UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended December 31, 20152016

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) (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 x☑ No 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 x☑  Noo ☐

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). Yes o☐   No x☒

As of February 05, 2016,1, 2017, there were 3,513,055 shares of the issuer’s Common Stock, no par value, outstanding.

 
 
TRIO-TECH INTERNATIONAL
Table of ContentsI

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

  Page
Part I.
Financial Information
 
   
Item 1.
Financial Statements
 1
(a) Condensed Consolidated Balance Sheets as of December 31, 20152016 (Unaudited) and June 30, 20152016
2
 1
 
(b) Condensed Consolidated Statements of Operations and Comprehensive Income for the Three Months and Six Months Ended December 31, 20152016 (Unaudited) and December 31, 20142015 (Unaudited)
3
 2
 
(c) Condensed Consolidated Statements of Shareholders Equity for the Six Months Ended December 31, 20152016 (Unaudited) and the Year Ended June 30, 20152016
5
 4
 
(d) Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 20152016 (Unaudited) and December 31, 20142015 (Unaudited)
6
 5
 
(e) Notes to Condensed Consolidated Financial Statements (Unaudited)
7
 6
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
28
 27
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
45
 46
Item 4.
Controls and Procedures
45
 46
   
Part II.
Other Information
 
   
Item 1.
Legal Proceedings
46
 47
Item 1A.
Risk Factors
46
 47
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
46
 47
Item 3.
Defaults upon Senior Securities
46
 47
Item 4.
Mine Safety Disclosures
46
 47
Item 5.
Other Information
46
 47
Item 6.
Exhibits
46
 47
   
Signatures
 
47
 48
 
 
-i-
-i-
Table of Contents

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 United States (“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-
-1-

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT NUMBER OF SHARES)
 
PART I. FINANCIAL INFORMATION
  
Dec. 31,
2015
(Unaudited)
  
June 30,
2015
 
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents
 $4,370  $3,711 
Short-term deposits
  93   101 
Trade accounts receivable, less allowance for doubtful accounts of $293 and $313
  7,302   7,875 
Other receivables
  299   389 
Loans receivable from property development projects – short term
  -   - 
Inventories, less provision for obsolete inventory of $694 and $764
  1,709   1,141 
Prepaid expenses and other current assets
  269   244 
Assets held for sale
  86   98 
 Total current assets
  14,128   13,559 
NON-CURRENT ASSETS:
        
Deferred tax assets 
  413   453 
Investments
  -   - 
Investment properties, net
  1,421   1,540 
Property, plant and equipment, net
  10,825   12,522 
Loans receivable from property development projects – long term
  -   - 
Other assets
  1,737   1,823 
Restricted term deposits
  1,966   2,140 
             Total non-current assets
  16,362   18,478 
TOTAL ASSETS
 $30,490  $32,037 
         
LIABILITIES
        
CURRENT LIABILITIES:
        
Lines of credit
 $1,472  $1,578 
Accounts payable
  3,042   2,770 
Accrued expenses
  2,647   3,084 
Income taxes payable
  232   296 
Current portion of bank loans payable
  319   346 
Current portion of capital leases
  206   197 
 Total current liabilities
  7,918   8,271 
 NON-CURRENT LIABILITIES:
        
Bank loans payable, net of current portion
  1,792   2,198 
Capital leases, net of current portion
  504   475 
Deferred tax liabilities
  273   333 
Other non-current liabilities
  37   38 
 Total non-current liabilities
  2,606   3,044 
TOTAL LIABILITIES
 $10,524  $11,315 
         
Commitments 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, 2015 and June 30, 2015, respectively
 $10,882  $10,882 
Paid-in capital
  3,142   3,087 
Accumulated retained earnings
  2,695   2,246 
Accumulated other comprehensive gain-translation adjustments
  1,649   2,771 
 Total Trio-Tech International shareholders' equity
  18,368   18,986 
Non-controlling interest
  1,598   1,736 
         TOTAL EQUITY
 $19,966  $20,722 
TOTAL LIABILITIES AND EQUITY
 $30,490  $32,037 

See notes to condensed consolidated financial statements.

 
ITEM 1. FINANCIAL STATEMENTS
-2-

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOMEB
UNAUDITEDALANCE SHEETS (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)NUMBER OF SHARES)
 Three Months Ended  Six Months Ended 
 Dec. 31,  Dec. 31,  Dec. 31,  Dec. 31, 
 2015  2014  2015  2014 
Revenue           
Manufacturing
$
3,276
  
$
3,348
  
$
6,416
  
$
6,395
 
Testing services
 
3,701
   
5,073
   
7,484
   
9,691
 
Distribution
 
1,359
   
432
   
2,334
   
817
 
Others
 
18
   
44
   
50
   
87
 
  
8,354
   
8,897
   
16,284
   
16,990
 
Cost of Sales
               
Cost of manufactured products sold
 
2,471
   
2,726
   
4,580
   
5,599
 
Cost of testing services rendered
 
2,499
   
3,356
   
5,257
   
6,405
 
Cost of distribution
 
1,240
   
337
   
2,093
   
677
 
Others
 
29
   
35
   
61
   
69
 
  
6,239
   
6,454
   
11,991
   
12,750
 
                
Gross Margin
 
2,115
   
2,443
   
4,293
   
4,240
 
                
Operating Expenses:
               
General and administrative
 
1,599
   
1,711
   
3,261
   
3,438
 
Selling
 
141
   
165
   
312
   
296
 
Research and development
 
51
   
47
   
97
   
94
 
Impairment loss
 
-
   
55
   
-
   
70
 
(Gain) / loss on disposal of property, plant and equipment
 
(4
)
  
28
   
(4)
   
28
 
Total operating expenses
 
1,787
   
2,006
   
3,666
   
3,926
 
                
Income from Operations
 
328
   
437
   
627
   
314
 
                
Other (Expenses) / Income
               
Interest expenses
 
(51
)
  
(58
)
  
(104
)
  
(122
)
Other income, net
 
18
   
7
   
226
   
54
 
Total other (expenses) / income
 
(33
)
  
(51
)
  
122
   
(68
)
                
Income from Continuing Operations before Income Taxes
 
295
   
386
   
749
   
246
 
                
Income Tax  Expenses
 
(86
)
  
(132
)
  
(153)
   
(86
)
                
Income from continuing operations before non-controlling interest, net of tax
 
209
   
254
   
596
   
160
 
                
Discontinued Operations (Note 19)
               
Income / (loss) from discontinued operations, net of tax
 
6
   
(6
)
  
(4
)
  
20
 
NET INCOME
 
215
   
248
   
592
   
180
 
                
Less: income attributable to non-controlling interest
 
25
   
154
   
143
   
210
 
Net Income / (Loss) Attributable to Trio-Tech International Common Shareholder
$
190
  
 $
94
  
 $
449
  
 $
(30
)
                
Amounts Attributable to Trio-Tech International Common Shareholders:
               
Income / (loss) from continuing operations, net of tax
 
188
   
97
   
452
   
(41
)
Income / (loss) from discontinued operations, net of tax
 
2
   
(3
)
  
(3
)
  
11
 
Net Income / (Loss) Attributable to Trio-Tech International Common Shareholders
 $
190
  
 $
94
  
 $
449
  
 $
(30
)
                
Basic and Diluted Earnings / (Loss) per Share:
               
Basic and diluted earnings / (loss) per share from continuing operations attributable to Trio-Tech International
$
0.05
  
$
0.03
  
$
0.13
  
$
(0.01
)
Basic and diluted earnings per share from discontinued operations attributable to Trio-Tech International
$
-
  
$
-
  
$
-
  
$
-
 
Basic and Diluted Earnings / (Loss) per Share from Net Income / (Loss) Attributable to Trio-Tech International
$
0.05
  
$
0.03
  
$
0.13
  
$
(0.01
)
                
Weighted average number of common shares outstanding
               
Basic
 
3,513
   
3,513
   
3,513
   
3,513
 
Dilutive effect of stock options
 
16
   
-
   
12
   
-
 
Number of shares used to compute earnings per share diluted
 
3,529
   
3,513
   
3,525
   
3,513
 
 
 
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.
 
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
 
  Three Months Ended  Six Months Ended 
 
Dec. 31,
 
  Dec. 31,
2015
  Dec. 31,
2014
  Dec. 31,
2015
  Dec. 31,
2014
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
Comprehensive Income Attributable to Trio-Tech International Common Shareholders:
         
 
 
 
    
 
     
 
 
 
Net income
 $
215
 $
248
 $
592
 $
180
 
 $362 
 $215 
 $709 
 $592 
Foreign currency translation, net of tax
  
22
  
(574
)
  
(1,403
)
  
(414
)
  (1,094)
  22 
  (1,377)
  (1,403)
Comprehensive Income / (Loss)
 
237
 
(326
)
 
(811
)
 
(234
)
Less: comprehensive income / (loss) attributable to non-controlling interest
  
114
  
36
 
 
 
(138
)
  
150
 
Comprehensive Income / (Loss) Attributable to Trio-Tech International Common Shareholders
 
 $
123
 
$
(362
)
 
 $
(673
)
 
 $
(384
)
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.


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

 
Common
Stock
 Additional Paid-in Accumulated Retained 
Accumulated Other
Comprehensive
 Non- Controlling   
 
Common
Stock
 
 
Additional Paid-in
 
 
Accumulated Retained
 
 
Accumulated Other
Comprehensive
 
 
Non- Controlling
 
 
 
 
 Shares Amount Capital Earnings Income Interest Total 
 
Shares
 
 
Amount
 
 
Capital
 
 
Earnings
 
 
Income
 
 
Interest
 
 
Total
 
    $  $  $ $ $   $ 
 $  
Balance at June 30, 2014
 
3,513
 
10,882
 
 
2,972
 
 
1,725
 
3,522
 
1,732
  
20,833
 
                
Balance at June 30, 2015
  3,513 
  10,882 
  3,087 
  2,246 
  2,771 
  1,736 
  20,722 
Stock option expenses
 
-
 
-
 
106
 
-
 
-
 
-
  
106
 
  - 
  101 
  - 
  101 
Net income
 
-
 
-
 
-
 
521
 
-
 
303
  
824
 
  - 
  779 
  - 
  282 
  1,061 
Dividend declared by subsidiary
  - 
  (181)
Translation adjustment
 
-
 
-
 
-
 
-
 
(751
)
 
(299
)
 
(1,050
)
  - 
  (609)
  (223)
  (832)
Contribution to capital – payable forgiveness
  
-
  
-
  
9
  
-
  
-
  
-
   
9
 
Balance at June 30, 2015
 
3,513
 
10,882
 
3,087
 
2,246
 
2,771
 
1,736
  
20,722
 
                
Balance at June 30, 2016
  3,513 
  10,882 
  3,188 
  3,025 
  2,162 
  1,614 
  20,871 
Stock option expenses
 
-
 
-
 
55
 
-
 
-
 
-
  
55
 
  - 
  1 
  - 
  1 
Net income
 
-
 
-
 
-
 
449
 
-
 
143
  
592
 
  - 
  - 
  613 
  - 
  96 
  709 
Dividend declared by subsidiary
  - 
  (117)
Translation adjustment
  
-
  
-
  
-
  
-
  
(1,122
)
 
(281
)
  
(1,403
)
  - 
  (1,244)
  (133)
  (1,377)
Balance at Dec. 31, 2015
  
3,513
  
10,882
  
3,142
  
2,695
  
1,649
  
1,598
   
19,966
 
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.


TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASHCASH FLOWS (IN THOUSANDS)
UNAUDITED (IN THOUSANDS)
 
Six Months Ended
 
 Six Months Ended 
 
Dec. 31,
 
 Dec. 31, 2015 Dec. 31, 2014 
 
2016
 
 
2015
 
 (Unaudited) (Unaudited) 
 
(Unaudited)
 
Cash Flow from Operating Activities     
 
 
 
Net income
 $592 $180 
 $709 
 $592 
Adjustments to reconcile net income to net cash flow provided by operating activities
       
    
Depreciation and amortization
  937  1,189 
  916 
  937 
Bad debt (recovery) / expense, net
  (6) 56 
Stock option expenses
  1 
  55 
Inventory recovery
  (45) (73)
  (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
  (14) (9)
  (9)
  (14)
Accrued interest expense, net of interest income
  98  101 
(Gain) / loss on sale of property, plant and equipment - continued operations
  (4) 28 
Impairment loss
  -  70 
Contribution to capital – payable forgiveness
  -  9 
Stock option expenses
  55  89 
Write-off of property, plant and equipment
  2  - 
Deferred tax provision
  (14) (50)
  51 
  (14)
Changes in operating assets and liabilities, net of acquisition effects
       
Accounts receivables
  261  354 
Changes in operating assets and liabilities, net of acquisition effect
    
Trade accounts receivable
  1,265 
  261 
Other receivables
  63  (94)
  280 
  63 
Other assets
  -  78 
  (226)
  - 
Inventories
  (559) (318)
  (275)
  (559)
Prepaid expenses and other current assets
  (36) (58)
  (99)
  (36)
Accounts payable and accrued liabilities
  71  190 
  1,001 
  71 
Income tax payable
  (52) 55 
  (26)
  (52)
Net Cash Provided by Operating Activities
  1,349  1,797 
  3,671 
  1,349 
       
    
Cash Flow from Investing Activities
       
    
Proceeds from maturing of restricted and un-restricted term deposits
  63  - 
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
  (314) (899)
  (764)
  (314)
Proceeds from disposal of property, plant and equipment
  55  16 
Proceeds from disposal of plant, property and equipment
  83 
  55 
Net Cash Used in Investing Activities
  (196) (883)
  (1,102)
  (196)
       
    
Cash Flow from Financing Activities
       
    
Repayment on lines of credit
  (152) (943)
  (4,503)
  (4,388)
Repayment of bank loans and capital leases
  (339) (473)
Proceeds from long-term bank loans
  192  32 
Net Cash Used in Financing Activities
  (299) (1,384)
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
  (195) (59)
  (565)
  (195)
       
    
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS
  659  (529)
NET INCREASE IN CASH AND CASH EQUIVALENTS
  529 
  659 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
  3,711  2,938 
  3,807 
  3,711 
CASH AND CASH EQUIVALENTS, END OF PERIOD
 $4,370 $2,409 
 $4,336 
 $4,370 
       
    
Supplementary Information of Cash Flows
       
    
Cash paid during the period for:
       
    
Interest
 $105 $125 
 $91 
 $105 
Income taxes
 $157 $76 
 $83 
 $157 
       
    
Non-Cash Transactions
       
    
Capital lease of property, plant and equipment
 $192 $32 
 $49 
 $192 
See notes to condensed consolidated financial statements.


TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

NOTESNOTES 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”(“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 2013,year 2017, TTI conducted business in fivefour business segments: Manufacturing, Testing Services, Manufacturing, Distribution and Real Estate and Fabrication Services. The Fabrication segment was discontinued during the fourth quarter of fiscal year 2013, hence in fiscal year 2016,Estate. TTI carried its business in four segments and has subsidiaries in the U.S., Singapore, Malaysia, Thailand China and IndonesiaChina as follows:
 Ownership Location
Express Test Corporation (Dormant)
100%
100%
Van Nuys, California
Trio-Tech Reliability Services (Dormant)
100%
100%
Van Nuys, California
KTS Incorporated, dba Universal Systems (Dormant)
100%
100%
Van Nuys, California
European Electronic Test Centre (Dormant)
100%
100%
Dublin, Ireland
Trio-Tech International Pte. Ltd.
100%
100%
Singapore
Universal (Far East) Pte. Ltd.  *
100%
100%
Singapore
Trio-Tech International (Thailand) Co. Ltd. *
100%
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.)
100%
 
Bangkok, Thailand
Trio-Tech (Malaysia) Sdn. Bhd.
(55% owned by Trio-Tech International Pte. Ltd.)
55%
55%
Penang and Selangor, Malaysia
Trio-Tech (Kuala Lumpur) Sdn. Bhd.
55%
Selangor, Malaysia
(100% owned by Trio-Tech Malaysia Sdn. Bhd.)
55%
Selangor, Malaysia
Prestal Enterprise Sdn. Bhd.
(76% owned by Trio-Tech International Pte. Ltd.)
76%
76%
Selangor, Malaysia
Trio-Tech (Suzhou) Co., Ltd. *
100%
100%
Suzhou, China
Trio-Tech (Shanghai) Co., Ltd. * (Dormant)
100%
100%
Shanghai, China
Trio-Tech (Chongqing) Co. Ltd. *
100%
100%
Chongqing, China
SHI International Pte. Ltd. (Dormant)
(55% owned by Trio-Tech International Pte. Ltd)
55%
55%
Singapore
PT SHI Indonesia (Dormant)
(100% owned by SHI International Pte. Ltd.)
55%
55%
Batam, Indonesia
Trio-Tech (Tianjin) Co., Ltd. *
100%
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 accounting principlesin 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, 20152016 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2016.2017.  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, 2015.2016.

The Company’s operating results are presented based on the translation of foreign currencies using the respective quarter’s average exchange rate.Strengthening of U.S. dollar relative to the foreign currencies caused the translation difference during the current year as compared to the same period of last year, affecting the revenue and operating profitability, which negatively impacted the Company’s results.


2.   NEW ACCOUNTING PRONOUNCEMENTS

The amendments in Accounting Standards UpdatesUpdate (“ASU”) 2015-17 eliminates2017-01 ASC Topic 805 —'Business Combinations (“ASC Topic 805”): These amendments clarify the current requirementdefinition 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 organizationsannual 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 present deferred tax liabilities and assets as current and non-current inearly adopt. The effectiveness of this update is not expected to have a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as non-current. For a public entity,significant effect on the Company’s presentation of consolidated financial position or results of operations.
The amendments in ASU 2015-17Accounting 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, 2016,2017, 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 that reporting period. Earlythose fiscal years. While early application is permitted, andincluding adoption in an interim period, the Company has adoptednot elected to early adopt. The effectiveness of this ASU and thereupdate is nonot 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.
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. EarlyEarlier 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 permitted.yet determined if it will early adopt. The adoptioneffectiveness 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.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)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 2015-07 ASC Topic 820: Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent), which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The amendments in ASU 2015-07 are effective for public business entities for fiscal years beginning after December 15, 2015 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.

The amendments in ASU 2015-06 ASC Topic 260: Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions (“ASC Topic 260”) specify that for purposes of calculating historical earnings per unit under the two-class method, the earnings or losses of a transferred business before the date of a dropdown transaction should be allocated entirely to the general partner. The amendments in ASU 2015-06 are effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. While early adoption is permitted, the Company has not elected to early adopt. The amendments should be applied retrospectively for all financial statements presented. The adoption 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 2015-02 ASC Topic 810: Amendments to the Consolidation Analysis are intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The amendments in ASU 2015-02 are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. While early adoption is permitted, including adoption in an interim period, the Company has not elected to early adopt. ASU 2015-02 may be applied retrospectively in previously issued financial statements for one or more years with a cumulative-effect adjustment to retained earnings as of the beginning of the first year restated. The company has not yet determined the effects on the Company’s consolidated financial position or results of operations on the adoption of this update.

The amendments in ASU 2015-01 eliminate from U.S. GAAP the concept of extraordinary items. Subtopic 225-20, Income Statement - Extraordinary and Unusual Items (“ASC Topic 225”), requires that an entity separately classify, present, and disclose extraordinary events and transactions. Presently, an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item.  The amendments in ASU 2015-01 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. 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 adoptioneffectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

The FASB has issued ASU No. 2014-08, ASC Topic 205 Presentation of Financial Statements (“ASC Topic 205”) and ASC Topic 360 Property, Plant, and Equipment (“ASC Topic 360”): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in ASU 2014-08 change the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in U.S. GAAP. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This disclosure will provide users with information about the ongoing trends in a reporting organization’s results from continuing operations. The amendments in the ASU 2014-08 are effective in the first quarter of 2015 for public organizations with calendar year ends. For most nonpublic organizations, it is effective for annual financial statements with fiscal years beginning on or after December 15, 2014. Early adoption is permitted. The adoption of this update did 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 January 1,after December 31, 2016 are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

 

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 the customers in certain circumstances. Management periodically performs credit evaluations of customers’ financial conditions.

Senior management reviews accounts receivable on a periodicalperiodic basis to determine if any receivables potentially will potentially be uncollectible. Management includes any accounts receivable balances that are determined to be uncollectible in the allowance for doubtful accounts. After all reasonable attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available, management believed the allowance for doubtful accounts as of December 31, 20152016, and June 30, 20152016 was adequate.  

