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EX-32 - SECTION 1350 CERTIFICATION - TRIO-TECH INTERNATIONALex32.htm
EX-31.1 - RULE 13A-14(A) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER OF REGISTRANT - TRIO-TECH INTERNATIONALex31-1.htm
EX-31.2 - RULE 13A-14(A) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER OF REGISTRANT - TRIO-TECH INTERNATIONALex31-2.htm


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

R QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2011

OR
 
o 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 R No o

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  o   No o

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
 o
 
  Accelerated Filer
 o
         
 Non-Accelerated Filer 
 o
 
 Smaller Reporting Company 
 x
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso No x

As of May 11, 2011, there were 3,321,055 shares of the issuer’s Common Stock, no par value, outstanding.

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

   
Page
Part I.
Financial Information
 
     
  Item 1.
 
  
2
 
 
3
 
5
 
 
6
 
7
  Item 2.
28
  Item 3.
51
  Item 4.
51
     
Part II.
Other Information
 
     
  Item 1.
52
  Item 1A.
52
  Item 2.
52
  Item 3.
52
  Item 4.
52
  Item 5.
52
  Item 6.
52
     
 
53
 
 
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 Southeast 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. Important factors that could cause or contribute to such material differences include those discussed in “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K. You are cautioned not to place undue reliance on such forward-looking statements.

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT NUMBER OF SHARES)

   
March 31,
2011
   
June 30,
2010
 
ASSETS
 
(Unaudited)
       
CURRENT ASSETS:
           
Cash & cash equivalent
$
4,645
 
$
3,244
 
Short-term deposits
 
597
   
2,714
 
Trade accounts receivable, less allowance for doubtful accounts of $46 and $91
 
5,914
   
12,142
 
Other receivables
 
275
   
778
 
Loan receivables from property development projects
 
1,068
   
                    --
 
Inventories, less provision for obsolete inventory of $916 and $907
 
2,469
   
3,400
 
Investment in property development
 
--
   
887
 
Prepaid expenses and other current assets
 
421
   
296
 
Assets held for sale
 
137
   
                    --
 
 Total current assets
 
15,526
   
23,461
 
             
INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
 
755
   
--
 
INVESTMENT PROPERTY IN CHINA, Net
 
1,238
   
2,141
 
PROPERTY, PLANT AND EQUIPMENT, Net
 
14,277
   
12,695
 
OTHER ASSETS
 
1,848
   
1,180
 
RESTRICTED TERM DEPOSITS
 
3,472
   
2,247
 
TOTAL ASSETS
$
37,116
 
$
41,724
 
             
LIABILITIES
           
CURRENT LIABILITIES:
           
Lines of credit
$
1,245
 
$
2,532
 
Accounts payable
 
2,136
   
7,968
 
Accrued expenses
 
2,735
   
3,419
 
Income taxes payable
 
678
   
342
 
Current portion of bank loans payable
 
217
   
478
 
Current portion of capital leases
 
144
   
57
 
 Total current liabilities
 
7,155
   
14,796
 
             
BANK LOANS PAYABLE, net of current portion
 
2,726
   
2,566
 
CAPITAL LEASES, net of current portion
 
309
   
--
 
DEFERRED TAX LIABILITIES
 
681
   
718
 
OTHER NON-CURRENT LIABILITIES
 
484
   
569
 
TOTAL LIABILITIES
$
11,355
 
 $
18,649
 
COMMITMENT AND CONTINGENCIES
 
--
   
--
 
             
EQUITY
           
TRIO-TECH INTERNATIONAL’S SHAREHOLDERS' EQUITY:
           
Common stock, no par value, 15,000,000 shares authorized; 3,318,805 and 3, 227,430 shares issued and outstanding as at March 31, 2011, and June 30, 2010, respectively
$
10,527
 
$
10,365
 
Paid-in capital
 
2,183
   
1,597
 
Accumulated retained earnings
 
6,702
   
6,486
 
Accumulated other comprehensive gain-translation adjustments
 
3,229
   
1,818
 
 Total Trio-Tech International shareholders' equity
 
22,641
   
20,266
 
NON-CONTROLLING INTEREST
 
3,120
   
2,809
 
         TOTAL EQUITY
$
25,761
 
$
23,075
 
TOTAL LIABILITIES AND EQUITY
$
37,116
 
$
41,724
 

See notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)

   
Nine Months Ended
   
Three Months Ended
 
   
Mar. 31,
   
Mar. 31,
   
Mar. 31,
   
Mar. 31,
 
   
2011
   
2010
   
2011
   
2010
 
Revenue
                       
  Products
 
$
17,344
   
$
14,628
   
$
2,650
   
$
7,627
 
  Testing Services
   
9,659
     
8,104
     
2,992
     
2,854
 
  Fabrication Services
   
396
     
805
     
138
     
101
 
  Others
   
1,008
     
517
     
49
     
189
 
     
28,407
     
24,054
     
5,829
     
10,771
 
Cost of Sales
                               
   Cost of products sold
   
14,784
     
12,546
     
2,242
     
6,475
 
   Cost of testing services rendered
   
5,823
     
5,718
     
1,948
     
1,945
 
   Cost of fabrication services rendered
   
594
     
1,447
     
191
     
254
 
   Others
   
167
     
117
     
39
     
46
 
     
21,368
     
19,828
     
4,420
     
8,720
 
                                 
Gross Margin
   
7,039
     
4,226
     
1,409
     
2,051
 
                                 
Operating Expenses / (Gains):
                               
  General and administrative
   
6,131
     
4,661
     
1,997
     
1,657
 
  Selling
   
364
     
410
     
115
     
183
 
  Research and development
   
175
     
29
     
59
     
9
 
  Gain on disposal of property, plant and equipment
   
(146
   
(5
)
   
(153
)
   
(4
)
           Total operating expenses
   
6,524
     
5,095
     
2,018
     
1,845
 
                                 
Income / (Loss)  from Operations
   
515
     
(869
)
   
(609
   
206
 
                                 
Other Income / (Expenses)
                               
  Interest expenses
   
(173
)
   
(123
)
   
(54
)
   
(49
)
  Other  income, net
   
430
     
159
     
287
     
24
 
  Total other income / (expenses)
   
257
     
36
     
233
     
(25
)
                                 
Income / (Loss)  from Continuing Operations  before Income Taxes
   
772
     
(833
)
   
(376
)
   
181
 
                                 
Income Tax Expenses
   
(195
)
   
(50
)
   
(37
   
(78
)
                                 
