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EX-32 - CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANE - TRIO-TECH INTERNATIONALex32.htm
EX-31.2 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - TRIO-TECH INTERNATIONALex31-2.htm
EX-31.1 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - TRIO-TECH INTERNATIONALex31-1.htm

 
 
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 December 31, 2016
 
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 incorporation or organization)
 
(I.R.S. Employer 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)
 
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 February 1, 2017, there were 3,513,055 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
 
 
 
 
 1
  
 1
 
 2
 
 4
 
 5
 
 6
 27
 46
 46
 
 
 
 
 
 
 
 47
 47
 47
 47
 47
 47
 47
 
 
 
 
 48
 
 
 
-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 Southeast Asia, including currency fluctuations and devaluation, currency restrictions, local laws and restrictions and possible social, political and economic instability; changes to government policies, potential legislative 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.
 
 
 
 
-ii-
 
PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT NUMBER OF SHARES)
 
 
 
December 31,
2016
 
 
June 30,
2016
 
ASSETS
 
(Unaudited)
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
Cash and cash equivalents
 $4,336 
 $3,807 
Short-term deposits
  658 
  295 
Trade accounts receivable, less allowance for doubtful accounts of $243 and $270
  7,577 
  8,826 
Other receivables
  316 
  596 
Inventories, less provision for obsolete inventory of $661 and $697
  1,666 
  1,460 
Prepaid expenses and other current assets
  363 
  264 
Asset held for sale
  82 
  92 
 Total current assets
  14,998 
  15,340 
NON-CURRENT ASSETS:
    
    
Deferred tax assets
  371 
  401 
Investment properties, net
  1,234 
  1,340 
Property, plant and equipment, net
  10,290 
  11,283 
Other assets
  1,882 
  1,788 
Restricted term deposits
  1,921 
  2,067 
          Total non-current assets
  15,698 
  16,879 
TOTAL ASSETS
 $30,696 
 $32,219 
 
    
    
LIABILITIES
    
    
CURRENT LIABILITIES:
    
    
Lines of credit
 $1,419 
 $2,491 
Accounts payable
  3,730 
  2,921 
Accrued expenses
  2,681 
  2,642 
Income taxes payable
  204 
  230 
Current portion of bank loans payable
  235 
  342 
Current portion of capital leases
  209 
  235 
 Total current liabilities
  8,478 
  8,861 
NON-CURRENT LIABILITIES: 
    
    
Bank loans payable, net of current portion
  1,454 
  1,725 
Capital  leases, net of current portion
  398 
  503 
Deferred tax liabilities
  237 
  216 
Other non-current liabilities
  42 
  43 
           Total non-current liabilities
  2,131 
  2,487 
TOTAL LIABILITIES
 $10,609 
 $11,348 
COMMITMENT AND CONTINGENCIES
  - 
  - 
 
    
    
EQUITY
    
    
TRIO-TECH INTERNATIONAL’S SHAREHOLDERS' EQUITY:
    
    
Common stock, no par value, 15,000,000 shares authorized; 3,513,055 shares issued and outstanding as at December 31, 2016, and June 30, 2016
 $10,882 
 $10,882 
Paid-in capital
  3,189 
  3,188 
Accumulated retained earnings
  3,638 
  3,025 
Accumulated other comprehensive gain-translation adjustments
  918 
  2,162 
 Total Trio-Tech International shareholders' equity
  18,627 
  19,257 
Non-controlling interest
  1,460 
  1,614 
         TOTAL EQUITY
 $20,087 
 $20,871 
TOTAL LIABILITIES AND EQUITY
 $30,696 
 $32,219 
 
See notes to condensed consolidated financial statements.
 