The following table represents the changes in the allowance for doubtful accounts:

 
Dec. 31,
 2016
 
 
June 30,
 2016
 
Dec. 31,
2015
(Unaudited)
  
June 30,
2015
 
 
(Unaudited) 
 
 
 
 
Beginning$313 $438 
 $270 
 $313 
Additions charged to expenses - 84 
  65 
  21 
Recovered/ written-off (6) (180)
Recovered / write-off
  (80)
  (48)
Currency translation effect (14)  (29)
  (12)
  (16)
Ending$293 $313 
 $243 
 $270 

5.   LOANS RECEIVABLE FROM PROPERTY DEVELOPMENT PROJECTS

The following table presents Trio-Tech Chongqing’s(Chongqing) Co. Ltd (“TTCQ”) loans’s loan receivable from property development projects in China as of December 31, 2015.2016. The exchange rate is based on the historical ratedate published by the Monetary Authority of Singapore as onof March 31, 2015, since the net loansloan receivable was “nil” as at December 31, 2015.

 Loan Expiry Loan Amount  Loan Amount 
 Date (RMB)  (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 receivable from property development projects   -   - 
          
Long-term loan receivables
Jun Zhou Zhi YeOct 31, 2016  5,000   814 
Less: transfer – down-payment for purchase of investment property    (5,000)  (814) 
Net loan receivable from property development projects   -   - 
          
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 YeOct 31, 2016
  5,000 
  814 
Less: transfer – down-payment for purchase of investment property 
  (5,000)
  (814)
Net loan receivables from property development projects 
  - 
  - 
 
-10-

The following table presents TTCQ’s loansloan receivable from property development projects in China as of June 30, 2015.2016. The exchange rate is based on the historical ratedate published by the Monetary Authority of Singapore as onof March 31, 2015, since the net loansloan receivable was “nil” as at June 30, 2015.2016.

Loan Expiry Loan Amount Loan Amount 
Date (RMB) (U.S. Dollars) 
Loan Expiry
Date
 
 Loan Amount
(RMB)
 
 
 Loan Amount
(U.S. Dollars)
 
Short-term loan receivables       
 
 
 
Investment in JiangHuai (Project - Yu Jin Jiang An)May 31, 2013 2,000 325 
JiangHuai (Project – Yu Jin Jiang An)May 31, 2013
  2,000 
  325 
Less: allowance for doubtful receivables   (2,000)  (325)  
  (2,000)
  (325)
Net loan receivable from property development projects   -  - 
Net loan receivables from property development projects 
  - 
      
    
Long-term loan receivables 
    
Jun Zhou Zhi YeOct 31, 2016
  5,000 
  814 
Less: transfer – down-payment for purchase of investment property 
  (5,000)
  (814)
Net loan receivables from property development projects 
  - 
Long-term loan receivables
Jun Zhou Zhi YeOct 31, 2016  5,000   814 
Less: transfer – down-payment for purchase of investment property    (5,000)  (814) 
Net loan receivable from property development projects   -   - 
          
On November 1, 2010, TTCQ entered into anothera 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 renminbiRenminbi (“RMB”) 2,000, or approximately $325. The loan was renewed, but expired on May 31, 2014.2013. TTCQ is in the legal process of recovering the outstanding amount of $325. TTCQ did not generate other income from JiangHuai for both the three and six monthsquarter ended December 31, 2015,2016, or for the same periods in the last fiscal year. ended June 30, 2016. Based on TTI’s financial policy, an impairmenta provision for doubtful receivables of $325 on the investment in JiangHuai was provided forrecorded during the second quarter of fiscal 2014.2014 based on TTI’s financial policy.

On November 1, 2010, TTCQ entered into anothera 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 expiresexpired on October 31, 2016. HencePrior to the second quarter of fiscal year 2015, the loan receivable was reclassifiedclassified as a long-term receivable. The book value of the loan receivable approximates its fair value. TTCQ did not generate other income from this investment for both the three and six months ended December 31, 2015. However, for the three and six months ended December 31, 2014, TTCQ recorded other income of RMB 104, or approximately $16 and RMB 417, or approximately $68, respectively, from Jun Zhou Zhi Ye. In fiscal year 2015, an allowance for doubtful deemed interest receivables from Jun Zhou Zhi Ye of $68 was made on the other income. 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.Project (see Note 8).

6.  INVENTORIES
 
Inventories consisted of the following:
Dec. 31, 2015 June 30, 
 
Dec. 31,
 2016
 
 
June 30,
 2016
 
(Unaudited)  2015 
 
 (Unaudited)
 
 
 
 
    
 
 
 
Raw materials$935 $1,038 
 $1,025 
 $967 
Work in progress 1,029 611 
  1,201 
  909 
Finished goods 501 348 
  207 
  279 
Less: provision for obsolete inventory (694) (764)
  (661)
  (697)
Currency translation effect (62)  (92)
  (106)
  2 
$1,709 $1,141 
 $1,666 
 $1,460 
 

 The following table represents the changes in provision for obsolete inventory:
 
 
Dec. 31,
 2016
 
 
June 30,
 2016
 
 
 (Unaudited)
 
 
 
 
 
Dec. 31, 2015
(Unaudited)
  
June 30,
2015
 
 
 
 
Beginning$764 $844 
 $697 
 $764 
Additions charged to expenses 10 67 
  - 
  22 
Usage - disposition (56) (103)
  (4)
  (86)
Currency translation effect (24)  (44)
  (32)
  (3)
Ending$694 $764 
 $661 
 $697 
 
6. ASSETS7.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 towith ASC Topic 360, during fiscal year 2015, the property was reclassified from investment property, which had a net book value of Malaysia ringgit (“RM”)RM 371, or approximately $98,$92, to assets held for sale, since there was an intention to sell the factory building. In May 2015, Trio-Tech Malaysia (“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 activitynet book values of the purchaser not suitable to the industry that is being promoted on the said property. However, management is still actively lookingbuilding were RM371, or approximately $82, for a suitable buyer. As ofthree month ended December 31, 2015 the net book value was2016 and RM 369,371, or approximately $86.$92, for year ended June 30, 2016.

7. 8.INVESTMENTS

Investments were nil as at December 31, 20152016 and as at June 30, 2015.2016.

During the second quarter of fiscal year 2011, the Company entered into a joint-venturejoint 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 RMB 10,000,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,joint venture, resulting in a net investment of RMB 4,863, or approximately $781 based on exchange rates published by the Monetary Authority of Singapore as of March 31, 2014.


“Investments” in the real estate segment were the cost of an investment in a joint venture in which we had a 10% interest. During the second quarter of fiscal year 2014, TTCQ disposed of its 10% interest in the joint venture. The joint venture had to raise funds for the development of the project. As a joint-venture partner, TTCQ was required to stand guarantee for the funds to be borrowed; considering the amount of borrowing, the risk involved was higher than the investment made and hence TTCQ decided to dispose of the 10% interest in the joint venture investment. On October 2, 2013, TTCQ entered into a share transfer agreement with Zhu Shu. Based on the agreement, the purchase price was to be paid by (1) RMB 10,000 worth of commercial property in Chongqing China, or approximately $1,634 based on exchange rates published by the Monetary Authority of Singapore as of October 2, 2013, by non-monetary consideration and (2) the remaining RMB 8,000, or approximately $1,307 based on exchange rates published by the Monetary Authority of Singapore as of October 2, 2013, by cash consideration. The consideration consistsconsisted of (1) commercial units measuring 668 square meters to be delivered in June 2016 and (2) sixteen quarterly equal installments of RMB 500RMB500 per quarter commencing from January 2014. Based on ASC Topic 845 Non-monetary Consideration,, the Company deferred the recognition of the gain on disposal of the 10% interest in joint venture investment until such time that the consideration is paid, so that the gain can be ascertained. The recorded value of the disposed investment amounting to $783, based on exchange rates published by the Monetary Authority of Singapore as of June 30, 2014, is classified as “other assets” under non-current assets, because it is considered a down payment for the purchase of the commercial property in Chongqing. TTCQ performed a valuation on a certain commercial unit and its market value was higher than the carrying amount. The first three installment amounts ofinstallments, 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. However, the transferee, Jun Zhou Zhi Ye, has not registered the share transfer (10% interest in the joint venture) with the relevant authorities in China as of the date of this report.

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 all 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 4,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
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.
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, which is expected to be no later thanProject. The initial targeted date of completion was December 31, 2016. However, should there be further delays in the project completion, basedBased on the discussiondiscussions with the developers, itthe completion date is estimated to be completed by June 30, 2017. December 31, 2018.
The consideration does not includeshare transfer (10% interest in the remaining outstanding amount of RMB 2,000, or approximately $326, which will be paidjoint venture) was registered with the relevant authorities in cash.China during October 2016.

8.9.   INVESTMENT PROPERTIES

The following table presents the Company’s investment in properties in China as of December 31, 2015.2016. The exchange rate is based on the exchange rate as of December 31, 201530, 2016, published by the Monetary Authority of Singapore.
 
 Investment 
Investment
Amount
  
Investment 
Amount
 
  Date (RMB)  (U.S. Dollars) 
        
Purchase of Property I   – MaoYe
Jan 04, 2008
  
5,554
   
894
 
Purchase of Property II  – JiangHuai
Jan 06, 2010
  
3,600
   
580
 
Purchase of Property III – FuLi
Apr 08, 2010
  
4,025
   
648
 
Currency translation
   
-
   
(93
)
Gross investment in rental properties
   
13,179
   
2,029
 
Accumulated depreciation on rental properties
   
(3,949
)
  
(608
)
Net investment in properties – China
   
9,230
   
1,421
 
 
Investment
Date
 
 Investment
Amount (RMB)
 
 
 Investment Amount
 (U.S. Dollars)
 
Purchase of rental property – Property I - MaoYeJan 04, 2008
  5,554 
  894 
Purchase of rental property – Property II - JiangHuaiJan 06, 2010
  3,600 
  580 
Purchase of rental property – Property III - Fu LiApr 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 
 

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 - MaoYeJan 04, 2008
  5,554 
  894 
Purchase of rental property – Property II - JiangHuaiJan 06, 2010
  3,600 
  580 
Purchase of rental property – Property III - Fu LiApr 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 ChinaMalaysia as of June 30, 2015.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 
Investment
Amount
  
Investment 
Amount
 
  Date (RMB)  (U.S. Dollars) 
        
Purchase of Property I   – MaoYe
Jan 04, 2008
  
5,554
   
894
 
Purchase of Property II  – JiangHuai
Jan 06, 2010
  
3,600
   
580
 
Purchase of Property III – FuLi
Apr 08, 2010
  
4,025
   
648
 
Currency translation
   
-
   
1
 
Gross investment in rental properties
   
13,179
   
2,123
 
Accumulated depreciation on rental properties
   
(3,619
)
  
(583
)
Net investment in properties – China
   
9,560
   
1,540
 
 
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 IDec 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 
  - 
  - 
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 based on the exchange rate as of December 31, 2015 published by the Monetary Authority of Singapore.$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. The renewed agreement expires on2015 through July 15, 2018; however,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 the yearwith 2017 tilluntil 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 January 29,February 28, commencing the yearwith 2017 tilluntil the rental agreement expires on January 29,February 28, 2019.

Property purchased from MaoYe generated a rental income of $6$26 and $28$52 for the three and six months ended December 31, 2015,2016, respectively, and $30$6 and $59 $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 based on the exchange rate as of December 31, 2015 published by the Monetary Authority of Singapore.$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 September 2014,August 2016, TTCQ performed a valuation on one of the commercial units and its market value was higher than the carrying amount. As of the date of this report, there was no other valuation performed.

Property purchased from JiangHuai did not generate any rental income during the three and six months ended December 31, 20152016 and 2014.2015.
 
RentalOther Properties III – FuLiFu 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 based on the exchange rate as of December 31, 2015 published by the Monetary Authority of Singapore.$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 carriescarried an increase in rent byof 20% in the first year, as compared to the expired rental agreement.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, as compared to the expired rental agreement.year. Thereafter the rent was to increase by approximately 6% for the subsequent year. The tenant of this unit had 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.
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 latest 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.

PropertyProperties purchased from FuLiFu Li were rented to a third party effective fourth quarter of fiscal year 2012 and generated a rental income of $12$13 and $22$26 for the three and six months ended December 31, 2015,2016, respectively, while it generated a rental income of $14$12 and $28,$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, TTMTrio-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 PDC.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, 20152016, the net book value was RM 369, or approximately $86.

$82.
Summary

Total rental income for all investment properties (Property I, II and III) in China was $18$39 and $50$78 for the three and six months ended December 31, 2015,2016, respectively, and was $44$18 and $87,$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 $26$24 and $52$47 for the three and six months ended December 31, 2015,2016, respectively, and were $27$26 and $54,$52, respectively, for the same periods in the last fiscal year.

9.10. OTHER ASSETS

Other assets consisted of the following:
Dec. 31, 2015 June 30,
(Unaudited)  2015
 
Dec. 31,
2016
 
 
June 30,
2016
 
   
 
(Unaudited)
 
 
 
 
Down-payment for purchase of investment properties$1,572  $1,645
 $1,645 
Down-payment for purchase of property, plant and equipment 34   31
  291 
  113 
Deposit for rental and utilities 131   147
Ending balance$1,737  $1,823
Deposits for rental and utilities
  139 
  138 
Currency translation effect
  (193)
  (108)
Total
 $1,882 
 $1,788 


10.11. LINES OF CREDIT

CarryingThe 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.maturities.

The Company’s credit rating provides it with readily and adequate access to funds in global markets. As of December 31, 2015,2016, the Company had certain lines of credit that are collateralized by restricted deposits.

Entity with Type of Interest Expiration  Credit  Unused Type ofInterest
 
Expiration
 
 
Credit
 
 
Unused
 
Facility Facility Rate Date  Limitation  Credit 
Facility
Rate
 
Date
 
 
Limitation
 
 
Credit
 
             
Trio-Tech International Pte. Ltd., Singapore Lines of Credit Ranging from 1.9% to 5.6%  -  $5,482  $4,010 Lines of CreditRanging 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%  -  $384  $384 Lines of CreditRanging from 6.3% to 6.7%
  - 
 $702 
  702 
Trio-Tech (Tianjin) Co., Ltd. Lines of Credit Ranging from 4.9% to 6.3%  -  $1,232  $1,232 Lines of CreditRanging from 4.9% to 6.3%
  - 
 $720 
  432 

The Company’s credit rating provides it with readily and adequate access to funds in global markets. As of June 30, 2015,2016, the Company had certain lines of credit that are collateralized by restricted deposits.

Entity with Type of Interest Expiration  Credit  Unused Type ofInterest
 
Expiration
 
 
Credit
 
 
Unused
 
Facility Facility Rate Date  Limitation  Credit 
Facility
Rate
 
Date
 
 
Limitation
 
 
Credit
 
             
Trio-Tech International Pte. Ltd., Singapore Lines of Credit Ranging from 1.9% to 5.6%  -  $7,422  $6,161 Lines of CreditRanging 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%  -  $396  $79 Lines of CreditRanging from 6.3% to 6.7%
  - 
 $783 
Trio-Tech (Tianjin) Co., Ltd. Lines of Credit Ranging from 4.9% to 6.3%  -  $1,289  $1,289 Lines of CreditRanging from 4.9% to 6.3%
  - 
 $1,204 
 $602 

On April 10, 2015, Trio-Tech Tianjin signed an agreement with a bank for an Accounts Receivable Financing facility for RMB 8,000, or approximately $1,289, wherein interest is charged at the bank’s lending rate plus a floating interest rate. The effective interest rate is 130% of the bank’s lending rate. The financing facility was set up to facilitate the growing testing operations in our Tianjin operations in China. The immediate holding company, Trio-Tech International Pte. Ltd., acted as the guarantor for this bank facility. The bank account for this facility was set up on August 24, 2015.


11.12. ACCRUED EXPENSES

Accrued expenses consisted of the following:following:
 
Dec. 31,
2016
 
 
 June 30,
2016
 
 
Dec.31, 2015
(Unaudited)
  
June 30,
2015
 
 
(Unaudited)
 
 
    
 
Payroll and related costs $1,151  $1,513 
 $1,354 
 $1,311 
Commissions  55   52 
  106 
  47 
Customer deposits  29   41 
  166 
  91 
Legal and audit  294   244 
  194 
  297 
Sales tax  120   131 
  92 
  110 
Utilities  107   129 
  128 
  115 
Warranty  89   109 
  67 
  78 
Accrued purchase of materials and property, plant and equipment  348   430 
  89 
  50 
Provision for re-instatement of leasehold properties  410   422 
Provision for re-instatement
  295 
  308 
Other accrued expenses  200   243 
  339 
  331 
Currency translation effect  (156)  (230)
  (149)
  (96)
Total $2,647  $3,084 
 $2,681 
 $2,642 
 
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 forof 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,
2015
(Unaudited)
 
June 30,
2015
 
 
 Dec. 31,
 2016
 
 
 June 30,
 2016
 
    
 
(Unaudited)
 
 
    
 
Beginning$103 $60 
 $76 
 $103 
Additions charged to cost and expenses 25  114 
  16 
  80 
Utilization/ reversal (39)  (65)
Utilization / reversal
  (25)
  (105)
Currency translation effect (5)  (6)
  (5)
  (2)
Ending$84 $103 
 $62 
 $76 
 
-17-

13.14.   BANK LOANS PAYABLE
 
Bank loans payable consisted of the following:
  
Dec. 31,
2015
(Unaudited)
  
June 30,
2015
 
       
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 (7.4% at December 31, 2015 and June 30, 2015) per annum, with monthly payments of principal plus interest through August 2024, collateralized by the acquired building with a carrying value of $2,751.
 
  $
1,885
  
$
2,218
 
         
Note payable denominated in U.S. dollars to a financial institution for working capital plans in Singapore and its subsidiaries, maturing in December 2015, bearing interest at the bank’s prime rate plus 1.50% (4.1% to 6.9% at December 31, 2015 and June 30, 2015) with monthly payments of principal plus interest through April 2017. This note payable is secured by plant and equipment with a carrying value of $339. 
  
226
   
326
 
         
      Current portion
  
(319
)
  
(346
)
      Long term portion of bank loans payable
 
$
1,792
  
$
2,198
 
 
 
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, 20152016 were as follows:
 
2016
 
$
319
 
2017
 
214
 
 $235 
2018
 
165
 
  189 
2019
 
175
 
  199 
2020
 
184
 
  209 
2021
  221 
Thereafter
  
1,054
 
  636 
Total obligations and commitments
 
$
2,111
 
 $1,689 

Future minimum payments (excluding interest) as at June 30, 20152016 were as follows:
 
2016
 
$
346
 
2017
 
322
 
 $342 
2018
 
183
 
  204 
2019
 
193
 
  215 
2020
 
203
 
  226 
2021
  239 
Thereafter
  
1,297
 
  841 
Total obligations and commitments
 
$
2,544
 
 $2,067 

14.15.   COMMITMENTS AND CONTINGENCIES

Trio-Tech (Malaysia) Sdn. Bhd. has expansion plans to meet the growing demands of a major customer in Malaysia, as the existing facility is inadequate to meet the demands of that customer.  The CompanyTTM has capital commitments for the purchase of equipment and other related infrastructure costs amounting to RM 527,1,697, or approximately $123$378, based on the exchange rate as onat December 31, 201530, 2016 published by the Monetary Authority of Singapore, inas compared to the Malaysia operations.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 5,728,2,819, or approximately $882$406, based on the exchange rate as on December 31, 201530, 2016 published by the Monetary Authority of Singapore.

As of December 31, 2015, Trio-Tech International Pte. Ltd. in Singapore, had noas compared to the capital commitments for the purchase of equipment and other related infrastructure costs.
commitment as at June 30, 2016 amounting to RMB 597, or approximately $93.


loss. The Company leases office space and equipment under non-cancelable capital and operating leases with various expiration dates. The lease term begins onbelieves the dateprobability of a bank failure, causing loss to the initial possession of the leased property for the purposes of recognizing lease expense on a straight-line basis over the term of the lease. The Company, does not assume renewals in the determination of the lease terms unless the renewals are deemed to be reasonably assured at lease inception.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.

