UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended December 31, 2017September 30, 2018
 
OR
 
☐     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period from ___ to ___
 
Commission File Number 1-14523
 
TRIO-TECH   INTERNATIONAL
(Exact name of Registrant as specified in its Charter)
California 95-2086631
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
   
16139 Wyandotte Street  
Van Nuys, California 91406
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code:  818-787-7000
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒ No ☐  
 
Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ☒  No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non­accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b­2 of the Exchange Act. (Check one):
 
 Large Accelerated Filer Accelerated Filer
 Non-Accelerated Filer  Smaller reporting company
(Do not check if a smaller reporting company)Emerging growth company
   Emerging growth company 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒
 
As of FebruaryNovember 1, 2018, there were 3,553,055 3,608,055shares of the issuer’s Common Stock, no par value, outstanding.
 

 
 
TRIO-TECH INTERNATIONAL
INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE
 
  Page
Part I.Financial Information 
   
 
 2
 3
 5
 6
 7
2830
4541
4541
   
Part II.Other Information 
   
4642
4642
  Item4642
4642
4642
4642
4642
   
4743
 
 
 
-i-
 
FORWARD-LOOKING STATEMENTS
 
The discussions of Trio-Tech International’s (the “Company”) business and activities set forth in this Form 10-Q and in other past and future reports and announcements by the Company may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and assumptions regarding future activities and results of operations of the Company.  In light of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the following factors, among others, could cause actual results to differ materially from those reflected in any forward-looking statements made by or on behalf of the Company: market acceptance of Company products and services; changing business conditions or technologies and volatility in the semiconductor industry, which could affect demand for the Company’s products and services; the impact of competition; problems with technology; product development schedules; delivery schedules; changes in military or commercial testing specifications which could affect the market for the Company’s products and services; difficulties in profitably integrating acquired businesses, if any, into the Company; risks associated with conducting business internationally and especially in Asia, including currency fluctuations and devaluation, currency restrictions, local laws and restrictions and possible social, political and economic instability; changes in U.S. and global financial and equity markets, including market disruptions and significant interest rate fluctuations; and other economic, financial and regulatory factors beyond the Company’s control. Other than statements of historical fact, all statements made in this Quarterly Report are forward-looking, including, but not limited to, statements regarding industry prospects, future results of operations or financial position, and statements of our intent, belief and current expectations about our strategic direction, prospective and future financial results and condition. In some cases, you can identify forward-looking statements by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” “believes,” “can impact,” “continue,” or the negative thereof or other comparable terminology.  Forward-looking statements involve risks and uncertainties that are inherently difficult to predict, which could cause actual outcomes and results to differ materially from our expectations, forecasts and assumptions.
 
Unless otherwise required by law, we undertake no obligation to update forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events. You are cautioned not to place undue reliance on such forward-looking statements.
 
 
 
 
-1-
 
PART
PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT NUMBER OF SHARES)
 
 
December 31,
2017
 
 
June 30,
2017
 
 
September 30,
2018
 
 
June 30,
2018
 
ASSETS
 
(Unaudited)
 
 
 
 
 
(Unaudited)
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
Cash and cash equivalents
 $5,059 
 $4,772 
 $7,101 
 $6,539 
Short-term deposits
  642 
  787 
  1,011 
  653 
Trade accounts receivable, less allowance for doubtful accounts of $255 and $247
  9,493 
  9,009 
Trade accounts receivable, less allowance for doubtful accounts of $249 and $259
  8,121 
  7,747 
Other receivables
  548 
  401 
  889 
  881 
Inventories, less provision for obsolete inventory of $697 and $686
  2,972 
  1,756 
Inventories, less provision for obsolete inventory of $694 and $695
  2,386 
  2,930 
Prepaid expenses and other current assets
  280 
  226 
  330 
  208 
Asset held for sale
  91 
  86 
Assets held for sale
  486 
  91 
Total current assets
  19,085 
  17,037 
  20,324 
  19,049 
NON-CURRENT ASSETS:
    
    
Deferred tax asset
  435 
  375 
  406 
  400 
Investment properties, net
  1,217 
  1,216 
  693 
  1,146 
Property, plant and equipment, net
  12,385 
  11,291 
  12,267 
  11,935 
Other assets
  1,950 
  1,922 
  1,664 
  2,249 
Restricted term deposits
  1,717 
  1,657 
  1,685 
  1,695 
Total non-current assets
  17,704 
  16,461 
  16,715 
  17,425 
TOTAL ASSETS
 $36,789 
 $33,498 
 $37,039 
 $36,474 
    
    
LIABILITIES
    
    
CURRENT LIABILITIES:
    
    
Lines of credit
 $2,189 
 $2,556 
 $2,133 
 $2,043 
Accounts payable
  3,342 
  3,229 
  2,939 
  3,704 
Accrued expenses
  3,985 
  3,043 
  3,571 
  3,172 
Income taxes payable
  292 
  233 
  255 
  285 
Current portion of bank loans payable
  356 
  260 
  478 
  367 
Current portion of capital leases
  250 
  228 
  248 
  250 
Total current liabilities
  10,414 
  9,549 
  9,624 
  9,821 
NON-CURRENT LIABILITIES:
    
    
Bank loans payable, net of current portion
  1,617 
  1,552 
  2,647 
  1,437 
Capital leases, net of current portion
  648 
  531 
  450 
  524 
Deferred tax liabilities
  328 
  295 
  359 
  327 
Income taxes payable
  756 
  828 
Other non-current liabilities
  46 
  44 
  36 
Total non-current liabilities
  2,639 
  2,422 
  4,248 
  3,152 
TOTAL LIABILITIES
 $13,053 
 $11,971 
 $13,872 
 $12,973 
    
    
EQUITY
    
    
TRIO-TECH INTERNATIONAL’S SHAREHOLDERS' EQUITY:
    
    
Common stock, no par value, 15,000,000 shares authorized; 3,548,055 shares issued outstanding as at December 31, 2017, and 3,523,055 shares as at June 30, 2017
 $11,013 
 $10,921 
Additional paid-in capital
  3,208 
  3,206 
Common stock, no par value, 15,000,000 shares authorized; 3,608,055 shares issued outstanding as at September 30, 2018, and 3,553,055 shares as at June 30, 2018
 $11,222 
 $11,023 
Paid-in capital
  3,251 
  3,249 
Accumulated retained earnings
  5,589 
  4,341 
  5,590 
  5,525 
Accumulated other comprehensive income
  2,508 
  1,633 
Accumulated other comprehensive gain-translation adjustments
  1,719 
  2,182 
Total Trio-Tech International shareholders' equity
  22,318 
  20,101 
  21,782 
  21,979 
Non-controlling interest
  1,418 
  1,426 
  1,385 
  1,522 
TOTAL EQUITY
 $23,736 
 $21,527 
 $23,167 
 $23,501 
TOTAL LIABILITIES AND EQUITY
 $36,789 
 $33,498 
 $37,039 
 $36,474 
 
See notes to condensed consolidated financial statements.
 
 
 
-2-
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / (LOSS)
UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
 
 
 
Three Months Ended
 
 
Six Months Ended
 
 
 
Dec. 31,
 
 
Dec. 31,
 
 
Dec. 31,
 
 
Dec. 31,
 
 
 
2017
 
 
2016
 
 
2017
 
 
2016
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Manufacturing
 $3,973 
 $3,320 
 $8,738 
 $6,991 
Testing services
  4,936 
  4,070 
  9,541 
  8,227 
Distribution
  1,606 
  1,675 
  3,142 
  2,779 
Others
  37 
  39 
  76 
  78 
 
  10,552 
  9,104 
  21,497 
  18,075 
Cost of Sales
    
    
    
    
Cost of manufactured products sold
  3,068 
  2,622 
  6,717 
  5,417 
Cost of testing services rendered
  3,251 
  2,658 
  6,390 
  5,472 
Cost of distribution
  1,409 
  1,501 
  2,777 
  2,492 
Others
  29 
  29 
  58 
  42 
 
  7,757 
  6,810 
  15,942 
  13,423 
Gross Margin
  2,795 
  2,294 
  5,555 
  4,652 
 
    
    
    
    
Operating Expenses:
    
    
    
    
General and administrative
  1,727 
  1,776 
  3,566 
  3,519 
Selling
  252 
  180 
  431 
  365 
Research and development
  118 
  52 
  302 
  105 
Write off of property, plant and equipment
  - 
  8 
  11 
  8 
Total operating expenses
  2,097 
  2,016 
  4,310 
  3,997 
 
    
    
    
    
Income from Operations
  698 
  278 
  1,245 
  655 
 
    
    
    
    
Other Income / (Expenses)
    
    
    
    
Interest expenses
  (52)
  (48)
  (110)
  (106)
Other income, net
  42 
  203 
  200 
  313 
Total other (expenses) / income
  (10)
  155 
  90 
  207 
 
    
    
    
    
Income from Continuing Operations before Income Taxes
  688 
  433 
  1,335 
  862 
 
    
    
    
    
Income Tax Expenses
  (13)
  (67)
  (55)
  (150)
 
    
    
    
    
Income from continuing operations before non-controlling interest, net of tax
  675 
  366 
  1,280 
  712 
 
    
    
    
    
Discontinued Operations (Note 19)
    
    
    
    
Loss from discontinued operations, net of tax
  (2)
  (4)
  (5)
  (3)
NET INCOME
  673 
  362 
  1,275 
  709 
 
    
    
    
    
Less: net income attributable to non-controlling interest
  - 
  52 
  27 
  96 
Net Income Attributable to Trio-Tech International Common Shareholders
 $673 
 $310 
 $1,248 
 $613 
 
    
    
    
    
Amounts Attributable to Trio-Tech International Common Shareholders:
    
    
    
    
Income from continuing operations, net of tax
  678 
  316 
  1,254 
  619 
Loss from discontinued operations, net of tax
  (5)
  (6)
  (6)
  (6)
Net Income Attributable to Trio-Tech International Common Shareholders
 $673 
 $310 
 $1,248 
 $613 
 
    
    
    
    
Basic Earnings per Share:
    
    
    
    
Basic per share from continuing operations attributable to Trio-Tech International
 $0.19 
 $0.09 
 $0.35 
 $0.18 
 
Three Months Ended
 
 
Sept. 30,
 
 
2018
 
 
2017
 
Revenue
 
 
 
Manufacturing
 $3,637 
 $4,765 
Testing services
  4,437 
  4,605 
Distribution
  1,944 
  1,536 
Others
  27 
  39 
  10,045 
  10,945 
Cost of Sales
    
Cost of manufactured products sold
  2,857 
  3,649 
Cost of testing services rendered
  3,383 
  3,139 
Cost of distribution
  1,686 
  1,368 
Others
  18 
  29 
  7,944 
  8,185 
    
Gross Margin
  2,101 
  2,760 
    
Operating Expenses:
    
General and administrative
  1,759 
  1,839 
Selling
  147 
  179 
Research and development
  72 
  184 
Loss on disposal of property, plant and equipment
  - 
  11 
Total operating expenses
  1,978 
  2,213 
    
Income from Operations
  123 
  547 
    
Other Income
    
Interest expenses
  (78)
  (58)
Other income, net
  43 
  158 
Total other income
  (35)
  100 
    
Income from Continuing Operations before Income Taxes
  88 
  647 
    
Income Tax Expenses
  (74)
  (42)
    
Income from Continuing Operations before Non-controlling Interest, Net of Tax
  14 
  605 
    
Discontinued Operations
    
Loss from discontinued operations, net of tax
  (8)
  (3)
NET INCOME
  6 
  602 
    
Less: net (loss) / income attributable to the non-controlling interest
  (59)
  27 
Net Income Attributable to Trio-Tech International Common Shareholder
 $65 
 $575 
    
Amounts Attributable to Trio-Tech International Common Shareholders:
    
Income from continuing operations, net of tax
  69 
  576 
Loss from discontinued operations, net of tax
  (4)
  (1)
Net Income Attributable to Trio-Tech International Common Shareholders
 $65 
 $575 
    
Basic Earnings per Share:
    
Basic per share from continuing operations attributable to Trio-Tech International
 $0.02 
 $0.16 
Basic earnings per share from discontinued operations attributable to Trio-Tech International
 $- 
 $- 
Basic Earnings per Share from Net Income
    
    
Attributable to Trio-Tech International
 $0.19 
 $0.09 
 $0.35 
 $0.18 
 $0.02 
 $0.16 
    
    
Diluted Earnings per Share:
    
    
Diluted earnings per share from continuing operations attributable to Trio-Tech International
 $0.18 
 $0.09 
 $0.34 
 $0.17 
 $0.02 
 $0.16 
Diluted earnings per share from discontinued operations attributable to Trio-Tech International
 $- 
 $- 
 $- 
 $- 
 $- 
Diluted Earnings per Share from Net Income
    
    
Attributable to Trio-Tech International
 $0.18 
 $0.09 
 $0.34 
 $0.17 
 $0.02 
 $0.16 
    
    
Weighted average number of common shares outstanding
    
    
Basic
  3,548 
  3,513 
  3,548 
  3,513 
  3,608 
  3,533 
Dilutive effect of stock options
  245 
  56 
  222 
  39 
  124 
  140 
Number of shares used to compute earnings per share diluted
  3,793 
  3,569 
  3,770 
  3,552 
  3,732 
  3,673 
 
See notes to condensed consolidated financial statements.
 
 
 
-3-
 
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
UNAUDITED (IN THOUSANDS) / (LOSS)
 
 
Three Months Ended
 
 
Six Months Ended
 
 
Three Months Ended
 
 
Dec. 31,
 
 
Sept. 30,
 
 
2017
 
 
2016
 
 
2017
 
 
2016
 
 
2018
 
 
2017
 
Comprehensive Income Attributable to Trio-Tech International Common Shareholders:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 $673 
 $362 
 $1,275 
 $709 
  6 
  602 
Foreign currency translation, net of tax
  588 
  (1,094)
  963 
  (1,377)
  (539)
  375 
Comprehensive Income / (Loss)
  1,261 
  (732)
  2,238 
  (668)
Less: comprehensive income / (loss) attributable to non-controlling interest
  88 
  (16)
  115 
  (37)
Comprehensive Income / (Loss) Attributable to Trio-Tech International Common Shareholders
 $1,173 
 $(716)
 $2,123 
 $(631)
Comprehensive (Loss) / Income
  (533)
  977 
Less: comprehensive (loss) / income attributable to the non-controlling interests
  (135)
  27 
Comprehensive (Loss) / Income Attributable to Trio-Tech International Common Shareholders
 $(398)
 $950 
    
    
See notes to condensed consolidated financial statements.
 
 
 
-4-
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITYEQUITY
(IN THOUSANDS) 
 
SixThree Months ended December 31, 2017September 30, 2018
 
 
Common
Stock
 
 
Additional Paid-in
 
 
Accumulated Retained
 
 
Accumulated Other
Comprehensive
 
 
Non- Controlling
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Earnings
 
 
Income
 
 
Interest
 
 
Total
 
 
 
 
 
$
 
 
$
 
 
$
 
 
$
 
 
$
 
 
$
 
Balance at June 30, 2017
  3,523 
  10,921 
  3,206 
  4,341 
  1,633 
  1,426 
  21,527 
Stock option expenses
  - 
  - 
  2 
  - 
  - 
  - 
  2 
Net income
  - 
  - 
  - 
  1,248 
  - 
  27 
  1,275 
Dividend declared by subsidiary
  - 
  - 
  - 
  - 
  - 
  (123)
  (123)
Exercise of options
  15 
  41 
  - 
  - 
  - 
  - 
  41 
Issue of restricted shares to service provider
  10 
  51 
  - 
  - 
  - 
  - 
  51 
Translation adjustment
  - 
  - 
  - 
  - 
  875 
  88 
  963 
Balance at Dec. 31, 2017
  3,548 
  11,013 
  3,208 
  5,589 
  2,508 
  1,418 
  23,736 
 
 
Common
Stock
 
 
Additional Paid-in
 
 
Accumulated Retained
 
 
Accumulated Other
Comprehensive
 
 
Non- Controlling
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Earnings
 
 
Income
 
 
Interest
 
 
Total
 
 
 
 
 
 $
 
 
 $
 
 
$
 
 
$
 
 
$
 
 
$
 
Balance at June 30, 2018
  3,553 
  11,023 
  3,249 
  5,525 
  2,182 
  1,522 
  23,501 
Stock option expenses
  - 
  - 
  2 
  - 
  - 
  - 
  2 
Net income / (loss)
  - 
  - 
  - 
  65 
  - 
  (59)
 6 
Dividend declared by subsidiary
  - 
  - 
  - 
  - 
  - 
  (2)
  (2)
Exercise of stock option
  55 
  199 
  - 
  - 
  - 
  - 
  199 
Translation adjustment
  - 
  - 
  - 
  - 
  (463)
  (76)
  (539)
Balance at Sept. 30, 2018
  3,608 
  11,222 
  3,251 
  5,590 
  1,719 
  1,385 
  23,167 
 
SixThree Months ended December 31, 2016September 30, 2017
 
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, 2016
  3,513 
  10,882 
  3,188 
  3,025 
  2,162 
  1,614 
  20,871 
Balance at June 30, 2017
  3,523 
  10,921 
  3,206 
  4,341 
  1,633 
  1,426 
  21,527 
Stock option expenses
  - 
  1 
  - 
  1 
  - 
  1 
  - 
  1 
Net income
  - 
  613 
  - 
  96 
  709 
  - 
  575 
  - 
  27 
  602 
Stock option expenses
  - 
  (117)
Dividend declared by subsidiary
  - 
  (2)
Issue of restricted shares to consultant
  10 
  51 
  - 
  51 
Translation adjustment
  - 
  (1,244)
  (133)
  (1,377)
  - 
  374 
  1 
  375 
Balance at Dec. 31, 2016
  3,513 
  10,882 
  3,189 
  3,638 
  918 
  1,460 
  20,087 
Balance at Sept. 30, 2017
  3,533 
  10,972 
  3,207 
  4,916 
  2,007 
  1,452 
  22,554 
See notes to condensed consolidated financial statements.
-5-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
 
 
Three Months Ended
 
 
 
Sept. 30,
 
 
Sept. 30,
 
 
 
2018
 
 
2017
 
 
 
(Unaudited)
 
 
(Unaudited)
 
Cash Flow from Operating Activities
 
 
 
 
 
 
Net income
 $6 
 $602 
Adjustments to reconcile net income to net cash flow provided by operating activities
    
    
Depreciation and amortization
  555 
  500 
Stock compensation
  2 
  1 
Reversal of provision for obsolete inventory
  1 
  (2)
Bad debt recovery
  (2)
  - 
Accrued interest expense, net accrued interest income
  13 
  51 
Gain on proceeds from insurance claim
  - 
  (73)
Issuance of shares to service provider
  - 
  51 
Loss on disposal of property, plant and equipment
  - 
  11 
Warranty recovery, net
  (13)
  (7)
Deferred tax benefit
  21 
  (26)
Changes in operating assets and liabilities, net of acquisition effects
    
    
Trade accounts receivable
  (372)
  (1,163)
Other receivables
  (8)
  99 
Other assets
  517 
  (262)
Inventories
  535 
  (699)
Prepaid expenses and other current assets
  (122)
  (110)
Accounts payable and accrued expenses
  (473)
  935 
Income taxes payable
  (102)
  22 
Net Cash Provided by Operating Activities
  558 
  (70)
 
    
    
Cash Flow from Investing Activities
    
    
Additions to property, plant and equipment
  (1,214)
  (529)
Proceeds from disposal of property, plant and equipment
  3 
  - 
Insurance proceeds received
  - 
  73 
Net Cash Used in Investing Activities
  (1,211)
  (456)
 
    
    
Cash Flow from Financing Activities
    
    
Repayment on lines of credit
  (3,728)
  (2,935)
Repayment of bank loans and capital leases
  (182)
  (186)
Dividends paid on non-controlling interest
  (2)
  (2)
Proceeds from exercising stock options
  199 
  - 
Proceeds from lines of credit
  3,877 
  878 
Proceeds from bank loans
  1,475 
  1,320 
Net Cash Generated from / (Used in) Financing Activities
  1,639 
  (925)
 
    
    
Effect of Changes in Exchange Rate
  (76)
  152 
 
    
    
Net increase in cash, cash equivalents, and restricted cash
  910 
  (1,299)
Cash, cash equivalents, and restricted cash at beginning of period
  8,887 
  7,216 
Cash, cash equivalents, and restricted cash at end of period
 $9,797 
 $5,917 
 
    
    
Supplementary Information of Cash Flows
    
    
Cash paid during the period for:
    
    
Interest
 $65 
 $49 
Income taxes
 $24 
 $52 
 
    
    
Non-Cash Transactions
    
    
Capital lease of property, plant and equipment
 $- 
 $- 
 
See notes to condensed consolidated financial statements.
 