Income / (Loss) from continuing operations before non-controlling interest, net of tax
   
577
     
(883
)
   
(413
   
103
 
                                 
Other Operating Activities
                               
Equity in loss of unconsolidated joint  venture, net of tax
   
(7
   
--
     
(7
   
--
 
                                 
Discontinued Operations (Note 18)
                               
(Loss) / income from discontinued operations, net of tax
   
(2
)
   
(32
)
   
--
     
14
 
NET INCOME / (LOSS)
   
568
     
(915
)
   
(420
   
117
 
                                 
Less: net income / (loss) attributable to the non-controlling interest
   
352
     
(143
)
   
42
     
98
 
Net Income / (Loss) Attributable to Trio-Tech International Common Shareholder
 
 $
216
   
 $
(772
)
 
 $
(462
 
 $
19
 


Amounts Attributable to Trio-Tech International
Common Shareholders:
                               
Income / (loss) from continuing operations, net of tax
   
218
     
(740
)
   
(462)
     
5
 
(Loss) / income from discontinued operations, net of tax
   
(2
)
   
(32
)
   
--
     
14
 
Net Income / (Loss) Attributable to Trio-Tech International Common Shareholders
 
 $
216
   
 $
(772
)
 
 $
(462
)
 
 $
19
 
                                 
Comprehensive Income / (Loss) Attributable to Trio-Tech International  Common Shareholders: 
                               
                                 
Net income / (loss)
   
568
     
(915
)
   
(420
)
   
117
 
Foreign currency translation, net of tax
   
1,370
     
673
     
299
     
335
 
Comprehensive Income / (Loss)
   
1,938
     
(242
)
   
(121
   
452
 
Less: Comprehensive income / (loss) attributable to the non-controlling interest
   
311
     
31
     
211
     
229
 
Comprehensive Income / (Loss) Attributable to Trio-Tech International Common Shareholders
 
 $
1,627
   
(273
)
 
 $
(332
 
 $
223
 
                                 
Basic Earnings / (Loss) per Share:
                               
Basic earnings / (loss) per share from continuing operations attributable to Trio-Tech International
 
$
0.07
   
$
(0.23
)
 
$
(0.14
)
 
$
--
 
Basic (loss) / earnings per share from discontinued operations attributable to Trio-Tech International
 
$
--
   
$
(0.01
)
 
$
--
   
$
0.01
 
Basic Earnings / (Loss) per Share from Net Income/(Loss) Attributable to Trio-Tech International
 
$
0.07
   
$
(0.24
)
 
$
(0.14
)
 
$
0.01
 
                                 
Diluted Earnings / (Loss) per Share:
                               
Diluted earnings / (loss) per share from continuing operations attributable to Trio-Tech International
 
$
0.06
   
$
(0.23
)
 
$
(0.14
)
 
$
--
 
Diluted (loss)/earnings per share from discontinued operations attributable to Trio-Tech International
 
$
--
   
$
(0.01
)
 
$
--
   
$
0.01
 
Diluted Earnings / (Loss) per Share from Net Income
                               
Income/(Loss) Attributable to Trio-Tech International
 
$
0.06
   
$
(0.24
)
 
$
(0.14
)
 
$
0.01
 
                                 
Weighted average number of common shares outstanding
                               
basic
   
3,277
     
3,227
     
3,301
     
3,227
 
Dilutive effect of stock options
   
114
     
--
     
--
     
--
 
Number of shares used to compute earnings per share --
 diluted
   
3,391
     
3,227
     
3,301
     
3,227
 
 
See notes to the condensed consolidated financial statements.


TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS) 

   
Common
Stock
   
Additional Paid-in
   
Accumulated Retained
   
Accumulated Other
Comprehensive
   
Non- Controlling
       
   
Shares
   
Amount
   
Capital
   
Earnings
   
Income
   
Interest
   
Total
 
          $
 
    $
 
    $
 
    $
 
    $
 
    $
 
 
Balance at June 30, 2009
   
3,227
     
10,365
   
 $
1,446
     
6,859
     
1,194
     
2,918
     
22,782
 
                                                         
Stock option expenses
                   
151
                             
151
 
Net loss
                           
(373
)
           
(219
)
   
(592
)
Translation adjustment
                                   
624
     
110
     
734
 
                                                         
Balance at June 30, 2010
   
3,227
     
10,365
     
1,597
     
6,486
     
1,818
     
2,809
     
23,075
 
                                                         
Cash received from stock  options exercised
   
92
     
162
                                     
162
 
Stock Option
expenses
                   
586
                             
586
 
Net income
                           
216
             
352
     
568
 
Translation adjustment
                                   
1,411
     
(41
)
   
1,370
 
                                                         
Balance at March 31, 2011
   
3,319
     
10,527
     
2,183
     
6,702
     
3,229
     
3,120
     
25,761
 

See notes to condensed consolidated financial statements.

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
   
Nine Months Ended
 
   
March 31,
   
March 31,
 
   
2011
   
2010
 
Cash Flow from Operating Activities  
(Unaudited)
 
(Unaudited)
 
Net income / (loss)
 
$
568
   
$
   (915
)
Adjustments to reconcile net income / (loss) to net cash flow provided by operating activities
               
Depreciation and amortization
   
1,929
     
  1,600
 
Bad debt (recovery) / expense, net
   
(51
)
   
  202
 
Inventory provision
   
47
     
  71
 
Warranty (recovery) / expense, net
   
(14
)
   
-
 
Accrued interest expense, net of interest income
   
158
     
 59
 
Gain on sale of property-continued operations
   
(146
)
   
(5
)
Investment income
   
-
     
     379
 
Stock compensation
   
586
     
127
 
Deferred tax provision
   
(96
)
   
62
 
Changes in operating assets and liabilities, net of acquisition effects
               
  Accounts receivables
   
6,518
     
(5,284
)
  Other receivables
   
553
     
(289
  Other assets
   
(610
)
   
629
 
  Inventories
   
1,179
     
(368
)
  Prepaid expenses and other current assets
   
(112
)
   
240
 
  Investment in property development
   
919
     
(558
)
  Accounts payable and accrued liabilities
   
(6,910
)
   
3,818
 
  Income tax payable
   
305
     
4
 
  Other non-current liabilities
   
(103
)
   
(34
Net cash provided by (used in) operating activities
   
4,720
     
(262
                 
Cash Flow from Investing Activities
               
Loss in equity of unconsolidated joint venture
   
(7
)
   
-
 
Proceeds from unrestricted and restricted term deposits, net
   
1,317
     
268
 
Loan receivables from property development projects
   
(1,068
)
   