15.   16.BUSINESS SEGMENTS
 
In fiscal year 2016,2017, 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 real estate segment recorded other income of $18 and $50, respectively, for the three and six months ended December 31, 2015 as compared to $16 and $68, respectively, for the same periods in the last fiscal year. Due to the short-term nature of the investments, the investments were classified as loan receivables based on ASC Topic 310-10-25 Receivables. Thus the investment income was classified under other income, which is not part of the below table.

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 $29$20 and $144$302 for the three and six months ended December 31, 2015,2016, respectively, as compared to $97$29 and $142,$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.

The following segment information is un-auditedunaudited for the six months ended December 31:
 
Business Segment Information:             
 Six months    Operating     Depr.    
 Ended Net  Income /  Total  and  Capital 
 Dec. 31, Revenue  (Loss)  Assets  Amort.  Expenditures 
                 
Manufacturing
2015
 
$
6,416
  
$
371
  
$
5,870
  
$
107
  
$
19
 
 
2014
 
$
6,395
  
$
(735
)
 
$
13,460
  
$
70
  
$
23
 
                      
Testing Services
2015
  
7,484
   
360
   
20,285
   
777
   
295
 
 
2014
  
9,691
   
1,274
   
14,896
   
1,065
   
870
 
                      
Distribution
2015
  
2,334
   
70
   
803
   
-
   
-
 
 
2014
  
817
   
-
   
678
   
-
   
6
 
                      
Real Estate
2015
  
50
   
(70
)
  
3,424
   
53
   
-
 
 
2014
  
87
   
(91
)
  
3,686
   
54
   
-
 
                      
Fabrication *
2015
  
-
   
-
   
28
   
-
   
-
 
Services
2014
  
-
   
-
   
33
   
-
   
-
 
                      
Corporate &
2015
  
-
   
(104
)
  
80
   
-
   
-
 
Unallocated
2014
  
-
   
(134
)
  
117
   
-
   
-
 
                      
Total Company
2015
 
$
16,284
  
$
627
  
$
30,490
  
$
937
  
$
314
 
 
2014
 
$
16,990
  
$
314
  
$
32,870
  
$
1,189
  
$
899
 
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 
 $627 
 $30,490 
 $937 
 $314 
-19-


The following segment information is un-auditedunaudited for the three months ended December 31:

Business Segment Information:             
 Three months    Operating     Depr.    
 Ended Net  Income /  Total  and  Capital 
 Dec. 31, Revenue  (Loss)  Assets  Amort.  Expenditures 
                 
Manufacturing
2015
 
$
3,276
  
$
129
  
$
5,870
  
$
53
  
$
2
 
 
2014
 
$
3,348
  
$
(117
)
 
$
13,460
  
$
43
  
$
6
 
                      
Testing Services
2015
  
3,701
   
282
   
20,285
   
374
   
58
 
 
2014
  
5,073
   
687
   
14,896
   
496
   
426
 
                      
Distribution
2015
  
1,359
   
51
   
803
   
-
   
-
 
 
2014
  
432
   
36
   
678
   
-
   
-
 
                      
Real Estate
2015
  
18
   
(46
)
  
3,424
   
26
   
-
 
 
2014
  
44
   
(44
)
  
3,686
   
27
   
-
 
                      
Fabrication *
2015
  
-
   
-
   
28
   
-
   
-
 
Services
2014
  
-
   
-
   
33
   
-
   
-
 
                      
Corporate &
2015
  
-
   
(88
)
  
80
   
-
   
-
 
Unallocated
2014
  
-
   
(126
)
  
117
   
-
   
-
 
                      
Total Company
2015
 
$
8,354
  
$
328
  
$
30,490
  
$
453
  
$
60
 
 
2014
 
$
8,897
  
$
437
  
$
32,870
  
$
566
  
$
432
 
Business Segment Information:

 
 
Three months
Ended
Dec. 31
 
 
Net
Revenue
 
 
Operating Income/
(Loss)
 
 
Total
Assets
 
 
Depr and Amort.
 
 
Capital Expenditures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Manufacturing
   2016 
 $3,320 
 $(229)
 $8,114 
 $49 
 $67 
    
  2015 
 $3,276 
 $129 
 $5,870 
 $53 
 $2 
 
    
    
    
    
    
    
Testing Services
  2016 
  4,070 
  388 
  18,325 
  377 
  336 
    
  2015 
  3,701 
  282 
  20,285 
  374 
  58 
 
    
    
    
    
    
    
Distribution
  2016 
  1,675 
  100 
  651 
  1 
  - 
    
  2015 
  1,359 
  51 
  803 
  - 
  - 
 
    
    
    
    
    
    
Real Estate
  2016 
  39 
  (8)
  3,147 
  25 
  - 
    
  2015 
  18 
  (46)
  3,424 
  26 
  - 
 
    
    
    
    
    
    
Fabrication *
  2016 
  - 
  - 
  29 
  - 
  - 
Services
  2015 
  - 
  - 
  28 
  - 
  - 
 
    
    
    
    
    
    
Corporate &
  2016 
  - 
  27 
  430 
  - 
  - 
Unallocated
  2015 
  - 
  (88)
  80 
  - 
  - 
 
    
    
    
    
    
    
Total Company
  2016 
 $9,104 
 $278 
 $30,696 
 $452 
 $403 
 
  2015 
 $8,354 
 $328 
 $30,490 
 $453 
 $60 
* Fabrication services is a discontinued operation (Note 19).

16.
17. OTHER INCOME, NET

Other income / (expenses) consisted of the following:

 Three Months Ended Six Months Ended 
 
Three Months Ended
 
 
Six Months Ended
 
 Dec. 31, Dec. 31, Dec. 31, Dec. 31, 
 
Dec. 31,
 
 2015 2014 2015 2014 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
 Unaudited Unaudited Unaudited Unaudited 
 
Unaudited
 
         
Investment income deemed interest income
 
$
-
 
$
16
 
$
-
 
$
68
 
Allowance for doubtful loan receivables
 
-
 
(16
) 
 
-
 
(68
)
Interest income
 
4
 
4
 
7
 
6
 
  8 
  4 
  12 
  7 
Other rental income
 
24
 
26
 
48
 
52
 
  25 
  24 
  50 
  48 
Exchange (loss) / gain
 
(92
)
 
(59
) 
 
92
 
(70
)
Exchange gain / (loss)
  120 
  (92)
  182 
  92 
Other miscellaneous income
  
82
  
36
  
79
  
66
 
  50 
  82 
  69 
  79 
Total
 
 $
18
 
$ 
7
 
$ 
226
 
 $
54
 
 $203 
 $18 
 $313 
 $226 
 
Other income included investment income which was deemed to be interest income since the investment was deemed and classified as a loan receivables based on ASC Topic 310-10-25 Receivables amounted to nil for both the three and six months ended December 31, 2015, as compared to $16 and $68, respectively for the same periods in the last fiscal year. Other income for both the three and six months ending December 31, 2015 included nil allowance for both doubtful loan and doubtful interest receivables, as compared to $16 and $68, respectively, for the same periods in the last fiscal year.


17.18.  INCOME TAX

The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining the provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws. The statute of limitations, in general, is open for years 2004 to 20152016 for tax authorities in those jurisdictions to audit or examine income tax returns. The Company is under annual review by the tax authorities of the respective jurisdiction to which the subsidiaries belong.  

The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of ASC Topic 740 Income Tax. The Company had an income tax expense of $86$67 and $153$150 for the three and six months ended December 31, 2015,2016, respectively, as compared to income tax expense of $132$86 and $86,$153, respectively, for the same periods in the last fiscal year.

The Company records a provision fordecrease in income taxes fortax expenses was mainly due to higher incomes generated by the anticipatedsubsidiaries which has carry forward tax consequences of the reported results of operations using the asset and liability method. Under this method, the Company recognizeslosses which was partially offset by increase in deferred tax assetsfor timing differences recorded by Singapore and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. The Company records a valuation allowance to reduce our deferred tax assets to the net amount which is believed more likely than not to be realized.Malaysia operation.

The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. Although the Company believes that the uncertain tax positions are adequately reserved, no assurance is provided that the final tax outcome of these matters may not be materially different. Adjustments are made to these reserves when facts and circumstances change, such as the closing of tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences may affect the provision for income taxes in the period in which such determination is made and could have a material impact on the financial condition and operating results. The provision for income taxes includes the effect of any reserves that the Company believes are appropriate, as well as the related net interest and penalties.

The income tax expenses included with-holdingwithholding tax held by related companies that were not recoverable from the Inland Revenue Board in Singapore.

The Company accrues penalties and interest related to unrecognized tax benefits when necessary as a component of penalties and interest expenses, respectively. The Company had not accrued any penalties or interest expenses relating to unrecognized benefits at December 31, 20152016 and June 30, 2015.2016.

18.  NON-CONTROLLING INTEREST

In accordance with the provisions of ASC Topic 810, the Company has classified the non-controlling interest as a component of stockholders’ equity in the accompanying condensed consolidated balance sheets. Additionally, the Company has presented the net income attributable to the Company and the non-controlling ownership interests separately in the accompanying condensed consolidated financial statements.

Non-controlling interest represents the minority stockholders’ share of 45% of the equity of Trio-Tech Malaysia Sdn. Bhd., 45% interest in SHI International Pte. Ltd., and 24% interest in Prestal Enterprise Sdn. Bhd., which are subsidiaries of the Company.

The table below reflects a reconciliation of the equity attributable to non-controlling interest:
Non-controlling interest  
Dec. 31,
2015
   
June 30,
2015
 
Beginning balance $1,736  $1,732 
Net income  143   303 
Translation adjustment  (281)  (299)
Ending balance $1,598  $1,736 

-21-

19.   DISCONTINUED OPERATION AND CORRESPONDING RESTRUCTURING PLAN

The Company’s Indonesia operation and the Indonesia operation’s immediate holding company, which comprise the fabrication services segment, suffered continued operating losses in the past fivefrom fiscal years,year 2010 to 2014, and the cash flow was minimal for the past five years.from fiscal year 2009 to 2014. The Company established a restructuring plan to close the fabrication services operation, and in accordance with ASC Topic 205-20, 205, Presentation of Financial Statement Discontinued Operations (“ASC Topic 205-20”205”), from fiscal year 2015 onwards, the Company presented the operation results from fabrication services as a discontinued operation as the Company believed that no continued cash flow would be generated by the discontinued component and that the Company would have no significant continuing involvement in the operations of the discontinued component.

-20-
In accordance with the restructuring plan, the Company’s Indonesia operation is negotiating with its suppliers to settle the outstanding balance of accounts payable of $58$56 and hadhas no collection for accounts receivable as at December 31, 2015. receivable. The Company’s fabrication operation in Batam, Indonesia is in the process of winding downup the operations. The Company anticipates that it may incur costs and expenses when the winding up of the subsidiary in Indonesia takes place. Management has assessed the costs and expenses to be immaterial, thus no accrual has been made.

In January 2010, the Company established a restructuring plan to close the Testing operation in Shanghai, China. Based on the restructuring plan and in accordance with ASC Topic 205-20,205, the Company presented the operation results from Shanghai as a discontinued operation as the Company believed that no continued cash flow would be generated by the discontinued component (Shanghai subsidiary) and that the Company would have no significant continuing involvement in the operations of the discontinued component. The Shanghai operation hadhas an outstanding balance of accounts payable of $36$34 and is collecting the accounts receivable of $2 as at December 31, 2015.$1.

The discontinued operations in Shanghai and in Indonesia incurred general and administrative expenses of $2$1 for both the three and six months ended December 31, 2015,2016, and $18$2 for both the same periods in the last fiscal year. The Company anticipates that it may incur additional costs and expenses atwhen the timewinding up of winding down the business of the subsidiariessubsidiary through which the facilities operated.operated takes place. Management has assessed the costs and expenses to be immaterial, thus no accrual has been made.

Income / (loss) from discontinued operations was as follows:
 Three Months Ended Six Months Ended 
 
Three Months Ended
 
 
Six Months Ended
 
 Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2014 
 
Dec. 31,
2016
 
 
Dec. 31,
2015
 
 
Dec. 31,
2016
 
 
Dec. 31,
2015
 
 Unaudited Unaudited Unaudited Unaudited 
 
Unaudited
 
         
 
 
 
Revenue
 
$
-
 
$
-
 
$
-
 
$
-
 
 $- 
Cost of sales
  
-
 
  
-
  
-
  
-
 
  - 
Gross margin
 
-
 
 
-
 
-
 
-
 
  - 
         
    
Operating expenses:
         
    
General and administrative
  
2
  
18
  
2
  
18
 
  1 
  2 
  1 
  2 
Total
  
2
  
18
  
2
  
18
 
  1 
  2 
  1 
  2 
         
    
Loss from discontinued operations
 
(2
)
 
(18
)
 
(2
)
 
(18
)
  (1)
  (2)
  (1)
  (2)
         
    
Other income / (expenses)
 
8
 
12
 
(2
)
 
38
 
  (3)
  8 
  (2)
             
    
Income / (loss) from discontinued operations
 
$
6
 
$
(6
)
 
$
(4
)
 
$
20
 
 $(4)
 $6 
 $(3)
 $(4)
 
The Company does not provide a separate cash flow statement for the discontinued operation, as the impact of the discontinued operation was immaterial.

 
-22-

20.   EARNINGS PER SHARE

The Company adopted ASC Topic 260, Earnings Per Share. Basic earnings per share (“EPS”) are computed by dividing net income available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period.  Diluted EPS give effect to all dilutive potential common shares outstanding during a period.  In, computing diluted EPS, the average price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options and warrants.

As of December 31, 2016, there were 455,000 stock options outstanding, of which 125,000 stock options with exercise prices ranging from $3.62 to $3.81 per share were excluded in the computation of diluted EPS because they were anti-dilutive.
As of December 31, 2015, there were 315,000 stock options outstanding, of which 200,000 stock options with exercise prices ranging from $3.10 to $3.81 per share were excluded in the computation of diluted EPS because they were anti-dilutive.
-21-
 
As of December 31, 2014, there were 495,000 stock options outstanding with exercise prices ranging from $2.07 to $4.35 per share which were excluded in the computation of diluted EPS because they were anti-dilutive.

The following table is a reconciliation of the weighted average shares used in the computation of basic and diluted EPS for the years presented herein:  
 
 
 
Three Months Ended
 
 
Six Months Ended
 
 
 
Dec. 31,
 
 
Dec. 31,
 
 
Dec. 31,
 
 
Dec. 31,
 
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
 
 
(Unaudited)
 
 
(Unaudited)
 
 
(Unaudited)
 
 
(Unaudited)
 
Income attributable to Trio-Tech International common shareholders from continuing operations, net of tax
 $316 
 $188 
 $619 
 $452 
(Loss) / income attributable to Trio-Tech International common shareholders from discontinued operations, net of tax
  (6)
  2 
  (6)
  (3)
Net Income Attributable to Trio-Tech International Common Shareholders
 $310 
 $190 
 $613 
 $449 
 
    
    
    
    
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 
 
    
    
    
    
Basic earnings 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 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 
 
  Three Months Ended  Six Months Ended 
  
Dec. 31,
2015
(Unaudited)
  
Dec. 31,
2014
(Unaudited)
  
Dec. 31,
2015
(Unaudited)
  
Dec. 31,
2014
(Unaudited)
 
Income / (loss) attributable to Trio-Tech International common shareholders from continuing operations, net of tax
 $188  $97  $452  $(41)
Income / (loss) attributable to Trio-Tech International common shareholders from discontinued operations, net of tax
  2   (3)  (3)  11 
Net Income / (Loss) Attributable to Trio-Tech International Common Shareholders
 $190  $94  $449  $(30)
Basic and diluted earnings / (loss) per share from continuing operations attributable to Trio-Tech International
 $0.05   0.03   0.13   (0.01) 
Basic and diluted earnings per share from discontinued operations attributable to Trio-Tech International
  -   -   -   - 
Basic and Diluted Earnings / (Loss) per Share from Net Income / (Loss) Attributable to Trio-Tech International
 $0.05  $0.03  $0.13  $(0.01)
                 
Weighted average number of common shares outstanding - basic
  3,513   3,513   3,513   3,513 
                 
Dilutive effect of stock options
  16   -   12   - 
Number of shares used to compute earnings per share - diluted
  3,529   3,513   3,525   3,513 


 
-22-
-23-

21.  STOCK OPTIONS

On September 24, 2007, the Company’s Board of Directors unanimously adopted the 2007 Employee Stock Option Plan (the “2007 Employee Plan”) and the 2007 Directors Equity Incentive Plan (the “2007 Directors Plan”) each of which was approved by the shareholders on December 3, 2007. Each of those plans was amended by the Board in 2010 to increase the number of shares covered thereby, which amendments were approved by the shareholders on December 14, 2010. At present, the 2007 Employee Plan provides for awards of up to 600,000 shares of the Company’s Common Stock to its employees, consultants and advisors. The Board also amended the 2007 Directors Plan in November 2013 to further increase the number of shares covered thereby from 400,000 shares to 500,000 shares, which amendment was approved by the shareholders on December 9, 2013. TheAt present, the 2007 Directors Plan provides for awards of up to 500,000 shares of the Company’s Common Stock to the members of the Company’s Board of Directors in the form of non-qualified options and restricted stock. These two plans are administered by the Board, which also establishes the terms of the awards.

Assumptions

The fair value for the options granted were estimated using the Black-Scholes option pricing model with the following weighted average assumptions, assuming no expected dividends: 
 
Six Months Ended
Dec. 31,
 
Year Ended
June 30,
 
 Six Months Ended December 31,
2015 2015 2016
 
2015
     
 
 
Expected volatility62.05% to 104.94% 71.44% to 104.94% 62.05% to 104.94%
 
62.05% to 104.94%
Risk-free interest rate0.30% to 0.78% 0.30% to 0.78% 0.30% to 0.78%
 
0.30% to 0.78%
Expected life (years)2.50 2.50 2.50
 
2.50

The expected volatilities are based on the historical volatility of the Company’s stock. Due to higher volatility, the observation is made on a daily basis for the six months ended December 31, 2015.basis. The observation period covered is consistent with the expected life of options. The expected life of the options granted to employees has been determined utilizing the “simplified” method as prescribed by ASC Topic 718 Stock Based Compensation, which, among other provisions, allows companies without access to adequate historical data about employee exercise behavior to use a simplified approach for estimating the expected life of a "plain vanilla" option grant. The simplified rule for estimating the expected life of such an option is the average of the time to vesting and the full term of the option. The risk-free rate is consistent with the expected life of the stock options and is based on the United States Treasury yield curve in effect at the time of grant.

2007 Employee Stock Option Plan

The Company’s 2007 Employee Plan 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 value as of the grant date and the options granted must be exercisable within a maximum of ten years after the date of grant, or such lesser period of time as is set forth in the stock option agreements. The options may be exercisable (a) immediately as of the effective date of the stock option agreement granting the option, or (b) in accordance with a schedule related to the date of the grant of the option, the date of first employment, or such other date as may be set by the Compensation Committee. Generally, options granted under the 2007 Employee Plan are exercisable within five years after the date of grant, and vest over the period as follows: 25% vesting on the grant date and the remaining balance vesting in equal installments on the next three succeeding anniversaries of the grant date. The share-based compensation will be recognized in terms of the grade method on a straight-line basis for each separately vesting portion of the award. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the 2007 Employee Plan).

The Company did not grant any options pursuant to the 2007 Employee Plan during the six months ended December 31, 2016. There were no options exercised during the six months ended December 31, 2016. The Company recognized stock-based compensation expenses of $1 in the six months ended December 31, 2016 under the 2007 Employee Plan. The balance unamortized stock-based compensation of $3 based on fair value on the grant date related to options granted under the 2007 Employee Plan is to be recognized over a period of three years. The weighted-average remaining contractual term for non-vested options was 4.22 years.
-23-
The Company did not grant any options pursuant to the 2007 Employee Plan during the six months ended December 31, 2015, The Company recognized stock-based compensation expenses of $4 in the six months ended December 31, 2015 under the 2007 Employee Plan. There was no balance of unamortized stock-based compensation based on fair value on the grant date related to options granted under the 2007. 2007. No stock options were exercised during the six months ended December 31, 2015. The weighted-average remaining contractual term for non-vested options was 0.94 years.