 
-5-
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
UNAUDITED (IN THOUSANDS)
 
 
 
Six Months Ended
 
 
 
Dec. 31,
 
 
Dec. 31,
 
 
 
2017
 
 
2016
 
 
 
(Unaudited)
 
 
(Unaudited)
 
Cash Flow from Operating Activities
 
 
 
 
 
 
Net income
 $1,275 
 $709 
Adjustments to reconcile net income to net cash flow provided by operating activities
    
    
Depreciation and amortization
  1,019 
  916 
Stock option expenses
  2 
  1 
Reversal of provision for obsolete inventories
  (3)
  (4)
Bad debt recovery, net
  - 
  (16)
Accrued interest expense, net of accrued interest income
  95 
  95 
Write off of property, plant and equipment - continued operations
  11 
  8 
Issuance of shares to service provider
  51 
  - 
Warranty recovery, net
  3 
  (9)
Deferred tax provision
  (25)
  51 
Changes in operating assets and liabilities, net of acquisition effect
    
    
Trade accounts receivable
  (484)
  1,265 
Other receivables
  (147)
  280 
Other assets
  (37)
  (226)
Inventories
  (1,153)
  (275)
Prepaid expenses and other current assets
  (54)
  (99)
Accounts payable and accrued liabilities
  934 
  1,001 
Income tax payable
  59 
  (26)
Net Cash Provided by Operating Activities
  1,546 
  3,671 
 
    
    
Cash Flow from Investing Activities
    
    
Proceeds from maturing of unrestricted and restricted term deposits and short-term deposits, net
  484 
  - 
Investments in restricted and unrestricted deposits
  (281)
  (421)
Additions to property, plant and equipment
  (1,507)
  (764)
Proceeds from disposal of plant, property and equipment
  - 
  83 
Net Cash Used in Investing Activities
  (1,304)
  (1,102)
 
    
    
Cash Flow from Financing Activities
    
    
Repayment on lines of credit
  (4,978)
  (4,503)
Proceeds from bank loans and capital leases
  5,045 
  3,516 
Proceeds from exercising of stock option
  41 
  - 
Dividends paid to non-controlling interest
  (123)
  (117)
Repayment of long-term bank loans and capital leases
  (373)
  (371)
Net Cash Used in by Financing Activities
  (388)
  (1,475)
 
    
    
Effect of Changes in Exchange Rate
  433 
  (565)
 
    
    
NET INCREASE IN CASH AND CASH EQUIVALENTS
  287 
  529 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
  4,772 
  3,807 
CASH AND CASH EQUIVALENTS, END OF PERIOD
 $5,059 
 $4,336 
 
    
    
Supplementary Information of Cash Flows
    
    
Cash paid during the period for:
    
    
Interest
 $91 
 $91 
Income taxes
 $119 
 $83 
 
    
    
Non-Cash Transactions
    
    
Capital lease of property, plant and equipment
 $228 
 $49 
Reconciliation of Cash, cash equivalents, and restricted cash
 
 
 
 
 
 
Cash
  7,101 
  3,188 
Short-term deposits
  1,011 
  1,043 
Restricted term-deposits in non-current assets
  1,685 
  1,686 
Total Cash, cash equivalents, and restricted cash shown in statement of cash flows
 $9,797 
 $5,917 
 
    
    
1)
Amounts reflecting adoption of ASU 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230) beginning in the first quarter of 2019.
 
See notesAmounts included in restricted deposits represent the amount of cash pledged to condensed consolidatedsecure loans payable or trade financing granted by financial statements.institutions and serve as collateral for public utility agreements such as electricity and water. Restricted deposits are classified as non-current assets, as they relate to long-term obligations and will become unrestricted only upon discharge of the obligations.
 
 
 
-6-
 
 
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” 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 secondfirst quarter of fiscal year 2018,2019, TTI conducted business in four business segments: Manufacturing, Testing Services, Distribution and Real Estate. TTI has subsidiaries in the U.S., Singapore, Malaysia, Thailand and China as follows:
 
 OwnershipLocation
Express Test Corporation (Dormant)100%Van Nuys, California
Trio-Tech Reliability Services (Dormant)100%Van Nuys, California
KTS Incorporated, dba Universal Systems (Dormant)100%Van Nuys, California
European Electronic Test Centre (Dormant)100%Dublin, Ireland
Trio-Tech International Pte. Ltd.100%Singapore
Universal (Far East) Pte. Ltd.  *100%Singapore
Trio-Tech International (Thailand) Co. Ltd. *100%Bangkok, Thailand
Trio-Tech (Bangkok) Co. Ltd.100%Bangkok, Thailand
(49% owned by Trio-Tech International Pte. Ltd. and 51% owned by Trio-Tech International (Thailand) Co. Ltd.)  
Trio-Tech (Malaysia) Sdn. Bhd.
(55% owned by Trio-Tech International Pte. Ltd.)
55%Penang and Selangor, Malaysia
Trio-Tech (Kuala Lumpur) Sdn. Bhd.55%Selangor, Malaysia
(100% owned by Trio-Tech Malaysia Sdn. Bhd.)  
Prestal Enterprise Sdn. Bhd.76%Selangor, Malaysia
(76% owned by Trio-Tech International Pte. Ltd.)  
Trio-Tech (SIP) Co., Ltd. *100%Suzhou, China
Trio-Tech (Chongqing) Co. Ltd. *100%Chongqing, China
SHI International Pte. Ltd. (Dormant)
(55% owned by Trio-Tech International Pte. Ltd)
55%Singapore
PT SHI Indonesia (Dormant)
(100% owned by SHI International Pte. Ltd.)
55%
 
Batam, Indonesia
 
Trio-Tech (Tianjin) Co., Ltd. *100%Tianjin, China
  * 100% owned by Trio-Tech International Pte. Ltd.
 
The accompanying un-audited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All significant inter-company accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements are presented in U.S. dollars. The accompanying condensed consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the sixthree months ended December 31, 2017September 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2018.2019. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report for the fiscal year ended June 30, 2017.2018.
 
The Company’s operating results are presented based on the translation of foreign currencies using the respective quarter’s average exchange rate.
 
 
 
 
-7-
 
 
Basis of Presentation and Summary of Significant Accounting Policies
Comparability
Effective on the first day of fiscal 2019, the company adopted Accounting Standards Update 2014-09,Revenue from Contracts with Customers(“ASC 606”). Prior periods were not retrospectively restated, and accordingly, the consolidated balance sheet as of June 30, 2018, and the condensed consolidated statements of operations for the three months ended September 30, 2017 were prepared using accounting standards that were different than those in effect for the three months ended September 30, 2018.
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASC 606, which supersedes the guidance in ASC 605,Revenue Recognition(“ASC 605”). The Company adopted ASU 2014-09 effective July 1, 2018 using the modified retrospective transition approach.
The Company generates revenue primarily from 3 different segments: Manufacturing, Testing and Distribution. The Company accounts for a contract with a customer when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company’s revenues are measured based on consideration stipulated in the arrangement with each customer, net of any sales incentives and amounts collected on behalf of third parties, such as sales taxes. The revenues are recognized as separate performance obligations that are satisfied by transferring control of the product or service to the customer.
The Company’s arrangements with its customers include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. A product or service is considered distinct if it is separately identifiable from other deliverables in the arrangement and if a customer can benefit from it on its own or with other resources that are readily available to the customer.
The Company allocates the transaction price to each performance obligation on a relative standalone selling price basis (SSP). The Company typically establishes the SSP based on observable prices of products or services sold separately in comparable circumstances to similar clients. The Company may estimate SSP by considering internal costs, profit objectives and pricing practices in certain circumstances. Warranties, discounts and allowances are estimated using historical and recent data trends. The Company includes estimates in the transaction price only to the extent that a significant reversal of revenue is not probable in subsequent periods. The Company’s products and services are generally not sold with a right of return, nor has the Company experienced significant returns from or refunds to its customers.
Manufacturing
The Company primarily derives revenue from the sale of both front-end and back-end semiconductor test equipment and related peripherals, maintenance and support of all these products, installation and training services and the sale of spare parts. The Company’s revenues are measured based on consideration stipulated in the arrangement with each customer, net of any sales incentives and amounts collected on behalf of third parties, such as sales taxes.
The Company recognizes revenue at a point in time when the Company has satisfied its performance obligation by transferring control of the product to the customer. The Company uses judgment to evaluate whether the control has transferred by considering several indicators, including:
whether the Company has a present right to payment;
the customer has legal title;
the customer has physical possession;
the customer has significant risk and rewards of ownership; and
the customer has accepted the product, or whether customer acceptance is considered a formality based on history of acceptance of similar products (for example, when the customer has previously accepted the same equipment, with the same specifications, and when we can objectively demonstrate that the tool meets all of the required acceptance criteria, and when the installation of the system is deemed perfunctory).
Not all of the indicators need to be met for the Company to conclude that control has transferred to the customer. In circumstances in which revenue is recognized prior to the product acceptance, the portion of revenue associated with its performance obligations to install product is deferred and recognized upon acceptance.
The majority of sales under Manufacturing segment include a standard 12-month warranty. The Company has concluded that the warranty provided for standard products are assurance type warranties and are not separate performance obligations. Warranty provided for customized products are service warranties and are separate performance obligations. Transaction prices are allocated to this performance obligation using cost plus method. The portion of revenue associated with warranty service is deferred and recognized as revenue over the warranty period, as the customer simultaneously receives and consumes the benefits of warranty services provided by the Company.
Testing
The Company rendered testing services to manufacturers and purchasers of semiconductors and other entities who either lack testing capabilities or whose in-house screening facilities are insufficient. The Company primarily derives testing revenue from burn-in services, manpower supply and other associated services. Standalone Selling price is directlyobservable from the sales orders. Revenue is allocated to performance obligations satisfied at a point in time depending upon terms of the sales order. Generally, there is no other performance obligation other from what has been stated inside the sales order for each of these sales.
Terms of contract that may indicate potential variable consideration included warranty, late delivery penalty and reimbursement to solve non-conformance issues for rejected products. Based on historical and recent data trends, it is concluded that these terms of the contract do not represent potential variable consideration. The transaction price is not contingent on the occurrence of any future event.
Distribution
The Company distributes complementary products particularly equipments, industrial products and components by manufacturers mainly from the U.S., Europe, Taiwan and Japan. The Company recognizes revenue from product sales at a point in time when the Company has satisfied its performance obligation by transferring control of the product to the customer. The Company uses judgment to evaluate whether the control has transferred by considering several indicators discussed above. Generally, the Company recognizes the revenue at a point in time, generally upon shipment or delivery of the products to the customer or distributors, depending upon terms of the sales order.
Contract Assets/Liabilities
The timing of revenue recognition, billings and cash collections may result in accounts receivable, contract assets, and contract liabilities (deferred revenue) on the Company’s condensed consolidated balance sheet. A receivable is recorded in the period the Company delivers products or provides services when the Company has an unconditional right to payment. Contract assets primarily relate to the value of products and services transferred to the customer for which the right to payment is not just dependent on the passage of time. Contract assets are transferred to receivable when rights to payment become unconditional. A contract liability is recognized when the Company receives payment or has an unconditional right to payment in advance of the satisfaction of performance. The contract liabilities represent (1) Deferred product revenue relates to the value of products that have been shipped and billed to customers and for which the control has not been transferred to the customers, and (2) Deferred service revenue, which is recorded when the Company receives consideration, or such consideration is unconditionally due, from a customer prior to transferring services to the customer under the terms of a sales contract. Deferred service revenue typically results from warranty services, and maintenance and other service contracts.
2.    NEW ACCOUNTING PRONOUNCEMENTS
 
The following amendments in ASU 2018-13 ASC Topic 820: Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement Accounting Standards Update (“ASU”) have been adopted bymodify the disclosure requirements on fair value measurements based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. While early application is permitted, including adoption in an interim period, the Company ashas not elected to early adopt. The effectiveness of December 31, 2017.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 2015-112018-11 ASC Topic 330:842: Leases: Targeted Improvements Simplifyingrelated to transition relief on comparative reporting at adoption affect all entities with lease contracts that choose the Measurementadditional transition method and separating components of Inventory(“ASC Topic 330”) specify that an entity should measure inventory ata contract affect only lessors whose lease contracts qualify for 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.practical expedient. The amendments in ASC Topic 330842 are effective for public business entities for fiscal years beginning after December 15, 2016,2018 and interim periods within those fiscal years. A reporting entity should applyWhile early application is permitted, including adoption in an interim period, the amendments retrospectivelyCompany has not elected to all periods presented.early adopt. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
The amendments in ASU 2018-10 ASC Topic 842: Codification Improvements to Leases are to address stakeholders’ questions about how to apply certain aspects of the new guidance in Accounting Standards Codification (ASC) 842, Leases. The clarifications address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. The amendments in ASC Topic 842 are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. While early application is permitted, including adoption in an interim period, the Company has adoptednot elected to early adopt. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
-8-
The amendments in ASU 2018-09Codification Improvementsrepresent changes to clarify, correct errors in, or make minor improvements to the Codification, eliminating inconsistencies and concluded that theproviding clarifications in current guidance. The amendments in this ASU include those made to: Income Statement-Reporting Comprehensive Income-Overall; Debt-Modifications and Extinguishments; Distinguishing Liabilities from Equity-Overall; Compensation-Stock Compensation-Income Taxes; Business Combinations-Income Taxes; Derivatives and Hedging-Overall; Fair Value Measurement-Overall; Financial Services-Brokers and Dealers-Liabilities; and Plan Accounting-Defined Contribution Pension Plans-Investments-Other. The amendments are effective for all entities for annual periods beginning after December 15, 2018. The effectiveness of this update doesis not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
 
The amendments in ASU 2018-02 ASC Topic 220: Income Statement – Reporting Comprehensive Income provide financial statement preparers with an option to reclassify stranded tax effects within Accumulated Other Comprehensive Income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The following amendments in ASC Topic 220 are effective for public business entities for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. While early application is permitted, Accounting Standards Update (“ASU”) have not been adopted byincluding adoption in an interim period, the Company ashas not elected to early adopt. The effectiveness of December 31, 2017.this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
 
The amendments in ASUAccounting Standards Update (“ASU”) 2017-11: Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic(Topic 480); Derivatives and Hedging (Topic(Topic 815). For are effective for public companies these amendments are effective for annual periods beginning after December 15, 2018, including interim periods within those periods. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s presentation of consolidated financial position or results of operations.
 
The amendments in ASU 2017-09 —Compensation—Stock Compensation(ASC Topic 718 ): Scope of Modification Accounting: These amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. For public companies, these amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s presentation of consolidated financial position or results of operations.
The amendments in ASU 2017-08 ASC Subtopic 310-20 —'Receivables—Nonrefundable Fees and Other Costs(“ASC Subtopic 310-20”): These amendments shorten the amortization period for certain callable debt securities held at a premium. For public companies, these amendments are effective for annual periods beginning after December 15, 2018, including interim periods within those periods. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s presentation of consolidated financial position or results of operations.
The amendments in ASU 2017-07 ASC Topic 715 —'Compensation — Retirement Benefits: These amendments improve the presentation of net periodic pension Cost and Net Periodic Postretirement Benefit Cost. For public companies, these amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s presentation of consolidated financial position or results of operations.
The amendments in ASU 2017-05 ASC Subtopic 610-20 —'Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets(“ASC Subtopic 610-20”): These amendments clarify the scope of asset derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. For public companies, these amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s presentation of consolidated financial position or results of operations.
The amendments in ASU 2017-04 ASC Topic 350 — ''IntangiblesIntangibles - Goodwill and Other: These amendments(“ASC Topic 350”) simplify the test for goodwill impairment. For public companies, these amendments are effective for annual periods beginning after December 15, 2019, including interim periods within those periods. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s presentation of consolidated financial position or results of operations.
 
The amendments in ASU 2017-01 ASC Topic 805 —'Business Combinations: These amendments clarify the definition of a business. The amendments affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. For public companies, these amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s presentation of consolidated financial position or results of operations.
-8-
The amendments in ASU 2016-18 ASC Topic 230 —'Statement of Cash Flows: These amendments provide cash flow statement classification guidance. For public business entities, these amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s presentation of consolidated financial position and statement of cash flows.
The amendments in ASU 2016-17 ASC Topic 810 —Consolidation: These amendments require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. For public business entities, these amendments are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. While early application is permitted, including interim reporting periods within those annual reporting periods, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
The amendments in ASU 2016-16 ASC Topic 740 —Income Taxes: 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 ASU 2016-15 ASC Topic 230 —Statement of Cash Flows: These amendments provide cashflow statement classification guidance. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
The amendments in ASU 2016-13 ASC Topic 326: Financial InstrumentsCredit losses (“ASC Topic 326”) are issued for the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. For public companies that are not SEC filers, ASC Topic 326 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. While early application will be permitted for all organizations for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018, the Company has not yet determined if it will early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
The amendments in ASU 2016-09 ASC Topic 718:Compensation–Stock Compensation 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. The Company has adopted the ASU and concluded that the effectiveness of this update does not have a significant effect on the Company’s consolidated financial position or results of operations.
 
The amendments in ASU 2016-02 ASC Topic 842: Leases require companies to recognize the following for all leases (with the exception of short-term leases) at the commencement date of the applicable lease: (a) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset, which is as an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. These amendments become effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for a variety of entities including a public company. While early adoption is permitted, the Company has not elected to early adopt. The effectiveness of this updateCompany is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
-9-
The Financial Accounting Standards Board (“FASB”) has issued converged standards on revenue recognition. Specifically, the Board has issued ASU 2014-09, ASC Topic 606 (“ASU 2014-09”). ASU 2014-09 affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). ASU 2014-09 will supersede the revenue recognition requirements in ASC Topic 605, Revenue Recognition (“ASC Topic 605”), and most industry-specific guidance. ASU 2014-09 also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of non-financial assets that are not in a contract with a customer (e.g., assets within the scope of ASC Topic 360, Property, Plant, and Equipment, (“ASC Topic 360”), and intangible assets within the scope of Topic 350, Intangibles—Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in ASU 2014-09. For a public entity, the amendments in ASU 2014-09 would be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. However, ASU 2015-14 ASC Topic 606:Deferral of the Effective Date(“ASC Topic 606”) defers the effective date of ASU 2014-09 for all entities by one year. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company has not adopted these standards. As the new standards, will supersede substantially all existing revenue guidance affecting the Company under GAAP, it could impact revenue and cost recognition on sales across all the Company's business segments. The Company carried out an initial evaluation ofcurrently evaluating the impact of this accounting standard update on its business and anticipates that the adoption of this standard will not have a significant effect on its Consolidated Financial Statements. While we are continuing to assess all potential impacts, the Company has not presently selected a transition method as we believe there will not be any significant impact of this new guidance on the Company.consolidated financial statements.
 
Other new pronouncements issued but not yet effective until after December 31, 2017September 30, 2018 are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
 
-9-
3.   TERM DEPOSITS
 
Dec. 31,
 2017
(Unaudited)
 
 
June 30,
 2017
 
 
Sep. 30,
 2018
(Unaudited)
 
 
June 30,
 2018
 
 
 
 
 
 
 
Short-term deposits
 $598 
 $824 
 $1,024 
 $606 
Currency translation effect on short-term deposits
  44 
  (37)
  (13)
  47 
Total short-term deposits
  642 
  787 
  1,011 
  653 
Restricted term deposits
  1,660 
  1,722 
  1,696 
  1,664 
Currency translation effect on restricted term deposits
  57 
  (65)
  (11)
  31 
Total restricted term deposits
  1,717 
  1,657 
  1,685 
  1,695 
Total Term deposits
 $2,359 
 $2,444 
Total term deposits
 $2,696 
 $2,348 
 
Restricted deposits represent the amount of cash pledged to secure loans payable granted by financial institutions and serve as collateral for public utility agreements such as electricity and water and performance bonds related to customs duty payable.water. Restricted deposits are classified as non-current assets, as they relate to long-term obligations and will become unrestricted only upon discharge of the obligations. Short-term deposits represent bank deposits, thatwhich do not qualify as cash equivalents.
 
-10-
4.   TRADE ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
 
Accounts receivable consists of customer obligations due under normal trade terms. Although management generally does not require collateral, letters of credit may be required from the customers in certain circumstances. Management periodically performs credit evaluations of customers’ financial conditions.
 
Senior management reviews accounts receivable on a periodic basis to determine if any receivables will potentially be uncollectible. Management includes any accounts receivable balances that are determined to be uncollectible in the allowance for doubtful accounts. After all reasonable attempts to collect a receivable have failed, the receivable is written off against the allowance.  Based on the information available, management believed the allowance for doubtful accounts as of December 31, 2017September 30, 2018 and June 30, 20172018 was adequate.  
 
The following table represents the changes in the allowance for doubtful accounts:
 
 
Dec. 31,
 2017
(Unaudited)
 
 
June 30,
 2017
 
 
Sept. 30,
 2018
(Unaudited)
 
 
June 30,
 2018
 
Beginning
 $247 
 $270 
 $259 
 $247 
Additions charged to expenses
  - 
  65 
  - 
  8 
Recovered
  (1)
  (78)
  (2)
  (1)
Write-off
  - 
  (2)
  - 
Currency translation effect
  9 
  (8)
  (8)
  5 
Ending
 $255 
 $247 
 $249 
 $259 
-10-
 
5.   LOANS RECEIVABLE FROM PROPERTY DEVELOPMENT PROJECTS
 
The following table presents Trio-Tech (Chongqing) Co. Ltd (‘TTCQ’(“TTCQ”)’s loan receivable from property development projects in China as of December 31, 2017.September 30, 2018. The exchange rate is based on the date published by the Monetary Authority of Singapore as of March 31, 2015, since the net loan receivable was “nil” as at December 31, 2017.of September 30, 2018.
 
Loan Expiry
Date
 
Loan Amount
(RMB)
 
 
Loan Amount
(U.S. Dollars)
 
 
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 
May 31, 2013
  2,000 
  325 
Less: allowance for doubtful receivables 
  (2,000)
  (325)
 
  (2,000)
  (325)
Net loan receivables from property development projects 
  - 
 
  - 
    
    
Long-term loan receivables 
    
 
    
Jun Zhou Zhi YeOct 31, 2016
  5,000 
  814 
Oct 31, 2016
  5,000 
  814 
Less: transfer – down-payment for purchase of investment property 
  (5,000)
  (814)
 
  (5,000)
  (814)
Net loan receivables from property development projects 
  - 
 
  - 
 
The following table presents TTCQ’s loan receivable from property development projects in China as of June 30, 2017. The exchange rate is based on the date published by the Monetary Authority of Singapore as of March 31, 2015, since the net loan receivable was “nil” as at June 30, 2017.
 
