013, by non-monetary consideration and (2) the remaining RMB 8,000, or approximately $1,307 based on exchange rates published by the Monetary Authority of Singapore as of October 2, 2013, by cash consideration. The consideration consisted of (1) commercial units measuring 668 square meters to be delivered in June 2016 and (2) sixteen quarterly equal installments of RMB500 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. TTCQ performed a valuation on a certain commercial unit and its market value was higher than the carrying amount. The first three installment amounts of 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 had received RMB 100 during May 2014.
 
On October 14, 2014, TTCQ and Jun Zhou Zhi Ye entered into a memorandum of understanding. Based on the memorandum of understanding, both parties have 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 estimated to be December 31, 2019.
 
The share transfer (10% interest in the joint venture) was registered with the relevant authorities in China as of end October 2016.
 
Uncertainties and Remedies
 
There are several influencing factors which create uncertainties when forecasting performance, such as the constantly changing nature of technology, specific requirements from the customer, decline in demand for certain types of burn-in devices or equipment, decline in demand for testing services and fabrication services, and other similar factors. One factor that influences uncertainty is the highly competitive nature of the semiconductor industry. Another is that some customers are unable to provide a forecast of the products required in the upcoming weeks; hence it is difficult to plan for the resources needed to meet these customers’ requirements due to short lead time and last minute order confirmation. This will normally result in a lower margin for these products, as it is more expensive to purchase materials in a short time frame. However, the Company has taken certain actions and formulated certain plans to deal with and to help mitigate these unpredictable factors. For example, in order to meet manufacturing customers’ demands upon short notice, the Company maintains higher inventories, but continues to work closely with its customers to avoid stock piling. We believe that we have improved customer service from staff by keeping our staff through our efforts to keep our staff up to date on the newest technology and stressing the importance of understanding and meeting the stringent requirements of our customers. Finally, the Company is exploring new markets and products, looking for new customers, and upgrading and improving burn-in technology while at the same time searching for improved testing methods of higher technology chips.
 
 
 
 
-35-
 
We are in the process of implementing an Enterprise Resource Planning (“ERP”) system, as part of a multi-year plan to integrate and upgrade our systems and processes. The implementation of this ERP system is scheduled to occur in phases over the next few years, and began with the migration of certain of our operational and financial systems in our Singapore operations to the new ERP system during the second quarter of fiscal 2017. This implementation effort is continuing and will continue in fiscal 2019, when the operational and financial systems in our Malaysia operation will be substantially transitioned to the new system.
 
As a phased implementation of this system occurs, we are experiencing certain changes to our processes and procedures which, in turn, result in changes to our internal control over financial reporting. While we expect the new ERP system to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as processes and procedures in each of the affected areas evolve. Implementation of a new ERP system involves risks and uncertainties. Any disruptions, delays or deficiencies in the design or implementation of the new system could result in increased costs and adversely affect our ability to timely report our financial results, which could negatively impact our business and results of operations.
 
The Company’s primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar-denominated sales and operating expenses in its subsidiaries. Strengthening of the U.S. dollar relative to foreign currencies adversely affects the U.S. dollar value of the Company’s foreign currency-denominated sales and earnings, and generally leads the Company to raise international pricing, potentially reducing demand for the Company’s products. Margins on sales of the Company’s products in foreign countries and on sales of products that include components obtained from foreign suppliers could be materially adversely affected by foreign currency exchange rate fluctuations. In some circumstances, for competitive or other reasons, the Company may decide not to raise local prices to fully offset the dollar’s strengthening, or at all, which would adversely affect the U.S. dollar value of the Company’s foreign currency-denominated sales and earnings. Conversely, a strengthening of foreign currencies relative to the U.S. dollar, while generally beneficial to the Company’s foreign currency denominated sales and earnings could cause the Company to reduce international pricing, thereby limiting the benefit. Additionally, strengthening of foreign currencies may also increase the Company’s cost of product components denominated in those currencies, thus adversely affecting gross margins.
 
There are several influencing factors which create uncertainties when forecasting performance of our real estate segment, such as obtaining the rights by the joint venture to develop the real estate projects in China, inflation in China, currency fluctuations and devaluation, and changes in Chinese laws, regulations, or their interpretation.
 
Comparison of the Three Months Ended March 31, 2018 and March 31, 2017
 
The following table sets forth certain consolidated statements of income data as a percentage of revenue for the three months ended March 31, 2018 and 2017, respectively:
 
 
 
Three Months Ended
 
 
 
Mar. 31,
2018
 
 
Mar. 31,
2017
 
 
 
 
 
 
 
 
Revenue
  100.0%
  100.0%
Cost of sales
  77.9 
  75.1 
Gross Margin
  22.1%
  24.9%
Operating expenses
    
    
General and administrative
  17.5%
  16.9%
Selling
  1.8 
  2.3 
Research and development
  0.7 
  0.5 
(Gain) / Loss on disposal of property, plant and equipment
  (0.3)
  0.3 
Total operating expenses
  19.7%
  20.0%
Income from Operations
  2.4%
  4.9%
 
Overall Gross Margin
 
Overall gross margin as a percentage of revenue decreased by 2.8% to 22.1% for the three months ended March 31, 2018, from24.9% in the same period of the last fiscal year. In terms of absolute dollar amounts, gross profits decreased by $215 to $2,232 for the three months ended March 31, 2018, from $2,447 as compared to the same period of the last fiscal year. There was a decrease in gross profit margin, in absolute dollars, across all the segments.
 