 
-24-

The Company did not grant any options pursuant to the 2007 Employee Plan during the six months ended December 31, 2014.2016, there were vested employee stock options covering a total of 60,000 shares of Common Stock. The Company recognized stock-based compensation expensesweighted-average exercise price was $3.26 and the weighted average contractual term was 2.26 years. The total fair value of $7 in the six months endedvested employee stock options was $195 and remains outstanding as of December 31, 2014 under the 2007 Employee Plan. The balance of unamortized stock-based compensation of $20 based on fair value on the grant date related to options granted under the 2007 Employee Plan is to be recognized over a period of two years. No stock options were exercised during the three and six months ended December 31, 2014. The weighted-average remaining contractual term for non-vested options was 1.94 years.2016.

As of December 31, 2015, there were vested employee stock options that were exercisable covering a total of 41,250 shares of Common Stock. The weighted-average exercise price was $3.29 and the weighted average contractual term was 2.86 years. The total fair value of vested and outstanding employee stock options was $136 and remains outstanding as of December 31, 2015 was $136.2015.

As of December 31, 2014, there were vested employee stock options that were exercisable covering a total of 112,500 shares of Common Stock. The weighted-average exercise price was $4.06 and the weighted average contractual term was 1.78 years. The total fair value of vested and outstanding employee stock options as of December 31, 2014 was $456.

A summary of option activities under the 2007 Employee Plan during the six monthsix-month period ended December 31, 20152016 is presented as follows:
 
 Options 
Weighted Average
Exercise
Price
 
Weighted Average Remaining
Contractual
Term (Years)
 
Aggregate
Intrinsic
Value
 
 
 Options
 
 
 
Weighted Average
Exercise
Price
 
 
Weighted Average Remaining
Contractual
Term (Years)
 
 
 
Aggregate
Intrinsic
Value
 
         
 
 
 
Outstanding at July 1, 2015
 
130,000
 
$
3.93
 
1.57
 
$
-
 
Outstanding at July 1, 2016
  90,000 
 $3.26 
  3.42 
 $30 
Granted
 
-
 
-
 
-
 
-
 
  - 
Exercised
 
-
 
-
 
-
 
-
 
  - 
Forfeited or expired
  
(80,000
) 
  
4.35
  
-
  
-
 
  - 
Outstanding at December 31, 2015
  
50,000
 
$
3.26
  
2.87
 
$
-
 
Exercisable at December 31, 2015
  
41,250
 
$
3.29
  
2.86
 
$
-
 
Outstanding at December 31, 2016
  90,000 
 $3.26 
  2.91 
 $10 
Exercisable at December 31, 2016
  60,000 
 $3.26 
  2.26 
 $8 

A summary of option activities under the 2007 Employee Plan during the six monthsix-month period ended December 31, 20142015 is presented as follows:
 
 Options 
Weighted Average
Exercise
Price
 
Weighted Average Remaining
Contractual
Term (Years)
 
Aggregate
Intrinsic
Value
 
 
 Options
 
 
 
Weighted Average
Exercise
Price
 
 
Weighted Average Remaining
Contractual
Term (Years)
 
 
 
Aggregate
Intrinsic
Value
 
         
 
 
 
Outstanding at July 1, 2014
 
130,000
 
$
3.93
 
2.57
 
$
13
 
Outstanding at July 1, 2015
  130,000 
 $3.93 
  1.57 
 $- 
Granted
 
-
 
-
 
-
 
-
 
  - 
Exercised
 
-
 
-
 
-
 
-
 
  - 
Forfeited or expired
  
-
  
-
  
-
  
-
 
  (80,000)
  4.35 
  - 
Outstanding at December 31, 2014
  
130,000
 
$
3.93
  
2.07
 
$
-
 
Exercisable at December 31, 2014
  
112,500
 
$
4.06
  
1.78
 
$
-
 
Outstanding at December 31, 2015
  50,000 
 $3.26 
  2.87 
 $- 
Exercisable at December 31, 2015
  41,250 
 $3.29 
  2.86 
 $- 
 
 
-24-
-25-

A summary of the status of the Company’s non-vested employee stock options during the six months ended December 31, 2016 is presented below: 
 
 
Options
 
 
Weighted
Average Grant-Date
Fair Value
 
 
 
 
 
 
 
 
Non-vested at July 1, 2016
  38,750 
 $3.22 
Granted
  - 
  - 
Vested
  (8,750)
  3.10 
Forfeited
  - 
  - 
Non-vested at December 31, 2016
  30,000 
 $3.26 
A summary of the status of the Company’s non-vested employee stock options during the six months ended December 31, 2015 is presented below: 
 
 
Options
 
 
 Weighted
Average
Grant-Date
Fair Value
 
 
 
 
 
 
 
 
Non-vested at July 1, 2015
  17,500 
 $1.69 
Granted
  - 
  - 
Vested
  (8,750)
  (1.69)
Forfeited
  - 
  - 
Non-vested at December 31, 2015
  8,750 
 $1.69 
 Options 
Weighted Average Grant-Date
Fair Value
 
      
Non-vested at July 1, 2015
  
17,500
 
$
1.69
 
Granted
  
-
  
-
 
Vested
  
(8,750
 )
 
(1.69
)
Forfeited
  
-
  
-
 
Non-vested at December 31, 2015
  
8,750
 
$
1.69
 

A summary of the status of the Company’s non-vested employee stock options during the six months ended December 31, 2014 is presented below: 

  Options  
Weighted Average Grant-Date
Fair Value
 
       
Non-vested at July 1, 2014
  26,250  $1.69 
Granted
  -   - 
Vested
  (8,750)   (1.69)
Forfeited
  -   - 
Non-vested at December 31, 2014
  17,500  $1.69 

2007 Directors Equity Incentive Plan

The 2007 Directors Plan permits the grant of options covering up to an aggregate of 500,000 shares of Common Stock to its non-employee directors in the form of non-qualified options and restricted stock. The exercise price of the non-qualified options is 100% of the fair value of the underlying shares on the grant date. The options have five-year contractual terms and are generally exercisable immediately as of the grant date.

During the first two quarters of fiscal year 2017, the Company did not grant any options pursuant to the 2007 Directors Plan. There were no stock options exercised during the six-month period ended December 31, 2016. The Company did not recognize any stock-based compensation expenses during the six months ended December 31, 2016.
On October 5, 2015, the Company granted options to purchase 50,000 shares of its Common Stock to directors pursuant to the 2007 Directors Plan with an exercise price equal to the fair market value of Common Stock (as defined under the 2007 Directors Plan in conformity with Regulation 409A or the Internal Revenue Code of 1986, as amended) at the date of grant. The fair value of the options granted to purchase 50,000 shares of the Company’s Common Stock was approximately $51 based on the fair value of $2.69 per share determined by the Black Scholes option pricing model. As all of the stock options granted under the 2007 Directors Plan vest immediately at the date of grant, there were no unvested stock options granted under the 2007 Directors Plan as of December, 31, 2015.2016. No stock options were exercised during the six months ended December 31, 2015.

On October 21, 2014, the Company granted options to purchase 50,000 shares
-25-
A summary of Common Stock (as definedoption activities under the 2007 Directors Plan in conformity with Regulation 409A or the Internal Revenue Code of 1986, as amended) at the date of grant. The fair value of the options granted to purchase 50,000 shares of the Company’s Common Stock was approximately $82 based on the fair value of $3.81 per share determined by the Black Scholes option pricing model. As all of the stock options granted under the 2007 Directors Plan vest immediately at the date of grant, there were no unvested stock options granted under the 2007 Directors Plan as of December 31, 2014. No stock options were exercised during the six months ended December 31, 2014.
2016 is presented as follows: 

 
 
 
Options
 
 
Weighted Average
Exercise
Price
 
 
Weighted Average Remaining
Contractual
Term (Years)
 
 
Aggregate
Intrinsic
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at July 1, 2016
  415,000 
 $3.14 
  3.29 
 $198 
Granted
  - 
  - 
  - 
  - 
Exercised
  - 
  - 
  - 
  - 
Forfeited or expired
  (50,000)
  2.30 
  - 
  - 
Outstanding at December 31, 2016
  365,000 
 $3.25 
  3.18 
 $68 
Exercisable at December 31, 2016
  365,000 
 $3.25 
  3.18 
 $68 
-26-

A summary of option activities under the 2007 Directors Plan during the six months ended December 31, 2015 is presented as follows: 

  Options  
Weighted Average
Exercise
Price
  
Weighted Average Remaining
Contractual
Term (Years)
  
Aggregate
Intrinsic
Value
 
             
Outstanding at July 1, 2015
  
365,000
  
$
3.65
   
1.99
  
$
53
 
Granted
  
50,000
   
2.69
   
-
   
-
 
Exercised
  
-
   
-
   
-
   
-
 
Forfeited or expired
  
(150,000
)
  
4.35
   
-
   
-
 
Outstanding at December 31, 2015
  
265,000
  
$
3.07
   
2.98
  
$
40
 
Exercisable at December 31, 2015
  
265,000
  
$
3.07
   
2.98
  
$
40
 

A summary of option activities under the 2007 Directors Plan during the six months ended December 31, 2014 is presented as follows:
 
 
Options
 
 
Weighted Average
Exercise
Price
 
 
Weighted Average Remaining
Contractual
Term (Years)
 
 
Aggregate
Intrinsic
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at July 1, 2015
  365,000 
 $3.65 
  1.99 
 $53 
Granted
  50,000 
  2.69 
  - 
  - 
Exercised
  - 
  - 
  - 
  - 
Forfeited or expired
  (150,000)
  4.35 
  - 
  - 
Outstanding at December 31, 2015
  265,000 
 $3.07 
  2.98 
 $40 
Exercisable at December 31, 2015
  265,000 
 $3.07 
  2.98 
 $40 
 
  Options  
Weighted Average
Exercise
Price
  
Weighted Average Remaining
Contractual
Term (Years)
  
Aggregate
Intrinsic
Value
 
             
Outstanding at July 1, 2014
  
315,000
  
$
3.62
   
2.63
  
$
82
 
Granted
  
50,000
   
3.81
   
-
   
-
 
Exercised
  
-
   
-
   
-
   
-
 
Forfeited or expired
  
-
   
-
   
-
   
-
 
Outstanding at December 31, 2014
  
365,000
  
$
3.64
   
2.49
  
$
43
 
Exercisable at December 31, 2014
  
365,000
  
$
3.64
   
2.49
  
$
43
 

22.  FAIR VALUE OF FINANCIAL INSTRUMENTS APPROXIMATE CARRYING VALUE

In accordance with the ASC Topic 825, and 820, the following presents assets and liabilities measured and carried at fair value and classified by level of the following fair value measurement hierarchy:hierarchy in accordance to ASC 820:

There were no transfers between Levels 1 and 2 during the three and six months ended December 31, 20152016 and 2014.2015.

Term deposits (Level 2) – The carrying amount approximates fair value because of the short maturity of these instruments.

Loans receivable from property development projects (Level 3) – The carrying amount approximates fair value because of the short-term nature.

Restricted term deposits (Level 2) – The carrying amount approximates fair value because of the short maturity of these instruments.

Lines of credit (Level 3) – The carrying value of the lines of credit approximates fair value due to the short-term nature of the obligations.

Bank loans payable (Level 3) – The carrying value of the Company’s bank loan payables approximates its fair value as the interest rates associated with long-term debt is adjustable in accordance with market situations when the Company borrowed funds with similar terms and remaining maturities.

 
-26-
-27-

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 2. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Overview

The following should be read in conjunction with the condensed consolidated unaudited financial statements and notes in Item I above and with the audited consolidated financial statements and notes, and the information under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2015.2016.

Trio-Tech International (“TTI”) was incorporated in 1958 under the laws of the State of California. As used herein, the term “Trio-Tech” or “Company” or “we” or “us” or “Registrant” includes Trio-Tech International and its subsidiaries unless the context otherwise indicates. Our mailing address and executive offices are located at 16139 Wyandotte Street, Van Nuys, California 91406, and our telephone number is (818) 787-7000.

The Company is a provider of reliability test equipment and services to the semiconductor industry. Our customers rely on us to verify that their semiconductor components meet or exceed the rigorous reliability standards demanded for aerospace, communications and other electronics products.

TTI generated approximately 99.8%99.6% of its revenue from its three core business segments in the test and measurement industry, i.e. manufacturing of test equipment, testing services and distribution of test equipment during the three months ended December 31, 2015.2016. To reduce our risks associated with sole industry focus and customer concentration, the Company expanded its business into the real estate investment and oil and gas equipment fabrication businesses in 2007 and 2009, respectively. The Company’s Indonesia operation and the Indonesia operation’s immediate holding company, which comprised the fabrication services segment, suffered continued operating losses since it commenced its operations, and the cash flow was minimal in the past years. The Company established a restructuring plan to close the fabrication services operation, and in accordance with ASC Topic 205, Presentation of Financial Statement Discontinued Operations (“ASC Topic 205”), the Company presented the operation results from fabrication services as a discontinued operation. The Real Estate segment contributed only 0.2%0.4% to the total revenue and has been insignificant since the property market in China has slowed down due to control measures in China.

The Company’s operating results are presented based on the translation of foreign currencies using the respective quarter’s average exchange rate. Strengthening of the U.S. dollar relative to the foreign currencies caused the translation difference during the current year as compared to the same period of last year, affecting the revenue and operating profitability, which negatively impacted our results.

Manufacturing

TTI develops and manufactures an extensive range of test equipment used in the "front end" and the "back end" manufacturing processes of semiconductors. Our equipment includes leak detectors, autoclaves, centrifuges, burn-in systems and boards, HAST testers, temperature controlled chucks, wet benches and more.

Testing

TTI provides comprehensive electrical, environmental, and burn-in testing services to semiconductor manufacturers in our testing laboratories in Southeast Asia and the United States (U.S.). Our customers include both manufacturers and end-users of semiconductor and electronic components, who look to us when they do not want to establish their own facilities. The independent tests are performed to industry and customer specific standards.
 
Distribution

In addition to marketing our proprietary products, we distribute complementary products made by manufacturers mainly from the U.S., Europe, Taiwan and Japan. The products include environmental chambers, handlers, interface systems, vibration systems, shaker systems, solderability testers and other semiconductor equipment. Besides equipment, we also distribute a wide range of components such as connectors, sockets, LCD display panels and touch-screen panels. Furthermore, our range of products are mainly targeted for industrial products rather than consumer products whereby the life cycle of the industrial products can last from 3 years to 7 years.

 
-28-

Real Estate

Beginning in 2007, TTI has invested in real estate property in Chongqing, China, which has generated investment income from the rental revenue from real estate we purchased in Chongqing, China, and investment returns from deemed loan receivables, which are classified as other income. The rental income is generated from the rental properties in MaoYe JiangHuai and FuLi in Chongqing, China. In the second quarter of fiscal 2015, the investment in JiaSheng, which was deemed as loans receivable, was transferred to down payment for purchase of investment property in China. During
-27-

Second Quarter Fiscal 2017 Highlights
●
Total revenue increased by $750, or 9.0%, to $9,104 for the first three quarterssecond quarter of fiscal 2014,2017, as compared to $8,354 for the investment, which is deemedsame period in fiscal 2016.
●
Manufacturing segment revenue increased by $44, or 1.3%, to $3,320 for the second quarter of fiscal 2017, as loans receivable, generated investment returnscompared to $3,276 for the same period in fiscal 2016.
●
Testing segment revenue increased by $369, or 10.0%, to $4,070 for the second quarter of fiscal 2017, as compared to $3,701 for the same period in fiscal 2016.
●
Distribution segment revenue increased by $316, or 23.3%, to $1,675 for the second quarter of fiscal 2017, as compared to $1,359 for the same period in fiscal 2016.
●
Real estate segment revenue increased by $21, or 116.7%, to $39 for the second quarter of fiscal 2017, as compared to $18 for the same period in fiscal 2016.
●
Gross profit margin in absolute dollars increased by $179, or 8.5%, to $2,294 for the second quarter of fiscal 2017, as compared to $2,115 for the same period in fiscal 2016.
●
The overall gross profit margin decreased by 0.1% to 25.2% for the second quarter of fiscal 2017, from 25.3% for the investmentssame period in JiaShengfiscal 2016.
●
Income from operations for the second quarter of fiscal 2017 was $278, a decrease of $50 or 15.2%, as compared to $328 for the same period in fiscal 2016.
●
General and JiangHuai. Subsequentlyadministrative expenses increased by $177, or 11.1%, to $1,776 for the second quarter of fiscal year 2017, from $1,599 for the same period in fiscal year 2016.
●
Selling expenses increased by $39, or 27.7%, to $180 for the second quarter of fiscal year 2017, from $141 for the same period in fiscal year 2016.
●
Other income increased by $185 to $203 in the second quarter of fiscal 2014, a full provision was madeyear 2017 compared to $18 in the same period in fiscal year 2016.
●
Tax expense for the investmentsecond quarter of fiscal year 2017 was $67, a decrease of $19, as compared to $86 in JiangHuai. the same period in fiscal year 2016.

●
Second Quarter FiscalDuring the second quarter of fiscal year 2017, income from continuing operations before non-controlling interest, net of tax was $366, an increase of $157, as compared to $209 for the same period in fiscal year 2016.
●
Net income attributable to non-controlling interest for the second quarter of fiscal year 2017 was $52, as compared to $25 in the same period in fiscal year 2016.
●
Working capital increased by $41, or 0.6%, to $6,520 as of December 31, 2016, Highlightscompared to $6,479 as of June 30, 2016.

●
·Total revenue decreased by $543, or 6.1%, to $8,354 for the second quarter of fiscal 2016, as compared to $8,897 for the same period in fiscal 2015.
Earnings per share for the three months ended December 31, 2016 was $0.09, an increase of $0.04, as compared to $0.05 for the same period in fiscal year 2016.
·Manufacturing segment revenue decreased by $72, or 2.2%, to $3,276 for the second quarter of fiscal 2016, as compared to $3,348 for the same period in fiscal 2015.
●
·Testing segment revenue decreased by $1,372, or 27.0%, to $3,701 for the second quarter of fiscal 2016, as compared to $5,073 for the same period in fiscal 2015.
Total assets decreased by $1,523 or 4.7% to $30,696 as of December 31, 2016, compared to $32,219 as of June 30, 2016,
·Distribution segment revenue increased by $927, or 214.6%, to $1,359 for the second quarter of fiscal 2016, as compared to $432 for the same period in fiscal 2015.
●
·Real estate segment revenue decreased by $26, or 59.1%, to $18 for the second quarter of fiscal 2016, as compared to $44 for the same period in fiscal 2015.
Total liabilities decreased by $739 or 6.5% to $10,609 as of December 31, 2016, compared to $11,348 as of June 30, 2016.
·The overall gross profit margins decreased by 2.2% to 25.3% for the second quarter of fiscal 2016, from 27.5% for the same period in fiscal 2015.
·Income from operations for the second quarter of fiscal 2016 was $328, a decrease of $109 or 24.9%, as compared to $437 for the same period in fiscal 2015.
·General and administrative expenses decreased by $112, or 6.5%, to $1,599 for the second quarter of fiscal year 2016, from $1,711 for the same period in fiscal year 2015.
·Selling expenses decreased by $24, or 14.5%, to $141 for the second quarter of fiscal year 2016, from $165 for the same period in fiscal year 2015.
·Other income increased by $11 to $18 in the second quarter of fiscal year 2016 compared to $7 in the same period in fiscal year 2015.
·Tax expense for the second quarter of fiscal year 2016 was $86, a decrease of $46, as compared to $132 in the same period in fiscal year 2015.
·During the second quarter of fiscal year 2016, income from continuing operations before non-controlling interest, net of tax was $209, a decrease of $45, as compared to $254 for the same period in fiscal year 2015.
·During the second quarter of fiscal year 2016, income from discontinuing operations net of tax was $6, as compared to a loss of $6 for the same period in fiscal year 2015.
·Net income attributable to non-controlling interest for the second quarter of fiscal year 2016 was $25, as compared to $154 in the same period in fiscal year 2015.
·Working capital increased by $922, or 17.4%, to $6,210 as of December 31, 2015 from $5,288 as of June 30, 2015.
·Earnings per share for the three months ended December 31, 2015 was $0.05, an increase of $0.03, as compared to $0.03 for the same period in fiscal year 2015.
·Property, plant and equipment decreased by $1,697, or 13.6%, to $10,825 as of December 31, 2015 from $12,522 as of June 30, 2015.
·Total assets decreased by $1,547, or 4.8%, to $30,490 as of December 31, 2015 from $32,037 as of June 30, 2015.
·Total liabilities decreased by $791, or 7.0%, to $10,524 as of December 31, 2015 from $11,315 as of June 30, 2015.
 