Loan Expiry
Date
 
Loan Amount
(RMB)
 
 
Loan Amount
(U.S. Dollars)
 
Short-term loan receivables 
 
 
 
 
 
 
JiangHuai (Project – Yu Jin Jiang An)May 31, 2013
  2,000 
  325 
Less: allowance for doubtful receivables 
  (2,000)
  (325)
Net loan receivables from property development projects 
  - 
  - 
 
    
    
Long-term loan receivables 
    
    
Jun Zhou Zhi 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 
  - 
  - 
-11-
On November 1, 2010, TTCQ entered into a Memorandum Agreement with JiangHuai Property Development Co. Ltd. (“JiangHuai”) to invest in their property development projects (Project - Yu Jin Jiang An) located in Chongqing City, China. Due to the short-term nature of the investment, the amount was classified as a loan based on ASC Topic 310-10-25Receivables, amounting to Renminbirenminbi (“RMB”) 2,000, or approximately $325. The loan was renewed but expired on May 31, 2013. TTCQ is in the legal process of recovering the outstanding amount of $325. TTCQ did not generate other income from JiangHuai for the quarter ended December 31, 2017,September 30, 2018 or for the fiscal year ended June 30, 2017.2018. Based on TTI’s financial policy, a provision for doubtful receivables of $325 on the investment in JiangHuai was recorded during the second quarter of fiscal 2014 based on TTI’s financial policy. TTCQ is in the legal process of recovering the outstanding amount of $325.
 
On November 1, 2010, TTCQ entered into a Memorandum Agreement with JiaSheng Property Development Co. Ltd. (“JiaSheng”) to invest in their property development projects (Project B-48 Phase 2) located in Chongqing City, China. Due to the short-term nature of the investment, the amount was classified as a loan based on ASC Topic 310, amounting to RMB 5,000, or approximately $814 based on the exchange rate as at March 31, 2015 published by the Monetary Authority of Singapore. The amount was unsecured and repayable at the end of the term. The loan was renewed in November 2011 for a period of one year, which expired on October 31, 2012 and was again renewed in November 2012 and expired in November 2013. On November 1, 2013 the loan was transferred by JiaSheng to, and is now payable by, Chong Qing Jun Zhou Zhi Ye Co. Ltd. (“Jun Zhou Zhi Ye”), and the transferred agreement expired on October 31, 2016. Prior to the second quarter of fiscal year 2015, the loan receivable was classified as a long-term receivable. The book value of the loan receivable approximates its fair value. In the second quarter of fiscal year 2015, the loan receivable was transferred to down payment for purchase of investment property that is being developed in the Singapore Themed Resort Project (see Note 8).
 
6.  INVENTORIES
 
Inventories consisted of the following:
 
Dec. 31,
 2017
 (Unaudited)
 
 
June 30,
 2017
 
 
Sept. 30,
 2018
 (Unaudited)
 
 
June 30,
 2018
 
 
 
 
 
 
 
Raw materials
 $1,107 
 $1,047 
 $1,176 
 $1,153 
Work in progress
  1,890 
  1,045 
  1,654 
  1,947 
Finished goods
  598 
  365 
  261 
  505 
Less: provision for obsolete inventories
  (697)
  (686)
Currency translation effect
  74 
  (15)
  (11)
  20 
Less: provision for obsolete inventory
  (694)
  (695)
 $2,972 
 $1,756 
 $2,386 
 $2,930 
 
 
-11-
The following table represents the changes in provision for obsolete inventories:inventory:
 
Dec. 31,
 2017
(Unaudited)
 
 
June 30,
 2017
 
 
Sept. 30,
 2018
(Unaudited)
 
 
June 30,
 2018
 
 
 
 
 
 
 
Beginning
 $686 
 $697 
 $695 
 $686 
Additions charged to expenses
  - 
  6 
  - 
  9 
Usage - disposition
  (3)
  (6)
Usage – disposition
  (1)
  (5)
Currency translation effect
  14 
  (11)
  - 
  5 
Ending
 $697 
 $686 
 $694 
 $695 
 
7. ASSETASSETS HELD FOR SALE
 
Penang Property
During the fourth quarter of 2015, Trio-Tech (Malaysia) Sdn. Bhd. (‘TTM’)the operations in Malaysia planned to sell its factory building in Penang, Malaysia. In May 2015, TTM was approached by a potential buyer to purchase the factory building. Negotiation is still ongoing and is subject to approval by Penang Development Corporation. In accordance with ASC Topic 360, during fiscal year 2015 the property was reclassified from investment property, which had a net book value of RM 371, or approximately $92,$98, to assets held for sale, since there was an intention to sell the factory building. In May 2015, Trio-Tech Malaysia was approached by a potential buyer to purchase the factory building. On September 14, 2015, application to sell the property was rejected by Penang Development Corporation (PDC). The rejection was because the business activity of the purchaser was not suitable to the industry that is being promoted on said property. PDC made an offer to purchase the property, which was not at the expected value and the offer expired on March 28, 2016. The last conversation with PDC was on 24th July 2018, there has been no news from PDC to confirm their interest in buying the property as of Sep 30, 2018. During the first quarter of fiscal year 2019, there was an interested buyer to purchase the property; however, the purchase was not consummated as the potential buyer was unable to obtain financing. . As of the end of the first quarter of fiscal year 2019, management is working closely with two agents to search for potential buyers. The net book values of the building were RM371, or approximately $91,$89, as at December 31, 2017September 30, 2018 and RM 371, or approximately $86,$91, as at June 30, 2017. As at end of December 31, 2017, management is still actively looking for a suitable buyer.2018.
 
-12-
Mao Ye Property
 
During the first quarter of 2019, management decided to sell our Mao Ye Property, which is one of our earlier investment properties. In order to monetize the capital gain on property, TTCQ appointed a sole agent for 6 months as of September 1, 2018 to search for suitable buyers for this property. The Company believes that it has the ability to complete the sale transaction within a period of one year since the asset can be transferred to the buyer in its present condition and the target price given to the sole agent is reasonable in relation to its current fair value. In accordance with ASC Topic 360, as there was an intention to sell the investment properties within 1 year, the property was reclassified from investment property, which had a net book value of RMB 2,729, or approximately $397 as at September 30,2018 and RMB 2,729, or approximately $412 as at June 30,2018 to assets held for sale.
8.  INVESTMENTS
 
Investments were nil as at December 31, 2017 and June 30, 2017.
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 bidbidding in certain real estate projects from the local government. Upon signing of the agreement, JiaSheng paid the Company RMB 5,000 in cash, or approximately $803 based on the exchange rate published by the Monetary Authority of Singapore as of March 31, 2014. The remaining RMB 5,000, which was not recorded as a receivable as the Company considered the collectability uncertain, would be paid over 72 months commencing in 36 months from the date of the agreement when the joint venture secured a property development project stated inside the joint venture agreement. The Company considered the RMB 5,000, or approximately $803 based on the exchange rate as of March 31, 2014 published by the Monetary Authority of Singapore, received in cash from JiaSheng, the controlling venturer in the joint venture, as a partial return of the Company’s initial investment of RMB10,000,RMB 10,000, 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.
-12-
 
“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 (the “Share Transfer Agreement”) with Zhu Shu. Based on the agreement, the purchase price was to be paid by (1) RMB 10,000 worth of commercial property in Chongqing China, or approximately $1,634 based on exchange rates published by the Monetary Authority of Singapore as of October 2, 2013, by non-monetary consideration and (2) the remaining RMB 8,000, or approximately $1,307 based on exchange rates published by the Monetary Authority of Singapore as of October 2, 2013, by cash consideration. The consideration consisted of (1) commercial units measuring 668 square meters to be delivered in June 2016 and (2) sixteen quarterly equal installments of RMB500RMB 500 per quarter commencing from January 2014. Based on ASC Topic 845 Non-monetary Consideration, the Company deferred the recognition of the gain on disposal of the 10% interest in joint venture investment until such time that the consideration is paid, so that the gain can be ascertained. The recorded value of the disposed investment amounting to $783, based on exchange rates published by the Monetary Authority of Singapore as of June 30, 2014, is classified as “other assets” under non-current assets, because it is considered a down payment for the purchase of the commercial property in Chongqing. 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 to RMB 500 each due in January 2014, April 2014 and July 2014, were all outstanding until the date of disposal of the investment in the joint venture. Out of the outstanding RMB 8,000, TTCQ had received RMB 100 during May 2014.
 
On October 14, 2014, TTCQ and Jun Zhou Zhi Ye entered into a memorandum of understanding. Based on the memorandum of understanding, both parties have agreed to register a sales and purchase agreement upon Jun Zhou Zhi Ye obtaining the license to sell the commercial property (the Singapore Themed Resort Project) located in Chongqing, China. The proposed agreement is for the sale of shop lots with a total area of 1,484.55 square meters as consideration for the outstanding amounts owed to TTCQ by Jun Zhou Zhi Ye as follows:
 
a)
Long term loan receivable RMB 5,000, or approximately $814, as disclosed in Note 5, plus the interest receivable on long term loan receivable of RMB 1,250;
b)
Commercial units measuring 668 square meters, as mentioned above; and
c)
RMB 5,900 for the part of the unrecognized cash consideration of RMB 8,000 relating to the disposal of the joint venture.
-13-
 
The consideration does not include the remaining outstanding amount of RMB 2,000, or approximately $326, which will be paid to TTCQ in cash.
 
The shop lots are to be delivered to TTCQ upon completion of the construction of the shop lots in the Singapore Themed Resort Project. The initial targeted date of completion was December 31, 2016. Based on subsequent discussions with the developer and the overall China market outlook,developers, the completion date is currently estimated to be December 31, 2019.
 
The share transferShare Transfer Agreement (10% interest in the joint venture) was registered with the relevant authorities in China as of endduring October 2016.
 
-13-
9.INVESTMENT PROPERTIES
 
The following table presents the Company’s investment in properties in China as of December 31, 2017.September 30, 2018. The exchange rate is based on the market rate as of December 31, 2017.September 30, 2018.
 
Investment Date
 
Investment
Amount (RMB)
 
 
Investment Amount
 (U.S. Dollars)
 
 
Investment
Date / Reclassification 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 I - MaoYe Property
Jan 04, 2008
  5,554 
  894 
Purchase of rental property – Property II - JiangHuaiJan 06, 2010
  3,600 
  580 
Jan 06, 2010
  3,600 
  580 
Purchase of rental property – Property III - Fu LiApr 08, 2010
  4,025 
  648 
Apr 08, 2010
  4,025 
  648 
Reclassification of Mao Ye Property as "Asset held for sale"
July 01, 2018
  (5,554)
  (894)
Currency translation 
  - 
  (95)
 
  - 
  (118)
Gross investment in rental property 
  13,179 
  2,027 
 
  7,625 
  1,110 
Accumulated depreciation on rental property  Dec 31, 2017
  (5,266)
  (810)
Sep 30, 2018
  (5,691)
  (889)
Reclassified as "Asset for sale"
July 01, 2018
  2,822 
  472 
Net investment in property – China 
  7,913 
  1,217 
 
  4,756 
  693 
 
The following table presents the Company’s investment in properties in China as of June 30, 2017.2018. The exchange rate is based on the market rate as of June 30, 2017.2018.
 
Investment Date
 
Investment
Amount (RMB)
 
 
Investment Amount
 (U.S. Dollars)
 
 
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 I - MaoYe Property
Jan 04, 2008
  5,554 
  894 
Purchase of rental property – Property II - JiangHuaiJan 06, 2010
  3,600 
  580 
Jan 06, 2010
  3,600 
  580 
Purchase of rental property – Property III - Fu LiApr 08, 2010
  4,025 
  648 
Apr 08, 2010
  4,025 
  648 
Currency translation 
  - 
  (178)
 
  - 
  (131)
Gross investment in rental property 
  13,179 
  1,944 
 
  13,179 
  1,991 
Accumulated depreciation on rental property  June 30, 2017
  (4,937)
  (728)
June 30, 2018
  (5,596)
  (845)
Net investment in property – China 
  8,242 
  1,216 
 
  7,583 
  1,146 
 
The following table presents the Company’s investment properties in Malaysia as of December 31, 2017September 30, 2018 and June 30, 2017.2018. The exchange rate is based on the exchange rate as of June 30, 2015 published by the Monetary Authority of Singapore.
 
Investment Date
 
Investment
Amount (RM)
 
 
Investment Amount
(U.S. Dollars)
 
 
Investment
Date
 
 
Investment
Amount
(RM)
 
 
Investment Amount
(U.S. Dollars)
 
Reclassification of Penang Property IDec 31, 2012
  681 
  181 
Dec 31, 2012
  681 
  181 
Gross investment in rental property 
  681 
  181 
 
  681 
  181 
    
    
Accumulated depreciation on rental propertyJune 30, 2015
  (310)
  (83)
June 30, 2015
  (310)
  (83)
Reclassified as “Assets held for sale”June 30, 2015
  (371)
  (98)
June 30, 2015
  (371)
  (98)
Net investment in rental property - Malaysia 
  - 
 
  - 
 
 
 
 
-14-
 
 
Rental Property I - Mao Ye Property
 
In fiscal 2008, TTCQ purchased an office in Chongqing, China from MaoYe Property Ltd. (“MaoYe”), for a total cash purchase price of RMB 5,554, or approximately $894. TTCQ identified a new tenant and signed a new rental agreement (653 square meters at a monthly rentalrent of RMB 39, or approximately $6) on August 1, 2015. This rental agreement provides for a rent increase of 5% every year on January 31, commencing with 2017 until the rental agreement expires on July 31, 2020. TTCQ signed a new rental agreement (451 square meters at a monthly rentalrent of RMB 27,24, or approximately $4) on January 29, 2016.February 1, 2018. This rental agreement provides for a rent increase of 5% every6% from the second year on January 29, commencing with 2017of the contract onwards until the rental agreement expires on February 28, 2019.January 31, 2021.
During the first quarter of 2019, management decided to sell our Mao Ye Property, which is one of our earlier investment properties. In order to monetize the capital gain on property, TTCQ appointed a sole agent for 6 months as of September 1, 2018 to search for suitable buyers for this property. The Company believes that it has the ability to complete the sale transaction within a period of one year since the asset can be transferred to the buyer in its present condition and the target price given to the sole agent is reasonable in relation to its current fair value. In accordance with ASC Topic 360, as there was an intention to sell the investment properties within 1 year, the property was reclassified from investment property, which had a net book value of RMB 2,729, or approximately $397 as at September 30,2018 and RMB 2,729, or approximately $412 as at June 30,2018 to assets held for sale.
 
Property purchased from MaoYe generated a rental income of $26 and $53 for$22 during the three and six months ended December 31, 2017, respectively, and $26 and $52September 30, 2018 as compared to $27 for the same periodsperiod in the last fiscal year, respectively.year.
 
Rental Property II - JiangHuai
 
In fiscal year 2010, TTCQ purchased eight units of commercial property in Chongqing, China from Chongqing JiangHuai Real Estate Development Co. Ltd. (“JiangHuai”) for a total purchase price of RMB 3,600, or approximately $580. TTCQ rented all of these commercial units to a third party until the agreement expired in January 2012. TTCQ then rented three of the eight commercial units to another party during the fourth quarter of fiscal year 2013 under a rental agreement that expired on March 31, 2014. Currently all the units are vacant and TTCQ is working with the developer to find a suitable buyer to purchase all the commercial units. TTCQ has yet to receive the title deed for these properties; however, TTCQ has the vacancies in possession with the exception of two units, which are in the process of clarification. TTCQ is in the legal process to obtain the title deed, which is dependent on JiangHuai completing the entire project. In August 2016, TTCQ performed a valuation on one of the commercial units and its market value was higher than the carrying amount.
 
Property purchased from JiangHuai did not generate any rental income during the three and six months ended December 31, 2017 and forSeptember 30, 2018 or during the same periodsperiod in the lastprior fiscal year.
 
Other PropertiesRental Property III – Fu LiFuLi
 
In fiscal 2010, TTCQ entered into a Memorandum of Agreement with Chongqing FuLi Real Estate Development Co. Ltd. (“FuLi”) to purchase two commercial properties totaling 311.99 square meters (“office space”) located in Jiang Bei District Chongqing. Although TTCQ currently rents its office premises from a third party, it intends to use the office space as its office premises. The total purchase price committed and paid was RMB 4,025, or approximately $649.$648. The development was completed, and the property was handed over duringin April 2013 and the title deed was received during the third quarter of fiscal 2014.
 
The two commercial properties were leased to third parties under two separate rental agreements, one of which will expireexpires in April 2019 whichand provides for a rent increase of 5% every year on May 1, commencing within 2017 until the rental agreement expires on April 30, 2019 and the other of which will expireexpired in March 31, 2018 which provides2018. Management continues to follow-up closely on getting a new tenant for a rent increase of 5% every year on April 1, commencing with 2016 untilthis vacant unit despite the slow current market rental agreement will expire on March 31, 2018.situation.
 
Properties purchased from Fu Li generated a rental income of $11 and $23$5 for the three and six months ended December 31, 2017, respectively, while it generated a rental income of $13September 30, 2018, and $26, respectively,$12 for the same periodsperiod in the last fiscal year.
Penang Property I
During the fourth quarter of 2015, TTM planned to sell its factory building in Penang, Malaysia. In accordance to ASC Topic 360, the property was reclassified from investment property, which had a net book value of RM 371, or approximately $98, to assets held for sale since there was an intention to sell the factory building. In May 2015, TTM was approached by a potential buyer to purchase the factory building. On September 14, 2015, application to sell the property was rejected by Penang Development Corporation (‘PDC’). The rejection was based on the business activity of the purchaser not suitable to the industry that is being promoted on the said property. PDC made an offer to purchase the property, which was not at the expected value and the offer expired on March 28, 2016. However, management is still actively looking for a suitable buyer. As of December 31, 2017 the net book value was RM 369, or approximately $91.
-15-
 
Summary
 
Total rental income for all investment properties in China was $37 and $76$27 for the three and six months ended December 31, 2017, respectively,September 30, 2018 and was $39 and $78, respectively, for the same periodsperiod in the last fiscal year.
 
Depreciation expenses for all investment properties in China were $24 and $49$14 for the three and six months ended December 31, 2017, respectively,September 30, 2018 and were $24 and $47, respectively,$25 for the same periodsperiod in the last fiscal year.year.
 
10.   OTHER ASSETS
 
Other assets consisted of the following:
 
Dec. 31, 2017
(Unaudited)
 
 

June 30, 2017 
 
 
Sept. 30, 2018
(Unaudited)
 
 
June 30,
2018
 
Down payment for purchase of investment properties
 $1,645 
 $1,645 
Down payment for purchase of property, plant and equipment
  219 
  280 
  44 
  561 
Deposits for rental and utilities
  140 
  139 
  140 
Currency translation effect
  (54)
  (142)
  (165)
  (97)
Total
 $1,950 
 $1,922 
 $1,664 
 $2,249 
 -15-
 
11. LINES OF CREDIT
 
The carryingCarrying 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, 2017,September 30, 2018, the Company had certain lines of credit that are collateralized by restricted deposits.
 
Entity withType ofInterest
 
Expiration
 
 
Credit
 
 
Unused
 
Type of
 
Interest
 
 
Expiration
 
 
Credit
 
 
Unused
 
FacilityFacility
 
Rate
 
 
Date
 
 
Limitation
 
 
Credit
 
 
Facility
 
 
Rate
 
 
Date
 
 
Limitation
 
 
Credit
 
Trio-Tech International Pte. Ltd., SingaporeLines of CreditRanging from 1.6% to 5.5%
  - 
 $4,636 
 $3,368 
Lines of Credit
Ranging from
1.6% to 5.5%
  -
 
 $4,169 
 $3,307 
Trio-Tech (Malaysia) Sdn. Bhd.Lines of CreditRanging from 6.3% to 6.7%
  - 
 $776 
 $776 
Trio-Tech (Tianjin) Co., Ltd.Lines of CreditRanging from 4.9% to 6.3%
  - 
 $923 
 $2 
Lines of Credit5.22%
  - 
 $1,456 
 $434 
Universal (Far East) Pte. Ltd. Lines of Credit
Ranging from
1.6% to 5.5%
  - 
 $366 
 $117 
 
As of June 30, 2017,2018, the Company had certain lines of credit that are collateralized by restricted deposits.
 
Entity withType of
 
Interest
 
 
Expiration
 
 
Credit
 
 
Unused
 
Type of
 
Interest
 
 
Expiration
 
 
Credit
 
 
Unused
 
FacilityFacility
 
Rate
 
 
Date
 
 
Limitation
 
 
Credit
 
 
Facility
 
 
Rate
 
 
Date
 
 
Limitation
 
 
Credit
 
Trio-Tech International Pte. Ltd., SingaporeLines of Credit
 
Ranging from 3.96% to 7.5%
 
  - 
 $4,496 
 $2,815
 
Lines of Credit
Ranging from
1.6% to 5.5%
  -
 
 $4,183 
 $3,325 
Trio-Tech (Malaysia) Sdn. Bhd.Lines of Credit
 
Ranging from 6.3% to 6.7%
 
  - 
 $734 
 $734 
Trio-Tech (Tianjin) Co., Ltd.Lines of Credit
  5.22% 
  - 
 $885 
 $10 
Lines of Credit
5.22%
  - 
 $1,511 
 $437 
Universal (Far East) Pte. Ltd.
Lines of Credit
Ranging from
1.6% to 5.5%
  - 
 $367 
 $256 
 
-16-
On January 4, 2018, Trio-Tech International Pte. Ltd. signed an agreement with a bank to sub-allocate a portion of the facility thereunder to its subsidiary - Universal (Far East) Pte. Ltd. for an Accounts Payable Financing facility for SGD 500, or approximately $367 based on the market exchange rate. Interest is charged at 1.6% to 5.5%. The financing facility was set up to facilitate the working capital in our operations in Singapore. The Company started to use this facility in fiscal year 2018.
 
12.  ACCRUED EXPENSES
 
Accrued expenses consisted of the following:
 
Dec. 31, 2017
(Unaudited)
 
 
June 30,
2017
 
 
Sept. 30, 2018
(Unaudited)
 
 
June 30,
2018
 
Payroll and related costs
 $1,554 
 $1,568 
 $1,488 
 $1,545 
Commissions
  143 
  107 
  68 
  89 
Customer deposits
  481 
  218 
  518 
  17 
Legal and audit
  298 
  283 
  274 
  265 
Sales tax
  129 
  80 
  20 
  17 
Utilities
  95 
  142 
  139 
  130 
Warranty
  52 
  49 
  69 
  82 
Accrued purchase of materials
  352 
  33 
Accrued purchase of materials and property, plant and equipment
  394 
  454 
Provision for re-instatement
  289 
  295 
  294 
  289 
Other accrued expenses
  476 
  319 
  367 
  203 
Currency translation effect
  116 
  (51)
  (60)
  81 
Total
 $3,985 
 $3,043 
 $3,571 
 $3,172 
-16-
 
13.   WARRANTY ACCRUAL
 
The Company provides for the estimated costs that may be incurred under its warranty program at the time the sale is recorded.  The warranty period of the products manufactured by the Company is generally one year or the warranty period agreed with the customer.  The Company estimates the warranty costs based on the historical rates of warranty returns. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary.
 