 
 
-36-
 
Gross profit margin as a percentage of revenue in the manufacturing segment decreased by 1.9% to 19.0% for the three months ended March 31, 2018, from 20.9% in the same period of the last fiscal year. The decrease in gross margin was due to the change in product mix of some operations and Singapore operations, where there was an increase in sales of products that had lower profit margins and a decrease in sales of products that had higher profit margins as compared to the same period of last fiscal year. As a result, the increase in manufacturing revenue was lower than the increase in cost for the three months ended March 31, 2018, as compared to the same period last fiscal year. In absolute dollar amounts, gross profits in the manufacturing segment decreased by $291 to $594 for the three months ended March 31, 2018 from $885 for the same period of last fiscal year.
 
Gross profit margin as a percentage of revenue in the testing segment decreased by 5.8% to 28.9% for the three months ended March 31, 2018, from 34.7% in the same period of the last fiscal year.  The decrease in profit margin as a percentage of revenue was mainly due to a decrease in high margin testing revenue in Asia operations. Furthermore, there was an increase in compliance costs in the Malaysia operations which resulted in an increase in the cost of sales. In absolute dollar amounts, gross profit in the testing segment increased by $42 to $1,422 for the three months ended March 31, 2018 from $1,380 for the same period of the last fiscal year.
 
Gross profit margin of the distribution segment is not only affected by the market price of our products, but also by our product mix, which changes frequently as a result of changes in market demand. Gross profit margin as a percentage of revenue in the distribution segment decreased by 0.6% to 10.4% for the three months ended March 31, 2018, from 11.0% in the same period of the last fiscal year. The operations resulting in an decrease in sales of products that had higher profit margin and an increase in sales of products that had lower profit margin, as compared to the same period of last fiscal year. In terms of absolute dollar amounts, gross profit in the distribution segment for the three months ended March 31, 2018 was $212, an increase of $38 as compared to $174 in the same period of last fiscal year. 
 
Gross profit margin as a percentage of revenue in the real estate segment was 11.8% for the three months ended March 31, 2018, as compared to 21.6% in the same period of the last fiscal year. In absolute dollar amounts, gross profit in the real estate segment for the three months ended March 31, 2018 was $4, a decrease of $4 from $8 in the same period of last fiscal year.  The decrease was primarily due to a decrease in rental income from the MaoYe and Fu Li investment property, as compared to the same period in the last fiscal year.
 
Operating Expenses
 
Operating expenses for the three months ended March 31, 2018 and 2017 were as follows:
 
 
 
Three Months Ended
 
 
 
Mar. 31,
2018
 
 
Mar. 31,
2017
 
(Unaudited)
 
 
 
 
 
 
General and administrative
 $1,773 
 $1,659 
Selling
  181 
  222 
Research and development
  75 
  51 
(Gain) / Loss on disposal of property, plant and equipment
  (31)
  30 
Total
 $1,998 
 $1,962 
 
General and administrative expenses increased by $114, or 6.9%, from $1,659 to $1,773 for the three months ended March 31, 2018 compared to the same period of last fiscal year. The increase in the general and administrative expenses was mainly attributable to the U.S., Malaysia and Tianjin, China operations, which was partially offset by the decrease in the Singapore operations.
 
The increase in general and administrative expenses was primarily due to the increase in payroll related expenses in the U.S., Malaysia and staff welfare expenses in China operations. This increase was partially offset by a decrease in the Singapore operations as a result of lower payroll and bonus in the three months ended March 31, 2018 as compared to the same period of last fiscal year.
 
Selling expenses decreased by $41 or 18.5%, for the three months ended March 31, 2018, from $222 to $181, as compared to the same period of the last fiscal year. The decrease was mainly due to a decrease in commission expenses in the Singapore operations in the three months ended March 31, 2018 as compared to the same period of last fiscal year.
 
 
 
 
-37-
 
Research and development expenses increased by $24, for the three months ended March 31, 2018, from $51 to $75, as compared to the same period of the last fiscal year. The increase was mainly attributable to the increase of Singapore manufacturing operations.
 
Gain on disposal of property, plant and equipment for the three months ended March 31, 2018, was $31 as compared to loss on disposal of property, plant and equipment of $30 for the same period of the last fiscal year. The change was mainly attributable to the gain on disposal of property, plant and equipment in Malaysia testing operations.
 
Income from Operations
 
Income from operations was $234 for the three months ended March 31, 2018, as compared to $485 for the same period of last fiscal year. The decrease was mainly due to the decrease in gross profit margin as discussed earlier.
  
Interest Expense
 
Interest expense for the third quarter of fiscal years 2018 and 2017 were as follows:
 
 
Three Months Ended
 
 
 
Mar. 31,
2018
 
 
Mar. 31,
2017
 
(Unaudited)
 
 
 
 
 
 
Interest expense
 $64 
 $43 
 
Interest expense increased by $21 to $64 from $43 for the three months ended March 31, 2018. The increase was due to higher bank loan payable for the three months ended March 31,2018, which was $1,969 as compared to 1,812 for the same period in prior year.
 