Results of Operations and Business Outlook

The following table sets forth our revenue components for the three and six months ended December 31, 20152016 and 2014,2015, respectively.
 
Three Months Ended Six Months Ended 
 
 Three Months Ended    
 
 
 Six Months Ended
 
Dec. 31, Dec. 31, Dec. 31, Dec. 31, 
 
Dec. 31,
 
2015   2014  2015  2014 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
        
 
 
 
Manufacturing
39.2
%
 
37.6
%
 
39.4
%
 
37.6
%
  36.5%
  39.2%
  38.7%
  39.4%
Testing Services
44.3
 
57.0
  
46.0
 
57.0
 
  44.7 
  44.3 
  45.5 
  46.0 
Distribution
16.3
 
4.9
  
14.3
 
4.9
 
  18.4 
  16.3 
  15.4 
  14.3 
Real Estate
0.2
 
0.5
  
0.3
 
0.5
 
  0.4 
  0.2 
  0.4 
  0.3 
            
    
Total
100.0
%
  
100.0
%
  
100.0
%
  
100.0
%
  100.0%

Revenue for the three months and six months ended December 31, 20152016 was $8,354$9,104 and $16,284,$18,075, respectively, a decreasean increase of $543$750 and $706,$1,791, respectively, when compared to the revenue for the same periods of the prior fiscal year. As a percentage, revenue decreasedincreased by 6.1%9.0% and 4.2%11.0% for the three and six months ended December 31, 2015,2016, respectively, when compared to total revenue for the same periods of the prior year.

For the three months ended December 31, 2015,2016, the overall decrease in revenue was primarily due to a decrease in the manufacturing segment in our Singapore operations, U.S. operations and Suzhou, China operations, a decrease in all testing operations, except for the U.S. operations, a decrease in the distribution segment in Suzhou, China, and a decrease in the real estate segment in China. These decreases were partially offset by an$750 increase in the distribution segment in our Singapore and Malaysia operations.

For the six months ended December 31, 2015, the decrease in overall revenue was primarily due to a decrease in all testing operations, except for the U.S. operations, a decrease in distribution segment in Suzhou, China, and a decrease in the real estate segment in China. These decreases were partially offset by
●
an increase in the manufacturing segment in the Singapore U.S. and Suzhou, China, operations,
●
an increase in the testing segment in the Singapore, Malaysia and Bangkok, Thailand operations,
●
an increase in the distribution segment in the Singapore, Malaysia and Suzhou, China, operations and
●
an increase in the real estate segment in China.
These increases were partially offset by the
●
decrease in revenue in the manufacturing segment in the U.S. operations and
●
decrease in the testing segment in China operations.
For the six months ended December 31, 2016, the $1,791 increase in overall revenue was primarily due to
●
an increase in the manufacturing segment in Singapore operations,
●
an increase in the testing segment in the Singapore, Malaysia and Bangkok, Thailand operations,
●
an increase in the distribution segment in the Singapore and MalaysiaSuzhou, China operations and
●
an increase in the real estate segment in China.
These increases were partially offset by the
●
decrease in revenue in the manufacturing segment in the U.S. operations and
●
decrease in the testing segment in China operations.

Revenue into and within China, the Southeast Asia regions and other countries (except revenue into and within the U.S.) decreasedincreased by $632$968 (or 7.4%12.2%) to $7,938,$8,906, and by $1,058$1,856 (or 6.4%12.0%) to $15,476$17,332 for the three months and six months ended December 31, 2015,2016, respectively, as compared with $8,570$7,938 and $16,534,$15,476, respectively, for the same periods of last fiscal year.  
 
Revenue into and within the U.S. was $416$198 and $808$743 for the three months and six months ended December 31, 2015,2016, respectively, an increasea decrease of $89$218 and $352,$65, respectively, from $327$416 and $456$808 for the same periods of last fiscal year, respectively. The increase in the six months result was mainly due to increase in orders received in the second quarter
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Revenue for the three and six months ended December 31, 20152016 is discussed within the four segments as follows:

Manufacturing Segment

Revenue in the manufacturing segment as a percentage of total revenue was 39.2%36.5% and 39.4%38.7% for the three and six months ended December 31, 2015,2016, respectively, an increasea decrease of 1.6%2.7% and 1.8%0.7% of total revenue, respectively, when compared to the same periods of the last fiscal year.  The absolute amount of revenue decreasedincreased by $72$44 to $3,276$3,320 from $3,348$3,276 and increased by $21$575 to $6,416$6,991 from $6,395$6,416 for the three and six months ended December 31, 2015,2016, respectively, compared to the same periods of the last fiscal year. 

Revenue in the manufacturing segment for the three and six month periods ended December 31, 2015 decreased2016 increased primarily due to a decreasean increase in the manufacturing revenue from a major customer,customers in our Singapore and Suzhou, China operations, which was partially offset by an increasea decrease in demand from a few customersrevenue in our manufacturing revenueU.S operations. The decrease in the Singapore operations, U.S operations and Suzhou operations,was caused by a delay in China.
orders by a customer.

 
-30-

The revenue in the manufacturing segment from a major customer accounted for 38.3%55.7% and 68.2%38.3% of our total revenue in the manufacturing segment for the three months ended December 31, 20152016 and 2014,2015, respectively, and 42.0%57.0% and 69.4%42.0% of our total revenue in the manufacturing segment for the six months ended December 31, 20152016 and 2014,2015, respectively.

The future revenue in our manufacturing segment will be significantly affected by the purchase and capital expenditure plans of this major customer, if the customer base cannot be increased.

Testing Services Segment

Revenue in the testing segment as a percentage of total revenue was 44.3%44.7% and 46.0%45.5% for the three and six months ended December 31, 2015,2016, an increase of 0.4% and a decrease of 12.7% and 11.0%0.5%, respectively, of total revenue when compared to the same periods of the last fiscal year.  The absolute amount of revenue decreasedincreased by $1,372$369 to $3,701$4,070 from $5,073$3,701 and by $2,207$743 to $7,484$8,227 from $9,691$7,484 for the three and six months ended December 31, 2015,2016, respectively, compared to the same periods of the last fiscal year. 

Revenue in the testing segment for the three and six monthsix-month period ended December 31, 2015 decreased2016 increased primarily due to an increase in testing volume as a result of an increase in orders from customers in our Singapore, Malaysia and Bangkok, Thailand operations. The increase was partially offset by a decrease in testing revenue in our China operations due to a decrease in testing volume in all our testing operations. The decrease in testing volume was mainly caused bythe average selling price and a decrease in orders from our major customers due to the decrease in demand for our customers’ products.volume.

Demand for testing services varies from country to country depending on changes taking place in the market and our customers’ forecasts.  As it is difficult to accurately forecast fluctuations in the market, management believes it is necessary to maintain testing facilities in close proximity to our customers in order to make it convenient for them to send us their newly manufactured parts for testing and to enable us to maintain a share of the market.

Distribution Segment

Revenue in the distribution segment as a percentage of total revenue was 16.3%18.4% and 14.3%15.4% for the three and six months ended December 31, 2015,2016, an increase of 11.4%2.1% and 9.5%1.1%, respectively, when compared to the same periods of the prior fiscal year.  The absolute amount of revenue increased by $927$316 to $1,359$1,675 from $432,$1,359, and increased by $1,517$445 to $2,334$2,779 from $817$2,334 for the three and six months ended December 31, 2015,2016, respectively, compared to the same periods of the last fiscal year. 

Revenue in the distribution segment for the three and six month periods ended December 31, 20152016 increased primarily due to an increase in demand for products in the Singapore, and Malaysia operations, which were partially offset by the decrease in demand for products in our Suzhou,and China operations.

Demand in the distribution segment varies depending on the demand for our customers’ products and the changes taking place in the market and our customers’ forecasts.  Hence it is difficult to accurately forecast fluctuations in the market.

-30-
Real Estate Segment

The real estate segment accounted for 0.2% and 0.3%0.4% of total net revenue for both the three and six months ended December 31, 2015.2016. The absolute amount of revenue in the real estate segment decreasedincreased by $26$21 to $18$39 from $44$18 and by $37$28 to $50$78 from $87$50 for the three and six months ended December 31, 2015,2016, respectively, compared to the same periods of the last fiscal year. The decreaseincrease was primarily due to a decreasean increase in rental income in the real estate segment for the three and six months ended December 31, 20152016 as described below.

The two main revenue components for the real estate segment were investment income and rental income.

During fiscal year 2007, TTI invested in real estate property in Chongqing, China, which has generated income from rental revenue and investment returns from deemed loan receivables, which are classified as other income. The rental income is generated from the rental properties in MaoYe, JiangHuai and FuLi in Chongqing, China. In the second quarter of fiscal 2015, the investment in JiaSheng, which was deemed as loans receivable, was transferred to down payment for purchase of investment property in China.
Rental income forTrio-Tech Chongqing Co., Ltd. (“TTCQ”) invested RMB 5,554 in rental properties in Maoye during fiscal year 2008, RMB 3,600 in rental properties in JiangHuai during fiscal year 2010 and RMB 4,025 in rental properties in FuLi during fiscal year 2010. The total investment in properties in China was RMB 13,179, or approximately $1,897 and $1,983 as at December 31, 2016 and June 30, 2016, respectively. The carrying value of these investment properties in China was RMB 8,571 and RMB 8,901, or approximately $1,234 and $1,340 as at December 31, 2016 and June 30, 2016, respectively. For the three and six months ended December 31, 2015 was $182016, these properties generated a total rental income of $39 and $50,$78, respectively, as compared to $44$18 and $87,$50, respectively, for the same periods of the last fiscal year. The decrease of $26 and $37, respectively, was primarily due to a decreaseTTCQ’s investment in properties that generated rental income from both investment properties, MaoYe and FuLi, due to a decreaseis discussed further in space rented during the period, as compared to the same periods in the last fiscal year. TTCQ is actively looking for suitable tenants for renting the remaining commercial units.this Form 10-Q.

 
-31-

TTCQ has yet to receive the title deed for properties purchased from JiangHuai. TTCQ is in the legal process to obtainof obtaining the title deed, which is dependent on JiangHuai completing the entire project.

No investment JiangHuai property did not generate any income was recorded as “revenue” for the three months ended December 31, 2015 and 2014. Income was nil for bothduring the three and six months ended December 31, 2015, as compared to $162016, and $68 for the same periods of the prior fiscal year, from certain of our property development investments, was reclassified to loan receivables. Such income is included in “Other Income” with effect from the third quarter of fiscal 2011 in accordance with ASC Topic 310-10-25 Receivables.2015.

“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 consistsconsisted of (1) commercial units measuring 668 square meters to be delivered in June 2016 and (2) sixteen quarterly equal installments of RMB 500RMB500 per quarter commencing from January 2014. Based on ASC Topic 845 Non-monetary Consideration,, the Company deferred the recognition of the gain on disposal of the 10% interest in joint venture investment until such time that the consideration is paid, so that the gain can be ascertained. The recorded value of the disposed investment amounting to $783, based on exchange rates published by the Monetary Authority of Singapore as of June 30, 2014, is classified as “other assets” under non-current assets, because it is considered a down payment for the purchase of the commercial property in Chongqing. TTCQ performed a valuation on a certain commercial unit and its market value was higher than the carrying amount. The first three installment amounts of RMB 500 each due in January 2014, April 2014 and July 2014,2014. 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. However, the transferee, Jun Zhou Zhi Ye, has not registered the share transfer (10% interest in the joint venture) with the relevant authorities in China as of the date of this report.

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 all the outstanding amounts owed to TTCQ by Jun Zhou Zhi Ye as follows:

a)  Long term loan receivable of RMB 5,000, or approximately $814, as disclosed in Note 4,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
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.
 
-31-
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, which is expected to be no later thanProject. The initial targeted date of completion was December 31, 2016. However, should there be further delays in the project completion, basedBased on the discussiondiscussions with the developers, itthe completion date is estimated to be completed by June 30, 2017. The consideration does not include the remaining outstanding amount of RMB 2,000, or approximately $326, which will be paid in cash.
December 31, 2018.

 
The share transfer (10% interest in the joint venture) was registered with the relevant authorities in China during October 2016.
-32-

Uncertainties and Remedies

There are several influencing factors which create uncertainties when forecasting performance, such as the constantly changing nature of technology, specific requirements from the customer, decline in demand for certain types of burn-in devices or equipment, decline in demand for testing services and fabrication services, and other similar factors. One factor that influences uncertainty is the highly competitive nature of the semiconductor industry. Another is that some customers are unable to provide a forecast of the products required in the upcoming weeks; hence it is difficult to plan for the resources needed to meet these customers’ requirements due to short lead time and last minute order confirmation. This will normally result in a lower margin for these products, as it is more expensive to purchase materials in a short time frame.  However, the Company has taken certain actions and formulated certain plans to deal with and to help mitigate these unpredictable factors.  For example, in order to meet manufacturing customers’ demands upon short notice, the Company maintains higher inventories, but continues to work closely with its customers to avoid stock piling.  We have also been improving customer service from staff by keeping our staff up to date on the newest technology and stressing the importance of understanding and meeting the stringent requirements of our customers.  Finally, the Company is exploring new markets and products, looking for new customers, and upgrading and improving burn-in technology while at the same time searching for improved testing methods of higher technology chips.

We are in the process of implementing an Enterprises Resources Planning (“ERP”) system, as part of multi-year plan to integrate and upgrade our systems and processes. The implementation of this ERP system is scheduled to occur in phases over the next few years, and began with the migration of certain of our operational and financial systems in our Singapore operations to the new ERP system during the second quarter of fiscal 2017. This implementation effort will continue in the third and fourth quarters of fiscal 2017, when the operational and financial systems in Singapore will be substantially transitioned to the new system. Implementation of a new ERP system involves risks and uncertainties. Any disruptions, delays or deficiencies in the design or implementation of the new system could result in increased costs and adversely affect our ability to timely report our financial results, which could negatively impact our business and results of operations.
The Company’s primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar-denominated sales and operating expenses in its subsidiaries. Strengthening of the U.S. dollar relative to foreign currencies adversely affects the U.S. dollar value of the Company’s foreign currency-denominated sales and earnings, and generally leads the Company to raise international pricing, potentially reducing demand for the Company’s products. Margins on sales of the Company’s products in foreign countries and on sales of products that include components obtained from foreign suppliers could be materially adversely affected by foreign currency exchange rate fluctuations. In some circumstances, for competitive or other reasons, the Company may decide not to raise local prices to fully offset the dollar’s strengthening, or at all, which would adversely affect the U.S. dollar value of the Company’s foreign currency-denominated sales and earnings. Conversely, a strengthening of foreign currencies relative to the U.S. dollar, while generally beneficial to the Company’s foreign currency denominated sales and earnings could cause the Company to reduce international pricing, thereby limiting the benefit. Additionally, strengthening of foreign currencies may also increase the Company’s cost of product components denominated in those currencies, thus adversely affecting gross margins.
There are several influencing factors which create uncertainties when forecasting performance of our real estate segment, such as obtaining the rights by the joint venture to develop the real estate projects in China, inflation in China, currency fluctuations and devaluation, and changes in Chinese laws, regulations, or their interpretation.

Comparison of the Three Months Ended December 31, 20152016 and December 31, 20142015

The following table sets forth certain consolidated statements of income data as a percentage of revenue for the three months ended December 31, 20152016 and 2014,2015, respectively:
 
 Three Months Ended
 
  Three Months Ended    
 
 
Dec. 31,
2015
 
Dec. 31,
2014
 
  Dec. 31,
2016
 
 
Dec. 31,
2015
 
     
 
 
 
Revenue
 
100.0
%
 
100.0
%
  100.0%
Cost of sales
  
74.7
  
72.5
 
  74.8 
  74.7 
Gross Margin
 
25.3
%
 
27.5
%
  25.2%
  25.3%
Operating expenses
     
    
General and administrative
 
19.1
%
 
19.2
%
  19.5%
  19.1%
Selling
 
1.7
 
1.9
 
  2.0 
  1.7 
Research and development
 
0.6
 
0.5
 
  0.6 
Impairment loss
 
-
 
0.6
 
(Gain) / loss on disposal of property, plant and equipment
  
-
  
0.3
 
Loss on disposal of property, plant and equipment
  0.1 
  - 
Total operating expenses
  
21.4
%
  
22.5
%
  22.2%
  21.4%
Income from Operations
  
3.9
%
  
5.0
%
  3.0%
  3.9%
 
Overall Gross Margin

Overall gross margin as a percentage of revenue decreased by 2.2% towas approximately constant, at 25.2% and 25.3% for the three months ended December 31, 2016 and 2015, from 27.5% for the same period of the last fiscal year, primarily due to an increaserespectively. Decrease in the gross profit margin in the manufacturing segment which was partially offset by a decreasean increase in gross profit margin in the testing segment, distribution segment and real estate segment. In terms of absolute dollar amounts, gross profits decreasedincreased by $328$179 to $2,115$2,294 for the three months ended December 31, 2015,2016, from $2,443$2,115 as compared to the same period of the last fiscal year.

Gross profit margin as a percentage of revenue in the manufacturing segment increaseddecreased by 6.0%3.6% to 24.6%21.0% for the three months ended December 31, 2015,2016, from 18.6%24.6% in the same period of the last fiscal year. The increasedecrease in gross margin was due to the change in product mix as this segment increasedin the Singapore and Suzhou, China operations, where there was an increase in sales of products that had lower profit margins and a decrease in sales of products that had higher profit margins and decreased sale of products that had lower profit margins due to the change in product mix in the manufacturing segment, as compared to the same period of last fiscal year. In our U.S. operations, a delay in sales due to external factors also contributed to a decrease in the gross margin. As a result, of the change in product mix, the decreaseincrease in cost was higher than the decreaseincrease in manufacturing revenue for the three months ended December 31, 2015,2016, as compared to the same period last fiscal year. In absolute dollar amounts, gross profits in the manufacturing segment increaseddecreased by $183$107 to $805$698 for the three months ended December 31, 20152016 from $622$805 for the same period of last fiscal year.
 
-33-

Gross profit margin as a percentage of revenue in the testing segment decreasedincreased by 1.3%2.2% to 32.5%34.7% for the three months ended December 31, 2015,2016, from 33.8%32.5% in the same period of the last fiscal year.  The decreaseincrease was primarily due to a decreasean increase in testing volume in all the testingSingapore, Malaysia and Bangkok, Thailand operations, and lower average selling prices, which werewas partially offset by the increasedecrease in gross profit margin in the Suzhou,Tianjin, China operations.operations due to a lower selling price. Significant portions of our cost of goods sold are fixed in the testing segment. Thus, as the demand of services and factory utilization decrease,increase, the fixed costs are spread over the decreasedincreased output, which decreasesincreases the gross profit margin. Overall, the testing operations decreasedincreased their space utilization. The Suzhou, China operations reduced its cost on factory space, hence it managed to increase its spacecapacity utilization. In absolute dollar amounts, gross profit in the testing segment decreasedincreased by $515$210 to $1,202$1,412 for the three months ended December 31, 20152016 from $1,717$1,202 for the sameperiod of the last fiscal year.

The grossGross profit margin of the distribution segment is not only affected by the market price of our products, but also by our product mix, which changes frequently as a result of changes in market demand. Gross profit margin as a percentage of revenue in the distribution segment decreasedincreased by 13.2%1.6% to 8.8%10.4% for the three months ended December 31, 2015,2016, from 22.0%8.8% in the same period of the last fiscal year. The decreaseincrease in gross margin as a percentage of revenue was due to the change in product mix in the distribution segment, as this segmentthe Singapore, Malaysia and Suzhou, China had an increase in sales of products that had lowerhigher profit margin and a decline in sales of products that had higherlower profit margin, as compared to the same period of last fiscal year. In terms of absolute dollar amounts, gross profit in the distribution segment for the three months ended December 31, 20152016 was $119,$174, an increase of $24$55 as compared to $95$119 in the same period of last fiscal year. 

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Gross lossprofit margin as a percentage of revenue in the real estate segment was 61.1%25.6% for the three months ended December 31, 2015,2016, as compared to a gross profitloss margin of 20.5%61.1% in the same period of the last fiscal year. In absolute dollar amounts, gross lossprofit in the real estate segment for the three months ended December 31, 20152016 was $11, a deterioration$10, an improvement of $20$21 from a gross profitloss of $9$11 in the same period of last fiscal year.  The deteriorationimprovement was primarily due to a decreasean increase in rental income from both investment properties, MaoYe and FuLi, due to a decreasean increase in space rented out, as compared to the same period in the last fiscal year.