 
 
-1-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
 
 
 
Three Months Ended
 
 
Six Months Ended
 
 
 
Dec. 31,
 
 
Dec. 31,
 
 
Dec. 31,
 
 
Dec. 31,
 
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
  Manufacturing
 $3,320 
 $3,276 
 $6,991 
 $6,416 
  Testing services
  4,070 
  3,701 
  8,227 
  7,484 
  Distribution
  1,675 
  1,359 
  2,779 
  2,334 
  Others
  39 
  18 
  78 
  50 
 
  9,104 
  8,354 
  18,075 
  16,284 
Cost of Sales
    
    
    
    
   Cost of manufactured products sold
  2,622 
  2,471 
  5,417 
  4,580 
   Cost of testing services rendered
  2,658 
  2,499 
  5,472 
  5,257 
   Cost of distribution
  1,501 
  1,240 
  2,492 
  2,093 
   Others
  29 
  29 
  42 
  61 
 
  6,810 
  6,239 
  13,423 
  11,991 
 
    
    
    
    
Gross Margin
  2,294 
  2,115 
  4,652 
  4,293 
 
    
    
    
    
Operating Expenses:
    
    
    
    
  General and administrative
  1,776 
  1,599 
  3,519 
  3,261 
  Selling
  180 
  141 
  365 
  312 
  Research and development
  52 
  51 
  105 
  97 
  Loss / (gain) on disposal of property, plant and equipment
  8 
  (4)
  8 
  (4)
           Total operating expenses
  2,016 
  1,787 
  3,997 
  3,666 
 
    
    
    
    
Income from Operations
  278 
  328 
  655 
  627 
 
    
    
    
    
Other Income / (Expenses)
    
    
    
    
  Interest expenses
  (48)
  (51)
  (106)
  (104)
  Other income, net
  203 
  18 
  313 
  226 
  Total other income / (expenses)
  155 
  (33)
  207 
  122 
 
    
    
    
    
Income from Continuing Operations before Income Taxes
  433 
  295 
  862 
  749 
 
    
    
    
    
Income Tax Expenses
  (67)
  (86)
  (150)
  (153)
 
    
    
    
    
Income from continuing operations before non-controlling interest, net of tax
  366 
  209 
  712 
  596 
 
    
    
    
    
Discontinued Operations (Note 19)
    
    
    
    
(Loss) / income from discontinued operations, net of tax
  (4)
  6 
  (3)
  (4)
NET INCOME
  362 
  215 
  709 
  592 
 
    
    
    
    
Less: net income attributable to non-controlling interest
  52 
  25 
  96 
  143 
Net Income Attributable to Trio-Tech International Common Shareholder
 $310 
 $190 
 $613 
 $449 
 
    
    
    
    
Amounts Attributable to Trio-Tech International Common Shareholders:
    
    
    
    
Income from continuing operations, net of tax
  316 
  188 
  619 
  452 
(Loss) / income from discontinued operations, net of tax
  (6)
  2 
  (6)
  (3)
Net Income Attributable to Trio-Tech International Common Shareholders
 $310 
 $190 
 $613 
 $449 
 
    
    
    
    
Basic Earnings per Share:
    
    
    
    
Basic per share from continuing operations attributable to Trio-Tech International
 $0.09 
 $0.05 
 $0.18 
 $0.13 
Basic earnings per share from discontinued operations attributable to Trio-Tech International
 $- 
 $- 
 $- 
 $- 
Basic Earnings per Share from Net Income
    
    
    
    
Attributable to Trio-Tech International
 $0.09 
 $0.05 
 $0.18 
 $0.13 
 
    
    
    
    
Diluted Earnings per Share:
    
    
    
    
Diluted earnings per share from continuing operations attributable to Trio-Tech International
 $0.09 
 $0.05 
 $0.17 
 $0.13 
Diluted earnings per share from discontinued operations attributable to Trio-Tech International
 $- 
 $- 
 $- 
 $- 
Diluted Earnings per Share from Net Income
    
    
    
    
Attributable to Trio-Tech International
 $0.09 
 $0.05 
 $0.17 
 $0.13 
 
    
    
    
    
Weighted average number of common shares outstanding
    
    
    
    
Basic
  3,513 
  3,513 
  3,513 
  3,513 
Dilutive effect of stock options
  56 
  16 
  39 
  12 
Number of shares used to compute earnings per share diluted
  3,569 
  3,529 
  3,552 
  3,525 
 
See notes to condensed consolidated financial statements.
 