-
 
Investment in unconsolidated joint venture
   
(748
)
   
-
 
Prepayment from other assets
   
-
     
(1,347
)
Additions to property, plant and equipment
   
(2,149
)
   
(4,138
)
Acquisition of PT SHI Indonesia, net of cash acquired
   
-
     
225
 
Proceeds from disposal of investment property
   
                1,026
     
-
 
Proceeds from disposal of property, plant and equipment
   
57
     
5
 
Net cash used in investing activities
   
(1,572
)
   
(4,987
)
                 
Cash Flow from Financing Activities
               
(Repayment) / borrowing on lines of credit, net
   
(1,373
)
   
1,213
 
Repayment of bank loans and capital leases
   
(569
)
   
(1,021
)
Proceeds from long-term bank loans
   
-
     
2,438
 
Proceeds from stock options exercised
   
162
     
-
 
Net cash (used in) provided by financing activities
   
(1,780
)
   
2,630
 
                 
Effect of Changes in Exchange Rate
   
33
     
192
 
                 
NET INCREASE (DECREASE) IN CASH
   
1,401
     
(2,427
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
   
3,244
     
6,037
 
CASH AND CASH EQUIVALENTS, END OF PERIOD
 
$
4,645
   
$
3,610
 
                 
Supplementary Information of Cash Flows
               
Cash paid during the period for:
               
Interest
 
$
149
   
$
128
 
Income taxes
 
$
172
   
$
8
 
                 
Non-Cash Transactions
               
  Capital lease of property, plant and equipment
 
 $
497
   
 $
-
 
 
See notes to the condensed consolidated financial statements.

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AND NUMBER OF SHARES)

1.   ORGANIZATION AND BASIS OF PRESENTATION

Trio-Tech International (“the Company” or “TTI” hereafter) was incorporated in fiscal 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. TTI conducts business in five business segments: Manufacturing, Testing Services, Fabrication Services, Distribution and Real Estate. TTI has subsidiaries and joint ventures in the U.S.A., Singapore, Malaysia, Thailand, China and Indonesia 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
(Operation ceased on November 1, 2005)
    100 %  
Dublin, Ireland
Trio-Tech International Pte. Ltd.
    100 %  
Singapore
Universal (Far East) Pte. Ltd.  *
    100 %  
Singapore
Trio-Tech International (Thailand) Co. Ltd.*
    100 %  
Bangkok, Thailand
Trio-Tech (Bangkok) Co. Ltd.
(49% owned by Trio-Tech International Pte. Ltd. and 51% owned by Trio-Tech International (Thailand) Co. Ltd.)
    100 %  
Bangkok, Thailand
Trio-Tech (Malaysia) Sdn. Bhd.
(55% owned by Trio-Tech International Pte. Ltd.)
    55 %  
Penang and Selangor, Malaysia
Trio-Tech (Kuala Lumpur) Sdn. Bhd.
(100% owned by Trio-Tech Malaysia Sdn. Bhd.)
    55 %  
Selangor, Malaysia
Prestal Enterprise Sdn. Bhd.
(76% owned by Trio-Tech International Pte. Ltd.)
    76 %  
Selangor, Malaysia
Trio-Tech (Suzhou) Co. Ltd. *
    100 %  
Suzhou, China
Trio-Tech (Shanghai) Co. Ltd. *
(Operation ceased on January 1, 2010)
    100 %  
Shanghai, China
Trio-Tech (Chongqing) Co. Ltd. *
    100 %  
Chongqing, China
SHI International Pte. Ltd.
(55% owned by Trio-Tech International Pte. Ltd.)
    55 %  
Singapore
PT SHI Indonesia
(100% owned by SHI International Pte. Ltd)
    55 %  
Batam, Indonesia
Trio-Tech (Tianjin) Co. Ltd. *
    100 %  
Tianjin, China
Chong Qing Jun Zhou Zhi Ye Co. Ltd
(10% owned by Trio-Tech (Chongqing) Co. Ltd.)
    10 %  
Chongqing, China
 
* 100% owned by Trio-Tech International Pte. Ltd.
 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles 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, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2011.  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, 2010.

All dollar amounts in the financial statements and in the notes herein are U.S. dollars (‘‘U.S. $’’) unless otherwise designated.

Reclassification- certain reclassifications have been made to the financial statements for the period ending March 31, 2010 to conform to the presentation for the period ending March 31, 2011, with no effect on previously reported net income.

New Accounting Policy:

Joint Venture - The Company analyzes its investments in joint ventures to determine if the joint venture is a variable interest entity (a “VIE”) and would require consolidation. The Company (a) evaluates the sufficiency of the total equity at risk, (b) reviews the voting rights and decision-making authority of the equity investment holders as a group, and whether there are any guaranteed returns, protection against losses, or capping of residual returns within the group and (c) establish whether activities within the venture are on behalf of an investor with disproportionately few voting rights in making this VIE determination. The Company would consolidate a venture that is determined to be a VIE if it was the primary beneficiary. Beginning January 1, 2010, a new accounting standard became effective and changed the method by which the primary beneficiary of a VIE is determined a primarily qualitative approach whereby the variable interest holder, if any, has the power to direct the VIE’s most significant activities and is the primary beneficiary. To the extent that the joint venture does not qualify as VIE, the Company further assesses the existence of a controlling financial interest under a voting interest model to determine whether the venture should be consolidated.

Equity Method - The Company analyzes its investments in joint ventures to determine if the joint venture should be accounted for using the equity method. Management evaluates both Common Stock and in-substance Common Stock whether they give the Company the ability to exercise significant influence over operating and financial policies of the joint venture even though the Company holds less than 50% of the Common Stock and in-substance Common Stock. The net income of the joint venture will be reported as “Equity in earnings of unconsolidated joint ventures, net of tax” in the Company’s condensed consolidated statements of operations and comprehensive income.

Loan Receivables - The loan receivables are classified as current assets carried at face value and are individually evaluated for impairment.  The allowance for loan losses reflects management’s best estimate of probable losses determined principally on the basis of historical experience and specific allowances for known loan accounts. All loans or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for losses.

Interest Income - Interest income on loans is recognized on an accrual basis. Discounts and premiums on loans are amortized to income using the interest method over the remaining period to contractual maturity. The amortization of discounts into income is discontinued on loans that are contractually 90 days past due or when collection of interest appears doubtful.