Other Income
 
Other income for the three months ended March 31, 2018 and 2017 were as follows:
 
 
 
Three Months Ended
 
 
 
Mar. 31,
2018
 
 
Mar. 31,
2017
 
(Unaudited)
 
 
 
 
 
 
Interest income
 $19 
 $14 
Other rental income
  28 
  24 
Exchange loss
  (5)
  (88)
Other miscellaneous income
  69 
  95 
Total
 $111 
 $45 
 
Other income for the three months ended March 31, 2018 was $111, an increase of $66 as compared to $45 for the same period last fiscal year. This increase was mainly attributable to decrease of $83 in foreign exchange loss .Foreign exchange loss of for the three months ended March 31, 2018 was $5 as compared to a loss of $88 for the same period in last fiscal year.
 
Income Tax Expenses
 
Income tax expenses for the three months ended March 31, 2018 were $980, an increase of 874 as compared to $106 for the same period of last fiscal year. The increase in income tax expenses was mainly due to the provision of tax expenses effect of the Tax Cuts and Jobs Act which requires a mandatory one-time repatriation of certain post-1986 earnings and profits that were deferred from US taxation by Company’s foreign subsidiaries and partially offset by the decrease in withholding tax payment by the Singapore operation.
 
 
 
-38-
 
Non-controlling Interest
 
As of March 31, 2018, we held a 55% interest in Trio-Tech (Malaysia) Sdn. Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd. and PTSHI Indonesia, and a 76% interest in Prestal Enterprise Sdn. Bhd. The non-controlling interest for the three months ended March 31, 2018, in the net income of subsidiaries was $34, compared to $30 for the same period of the previous fiscal year. The increase in the non-controlling interest in the net income of subsidiaries was attributable to the increase in net income generated by the Malaysia manufacturing and testing operation compared to the same period in the last fiscal year.
 
Net (Loss) / Income
 
Net loss was $739 for the three months ended March 31, 2018, as compared to net income of $350 for the three months ended March 31, 2018. The change in net income was mainly due to the provision for tax expenses of $980, due to the effect of the Tax Cuts and Jobs Act and also decrease in gross profit margin, as discussed earlier.
 
Loss per Share
 
Basic loss per share from continuing operations was $0.21 for the three months ended March 31, 2018 as compared to earnings per share of $0.10 for the same period in the last fiscal year. Basic earnings per share from discontinued operations were nil for both the three months ended March 31, 2018 and 2017.
 
Diluted loss per share from continuing operations was $0.20 for the three months ended March 31, 2018 as compared to earnings per share of $0.10 for the same period in the last fiscal year. Diluted earnings per share from discontinued operations were nil for both the three months ended March 31, 2018 and 2017.
  
Segment Information
 
The revenue, gross margin and income from each segment for the third quarter of fiscal years 2018 and 2017, respectively, are presented below. As the revenue and gross margin for each segment have been discussed in the previous section, only the comparison of income from operations is discussed below.
 
Manufacturing Segment
 
The revenue, gross margin and (loss) / income from operations for the manufacturing segment for the three months ended March 31, 2018 and 2017 were as follows:
 
 
 
Three Months Ended
 
 
 
Mar. 31,
2018
 
 
Mar. 31,
2017
 
(Unaudited)
 
 
 
 
 
 
Revenue
 $3,124 
 $4,230 
Gross margin
  19.0%
  20.9%
(Loss) / Income from operations
 $(105)
 $169 
 
Loss from operations in the manufacturing segment was $105 for the three months ended March 31, 2018, as compared to a gain of $169 in the same period of the last fiscal year. The decline of $274 was primarily due to a lower demand from our major customer and also different product mix which decreased our gross profit margin. Furthermore, the decrease in operating expenses are lower than the decrease in gross profit, resulting in a loss from operations. Operating expenses for the manufacturing segment were $699 and $716 for the three months ended March 31, 2018 and 2017, respectively.  The decrease in operating expenses was mainly due to a decrease in selling expenses of $43, which was partially offset by an increase in general and administrative of $11, increase in corporate overhead by $12 and research and development cost of $3, as compared to the same period of last fiscal year. The decrease in selling expenses was primarily due to a lower agent commission expenses as the commissionable revenue decreased in Singapore operations. The increase in general and administrative expenses was due to an increase in payroll related expenses in U.S. operations. The increase in corporate overhead expenses was due to a change in the corporate overhead allocation method as compared to the same period last fiscal year. Corporate charges are allocated on a pre-determined fixed charge basis.
 
 
 
-39-
 
Testing Segment
 
The revenue, gross margin and income from operations for the testing segment for the three months ended March 31, 2018 and 2017 were as follows:
 
 
 
Three Months Ended 
 
 
 
Mar. 31,
2018
 
 
Mar. 31,
2017
 
(Unaudited)
 
 
 
 
 
 
Revenue
 $4,913 
 $3,977 
Gross margin
  28.9%
  34.7%
Income from operations
 $428 
 $200 
 
Income from operations in the testing segment for the three months ended March 31, 2018 was $428, an increase of $228 compared to $200 in the same period of last fiscal year. The increase in operating income was mainly attributable to an increase of $42 in gross margin and a decrease of $186 in operating expenses. Operating expenses were $994 and $1,180 for the three months ended March 31, 2018 and 2017, respectively. The decrease in operating expenses was mainly attributable to a decrease in corporate overhead expenses by $264 and increase in gain from disposal of fixed assets by $61, which was partially offset by an increase in general and administrative expenses by $117 and research and development cost by $21. The increase in general and administrative expenses was due to a revision in the method of allocation of payroll related expenses between segments in the Singapore operations and payroll related expenses in the China operations. The decrease in corporate overhead expenses was due to a change in the corporate overhead allocation method as compared to the same period last fiscal year. Corporate charges are allocated on a pre-determined fixed charge basis.
 