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
UNAUDITED (IN THOUSANDS)
 
 
 
Three Months Ended
 
 
Six Months Ended
 
 
 
Dec. 31,
 
 
Dec. 31,
 
 
Dec. 31,
 
 
Dec. 31,
 
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
Comprehensive Income Attributable to Trio-Tech International Common Shareholders: 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 $362 
 $215 
 $709 
 $592 
Foreign currency translation, net of tax
  (1,094)
  22 
  (1,377)
  (1,403)
Comprehensive (Loss) / Income
  (732)
  237 
  (668)
  (811)
Less: comprehensive (loss) / income attributable to non-controlling interest
  (16)
  114 
  (37)
  (138)
Comprehensive (Loss) / Income Attributable to Trio-Tech International Common Shareholders
 $(716)
 $123 
 $(631)
 $(673)
 
    
    
    
    
 
 See notes to condensed consolidated financial statements.
 
 
 
-3-
 
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, 2015
  3,513 
  10,882 
  3,087 
  2,246 
  2,771 
  1,736 
  20,722 
Stock option expenses
  - 
  - 
  101 
  - 
  - 
  - 
  101 
Net income
  - 
  - 
  - 
  779 
  - 
  282 
  1,061 
Dividend declared by subsidiary
  - 
  - 
  - 
  - 
  - 
  (181)
  (181)
Translation adjustment
  - 
  - 
  - 
  - 
  (609)
  (223)
  (832)
Balance at June 30, 2016
  3,513 
  10,882 
  3,188 
  3,025 
  2,162 
  1,614 
  20,871 
Stock option expenses
  - 
  - 
  1 
  - 
  - 
  - 
  1 
Net income
  - 
  - 
  - 
  613 
  - 
  96 
  709 
Dividend declared by subsidiary
  - 
  - 
  - 
  - 
  - 
  (117)
  (117)
Translation adjustment
  - 
  - 
  - 
  - 
  (1,244)
  (133)
  (1,377)
Balance at Dec. 31, 2016
  3,513 
  10,882 
  3,189 
  3,638 
  918 
  1,460 
  20,087 
 
See notes to condensed consolidated financial statements.
 
 
 
-4-
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) 
UNAUDITED (IN THOUSANDS)
 
 
 
Six Months Ended
 
 
 
Dec. 31,
 
 
Dec. 31,
 
 
 
2016
 
 
2015
 
 
 
(Unaudited)
 
 
(Unaudited)
 
Cash Flow from Operating Activities
 
 
 
 
 
 
Net income
 $709 
 $592 
Adjustments to reconcile net income to net cash flow provided by operating activities
    
    
   Depreciation and amortization
  916 
  937 
   Stock option expenses
  1 
  55 
   Inventory recovery
  (4)
  (45)
   Bad debt recovery, net
  (16)
  (6)
   Accrued interest expense, net of accrued interest income
  95 
  98 
   Loss / (Gain) on sale of property, plant and equipment - continued operations
  8 
  (4)
   Impairment loss
  - 
  2 
   Warranty recovery, net
  (9)
  (14)
   Deferred tax provision
  51 
  (14)
Changes in operating assets and liabilities, net of acquisition effect
    
    
   Trade accounts receivable
  1,265 
  261 
   Other receivables
  280 
  63 
   Other assets
  (226)
  - 
   Inventories
  (275)
  (559)
   Prepaid expenses and other current assets
  (99)
  (36)
   Accounts payable and accrued liabilities
  1,001 
  71 
   Income tax payable
  (26)
  (52)
Net Cash Provided by Operating Activities
  3,671 
  1,349 
 
    
    
Cash Flow from Investing Activities
    
    
Proceeds from maturing of unrestricted and restricted term deposits and short-term deposits, net
  - 
  63 
Investments in restricted and unrestricted deposits
  (421)
  - 
Additions to property, plant and equipment
  (764)
  (314)
Proceeds from disposal of plant, property and equipment
  83 
  55 
Net Cash Used in Investing Activities
  (1,102)
  (196)
 
    
    