2.   ACQUISITION OF PT SHI INDONESIA, BATAM, INDONESIA
 
On July 1, 2009, SHI International Pte. Ltd., a 55% owned subsidiary of the Company, consummated the acquisition of a 100% interest in PT SHI Indonesia, pursuant to the Share Purchase Agreement dated April 7, 2009. PT SHI Indonesia is an Indonesia–based enterprise providing fabrication of large and complex structures employed to process oil and gas and for temporary storage of the oil prior to transshipment, and related services for the offshore oil and gas industries. The Company’s objective for acquiring this business was to diversify its business, reduce the risk associated with sole industry focus, and enhance the Company’s future growth opportunities. Beginning on July 1, 2009, the operating results of this subsidiary were included in the consolidated statements of the Company and represent the Company’s segment “fabrication services.” This acquisition transaction was not considered significant to the Company.
 
Pursuant to the Share Purchase Agreement dated April 7, 2009, the purchase price was approximately $113, consisting of $10 in cash and $103 in a contingent note payable.  In accordance with ASC Topic 805, Business Combinations, the Company allocated the purchase price to the tangible assets and liabilities based on their estimated fair values. The fair value assigned to intangible assets acquired was based on estimates and assumptions determined by management. Management determined that the fair value attributable to non-controlling interest was nil due to negative net asset value and the control premium associated with the Company’s majority ownership. Therefore, 100% of the goodwill was allocated to the majority shareholder, the Company.
 
The total purchase price was allocated as follows:  
 
Total purchase price:
   
            Cash
 
$
10
 
            Contingent note payable
   
103
 
         
   
$
113
 
Allocated as follows:
   
Cash & cash equivalent
 
$
235
 
Accounts receivable
   
261
 
Other current assets
   
332
 
Fixed assets
   
298
 
Accounts payable and accrued expenses
   
(876
)
Other non-current liabilities
   
(569
)
              Non-controlling interest
   
--
 
NET ASSETS
 
$
(319
)
     
Goodwill
   
432
 
 Total purchase price
 
$
113
 
 
The contingent note payable of $103 was related to agreements to pay additional amounts based on achievement of certain performance measures after the acquisition date. The excess purchase price over the fair value of net assets acquired was recorded as goodwill. Goodwill is not amortized, but evaluated for impairment annually or whenever events or changes in circumstances indicate that the value of a certain asset may be impaired. The Company performed an assessment of the carrying value of its goodwill balance during the preparation of the Form 10-K report for fiscal year 2010 in accordance with ASC Topic 350, Intangibles-Goodwill and Other. As a result of the test, the Company concluded that the carrying amount of its fabrication services segment exceeded its fair value, and the goodwill of approximately $432 was fully impaired in fiscal year 2010. As management determined that the goodwill only belonged to the Company on the acquisition date, the goodwill was not recorded by the non-controlling interest, which controls 45% of the equity of the Company’s Indonesia operation. Therefore, the impairment loss of goodwill in fiscal year 2010 was not allocated to the non-controlling interest. 
 
3.   NEW ACCOUNTING PRONOUNCEMENTS
 
In December 2010, the FASB issued ASU No. 2010-28, Intangibles – Goodwill and Other (ASC Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.  Under Topic 350 on goodwill and other intangible assets, testing for goodwill impairment is a two-step test.  When a goodwill impairment test is performed (either on an annual or interim basis), an entity must assess whether the carrying amount of a reporting unit exceeds its fair value (Step 1).  If it does, an entity must perform an additional test to determine whether goodwill has been impaired and to calculate the amount of that impairment (Step 2).  The amendments in this Update modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts.  For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that goodwill impairment exists. An entity should consider whether there are any adverse qualitative factors indicating that impairment may exist.  The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010.  The adoption of this update is not expected to have an impact on our results of operations or financial position, as the Company has fully impaired goodwill in prior fiscal years.

In April 2010, the FASB issued ASU No. 2010-13, Compensation—Stock Compensation (ASC Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in which the Underlying Equity Security Trades. This ASU codifies the consensus reached in EITF Issue No. 09-J, Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in which the Underlying Equity Security Trades. The amendments to the codification clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity shares trades should not be considered to contain a condition that is not a market, performance, or service condition. This is effective for financial years beginning after December 15, 2010, which is the fiscal year beginning July 1, 2011 for the Company. The adoption of this update is not expected to have any material impact on our results of operations or financial position.

In March 2010, the FASB issued ASU No. 2010-19, Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange. The purpose of this ASU was to codify the SEC staff announcement made at the March 18, 2010. EITF meeting providing the SEC staff’s views on certain foreign currency issues related to investments in Venezuela. This became effective on March 18, 2010. The adoption of this update does not have a material impact on our results of operations or financial position.


In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (ASC Topic 820): Improving Disclosures about Fair Value Measurements, to update the guidance related to fair value measurements and disclosures, which requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the transfers. In addition, in the reconciliation for fair value measurements using significant unobservable inputs, or Level 3, a reporting entity should disclose separately information about purchases, sales, issuances and settlements (that is, on a gross basis rather than one net number). The updated guidance also requires that an entity should provide fair value measurement disclosures for each class of assets and liabilities and disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements for Level 2 and Level 3 fair value measurements. The updated guidance is effective for interim or annual financial reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. Except for the presentation and disclosure requirements required by this guidance, the adoption is not expected to have an impact on the Company’s condensed consolidated financial statements.

4.   INVENTORIES
 
Inventories consisted of the following:
   
Mar. 31,
       
   
2011
   
June 30,
 
   
(Unaudited)
   
2010
 
             
Raw materials
 
$
1,206
   
$
1,185
 
Work in progress
   
1,534
     
2,770
 
Finished goods
   
280
     
288
 
Less: provision for obsolete inventory
   
(916
)
   
(907
)
Currency translation effect
   
365
     
64
 
   
$
2,469
   
$
3,400
 
 
 The following table represents the changes in provision for obsolete inventory:
 
 
Mar. 31,
 
 
 
 
 
 
2011
 
 
June 30,
 
 
 
(Unaudited)
 
 
2010
 
Beginning
 
$
907
 
 
$
718
 
Additions charged to expenses
 
 
47
 
 
 
253
 
Usage - Disposition
   
(107
)
   
(82
)
Currency translation effect
 
 
69
 
 
 
18
 
Ending
 
$
916
 
 
$
907
 

5.   STOCK OPTIONS

On September 24, 2007, the Company’s Board of Directors unanimously adopted the 2007 Employee Stock Option Plan and the 2007 Directors Equity Incentive Plan, which were approved by the shareholders on December 3, 2007.  The 2007 Employee Stock Option Plan provides for awards of up to 300,000 shares of the Company’s Common Stock to employees, consultants and advisors.  The 2007 Directors Equity Incentive Plan provides for awards of up to 200,000 shares of the Company’s Common Stock to the members of the 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.
 