Distribution Segment
 
The revenue, gross margin and income from operations for the distribution segment for the three months ended March 31, 2018 and 2017 were as follows:
 
 
 
Three Months Ended 
 
 
 
Mar. 31,
2018
 
 
Mar. 31,
2017
 
(Unaudited)
 
 
 
 
 
 
Revenue
 $2,033 
 $1,581 
Gross margin
  10.4%
  11.0%
Income from operations
 $117 
 $101 
 
Income from operations in the distribution segment increased by $16 to $117 for the three months ended March 31, 2018, as compared to $101 in the same period of last fiscal year. The increase in operating income was primarily due to an increase in gross margin by $38 as discussed earlier, which was partially offset by an increase in operating expenses of $22. Operating expenses were $95 and $73 for the three months ended March 31, 2018 and 2017, respectively.
 
 
 
 
-40-
 
Real Estate Segment
 
The revenue, gross margin and loss from operations for the real estate segment for the three months ended March 31, 2018 and 2017 were as follows:
 
 
 
Three Months Ended
 
 
 
Mar. 31,
2018
 
 
Mar. 31,
2017
 
(Unaudited)
 
 
 
 
 
 
Revenue
 $34 
 $37 
Gross margin
  11.8%
  21.6%
Loss from operations
 $(18)
 $(14)
 
Loss from operations in the real estate segment for the three months ended March 31, 2018 was $18, as compared to loss of $14 for the same period of the last fiscal year.  The increase in operating loss was mainly due to a decrease in gross margin as discussed earlier.
 
Corporate
 
The (loss) / income from operations for corporate for the three months ended March 31, 2018 and 2017 were as follows:
 
 
 
Three Months Ended 
 
 
 
Mar. 31,
2018
 
 
Mar. 31,
2017
 
(Unaudited)
 
 
 
 
 
 
(Loss) / income from operations
 $(188)
 $29 
 
Corporate operating loss for the three months ended March 31, 2018 was 188 as compared to income of $29 in the same period of the last fiscal year.  The change from an operating income to an operating loss was mainly attributable to the change in corporate overhead allocation method during the three months ended March 31, 2018, as compared to the same period last fiscal year.
 
 
 
-41-
 
Comparison of the Nine Months Ended March 31, 2018 and March 31, 2017
 
The following table sets forth certain consolidated statements of income data as a percentage of revenue for the nine months ended March 31, 2018 and 2017, respectively:
 
 
 
Nine Months Ended
 
 
 
Mar. 31,
2018
 
 
Mar. 31,
2017
 
 
 
 
 
 
 
 
Revenue
  100.0%
  100.0%
Cost of sales
  75.4 
  74.6 
Gross Margin
  24.6%
  25.5%
Operating expenses:
    
    
General and administrative
  16.9%
  18.6%
Selling
  1.9 
  2.1 
Research and development
  1.2 
  0.6 
(Gain)/Loss on sale of property, plant & equipment
  (0.1)
  0.1 
Total operating expenses
  19.9%
  21.4%
Income from Operations
  4.7%
  4.1%
 
Overall Gross Margin
 
Overall gross margin as a percentage of revenue decreased by 0.9% to 24.6% for the nine months ended March 31, 2018, from 25.5% in the same period of last fiscal year, primarily due to a decrease in the gross profit margin in the testing and real estate segments, which was partially offset by an increase in the gross profit margin in the manufacturing and distribution segments. In terms of absolute dollar amounts, gross profits increased by $688 to $7,787 for the nine months ended March 31, 2018, from $7,099 for the same period of the last fiscal year.
 
Gross profit margin as a percentage of revenue in the manufacturing segment increased by 0.2% to 22.1% for the nine months ended March 31, 2018, from 21.9% in the same period of the last fiscal year. In absolute dollar amounts, gross profit increased by $157 to $2,616 for the nine months ended March 31, 2018 as compared to $2,459 for the same period in last fiscal year. The increase in absolute dollar amount of gross margin was primarily due to the change in product mix of some operations, where there was an increase in sales of products that had higher profit margins and a decrease in sales of products that had lower profit margins as compared to the same period of last fiscal year. As a result, the increase in manufacturing revenue was higher than the increase in cost for the nine months ended March 31, 2018, as compared to the same period last fiscal year.
 
Gross profit margin as a percentage of revenue in the testing segment decreased by 2.3% to 31.6% for the nine months ended March 31, 2018 from 33.9% in the same period of the last fiscal year. The decrease in profit margin as a percentage of revenue was mainly due to a decrease in high margin testing revenue in Asia operations. Furthermore, there was an increase in compliance costs in the Malaysia operations which increased in the cost of sales. As significant portions of our cost of goods sold are fixed for testing segment, gross profit is impacted when demand from testing customer slow down for some operations. In terms of absolute dollar amounts, gross profit in the testing segment increased by $438 to $4,573 for the nine months ended March 31, 2018, from $4,135 for the same period of the last fiscal year.
 