Cash Flow from Financing Activities
    
    
Repayment on lines of credit
  (4,503)
  (4,388)
Proceeds from bank loans and capital leases
  3,516 
  4,428 
Dividends paid to non-controlling interest
  (117)
  - 
Repayment of long-term bank loans and capital leases
  (371)
  (339)
Net Cash Used in by Financing Activities
  (1,475)
  (299)
 
    
    
Effect of Changes in Exchange Rate
  (565)
  (195)
 
    
    
NET INCREASE IN CASH AND CASH EQUIVALENTS
  529 
  659 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
  3,807 
  3,711 
CASH AND CASH EQUIVALENTS, END OF PERIOD
 $4,336 
 $4,370 
 
    
    
Supplementary Information of Cash Flows
    
    
Cash paid during the period for:
    
    
Interest
 $91 
 $105 
Income taxes
 $83 
 $157 
 
    
    
Non-Cash Transactions
    
    
  Capital lease of property, plant and equipment
 $49 
 $192 
 
See notes to condensed consolidated financial statements.
 
 
 
-5-
 
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 second quarter of fiscal year 2017, 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.
(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. * (Dormant)
100%
 
Shanghai, 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 six months ended December 31, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2017.  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, 2016.
 
The Company’s operating results are presented based on the translation of foreign currencies using the respective quarter’s average exchange rate.
 
 
 
-6-
 
2.   NEW ACCOUNTING PRONOUNCEMENTS
 
The amendments in Accounting Standards Update (“ASU”) 2017-01 ASC Topic 805 — 'Business Combinations (“ASC Topic 805”): 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 is not expected to have a significant effect on the Company’s presentation of consolidated financial position or results of operations.
 
The amendments in Accounting Standards Update (“ASU”) 2016-18 ASC Topic 230 — 'Statement of Cash Flows (“ASC Topic 230”): 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 Accounting Standards Update (“ASU”) 2016-17 ASC Topic 810 — Consolidation (“ASC Topic 810”): 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, 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 Accounting Standards Update (“ASU”) 2016-16 ASC Topic 740 — Income Taxes (“ASC Topic 740”): 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, including interim reporting periods within those annual reporting periods. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
 
The amendments in Accounting Standards Update (“ASU”) 2016-15 ASC Topic 230 —Statement of Cash Flows (“ASC Topic 230”): These amendments provide cashflow 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 (“ASC Topic 326”) are issued for the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. For public companies that are not SEC filers, the ASU 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 2016-09 ASC Topic 718: Compensation – Stock Compensation (“ASC Topic 718”) are issued to simplify several aspects of the accounting for share-based payment award transactions, including (a) income tax consequences (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. For public business entities, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company does not intend to early adopt and has not yet determined the effects on the Company’s consolidated financial position or results of operations on the adoption of this update.
 
 
 
-7-
 
The amendments in ASU 2016-02 ASC Topic 842: Leases (“ASC Topic 842”) are required 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 business. 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 2015-14 ASC Topic 606: Deferral of the Effective Date (“ASC Topic 606”) defers the effective date of update 2014-09 for all entities by one year. For a public entity, the amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. 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 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 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 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 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. 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 evaluation of the impact of this standard on its business and found the adoption of this standard should not have a material effect on its Consolidated Financial Statements.
 
The amendments in ASU 2015-11 ASC Topic 330: Simplifying the Measurement of Inventory (“ASC Topic 330”) specify that an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using Last-In-First-Out or the retail inventory method. The amendments in ASU 2015-011 are effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. A reporting entity should apply the amendments retrospectively to all periods presented. While early adoption is permitted, the Company has not elected to early adopt. The adoption of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
 
FASB amended ASU 2014-15 Subtopic 205-40, Presentation of Financial Statements – Going Concern (“ASC Topic 205”) to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures. ASU 2014-15 provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The amendments in ASU 2014-15 are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. While early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued, the Company has not elected to early adopt. The effectiveness of this update does not have a significant effect on the Company’s consolidated financial position or results of operations.
 