Dec. 31,
 2017
(Unaudited)
 
 
June 30,
 2017
 
 
Sept. 30,
 2018
(Unaudited)
 
 
June 30,
 2018
 
Beginning
 $48 
 $76 
 $82 
 $48 
Additions charged to cost and expenses
  19 
  46 
  - 
  64 
Utilization/reversal
  (15)
  (73)
Reversal
  (13)
  (30)
Currency translation effect
  1 
  (1)
  - 
Ending
 $53 
 $48 
 $69 
 $82 
 
14.   BANK LOANS PAYABLE
 
 Bank loans payable consisted of the following:
 
 
Dec. 31, 2017
(Unaudited)
 
 
June 30, 2017
 
Note payable denominated in RM for expansion plans in Malaysia, maturing in August 2024, bearing interest at the bank’s prime rate less 1.50% (5.25% and 5.25% at December 31, 2017 and June 30, 2017) per annum, with monthly payments of principal plus interest through August 2024, collateralized by the acquired building with a carrying value of $2,800 and 2,671, as at December 31, 2017 and June 30, 2017, respectively.
  1,518 
  1,735 
 
    
    
Note payable denominated in U.S. dollars for expansion plans in Singapore and its subsidiaries, maturing in April 2020, bearing interest at the bank’s lending rate (3.96% and 3.96% for December 31, 2017 and June 30, 2017) with monthly payments of principal plus interest through June 2020. This note payable is secured by plant and equipment with a carrying value of $215 and $224, as at December 31, 2017 and June 30, 2017, respectively.
  363 
  196 
 
    
    
      Total bank loans payable
 $1,881 
 $1,931 
 
 
Sept. 30, 2018
(Unaudited)
 
 
June 30, 2018
 
Note payable denominated in RM for expansion plans in Malaysia, maturing in August 2028, bearing interest at the bank’s prime rate less 1.50% (5.00% at September 30, 2018 and June 30, 2018) per annum, with monthly payments of principal plus interest through August 2028, collateralized by the acquired building with a carrying value of $5,666 and 2,809, as at September 30, 2018 and June 30, 2018, respectively.
  2,935 
  1,615 
 
    
    
Note payable denominated in U.S. dollars for expansion plans in Singapore and its subsidiaries, maturing in April 2020, bearing interest at the bank’s lending rate (3.96% for September 30, 2018 and June 30, 2018) with monthly payments of principal plus interest through June 2020. This note payable is secured by plant and equipment with a carrying value of $177 and $187, as at September 30, 2018 and June 30, 2018, respectively.
  254 
  293 
 
    
    
Total bank loans payable
 $3,189 
 $1,908 
 
Current portion of bank loans payable
  346 
  271 
Currency translation effect on current portion of bank loans
  10 
  (11)
                              Current portion of bank loans payable
  356 
  260 
Long term portion of bank loans payable
  1,535 
  1,660 
Currency translation effect on long-term portion of bank loans
  82 
  (108)
                           Long term portion of bank loans payable
 $1,617 
 $1,552 
Current portion of bank loan payable
  486 
  380 
Currency translation effect on current portion of bank loan
  (8)
  (13)
Current portion of bank loan payable
  478 
  367 
Long term portion of bank loan payable
  2,703 
  1,528 
Currency translation effect on long-term portion of bank loan
  (56)
  (91)
Long term portion of bank loans payable
 $2,647 
 $1,437 
Future minimum payments (excluding interest) as at September 30, 2018 were as follows:
2019
 $478 
2020
  449 
2021
  363 
2022
  382 
2023
  401 
Thereafter
  1,052 
Total obligations and commitments
 $3,125 
 
 
 
-17-
 
 
Future minimum payments (excluding interest) as at December 31, 2017(unaudited)June 30, 2018 were as follows: 
 
2018
 $356 
2019
  373 
2020
  298 
2021
  244 
2022
  127 
Thereafter
  575 
Total obligations and commitments
 $1,973 
Future minimum payments (excluding interest) as at June 30, 2017 were as follows:
2018
 $260 
2019
  273 
 $367 
2020
  274 
  372 
2021
  225 
  242 
2022
  236 
  254 
2023
  267 
Thereafter
  544 
  302 
Total obligations and commitments
 $1,812 
 $1,804 
 
15.   COMMITMENTS AND CONTINGENCIES
 
TTM Trio-Tech (Malaysia) Sdn. Bhd. has capital commitments for the purchase of equipment and other related infrastructure costs amounting to RM 409,62, or approximately $101,$15, based on the exchange rate as at December 31, 2017 published by the Monetary Authority of Singapore,September 30, 2018, as compared to the capital commitment as at June 30, 20172018 amounting to RM 684,62, or approximately $159.$16.
 
Trio-Tech (Tianjin) Co. Ltd. in China has capital commitments for the purchase of equipment and other related infrastructure costs amounting to RMB 5,174,2,379, or approximately $796,$346, based on the exchange rate as on December 31, 2017 published by the Monetary Authority of Singapore,September 30, 2018, as compared to the capital commitment as at June 30, 20172018 amounting to RMB 1,260,3,927, or approximately $186.$593.
Trio-Tech (SIP) Co., Ltd. in China has capital commitments for the purchase of equipment and other related infrastructure costs amounting to RMB 6,341, or approximately $923, based on the exchange rate as on September 30, 2018 as compared to the capital commitment as at June 30, 2018 amounting to RMB 6,084, or approximately $919.
 
Deposits with banks in China are not insured by the local government or agency, and are consequently exposed to risk of loss. The Company believes the probability of a bank failure, causing loss to the Company, is remote.
 
The Company is, from time to time, the subject of litigation claims and assessments arising out of matters occurring in its normal business operations. In the opinion of management, resolution of these matters will not have a material adverse effect on the Company’s financial statements.
 
16.   BUSINESS SEGMENTS
 
In fiscal year 2018,2019, the Company operates in four segments; the testing service industry (which performs structural and electronic tests of semiconductor devices), the designing and manufacturing of equipment (which equipment tests the structural integrity of integrated circuits and other products), distribution of various products from other manufacturers in Singapore and Southeast Asia, and the real estate segment in China.
 
The revenue allocated to individual countries was based on where the customers were located. The allocation of the cost of equipment, the current year investment in new equipment and depreciation expense have been made 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 $587 and $681$285 for the three and six months ended December 31, 2017, respectively,September 30, 2018, as compared to $20 and $302, respectively,$95 for the same periodsperiod in the last fiscal year.  Corporate assets mainly consisted of cash and prepaid expenses. Corporate expenses mainly consisted of stock option expenses, salaries, insurance, professional expenses and directors' fees. Corporate expenses are allocated to the four segments. The following segment information table includes segment operating income or loss after including the corporate expenses allocated to the segments, which gets eliminated in the consolidation.
 
 
 
 
-18-
 
 
The following segment information is unauditedun-audited for the period referenced below:three months ended September 30, 2018 and September 30, 2017:
 
Business Segment Information:
 
 
Six months Ended Dec. 31
 
 
Net Revenue
 
 
Operating Income / (Loss)
 
 
Total Assets
 
 
Depr. and Amort.
 
 
Capital Expenditures
 
 
 
 
 
Three Months
 Ended
 Sept. 30,
 
Net
 Revenue
 
 
Operating
Income / (Loss)
 
 
Total
 Assets
 
 
Depr.
 And
 Amort.
 
 
Capital
Expenditures
 
Manufacturing
2017
 
 $8,738 
 $293 
 $8,837 
 $56 
 $37 
2018
 $3,637 
  107 
  8,566 
  29 
  1 
2016 
 $6,991 
 $(322)
 $8,114 
 $99 
 $78 
2017
 $4,765 
  186 
  8,194 
  28 
  35 
    
    
       
    
Testing Services
2017 
  9,541 
  853 
  23,591 
  913 
  1,558 
2018
  4,437 
  (138)
  24,200 
  512 
  1,213 
2016 
  8,227 
  790 
  18,325 
  765 
  686 
2017
  4,605 
  336 
  22,129 
  447 
  494 
    
    
       
    
Distribution
2017 
  3,142 
  220 
  621 
  - 
2018
  1,944 
  172 
  656 
  - 
2016 
  2,779 
  134 
  651 
  2 
  - 
2017
  1,536 
  101 
  573 
  - 
    
    
       
    
Real Estate
2017 
  76 
  (19)
  3,624 
  50 
  - 
2018
  27 
  (12)
  3,441 
  14 
  - 
2016 
  78 
  (6)
  3,147 
  50 
  - 
2017
  39 
  (10)
  3,568 
  25 
  - 
    
    
       
    
Fabrication *
2017 
  - 
  28 
  - 
Services
2016 
  - 
  29 
  - 
Fabrication
2018
  - 
  25 
  - 
Services *
2017
  - 
  28 
  - 
    
    
       
    
Corporate &
2017 
  - 
  (102)
  88 
  - 
2018
  - 
  (6)
  151 
  - 
Unallocated
2016 
  - 
  59 
  430 
  - 
2017
  - 
  (66)
  214 
  - 
    
    
       
    
Total
2017 
 $21,497 
 $1,245 
 $36,789 
 $1,019 
 $1,595 
Total Company
2018
 $10,045 
  123 
  37,039 
  555 
  1,214 
2016 
 $18,075 
 $655 
 $30,696 
 $916 
 $764 
2017
 $10,945 
  547 
  34,706 
  500 
  529 
 
The following segment information* Fabrication Services is unaudited for the period referenced below:
Business Segment Information:
 
 
 
 
Three months Ended Dec. 31
 
 
Net Revenue
 
 
Operating Income / (Loss)
 
 
Total Assets
 
 
Depr. and Amort.
 
 
Capital Expenditures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Manufacturing
 
2017
 
 $3,973 
 $107 
 $8,837 
 $28 
 $2 
     
2016 
 $3,320 
 $(229)
 $8,114 
 $49 
 $67 
    
    
    
    
    
    
    
 
Testing Services
 
2017 
  4,936 
  517 
  23,591 
  466 
  976 
     
2016 
  4,070 
  388 
  18,325 
  377 
  336 
    
    
    
    
    
    
    
 
Distribution
 
2017 
  1,606 
  119 
  621 
  - 
  - 
     
2016 
  1,675 
  100 
  651 
  1 
  - 
    
    
    
    
    
    
    
 
Real Estate
 
2017 
  37 
  (9)
  3,624 
  25 
  - 
     
2016 
  39 
  (8)
  3,147 
  25 
  - 
    
    
    
    
    
    
    
 
Fabrication *
 
2017 
  - 
  - 
  28 
  - 
  - 
 
Services
 
2016 
  - 
  - 
  29 
  - 
  - 
    
    
    
    
    
    
    
 
Corporate &
 
2017 
  - 
  (36)
  88 
  - 
  - 
 
Unallocated
 
2016 
  - 
  27 
  430 
  - 
  - 
    
    
    
    
    
    
    
 
Total
 
2017 
 $10,552 
 $698 
 $36,789 
 $519 
 $1,066 
    
2016 
 $9,104 
 $278 
 $30,696 
 $452 
 $403 
a discontinued operation.
 
* Fabrication services is a discontinued operation (Note 19)17.OTHER INCOME
Other income consisted of the following:
 
 
Three Months Ended
September 30,
 
 
 
2018
(Unaudited)
 
 
2017
(Unaudited)
 
Interest income
  10 
  8 
Other rental income
  27 
  26 
Exchange loss
  (39)
  (6)
Bad debt recovery
  2 
  1 
Other miscellaneous income
  43 
  129 
Total
 $43 
 $158 
 
 
 
-19-
 
17. OTHER INCOME, NET
Other income / (expenses) consisted of the following:
 
 
Three Months Ended
 
 
Six Months Ended
 
 
 
Dec. 31,
 
 
Dec. 31,
 
 
Dec. 31,
 
 
Dec. 31,
 
 
 
2017
 
 
2016
 
 
2017
 
 
2016
 
 
 
(Unaudited)
 
 
(Unaudited)
 
 
(Unaudited)
 
 
(Unaudited)
 
Interest income
  12 
  8 
  20 
  12 
Other rental income
  27 
  25 
  53 
  50 
Exchange (loss) / gain
  (25)
  120 
  (31)
  182 
Other miscellaneous income
  28 
  50 
  158 
  69 
      Total
 $42 
 $203 
 $200 
 $313 
 
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 20042014 to 2017 for tax authorities in those jurisdictions to audit or examine income tax returns. The Company is under annual review by the tax authorities of the respective jurisdiction to which the subsidiaries belong.
 
The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017, and permanently reduces the U.S. federal corporate tax rate from 35% to 21%, eliminated corporate Alternative Minimum Tax, modified rules for expensing capital investment, and limitslimited the deduction of interest expense for certain companies. The Act is a fundamental change to the taxation of multinational companies, including a shift from a system of worldwide taxation with some deferral elements to a territorial system, current taxation of certain foreign income, a minimum tax on low-taxlow tax foreign earnings, and new measures to curtail base erosion and promote U.S. production.
 
As the Company has a June 30 fiscal year-end,year end, the lower corporate income tax rate will be phased in, resulting in a lower USU.S. statutory federal rate. In accordance with Section 15 of the Internal Revenue Code, the Company applied a blended U.S. statutory federal income tax rate of 27.55% for the year ended June 30, 2018. Accounting Standard Codification (“ASC”) 740 requires filers to record the effect of tax law changes in the period enacted. The Company recognized income tax expenses of $900 related to the one-time deemed repatriation. No expenses have been recognized related to the deferred tax re-measurement and minimum tax on low tax foreign earnings. However, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), that permits filers who may not have the necessary information available, prepared, or analyzed (including computations) for certain income tax effects of the Act in order to recorddetermine a reasonable estimate to be recorded as provisional amounts during a measurement period ending no later than one year from the date of enactment. Accordingly, the Company has recorded an estimated $900 and will finalize the accounting for the tax impact of the Tax Act no later than the end of the permitted measurement period under the SAB 118.
Discussion of the certain material provisions affecting the Company is provided below.
One-Time Mandatory Repatriation
One of the effects of the Tax Act is to transition from a world-wide to a territorial tax system. The Tax Act requires a mandatory one-time repatriation of certain post-1986 earnings and profits that were deferred from U.S. taxation by the Company’s foreign subsidiaries. The basis of the tax is on cash held and specified assets which are taxed at 15.5% and 8%, respectively. The Company has elected to pay the Repatriation Tax over an 8-year period. 
We haverecorded an estimated $900 charge in fiscal 2018 related to the net impactone-time transition tax on the deemed repatriation of deferred foreign income, which was included in the provision for income taxes on our consolidated income statements and income taxes on our consolidated balance sheets, based on existing tax laws and the best information available as of the date of estimate.
As of September 30, 2018, we have not completed our accounting for the estimated tax effects of one-time mandatory repatriation tax, as our analysis of deferred foreign income and foreign tax credit is not complete. Due to the timing of enactment and complexity in applying the provisions of the Tax Act, the provisional net charge is subject to revisions as we continue to complete our analysis of the Tax Act, collect and prepare necessary data, and interpret additional guidance issued by the U.S Treasury Department, IRS, FASB, and other standard-setting and regulatory bodies. Adjustments may materially impact our provision for income taxes and effective tax rate and tax expense is not material due to our existing net operating loss carryforwards and other tax credits. We have not made any provisionalin the period in which the adjustments as a resultare made.
The final impact of the Tax Act.Act may differ, possibly materially, due to factors such as changes in interpretations and assumptions that the company has made in its assessment, further refinement of the company’s calculations, additional guidance that may be issued by the U.S. government, among other items. The company has not completed its assessment and the tax charge remains provisional as of September 30, 2018.
Our accounting for the estimated tax effects will be completed during the measurement period, which should not extend beyond one year from the enactment date.
Minimum Tax on Low Tax Foreign Earnings
 
The Tax Act includes a one-time mandatory repatriation transition taximplemented the inclusion in gross income for the Global Intangible Low-Tax Income (GILTI) for any taxable year beginning on certain net accumulatedor after January 1, 2018. This provision significantly expands current taxation of foreign subsidiary corporate earnings. The Company must generally include in current income all earnings and profits of ourthe foreign subsidiaries in excess of the assumed deemed return on tangible assets of the foreign subsidiaries. We areGiven the complexity of GILTI provision, the company is still in the process of analyzing the earnings and profits and tax pools of our foreign subsidiaries to reasonably estimateassessing the effects of the one-time transitionprovisions to determine whether to elect to either provide for the minimum tax and, therefore, have not recorded a provisional impact. Theas future income tax expense impact ofas a period expense or as a deferred tax on the one-time transition tax to be determined may be partially or fully offset by a release of valuation allowance for the utilization of existing net operating losses and tax credits that may reduce the amount of related taxes payable. We expect the accounting for this aspect of theinvestment in foreign subsidiaries.
-20-
Deferred Tax Act to be complete by the end of fiscal 2018.Re-Measurement
 
The re-measurement is based on the expected reversals of the deferred taxes at the estimated US federal tax rates of 28% for the current fiscal year and 21% for future fiscal years. As the Company had no material adjustments to its liabilities for unrecognizedestablished a full valuation allowance on the U.S. deferred tax assets, the Company has not recognized any income tax benefits according toeffects for the provisions of ASC Topic 740 Income Tax.
The Company had andeferred tax re-measurement under the Tax Act. Our accounting for the any possible income tax expense of $13 and $55effects for the three and six months ended December 31, 2017, respectively, as compared to income tax expense of $67 and $150, respectively, for the same periods in the last fiscal year. The decrease in income tax expenses was mainly due to higher incomes generated by the subsidiaries which has carry forward tax losses which was partially offset by increase in deferred tax for timing differences recorded by Singapore and Malaysia operation. The income tax expenses included with-holding tax held by related companies that werere-measurement will be completed during the measurement period, which should not recoverableextend beyond one year from the Inland Revenue Board in Singapore.enactment date.
 
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 as of September 30, 2018.
19.  REVENUE
Method and Impact of Adoption
Effective as of July 1, 2018, the Company adoptedASU 2014-09, Revenue from contracts with Customers (Topic 606), and its related amendments using the modified retrospective transition method. This method was applied to contracts that were not complete as of the date of adoption. Under the modified retrospective transition approach, periods prior to the adoption date were not adjusted and continue to be reported in accordance with ASC 605.
An assessment was made on the impact of all existing arrangements as at December 31, 2017the date of adoption, under ASC 606, to identify the cumulative effect of applying ASC 606 on the beginning retained earnings. The Company quantified the impact of the adoption on its’ financial position, results of operations and Junecash flow. The impact amounted to 0.06% of fiscal 2018 sales or $28, which is immaterial to the Company. Hence, based on materiality principle, the Company concluded that the cumulative adjustment is not required to be made to the Company’s Beginning Retained Earnings.
The impact is primarily driven by the changes related to the accounting of standard warranty. Prior to adoption of ASC 606, the Company accounted for the estimated warranty cost as a charge to costs of sales when revenue was recognized. Upon adoption of ASC 606, the standard warranty for customized products is recognized as a separate performance obligation.
We have completed our adoption and implemented policies, processes and controls to support the standard’s measurement and disclosure requirements. We recognize net product revenue when we satisfy obligations as evidenced by the transfer of control of our products and services to customers. The guidance did not have material impact on the company’s consolidated financial results.
Contract Balances
The timing of revenue recognition, billings and collections may result in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities). As of July 1, 2018, deferred income amounting to $260 was reclassified from trade receivables to contract assets and customer deposits amounting to $31 was reclassified from accrued expenses to contract liabilities in order to establish the new opening balance for contract assets and liabilities.
The Company’s payment terms and conditions vary by contract type, although terms generally include a requirement of payment of 70% to 90% of total contract consideration within 30 2017.to 60 days of shipment, with the remainder payable within 30 days of acceptance. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that its contracts generally do not include a significant financing component.
Contract assets were recorded under other receivable while contract liabilities were recorded under accrued expenses in the balance sheet.
 
 
 
-20--21-
 
 
19.   DISCONTINUED OPERATION AND CORRESPONDING RESTRUCTURING PLANThe following table summarizes the effects of adopting ASU 2014-09 as an adjustment to the opening balance.
 
 
 Bal as at
June 30, 2018
 
 
Adjustment for (ASC 606)
 
 
Opening as at
July 1, 2018
 
Assets
 
 
 
 
 
 
 
 
 
Trade Accounts Receivable
  8,007 
  (260)
  7,747 
 
    
    
    
Other Receivables
    
    
    
Others
  621 
  -
 
  621 
Contract Assets
  -
 
  260 
  260 
Total
  621 
  260 
  881 
 
 
 Bal as at
June 30, 2018
 
 
Adjustment for (ASC 606)
 
 
Opening as at
July 1, 2018
 
Liabilities
 
 
 
 
 
 
 
 
 
Accounts Payable
  3,704 
  - 
  3,704 
 
    
    
    
Accrued Expenses
    
    
    
Others
  3,172 
  (31)
  3,141 
Contract Liabilities
  -
 
  31 
  31 
Total
  3,172 
  - 
  3,172 
 
The Company’s Indonesia operation andfollowing table is the Indonesia operation’s immediate holding company, which comprise the fabrication services segment, suffered continued operating losses from fiscal year 2010 to 2014, and the cash flow was minimal from fiscal year 2009 to 2014. The Company established a restructuring plan to close the fabrication services operation, and in accordance with ASC Topic 205, Presentationreconciliation of Financial Statement Discontinued Operations (“ASC Topic 205”), from fiscal year 2015 onwards, the Company presented the operation results from fabrication services as a discontinued operation as the Company believed that no continued cash flow would be generated by the discontinued component and that the Company would have no significant continuing involvement in the operations of the discontinued component.contract balances.
 