Gross profit margin as a percentage of revenue in the distribution segment increased by 0.5% to 11.1% for the nine months ended March 31, 2018, from 10.6% in the same period of the last fiscal year. In terms of absolute dollar amounts, gross profit in the distribution segment for the nine months ended March 31, 2018 was $577, an increase of $116 as compared to $461 in the same period of the last fiscal year. The increase in gross margin was due to the change in product mix, as this segment had fewer sales of products with a lower profit margin as compared to the same period of last fiscal year. The gross profit margin of the distribution segment was not only affected by the market price of our products, but also our product mix, which changes frequently as a result of changes in market demand.
 
Gross profit margin as a percentage of revenue in the real estate segment decreased by 19.2% to 19.1% for the nine months ended March 31, 2018, from 38.3% in the same period of the last fiscal year. In terms of absolute dollar amounts, gross profit decreased by $23 to $21 for the nine months ended March 31, 2018 as compared to $44 for the same period in last fiscal year. The decrease was due to the a reversal of overprovision for taxes in the nine months ended Mar 31, 2017 while there was none in the same period this fiscal year and also decrease in rental income from both investment properties, MaoYe and FuLi, as compared to the same period in the last fiscal year.
 
 
 
 
-42-
 
Operating Expenses
 
Operating expenses for the nine months ended March 31, 2018 and 2017 were as follows:
 
 
 
Nine months ended
 
 
 
Mar. 31,
2018
 
 
Mar. 31,
2017
 
(Unaudited)
 
 
 
 
 
 
General and administrative
 $5,339 
 $5,178 
Selling
  612 
  587 
Research and development
  377 
  156 
(Gain)/ Loss on disposal of property, plant and equipment
  (20)
  38 
Total
 $6,308 
 $5,959 
 
General and administrative expenses increased by $161, or 3.1%, from $5,178 to $5,339 for the nine months ended March 31, 2018 compared to the same period of the last fiscal year. There was an increase in general and administrative expenses in the U.S. and Tianjin, China operations, which was partially offset by the decrease in general and administrative expenses in all other operations.
 
The increase in general and administrative expenses was primarily due to the increase in payroll related expenses in the U.S. and China operations and also increase in staff welfare expenses in China operations. This increase was partially offset mainly by a decrease in payroll related expenses in the Singapore operations for the nine months ended March 31, 2018, as compared to the same period of last fiscal year.
 
Selling expenses increased by $25, or 4.3%, for the nine months ended March 31, 2018, from $587 to $612 compared to the same period of the last fiscal year. The increase was mainly due to an increase in commission expenses in the U.S. and Singapore operations as the commissionable revenue increased as compared to the same period of last fiscal year.
 
Research and development expenses increased by $221, for the nine months ended March 31, 2018, from $156 to $377, as compared to the same period of the last fiscal year. The increase was mainly attributable to the increase of Singapore operations and partially offset by the decrease in U.S. operations.
 
Gain on disposal of property, plant and equipment for the nine months was $20 as compared to a loss on disposal of property, plant & equipment of $38, for the same period of the last fiscal year. The change was mainly attributable to the gain on disposal of property, plant and equipment from Malaysia operations.

Income from Operations
 
Income from operations was $1,479 for the nine months ended March 31, 2018 as compared to $1,140 for the same period of the last fiscal year. The increase was mainly due to the increase in gross profit margin being greater than the increase in operating expenses, as discussed earlier.
 
Interest Expense
 
Interest expense for the nine months ended March 31, 2018 and 2017 were as follows:
 
 
 
Nine months ended
 
 
 
Mar.31,
2018
 
 
Mar.31,
2017
 
(Unaudited)
 
 
 
 
 
 
Interest expense
 $174 
 $149 
 
Interest expense increased by $25 to $174 from $149 for the nine months ended March 31, 2018 as compared to the same period of the last fiscal year. The increase is due to higher bank loan.
 

 
 
-43-
 
Other Income
 
Other income for the nine months ended March 31, 2018 and 2017 were as follows:
 
 
 
Nine months ended
 
 
 
Mar. 31,
2018
 
 
Mar. 31,
2017
 
(Unaudited)
 
 
 
 
 
 
Interest income
 $39 
 $26 
Other rental income
  81 
  74 
Exchange (loss)/ gain
  (26)
  94 
Other miscellaneous income
  217 
  164 
Total
 $311 
 $358 

Other income for the nine months ended March 31, 2018 was $311, a decrease of $47 as compared to $358 for the same period last fiscal year. This decrease was mainly attributable to decrease of foreign exchange gain. Foreign exchange loss of $26 for the nine months ended March 31, 2018 as compared to and exchange gain of $94 for the same period last fiscal year and also a non-recurring reimbursement income.
 
Income Tax Expenses
 
Income tax expense for the nine months ended March 31, 2018 was $1,035, an increase of $779, as compared to $256 for the same period of last fiscal year. The increase in income tax expenses was mainly due to the provision of tax expenses effect of the Tax Cuts and Jobs Act which requires a mandatory one-time repatriation of certain post-1986 earnings and profits that were deferred from US taxation by Company’s foreign subsidiaries and partially offset by the decrease in the withholding tax payment by the Singapore operation.
 