On September 16, 2010, the Board of Directors adopted an amendment to the 2007 Employee Stock Option Plan to increase the number of shares available for grant under the Employee Stock Option Plan from 300,000 shares to 600,000 shares of Common Stock. The Board also adopted an amendment to the 2007 Directors Equity Incentive Plan to increase the number of shares available for grant under that plan from 200,000 shares to 400,000 shares of Common Stock.   These amendments to the 2007 Employee Stock Option Plan and the 2007 Directors Equity Incentive Plan were approved by the shareholders on December 14, 2010.

Assumptions

The fair value for these options granted was estimated using the Black-Scholes option pricing model with the following weighted average assumptions, assuming no expected dividends:       
   
Nine Months Ended
March 31,
   
Year Ended
June 30,
 
   
2011
   
2010
 
             
Expected volatility
   
112.24 - 122.07
%
   
107.18 - 145.18
%
Risk-free interest rate
   
0.66 – 1.06
%
   
1.27 – 2.48
%
Expected life (years)
   
2.00 - 3.25
     
2.00 - 3.25
 
              
The expected volatilities are based on the historical volatility of the Company’s stock.  The observation is made on a weekly basis.  The observation period covered is consistent with the expected life of options.  The expected term of options granted to employees has been determined utilizing the “simplified” method as prescribed by ASC Topic 718 Compensation – Stock Compensation, which, among other provisions, allowed companies without access to adequate historical data about employee exercise behavior to use a simplified approach for estimating the expected term of a "plain vanilla" option grant.  The simplified rule for estimating the expected term of such an option was the average of the time to vesting and the full term of the option. The risk-free rate is consistent with the expected terms of the stock options and is based on the United States Treasury yield curve in effect at the time of grant.
 
2007 Employee Stock Option Plan

The Company’s 2007 Employee Stock Option Plan (the “2007 Employee Plan”), which is shareholder-approved, permits 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 must be granted with an exercise price of not less than “fair market value” as of the grant date and the options granted should 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 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 over the vesting period. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the 2007 Employee Plan).

Pursuant to the 2007 Employee Plan, stock options covering a total of 100,000 shares of the Company’s Common Stock were granted to certain officers and employees on December 14, 2010 with an exercise price equal to the fair market value of the Company’s Common Stock (as defined under the 2007 Employee Plan in conformity with Regulation 409A of the Internal Revenue Code of 1986, as amended) at the date of grant.  These options vest over the period as follows: 25% vesting on the grant date, and the balance vesting in equal installments on the next three succeeding anniversaries of the grant date.  The fair market value as of March 31, 2011 of the options to purchase 100,000 shares of the Company’s Common Stock was approximately $316 based on the fair value of $3.16 per share determined by using the Black Scholes option pricing model.


The Company recognized stock-based compensation expense of approximately $181 in the nine months ended March 31, 2011 under the 2007 Employee Plan.  Unamortized stock-based compensation of $212 based on fair value on the grant date related to options granted under the 2007 Employee Plan is expected to be recognized over a period of four years.

The Company did not grant any options pursuant to the 2007 Employee Plan during the nine months ended March 31, 2010. The Company recognized stock-based compensation expenses of $127 in the nine months ended March 31, 2010 under the 2007 Employee Plan.  As of March 31, 2010, the balance of unamortized stock-based compensation of $105 based on fair value on the grant date related to options granted under the 2007 Employee Plan was expected to be recognized over a period of two years.

As of March 31, 2011, there were vested employee stock options covering a total of 114,125 shares of Common Stock. The weighted-average exercise price was $5.81 and the weighted average remaining contractual term was 2.78 years. The total intrinsic value of vested employee stock options during the nine month period ended March 31, 2011 was $65. A summary of option activities under the 2007 Employee Plan during the nine month period ended March 31, 2011 is presented as follows:
 
     
Weighted- Average
 
Weighted - Average Remaining
   
Aggregate
 
 
Options
 
Exercise
Price
 
Contractual Term (Years)
   
Intrinsic
Value
 
                   
Outstanding at July 1, 2010
274,000
 
$
3.32
   
3.48
   
 $
409
 
Granted
100,000
   
4.35
   
4.71
     
-
 
Exercised
(76,375
)
 
1.77
   
             -
     
          344
 
Forfeited or expired
(3,500
)
 
1.89
   
-
     
               -
 
Outstanding at March 31, 2011
294,125
 
$
4.08
   
3.31
   
$
358
 
Exercisable at March 31, 2011
114,125
 
$
5.81
   
2. 78
   
$
65
 
 
The fair value of the 76,375 options exercised was $344.  Cash received from options exercised during the nine months ended March 31, 2011 was approximately $135.

A summary of the status of the Company’s non-vested employee stock options during the nine months ended March 31, 2011 is presented below:
         
Weighted-Average
Grant-Date
 
   
Options
   
Fair Value
 
             
Non-vested at July 1, 2010
   
127,125
   
$
4.83
 
Granted
   
100,000
     
3.16
 
Vested
   
(43,625
)
   
3.59
 
Forfeited
   
(3,500
)
   
2.07
 
Non-vested at March 31, 2011
   
180,000
   
$
4.26
 
 

2007 Directors Equity Incentive Plan

The 2007 Directors Equity Incentive Plan (the “2007 Directors Plan”), which is shareholder-approved, permits the grant of options covering up to an aggregate of 400,000 shares of Common Stock to its duly elected non-employee directors in the form of non-qualified options covering and restricted stock. The exercise price of the non-qualified options is 100% of the fair market 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.

Pursuant to the 2007 Directors Plan, 150,000 shares of stock options were granted to our directors in the second quarter of fiscal 2011 with an exercise price equal to the fair market value of our 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 market value as of March 31, 2011 of the options to purchase 100,000 shares of the Company's Common Stock was approximately $405 based on the fair value of $2.70 per share determined by the Black Scholes option pricing model.  15,000 shares of stock options were exercised during the nine month period ended March 31, 2011.  The Company recognized stock-based compensation expense of $405 in the nine month period ended March 31, 2011 under the 2007 Directors Plan.

During the nine months ended March 31, 2010, the Company did not grant any options pursuant to the 2007 Directors Plan and no stock-based compensation expense was recognized.