Other new pronouncements issued but not yet effective until after December 31, 2016 are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
 
 
 
-8-
 
3.   TERM DEPOSITS
 
 
Dec. 31,
2016
 
 
June 30,
2016
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
Short-term deposits
 $723 
 $301 
Currency translation effect on short-term deposits
  (65)
  (6)
Total short-term deposits
  658 
  295 
Restricted term deposits
  2,070 
  2,085 
Currency translation effect on restricted term deposits
  (149)
  (18)
Total restricted term deposits
  1,921 
  2,067 
Total Term deposits
 $2,579 
 $2,362 
 
Restricted deposits represent the amount of cash pledged to secure loans payable granted by financial institutions and serve as collateral for public utility agreements such as electricity and water 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 believed the allowance for doubtful accounts as of December 31, 2016, and June 30, 2016 was adequate.  
 
The following table represents the changes in the allowance for doubtful accounts:
 
 
 
Dec. 31,
 2016
 
 
June 30,
 2016
 
 
 
(Unaudited) 
 
 
 
 
Beginning
 $270 
 $313 
Additions charged to expenses
  65 
  21 
Recovered / write-off
  (80)
  (48)
Currency translation effect
  (12)
  (16)
Ending
 $243 
 $270 
 
 
 
-9-
 
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 December 31, 2016. 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 December 31, 2016.
 
 
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, 2016. 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, 2016.
 
 
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 December 31, 2016, or for the fiscal year ended June 30, 2016. Based on TTI’s financial policy, a provision for doubtful receivables of $325 on the investment in JiangHuai was recorded during the second quarter of fiscal 2014 based on TTI’s financial policy.
 
On November 1, 2010, TTCQ entered into a Memorandum Agreement with JiaSheng Property Development Co. Ltd. (“JiaSheng”) to invest in their property development projects (Project B-48 Phase 2) located in Chongqing City, China. Due to the short-term nature of the investment, the amount was classified as a loan based on ASC Topic 310, amounting to RMB 5,000, or approximately $814 based on the exchange rate as at March 31, 2015 published by the Monetary Authority of Singapore. The amount was unsecured and repayable at the end of the term. The loan was renewed in November 2011 for a period of one year, which expired on October 31, 2012 and was again renewed in November 2012 and expired in November 2013. On November 1, 2013, the loan was transferred by JiaSheng to, and is now payable by, Chong Qing Jun Zhou Zhi Ye Co. Ltd. (“Jun Zhou Zhi Ye”), and the transferred agreement expired on October 31, 2016. Prior to the second quarter of fiscal year 2015, the loan receivable was classified as a long-term receivable. The book value of the loan receivable approximates its fair value. In the second quarter of fiscal year 2015, the loan receivable was transferred to down payment for purchase of investment property that is being developed in the Singapore Themed Resort Project (see Note 8).
 
 
 
-10-
 
6.  INVENTORIES
 
Inventories consisted of the following:
 
 
 
Dec. 31,
 2016
 
 
June 30,
 2016
 
 
 
 (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Raw materials
 $1,025 
 $967 
Work in progress
  1,201 
  909 
Finished goods
  207 
  279 
Less: provision for obsolete inventory
  (661)
  (697)
Currency translation effect
  (106)
  2 
 
 $1,666 
 $1,460 
 
 The following table represents the changes in provision for obsolete inventory:
 
 
 
Dec. 31,
 2016
 
 
June 30,
 2016
 
 
 
 (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Beginning
 $697 
 $764 
Additions charged to expenses
  - 
  22 
Usage - disposition
  (4)
  (86)
Currency translation effect
  (32)
  (3)
Ending
 $661 
 $697 
 
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 assets held for sale, since there was an intention to sell the factory building. The net book values of the building were RM371, or approximately $82, for three month ended December 31, 2016 and RM 371, or approximately $92, for year ended June 30, 2016.
 
8. INVESTMENTS
 
Investments were nil as at December 31, 2016 and June 30, 2016.
 
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 obtaining priority to bid 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.
 
 
 
-11-
 
“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 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.
 
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, 2018.
 
The share transfer (10% interest in the joint venture) was registered with the relevant authorities in China during October 2016.
 
