UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the Quarterly Period Ended
OR
For the Transition Period from ___ to ___
Commission File Number
TRIO-TECH INTERNATIONAL
(Exact name of Registrant as specified in its Charter
| | |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification Number) |
| | |
| Unit 03-09 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant's Telephone Number, Including Area Code: (
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange On which registered |
| | | |
Securities registered pursuant to Section 12(g) of the Act: None
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-‐accelerated 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 12b-‐2 of the Exchange Act. (Check one):
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ | |
| | ☐ | Smaller reporting company | | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 1, 2023, there were
TRIO-TECH INTERNATIONAL
INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE
| Page |
||
| Part I. |
Financial Information |
|
| Item 1. |
Financial Statements |
4 |
| (a) Condensed Consolidated Balance Sheets as of March 31, 2023 (Unaudited), and June 30, 2022 |
4 |
|
| (b) Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) for the Three and Nine Months Ended March 31, 2023 (Unaudited), and March 31, 2022 (Unaudited) |
5 |
|
| (c) Condensed Consolidated Statements of Shareholders’ Equity for the Nine Months Ended March 31, 2023 (Unaudited), and March 31, 2022 (Unaudited) |
7 |
|
| (d) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2023 (Unaudited), and March 31, 2022 (Unaudited) |
7 |
|
| (e) Notes to Condensed Consolidated Financial Statements (Unaudited) |
9 |
|
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
28 |
| Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
41 |
| Item 4. |
Controls and Procedures |
41 |
| Part II. |
Other Information |
|
| Item 1. |
Legal Proceedings |
42 |
| Item 1A. |
Risk Factors |
42 |
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
42 |
| Item 3. |
Defaults upon Senior Securities |
42 |
| Item 4. |
Mine Safety Disclosures |
42 |
| Item 5. |
Other Information |
42 |
| Item 6. |
Exhibits |
42 |
| Signatures |
43 |
|
FORWARD-LOOKING STATEMENTS
The discussions of Trio-Tech International’s (the “Company”) business and activities set forth in this Quarterly Report on Form 10-Q (this “Quarterly Report”) 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; ongoing public health issues related to the COVID-19 pandemic both nationally and internationally; the trade tension between U.S. and China; inflation; the war in Ukraine; other economic, financial and regulatory factors beyond the Company’s control and uncertainties relating to our ability to operate our business in China; uncertainties regarding the enforcement of laws and the fact that rules and regulation in China can change quickly with little advance notice, along with the risk that the Chinese government may intervene or influence our operation at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers could result in a material change in our operations, financial performance and/or the value of our common stock, no par value (“Common Stock”) or impair our ability to raise money. 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.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT NUMBER OF SHARES)
| March 31, | June 30, | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term deposits | ||||||||
| Trade accounts receivable, less allowance for doubtful accounts of $ and $, respectively | ||||||||
| Other receivables | ||||||||
| Inventories, less provision for obsolete inventories of $ and $, respectively | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Financed sales receivable | ||||||||
| Restricted term deposits | ||||||||
| Total current assets | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Deferred tax assets | ||||||||
| Investment properties, net | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other assets | ||||||||
| Financed sales receivable | ||||||||