Operating Expenses

Operating expenses for the three months ended December 31, 20152016 and 20142015 were as follows:

 Three Months Ended 
 
  Three Months Ended    
 
 
Dec. 31,
2015
 
Dec. 31,
2014
 
 
 Dec. 31,
2016
 
 
 Dec. 31,
2015
 
(Unaudited)     
 
 
 
General and administrative
 
$
1,599
 
$
1,711
 
 $1,776 
 $1,599 
Selling
 
141
 
165
 
  180 
  141 
Research and development
 
51
 
47
 
  52 
  51 
Impairment loss
 
-
 
55
 
(Gain) / loss on disposal of property, plant and equipment
  
(4
)
  
28
 
Loss / (gain) on disposal of property, plant and equipment
  8 
  (4)
Total
 
$
1,787
 
$
2,006
 
 $2,016 
 $1,787 

General and administrative expenses decreasedincreased by $110,$177, or 6.4%11.1%, from $1,711$1,599 to $1,599$1,776 for the three months ended December 31, 20152016 compared to the same period of last fiscal year. The decreaseincrease in the general and administrative expenses was mainly attributable to the decreaseincrease in expenses in all operations, except for the Singapore and Malaysia operations, U.S. operations,which was partially offset by the decrease in the Tianjin, operationsSuzhou and Suzhou,Chongqing, China operations.

The decreaseincrease in general and administrative expenses was primarily due to the reversal of provision forincrease in payroll related and bonus which provision was no longer required as at December 31, 2015 since the bonus had been paidexpenses in the Singapore and Malaysia operations, as well as an increase in software licensing expense in the Singapore operations. This increase was partially offset by a decrease in legal and professional feels in the Chongqing, China operations, a decrease in headcount and payroll related expense in the Suzhou and Tianjin, China operations as part of cost cutting measures and a decrease in legal fees and travelling and entertainmentstock option expenses in Chongqing, China,for the three months ended December 31, 2016 as compared to the same period of last fiscal year. This decrease was partially offset by an increase in staff-related expenses in the Malaysia operations, Tianjin operations and Suzhou, China operations, and an increase in professional fees in the China subsidiaries.

Selling expenses decreasedincreased by $24,$39, or 14.5%27.7%, for the three months ended December 31, 2015,2016, from $165$141 to $141,$180, as compared to the same period of the last fiscal year. The decreaseincrease was mainly due to a decreasean increase in travel expensesentertainment expense and commission expenses in the Singapore operations as the commissionable revenue decreasedincreased, and an increase in travel expenses in the Malaysia operationsSingapore and Tianjin, ChinaMalaysia operations as compared to the same period last fiscal year.

-34-
 
There was an impairment loss on certain equipment in the Tianjin, China operation, found not suitable to test customers’ products in the second quarter of last fiscal year, while there was no such impairment loss in the second quarter of this fiscal year.

Income from Operations

Income from operations was $328 for the three months ended December 31, 2015, as compared to $437 for the same period of last fiscal year. The decrease was mainly due to the decrease in gross margin, which was partially offset with the decrease in operating expenses, as previously discussed.

Interest Expense

Interest expense for the second quarter of fiscal years 2016 and 2015 were as follows:
  Three Months Ended 
  
Dec. 31,
2015
  
Dec. 31,
2014
 
(Unaudited)      
Interest expense
 
 $
(51
)
 
$
(58
) 

Interest expense decreased by $7 to $51 from $58 for the three months ended December 31, 2015, primarily due to payment of credit facilities and decreasing lines of credit utilized in the Singapore and Malaysia operations. Lines of credit utilized were $1,472 as at December 31, 2015 as compared to $2,689 as at December 31, 2014. We are trying to keep our debt at a minimum in order to save financing costs. As of December 31, 2015, the Company had unused lines of credit of $5,626 as compared to $5,875 as at December 31, 2014.

Income Tax Expenses

Income tax expenses for the three months ended December 31, 2015 were $86, a decrease of $46 as compared to $132 for the same period last fiscal year. The decrease in income tax expense was mainly due to the lower taxable income in the Tianjin, China operations in the second quarter of fiscal year 2016 as compared to the same period last fiscal year. The decrease was also contributed by the deferred tax for the timing differences in the Singapore, Malaysia and China operations for the three months ended December 31, 2015 as compared to the same period in the last fiscal year.

We record a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized.

Tax expense for the three months ended December 31, 2015 and 2014 included $3 and $59, respectively, representing the tax withheld by the China, Malaysia and Thailand subsidiaries for the payments made to the Singapore subsidiary that is not recoverable. The taxes withheld by the China, Malaysia and Thailand subsidiaries were paid to the Inland Revenue department of the respective countries.

Non-controlling Interest

As of December 31, 2015, we held a 55% interest in Trio-Tech (Malaysia) Sdn. Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd. and PTSHI Indonesia, and a 76% interest in Prestal Enterprise Sdn. Bhd. The non-controlling interest for the three months ended December 31, 2015, in the net income of subsidiaries, was $25, a decrease of $129 compared to $154 for the same period of the previous fiscal year. The decrease in the non-controlling interest in the net income of subsidiaries was attributable to the decrease in net income generated by the Malaysia testing operation due to lower revenue as compared to the same period in the last fiscal year.

-35-

Income / (Loss) from Discontinued Operations

Income from discontinued operations was $6 for the three months ended December 31, 2015, as compared to a loss $6 for the same period of the last fiscal year. The increase in income from discontinued operations was primarily due to a decrease in general and administrative by $16 for the three months ended December 31, 2015, as compared to the same period last fiscal year.

Net Income

Net income was $190 for the three months ended December 31, 2015, an increase of $96 as compared to $94 for the three months ended December 31, 2014. The increase in net income was mainly due to the decrease in operating expenses and a decrease in tax expenses, which were partially offset by the decrease in gross profit margin, as previously discussed.

Earnings per Share

Basic and diluted earnings per share from continuing operations for the three months ended December 31, 2015 was $0.05 compared to basic and diluted earnings per share of $0.03 in the same period of the last fiscal year. The increase in earnings per share was due to an increase in net income, as discussed above.

Basic and diluted earnings per share from the discontinued operations were nil for both the three months ended December 31, 2015 and 2014, respectively.

Segment Information

The revenue, gross margin and income from each segment for the second quarter of fiscal years 2016 and 2015, respectively, are presented below. As the revenue and gross margin for each segment have been discussed in the previous section, only the comparison of income from operations is discussed below.

Manufacturing Segment

The revenue, gross margin and loss from operations for the manufacturing segment for the three months ended December 31, 2015 and 2014 were as follows:
 Three Months Ended 
 
Dec. 31,
2015
  
Dec. 31,
2014
 
(Unaudited)     
Revenue
$
3,276
  
$
3,348
 
Gross margin
 
24.6
%
  
18.6
%
Income / (loss) from operations
$
129
  
$
(117
)

Income from operations in the manufacturing segment was $129 for the three months ended December 31, 2015, an improvement of $246, as compared to a loss of $117 in the same period of the last fiscal year. The improvement was primarily due to an increase of $183 in the gross margin and a decrease of $63 in operating expenses as discussed earlier. Operating expenses for the manufacturing segment were $676 and $739 for the three months ended December 31, 2015 and 2014, respectively.  The decrease in operating expenses of $63 was mainly due to a decrease in general and administrative expenses of $56 and a decrease in selling expenses of $9, as compared to the same period of last fiscal year. The decrease in general and administrative expenses was primarily due to the reversal of provision for bonus in the Singapore operations, which provision was no longer required as at December 31, 2015, since bonus payment was made in the Singapore operations. This decrease was partially offset by an increase in professional fees in the Suzhou, China operations, as compared to the same period last fiscal year.

-36-

Testing Segment

The revenue, gross margin and income from operations for the testing segment for the three months ended December 31, 2015 and 2014 were as follows:
 Three Months Ended 
 
Dec. 31,
2015
  
Dec. 31,
2014
 
(Unaudited)    
Revenue
$
3,701
  
$
5,073
 
Gross margin
 
32.5
%
  
33.8
%
Income from operations
$
282
  
$
687
 

Income from operations in the testing segment for the three months ended December 31, 2015 was $282, a decrease of $405 compared to $687 in the same period of last fiscal year. The decrease in operating income was mainly attributable to a decrease of $515 in gross margin, as discussed earlier, which was partially offset by a decrease of $110 in operating expenses. Operating expenses were $920 and $1,030 for the three months ended December 31, 2015 and 2014, respectively. The decrease in operating expenses was mainly attributable to a decrease in impairment expenses by $55, a decrease in loss on disposal of property, plant and equipment by $28 and a decrease in selling expenses by $21 from commission expenses, due to a decrease in commissionable sales. These decreases were partially offset by an increase in allocation of the corporate charges by $11 as compared to the same period of last fiscal year. Corporate charges are allocated on a pre-determined fixed charge basis.

Distribution Segment

The revenue, gross margin and income from operations for the distribution segment for the three months ended December 31, 2015 and 2014 were as follows:

 Three Months Ended 
 
Dec. 31,
2015
  
Dec. 31,
2014
 
(Unaudited)    
Revenue
$
1,359
  
$
432
 
Gross margin
 
8.8
%
  
22.0
%
Income from operations
$
51
  
$
36
 

Income from operations in the distribution segment increased by $15 to $51 for the three months ended December 31, 2015, as compared to $36 in the same period of last fiscal year. The increase in operating income was mainly due to an increase in gross profit by $24, which was partially offset by an increase in operating expenses by $9. Operating expenses were $68 and $59 for the three months ended December 31, 2015 and 2014, respectively. Operating expenses increased mainly due to an increase in selling and commission expenses and an increase in allocation of corporate charges. Commission expenses increased due to an increase in commissionable sales. Corporate charges are allocated on a pre-determined fixed charge basis. These increases were partially offset by the decrease in general and administrative expenses from the reversal of provision for bonus no longer required, since bonus payment was made in the Singapore operations.
Real Estate Segment

The revenue, gross margin and loss from operations for the real estate segment for the three months ended December 31, 2015 and 2014 were as follows:

 Three Months Ended 
 
Dec. 31,
2015
  
Dec. 31,
2014
 
(Unaudited)    
Revenue
$
18
  
$
44
 
Gross (loss) / margin
 
(61.1
)%
  
20.5
%
Loss from operations
$
(46
)
 
$
(43
)
-37-

Loss from operations in the real estate segment for the three months ended December 31, 2015 was $46, an increase of $3, as compared to $43 for the same period of the last fiscal year.  The increase in operating loss was mainly due to a decrease in gross margin as discussed earlier, which was partially offset by a decrease in operating expenses of $17. The operating expenses were $35 and $52 for the three months ended December 31, 2015 and 2014, respectively. The decrease in operating expenses as compared to the same quarter in last fiscal year was primarily due to a decrease travelling and entertainment expenses.

Corporate

The loss from operations for corporate for the three months ended December 31, 2015 and 2014 were as follows:

  Three Months Ended 
  
Dec. 31,
2015
  
Dec. 31,
2014
 
(Unaudited)      
Loss from operations
 $(88) $(126)

Corporate operating loss decreased by $38 to $88 for the three months ended December 31, 2015 from $126 in the same period of the last fiscal year.  The decrease in operating loss was mainly due to a decrease in travel expenses and timing difference in the professional fees. Stock options covering an aggregate of 50,000 shares were granted to directors during the three months ended December 31, 2015 resulting in stock option expenses of $51 as compared to $89 for the same period of last fiscal year.

Comparison of the Six Months Ended December 31, 2015 and December 31, 2014

  Six Months Ended 
  
Dec. 31,
2015
  
Dec. 31,
2014
 
       
Revenue
  
100.0
%
  
100.0
%
Cost of sales
  
73.6
   
75.0
 
Gross Margin
  
26.4
%
  
25.0
%
Operating expenses:
        
General and administrative
  
20.0
%
  
20.2
%
Selling
  
1.9
   
1.7
 
Research and development
  
0.6
   
0.6
 
Impairment loss
  
-
   
0.4
 
Loss on disposal of property, plant and equipment
  
-
   
0.2
 
Total operating expenses
  
22.5
%
  
23.1
%
Income from Operations
  
3.9
%
  
1.9
%

Overall Gross Margin

Overall gross margin as a percentage of revenue increased by 1.4% to 26.4% for the six months ended December 31, 2015, from 25.0% in the same period of last fiscal year, primarily due to an increase in the gross profit margin in the manufacturing segment, which was partially offset by a decrease in the gross profit margin in the testing segment, distribution segment and real estate segment. In terms of absolute dollar amounts, gross profits increased by $53 to $4,293 for the six months ended December 31, 2015, from $4,240 for the same period of the last fiscal year.

Gross profit margin as a percentage of revenue in the manufacturing segment increased by 16.2% to 28.6% for the six months ended December 31, 2015, from 12.4% in the same period of the last fiscal year. In absolute dollar amounts, the gross profit increased by $1,040 to $1,836 for the six months ended December 31, 2015 as compared to $796 for the same period in last fiscal year. The increase in absolute dollar amount of gross margin was primarily due to a decrease in cost in our Singapore operations due to the reversal of provision for bonus as the provision was no longer required as at December 31, 2015, as compared to the same period last fiscal year. The increase in gross profit was also attributable to the increase in manufacturing revenue in our Singapore operations, US. operations and Suzhou, China operations.

-38-

Gross profit margin as a percentage of revenue in the testing segment decreased by 4.1% to 29.8% for the six months ended December 31, 2015 from 33.9% in the same period of the last fiscal year. The decrease was primarily due to a decrease in testing volume in all the testing operations and lower average selling prices, which were partially offset by the increase in gross profit margin in the Suzhou, China operations. As the demand of services and factory utilization decrease, the fixed costs are spread over a decreased output, which decreases the gross profit margin. The Suzhou, China operations reduced its cost on factory space, hence it managed to increase its space utilization. In terms of absolute dollar amounts, gross profit in the testing segment decreased by $1,059 to $2,227 for the six months ended December 31, 2015, from $3,286 for the same period of the last fiscal year.

Gross profit margin as a percentage of revenue in the distribution segment decreased by 6.8% to 10.3% for the six months ended December 31, 2015, from 17.1% for the same period of the last fiscal year.  The decrease in gross margin was due to the change in product mix, as this segment had fewer sales of products with a higher profit margin as compared to the same period of last fiscal year.  In terms of absolute dollar amounts, gross profit in the distribution segment for the six months ended December 31, 2015 was $241, an increase of $101 as compared to $140 in the same period of the last fiscal year. The gross profit margin of the distribution segment was not only affected by the market price of our products, but also our product mix, which changes frequently as a result of changes in market demand.

Gross loss margin as a percentage of revenue in the real estate segment was 22.0% for the six months ended December 31, 2015, a deterioration of 42.7% from gross profit margin of 20.7% for the same period in the last fiscal year. In terms of absolute dollar amounts, gross loss in the real estate segment for the six months ended December 31, 2015 was $11, a deterioration of $29 from a gross profit $18 in the same period of the last fiscal year. The deterioration was primarily due to a decrease in rental income from both investment properties, MaoYe and FuLi, due to a decrease in space rented during the period, as compared to the same period in the last fiscal year.

Operating Expenses

Operating expenses for the six months ended December 31, 2015 and 2014 were as follows:
  Six Months Ended 
  
Dec. 31,
2015
  
Dec. 31,
2014
 
(Unaudited)      
General and administrative
 
$
3,261
  
$
3,438
 
Selling
  
312
   
296
 
Research and development
  
97
   
94
 
Impairment loss
  
-
   
70
 
(Gain) / loss on disposal of property, plant and equipment
  
(4
) 
  
28
 
Total
 
$
3,666
  
$
3,926
 
General and administrative expenses decreased by $177, or 5.1%, from $3,438 to $3,261 for the six months ended December 31, 2015 compared to the same period of the last fiscal year. There was a decrease in general and administrative expenses in all operations, except for the Tianjin and Suzhou operations, in China.

The decrease in general and administrative expenses was mainly attributable to a decrease in stock option expenses, traveling expenses and professional fees in the corporate office and reversal of provision for bonus, which provision was no longer required, since the bonus payment was made in the Singapore and Malaysia operations. These decreases were partially offset by an increase in staff related expenses and professional fees in the Tianjin and Suzhou operations, in China, for the six months ended December 31, 2015 as compared to the same period of last fiscal year.

Selling expenses increased by $16, or 5.4%, for the six months ended December 31, 2015, from $296 to $312 compared to the same period of the last fiscal year, which was mainly due to an increase in commission expenses in our U.S. operations and Singapore operations as a result of an increase in commissionable sales, which were partially offset by the decrease in commissionable expenses in our Malaysia operations, Thailand operations and Tianjin, China operations.

There was an impairment loss on certain equipment in the Tianjin, China operation, found not suitable to test customers’ products in the six months ended December 31, 2014, while there was no such impairment loss in the six months ended December 31, 2015.

-39-

Income from Operations

Income from operations was $627$278 for the sixthree months ended December 31, 20152016, as compared to $314 for the same period of the last fiscal year. The increase was mainly due to an increase in gross profit margin and a decrease in operating expenses, as discussed earlier.

Interest Expense

Interest expense for the six months ended December 31, 2015 and 2014 were as follows:
  Six Months Ended 
  
Dec. 31,
2015
  
Dec. 31,
2014
 
(Unaudited)      
Interest expense
 
$
(104
)
 
$
(122
 )

Interest expense decreased by $18 to $104 from $122 for the six months ended December 31, 2015 as compared to the same period of the last fiscal year due to repayment of credit facilities by the Singapore and Malaysia operations, which were partially offset by the higher interest from the increase in lines of credit in the Tianjin, China operations in the first quarter of fiscal year 2016.

Income Tax Expenses

Income tax expense for the six months ended December 31, 2015 was $153, an increase of $67, as compared to $86$328 for the same period of last fiscal year. The decrease was mainly due to the increase in income taxoperating expenses, which was partially offset with the increase in gross margin, as previously discussed.
Interest Expense
Interest expense was mainly because the Tianjin operation was in a tax payable position for the first two quarters of fiscal year 2016, while it was in a tax payable position only in the second quarter of fiscal yearyears 2016 and 2015 were as follows:
 
 
  Three Months Ended    
 
 
 
Dec. 31,
2016
 
 
Dec. 31,
2015
 
(Unaudited)
 
 
 
 
 
 
Interest expense
 $(48)
 $(51)
Interest expense decreased by $3 to $48 from $51 for the three months ended December 31, 2016. Lines of credit utilized were $1,419 as at December 31, 2016 as compared to $1,472 as at December 31, 2015. We are trying to keep our debt at a minimum in order to save financing costs. As of December 31, 2016, the Company had unused lines of credit of $4,629 as compared to $5,626 as at December 31, 2015.
-34-
Other Income
Other income for the three months ended December 31, 2016 and 2015 were as follows:
 
 
  Three Months Ended    
 
 
 
Dec. 31,
2016
 
 
Dec. 31,
2015
 
(Unaudited)
 
 
 
 
 
 
Other income
 $83 
 $110 
Exchange gain/loss
  120 
  (92)
Other income, net
 $203 
 $18 
Other income for the three months ended December 31, 2016 was $203, an increase of $185 as compared to $18 for the same period last fiscal year. This increase was mainly attributable to foreign currency exchange difference between functional currency and U.S. dollars contributing to an exchange gain of $120 for the three months ended December 31, 2016 as compared to an exchange loss of $92 for the same period in last fiscal year.
Income Tax Expenses
Income tax expenses for the three months ended December 31, 2016 were $67, a decrease of $19 as compared to $86 for the same period last fiscal year. The decrease in income tax expenses was mainly due to an increase in income in the subsidiaries which has carry forward tax losses and lower withholding tax payment, which was partially offset by thean increase in deferred tax for the timing differences in therecorded by Singapore and Malaysia operations for the six months ended December 31, 2015 as compared to the same period in the last fiscal year.operation.

We record a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized.

Tax expensesexpense for the sixthree months ended December 31, 2016 and 2015 included $5 and 2014 included $23 and $66,$3, respectively, representing the tax withheld by the China, Malaysia and MalaysiaThailand subsidiaries for the payments made to the Singapore subsidiary that is not recoverable. The taxes withheld by the China, Malaysia and MalaysiaThailand subsidiaries were paid to the Inland Revenue department of the respective countries.