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 $57 and has no collection for accounts receivable. The Company’s fabrication operation in Batam, Indonesia is in the process of winding up the operations. Management has assessed the costs and expenses to be immaterial, thus no accrual has been made.
The discontinued operations in Indonesia did not incur general and administrative expenses for both three and six months ended December 31, 2017 and 2016. The Company anticipates that it may incur additional costs and expenses when the winding up of the business of the subsidiary through which the facilities operated takes place. Management has assessed the costs and expenses to be immaterial, thus no accrual has been made.
Loss from discontinued operations was as follows:
 
 
Three Months Ended
 
 
Six Months Ended
 
 
 
Dec. 31, 2017
 
 
Dec. 31, 2016
 
 
Dec. 31, 2017
 
 
Dec. 31, 2016
 
 
 
(Unaudited)
 
 
(Unaudited)
 
 
(Unaudited)
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 $- 
 $- 
 $- 
 $- 
Cost of sales
  - 
  - 
  - 
  - 
Gross margin
  - 
  - 
  - 
  - 
 
    
    
    
    
Operating expenses:
    
    
    
    
  General and administrative
  - 
  1 
  - 
  - 
      Total
  - 
  1 
  - 
  - 
 
    
    
    
    
Other expenses
  (2)
  (3)
  (5)
  (3)
 
    
    
    
    
Loss from discontinued operations
  (2)
  (4)
  (5)
  (3)
 
    
    
    
    
Less: Loss attributable to Non-controlling interest
  (3)
  (2)
  (1)
  (3)
 
    
    
    
    
Loss from discontinued operations
 $(5)
 $(6)
 $(6)
 $(6)
The Company does not provide a separate cash flow statement for the discontinued operation, as the impact of the discontinued operation was immaterial.
 
 
Sept. 30,
2018
(Unaudited)
 
 
July 1,
2018
(Unaudited)
 
Trade Accounts Receivable
  8,121 
  7,747 
Accounts Payable
  2,939 
  3,704 
Contract Assets
  271 
  260 
Contract Liabilities
  485 
  31 
 
 

 
 
-21--22-
 
 
20.   EARNINGS PER SHARE
 
The Company adopted ASC Topic 260, Earnings Per Share. Basic earnings per shareEarnings Per Share (“EPS”) areis computed by dividing net income available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period.  Diluted EPS give effect to all dilutive potential common shares outstanding during a period.  In computing diluted EPS, the average price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options and warrants.
 
The following table is a reconciliation of the weighted average shares used in the computation of basic and diluted EPS for the years presented herein:  
 
 
Three Months Ended
 
 
 Six Months Ended
 
 
Dec. 31,
 
 
 Dec. 31,
 
2017
 
 
2016
 
 
 2017
 
 
 2016
 
 
Three Months Ended
 
 
(Unaudited)
 
 
 (Unaudited)
 
 (Unaudited)
 
September 30,
 
 
 
 
 
2018
(Unaudited)
 
 
2017
(Unaudited)
 
Income attributable to Trio-Tech International common shareholders from continuing operations, net of tax
 $678 
 $316 
 $1,254 
 $619 
 $69 
 $576 
(Loss) / income attributable to Trio-Tech International common shareholders from discontinued operations, net of tax
  (5)
  (6)
Net Income Attributable to Trio-Tech International Common Shareholders
 $673 
 $310 
 $1,248 
 $613 
Loss attributable to Trio-Tech International common shareholders from discontinued operations, net of tax
  (4)
  (1)
Net income attributable to Trio-Tech International common shareholders
 $65 
 $575 
    
    
Weighted average number of common shares outstanding - basic
  3,548 
  3,513 
  3,548 
  3,513 
  3,608 
  3,533 
    
Dilutive effect of stock options
  245 
  56 
  222 
  39 
  124 
  140 
Number of shares used to compute earnings per share - diluted
  3,793 
  3,569 
  3,770 
  3,552 
Number of shares used to compute earnings per share – diluted
  3,732 
  3,673 
    
    
Basic earnings per share from continuing operations attributable to Trio-Tech International
 $0.19 
  0.09 
  0.35 
  0.18 
  0.02 
  0.16 
    
Basic earnings per share from discontinued operations attributable to Trio-Tech International
  - 
  - 
Basic earnings per share from net income attributable to Trio-Tech International
 $0.19 
 $0.09 
 $0.35 
 $0.18 
Basic earnings per share from net loss attributable to Trio-Tech International
 $0.02 
 $0.16 
    
    
Diluted earnings per share from continuing operations attributable to Trio-Tech International
 $0.18 
  0.09 
  0.34 
  0.17 
  0.02 
  0.16 
    
Diluted earnings per share from discontinued operations attributable to Trio-Tech International
  - 
  - 
Diluted earnings per share from net income attributable to Trio-Tech International
 $0.18 
 $0.09 
 $0.34 
 $0.17 
Diluted earnings per share from net loss attributable to Trio-Tech International
 $0.02 
 $0.16 
    
 
 
 
 
-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 byduring the Board in 2010term of such plan to increase the number of shares covered thereby, which amendments were approved bythereby. As of the shareholders on December 14, 2010. The Board also amendedlast amendment thereof, the 2007 Employee Plan covered an aggregate of 600,000 shares of the Company’s Common Stock and the 2007 Directors Plan in November 2013 to further increase the numbercovered an aggregate of shares covered thereby from 400,000 shares to 500,000 shares which amendment was approvedof the Company’s Common Stock. Each of those plans terminated by the shareholdersits respective terms on December 9, 2013.September 24, 2017. These two plans arewere administered by the Board, which also establishesestablished the terms of the awards.
 
On September 14, 2017, the Company’s Board of Directors unanimously adopted the 2017 Employee Stock Option Plan (the “2017 Employee Plan”) and the 2017 Directors Equity Incentive Plan (the “2017 Directors Plan”) each of which was approved by the shareholders on December 4, 2017. At present, the 2017 Employee Plan provides for awardsEach of up to 300,000 shares of the Company’s Common Stock to its employees, consultants and advisors. At present, the 2017 Directors Plan provides for awards of up to 300,000 shares of the Company’s Common Stock to the members of the Company’s Board of Directors in the form of non-qualified options and restricted stock. These twothese plans areis administered by the Board which also establishes the termsof Directors of the awards.Company.
 
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
December 31, 
   
  2017  2016  
        
Expected volatility  60.41% to 104.94%   62.05% to 104.94% 
Risk-free interest rate  0.30% to 0.78%   0.30% to 0.78% 
Expected life (years)  2.50   2.50 
 
  
Three Months Ended
September 30,
  2018 2017
     
Expected volatility 60.41% to 104.94% 60.41% to 104.94%
Risk-free interest rate 0.30% to 0.78% 0.30% to 0.78%
Expected life (years) 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.basis for the three months ended September 30, 2018. The observation period covered is consistent with the expected life of options. The expected life of the options granted to employees has been determined utilizing the “simplified” method as prescribed by ASC Topic 718 Stock Based Compensation, which, among other provisions, allows companies without access to adequate historical data about employee exercise behavior to use a simplified approach for estimating the expected life of a "plain vanilla" option grant. The simplified rule for estimating the expected life of such an option is the average of the time to vesting and the full term of the option. The risk-free rate is consistent with the expected life of the stock options and is based on the United States Treasury yield curve in effect at the time of grant.
 
2017 Employee Stock Option Plan
 
The Company’s 2017 Employee Plan permits the grant of stock options to its employees covering up to an aggregate of 300,000 shares of Common Stock. Under the 2017 Employee Plan, all options must be granted with an exercise price of not less than fair value as of the grant date and the options granted must be exercisable within a maximum of ten years after the date of grant, or such lesser period of time as is set forth in the stock option agreements. The options may be exercisable (a) immediately as of the effective date of the stock option agreement granting the option, or (b) in accordance with a schedule related to the date of the grant of the option, the date of first employment, or such other date as may be set by the Compensation Committee. Generally, options granted under the 2017 Employee Plan are exercisable within five years after the date of grant, and vest over the period as follows: 25% vesting on the grant date and the remaining balance vesting in equal installments on the next three succeeding anniversaries of the grant date. The share-based compensation will be recognized in terms of the grade method on a straight-line basis for each separately vesting portion of the award. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the 2017 Employee Plan).
-24-
During the first quarter of fiscal year 2018, the Company did not grant any options pursuant to the 2017 Employee planPlan. There were no stock options exercised during the sixthree-month period ended September 30, 2018. The Company recognized $1 stock-based compensation expenses during the three months ended December 31, 2017.September 30, 2018.
 
As of September 30, 2018, there were vested stock options granted under the 2017 Employee Plan covering a total of 15,000 shares of Common Stock. The weighted-average exercise price was $5.98 and the weighted average remaining contractual term was 4.48 years.
 
-23-A summary of option activities under the 2017 Employee Plan during the three months ended September 30, 2018 is presented as follows:
 
 
 
Options
 
 
Weighted Average
Exercise
Price
 
 
Weighted Average Remaining
Contractual
Term (Years)
 
 
Aggregate
Intrinsic
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at July 1, 2018
  60,000 
 $5.98 
  4.73 
 $- 
Granted
  - 
  - 
  - 
  - 
Exercised
  - 
  - 
  - 
  - 
Forfeited or expired
  - 
  - 
  - 
  - 
Outstanding at September 30, 2018
  60,000 
  5.98 
  4.48 
  - 
Exercisable at September 30, 2018
  15,000 
  5.98 
  4.48 
  - 
A summary of the status of the Company’s non-vested employee stock options during the three months ended September 30, 2018
is presented below:
 
 
Options
 
 
Weighted
Average Grant-Date
Fair Value
 
 
 
 
 
 
 
 
Non-vested at July 1, 2018
  45,000 
 $5.98
 
Granted
  - 
  - 
Vested
 - 
  - 
Forfeited
  - 
  - 
Non-vested at September 30, 2018
  45,000 
 $5.98 
 
2007 Employee Stock Option Plan
 
The Company’s 2007 Employee Plan terminated by its terms on September 24, 2017 and no further options may be granted thereunder. However, the options outstanding thereunder continue to remain outstanding and in effect in accordance with their terms. The Employee Plan permitted the grant of stock options to its employees covering up to an aggregate of 600,000 shares of Common Stock. Under the 2007 Employee Plan, all options were required to be granted with an exercise price of not less than fair value as of the grant date and the options granted were required to 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 were permitted to be exercisable (a) immediately as of the effective date of the stock option agreement granting the option, or (b) in accordance with a schedule related to the date of the grant of the option, the date of first employment, or such other date as may be set by the Compensation Committee. Generally, options granted under the 2007 Employee Plan are exercisable within five years after the date of grant, and vest over the period as follows: 25% vesting on the grant date and the remaining balance vesting in equal installments on the next three succeeding anniversaries of the grant date. The share-based compensation will be recognized in terms of the grade method on a straight-line basis for each separately vesting portion of the award. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the 2007 Employee Plan).
 
The
-25-
During the first quarter of fiscal year 2019, the Company did not grant any options pursuant to the 2007 Employee Plan during the six months ended December 31, 2017.Plan. There were no15,000 of options exercised during the six monthsthree-month period ended December 31, 2017.September 30, 2018. The Company recognized $1 stock-based compensation expenses of $3 induring the sixthree months ended December 31, 2017 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 3.77 years.September 30, 2018.
 
The Company did not grant any options pursuant to the 2007 Employee Plan during the sixthree months ended December 31, 2016.September 2017. There were no options exercised during the sixthree months ended December 31, 2016.September 2017. The Company recognized stock-based compensation expenses of $1 in the sixthree months ended December 31, 2016September 30, 2017 under the 2007 Employee Plan. The balance of unamortized stock-based compensation of $3$4 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 4.223.97 years.
 
As of December 31,September 30, 2018, there were vested stock options granted under the 2007 Employee Plan covering a total of 83,750 shares of Common Stock. The weighted-average exercise price was $3.39 and the weighted average remaining contractual term was 1.75 years.
As of September 30, 2017, there were vested employee stock options covering a total of 79,375 shares of Common Stock. The weighted-average exercise price was $3.36 and the weighted average contractual term was 1.86 years.
As of December 31, 2016, there were vested employee stock options covering a total of 60,000 shares of Common Stock. The weighted-average exercise price was $3.26 and the weighted average contractual term was 2.262.11 years.
 
A summary of option activities under the 2007 Employee Plan during the six-month periodthree months ended December 31, 2017September 30, 2018 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, 2017
  127,500 
 $3.52 
  3.10 
 $187 
Outstanding at July 1, 2018
  127,500 
 $3.52 
  2.10 
 $121 
Granted
  - 
  - 
Exercised
  - 
  (15,000)
  3.62 
  - 
Forfeited or expired
  - 
  - 
  - 
Outstanding at December 31, 2017
  127,500 
 $3.52 
  2.60 
 $445 
Exercisable at December 31, 2017
  79,375 
 $3.36 
  1.86 
 $290 
Outstanding at September 30, 2018
  112,500 
 $3.50 
  2.10 
 $120 
Exercisable at September 30, 2018
  83,750 
 $3.39 
  1.75 
 $99 
A summary of the status of the Company’s non-vested employee stock options during the three months ended September 30, 2018 is presented below: 
 
 
Options
 
 
Weighted Average Grant-Date
 Fair Value
 
Non-vested at July 1, 2018
  28,750 
 $3.83 
Granted
  - 
  - 
Vested
  - 
  - 
Forfeited
  - 
  - 
Non-vested at September 30, 2018
  28,750 
 $3.83 
 
 
 
 
-24--26-
 
 
A summary of option activities under the 2007 Employee Plan during the six-month periodthree months ended December 31, 2016September 30, 2017 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, 2016
  90,000 
 $3.26 
  3.42 
 $30 
Outstanding at July 1, 2017
  127,500 
 $3.52 
  3.10 
 $187 
Granted
  - 
  - 
Exercised
  - 
  - 
Forfeited or expired
  - 
  - 
  - 
Outstanding at December 31, 2016
  90,000 
 $3.26 
  2.91 
 $10 
Exercisable at December 31, 2016
  60,000 
 $3.26 
  2.26 
 $8 
Outstanding at September 30, 2017
  127,500 
 $3.52 
  2.85 
 $220 
Exercisable at September 30, 2017
  79,375 
 $3.36 
  2.11 
 $149 
 
A summary of the status of the Company’s non-vested employee stock options during the sixthree months ended December 31,September 30, 2017 is presented below: 
 
 
 
Options
 
 
Weighted Average Grant-Date
Fair Value
 
 
 
 
 
 
 
 
Non-vested at July 1, 2017
  48,125 
 $3.77 
Granted
  - 
  - 
Vested
  - 
  - 
Forfeited
  - 
  - 
Non-vested at December 31, 2017
  48,125 
 $3.77 
 
    
    
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
 
 
Options
 
 
Weighted Average Grant-Date
 Fair Value
 
 
 
 
Non-vested at July 1, 2016
  38,750 
 $3.22 
Non-vested at July 1, 2017
  48,125 
 $3.77 
Granted
  - 
  - 
Vested
  (8,750)
  (3.10)
  - 
Forfeited
  - 
  - 
Non-vested at December 31, 2016
  30,000 
 $3.26 
    
Non-vested at September 30, 2017
  48,125 
 $3.77 
 
2017 Directors Equity Incentive Plan
 
The 2017 Directors Plan permits the grant of options covering up to an aggregate of 300,000 shares of Common Stock to its directors in the form of non-qualified options and restricted stock. The exercise price of the non-qualified options is 100% of the fair value of the underlying shares on the grant date. The options have five-year contractual terms and are generally exercisable immediately as of the grant date.
During the first quarter of fiscal year 2019, the Company did not grant any options pursuant to the 2017 Employee planDirectors Plan. There were no stock options exercised during the sixthree-month period ended September 30, 2018. The Company did not recognize any stock-based compensation expenses during the three months ended December 31, 2017.September 30, 2018.
 
-25-
As all of the stock options granted under the 2017 Directors Plan vest immediately on the date of grant, there were no unvested stock options granted under the 2017 Directors Plan as of September 30, 2018. As of September 30, 2018, there were vested stock options granted under the 2017 Directors Plan covering a total of 80,000 shares of Common Stock. The weighted-average exercise price was $5.98 and the weighted average remaining contractual term was 4.48 years.
 
2007 Directors Equity Incentive Plan
 
The 2007 Directors Plan terminated by its terms on September 24, 2017 and no further options may be granted thereunder. However, the options outstanding thereunder continue to remain outstanding and in effect in accordance with their terms. The DirectorDirectors Plan permitted the grant of options covering up to an aggregate of 500,000 shares of Common Stock to its directors in the form of non-qualified options and restricted stock. The exercise price of the non-qualified options is 100% of the fair value of the underlying shares on the grant date. The options have five-year contractual terms and are generally exercisable immediately as of the grant date.
 
-27-
During the first two quartersquarter of fiscal year 2018,2019, the Company did not grant any options pursuant to the 2007 Directors Plan. There were 15,000 worth40,000 of stock options exercised during the six-monththree-month period ended December 31, 2017.September 30, 2018. The Company did not recognize any stock-based compensation expenses during the sixthree months ended December 31, 2017.September 30, 2018.
 
During the first two quartersquarter of fiscal year 2017,2018, the Company did not grant any options pursuant to the 2007 Directors Plan. There were no stock options exercised during the six-monththree-month period ended December 31, 2016.September 30, 2017. The Company did not recognize any stock-based compensation expenses during the sixthree months ended December 31, 2016.September 30, 2017.
 
As of September 30, 2018, there were vested stock options granted under the 2007 Directors Plan covering a total of 330,000 shares of Common Stock. The weighted-average exercise price was $3.38 and the weighted average remaining contractual term was 2.13 years. Both the aggregate intrinsic value of such stock options outstanding and the aggregate intrinsic value of such options exercisable as of September 30, 2018 were $394.
As of September 30, 2017, there were vested stock options granted under the 2007 Directors Plan covering a total of 415,000 shares of Common Stock. The weighted-average exercise price was $3.36 and the weighted average remaining contractual term was 2.68 years. Both the aggregate intrinsic value of such stock options outstanding and the aggregate intrinsic value of such options exercisable as of September 30, 2017 were $781.
A summary of option activities under the 2007 Directors Plan during the sixthree months ended December 31, 2017September 30, 2018 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, 2017
  415,000 
 $3.36 
  2.93 
 $673 
Outstanding at July 1, 2018
  390,000 
 $3.41 
  2.05 
 $412 
Granted
  - 
  - 
Exercised
  (15,000)
  2.76 
  - 
  (40,000)
  3.62 
  - 
Forfeited or expired
  - 
  (20,000)
  (3.62)
  - 
Outstanding at December 31, 2017
  400,000 
 $3.38 
  2.49 
 $1,452 
Exercisable at December 31, 2017
  400,000 
 $3.38 
  2.49 
 $1,452 
Outstanding at September 30, 2018
  330,000 
 $3.38 
  2.13 
 $394 
Exercisable at September 30, 2018
  330,000 
 $3.38 
  2.13 
 $394 
 
A summary of option activities under the 2007 Directors Plan during the sixthree months ended December 31, 2016September 30, 2017 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, 2016
  415,000 
 $3.14 
  3.29 
 $198 
Outstanding at July 1, 2017 415,000 $3.36 2.93 $673 
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 
Outstanding at September 30, 2017 415,000 $3.36 2.68 $781 
Exercisable at September 30, 2017  415,000 $3.36  2.68 $781 
 
 
 
 
-26--28-
 
 
22.  FAIR VALUE OF FINANCIAL INSTRUMENTS APPROXIMATE CARRYING VALUE
 
In accordance with the ASC TopicTopics 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 in accordance to ASC 820:hierarchy:
 
There were no transfers between Levels 1 and 2 during the three and six months ended December 31, 2017September 30, 2018 and 2016.2017.
 
Term deposits (Level 2) – The carrying amount approximates fair value because of the short maturity of these instruments.
 
Restricted term deposits (Level 2) – The carrying amount approximates fair value because of the short maturity of these instruments.
 
Lines of credit (Level 3) – The carrying value of the lines of credit approximates fair value due to the short-term nature of the obligations.
 
Bank loans payable (Level 3) – The carrying value of the Company’s bank loan payables approximates its fair value as the interest rates associated with long-term debt is adjustable in accordance with market situations when the Company borrowed funds with similar terms and remaining maturities.
 
 
 
 
 
-27--29-
 
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
Overview
 
The following should be read in conjunction with the condensed consolidated unaudited financial statements and notes in Item I above and with the audited consolidated financial statements and notes, and the information under the headings “Risk Factors” and “Management’s Discussiondiscussion and Analysisanalysis of Financial Conditionfinancial condition and Resultsresults of Operations”operations” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2017.2018.
 
Trio-Tech International (“TTI”) was incorporated in 1958 under the laws of the State of California. As used herein, the term “Trio-Tech” or “Company” or “we” or “us” or “Registrant” includes Trio-Tech International and its subsidiaries unless the context otherwise indicates. Our mailing address and executive offices are located at 16139 Wyandotte Street, Van Nuys, California 91406, and our telephone number is (818) 787-7000.
 
The Company is a provider of reliability test equipment and services to the semiconductor industry. Our customers rely on us to verify that their semiconductor components meet or exceed the rigorous reliability standards demanded for aerospace, communications and other electronics products.
 
TTI generated approximately 99.7% of its revenue from its three core business segments in the test and measurement industry, i.e. manufacturing of test equipment, testing services and distribution of test equipment during the three months ended December 31, 2017. 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.September 30, 2018. The Real Estate segment contributed only 0.3% to the total revenue and has been insignificant since the property market in China has slowed down due to control measures in China.
 
Manufacturing
 
TTI develops and manufactures an extensive range of test equipment used in the "front end" and the "back end" manufacturing processes of semiconductors. Our equipment includes leak detectors, autoclaves, centrifuges, burn-in systems and boards, HAST testers, temperature controlled chucks, wet benches and more.
 