| Restricted term deposits | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Lines of credit | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Income taxes payable | ||||||||
| Current portion of bank loans payable | ||||||||
| Current portion of finance leases | ||||||||
| Current portion of operating leases | ||||||||
| Total current liabilities | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Bank loans payable, net of current portion | ||||||||
| Finance leases, net of current portion | ||||||||
| Operating leases, net of current portion | ||||||||
| Income taxes payable, net of current portion | ||||||||
| Deferred tax liabilities | ||||||||
| Other non-current liabilities | ||||||||
| Total non-current liabilities | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| EQUITY | ||||||||
| TRIO-TECH INTERNATIONAL’S SHAREHOLDERS’ EQUITY: | ||||||||
| Common stock, par value, shares authorized; and shares issued outstanding as at March 31, 2023 and June 30, 2022, respectively | $ | $ | ||||||
| Paid-in capital | ||||||||
| Accumulated retained earnings | ||||||||
| Accumulated other comprehensive income-translation adjustments | ||||||||
| Total Trio-Tech International shareholders’ equity | ||||||||
| Non-controlling interest | ||||||||
| TOTAL EQUITY | $ | $ | ||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | ||||||
See notes to condensed consolidated financial statements
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / (LOSS)
UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| Mar. 31, |
Mar. 31, |
Mar. 31, |
Mar. 31, |
|||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Revenue |
||||||||||||||||
| Manufacturing |
$ | $ | $ | $ | ||||||||||||
| Testing services |
||||||||||||||||
| Distribution |
||||||||||||||||
| Real estate |
||||||||||||||||
| Cost of Sales |
||||||||||||||||
| Cost of manufactured products sold |
||||||||||||||||
| Cost of testing services rendered |
||||||||||||||||
| Cost of distribution |
||||||||||||||||
| Cost of real estate |
||||||||||||||||
| Gross Margin |
||||||||||||||||
| Operating Expenses: |
||||||||||||||||
| General and administrative |
||||||||||||||||
| Selling |
||||||||||||||||
| Research and development |
||||||||||||||||
| Loss on disposal of property, plant and equipment |
||||||||||||||||
| Total operating expenses |
||||||||||||||||
| (Loss) / Income from Operations |
( |
) | ( |
) |
||||||||||||
| Other Income / (Expenses) |
||||||||||||||||
| Interest expenses |
( |
) | ( |
) |
( |
) | ( |
) |
||||||||
| Other income, net |
||||||||||||||||
| Total other income / (expenses) |
( |
) | ||||||||||||||
| Income / (Loss) from Continuing Operations before Income Taxes |
( |
) | ||||||||||||||
| Income Tax Expenses |
( |
) | ( |
) |
( |
) | ( |
) |
||||||||
| Income / (Loss) from Continuing Operations before Non-controlling Interest, Net of Tax |
( |
) | ||||||||||||||
| Discontinued Operations |
||||||||||||||||
| Income / (loss) from discontinued operations, net of tax |
( |
) | ||||||||||||||
| NET INCOME / (LOSS) |
( |
) | ||||||||||||||
| Less: net income / (loss) attributable to non-controlling interest |
( |
) | ( |
) |
||||||||||||
| Net (Loss) / Income Attributable to Trio-Tech International Common Shareholders |
$ | ( |
) | $ | ( |
) |
$ | $ | ||||||||
| Amounts Attributable to Trio-Tech International Common Shareholders: |
||||||||||||||||
| (Loss) / Income from continuing operations, net of tax |
( |
) | ( |
) |
||||||||||||
| Income / (Loss) from discontinued operations, net of tax |
( |
) | ||||||||||||||
| Net (Loss) / Income Attributable to Trio-Tech International Common Shareholders |
$ | ( |
) | $ | ( |
) |
$ | $ | ||||||||
| Basic Earnings per Share: |
||||||||||||||||
| Basic (loss) / earnings per share from continuing operations attributable to Trio-Tech International |
$ | $ | ( |
) |
$ | $ | ||||||||||
| Basic (loss) / earnings per share from discontinued operations attributable to Trio-Tech International |
$ | $ | $ | $ | ||||||||||||
| Basic (Loss) / Earnings per Share from Net Income Attributable to Trio-Tech International |
$ | $ | ( |
) |