Non-controlling Interest
 
As of March 31, 2018, we held a 55% interest in Trio-Tech Malaysia, Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd. and PTSHI Indonesia, and a 76% interest in Prestal Enterprise Sdn. Bhd. The net income attributable to our non-controlling interest in these subsidiaries for the nine months ended March 31, 2018 was $61, a decrease of $65, as compared to $126 for the same period of last fiscal year. The decrease was attributable to the decrease in net income generated by the Malaysia testing operations due to a decrease in gross profit margin and other income as compared to the same period in the last fiscal year
 
Loss from Discontinued Operations
 
Loss from discontinued operations was $11 for the nine months ended March 31, 2018, an increase of $4 as compared to a loss of $7 for the same period of the last fiscal year. 
 
Net Income
 
Net income was $570 for the nine months ended March 31, 2018, decrease of $519, as compared to a net income of $1,089 for the same period in the last fiscal year. The decrease was mainly due to the provision of tax expenses of $900 effect of the Tax Cuts and Jobs Act and offset by the increase in operating income as discussed earlier.
 
 
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Earnings per Share
 
Basic earnings per share from continuing operations was $0.15 for the nine months ended March 31, 2018 as compared to $0.28 for the same period in the last fiscal year. Basic earnings per share from discontinued operations were nil for both the nine months ended March 31, 2018 and 2017.
 
Diluted earnings per share from continuing operations was $0.14 for the nine months ended March 31, 2018 as compared to $0.27 for the same period in the last fiscal year. Diluted earnings per share from discontinued operations were nil for both the nine months ended March 31, 2018 and 2017.
 
Segment Information
 
The revenue, gross profit margin, and income or loss from each segment for the nine months ended March 31, 2018 and 2017, respectively, are presented below.  As the segment revenue and gross margin for each segment have been discussed in the previous section, only the comparison of income from operations is discussed below.

Manufacturing Segment
 
The revenue, gross margin and income or loss from operations for the manufacturing segment for the nine months ended March 31, 2018 and 2017 were as follows:
 
 
 
Nine months ended
 
 
 
Mar. 31,
2018
 
 
Mar. 31,
2017
 
(Unaudited)
 
 
 
 
 
 
Revenue
 $11,862 
 $11,221 
Gross margin
  22.1%
  21.9%
Income / (loss) from operations
 $188 
 $(153)
 
Income from operations from the manufacturing segment was $188 for the nine months ended March 31, 2018, an improvement of $341 as compared to a loss of $153 in the same period of the last fiscal year, due to an increase of gross profit margin by $157 and decrease in operating expenses by $184. Operating expenses for the manufacturing segment were $2,428 and $2,612 for the nine months ended March 31, 2018 and 2017, respectively. The decrease in operating expenses of $184 was mainly due to a decrease in general and administrative expenses of $626, which was partially offset by an increase in corporate overhead of $281, and increase in research and development expenses of $163 as compared to the same period of last fiscal year. The decrease in general and administrative expenses was primarily due to a revision in the method of allocation of payroll related expenses between segments in the Singapore operations and lower of software license fees in the Singapore operations.
 
 
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Testing Segment
 
The revenue, gross margin and income from operations for the testing segment for the nine months ended March 31, 2018 and 2017 were as follows:
 
 
 
Nine months ended 
 
 
 
Mar. 31,
2018
 
 
Mar. 31,
2017
 
(Unaudited)
 
 
 
 
 
 
Revenue
 $14,454
 $12,204 
Gross margin
  31.6%
  33.9%
Income from operations
 $1,281 
 $990 
 
Income from operations in the testing segment for the nine months ended March 31, 2018 was $1,281, an increase of $291 compared to $990 in the same period of the last fiscal year. The increase in operating income was attributable to an increase in gross profit of $438 and increase of operating expenses of $147. Operating expenses were $3,292 and $3,145 for the nine months ended March 31, 2018 and 2017, respectively. The increase in operating expenses was mainly attributable to an increase in general and administrative expenses of $638 which was partially offset by a decrease in corporate overhead of $514.The increase in general and administrative expenses was due to a revision in the method of allocating payroll related expenses between segments in the Singapore operations and an increase in payroll related expenses in the Tianjin, China operations. The decrease in corporate overhead expenses was due to a change in the corporate overhead allocation method as compared to the same period last fiscal year. Corporate charges are allocated on a pre-determined fixed charge basis.
 
Distribution Segment
 
The revenue, gross margin and income from operations for the distribution segment for the nine months ended March 31, 2018 and 2017 were as follows: 
 
 
 
Nine months ended 
 
 
 
Mar. 31,
2018
 
 
Mar. 31,
2017
 
(Unaudited)
 
 
 
 
 
 
Revenue
 $5,175 
 $4,360 
Gross margin
  11.1%
  10.6%
Income from operations
 $337 
 $235 
 
Income from operations in the distribution segment for the nine months ended March 31, 2018 was $337, an increase of $102 as compared to $235 in the same period of the last fiscal year. The increase in operating income was primarily due to an increase in gross profit margin of $116 which were partially offset by an increase in operating expenses of $14. Operating expenses were $240 and $226 for the nine months ended March 31, 2018 and 2017, respectively.
 