The total intrinsic value of directors’ stock options during the nine months ended March 31, 2011 was $225.  A summary of option activities under the 2007 Directors Plan during the nine months ended March 31, 2011 is presented as follows:
                         
   
Options
   
Weighted- Average
 Exercise
Price
   
Weighted - Average Remaining Contractual
 Term (Years)
   
Aggregate
 Intrinsic
Value
 
                         
Outstanding at July 1, 2010
   
200,000
   
$
5.00
     
3.40
     
170
 
Granted
   
150,000
     
4.35
     
4.71
     
-
 
Exercised
   
(15,000
)
   
1.72
     
                 -
     
              -
 
Forfeited or expired
   
-
     
-
     
                 -
     
              -
 
Outstanding at March 31, 2011
   
335,000
   
$
4.86
     
3.41
   
$
225
 
Exercisable at March 31, 2011
   
335,000
   
$
4.86
     
3.41
   
$
225
 
 
6.   EARNINGS PER SHARE

The Company adopted ASC Topic 260, Earnings Per Share. Basic 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.

Options to purchase 629,125 shares of Common Stock at exercise prices ranging from $1.72 to $9.57 per share as of March 31, 2011 were excluded in the computation of diluted EPS because their effect would have been anti-dilutive.

Options to purchase 474,000 shares of Common Stock at exercise prices ranging from $1.72 to $9.57 per shares as of March 31, 2010 were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.


The following table is a reconciliation of the weighted average shares used in the computation of basic and diluted EPS for the periods presented herein: 

   
Nine Months Ended
   
Three Months Ended
 
   
Mar. 31,
   
Mar. 31,
   
Mar. 31,
   
Mar. 31,
 
   
2011
   
2010
   
2011
   
2010
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
                         
Income / (loss) attributable to Trio-Tech International common shareholders from continuing operations, net of tax
 
$
218
   
$
(740
)
 
$
(462
 )
 
$
5
 
Loss attributable to Trio-Tech International common shareholders from discontinued operations, net of tax
   
(2
)
   
(32
)
   
-
     
14
 
Net income / (loss) attributable to Trio-Tech International common shareholders
 
$
216
   
$
(772
)
 
$
(462
 )
 
$
19
 
                                 
Basic earnings / (loss) per share from continuing operations attributable to Trio-Tech International
 
 $
                    0.07
   
 $
                (0.23
 )
 
 $
               (0.14
 )
 
 $
                       -
 
                     
         
         
Basic earnings/(loss) per share from discontinued operations attributable to Trio-Tech International
   
-
     
(0.01
)
   
-
     
0.01
 
Basic earnings / (loss) per share from net income / (loss) attributable to Trio-Tech International
 
 $
0.07
   
 $
(0.24
)
 
 $
(0.14
)
 
 $
0.01
 
                                 
Diluted earnings / (loss) per share from continuing operations attributable to Trio-Tech International
 
$
0.06
   
$
(0.23
)
 
$
(0.14
)
 
$
-
 
Diluted earnings/(loss) per share from discontinued operations attributable to Trio-Tech International
   
-
     
(0.01
)
   
-
     
0.01
 
Diluted  earnings / (loss) per share from net income / (loss) attributable to Trio-Tech International
 
 $
0.06
   
(0.24
)
 
 $
(0.14
)
 
 $
0.01
 
                                 
Weighted average number of common shares outstanding – basic
   
3,277
     
3,227
     
3,301
     
3,227
 
                                 
Dilutive effect of stock options
   
114
     
-
     
-
     
-
 
Number of shares used to compute earnings per share – diluted
   
3,391
     
3,227
     
3301
     
3,227
 

7.   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 monthly basis to determine if any receivables will potentially be uncollectible. Management includes any accounts receivable balances that are determined to be uncollectible in the allowance for doubtful accounts.  After all attempts to collect a receivable have failed, the receivable is written off against the allowance.  Based on the information available to us, management believed the allowance for doubtful accounts as of March 31, 2011 and June 30, 2010 was adequate.  

The following table represents the changes in the allowance for doubtful accounts:
   
Mar. 31,
       
   
2011
   
June 30,
 
   
(Unaudited)
   
2010
 
Beginning
 
$
91
   
$
165
 
Additions charged to expenses
   
52
     
38
 
Recovered
   
(103
)
   
(116
)
Currency translation effect
   
6
     
4
 
Ending
 
$
46
   
$
91
 

8.   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 Company provides warranty for products manufactured in the term of one year.  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,
       
   
2011
   
June 30,
 
   
(Unaudited)
   
2010
 
Beginning
 
$
113
   
$
49
 
Additions charged to cost and expenses
   
50
     
110
 
Recovered
   
(64
)
   
(9
)
Actual usage
   
(62
)
   
(39
)
Currency translation effect
   
7
     
2
 
Ending
 
$
44
   
$
113
 

9.  INCOME TAX

The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of ASC Topic 740 Income Tax. The income tax expenses were $195 for the nine months and $37 for the three months ended March 31, 2011 as compared to income tax expenses of $50 for the nine months and $78 for the three months ended March 31, 2010.

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, 2011 and June 30, 2010.

The major tax jurisdictions in which the Company files income tax returns are the United States, Singapore and Malaysia.  The statute of limitations, in general, is open for years 2004 to 2010 for tax authorities in those jurisdictions to audit or examine income tax returns.  The Company is under annual review by the government of Singapore.  However, the Company is not currently under tax examination in any other jurisdiction.

The Company did not recognize any income tax benefit according to the provisions of ASC Topic 740 Income Tax during the third quarter of fiscal 2011.


10.   INVESTMENT IN PROPERTY DEVELOPMENT

The following table presents the Company’s investment in property development in China as of March 31, 2011. The exchange rate is based on the exchange rate as on March 31, 2011 published by the Monetary Authority of Singapore.