Non-controlling Interest

As of December 31, 2016, we held a 55% interest in Trio-Tech (Malaysia) Sdn. Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd. and PTSHI Indonesia, and a 76% interest in Prestal Enterprise Sdn. Bhd. The non-controlling interest for the three months ended December 31, 2016, in the net income of subsidiaries, was $52, an increase of $27 compared to $25 for the same period of the previous fiscal year. The increase in the non-controlling interest in the net income of subsidiaries was attributable to the increase in net income generated by the Malaysia testing operation due to an increase in other income as compared to the same period in the last fiscal year.
(Loss) / Income from Discontinued Operations
Loss from discontinued operations was $4 for the three months ended December 31, 2016, as compared to an income of $6 for the same period of the last fiscal year. The change in income from discontinued operations was primarily due to an increase in other expenses by $12 for the three months ended December 31, 2016, as compared to the same period last fiscal year.
-35-
Net Income
Net income was $310 for the three months ended December 31, 2016, an increase of $120 as compared to net income of $190 for the three months ended December 31, 2015. The increase in net income was mainly due to the increase in gross profit margin and other income due to exchange differences, which were partially offset by the increase in operating expenses, as discussed earlier.
Earnings per Share
Basic and diluted earnings per share from continuing operations was $0.09 for the three months ended December 31, 2016 as compared to $0.05 for the same period in the last fiscal year. Basic and diluted earnings per share from discontinued operations were nil for both the three months ended December 31, 2016 and 2015.
Segment Information
The revenue, gross margin and income from each segment for the second quarter of fiscal years 2017 and 2016, respectively, are presented below. As the revenue and gross margin for each segment have been discussed in the previous section, only the comparison of income from operations is discussed below.
Manufacturing Segment
The revenue, gross margin and (loss) / income from operations for the manufacturing segment for the three months ended December 31, 2016 and 2015 were as follows:
 
 
  Three Months Ended    
 
 
 
Dec. 31,
2016
 
 
 Dec. 31,
2015
 
(Unaudited)
 
 
 
 
 
 
Revenue
 $3,320 
 $3,276 
Gross margin
  21.0%
  24.6%
(Loss) / income from operations
 $(229)
 $129 
Loss from operations in the manufacturing segment was $229 for the three months ended December 31, 2016, a deterioration of $358, as compared to an income of $129 in the same period of the last fiscal year. The deterioration was primarily due to a decrease of $107 in the gross margin, as discussed earlier, and an increase of $251 in operating expenses. Operating expenses for the manufacturing segment were $927 and $676 for the three months ended December 31, 2016 and 2015, respectively.  The increase in operating expenses was mainly due to an increase in general and administrative expenses of $199, an increase in selling expenses of $28 and an increase in corporate overhead by $23, as compared to the same period of last fiscal year. The increase in general and administrative expenses was primarily due to the increase in headcount, payroll related expenses and software license expenses in the Singapore operations. This increase was partially offset by a decrease in payroll related expenses in the Suzhou, China operations, as compared to the same period last fiscal year. The increase in selling expenses was due to an increase in entertainment expenses, travel expenses and commission expenses in the Singapore operations as the commissionable revenue increased as compared to the same period last fiscal year. The increase in corporate overhead expenses was due to a change in the corporate overhead allocation method as compared to the same period last fiscal year. Corporate charges are allocated on a pre-determined fixed charge basis.
Testing Segment
The revenue, gross margin and income from operations for the testing segment for the three months ended December 31, 2016 and 2015 were as follows:
 
 
  Three Months Ended
 
 
 
Dec. 31,
2016
 
 
 Dec. 31,
2015
 
(Unaudited)
 
 
 
 
 
 
Revenue
 $4,070 
 $3,701 
Gross margin
  34.7%
  32.5%
Income from operations
 $388 
 $282 
-36-
Income from operations in the testing segment for the three months ended December 31, 2016 was $388, an increase of $106 compared to $282 in the same period of last fiscal year. The increase in operating income was mainly attributable to an increase of $210 in gross margin, as discussed earlier, which was partially offset by an increase of $104 in operating expenses. Operating expenses were $1,024 and $920 for the three months ended December 31, 2016 and 2015, respectively. The increase in operating expenses was mainly attributable to an increase in general and administrative expenses by $75 because of an increase in payroll related expenses in the Singapore and Malaysia operations and an increase in travelling expenses in the Tianjin, China operations, and an increase of $12 in selling expenses due to an increase in commission expenses in the Singapore operations, and an increase in loss on disposal of property, plant and equipment of $8 for the three months ended December 31, 2016, while there was no such loss on disposal for the same period in the last fiscal year.
Distribution Segment
The revenue, gross margin and income from operations for the distribution segment for the three months ended December 31, 2016 and 2015 were as follows:
 
 
  Three Months Ended    
 
 
 
Dec. 31,
2016
 
 
 Dec. 31,
2015
 
(Unaudited)
 
 
 
 
 
 
Revenue
 $1,675 
 $1,359 
Gross margin
  10.4%
  8.8%
Income from operations
 $100 
 $51 
Income from operations in the distribution segment increased by $49 to $100 for the three months ended December 31, 2016, as compared to $51 in the same period of last fiscal year. The increase in operating income was mainly due to an increase in gross profit by $55, which was partially offset by an increase in operating expenses by $6. Operating expenses were $74 and $68 for the three months ended December 31, 2016 and 2015, respectively. Operating expenses increased mainly due to an increase in general and administrative expenses of $20, mainly due to payroll related expenses in the Singapore operations, and a decrease in gain on sale of property, plant and equipment in the Malaysia operations of $4 as there was no such sale in the three months ended December 31, 2016 as compared to last fiscal year. The increase was partially offset by a $17 decrease in corporate charges. Corporate charges are allocated on a pre-determined fixed charge basis.
Real Estate Segment
The revenue, gross margin and loss from operations for the real estate segment for the three months ended December 31, 2016 and 2015 were as follows:
 
 
  Three Months Ended    
 
 
 
Dec. 31,
2016
 
 
 Dec. 31,
2015
 
(Unaudited)
 
 
 
 
 
 
Revenue
 $39 
 $18 
Gross margin / (loss)
  25.6%
  (61.1)%
Loss from operations
 $(8)
 $(46)
Loss from operations in the real estate segment for the three months ended December 31, 2016 was $8, a decrease of $38, as compared to $46 for the same period of the last fiscal year.  The decrease in operating loss was mainly due to an increase in gross margin as discussed earlier, which was partially offset by a decrease in operating expenses of $17. The operating expenses were $18 and $35 for the three months ended December 31, 2016 and 2015, respectively. The decrease in operating expenses as compared to the same quarter in last fiscal year was primarily due to a decrease legal and professional expense.
-37-
Corporate
The income / (loss) from operations for corporate for the three months ended December 31, 2016 and 2015 were as follows:
 
 
  Three Months Ended    
 
 
 
Dec. 31,
2016
 
 
 Dec. 31,
2015
 
(Unaudited)
 
 
 
 
 
 
Income / (Loss) from operations
 $27 
 $(88)
Corporate operating loss changed by $115 to an income of $27 for the three months ended December 31, 2016 from a loss of $88 in the same period of the last fiscal year.  The change from operating loss to income was mainly due to a decrease in general and administrative expense due to a decrease in provision for bonus and stock option expenses as compared to the same period in last fiscal year. There were no stock options granted during the three months ended December 31, 2016, while stock options covering an aggregate of 50,000 shares were granted to directors during the same period of last fiscal year, resulting in no stock option expenses for the three months ended December 31, 2016, as compared to $51 for the same period of last fiscal year.
Comparison of the Six Months Ended December 31, 2016 and December 31, 2015
The following table sets forth certain consolidated statements of income data as a percentage of revenue for the three months ended December 31, 2016 and 2015, respectively:
 
 
  Six Months Ended    
 
 
 
 Dec. 31,
2016
 
 
 Dec. 31,
2015
 
 
 
 
 
 
 
 
Revenue
  100.0%
  100.0%
Cost of sales
  74.3 
  73.6 
Gross Margin
  25.7%
  26.4%
Operating expenses:
    
    
General and administrative
  19.6%
  20.0%
Selling
  2.0 
  1.9 
Research and development
  0.6 
  0.6 
Total operating expenses
  22.2%
  22.5%
Income from Operations
  3.5%
  3.9%
Overall Gross Margin
Overall gross margin as a percentage of revenue decreased by 0.7% to 25.7% for the six months ended December 31, 2016, from 26.4% in the same period of last fiscal year, primarily due to a decrease in the gross profit margin in the manufacturing segment, which was partially offset by an increase in the gross profit margin in the testing segment and real estate segment. In terms of absolute dollar amounts, gross profits increased by $359 to $4,652 for the six months ended December 31, 2016, from $4,293 for the same period of the last fiscal year.
Gross profit margin as a percentage of revenue in the manufacturing segment decreased by 6.1% to 22.5% for the six months ended December 31, 2016, from 28.6% in the same period of the last fiscal year. In absolute dollar amounts, gross profit decreased by $262 to $1,574 for the six months ended December 31, 2016 as compared to $1,836 for the same period in last fiscal year. The decrease in absolute dollar amount of gross margin was primarily due to the change in product mix in the Singapore and Suzhou, China operations, where there was an increase in sales of products that had lower profit margins and a decrease in sales of products that had higher profit margins as compared to the same period of last fiscal year. In our U.S. operations, a delay in orders from a customer while also contributed to a decrease in the gross margin. As a result, the increase in cost was higher than the increase in manufacturing revenue for the six months ended December 31, 2016, as compared to the same period last fiscal year.
-38-
Gross profit margin as a percentage of revenue in the testing segment increased by 3.7% to 33.5% for the six months ended December 31, 2016 from 29.8% in the same period of the last fiscal year. The increase was primarily due to an increase in testing volume in the Singapore, Malaysia and Bangkok, Thailand operations. Despite a decrease in testing volume in the Suzhou, China operations, gross margin increased due to a reduction in headcount. These increases in gross margin were partially offset by a decrease in gross margin in the Tianjin, China operations because of lower average selling price despite higher volume. As the demand for services and factory utilization increase, the fixed costs are spread over an increased output, which increases the gross profit margin. In terms of absolute dollar amounts, gross profit in the testing segment increased by $528 to $2,755 for the six months ended December 31, 2016, from $2,227 for the sameperiod of the last fiscal year.
Gross profit margin as a percentage of revenue in the distribution segment remained constant at 10.3% for the six months ended December 31, 2016 and 2015, respectively. In terms of absolute dollar amounts, gross profit in the distribution segment for the six months ended December 31, 2016 was $287, an increase of $46 as compared to $241 in the same period of the last fiscal year. The increase in gross margin in absolute dollars was due to the change in product mix, as this segment had fewer sales of products with a lower profit margin as compared to the same period of last fiscal year. The gross profit margin of the distribution segment was not only affected by the market price of our products, but also our product mix, which changes frequently as a result of changes in market demand.
Gross profit margin as a percentage of revenue in the real estate segment was 46.2% for the six months ended December 31, 2016, an improvement of 68.2% from gross loss margin of 22.0% for the same period in the last fiscal year. In terms of absolute dollar amounts, gross profit in the real estate segment for the six months ended December 31, 2016 was $36, an improvement of $47 from a gross loss $11 in the same period of the last fiscal year. The improvement was primarily due to an increase in rental income from both investment properties, MaoYe and FuLi, due to an increase in space rented during the period, and a decrease in cost of sales, due to a reversal of overprovision for taxes, as compared to the same period in the last fiscal year.
Operating Expenses
Operating expenses for the six months ended December 31, 2016 and 2015 were as follows:
 
 
  Six Months Ended    
 
 
 
 Dec. 31,
2016
 
 
 Dec. 31,
2015
 
(Unaudited)
 
 
 
 
 
 
General and administrative
 $3,519 
 $3,261 
Selling
  365 
  312 
Research and development
  105 
  97 
Loss / (gain) on disposal of property, plant and equipment
  8 
  (4)
Total
 $3,997 
 $3,666 
General and administrative expenses increased by $258, or 7.9%, from $3,261 to $3,519 for the six months ended December 31, 2016 compared to the same period of the last fiscal year. There was an increase in general and admin expenses in the Singapore and Malaysia operations, which was partially offset by the decrease in general and administrative expenses in all other operations.
The increase in general and administrative expenses was primarily due to the increase in payroll related and bonus expenses in the Singapore and Malaysia operations, as well as an increase in software licensing expense in the Singapore operations.This increase was partially offset by a decrease in legal and professional feels in the Chongqing, China operations, a decrease in headcount and payroll related expense in the Suzhou and Tianjin, China operations as part of cost cutting measures, there not being certain payroll related expenses in the Bangkok, Thailand operations and a decrease in stock option expenses for the six months ended December 31, 2016 as compared to the same period of last fiscal year.
Selling expenses increased by $53, or 17.0%, for the six months ended December 31, 2016, from $312 to $365 compared to the same period of the last fiscal year, which was mainly due to an increase in entertainment expenses and commission expenses as a result of an increase in commissionable sales in our Singapore operations, and increase in travel expenses in our Singapore and Malaysia operations.
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Income from Operations
Income from operations was $655 for the six months ended December 31, 2016 as compared to $627 for the same period of the last fiscal year. The increase was mainly due to the increase in gross profit margin being greater than the increase in operating expenses, as discussed earlier.
Interest Expense
Interest expense for the six months ended December 31, 2016 and 2015 were as follows:
 
 
  Six Months Ended    
 
 
 
 Dec. 31,
2016
 
 
 Dec. 31,
2015
 
(Unaudited)
 
 
 
 
 
 
Interest expense
 $(106)
 $(104)
Interest expense increased by $2 to $106 from $104 for the six months ended December 31, 2016 as compared to the same period of the last fiscal year.
Other Income
Other income for the six months ended December 31, 2016 and 2015 were as follows:
 
 
  Six Months Ended    
 
 
 
 Dec. 31,
2016
 
 
 Dec. 31,
2015
 
(Unaudited)
 
 
 
 
 
 
Other income
 $131 
 $134 
Exchange gain
  182 
  92 
Other income, net
 $313 
 $226 
Other income for the six months ended December 31, 2016 was $313, an increase of $87 as compared to $226 for the same period last fiscal year. This increase was mainly attributable to foreign currency exchange difference between functional currency and U.S. dollars contributing to an exchange gain of $182 for the six months ended December 31, 2016 as compared to $92 for the same period last fiscal year.
Income Tax Expenses
Income tax expense for the six months ended December 31, 2016 was $150, a decrease of $3, as compared to $153 for the same period of last fiscal year. The decrease in income tax expense was due to an increase in income in the subsidiaries which have carry forward tax losses and lower withholding tax payment, which was partially offset by an increase in deferred tax for timing differences recorded by Singapore and Malaysia operation
We record a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized.
Tax expenses for the six months ended December 31, 2016 and 2015 included $28 and $23, respectively, representing the tax withheld by the China, Malaysia and Thailand subsidiaries for the payments made to the Singapore subsidiary that is not recoverable. The taxes withheld by the China, Malaysia and Thailand subsidiaries were paid to the Inland Revenue department of the respective countries.
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Non-controlling Interest
As of December 31, 2016, we held a 55% interest in Trio-Tech Malaysia, Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd. and PTSHI Indonesia, and a 76% interest in Prestal Enterprise Sdn. Bhd. The net income attributable to our non-controlling interest in these subsidiaries for the six months ended December 31, 2015, in the net income of subsidiaries,2016 was $143,$96, a decrease of $67,$47, as compared to $210$143 for the same period of last fiscal year. The decrease in the non-controlling interest in the net income of subsidiaries was attributable to the decrease in net income generated by the Malaysia testing operations due to lower revenuehigher operating expenses as compared to the same period in the last fiscal year.

(Loss) / Income from Discontinued Operations

Loss from discontinued operations was $4$3 for the six months ended December 31, 2015,2016, a decrease of $1 as compared to an incomea loss of $20$4 for the same period of the last fiscal year. The other income in the discontinued operations was lower during the six months ended December 31, 2015, which was partially offset by the decrease in general and administrative expenses as compared to the same period in the last fiscal year. 

 
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Net Income/ (Loss)Income

Net income was $449$613 for the six months ended December 31, 2015,2016, an improvementincrease of $479,$164, as compared to a net lossincome of $30$449 for the same period in the last fiscal year. The improvement was mainly due to an increase in gross margin and a decreaseother income due to exchange differences, which was partially offset by an increase in operating expenses as discussed above.earlier.

Earnings / (Loss) per Share

Basic and diluted earnings per share from continuing operations was $0.18 for the six months ended December 31, 2015 was $0.132016 as compared to basic and diluted loss per share of $0.01 in$0.13 for the same period ofin the last fiscal year. Improvement in earnings per share was mainly due to higher gross margin and lower operating expenses for the six months ending December 31, 2015, as discussed earlier.

Basic and diluted earnings per share from discontinued operations were nil for both the six months ended December 31, 20152016 and 2014.2015.

Diluted earnings per share from continuing operations was $0.17 for the six months ended December 31, 2016 as compared to $0.13 for the same period in the last fiscal year. Diluted earnings per share from discontinued operations were nil for both the six months ended December 31, 2016 and 2015.
Segment Information

The revenue, gross profit margin, and income or loss from each segment for the six months ended December 31, 20152016 and 2014,2015, respectively, are presented below.  As the segment revenue and gross margin for each segment have been discussed in the previous section, only the comparison of income from operations is discussed below.

Manufacturing Segment

The revenue, gross margin and income or loss from operations for the manufacturing segment for the six months ended December 31, 20152016 and 20142015 were as follows:
 
Six Months Ended 
 
  Six Months Ended    
 
Dec. 31,
2015
 
Dec. 31,
2014
 
 
 Dec. 31,
2016
 
 
 Dec. 31,
2015
 
(Unaudited)    
 
 
 
Revenue
$
6,416
 $
 
6,395
 
 $6,991 
 $6,416 
Gross margin
 
28.6
 %
 
12.4
 %
  22.5%
  28.6%
Income / (loss) from operations
$
371
 $
 
(735
) 
(Loss) / Income from operations
 $(322)
 $371 
 
IncomeLoss from operations from the manufacturing segment was $371$322 for the six months ended December 31, 2015, an improvement2016, a deterioration of $1,106$693 as compared to a lossan income of $735$371 in the same period of the last fiscal year, primarily due to an increasea decrease in gross margin by $1,040.$262 coupled with an increase in operating expenses. Operating expenses for the manufacturing segment were $1,465$1,896 and $1,531$1,465 for the six months ended December 31, 20152016 and 2014,2015, respectively. The decreaseincrease in operating expenses of $66$431 was mainly due to a decreasean increase in general and administrative expenses of $346, an increase in selling expenses of $18 and an increase in corporate overhead by $59, as compared to the same period of last fiscal year. The increase in general and administrative expenses was primarily due to the increase in headcount, payroll related expenses, software license expenses, depreciation expenses and bank charges in the Singapore operations from the reversal of provision for bonus, which provisionoperations. This increase was no longer required since bonus payment was made in the Singapore operations as at December 31, 2015 andpartially offset by a decrease in allocation of corporatepayroll related expenses on a predetermined fixed charge basis, which was lower than the six months ended December 31, 2014. The decrease was also attributable to an impairment loss recorded by the Singapore operations for the six months ended December 31, 2014, there being no such impairment loss in the six months ended December 31, 2015. These decreases were partially offset by the increase in professional fees in the Suzhou, China operations, as compared to the same period last fiscal year. The increase selling expenses is due to an increase in entertainment expenses, travel expense, and commission expenses in the Singapore operations as the commissionable revenue increased as compared to the same period last fiscal year. The increase in corporate overhead expenses is due to increase in allocation in corporate expenses which is charged on a predetermined fixed basis, which is higher as compared to the same period last fiscal year.