 
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Real Estate Segment
 
The revenue, gross margin and loss from operations for the real estate segment for the nine months ended March 31, 2018 and 2017 were as follows: 
 
 
 
Nine months ended 
 
 
 
Mar. 31,
2018
 
 
Mar. 31,
2017
 
(Unaudited)
 
 
 
 
 
 
Revenue
 $110 
 $115 
Gross margin
  19.1%
  38.3%
Loss from operations
 $(38)
 $(20)
 
Loss from operations in the real estate segment for the nine months ended March 31, 2018 was $38, an increase of $18 as compared to a loss of $20 for the same period of the last fiscal year.  The increase in operating loss was mainly due to an increase in gross loss of $23 and decrease of operating expenses of $5, as discussed earlier. Operating expenses were $59 and $64 for the nine months ended March 31, 2018 and 2017, respectively.
 
Corporate
 
The (loss)/ gain from operations for corporate for the nine months ended March 31, 2018 and 2017 were as follows:   
 
 
 
Nine months ended
 
 
 
Mar. 31,
2018
 
 
Mar. 31,
2017
 
(Unaudited)
 
 
 
 
 
 
(Loss) / income from operations
 $(289)
 $88 
 
Operating loss in the corporate office for the nine months ended March 31, 2018 was $289, representing a change of $377, as compared to an income of $88 for the same period of the last fiscal year.  The change from an operating income to an operating loss was mainly attributable to a different corporate overhead allocation method during the nine months ended March 31, 2018, as compared to the same period last fiscal year.
 
Financial Condition
 
During the nine months ended March 31, 2018 total assets increased by $2,890 from $33,498 as at June 30, 2017 to $36,388. The increase in total assets was primarily due to an increase in cash and cash equivalents, inventory, deferred tax assets, property, plant and equipment, other assets, and restricted term deposits, which were partially offset by a decrease in short term deposits, trade accounts receivable, other receivables and prepaid expenses.
 
 
 
 
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Cash and cash equivalents were $5,376 as at March 31, 2018, reflecting an increase of $604 from $4,772 as at June 30, 2017, mainly due to uplift of short-term deposit in the Malaysia operation. This increase was partially offset by the decrease in utilization of credit facilities in our Singapore operation.
 
Short-term deposits were $678 as at March 31, 2018, reflecting a decrease of $109 from $787 as at June 30, 2017, primarily due to uplift of short-term deposit in the Malaysia operation.
 
As at March 31, 2018, the trade accounts receivable balance decreased by $392 to $8,617 from $9,009 as at June 30, 2017, mainly due to shorter collection cycles in the Singapore operations and foreign currency exchange difference between the functional currency and U.S. dollars for the nine months ended March 31, 2018. The number of days’ sales outstanding in accounts receivables was 75 and 83 days at the end of the third quarter of fiscal year 2018 and for the fiscal year ended 2017, respectively.
 
As at March 31, 2018, other receivables were $392, reflecting a decrease of $9 from $401 as at June 30, 2017. The decrease was primarily due to decrease of input tax in Singapore operations and offset by increase of tax incentives in the China operations in the third quarter of fiscal year 2018.
 
Inventories as at March 31, 2018 were $2,369, reflecting an increase of $613, as compared to $1,756 as at June 30, 2017. The increase in inventory was mainly due to a delay in shipment as a result of external factors and higher inventory turnover days in the Singapore operations.
 
Prepaid expenses were $219 as at March 31, 2018 compared to $226 as at June 30, 2017. The decrease of $7 was primarily due to capitalization of fixed asset in Malaysia operation and partially offset by increase of insurance and software related prepayment.
 
Property, plant and equipment, net increased by $1,590 from $11,291 as at June 30, 2017, to $12,881 as at March 31, 2018, mainly due to higher capital expenditure in the Singapore, Malaysia and Tianjin, China operations and a foreign currency exchange difference between the functional currency and U.S. dollars for the nine months ended March 31, 2018.
 
Other assets increased by $393 to $2,315 as at March 31, 2018, as compared to $1,922 as at June 30, 2017. This was mainly due to increase of down payment of assets from June 30, 2017 to March 31, 2018.
 
Restricted term deposits increased by $104 to $1,761 as at March 31, 2018, as compared to $1,657 as at June 30, 2017. This was primarily due to the foreign currency exchange difference between functional currency and U.S. dollars from June 30, 2017 to March 31, 2018.
 
Utilized lines of credit decreased by $1,245 to $1,311 as at March 31, 2018 compared to $2,556 as at June 30, 2017, which was mainly due to lower utilization of lines of credit by the Singapore operation in the first quarter of fiscal year 2018.
 
Accounts payable decreased by $1,130 to $2,099 as at March 31, 2018, as compared to $3,229 as at June 30, 2017. This was mainly due to the foreign currency exchange difference between the functional currency and U.S. dollars for the nine months ended March 31, 2018.
 
Accrued expenses increased by $1,605 to $4,648 as at March 31, 2018, as compared to $3,043 as at June 30, 2017. The increase in accrued expenses was mainly due to an increase in purchase accruals in the Singapore and Tianjin, China operations.
 
Bank loans payable increased by $157 to $1,969 as at March 31, 2018, as compared to $1,812 as at June 30, 2017. This was due to an additional loan made by the Singapore operation, partially offset by repayment of bank loans by the Malaysia operation.
 
Capital leases increased by $115 to $874 as at March 31, 2018, as compared to $759 as at June 30, 2017. This was due to new capital leases in the Malaysia operations, partially offset by repayment of capital leases by the Singapore operations.
 