9.   INVESTMENT PROPERTIES
 
The following table presents the Company’s investment in properties in China as of December 31, 2016. The exchange rate is based on the exchange rate as of December 30, 2016, 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
 
  - 
  (225)
Gross investment in rental property
 
  13,179 
  1,897 
Accumulated depreciation on rental property
  Dec 31, 2016
  (4,608)
  (663)
Net investment in property – China
 
  8,571 
  1,234 
 
 
 
-12-
 
The following table presents the Company’s investment in properties in China as of June 30, 2016. The exchange rate is based on the exchange rate as of June 30, 2016, 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
 
  - 
  (139)
Gross investment in rental property
 
  13,179 
  1,983 
Accumulated depreciation on rental property
  Jun 30, 2016
  (4,278)
  (643)
Net investment in property – China
 
  8,901 
  1,340 
 
The following table presents the Company’s investment properties in Malaysia as of December 31, 2016. 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 “Assets held for sale”
 June 30, 2015
  (371)
  (98)
Net investment in property – Malaysia
 
  - 
  - 
 
The following table presents the Company’s investment properties in Malaysia as of June 30, 2016. 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 “Assets held for sale”
 June 30, 2015
  (371)
  (98)
Net investment in property – Malaysia
 
  - 
  - 
 
 
 
-13-
 
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 rented this property to a third party on July 13, 2008. The term of the rental agreement was five years. The rental agreement was renewed on July 16, 2014 for a further period of five years. The rental agreement provides for a rent increase of 8% every year after July 15, 2015 through July 15, 2018. However, this rental agreement (1,104 square meters at a monthly rental of RMB 39, or approximately $6) was terminated on July 31, 2015. 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. 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 February 28, commencing with 2017 until the rental agreement expires on February 28, 2019.
 
Property purchased from MaoYe generated a rental income of $26 and $52 for the three and six months ended December 31, 2016, respectively, and $6 and $28 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 six months ended December 31, 2016 and 2015.
 
Other Properties III – Fu Li
 
In fiscal 2010, TTCQ entered into a Memorandum Agreement with Chongqing FuLi Real Estate Development Co. Ltd. (“FuLi”) to purchase two commercial properties totaling 311.99 square meters (“office space”) located in Jiang Bei District Chongqing. Although TTCQ currently rents its office premises from a third party, it intends to use the office space as its office premises. The total purchase price committed and paid was RMB 4,025, or approximately $648. The development was completed and the property was handed over 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 expired in April 2014 and the other of which expired in August 2014.
 
For the unit for which the agreement expired in April 2014, a new tenant was identified and a new agreement was executed, which expires on April 30, 2017. The new agreement carried an increase in rent of 20% in the first year. Thereafter the rent increases by approximately 8% for the subsequent years until April 2017.
 
For the unit for which the agreement expired in August 2014, a new tenant was identified and a rental agreement was executed, which agreement was to expire on August 9, 2016. The agreement carried an increase in rent of approximately 21% in the first year. Thereafter the rent was to increase by approximately 6% for the subsequent year. The tenant of this unit defaulted on payment of the quarterly rental due in August 2015, however the rental deposit is available to offset the outstanding rent. In early October 2015, TTCQ issued a legal letter to this tenant on the outstanding amounts, to which the tenant has not responded. As of the date of this report, the August 2014 rental agreement (161 square meters at a monthly rental of RMB 16, and approximately $2) was terminated.
 
 
 
-14-
 
A new rental agreement with a new tenant (161 square meters at a monthly rental of RMB 14, or approximately $2) was signed on October 21, 2015. This rental agreement provides for a rent increase of 6% after the first year, commencing from the year 2016 until the rental agreement expires on October 20, 2017. The tenant of this unit had defaulted on payment of the monthly rental due for February 2016, however the rental deposit has been offset and the balance amount recognized as other income. In March 2016, TTCQ issued a legal letter to this tenant on the outstanding amounts, to which the tenant has not responded. A new rental agreement with a new tenant (161 square meters at a monthly rental of RMB 14, or approximately $2) was signed commencing from April 1, 2016 until the rental agreement expires on March 31, 2018.
 