 
Investment Date
 
Investment Amount
   
Investment Amount
 
     
(RMB)
   
(U.S. Dollars)
 
Investment in developments - JiaSheng
08/27/2007
   
10,000
     
1,526
 
Investment in developments - JiaSheng
12/17/2007
   
5,000
     
763
 
Return of investment in developments  - JiaSheng
06/26/2008
   
(5,000
)
   
(763
)
Return of investment in developments - JiaSheng
10/23/2008
   
(1,988
)
   
(303
)
Return of  investment in developments - JiaSheng
11/20/2009
   
(1,988
)
   
(303
)
Return of  investment in developments - JiaSheng
11/03/2010
   
(2,651
)
   
(405
)
Return of  investment in developments - JiaSheng
11/08/2010
   
(723
)
   
(110
)
Return of  investment in developments - JiaSheng
11/09/2010
   
(301
)
   
(46
)
Return of  investment in developments - JiaSheng
11/10/2010
   
(1,807
)
   
(276
)
Return of  investment in developments - JiaSheng
11/12/2010
   
(542
)
   
(83
)
Total: Investment in property developments
– Jia Sheng (project B-48 Phase 1)
     
-
     
-
 

On August 27, 2007, Trio-Tech (Chongqing) Co. Ltd. (“TTCQ”) entered into a Memorandum Agreement with JiaSheng Property Development Co., Ltd. (“JiaSheng”) to invest in a piece of property (project B-48 phase 1) with 24.91 acres owned and developed by JiaSheng located in Chongqing City, China, which was intended for sale after the completion of development.  Pursuant to the signed agreement, TTCQ invested RMB 10,000, equivalent to approximately $1,526 based on the exchange rate as on March 31, 2011 published by the Monetary Authority of Singapore. The agreement guarantees the Company a return on its investment.

On December 17, 2007, TTCQ invested an additional RMB 5,000, approximately $763 based on the exchange rate as on March 31, 2011 published by the Monetary Authority of Singapore, to increase the square meters of the buildings specified in the original Memorandum Agreement dated August 27, 2007 by 9,885 square meters, which was approved by the Chinese District Zoning Regulation Bureau.

In the fourth quarter of fiscal 2008, the investment of RMB 5,000, approximately $763 based on the exchange rate as on March 31, 2011 published by the Monetary Authority of Singapore, was returned to the Company, which reduced the investment in this project to RMB 10,000, or approximately $1,526. The Company also recorded a return on investment of RMB 750, approximately $112, in investment income in the fourth quarter of fiscal 2008.

In October 2008, TTCQ received the second return of investment principal of RMB 1,988, or $303 based on the exchange rate as on March 31, 2011 published by the Monetary Authority of Singapore, and investment income of RMB 1,312, or approximately $196 based on the average exchange rate for the nine months ended March 31, 2011 published by the Monetary Authority of Singapore, from JiaSheng against the purchase of property from JiaSheng.  The investment income was part of the return of investment based on the investment amount of RMB 10,000, or approximately $1,526.  

In the second quarter of fiscal 2010, TTCQ received the third return of investment principal of RMB 1,988, or approximately $303 based on the exchange rate as of March 31, 2011 published by the Monetary Authority of Singapore, and investment income of RMB 1,312, or approximately $196 based on the average exchange rate for the nine months ended March 31, 2011 published by the Monetary Authority of Singapore, from JiaSheng. The investment income was part of the return of investment based on the total investment amount of RMB 10,000, or approximately $1,526. 


In January 2010, the Company entered into a Memorandum of Agreement with JiaSheng to extend the agreement on August 27, 2007. The agreement was extended to April 25, 2010 for a consideration of RMB 1,250, or approximately $186 based on the average exchange rate for the nine months ended March 31, 2011 published by the Monetary Authority of Singapore.  The Company received the consideration of RMB 625, approximately $93, in January 2010 and received the balance of RMB 625, or approximately $93, in May 2010, based on the average exchange rate for the nine months ended March 31, 2011 published by the Monetary Authority of Singapore. The amount received was recorded as investment income in the relevant period.

In April 2010, the agreement was further extended to October 31, 2010 for an additional consideration of RMB 1,250, or approximately $186 based on the average exchange rate for the nine months ended March 31, 2011 published by the Monetary Authority of Singapore.  In August 2010, JiaSheng paid RMB 625, or approximately $93, and paid the balance of RMB 625, or approximately $93, in the second quarter of fiscal 2011, based on the average exchange rate for the nine months ended March 31, 2011 published by the Monetary Authority of Singapore. The amount received was recorded as investment income in the relevant period.

In the second quarter of fiscal 2011 TTCQ received RMB 6,024, or approximately $920 based on the exchange rate as of March 31, 2011 published by the Monetary Authority of Singapore, as a full and final payment towards the investment pursuant to the Memorandum Agreement entered with Jiasheng on August 27, 2007 and extended to October 31, 2010.   In addition, a return on investment of RMB 3,976, or approximately $595 based on the exchange rate as of March 31, 2011 published by the Monetary Authority of Singapore, was received by TTCQ and recorded as investment income in the relevant period.

11.   LOAN RECEIVABLE FROM PROPERTY DEVELOPMENT PROJECTS

The following table presents the Company’s loan receivable from property development projects in China as of March 31, 2011. The exchange rate is based on the date published by the Monetary Authority of Singapore as on March 31, 2011.

 
Loan Date
 
Loan Amount
   
Loan Amount
 
     
(RMB)
   
(U.S. Dollars)
 
Investment in  JiaSheng (Project B-48 Phase 2)
11/1/2010
   
5,000
     
763
 
Investment in JiangHuai (Project - Yu Jin Jiang An )
11/1/2010
   
 2,000
     
305
 
Net loan receivable from property development projects
     
7,000
     
1,068
 
 
On November 1, 2010, TTCQ entered into a new Memorandum Agreement with 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 310-10-25 Receivables, amounting to RMB 5,000, equivalent to approximately $763 based on the exchange rate as of March 31, 2011 published by the Monetary Authority of Singapore. The agreement guaranteed the Company an income of RMB 1,250, or approximately $187 based on the exchange rate as of March 31, 2011 published by the Monetary Authority of Singapore, payable in four installments of RMB 313, or approximately $47.  The amount is unsecured and repayable at the end of one year.  The book value of the loan receivable approximates its fair value. In the third quarter of fiscal 2011, TTCQ recorded other income of RMB 521, or approximately $78 from JiaSheng, based on the average exchange rate for the nine months ended March 31, 2011 published by the Monetary Authority of Singapore.


On November 1, 2010, TTCQ entered into a new 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 RMB 2,000, equivalent to approximately $305 based on the exchange rate on March 31, 2011 published by the Monetary Authority of Singapore. The agreement guaranteed the Company an income of RMB 400, or approximately $60 based on the exchange rate as of March 31, 2011 published by the Monetary Authority of Singapore, payable in 12 installments of RMB 33, or approximately $5. The amount is secured by the underlying property and repayable at the end of one year.  The book value of the loan receivable approximates its fair value. In the third quarter of fiscal 2011, TTCQ recorded other income of RMB 167, or approximately $25 from JiangHuai, based on the average exchange rate for the nine months ended March 31, 2011 published by the Monetary Authority of Singapore.