Testing
 
TTI provides comprehensive electrical, environmental, and burn-in testing services to semiconductor manufacturers in our testing laboratories in Asia and the 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.
 
Real Estate
 
Beginning in 2007, TTI has invested in real estate property in Chongqing, China, which has generated investment income from the rental revenue from real estate we purchased in Chongqing, China, and investment returns from deemed loan receivables, which are classified as other income. The rental income is generated from the rental properties in MaoYe and FuLi in Chongqing, China. In the second quarter of fiscal 2015, the investment in JiaSheng, which was deemed as loans receivable, was transferred to down payment for purchase of investment property in China.
 
 
 
-28--30-
 
 
SecondFirst Quarter Fiscal 2018Year 2019 Highlights
 
Total revenue increaseddecreased by $1,448,$900, or 15.9%,8.2 %, to $10,552 for$10,045 in the secondfirst quarter of fiscal 2018, asyear 2019, compared to $9,104$10,945 for the same period in fiscal 2017.year 2018.
Manufacturing segment revenue increaseddecreased by $653,$1,128, or 19.7%23.7%, to $3,973$3,637 for the secondfirst quarter of fiscal 2018, asyear 2019, compared to $3,320$4,765 for the same period in fiscal 2017.year 2018.
Testing segment revenue increaseddecreased by $866,$168, or 21.3%3.6%, to $4,936$4,437 for the secondfirst quarter of fiscal 2018, asyear 2019, compared to $4,070$4,605 for the same period in fiscal 2017.year 2018.
Distribution segment revenue decreasedincreased by $69,$408, or 4.1%26.6%, to $1,606$1,944 for the secondfirst quarter of fiscal 2018, asyear 2019, compared to $1,675$1,536 for the same period in fiscal 2017.year 2018.
Real estate segment rental revenue decreased by $2, or 5.1%, to $37was $27 for the secondfirst quarter of fiscal 2018, as compared toyear 2019 and $39 for the same period in fiscal 2017.
Gross profit margin in absolute dollars increased by $501, or 21.8%, to $2,795 for the secondfirst quarter of fiscal 2018, as compared to $2,294 for the same period in fiscal 2017.year 2018.
The overall gross profit margin increaseddecreased by 1.3%4.3% to 26.5%20.9% for the secondfirst quarter of fiscal 2018,year 2019, from 25.2% for the same period in fiscal 2017.year 2018.
Income from operations was $123 for the secondfirst quarter of fiscal 2018 was $698, an increaseyear 2019, a decrease of $420 or 151.1%,$424, as compared to $278an income from operations of $547 for the same period in fiscal 2017.year 2018.
General and administrative expenses decreased by $49,$80, or 2.8%4.4%, to $1,727$1,759 for the secondfirst quarter of fiscal year 2018,2019, from $1,776$1,839 for the same period in fiscal year 2017.2018.
Selling expenses increaseddecreased by $72,$32, or 40.0%17.9%, to $252$147 for the secondfirst quarter of fiscal year 2018,2019, from $180$179 for the same period in fiscal year 2017.2018.
Other income decreased by $161$115 to $42$43 in the secondfirst quarter of fiscal year 20182019 compared to $203$158 in the same period in fiscal year 2017.2018.
Tax expense forincreased by $32 to $74 in the secondfirst quarter of fiscal year 2018 was $13, a decrease of $54, as2019 compared to $67$42 in the same period in fiscal year 2017.2018.
During the secondfirst quarter of fiscal year 2018,2019, income from continuing operations before non-controlling interest, net of tax was $675, an increase of $309,$14, as compared to $366an income of $605 for the same period in fiscal year 2017.2018.
Net incomeloss attributable to non-controlling interest for the secondfirst quarter of fiscal year 20182019 was nil,$59, a deterioration of $86, as compared to $52net income of $27 in the same period in fiscal year 2017.2018.
Working capital increased by $1,183,$1,472, or 15.8%16.0%, to $8,671$10,700 as of December 31, 2017,September 30, 2018 compared to $7,488$9,228 as of June 30, 2017.2018.
Basic Earnings per share for the three months ended December 31, 2017 was $0.19, an increasefirst quarter of $0.10,fiscal year 2019 were $0.02, as compared to $0.09earnings per share of $0.16 for the same period in fiscal year 2017.2018.
Dilutive Earnings per share for the first quarter of fiscal year 2019 were $0.02, as compared to earnings per share of $0.16 for the same period in fiscal year 2018.
Total assets increased by $3,291$565, or 9.8%1.5% to $36,789$37,039 as of December 31, 2017,September 30, 2018 compared to $33,498$36,474 as of June 30, 2017.2018.
Total liabilities increased by $1,082$899, or 9.0%6.9% to $13,053$13,872 as of December 31, 2017,September 30, 2018 compared to $11,971$12,973 as of June 30, 2017.2018.
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Results of Operations and Business Outlook
 
The following table sets forth our revenue components for the three and six months ended December 31,September 30, 2018 and 2017, and 2016, respectively.
 
 
 
Three Months Ended
 
 
Six Months Ended
 
 
 
Dec. 31,
 
 
Dec. 31,
 
 
Dec. 31,
 
 
Dec. 31,
 
 
 
2017
 
 
2016
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Manufacturing
  37.7%
  36.5%
  40.6%
  38.7%
Testing Services
  46.8 
  44.7 
  44.4 
  45.5 
Distribution
  15.2 
  18.4 
  14.6 
  15.4 
Real Estate
  0.3 
  0.4 
  0.4 
  0.4 
Total
  100.0%
  100.0%
  100.0%
  100.0%
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 Revenue Components
 
Three Months Ended
September 30,
 
 
 
2018
 
 
2017
 
Revenue:
 
 
 
 
 
 
Manufacturing
  36.2%
  43.5%
Testing Services
  44.2 
  42.1 
Distribution
  19.3 
  14.0 
Real Estate
  0.3 
  0.4 
Total
  100.0%
  100.0%
 
Revenue for the three months and six months ended December 31, 2017September 30, 2018 was $10,552 and $21,497, respectively, an increase$10,045, a decrease of $1,448 and $3,422, respectively,$900 from $10,945 when compared to the revenue for the same periodsperiod of the prior fiscal year. As a percentage, revenue increaseddecreased by 15.9% and 18.9%8.2% for the three and six months ended December 31, 2017, respectively,September 30, 2018 when compared to total revenue for the same periodsperiod of the prior year.
 
For the three months ended December 31, 2017,September 30, 2018, there was a decrease in revenue across all segments except for the $1,448 increase in overall revenue was primarily duedistribution segmentwhen compared to the same period of the prior fiscal year.
 
an increase in the manufacturing segment in the U.S. and Singapore operations; and
an increase in the testing segment in the Singapore, Malaysia and Tianjin, China operations.
These increases were partially offset by the
decrease in the manufacturing segment in the Suzhou, China operations;
decrease in the testing segment in the Suzhou, China and Bangkok, Thailand operations;
decrease in the distribution segment in the Singapore and Suzhou, China operations; and
decrease in the real estate segment in China.
For the six months ended December 31, 2017, the $3,422 increase in overallTotal revenue was primarily due to
an increase in the manufacturing segment in the U.S., Singapore and Suzhou, China operations;
an increase in the testing segment in the Singapore, Malaysia and Tianjin, China operations;
an increase in the distribution segment in the Singapore operations.
These increases were partially offset by the
decrease in the testing segment in the Bangkok, Thailand operations;
decrease in the distribution segment in the Suzhou, China operations; and
decrease in the testing segment in China.
Revenue into and within China, the Southeast Asia regions and other countries (except revenue into and within the U.S.) increasedUnited States) decreased by $1,294 (or 14.5%)$842, or 8.1%, to $10,200, and by $3,287 (or 18.9%) to $20,619$9,576 for the three months and six months ended December 31, 2017, respectively,September 30, 2018, as compared with $8,906 and $17,332, respectively,$10,418 for the same periodsperiod of last fiscal year. The decrease was mainly due to a decrease in the manufacturing segment in the Singapore and Suzhou, China operations and a decrease in the testing segment in the Tianjin, China operations which was partially offset by an increase in the testing segment and distribution segment in our Singapore operations.
 
RevenueTotal revenue into and within the U.S. was $352 and $878$469 for the three months and six months ended December 31, 2017, respectively, an increaseSeptember 30, 2018, a decrease of $154 and $135, respectively,$58 from $198 and $743$527 for the same periodsperiod of lastthe prior year. The decrease in the three months result was mainly due to a decrease in orders from existing customers in the first quarter of fiscal year respectively.2019 as compared to the same period in fiscal year 2018.
 
Revenue within our four current segments for the three and six months ended December 31, 2017September 30, 2018 is discussed within the four segments as follows:below.
 
Manufacturing Segment
 
Revenue in the manufacturing segment as a percentage of total revenue was 37.7% and 40.6%36.2% for the three and six months ended December 31, 2017, respectively, an increaseSeptember 30, 2018, a decrease of 1.2% and 1.9%7.3% of total revenue respectively, when compared to 43.5% in the same periodsperiod of the last fiscal year. The absolute amount of revenue increaseddecreased by $653$1,128 to $3,973 from $3,320 and increased by $1,747 to $8,738 from $6,991$3,637 for the three and six months ended December 31, 2017, respectively,September 30, 2018, compared to $4,765, for the same periodsperiod of the last fiscal year. 
Revenue in the manufacturing segment for the three months ended September 30, 2018 decreased primarily due to a decrease in orders by customers in the Singapore and Suzhou, China operations.
 
The revenue in the manufacturing segment from a major customer accounted for 47.5%39.6% and 55.7%37.9% of our total revenue in the manufacturing segment for the three months ended December 31,September 30, 2018 and 2017, and 2016, respectively, and 42.3% and 57.0% of our total revenue in the manufacturing segment for the six months ended December 31, 2017 and 2016, 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.
 
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Testing Services Segment
 
Revenue in the testing segment as a percentage of total revenue was 46.8% and 44.4%44.2% for the three and six months ended December 31, 2017, anSeptember 30, 2018, a increase of 2.1% and a decrease of 1.1%, respectively, of total revenue when compared to 42.1% for the same periodsperiod of the last fiscal year. The absolute amount of revenue increaseddecreased by $866$168 to $4,936 from $4,070 and by $1,314 to $9,541 from $8,227$4,437 for the three and six months ended December 31, 2017, respectively,September 30, 2018, as compared to $4,605 for the same periodsperiod of the last fiscal year. 
 
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Revenue in the testing segment for the three months ended September 30, 2018 decreased primarily due to a decrease in our Tianjin, China operations but was partially offset by an increase in our Singapore operations. The decrease in Tianjin, China was caused by a decrease in orders from our major customer.
The revenue in the testing segment from a major customer accounted for 76.0% and 78.4% of our revenue in the testing segment for the three months ended September 30, 2018 and 2017, respectively. The future revenue in our testing segment will be affected by the demands of this major customer, if the customer base cannot be increased. 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 15.2% and 14.6%19.3% for the three and six months ended December 31, 2017, a decreaseSeptember 30, 2018, an increase of 3.2% and 0.8%, respectively,5.3% of total revenue when compared to 14.0% in the same periodsperiod of the priorlast fiscal year. The absolute amount of revenue decreased by $69 to $1,606 from $1,675, and increased by $363$408 to $3,142 from $2,779$1,944 for the three and six months ended December 31, 2017, respectively,September 30, 2018, compared to $1,536 for the same periodsperiod of the last fiscal year. 
 
Revenue in the distribution segment for the three months ended September 30, 2018 increased primarily due to an increase in revenue generated from customers in the Singapore operations.
Demand infor the distribution segment varies depending on the demand for our customers’ products, and the changes taking place in the market and our customers’ forecasts.  Hence it is difficult to accurately forecast fluctuations in the market.
 
Real Estate Segment
 
The real estate segment accounted for 0.3% of total revenue for the three months ended September 30, 2018 and 0.4% of total net revenue for the three and six months ended December 31,September 30, 2017. The absolute amount of revenue in the real estate segment decreased by $2 to $37 from $39 and by $2 to $76 from $78was $27 for the three and six months ended December 31, 2017, respectively, compared to the same periods of the last fiscal year. The decrease was primarily due to a decrease in rental income in the real estate segmentSeptember 30, 2018 and $39 for the three and six months ended December 31,30 September 2017.
 
During fiscal year 2007, TTI invested in real estate property in Chongqing, China, which has generated investment income from rental revenue and investment returns from deemed loan receivables, which are classified as other income. The rental income is generated from the rental properties in MaoYe, JiangHuai and FuLi in Chongqing, China. In the secondfirst quarter of fiscal 2015, the investment in JiaSheng, which was deemed as loans receivable, was transferred2019, Management decided to down payment for purchase of investment property in China.
Trio-Tech Chongqing Co., Ltd. (“TTCQ”) invested RMB 5,554 in rental properties in Maoye during fiscal year 2008, RMB 3,600 in rental properties in JiangHuai during fiscal year 2010 and RMB 4,025 in rental properties in FuLi during fiscal year 2010. The total investment in properties in China was RMB 13,179, or approximately $2,027 and $1,944 as at December 31, 2017 and June 30, 2017, respectively. The carrying value of these investment properties in China was RMB 7,913 and RMB 8,242, or approximately $1,217 and $1,216 as at December 31, 2017 and June 30, 2017, respectively. For the three and six months ended December 31, 2017, these properties generated a total rental income of $37 and $76, respectively, as compared to $39 and $78, respectively, for the same periods of the last fiscal year. TTCQ’s investment in properties that generated rental income is discussed further in this Form 10-Q.
TTCQ has yet to receive the title deed for properties purchased from JiangHuai. TTCQ is in the legal process of obtaining the title deed,sell our Mao Ye Property, which is dependentone of our earlier investment properties. In order to monetize the capital gain on JiangHuai completing the entire project. JiangHuai property, did not generate any income during the three and sixTTCQ appointed a sole agent for 6 months ended December 31, 2017, and 2016.
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“Investments” in the real estate segment were the cost of an investment in a joint venture in which we had a 10% interest. During the second quarter of fiscal year 2014, TTCQ disposed of its 10% interest in the joint venture. The joint venture had to raise funds for the development of the project. As a joint-venture partner, TTCQ was required to stand guarantee for the funds to be borrowed; considering the amount of borrowing, the risk involved was higher than the investment made and hence TTCQ decided to dispose of the 10% interest in the joint venture investment. On October 2, 2013, TTCQ entered into a share transfer agreement with Zhu Shu. Based on the agreement, the purchase price was to be paid by (1) RMB 10,000 worth of commercial property in Chongqing China, or approximately $1,634 based on exchange rates published by the Monetary Authority of Singapore as of October 2, 2013, by non-monetary consideration and (2) the remaining RMB 8,000, or approximately $1,307 based on exchange rates published by the Monetary Authority of Singapore as of October 2, 2013, by cash consideration. The consideration consisted of (1) commercial units measuring 668 square metersSeptember 1, 2018 to be delivered in June 2016 and (2) sixteen quarterly equal installments of RMB500 per quarter commencing from January 2014. Based onsearch for suitable buyers for this property. In accordance with 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 Singapore360, 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 valuethere was higher than the carrying amount. The first three installment amounts of RMB 500 each due in January 2014, April 2014 and July 2014 were all outstanding until the date of disposal of the investment in the joint venture. Out of the outstanding RMB 8,000, TTCQ received RMB 100 during May 2014.
On October 14, 2014, TTCQ and Jun Zhou Zhi Ye entered into a memorandum of understanding. Based on the memorandum of understanding, both parties have agreed to register a sales and purchase agreement upon Jun Zhou Zhi Ye obtaining the licensean intention to sell the commercialinvestment properties, the property (the Singapore Themed Resort Project) located in Chongqing, China. The proposed agreement is for the salewas reclassified from investment property, which had a net book value of shop lots with a total area of 1,484.55 square meters as consideration for the outstanding amounts owed to TTCQ by Jun Zhou Zhi Ye as follows:
a)
Long term loan receivable RMB 5,000,2,729, or approximately $814,$397 as disclosed in Note 5, plus the interest receivable on long term loan receivable of RMB 1,250;
b)
Commercial units measuring 668 square meters, as mentioned above; and
c)
RMB 5,900at September 30, 2018, to assets held for the part of the unrecognized cash consideration of RMB 8,000 relating to the disposal of the joint venture.
The consideration does not include the remaining outstanding amount of RMB 2,000, or approximately $326, which will be paid to TTCQ in cash.
The shop lots are to be delivered to TTCQ upon completion of the construction of the shop lots in the Singapore Themed Resort Project. The initial targeted date of completion was December 31, 2016. Based on subsequent discussions with the developer and the overall China market outlook, the completion date is currently estimated to be December 31, 2019.
The share transfer (10% interest in the joint venture) was registered with the relevant authorities in China as of end October 2016.sale.
 
Uncertainties and Remedies
 
There are several influencing factors which create uncertainties when forecasting performance, such as the constantly changing nature of technology, specific requirements from the customer, decline in demand for certain types of burn-in devices or equipment, decline in demand for testing services and fabrication services, and other similar factors. One factor that influences uncertainty is the highly competitive nature of the semiconductor industry. Another is that some customers are unable to provide a forecast of the products required in the upcoming weeks; hence it is difficult to plan for the resources needed to meet these customers’ requirements due to short lead time and last minute order confirmation. This will normally result in a lower margin for these products, as it is more expensive to purchase materials in a short time frame. However, the Company has taken certain actions and formulated certain plans to deal with and to help mitigate these unpredictable factors. For example, in order to meet manufacturing customers’ demands upon short notice, the Company maintains higher inventories, but continues to work closely with its customers to avoid stock piling. We believe that we have improved customer service from staff by keeping our staff through our efforts to keep our staff up to date on the newest technology and stressing the importance of understanding and meeting the stringent requirements of our customers. Finally, the Company is exploring new markets and products, looking for new customers, and upgrading and improving burn-in technology while at the same time searching for improved testing methods of higher technology chips.
 
 
 
 
-32--33-
 
 
We are in the process of implementing an Enterprise Resource Planning (“ERP”) system, as part of a multi-year plan to integrate and upgrade our systems and processes. The implementation of this ERP system is scheduled to occur in phases over the next few years, and began with the migration of certain of our operational and financial systems in our Singapore operations to the new ERP system during the second quarter of fiscal 2017.2018. This implementation effort continueswill continue in fiscal 2018,2019, 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 MonthsFirst Quarter Ended December 31,September 30, 2018 and September 30, 2017 and December 31, 2016
 
The following table sets forth certain consolidated statements of income data as a percentage of revenue for the three months ended December 31, 2017first quarter of fiscal years 2019 and 2016,2018, respectively:
 
 
Three Months Ended
 
 
Dec. 31,
2017
 
 
Dec. 31,
2016
 
 
Three Months Ended
September 30,
 
 
 
 
 
2018
 
 
2017
 
Revenue
  100.0%
  100.0%
Cost of sales
  73.5 
  74.8 
  79.1 
  74.8 
Gross Margin
  26.5%
  25.2%
  20.9%
  25.2%
Operating expenses
    
    
General and administrative
  16.4%
  19.5%
  17.5%
  16.8%
Selling
  2.4 
  2.0 
  1.5 
  1.6 
Research and development
  1.1 
  0.6 
  0.7 
  1.7 
Loss on disposal of property, plant and equipment
  - 
  0.1 
  0.0 
  0.1 
Total operating expenses
  19.9%
  22.2%
  19.7%
  20.2%
Income from Operations
  6.6%
  3.0%
  1.2%
  5.0%
 
Overall Gross Margin
 
Overall gross margin as a percentage of revenue increaseddecreased by 1.3%4.3% to 26.5%20.9% for the three months ended December 31, 2017,September 30, 2018, from 25.2% infor the same period of the last fiscal year. In terms of absolute dollar amounts,year, primarily due to a decrease in the gross profits increasedprofit margin in the testing segment. The decrease was partially offset by $501 to $2,795 for the three months ended December 31, 2017, from $2,294 as compared to the same period of the last fiscal year. There was an increase in gross profit margin in absolute dollars, across all segments except for real estate.
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the distribution segment.
 
Gross profit margin as a percentage of revenue in the manufacturing segment increaseddecreased by 1.8%2.0% to 22.8%21.4% for the three months ended December 31, 2017, from 21.0% inSeptember 30, 2018, as compared to 23.4% for the same period of thein last fiscal year. The increasedecrease in gross profit margin was primarily due to the change in product mix in the U.S. and Singapore operations, where there was an increase inmore sales of low profit margin products that hadbeing higher profit margins and a decrease in sales of products that had lower profit margins as compared to the same period of last fiscal year. As a result, the increase in cost was lower than the increasesale of high profit margin products in manufacturing revenue for the three months ended December 31, 2017, as compared to the same period last fiscal year.September 30, 2018. In absolute dollar amounts, gross profits in the manufacturing segment increaseddecreased by $207$336 to $905$780 for the three months ended December 31, 2017September 30, 2018, from $698$1,116 for the same period ofin the last fiscal year.
-34-
 
Gross profit margin as a percentage of revenue in the testing segment decreased by 0.6%8.0% to 34.1%23.8% for the three months ended December 31, 2017,September 30, 2018, from 34.7%31.8% in the same period of the last fiscal year. The decrease in profit margin as a percentage of revenue was mainlyprimarily due to a decrease in high margin testing revenue the Bangkok, Thailand operations. Furthermore, there was an increasevolume in compliance costs in the Malaysia operations which increased in the cost of sales. This decrease in gross margin as a percentage of revenue was partially offset by the increase in the Singapore andour Tianjin, China operations where significantoperations. Significant portions of our cost of goods sold are fixed andin the testing segment.  Thus, as the demand of services and factory utilization increase,decreases, the fixed costs are spread over the increaseddecreased output, which increasesdecreases the gross profit margin. In absolute dollar amounts, gross profit in the testing segment increaseddecreased by $273$412 to $1,685$1,054 for the three months ended December 31, 2017September 30, 2018 from $1,412$1,466 for the same period of the last fiscal year.
 