 
 
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Liquidity Comparison
 
Net cash provided by operating activities increased by $109 to $3,122 for the nine months ended March 31, 2018, compared to $3,013 during the same period of the last fiscal year. The increase in net cash generated by operating activities was primarily due to increase in cash inflow of $223 in inventories and increase of provision of tax payable of 901. These were partially offset by a decrease in cash inflow from other receivable of $277, account payable and accrued expenses of $ 241 and other assets of $128.
 
Net cash used in investing activities increased by $488 to $1,805 for the nine months ended March 31, 2018, compared to $1,317 during the same period of the last fiscal year.  The increase was primarily due to $583 in capital spending. This increase in net cash used in investing activities was partially offset by the $140 increase in proceeds from maturing of restricted and unrestricted deposits.
 
Net cash used in financing activities increased by $410 to $1,455 for the nine months ended March 31, 2018, compared to $1,045 during the same period of the last fiscal year. The increase was mainly due to an increase in repayment for lines of credit of $1,226, which was partially offset by an increase in cash generated through borrowings from bank loans and capital leases in repayment of $720.
 
We believe that our projected cash flows from operations, borrowing availability under our revolving lines of credit, cash on hand, trade credit and the secured bank loan will provide the necessary financial resources to meet our projected cash requirements for at least the next 12 months.  
 
Critical Accounting Estimates & Policies
 
There have been no significant changes in the critical accounting policies, except as disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the most recent Annual Report on Form 10-K. 
 
 
 
 
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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not applicable.
 
ITEM 4.  CONTROLS AND PROCEDURES
 
An evaluation was carried out by the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2018, the end of the period covered by this Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective at a reasonable level.  
 
Except as discussed below, there has been no change in the Company’s internal control over financial reporting during the fiscal quarter ended March 31, 2018 that has materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
 
Enterprise Resource Planning (ERP) Implementation
 
We are in the process of implementing an ERP System, as part of a multi-year plan to integrate and upgrade our systems and processes. The implementation of this ERP system is scheduled to occur in phases over the next few years, and began with the migration of certain of our operational and financial systems in our Singapore operations to the new ERP system during the second quarter of fiscal 2017. During the third quarter of fiscal 2018, the operational and financial systems in Singapore have been substantially transitioned to the new system. This implementation effort will continue in fiscal 2019, when the operational and financial systems in our Malaysia operation will be substantially transitioned to the new system.
 
As a phased implementation of this system occurs, we are experiencing certain changes to our processes and procedures which, in turn, result in changes to our internal control over financial reporting. While we expect the new ERP system to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as processes and procedures in each of the affected areas evolve.
 
Enhancement of Automated Manufacturing System
 
During the first quarter of fiscal 2018, we enhanced the automated manufacturing system used by our Malaysia operation resulting in a material change in internal controls over financial reporting. The enhancement automates the process of invoice generation and matching of customer payments against invoices. We believe the enhancement was necessary to support increased volumes and transaction complexities related to our business as well to reduce the number of manual processes employed by the Company.
 
 
 
 
 
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TRIO-TECH INTERNATIONAL
PART II. OTHER INFORMATION
 
Item 1.          Legal Proceedings
 
Not applicable.
 
Item 1A.       Risk Factors
 
Not applicable.
 
Item 2.          Unregistered Sales of Equity Securities and Use of Proceeds
 
Malaysia and Singapore regulations prohibit the payment of dividends if the Company does not have sufficient retained earnings and tax credit. In addition, the payment of dividends can only be made after making deductions for income tax pursuant to the regulations. Furthermore, the cash movements from the Company’s 55% owned Malaysian subsidiary to overseas are restricted and must be authorized by the Central Bank of Malaysia. California law also prohibits the payment of dividends if the Company does not have sufficient retained earnings or cannot meet certain asset to liability ratios.
 
On February 22, 2018, the Company issued to one vendor an aggregate of 10,000 shares of the Common Stock of the Company in exchange for professional services rendered, which offer and sale was not registered under the Securities Act. The closing sales price of the Common Stock on February 22, 2018 was $3.91. The aggregate consideration in professional services received by the Company from the vendor was not less than $39,100. The offer and sale of the shares to the vendor were exempt from registration under the Securities Act under Section 4(a)(2) of the Securities Act. No other unregistered sales of securities by the Company occurred during the period covered by this Form 10-Q.
 
Item 3.          Defaults Upon Senior Securities
 
Not applicable.
 
Item 4.          Mine Safety Disclosures
 
Not applicable.
 
Item 5.          Other Information
 
Not applicable.
 
Item 6.          Exhibits
 
31.1
 
Rule 13a-14(a) Certification of Principal Executive Officer of Registrant
 
 
 
31.2
 
Rule 13a-14(a) Certification of Principal Financial Officer of Registrant 
 
 
 
32
 
Section 1350 Certification
 
 
 
101.INS XBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LABXBRL Taxonomy Extension Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase
 
 
 
 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.                   
                                          
 
 
 
TRIO-TECH INTERNATIONAL
 
/s/ Victor H.M. Ting
VICTOR H.M. TING
Vice President and Chief Financial Officer
(Principal Financial Officer)
Dated: May 18, 2018
 
 
 
 
 
 
 
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