Properties purchased from Fu Li were rented to a third party effective fourth quarter of fiscal year 2012 and generated a rental income of $13 and $26 for the three and six months ended December 31, 2016, respectively, while it generated a rental income of $12 and $22, respectively, for the same periods in the last fiscal year.
 
Penang Property I
During the fourth quarter of 2015, the operations in Malaysia 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, Trio-Tech (Malaysia) Sdn. Bhd. (“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 being 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 December 31, 2016, the net book value was RM 369, or approximately $82.
Summary
Total rental income for all investment properties in China was $39 and $78 for the three and six months ended December 31, 2016, respectively, and was $18 and $50, respectively, for the same periods in the last fiscal year.
 
Rental income from the Penang property was nil for both the three and six months ended December 31, 2016 and 2015, as the property in Penang, Malaysia was vacant at the date of this report. In the fourth quarter of fiscal year 2015, the Penang property was reclassified from investment property to assets held for sale.
 
Depreciation expenses for all investment properties in China were $24 and $47 for the three and six months ended December 31, 2016, respectively, and were $26 and $52, respectively, for the same periods in the last fiscal year.
 
10. OTHER ASSETS
 
Other assets consisted of the following:
 
 
Dec. 31,
2016
 
 
June 30,
2016
 
 
 
(Unaudited)
 
 
 
 
Down-payment for purchase of investment properties
 $1,645 
 $1,645 
Down-payment for purchase of property, plant and equipment
  291 
  113 
Deposits for rental and utilities
  139 
  138 
Currency translation effect
  (193)
  (108)
Total
 $1,882 
 $1,788 
 
 
 
-15-
 
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 December 31, 2016, 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%
  - 
 $4,626 
  3,495 
Trio-Tech (Malaysia) Sdn. Bhd.
Lines of Credit
Ranging from 6.3% to 6.7%
  - 
 $702 
  702 
Trio-Tech (Tianjin) Co., Ltd.
Lines of Credit
Ranging from 4.9% to 6.3%
  - 
 $720 
  432 
 
As of June 30, 2016, 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%
  - 
 $5,745 
 $3,856 
Trio-Tech (Malaysia) Sdn. Bhd.
Lines of Credit
Ranging from 6.3% to 6.7%
  - 
 $783 
 $783 
Trio-Tech (Tianjin) Co., Ltd.
Lines of Credit
Ranging from 4.9% to 6.3%
  - 
 $1,204 
 $602 
 
12. ACCRUED EXPENSES
 
Accrued expenses consisted of the following:
 
 
Dec. 31,
2016
 
 
 June 30,
2016
 
 
 
(Unaudited)
 
 
      
 
Payroll and related costs
 $1,354 
 $1,311 
Commissions
  106 
  47 
Customer deposits
  166 
  91 
Legal and audit
  194 
  297 
Sales tax
  92 
  110 
Utilities
  128 
  115 
Warranty
  67 
  78 
Accrued purchase of materials and property, plant and equipment
  89 
  50 
Provision for re-instatement
  295 
  308 
Other accrued expenses
  339 
  331 
Currency translation effect
  (149)
  (96)
Total
 $2,681 
 $2,642 
 
 
 
-16-
 
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.
 
 
 
 Dec. 31,
 2016
 
 
 June 30,
 2016
 
 
 
(Unaudited)
 
 
       
 
Beginning
 $76 
 $103 
Additions charged to cost and expenses
  16 
  80 
Utilization / reversal
  (25)
  (105)
Currency translation effect
  (5)
  (2)
Ending
 $62 
 $76 
 
14.   BANK LOANS PAYABLE
 
 Bank loans payable consisted of the following: 
 
 
Dec. 31,
2016
 
 
 June 30,
2016
 
     
 
(Unaudited)
 
 
       
 
Note payable denominated in RM to a commercial bank for expansion plans in Malaysia, maturing in August 2024, bearing interest at the bank’s prime rate plus 1.50% (5.25% and 5.45% at December 31, 2016 and June 30, 2016) per annum, with monthly payments of principal plus interest through August 2024, collateralized by the acquired building with a carrying value of $2,577 and 2,898, as at December 31, 2016 and June 30, 2016, respectively.
  1,825 
  2,052 
 