Gross profit margin of the distribution segment is not only affected by the market price of ourthe products we distribute, but also by our productthe mix of products we distribute, which changes frequently as a result of changes in market demand. Gross profit margin as a percentage of revenue in the distribution segment increased by 1.9%2.4% to 12.3%13.3% for the three months ended December 31, 2017,September 30, 2018, from 10.4%10.9% in the same period of the last fiscal year. The increase in gross margin as a percentage of revenue was due to the change in product mix in the distribution segment of the Singapore and Suzhou, China operations resulting in an increase in sales of products that had higherhigh profit margin and a declineproducts in sales of products that had lower profit margin,our Singapore operation 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, 2017September 30, 2018 was $197, an increase of $23$258 as compared to $174$168 in the same period of the last fiscal year. 
 
Gross profit margin as a percentage of revenue in the real estate segment was 21.6%33.3% for the three months ended December 31, 2017,September 30, 2018, as compared to 25.6% in the same period of the last fiscal year. In absolute dollar amounts, for the three months ended September 30, 2018, gross profit margin in the real estate segment forwas $9. For the three months ended December 31,September 30, 2017, gross profit margin of $10 was $8, a decrease of $2 from $10 in the same period of last fiscal year.  The decrease was primarily due to a decrease in rental income from the MaoYe investment property, as compared to the same period in the last fiscal year.generated.  
 
Operating Expenses
 
Operating expenses for the three months ended December 31, 2017 and 2016 were as follows:
 
 
Three Months Ended
 
 
 
Dec. 31,
2017
 
 
Dec. 31,
2016
 
(Unaudited)
 
 
 
 
 
 
General and administrative
 $1,727 
 $1,776 
Selling
  252 
  180 
Research and development
  118 
  52 
Loss on disposal of property, plant and equipment
  - 
  8 
Total
 $2,097 
 $2,016 
General and administrative expenses decreased by $49, or 2.8%, from $1,776 to $1,727 for the three months ended December 31, 2017 compared to the same period of last fiscal year. The decrease in the general and administrative expenses was mainly attributable to the decrease in the Singapore, Malaysia and Suzhou, China operations, which was partially offset by the increase in the Tianjin, China operations.
The decrease in general and administrative expenses was primarily due to the decrease in payroll related expenses in the Singapore and Suzhou, China operations and decrease in bonus expenses in the Malaysia operations. This decrease was partially offset by an increase in the Tianjin, China operations as a result of wage increment in the three months ended December 31, 2016 as compared to the same period of last fiscal year.
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Selling expenses increased by $72, or 40.0%, for the three months ended December 31, 2017, from $180 to $252, as compared to the same period of the last fiscal year. The increase was mainly due to an increase in commission expenses in the U.S and Singapore operations as the commissionable revenue increased, and an increase in travel expenses in the Singapore, Malaysia and Tianjin, China in the three months ended December 31, 2017 as compared to the same period of last fiscal year.
Research and development expenses increased by $66, for the three months ended December 31, 2017, from $52 to $118, as compared to the same period of the last fiscal year. The increase was mainly due to a change in cost allocation in the three months ended December 31, 2017 as compared to the same period of last fiscal year.
Income from Operations
Income from operations was $698 for the three months ended December 31, 2017, as compared to $278 for the same period of 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 secondfirst quarter of fiscal years 2018 and 2017 were as follows:
 
Three Months Ended
 
 
Dec. 31,
2017
 
 
Dec. 31,
2016
 
 
Three Months Ended
September 30,
 
(Unaudited)
 
 
 
 
2018
 
 
2017
 
Interest expense
 $52 
 $48 
General and administrative
 $1,759 
 $1,839 
Selling
  147 
  179 
Research and development
  72 
  184 
Loss on disposal of property, plant and equipment
  - 
  11 
Total
 $1,978 
 $2,213 
 
Interest expense increasedGeneral and administrative expenses decreased by $4$80, or 4.4%, from $1,839 to $52 from $48$1,759 for the three months ended December 31, 2017. We are trying to keep our debt at a minimum in order to save financing costs. As of December 31, 2017, the Company had unused lines of credit of $4,146.
Other Income
Other income for the three months ended December 31, 2017 and 2016 were as follows:
 
 
Three Months Ended
 
 
 
Dec. 31,
2017
 
 
Dec. 31,
2016
 
(Unaudited)
 
 
 
 
 
 
Interest income
 $12 
 $8 
Other rental income
  27 
  25 
Exchange (loss)/ gain
  (24)
  120 
Other miscellaneous income
  27 
  50 
Total
 $42 
 $203 
Other income for the three months ended December 31, 2017 was $42, a decrease of $161 as compared to $203 for the same period last fiscal year. This decrease was mainly attributable to foreign currency exchange difference between functional currency and U.S. dollars contributing to an exchange loss of $24 for the three months ended December 31, 2017 as compared to an exchange gain of $120 for the same period in last fiscal year.
Income Tax Expenses
Income tax expenses for the three months ended December 31, 2017 were $13, a decrease of $54 as compared to $67 for the same period last fiscal year. The decrease in income tax expenses was mainly due to an increase in withholding tax payment by the Singapore operation and a decrease in deferred tax for timing differences recorded by the Malaysia operation.
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Non-controlling Interest
As of December 31, 2017, 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, 2017, in the net income of subsidiaries was nil, compared to $52 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 a decrease in other income and increase in corporate overhead allocation as compared to the same period in the last fiscal year.
Loss from Discontinued Operations
Loss from discontinued operations was $2 for the three months ended December 31, 2017, as compared to a loss of $4 for the same period of the last fiscal year.
Net Income
Net income was $673 for the three months ended December 31, 2017, an increase of $363 as compared to net income of $310 for the three months ended December 31, 2016. The increase in net income was mainly due to the increase operating income, as discussed earlier.
Earnings per Share
Basic earnings per share from continuing operations was $0.19 for the three months ended December 31, 2017 as compared to $0.09 for the same period in the last fiscal year. Basic earnings per share from discontinued operations were nil for both the three months ended December 31, 2017 and 2016.
Diluted earnings per share from continuing operations was $0.18 for the three months ended December 31, 2017 as compared to $0.09 for the same period in the last fiscal year. Diluted earnings per share from discontinued operations were nil for both the three months ended December 31, 2017 and 2016.
Segment Information
The revenue, gross margin and income from each segment for the second quarter of fiscal yearsSeptember 30, 2018 and 2017, respectively, are presented below. As the revenue and gross margin for each segment have been discussed in the previous section, only the comparison of income from operations is discussed below.
Manufacturing Segment
The revenue, gross margin and income / (loss) from operations for the manufacturing segment for the three months ended December 31, 2017 and 2016 were as follows:
 
 
Three Months Ended
 
 
 
Dec. 31,
2017
 
 
Dec. 31,
2016
 
(Unaudited)
 
 
 
 
 
 
Revenue
 $3,973 
 $3,320 
Gross margin
  22.8%
  21.0%
Income / (loss) from operations
 $107 
 $(229)
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Income from operations in the manufacturing segment was $107 for the three months ended December 31, 2017, an improvement of $336, as compared to a loss of $229 in the same period of the last fiscal year. The improvement was primarily due to an increase of $207 in the gross margin, as discussed earlier, and a decrease of $129 in operating expenses. Operating expenses for the manufacturing segment were $798 and $927 for the three months ended December 31, 2017 and 2016, respectively.  The decrease in operating expenses was mainly due to a decrease in general and administrative expenses of $349, which was partially offset by an increase in selling expenses of $50, increase in corporate overhead by $141, as compared to the same period of last fiscal year. The decrease in general and administrative expenses was primarily duemainly attributable to a revisionthe decrease in the method of allocation of payrollstaff welfare related expenses between segments in the Singapore operations, fixed assets being fully depreciated and absence of provision for doubtful debt expenses in the Singapore operations. The increase in selling expenses was due to an increase in commission expenses in the U.S. and Singapore operations as the commissionable revenue increased as compared to the same period last fiscal year. The increase in corporate overhead expenses was due to a change in the corporate overhead allocation as compared to the same period last fiscal year. Corporate charges are allocated on a pre-determined fixed charge basis.operations.
 
Testing Segment
The revenue, gross margin and incomeSelling expenses decreased by $32, or 17.9%, from operations for the testing segment$179 to $147 for the three months ended December 31, 2017 and 2016 were as follows:
 
 
Three Months Ended 
 
 
 
Dec. 31,
2017
 
 
Dec. 31,
2016
 
(Unaudited)
 
 
 
 
 
 
Revenue
 $4,936 
 $4,070 
Gross margin
  34.1%
  34.7%
Income from operations
 $517 
 $388 
Income from operations in the testing segment for the three months ended December 31, 2017 was $517, an increase of $129September 30, 2018, compared to $388 in the same period of last fiscal year. The increase in operating income was mainly attributable to an increase of $273 in gross margin, as discussed earlier, which was partially offset by an increase of $144 in operating expenses. Operating expenses were $1,168 and $1,024 for the three months ended December 31, 2017 and 2016, respectively. The increase in operating expenses was mainly attributable to an increase in general and administrative expenses by $222, which was partially offset by a decrease in corporate overhead expenses by $127. The increase in general and administrative expenses was due to a revision in the method of allocation of payroll related expenses between segments in the Singapore operations and payroll related expenses in the Tianjin, China operations. The decrease in corporate overhead expenses was due to a change in the corporate overhead allocation as compared to the same period last fiscal year. Corporate charges are allocated on a pre-determined fixed charge basis.
Distribution Segment
The revenue, gross margin and income from operations for the distribution segment for the three months ended December 31, 2017 and 2016 were as follows:
 
 
Three Months Ended 
 
 
 
Dec. 31,
2017
 
 
Dec. 31,
2016
 
(Unaudited)
 
 
 
 
 
 
Revenue
 $1,606 
 $1,675 
Gross margin
  12.3%
  10.4%
Income from operations
 $119 
 $100 
Income from operations in the distribution segment increased by $19 to $119 for the three months ended December 31, 2017, as compared to $100 in the same period of last fiscal year. The increase in operating income was primarily due to an increase in gross margin as discussed earlier, which was partially offset by an increase in operating expenses of $4. Operating expenses were $78 and $74 for the three months ended December 31, 2017 and 2016, respectively.
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Real Estate Segment
The revenue, gross margin and loss from operations for the real estate segment for the three months ended December 31, 2017 and 2016 were as follows:
 
 
Three Months Ended
 
 
 
Dec. 31,
2017
 
 
Dec. 31,
2016
 
(Unaudited)
 
 
 
 
 
 
Revenue
 $37 
 $39 
Gross margin
  21.6%
  25.6%
Loss from operations
 $(9)
 $(8)
Loss from operations in the real estate segment for the three months ended December 31, 2017 was $9, an increase of $1, as compared to $38 for the same period of the last fiscal year. The decrease in operating loss was mainly due to a decrease in gross margin as discussed earlier, which was partially offset bycommission expenses in the manufacturing segment of our Singapore operations because of a decrease in operatingcommissionable revenue and a decrease in warranty expenses due to adoption of $1. Operatinga new revenue standard as described in note 19 to the financial statements included in item 1 of this Form 10-Q.
Research and development expenses were $17 and $18decreased by $112, or 60.9%, from $184 to $72 for the three months ended December 31, 2017 and 2016, respectively.
Corporate
The (loss) / income from operations for corporate for the three months ended December 31, 2017 and 2016 were as follows:
 
 
Three Months Ended
 
 
 
Dec. 31,
2017
 
 
Dec. 31,
2016
 
(Unaudited)
 
 
 
 
 
 
(Loss) / income from operations
 $(36) 
 $27 
Corporate operating income changed by $63 to a loss of $36 for the three months ended December 31, 2017 from an income of $27 in the same period of the last fiscal year.  The change from an operating income to an operating loss was mainly attributable to an increase in general and administrative expenses by $74 due to an increase in payroll related expenses and professional fees during the three months ended December 31, 2017, asSeptember 30, 2018, compared to the same period last fiscal year.
Comparison of the Six Months Ended December 31, 2017 and December 31, 2016
The following table sets forth certain consolidated statements of income data as a percentage of revenue for the six months ended December 31, 2017 and 2016, respectively:
 
 
Six Months Ended
 
 
 
Dec. 31,
2017
 
 
Dec. 31,
2016
 
 
 
 
 
 
 
 
Revenue
  100.0%
  100.0%
Cost of sales
  74.2 
  74.3 
Gross Margin
  25.8%
  25.7%
Operating expenses:
    
    
General and administrative
  16.6%
  19.6%
Selling
  2.0 
  2.0 
Research and development
  1.4 
  0.6 
Total operating expenses
  20.0%
  22.2%
Income from Operations
  5.8%
  3.5%
Overall Gross Margin
Overall gross margin as a percentage of revenue increased by 0.1% to 25.8% for the six months ended December 31, 2017, from 25.7% in the same period of last fiscal year, primarily due to an increase in the gross profit margin in the manufacturing and distribution segments, which was partially offset by a decrease in the gross profit margin in the testing and real estate segments. In terms of absolute dollar amounts, gross profits increased by $903 to $5,555 for the six months ended December 31, 2017, from $4,652 for the same period of the last fiscal year.
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Gross profit margin as a percentage of revenue in the manufacturing segment increased by 0.6% to 23.1% for the six months ended December 31, 2017, from 22.5% in the same period of the last fiscal year. In absolute dollar amounts, gross profit increased by $447 to $2,021 for the six months ended December 31, 2017 as compared to $1,574 for the same period in last fiscal year. The increase in absolute dollar amount of gross margin was primarily due to the change in product mix in the Singapore and Suzhou, China operations, where there was an increase in sales of products that had higher profit margins and a decrease in sales of products that had lower profit margins as compared to the same period of last fiscal year. 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 manufacturing revenue was higher than the increase in cost for the six months ended December 31, 2017, as compared to the same period last fiscal year.
Gross profit margin as a percentage of revenue in the testing segment decreased by 0.5% to 33.0% for the six months ended December 31, 2017 from 33.5% in the same period of the last fiscal year. The decrease in profit margin as a percentage of revenue was mainly due to a decrease of the expenses in high margin testing revenue the Bangkok, Thailand operations. Furthermore,Suzhou, China operation. The operation did not incur research and development expenses in three months ended September 30, 2018 whereas there was an increase in compliance costsa one-off research and development project in the MalaysiaSuzhou, China operations which increased in the costthree months ended September 30, 2017.
Income from Operations
Income from operations was $123 for the three months ended September 30, 2018, a decrease of sales. This$424, as compared to an income from operations of $547 for the three months ended September 30, 2017. The decrease was mainly due to the decrease in revenue and the decrease in gross margin as a percentage of revenueprofit which was partially offset by the decrease in operating expenses, as previously discussed.
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Interest Expense
Interest expense for the three months ended September 30, 2018 and 2017 were as follows:
 
 
Three Months Ended
September 30,
 
(Unaudited)
 
2018
 
 
2017
 
Interest expenses
 $78 
 $58 
Interest expense was $78 for the three months ended September 30, 2018 and $58 for the three months ended September 30, 2017. The increase is was due to increase utilization of short-term loan in the Singapore Suzhou, China and Tianjin, China operations where significant portionsoperation. As of our costSeptember 30, 2018, the Company had an unused line of goods sold are fixed and as the demandcredit of services and factory utilization increase, the fixed costs are spread over the increased output, which increases the gross profit margin. In terms of absolute dollar amounts, gross profit in the testing segment increased by $396 to $3,151 for the six months ended December 31, 2017, from $2,755 for the sameperiod of the last fiscal year.
Gross profit margin as a percentage of revenue in the distribution segment increased by 1.3% to 11.6% for the six months ended December 31, 2017, from 10.3% in the same period of the last fiscal year. In terms of absolute dollar amounts, gross profit in the distribution segment for the six months ended December 31, 2017 was $365, an increase of $78$3,858 as compared to $287 in the same period of the last fiscal year. The increase in gross margin was due to the change in product mix, as this segment had fewer sales of products with a lower profit margin as compared to the same period of last fiscal year. The gross profit margin of the distribution segment was not only affected by the market price of our products, but also our product mix, which changes frequently as a result of changes in market demand.$4,639 at September 30, 2017.
 
Gross profit marginOther Income
Other income for the three months ended September 30, 2018 and 2017 were as a percentage of revenue in the real estate segmentfollows:
 
 
Three Months Ended
September 30,
 
 
 
2018
 
 
2017
 
Interest income
  10 
  8 
Other rental income
  27 
  26 
Exchange loss
  (39)
  (6)
Bad debt recovery
  2 
  1 
Other miscellaneous income
  43 
  129 
Total
 $43 
 $158 
Other income decreased by 22.5%$115 to 23.7%$43 for the sixthree months ended December 31, 2017,September 30, 2018 from 46.2% in the same period of the last fiscal year. In terms of absolute dollar amounts, gross profit decreased by $18 to $18 for the six months ended December 31, 2017 as compared to $36 for the same period in last fiscal year. The decrease was due to the a reversal of overprovision for taxes in the six months ended December 31, 2016 while there was none in the same period this fiscal year. 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,$158 as compared to the same period in the last fiscal year. In addition, thereThe decrease was primarily due to the existence of a non-recurring reimbursement income for the three months ended September 30, 2017. Furthermore, this decrease in rental incomewas also caused by an increase of exchange loss. The exchange loss increases by $33 from $6 for the MaoYe investment propertythree months ended September 30, 2017 to an exchange loss of $39 for the three months ended September 30, 2018 was mainly due to transactional foreign exchange differences in the sixMalaysia and Tianjin, China operations.
Income Tax Expenses
The Company had an income tax expense of $74 for the three months ended December 31, 2017,September 30, 2018 as compared to an income tax expense of $42 for the same period in the last fiscal year.
Operating Expenses
Operating expenses for the six months ended December 31, 2017 and 2016 were as follows:
 
 
Six Months Ended
 
 
 
Dec. 31,
2017
 
 
Dec. 31,
2016
 
(Unaudited)
 
 
 
 
 
 
General and administrative
 $3,566 
 $3,519 
Selling
  431 
  365 
Research and development
  302 
  105 
Loss on disposal of property, plant and equipment
  11 
  8 
Total
 $4,310 
 $3,997 
General and administrative expenses increased by $47, or 1.3%, from $3,519 to $3,566 for the six months ended December 31, 2017 compared to the same period of the last fiscal year. There was an increase in general and administrative expenses in the U.S. and Tianjin, China operations, which was partially offset by the decrease in general and administrative expenses in all other operations.
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The increase in general and administrative expenses was primarily due to the increase in payroll related and bonus expenses in the U.S. and Tianjin, China operations.This increase was partially offset mainly by a decrease in payroll related expenses in the Singapore operations for the six months ended December 31, 2017, as compared to the same period of last fiscal year.
Selling expenses increased by $66, or 18.1%, for the six months ended December 31, 2017, from $365 to $431 compared to the same period of the last fiscal year, The increase was mainly due to an increase in commission expenses in the U.S and Singapore operations as the commissionable revenue increased, and an increase in travel expenses in the Singapore, Malaysia and Tianjin, China in the six months ended December 31, 2017, as compared to the same period of last fiscal year.
Research and development expenses increased by $197, for the six months ended December 31, 2017, from $105 to $302, as compared to the same period of the last fiscal year. The increase was mainly due to a change in cost allocation in the six months ended December 31, 2017 as compared to the same period of last fiscal year, as well as a one­off project in the Suzhou, China operations.
Income from Operations
Income from operations was $1,245 for the six months ended December 31, 2017 as compared to $655 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, 2017 and 2016 were as follows:
 
 
Six Months Ended
 
 
 
Dec. 31,
2017
 
 
Dec. 31,
2016
 
(Unaudited)
 
 
 
 
 
 
Interest expense
 $110 
 $106 
Interest expense increased by $4 to $110 from $106 for the six months ended December 31, 2017 as compared to the same period of the last fiscal year.
Other Income
Other income for the six months ended December 31, 2017 and 2016 were as follows:
 
 
Six Months Ended
 
 
 
Dec. 31,
2017
 
 
Dec. 31,
2016
 
(Unaudited)
 
 
 
 
 
 
Interest income
 $20 
 $12 
Other rental income
  53 
  50 
Exchange (loss)/ gain
  (30)
  182 
Other miscellaneous income
  157 
  69 
Total
 $200 
 $313 
Other income for the six months ended December 31, 2017 was $200, a decrease of $113 as compared to $313 for the same period last fiscal year. This decrease was mainly attributable to foreign currency exchange difference between functional currency and U.S. dollars contributing to an exchange loss of $30 for the six months ended December 31, 2017 as compared to an exchange gain of $182 for the same period last fiscal year, which was partially offset by a non-recurring reimbursement income.
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Income Tax Expenses
Income tax expense for the six months ended December 31, 2017 was $55, a decrease of $95, as compared to $150 for the same period of last fiscal year. The decrease in income tax expenseexpenses was mainly due to a change from deferred tax benefit in the same period last fiscal year to deferred tax expense for timing differences recorded by the Malaysia operation.
 
The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017, the Tax Act requires a mandatory one-time repatriation of certain post-1986 earnings and profits that were deferred from US taxation by the Company’s foreign subsidiaries.  The Company recognized an income tax expense and payable of $900 in fiscal year 2018. The computation of the post-1986 earning and profits used estimates and are preliminary amounts which will be finalized during the measurement period. No adjustment of provision being made in this period. The company elected to pay the Repatriation Tax over an 8-year period at no interest rate and is not expected to have a material effect on the Company’s working capital position.
The Tax Act implemented the inclusion in gross income for the Global Intangible Low-Tax Income (GILTI) for any taxable year beginning on or after January 1, 2018. This provision significantly expands current taxation of foreign subsidiary corporate earnings. Given the complexity of GILTI provision, the company is still assessing the effects of the provisions to determine whether to elect to either provide for the minimum tax as future income tax expense as a period expense or as a deferred tax on the related investment in foreign subsidiaries.
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Non-controlling Interest
 
As of December 31, 2016,September 30, 2018, we held a 55% interest in Trio-Tech Malaysia,(Malaysia) Sdn. Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd., and PTSHI Indonesia, andPT. SHI Indonesia. We also held a 76% interest in Prestal Enterprise Sdn. Bhd. The share of net income attributable to ourloss from the subsidiaries by the non-controlling interest in these subsidiaries for the sixthree months ended December 31,September 30, 2017 was $27,$59, a decrease of $69, as$86 compared to $96the share of net income of $27 for the same period of lastthe previous fiscal year. The decrease in the net income of the non-controlling interest in the subsidiaries was attributable to the decrease in net income generated by the Malaysia testing operations due to a decrease in operating income, other income and increase in corporate overhead allocation as compared to the same period in the lastprevious fiscal year
Loss from Discontinued Operations
Loss from discontinued operations was $5 for the six months ended December 31, 2017, an increase of $2 as compared to a loss of $3 for the same period of the last fiscal year.
 