12.   INVESTMENT PROPERTY IN CHINA

The following table presents the Company’s investment in the property in China as of March 31, 2011. The exchange rate is based on the exchange rate as of March 31, 2011 published by the Monetary Authority of Singapore.

 
Investment Date
 
Investment
Amount
   
Investment Amount
 
     
(RMB)
   
(U.S. Dollars)
 
Purchase of rental property - MaoYe
01/04/2008
   
5,554
     
847
 
Purchase of rental property - JiaSheng
10/23/2008
   
7,042
     
1,074
 
Additional cost of rental property - JiaSheng
12/01/2009
   
209
     
32
 
Investment rental property disposed - JiaSheng
02/05/2010
   
(579
)
   
(88
)
Purchase of  rental property – Jiang Huai
01/06/2010
   
3,600
     
549
 
Investment rental property disposed - JiaSheng
03/04/2011
   
(6,672
)
   
(1,018
)
Gross investment in rental property
     
9,154
     
1,396
 
                   
Accumulated depreciation on rental property
03/31/2011
   
(1,037
)
   
(158
)
                   
Net investment in property - China
     
8,117
     
1,238
 

On January 4, 2008, TTCQ entered into a Memorandum Agreement with MaoYe Property Ltd. to purchase an office space of 827.2 square meters on the 35th floor of a 40 story office building located in Chongqing, China.  The total cash purchase price was RMB 5,554, equivalent to approximately $847 based on the exchange rate as of March 31, 2011 published by the Monetary Authority of Singapore.  Under the terms of the agreement, the Company paid the purchase price in full on January 4, 2008.  The Company rented this property to a third party on July 13, 2008. The term of the rental agreement was five years with a monthly rental income of RMB 39, or approximately $6 for the first three years, with an increase of 8% in the fourth year and another 8% in the fifth year. This property generated a rental income of $18 and $52 in the three and nine months ended March 31, 2011, respectively, as compared to $18 and $52 for the same periods in the last fiscal year.

On October 23, 2008, TTCQ entered into a Memorandum Agreement with JiaSheng to purchase four units of commercial property and two units of residential property, totaling 1,391.70 square meters, at JiaSheng Jingyun Huafu Project located at No. 17 Puyun Avenue in Chongqing, China. The total purchase price was RMB 7,042, approximately $1,074 based on the exchange rate as of March 31, 2011 published by the Monetary Authority of Singapore.  The Company made cash payment of RMB 3,612, or approximately $551, and offset the remaining purchase price for this commercial and residential property with the investment return and investment income from the No. B48 property in the BeiPei district of Chongqing City. This property generated a rental income of $18 and $104 in the three and nine months ended March 31, 2011, respectively, as compared to $51 and $152 for the same periods in the last fiscal year.


In January 2010, the Company entered in to a Memorandum Agreement with Jiang Huai to purchase eight units of commercial property, totaling 1,002.26 square meters, at 32 Bin Jian Road, Zhong County in Chongqing, China. The total purchase price of RMB 3,600, or approximately $549, was paid using the funds generated from the rental and investment income and the Company rented this property to a third party on January 8, 2010. The rental agreement provided for a one year renewable term with an annual rental income of RMB 720, or approximately $108.  This property generated a rental income of $18 and $72, as compared to $26 in the three and nine months ended March 31, 2011, respectively.

In March 2010, the Company entered into a Memorandum Agreement with Chongqing Fu Li Real Estate Development Co., Ltd. to purchase two commercial properties totaling 311.99 square meters, at Unit # 5-3 and 5-4 (“office space”) located in Jiang Bei District Chongqing, which is currently under construction, for the use of the Company as its office premises once completed. TTCQ is currently renting its office premises from a third party. The total purchase price committed and paid was RMB 3,678, or approximately $561 based on the exchange rate as of March 31, 2011 published by the Monetary Authority of Singapore.  A down payment deposit of RMB 100, or approximately $15, was paid on March 19, 2010. In April 2010, a deposit of RMB 3,578, or approximately $546, which was the remaining balance of the purchase price, with related tax expense of RMB 150, or approximately $23, was paid.  These payments were made from funds generated internally. The expected date of completion and handover of this office space is October 2011. As at March 31, 2011, the construction is progressing as scheduled.

In the third quarter of fiscal 2011, TTCQ sold four commercial properties purchased on October 23, 2008 to JiaSheng for RMB 6,860, or approximately $1,026, recording a gain on disposal of RMB 1,015, or approximately $152, after deducting sales tax and exchange difference, from the four properties which carried a cost of RMB 6,672, or approximately $1,018 and accumulated depreciation, of RMB 840, or approximately $128 based on the exchange rate as of March 31, 2011 published by the Monetary Authority of Singapore.  All payments in this sales transaction were received in full during the third quarter of fiscal 2011.

Total rental income for the investment properties in China was $54 and $228 in the three and nine months ended March 31, 2011, respectively, as compared to $94 and $229 for the same periods in the last fiscal year.

Depreciation expenses for the investment property in China were $30 and $88 in the three and nine months ended March 31, 2011, respectively, as compared to $23 and $46 for the same periods in the last fiscal year.

13.   BUSINESS SEGMENTS
 
The Company operates in five 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, the fabrication segment (which provides fabrication services in Indonesia for the oil and gas industry) and the real estate segment  in China.

The revenue allocated to individual countries were 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 sales were sales from the manufacturing segment to the testing and distribution segments. Total inter-segment sales were $131 and $287 for the three and nine months ended March 31, 2011, respectively, as compared to $9 and $20 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.


The following segment information is unaudited for the nine months ending March 31, 2011 and March 31, 2010:

Business Segment Information:
 
                         
 
Nine months
       
Operating
         
Depr.
       
 
Ended
 
Net
   
Income
   
Total
   
and
   
Capital
 
 
Mar. 31,
 
Sales
   
(Loss)
   
Assets
   
Amort.
   
Expenditures
 
Manufacturing
2011
 
$
16,717
   
$
(473
 
$
3,133
   
$
193
   
$
147
 
 
2010
   
14,083
     
(349
)
   
12,645
     
162
     
12
 
                                           
Testing Services
2011
   
9,659
     
1,071
     
 27,643
     
1,457
     
2,432
 
 
2010
   
8,104
     
(82
   
   18,210
     
1,087
     
4,908
 
                                           
Distribution
2011
   
627
     
102
     
       560
     
-
     
-
 
 
2010
   
545
     
33
     
142
     
5
     
-
 
                                           
Real Estate
2011
   
1,008