    
    
Note payable denominated in U.S. dollars to a commercial bank for expansion plans in Singapore and its subsidiaries, maturing in March 2017, bearing interest at the bank’s lending rate (7.5% for both December 31, 2016 and June 30, 2016) with monthly payments of principal plus interest through April 2017. This note payable is secured by plant and equipment with a carrying value of $259 and 294, as at December 31, 2016 and June 30, 2016, respectively.
  61 
  154 
 
    
    
Total Bank loans payable
  1,886 
  2,206 
 
    
    
Current portion of bank loan payable
  261 
  352 
Currency translation effect on current portion of bank loan
  (26)
  (10)
Current portion of bank loan payable
  235 
  342 
Long term portion of bank loan payable
  1,625 
  1,854 
Currency translation effect on long-term portion of bank loan
  (171)
  (129)
Long term portion of bank loans payable
 $1,454 
 $1,725 
 
Future minimum payments (excluding interest) as at December 31, 2016 were as follows: 
 
2017
 $235 
2018
  189 
2019
  199 
2020
  209 
2021
  221 
Thereafter
  636 
Total obligations and commitments
 $1,689 
 
 
 
-17-
 
Future minimum payments (excluding interest) as at June 30, 2016 were as follows: 
 
2017
 $342 
2018
  204 
2019
  215 
2020
  226 
2021
  239 
Thereafter
  841 
Total obligations and commitments
 $2,067 
 
15.   COMMITMENTS AND CONTINGENCIES
 
TTM has capital commitments for the purchase of equipment and other related infrastructure costs amounting to RM 1,697, or approximately $378, based on the exchange rate as at December 30, 2016 published by the Monetary Authority of Singapore, as compared to the capital commitment as at June 30, 2016 amounting to RM 1,153, or approximately $287.
 
Trio-Tech (Tianjin) Co. Ltd. in China has capital commitments for the purchase of equipment and other related infrastructure costs amounting to RMB 2,819, or approximately $406, based on the exchange rate as on December 30, 2016 published by the Monetary Authority of Singapore, as compared to the capital commitment as at June 30, 2016 amounting to RMB 597, or approximately $93.
 
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 2017, 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 $20 and $302 for the three and six months ended December 31, 2016, respectively, as compared to $29 and $144, 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.
 
 
 
-18-
 
The following segment information is unaudited for the six months ended December 31:
 
Business Segment Information:
 
 
 
Six months
Ended
Dec. 31
 
 
 
Net
Revenue
 
 
 
Operating Income/
(Loss)
 
 

Total
Assets
 
 
 Depr and Amort.
 
 
 Capital Expenditures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Manufacturing
 
   2016 
 $6,991 
 $(322)
 $8,114 
 $99 
 $78 
    
   2015 
 $6,416 
 $371 
 $5,870 
 $107 
 $19 
 
    
    
    
    
    
    
 
Testing Services
 
  2016 
  8,227 
  790 
  18,325 
  765 
  686 
    
  2015 
  7,484 
  360 
  20,285 
  777 
  295 
 
    
    
    
    
    
    
 
Distribution
 
  2016 
  2,779 
  134 
  651 
  2 
  - 
    
  2015 
  2,334 
  70 
  803 
  - 
  - 
 
    
    
    
    
    
    
 
Real Estate
 
  2016 
  78 
  (6)
  3,147 
  50 
  - 
    
  2015 
  50 
  (70)
  3,424 
  53 
  - 
 
    
    
    
    
    
    
 
Fabrication *
 
  2016 
  - 
  - 
  29 
  - 
  - 
 
Services
 
  2015 
  - 
  - 
  28 
  - 
  - 
 
    
    
    
    
    
    
 
Corporate &
 
  2016 
  - 
  59 
  430 
  - 
  - 
 
Unallocated
 
  2015 
  - 
  (104)
  80 
  - 
  - 
 
    
    
    
    
    
    
 
Total Company
 
  2016 
 $18,075 
 $655 
 $30,696 
 $916 
 $764 
 
  2015 
 $16,284 
 $