Net Income
 
Net income was $1,248 for the sixthree months ended December 31, 2017, an increaseSeptember 30, 2018 was $65, a decrease of $635,$510, as compared to a net income of $613$575 for the same period in the last fiscal year. The improvement was mainly due to an increase in operating income, as discussed earlier.
 
Earnings per Share
 
Basic earnings per share from continuing operations was $0.35were $0.02 for the sixthree months ended December 31, 2017September 30, 2018 as compared to $0.18$0.16 for the same period in the last fiscal year. Basic earnings per share from discontinued operations were nil for both the sixthree months ended December 31, 2017September 30, 2018 and 2016.2017.
 
Diluted earnings per share from continuing operations was $0.34were $0.02 for the sixthree months ended December 31, 2017September 30, 2018 as compared to $0.17$0.16 for the same period in the last fiscal year. Diluted earnings per share from discontinued operations were nil for both the sixthree months ended December 31, 2017September 30, 2018 and 2016.2017.
 
Segment Information
 
The revenue, gross profit margin and income or loss from operations for each segment forduring the six months ended December 31, 2017first quarter of fiscal year 2019 and 2016, respectively,fiscal year 2018 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 or loss from operations is discussed below.
 
Manufacturing Segment
 
The revenue, gross margin and income or loss from operations for the manufacturing segment for the sixthree months ended December 31,September 30, 2018 and 2017 and 2016 were as follows:
 
 
 
Six Months Ended
 
 
 
Dec. 31,
2017
 
 
Dec. 31,
2016
 
(Unaudited)
 
 
 
 
 
 
Revenue
 $8,738 
 $6,991 
Gross margin
  23.1%
  22.5%
Income / (loss) from operations
 $293 
 $(322)
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Three Months Ended 
September 30,
 
(Unaudited)
 
2018
 
 
2017
 
Revenue
 $3,637 
 $4,765 
Gross margin
  21.4%
  23.4%
Income from operations
 $107 
 $186 
 
Income from operations from the manufacturing segment was $293 for the six months ended December 31, 2017, an improvement of $615$107 as compared to a loss of $322$185 in the same period of the last fiscal year, primarily due to an increasea decrease in gross margin, and partially offset by $396 coupled with a decrease in operating expenses. Gross profit decreased by $336 while operating expenses decreased by $258. Operating expenses for the manufacturing segment were $1,728$673 and $1,896$930 for the sixthree months ended December 31,September 30, 2018 and 2017, and 2016, respectively. The $258 decrease in operating expenses of $168 was mainly due to a decrease in general and administrative expenses of $637, which was partially offset by an increase in corporate overhead of $269$67, selling expenses decreased by $50 and increase in research and development expenses of $160 as discussed earlier, as compared to the same period of last fiscal year.decreased by $133. The decrease in general and administrative expenses was primarily duemainly attributable to athe revision in the method of allocation of payroll related expenses between segments in the Singapore operations, fixed assets being fully depreciated and absence of provision for doubtful debtoperations. The decrease in selling expenses was due to lower commission expenses as there was less commissionable revenue in the Singapore operations. The increase in corporate overheaddecrease of research and development expenses iswas due to increasethe existence of a one-off project in allocationthe Suzhou, China operations in corporate expenses which is charged on a predetermined fixed basis, which is higher as compared to the same period last fiscal year.three months ended September 30, 2017.
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Testing Segment
 
The revenue, gross margin and (loss) / income from operations for the testing segment for the sixthree months ended December 31,September 30, 2018 and 2017 and 2016 were as follows:
 
 
Six Months Ended 
 
 
Dec. 31,
2017
 
 
Dec. 31,
2016
 
 
Three Months Ended 
September 30,
 
(Unaudited)
 
 
 
 
2018
 
 
2017
 
Revenue
 $9,541 
 $8,227 
 $4,437 
 $4,605 
Gross margin
  33.0%
  33.5%
  23.8%
  31.8%
Income from operations
 $853 
 $790 
(Loss)/ Income from operations
 $(138)
 $336 
 
IncomeLoss from operations in the testing segment for the sixthree months ended December 31, 2017September 30, 2018 was $853, an increase$138, a change of $63$474 compared to $790income from operations of $336 in the same period of the last fiscal year. The increasechange in operating income was mainly attributable to an increase ina decrease of gross profit of $396, which was partially offset bymargin as discussed earlier and also an increase in operating expenses of $333.expenses. Operating expenses were $2,298$1,192 and $1,965$1,130 for the sixthree months ended December 31,September 30, 2018 and 2017, and 2016, respectively.The $62 increase in operating expenses was mainly attributabledue to an increase in general and administrative expenses by $521,$130, which was partially offset by a decrease in corporate overheadsoverhead by $250.$91. The increase in general and administrative expenses was mainly due to a revision in the method of allocation of payroll related expenses between segments in the Singapore operations, and an increase in payroll related expenses in the Tianjin, China operations. The decrease in corporate overhead expenses was due to a change in the corporate overhead allocation as compared to the same period last fiscal year. Corporate charges are allocated on a pre-determined fixed charge basis.
 
Distribution Segment
 
The revenue, gross margin and income from operations for the distribution segment for the sixthree months ended December 31,September 30, 2018 and 2017 and 2016 were as follows: 
 
 
Six Months Ended 
 
 
Dec. 31,
2017
 
 
Dec. 31,
2016
 
 
Three Months Ended 
September 30,
 
(Unaudited)
 
 
 
 
2018
 
 
2017
 
Revenue
 $3,142 
 $2,779 
 $1,944 
 $1,536 
Gross margin
  11.6%
  10.3%
  13.3%
  10.9%
Income from operations
 $220 
 $134 
 $172 
 $101 
 
Income from operations in the distribution segmentwas $172, for the sixthree months ended December 31, 2017 was $220, an increase of $86September 30, 2018, as compared to $134 in$101 for the same period of the last fiscal year. The increase in operating incomeof $71 was primarilymainly due to an increase in gross margin, as discussed earlier, together with a decreaseand partially offset by an increase in operating expenses. Gross profit increased by $90 while operating expenses increased by $19. Operating expenses were $86 and $67 for the three months ended September 30, 2018 and 2017, respectively. The increase in operating expenses was mainly due to an increase in general and administrative expenses of $8. Operating expenses were $145 and $153 for the six months ended December 31, 2017 and 2016, respectively.
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$11.
 
Real Estate Segment
 
The revenue, gross loss or margin and loss from operations for the real estate segment for the sixthree months ended December 31,September 30, 2018 and 2017 and 2016 were as follows: 
 
 
Six Months Ended 
 
 
Dec. 31,
2017
 
 
Dec. 31,
2016
 
 
Three Months Ended 
September 30,
 
(Unaudited)
 
 
 
 
2018
 
 
2017
 
Revenue
 $76 
 $78 
 $27 
 $39 
Gross margin / (loss)
  23.7%
  46.2%
Gross margin
  33.3%
  25.6%
Loss from operations
 $(19)
 $(6)
 $(12)
 $(10)
 
Loss from operations in the real estate segment for the sixthree months ended December 31,September 30, 2018 was $12 compared to $10 for the same period of last fiscal year. Operating expenses were $21 and $20 for the three months ended September 30, 2018 and 2017, respectively.
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Corporate
The loss from operations for Corporate for the three months ended September 30, 2018 and 2017 was $19, an increaseas follows:   
 
Three Months Ended 
September 30,
 
(Unaudited)2018 2017 
Loss from operations $(6) $(66)
Corporate operating loss was $6 for the three months ended September 30, 2018, a decrease of $13 as compared to$60 from a loss of $6 for$66 in the same period of the last fiscal year. The increase in operating loss was mainly due to an increase in gross loss, as discussed earlier, partially offset by a decrease in operating expenses of $5. Operating expenses were $37 and $42 for the six months ended December 31, 2017 and 2016, respectively.
Corporate
The (loss) / income from operations for corporate for the six months ended December 31, 2017 and 2016 were as follows:   
 
 
Six Months Ended
 
 
 
Dec. 31,
2017
 
 
Dec. 31,
2016
 
(Unaudited)
 
 
 
 
 
 
(Loss) / income from operations
 $(102)
 $59 
Operating loss in the corporate office for the six months ended December 31, 2017 was $102, change of $161, as compared to an income of $59 for the same period of the last fiscal year.  The change from an operating income to an operating loss was mainly attributable to an increasea decrease in general and administrative expenses by $171 due to an increase in payroll related expenses and professional fees during the six months ended December 31, 2017, as compared to the same period last fiscal year.expenses.
 
Financial Condition
 
During the sixthree months ended December 31, 2017September 30, 2018 total assets increased by $3,291$565 from $33,498$36,474 as at June 30, 20172018 to $36,789.$37,039. The increase in total assets was primarily due to an increase in cash and& cash equivalents, short term deposits, trade accounts receivable, other receivables, inventory, prepaid expenses, property, plant and equipment otherand deferred tax assets, and restricted term deposits, which were partially offset by a decrease in shortnotes & other receivables, inventory and restricted term deposits.
 
Cash and cash equivalents were $5,059$7,101 as at December 31, 2017,September 30, 2018, reflecting an increase of $287$562 from $4,772$6,539 as at June 30, 2017, mainly2018, primarily due to improved collections in the U.S. and Suzhou, China operations and uplift of depositloan drawdown in the Malaysia operation. This wasoperation and a deposit from a customer, which were partially offset by the lower utilizationdecrease due to placement of credit facilities in oura fixed deposit and repayment of a loan by the Singapore operation and purchase of property, plant and equipment by the China operation.
 
Short term deposits were $642$1,011 as at December 31, 2017,September 30, 2018, reflecting a decreasean increase of $145$358 from $787$653 as at June 30, 2017,2018, primarily due to upliftplacement of a deposit by the MalaysiaSingapore operation.
 
As at December 31, 2017,September 30, 2018, the trade accounts receivable balance increased by $484$374 to $9,493$8,121, from $9,009$7,747 as at June 30, 2017, mainly2018, primarily due to the increase in revenue for the first three months of fiscal year 2019 as compared to the revenue in the fourth quarter of last fiscal year in the Singapore operation and longer collection cycles in the Singapore operation. The increase was partially offset by the decrease in the Malaysia and Tianjin, China operations and foreign currency exchange difference betweendue to the functional currency and U.S. dollarsdecrease in revenue for the sixfirst three months ended December 31, 2017.of fiscal year 2019 as compared to the revenue in the fourth quarter of last fiscal year. The number of days’ sales outstanding in accounts receivables for the Group was 7774 and 8372 days at the end of the secondfirst quarter of fiscal year 20182019 and for the fiscal year ended 2017,2018, respectively.
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As at December 31, 2017September 30, 2018 other receivables were $548,$889, reflecting an increase of $1478 from $401$881 as at June 30, 2017.2018. The increase was primarily due to inputthe tax and tax incentives inincentive received by the Tianjin, China operationsOperation in the secondfirst quarter of fiscal year 2018.2019.
 
Inventories as at December 31, 2017September 30, 2018 were $2,972, an increase$2,386, a decrease of $1,216,$544, as compared to $1,756$2,930 as at June 30, 2017.2018. The increasedecrease in inventory was mainly due to a delay in shipment as a result of external factors and higher inventory turnover days in the Singapore operations.
 
Prepaid expenses were $280$330 as at December 31, 2017September 30, 2018 compared to $226$208 as at June 30, 2017.2018. The increase of $54$122 was primarily due to prepayment for software related expenses in the Singapore operation and insurance in the Singapore and Tianjin, China operations.
 
Investment properties, net in China were $693 as at September 30, 2018 and $1,146 as at June 30, 2018. The decrease was due to reclassification of the Maoye properties amounting to RMB 2,729, or approximately $397 to Asset held for sale due to management’s decision to sell the investment property. 
Assets held for sales were $486 as at September 30, 2018 and $91 as at June 30, 2018. The increase was due to reclassification of the Maoye properties amounting to RMB 2,729, or approximately $397 from investment properties due to management’s decision to sell the investment property. 
Property, plant and equipment, net increased by $1,094$332 from $11,291$11,935 as at June 30, 2017,2018, to $12,385$12,267 as at December 31, 2017,September 30, 2018, mainly due to higher capital expenditure in the SingaporeMalaysia and Tianjin, China operations and foreign currency exchange difference between the functional currency and U.S. dollars for the sixthree months ended December 31, 2017.September 30, 2018.
 
Other assets increasedRestricted cash decreased by $28$10 to $1,950$1,685 as at December 31, 2017,September 30, 2018, as compared to $1,922$1,695 as at June 30, 2017.2018. This was mainlyprimarily due to andthe foreign currency exchange difference between functional currency and U.S. dollars from June 30, 20172018 to December 31, 2017.September 30, 2018.
 
Restricted term deposits increased
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Other assets decreased by $60$585 to $1,717$1,664 as at December 31, 2017,September 30, 2018, as compared to $1,657$2,249 as at June 30, 2017.2018.  This was primarilymainly due to foreign currency exchange difference between functional currencyreclassification of down payment made for purchase of property, plant equipment to fixed assets by the Malaysia and U.S. dollars from June 30, 2017 to December 31, 2017.Tianjin, China operations.
 
Utilized lines of credit decreasedincreased by $367$90 to $2,189$2,133 as at December 31, 2017September 30, 2018 compared to $2,556$2,043 as at June 30, 2017,2018, which was mainly due to utilization of the credit facility by Tianjin, China operation in the first quarter of fiscal year 2019 which was partially offset by the lower utilization of lines of credit by the Singapore operation in the first quarter of fiscal year 2018.operation.
 
Accounts payable increaseddecreased by $113$765 to $3,342$2,939 as at December 31, 2017,September 30, 2018, as compared to $3,229$3,704 as at June 30, 2017.2018. This was mainly due to the foreign currency exchange difference betweenincrease in creditor turnover days in the functional currency and U.S. dollars for the six months ended December 31, 2017.Singapore operation.
 
Accrued expenses increased by $942$399 to $3,985$3,571 as at December 31, 2017,September 30, 2018, as compared to $3,043$3,172 as at June 30, 2017.2018. The increase in accrued expenses was mainly due to an increase in purchase accrualsa customer deposit in the Singapore and Tianjin,Suzhou, China operations.Operation.
 
Bank loans payable increased by $161$1,321 to $1,973$3,125 as at December 31, 2017,September 30, 2018, as compared to $1,812$1,804 as at June 30, 2017.2018. This was due to an additional loan made by the Singapore operation, partially offset by repayment of bank loansavailed by the Malaysia operation.
 
Capital leases increaseddecreased by $139$76 to $898$698 as at December 31, 2017,September 30, 2018, as compared to $759$774 as at June 30, 2017.2018. This was due to new leases in the Malaysia operations, partially offset by repayment of capital leases by the Singapore and Malaysia operations.
 
Liquidity Comparison
 
Net cash provided by operating activities decreasedincreased by $2,125$628 to $1,546an inflow of $558 for the sixthree months ended December 31, 2017, compared to $3,671 duringSeptember 30, 2018 from an outflow of $70 for the same period of the last fiscal year. The decreaseincrease in net cash generatedinflow provided by operating activities was primarily due to an increase in cash inflow of $1,234 from inventories, an increase of $779 from other assets and a decrease in cash inflowoutflow of $1,749$791 from accounts receivablesreceivables. These were partially offset by decrease in net income by $596, an increase in cash outflow of $1,408 from accounts payable and $427 from other receivables,accrued expenses and an increase in cash outflow of $878 in inventories. These were partially offset by an increase in net$124 from income of $117 and decrease in other assets of $189.tax payable.
 
Net cash used in investing activities increased by $202$755 to $1,304an outflow of $1,211 for the sixthree months ended December 31, 2017, compared to $1,102 duringSeptember 30, 2018 from an outflow of $456 for the same period of the last fiscal year. The increase in cash outflow was primarily due to $743an increase in capital spendingexpenditure by $685 and by a decrease of $83$73 in proceeds from disposal of property, plant and equipment. This increase in net cash used in investing activities was partially offset by the $484 increase in proceeds from maturing of restricted and unrestricted deposits and a $140 decrease in investments in restricted and unrestricted deposits.
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insurance claim.
 
Net cash generated in financing activities for the three months ended September 30, 2018 was $1,639, representing an increase of $2,564, as compared to net cash used in financing activities decreased by $1,087 to $388 forof $925 during the sixthree months ended December 31, 2017, compared to $1,475 during the same period of the last fiscal year.September 30, 2017. The decreaseincrease was mainly dueattributable to an increase by $3,154 in cash generatedinflow from borrowings through borrowings fromlines of credit and bank loans and capital leasesan increase by $1,529,$199 in proceeds from exercising of stock option which was partially offset by an increase in cash outflow of $793 from repayment of lines of credit of $475.credit.
 
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
 
TheEffective as of July 1, 2018, the Company has adopted ASU 2015-112014-09, Revenue from contracts with Customers (Topic 606),, and its related amendments using modified retrospective transition method. We have completed our adoption and implemented policies, processes and controls to support the standard’s measurement and disclosure requirements as described in note 1 to the financial statements included in item 1 of this Form 10-Q.
The amendments in ASU 2016-02 ASC Topic 330:842: Leases Simplifying the Measurement of Inventory(“ASC Topic 330”)become effective for the financial yearCompany in fiscal years beginning after December 15, 2016 and2018, including interim periods within those fiscal years,years. These amendments require companies to recognize the following for all leases (with the exception of short-term leases) at the commencement date of the applicable lease: (a) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and concluded(b) a right-of-use asset, which is as an asset that represents the effectivenesslessee’s right to use, or control the use of, a specified asset for the lease term. The Company is currently evaluating the impact of this accounting standard update does not have a significant effect on the Company’sits consolidated financial position or results of operations.statements.
 
There have been no other significant changes in the critical accounting policies except asfrom those, disclosed in “Management’sin” 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.  CONTROLS AND PROCEDURES
 
An evaluation was carried out by the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2017,September 30, 2018, the end of the period covered by this Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective at a reasonable level.  
 
Changes in Internal Control Over Financial Reporting
Except as discussed below, there has been no change in the Company’s internal control over financial reporting during the fiscal quarter ended December 31, 2017September 30, 2018, that hashave materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
Enterprise Resource Planning (ERP) Implementation
 
We are in the process of implementing an ERP System, as part of a multi-year plan to integrate and upgrade our systems and processes. The implementation of this ERP system is scheduled to occur in phases over the next few years, and began with the migration of certain of our operational and financial systems in our Singapore operations to the new ERP system during the second quarter of fiscal 2017. This implementation effort continues inDuring the third quarter of fiscal 2018, when the operational and financial systems in Singapore will bewere substantially transitioned to the new system.
 
This implementation effort continued in fiscal 2019. The operational and financial systems in our Malaysia operation have been substantially transitioned to the new system during the first quarter of fiscal 2019.
As a phased implementation of this system occurs, we are experiencing certain changes to our processes and procedures which, in turn, result in changes to our internal control over financial reporting. While we expect the new ERP system to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as processes and procedures in each of the affected areas evolve.
 
Enhancement Adoption of Automated Manufacturing SystemNew Revenue Recognition Accounting Standard
 
DuringWe implemented controls relating to adoption of the first quarter ofnew revenue recognition accounting standards that were adopted in fiscal 2018, we enhanced2019 to ensure that the automated manufacturing system used by our Malaysia operation resulting in a material change in internal controls over financial reporting. The enhancement automates therevenue contracts, and related policies and process of invoice generation and matching of customer payments against invoices. We believe the enhancement was necessaryflows were sufficiently reviewed to support increased volumes and transaction complexities related to our business as well to reduce the number of manual processes employed by the Company.identify adoption impacts.
 
 
 
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TRIO-TECH INTERNATIONAL
PART II. OTHEROTHER INFORMATION
 
Item 1.          Legal Proceedings
 
Not applicable.
 
Item 1A.       Risk Factors
 
Not applicable.applicable
 
Item 2.          Unregistered Sales of Equity Securities and Use of Proceeds
 
Malaysia and Singapore regulations prohibit the payment of dividends if the Company does not have sufficient retained earnings and tax credit. In addition, the payment of dividends can only be made after making deductions for income tax pursuant to the regulations. Furthermore, the cash movements from the Company’s 55% owned Malaysian subsidiary to overseas are restricted and must be authorized by the Central Bank of Malaysia. California law also prohibits the payment of dividends if the Company does not have sufficient retained earnings or cannot meet certain asset to liability ratios.
 
Item 3.          Defaults Upon Senior Securities
 
Not applicable.
 
Item 4.          Mine Safety Disclosures
 
Not applicable.
 
Item 5.          Other Information
 
Not applicable.
 
Item 6.          ExhibitsExhibits
 
 Rule 13a-14(a) Certification of Principal Executive Officer of Registrant
 Rule 13a-14(a) Certification of Principal Financial Officer of Registrant 
 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 101.INSXBRL Instance Document101.SCHXBRL Taxonomy Extension Schema101.CALXBRL Taxonomy Extension Calculation Linkbase101.DEFXBRL Taxonomy Extension Definition Linkbase101.LABXBRL Taxonomy Extension Label Linkbase101.PREXBRL 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
 
 By:
/s/ Victor H.M. Ting
VICTOR H.M. TING
Vice President and Chief Financial Officer
(Principal Financial Officer)
Dated: February 12,November 13, 2018
 
 

 
 
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