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Testing Segment

The revenue, gross margin and income from operations for the testing segment for the six months ended December 31, 20152016 and 20142015 were as follows:

Six Months Ended 
 
 Six Months Ended
 
Dec. 31,
2015
 
Dec. 31,
2014
 
 
 Dec. 31,
2016
 
 
 Dec. 31,
2015
 
(Unaudited)    
 
 
 
Revenue
$
7,484
 $
 
9,691
 
 $8,227 
 $7,484 
Gross margin
 
29.8
 %
 
33.9
%
  33.5%
  29.8%
Income from operations
$
360
 $
 
1,274
 
 $790 
 $360 
 
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Income from operations in the testing segment for the six months ended December 31, 20152016 was $360, a decrease$790, an increase of $914$430 compared to $1,274$360 in the same period of the last fiscal year. The decreaseincrease in operating income was attributable to a decreasean increase in gross profit of $1,059,$528, which was partially offset by a decreasean increase in operating expenses of $145.$98. Operating expenses were $1,867$1,965 and $2,012$1,867 for the six months ended December 31, 20152016 and 2014,2015, respectively. The decreaseincrease in operating expenses was mainly attributable to a decreasean increase in selling expenses, general and administrative expenses and corporate overheads. Selling expenses increased due to loweran increase in travelling expenses in our Malaysia and Tianjin operations and higher commission expenses due to a decreasean increase in commissionable sales and a decreasein our Singapore operations. The increase in general and administrative expenses was due to reversal of provision for bonus, which provision was no longer required, since bonus payment was madepayroll related expenses in the Singapore and Malaysia operations. These decreases were partially offset byoperations, an increase in allocation of corporatetravelling expenses on a predetermined fixed charge basisin the Tianjin, China operations and an increase in professional fees in the Tianjinloss on disposal of property, plant and Chongqing operations, in China. The decrease in operating expenses inequipment of $8 for the six months ended December 31, 2014 was due to an impairment in the Tianjin operations from certain equipment found not suitable to test customer’s products and a loss on disposal in the Suzhou operations to reduce factory space, whereas2016, while there was no such impairment loss and no loss on disposal for the same period in the six months ended December 31, 2015.last fiscal year. The increase in corporate overhead expenses was due to increase in allocation in corporate expenses which is charged on a predetermined fixed basis, which was higher as compared to the same period last fiscal year.

Distribution Segment

The revenue, gross margin and income from operations for the distribution segment for the six months ended December 31, 20152016 and 20142015 were as follows: 
 
Six Months Ended 
 
  Six Months Ended
 
Dec. 31,
2015
 
Dec. 31,
2014
 
 
 Dec. 31,
2016
 
 
 Dec. 31,
2015
 
(Unaudited)    
 
 
 
Revenue
$
2,334
 $
 
817
 
 $2,779 
 $2,334 
Gross margin
 
10.3
 %
 
17.1
%
  10.3%
Income from operations
$
70
 $ 
-
 
 $134 
 $70 

Income from operations in the distribution segment was $70 and nil for the six months ended December 31, 2015 and 2014, respectively.2016 was $134, as increase of $63 as compared to $70 in the same period of the last fiscal year. The increase in operating income was mainly due to an increase in revenue and an increase in gross profit, as discussed earlier. Gross profit increased by $101, which was partially offset by an increaseearlier, and a decrease in operating expenses of $31.expenses. Operating expenses were $171$153 and $140$171 for the six months ended December 31, 20152016 and 2014,2015, respectively. The increasedecrease in operating expenses was mainly due to an increasea decrease in allocation of corporate expenses, which is charged on a predetermined fixed basis, which was higherlower than corporate expenses in the same period in last fiscal year. The increaseyear, and there being no disposal of property, plant and equipment for the six months ended December 31, 2016, as compared to gain on disposal of property, plant and equipment amounting to $4 for the same period in last fiscal year, which was also attributable topartially offset by an increase in sellinggeneral and administrative expenses due to higher travellingpayroll related expenses and commission expenses from an increase in commissionable sales, as compared to the same period last fiscal year.Singapore operations.

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Real Estate Segment

The revenue, gross loss or margin and loss from operations for the real estate segment for the six months ended December 31, 20152016 and 20142015 were as follows: 

Six Months Ended 
 
  Six Months Ended    
 
Dec. 31,
2015
  
Dec. 31,
2014
 
 
 Dec. 31,
2016
 
 
 Dec. 31,
2015
 
(Unaudited)    
 
 
 
Revenue
$
50
  
$
87
 
 $78 
 $50 
Gross (loss) / margin
 
(22.0
) %
 
20.7
 %
Gross margin / (loss)
  46.2%
  (22.0)%
Loss from operations
$
(70
) 
 
$
(91
) 
 $(6)
 $(70)

Loss from operations in the real estate segment for the six months ended December 31, 20152016 was $70,$6, a decrease of $21$64 as compared to $91a loss of $70 for the same period of the last fiscal year.  The decrease in operating loss was mainly due to an increase in gross profit, as discussed earlier, and a decrease in operating expenses, which was partially offset by a decrease in gross margin, as discussed earlier.expenses. Operating expenses decreased by $50$17 to $59$42 for the six months ended December 31, 20152016 as compared to $109$59 for the same period in the last fiscal year. The decrease in operating expenses was mainly due to a decrease in legal fees and travelling and entertainmentprofessional expenses.

 
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Corporate

The loss from operations for corporate for the six months ended December 31, 20152016 and 20142015 were as follows:   

Six Months Ended 
 
  Six Months Ended    
 
Dec. 31,
2015
  
Dec. 31,
2014
 
 
 Dec. 31,
2016
 
 
 Dec. 31,
2015
 
(Unaudited)    
 
 
 
Loss from operations
$
(104
)
 
$
(134
) 
Income / (loss) from operations
 $59 
 $(104)

Operating lossesincome in the corporate office for the six months ended December 31, 2015 were $104, a decrease2016 was $59, an improvement of $30,$163, as compared to $134$104 for the same period of the last fiscal year.  This was mainly due to a decrease in stock option expenses and staff-related expenses and professional fees. The stockexpenses. Stock option expenses for the six months ended December 31, 2015 were $55,2016 was $1, a decrease of $34$54 from $89$55 for the same period in the last fiscal year.

Financial Condition

During the six months ended December 31, 20152016 total assets decreased by $1,547,$1,523, from $32,037$32,219 as at June 30, 20152016 to $30,490$30,696 as at December 31, 2015.2016. The decrease in total assets was primarily due to a decrease in trade accounts receivables, other receivables, asset held for sale, deferred tax assets, investment properties, property, plant and equipment other assets and restricted term deposits, which were partially offset by an increase in cash and cash equivalents, short term deposits, inventories and prepaid expenses.
 
Cash and cash equivalents were $4,370$4,336 as at December 31, 2015,2016, reflecting an increase of $659$529 from $3,711$3,807 as at June 30, 2015,2016, primarily due to an improvement in collections from our major customers in the Singapore, operations, Malaysia operations and Tianjin, ChinaBangkok, Thailand operations. The increase was partially offset by the decrease due to placements in short term deposit in the Malaysia operations. The number of days’ sales outstanding in accounts receivables was 8482 days at the end of the second quarter of fiscal year 20162017 and 8887 days for the fiscal year ended 2015.2016. The cash inflow from the improvement in collections was partially offset by the cash outflow from the payment of bonus in the Singapore and Malaysia operations.

Short-term deposits were $658 as at December 31, 2016, reflecting an increase of $363 from $295 as at June 30, 2016, primarily due to placement of deposit of RM 1.7 million equivalent approximately $379 by the Malaysia operations. This increase was partially offset by the currency translation.
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At December 31, 2015,2016, the trade accounts receivable balance decreased by $573$1,249 to $7,302$7,577 from $7,875$8,826 as at June 30, 2015,2016, primarily due to an improvement in collection in the Singapore and Malaysia operations, outstanding payment received from a major customer in the U.S. operations and a decrease in revenue in the China Malaysia and Thailand operations for the second quarter of fiscal 2016.2017. The number of days’ sales outstanding was 8482 days at the end of the second quarter of fiscal 20162017 compared to 8887 days at the end of fiscal year 2015.2016. The decrease in days’ sales outstanding was primarily due to lower salesimproved collections processes in the monthSingapore operations for the six months ended December 31, 2015,2016, as compared to the year-end of last fiscal year.

At December 31, 2015,2016, other receivables were $299$316 reflecting a decrease of $90$280 from $389$596 as at June 30, 2015.2016. The decrease was primarily due to a decrease in rental deposits in our Suzhou, China operationstransfer of down-payment for purchase of property, plant and a decrease inequipment to fixed assets, decreased advance payments to creditors and goods and services taxes claimable, astax receivables in the sales were higher than the purchasesSingapore operations during the six months ended December 31, 2015.2016.

Inventories at December 31, 20152016 were $1,709,$1,666, an increase of $568$206 compared to $1,141$1,460 as at June 30, 2015. The increase in inventory was mainly due to an increase in raw materials and finished goods in the Singapore operations in the second quarter of fiscal year 2016, as compared to the fourth quarter of fiscal year 2015. There was also an increase in raw materials in the Tianjin, China operations in the second quarter of fiscal year 2016, as compared to the fourth quarter of fiscal year 2015. These increases were partially offset by the decrease in raw materials in the Singapore operations and Suzhou, China operations.2016. The number of days’ inventory held was 5652 days at the end of the second quarter of fiscal 20162017 compared to 38 days at the end of fiscal year 2015.2016.  The higher days’ inventory on handwas mainly due to a decrease in utilization of the inventory by the Singapore operations and Tianjin, China operations in the six monthsix-month period ended December 31, 2015,2016, as compared to the year end of fiscal 2015.2016.
 
Prepaid expenses and other current assets were $269$363 as at December 31, 2015,2016, as compared to $244$264 as at June 30, 2015.2016. The increase of $25$99 was primarily due to prepayments for rental and insurance upon renewal by the Singapore operations, Malaysia operations and Tianjin, China operations.

 
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Investment properties, net in China as at December 31, 20152016 were $1,421,$1,234, a decrease of $119$106 from $1,540$1,340 as at June 30, 2015.2016.  The decrease was primarily due to depreciation charged and by the foreign currency exchange difference between the functional currency and U.S. dollars for the six months ended December 31, 2015.2016.

Property, plant and equipment decreased by $1,697$993 from $12,522$11,283 as at June 30, 20152016 to $10,825$10,290 as at December 31, 2015,2016, mainly due to depreciation charges amounting to $916, foreign currency exchange difference between functional currency and U.S. dollars from June 30, 2016 to December 31, 2016, and an increase in the disposal of fixed assets by the Malaysia operations for the six months’ period ended December 31, 2016.
Restricted term deposits decreased by $146 from $2,067 as at June 30, 2016 to $1,921 as at December 31, 2016. This decrease was due to the foreign currency exchange difference between functional currency and U.S. dollars from June 30, 20152016 to December 30, 2015 and depreciation charges amounting to $937 for the six months period ended December 31, 2015. Capital expenditures decreased by $585,2016 which decrease was mainly in the Malaysia and Singapore operations and in Tianjin and Suzhou in the China operations.

Restricted term deposits decreased by $174 from $2,140 as at June 30, 2015 to $1,966 as at December 31, 2015. This was due to the withdrawal made from the restricted term deposits during the six months ended December 31, 2015 for repayment of certain lines of credit and by the foreign currency exchange difference between functional currency and U.S. dollars from June 30, 2015 to December 30, 2015 which were partially offset by the interest income from the restricted deposits.

Other assets increased by $94 from $1,788 as at June 30, 2016 to $1,882 as at December 31, 2015 decreased by $86 to $1,737 from $1,823 as at June 30, 2015.2016. The decreaseincrease in other assets was primarily due to capitalizationdown-payment for purchase of property, plant and equipment for capital purchases in the Malaysia operations, reduction in rental deposits in the SingaporeTianjin, China operations and by the foreign currency exchange difference between functional currency and U.S. dollars from June 30, 20152016 to December 30, 2015.31, 2016.

LinesUtilized lines of credit as at December 31, 20152016 decreased by $106$1,072 to $1,472,$1,419, from $1,578to $2,491 as at June 30, 2015.2016. The decrease in lines of credit was mainly due to re-payment of lines of credit by the Malaysia operations, which was partially offset by the increase in the utilization of lines of credit in the Singapore and Tianjin, China operations and new lines of credit available in our Tianjin, China operations.foreign currency exchange difference between functional currency and U.S. dollars from June 30, 2016 to December 31, 2016.

Accounts payable as at December 31, 20152016 increased by $272$809 to $3,042$3,730 from $2,770$2,921 as at June 30, 2015.2016. The increase was mainly due to the increase in creditors’ turnover in the Singapore operations and Malaysia operations due to the increased purchases for the higher salesa new project in the manufacturing segment in SingaporeMalaysian operations in the second quarter of fiscal year 2016,2017, as compared to the end of fiscal year 2015.2016. This increase was partially offset by the decreasesdecrease in the Tianjin, and SuzhouChina operations in China, due to increased paymentnon-recurring payments to suppliers and a decrease in purchaseswhich did not exist during the end of the second quarter of fiscal year 2016,2017, as compared to the end of fiscal year 2015.2016.

Accrued expenses as at December 31, 2015 decreased2016 increased by $437$39 to $2,647$2,681 from $3,084$2,642 as at June 30, 2015.2016. The decreaseincrease in accrued expenses was mainly due to a reversal of provision for bonus, which provision was no longer requiredan increase in commission expenses and accrued purchases in the Singapore operations and an increase in customer deposits in the Singapore and Malaysia operations as at December 31, 2015.Chongqing, China operations. These decreasesincreases were partially offset by the increasereversal of overprovision of sales tax in a provision for sales rebate for onethe Chongqing, China operations, reversal of our major customersaccrued legal expenses in the Singapore, operations.Malaysia and Tianjin, China operations and foreign currency exchange difference between functional currency and U.S. dollars from June 30, 2016 to December 31, 2016,

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Bank loans payable as at December 31, 20152016 decreased by $433$378 to $2,111 from $2,544$1,689, as compared to $2,067 as at June 30, 2015.2016. This was due to the repayment of loans by the Singapore and Malaysia operations.operations and by the foreign currency exchange difference between functional currency and U.S. dollars from June 30, 2016 to December 31, 2016.

Capital leases as at December 31, 2015 increased2016 decreased by $38$131 to $710 from $672$607, as compared to $738 as at June 30, 2015.2016. This was due to the repayment of capital leases by the Singapore and Malaysia operations and Singapore operations, whichby the foreign currency exchange difference between functional currency and U.S. dollars from June 30, 2016 to December 31, 2016. The decrease was partially offset by the newan increase in capital lease availableleases in ourthe Malaysia operations.

Liquidity Comparison

Net cash provided by operating activities decreasedincreased by $448$2,322 to $1,349$3,671 for the six months ended December 31, 2015,2016, compared to $1,797 in$1,349 during the same period of the last fiscal year. The decreaseincrease in net cash generated by operating activities was primarily due to a decreaseincrease in depreciation expense by $252,net income of $117 from June 30, 2016 and an increase in inventoriesworking capital by $241, a decrease$41. The increase in other assetsworking capital was mainly caused by $78, athe increase accounts payable and accrued expenses by $930, and decrease in trade accounts receivable by $93, a decrease in impairment loss$1,249, other receivables by $70, a decrease in accounts payable and accrued expenses by $119, and a decrease in income tax payable by $107.$217. These were partially offset by the increase in inventories by $284 and an increase in net income by $412, and an$117, increase in other receivablesprepaid expenses by $157.$63.

Net cash used in investing activities decreasedincreased by $687$906 to $196$1,102 for the six months ended December 31, 2015,2016, compared to $883 for$196 during the same period of the last fiscal year.  The decreaseincrease in cash outflow in the investing activities was primarily due to a decreasean increase in investments in restricted and un-restricted deposits by $421, an increase in capital spending by $585$450 and a decrease in proceeds from maturing restricted term deposits by $63 during the six months ended December 31, 2015.2016. These decreases were partially offset by the increase in proceeds from maturing restricted term depositsdisposal of $63.property, plant and equipment by $28.

 
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Net cash used in financing activities increased by $1,176 to $1,475 for the six months ended December 31, 2015 was $299, representing a decrease of $1,085, as2016, compared to $1,384$299 during the same period of the last fiscal year. The decrease in outflowincrease was mainly due to a decreasedividends payment to non-controlling interest of $117 and an increase in repayment of lines of credit by $791 and a decrease in repaymentrepayments of bank loans and capital leases by $134 as compared$32. Moreover, cash generated from financing activities decreased due to the same period of last fiscal year. These decreases were partially offseta decrease in borrowings from bank loans and capital leases by an increase$912 and decrease in proceeds from capital leaseslines of credit by $160 in our Malaysia operation.$115.

We believe that our projected cash flows from operations, borrowing availability under our revolving lines of credit, cash on hand, trade credit and the secured bank loan will provide the necessary financial resources to meet our projected cash requirements for at least the next 12 months.  

Critical Accounting Estimates & Policies

There have been no significant changes in the critical accounting policies, except as disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the most recent Annual Report on Form 10-K.
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ITEM 3.  QUANTITATIVEQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not applicable.

ITEM 4.  CONTROLSCONTROLS AND PROCEDURES
 
An evaluation was carried out by the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2015,2016, the end of the period covered by this Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective at a reasonable level.  
 
During the period covered by this report,Except as discussed below, there havehas been no changeschange in the Company’s internal control over financial reporting during the fiscal quarter ended December 31, 2016 that havehas materially affected or are reasonably likely to materially affect the Company’s internal control overall over financial reporting.

Enterprise Resource Planning (ERP) Implementation
We are in the process of implementing an ERP System, as part of a multi-year plan to integrate and upgrade our systems and processes. The implementation of this ERP system is scheduled to occur in phases over the next few years, and began with the migration of certain of our operational and financial systems in our Singapore operations to the new ERP system during the second quarter of Fiscal 2017. This implementation effort will continue in the third and fourth quarters of Fiscal 2017, when the operational and financial systems in Singapore will be substantially transitioned to the new system.
As a phased implementation of this system occurs, we are experiencing certain changes to our processes and procedures which, in turn, result in changes to our internal control over financial reporting. While we expect the new ERP system to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as processes and procedures in each of the affected areas evolve.
 
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TRIO-TECH INTERNATIONAL
PART II. OTHER INFORMATION

Item 1.          LegalLegal Proceedings

Not applicable.

Item 1A.       RiskRisk Factors

The Company’s financial performance is subject to risks associated with changes in value of the U.S. dollar versus local currencies.Not applicable.

The Company’s primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar-denominated sales and operating expenses in its subsidiaries. Strengthening of the U.S. dollar relative to foreign currencies adversely affects the U.S. dollar value of the Company’s foreign currency-denominated sales and earnings, and generally leads the Company to raise international pricing, potentially reducing demand for the Company’s products. Margins on sales of the Company’s products in foreign countries and on sales of products that include components obtained from foreign suppliers could be materially adversely affected by foreign currency exchange rate fluctuations. In some circumstances, for competitive or other reasons, the Company may decide not to raise local prices to fully offset the dollar’s strengthening, or at all, which would adversely affect the U.S. dollar value of the Company’s foreign currency-denominated sales and earnings. Conversely, a strengthening of foreign currencies relative to the U.S. dollar, while generally beneficial to the Company’s foreign currency denominated sales and earnings could cause the Company to reduce international pricing, thereby limiting the benefit. Additionally, strengthening of foreign currencies may also increase the Company’s cost of product components denominated in those currencies, thus adversely affecting gross margins.

Item 2.          UnregisteredUnregistered Sales of Equity Securities and Use of Proceeds

Malaysia and Singapore regulations prohibit the payment of dividends if the Company does not have sufficient retained earnings and tax credit. In addition, the payment of dividends can only be made after making deductions for income tax pursuant to the regulations. Furthermore, the cash movements from the Company’s 55% owned Malaysian subsidiary to overseas are restricted and must be authorized by the Central Bank of Malaysia. California law also prohibits the payment of dividends if the Company does not have sufficient retained earnings or cannot meet certain asset to liability ratios.

Item 3.          DefaultsDefaults Upon Senior Securities
 
Not applicable.
 
Item 4.          MineMine Safety Disclosures
 
Not applicable.

Item 5.          OtherOther Information

Not applicable.

Item 6.          ExhibitsExhibits
 
31.1 Rule 13a-14(a) Certification of Principal Executive Officer of Registrant
31.2 Rule 13a-14(a) Certification of Principal Financial Officer of Registrant
 
32 Section 1350 Certification
   
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
 
 
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SIGNATURESSIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.                   
 


 
TRIO-TECH INTERNATIONAL
 
/s/ Victor H.M. Ting
VICTOR H.M. TING
Vice President and Chief Financial Officer
(Principal Financial Officer)
Dated: February 10, 20162017

 
 
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