$ | $ | ||||||||||
| Diluted (Loss) / Earnings per Share: |
||||||||||||||||
| Diluted (loss) / earnings per share from continuing operations attributable to Trio-Tech International |
$ | $ | ( |
) |
$ | $ | ||||||||||
| Diluted (loss) / earnings per share from discontinued operations attributable to Trio-Tech International |
$ | $ | $ | $ | ||||||||||||
| Diluted (Loss) / Earnings per Share from Net Income Attributable to Trio-Tech International |
$ | $ | ( |
) |
$ | $ | ||||||||||
| Weighted average number of common shares outstanding |
||||||||||||||||
| Basic |
||||||||||||||||
| Dilutive effect of stock options |
||||||||||||||||
| Number of shares used to compute earnings per share diluted |
||||||||||||||||
See notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)
UNAUDITED (IN THOUSANDS)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| Mar. 31, |
Mar. 31, |
Mar. 31, |
Mar. 31, |
|||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Comprehensive Income Attributable to Trio-Tech International Common Shareholders: |
||||||||||||||||
| Net income / (loss) |
$ | $ | ( |
) |
$ | $ | ||||||||||
| Foreign currency translation, net of tax |
( |
) |
||||||||||||||
| Comprehensive Income / (Loss) |
( |
) |
||||||||||||||
| Less: comprehensive (loss) / income attributable to non- controlling interest |
( |
) |
( |
) |
( |
) |
||||||||||
| Comprehensive Income / (Loss) Attributable to Trio-Tech International Common Shareholders |
$ | $ | ( |
) |
$ | $ | ||||||||||
See notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
UNAUDITED (IN THOUSANDS)
Nine months ended March 31, 2023
| Common Stock |
Paid-in |
Accumulated Retained |
Accumulated Other Comprehensive |
Non- controlling |
||||||||||||||||||||||||
| Shares |
Amount |
Capital |
Earnings |
Income |
Interest |
Total |
||||||||||||||||||||||
| $ |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||||||||||
| Balance at June 30, 2022 |
||||||||||||||||||||||||||||
| Stock option expenses |
- | |||||||||||||||||||||||||||
| Net income |
- | |||||||||||||||||||||||||||
| Exercise of stock option |
||||||||||||||||||||||||||||
| Translation adjustment |
- | ( |
) | |||||||||||||||||||||||||
| Balance at Mar. 31, 2023 |
||||||||||||||||||||||||||||
Nine months ended March 31, 2022
| Common Stock |
Paid-in |
Accumulated Retained |
Accumulated Other Comprehensive |
Non- controlling |
||||||||||||||||||||||||
| Shares |
Amount |
Capital |
Earnings |
Income |
Interest |
Total |
||||||||||||||||||||||
| $ |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||||||||||
| Balance at June 30, 2021 |
||||||||||||||||||||||||||||
| Stock option expenses |
- | |||||||||||||||||||||||||||
| Net income / (loss) |
- | ( |
) |
|||||||||||||||||||||||||
| Dividend declared by subsidiary |
- | ( |
) |
( |
) |
|||||||||||||||||||||||
| Exercise of stock option |
||||||||||||||||||||||||||||
| Translation adjustment |
- | ( |
) |
( |
) |
( |
) |
|||||||||||||||||||||
| Balance at Mar. 31, 2022 |
||||||||||||||||||||||||||||
See notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
| Nine Months Ended |
||||||||
| Mar. 31, |
Mar. 31, |
|||||||
| 2023 |
2022 |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| Cash Flow from Operating Activities |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash flow provided by operating activities |
||||||||
| Depreciation and amortization |
||||||||
| Stock compensation |
||||||||
| Addition of provision for obsolete inventories |
||||||||
| Bad debt recovery, net of allowance charged |
( |
) | ( |
) |
||||
| Accrued interest expense, net (accrued interest income) |
( |
) | ||||||
| Payment of interest portion of finance lease |
( |
) | ( |
) |
||||
| Reversal of income tax provision |
( |
) |
||||||
| Warranty recovery, net |
||||||||
| Deferred tax expenses / (benefit) |
( |
) |
||||||
| Repayment of operating lease |
( |
) | ( |
) |
||||
| Changes in operating assets and liabilities, net of acquisition effects |
||||||||
| Trade accounts receivable |
( |
) |
||||||
| Other receivables |
( |
) |
||||||
| Other assets |
||||||||
| Inventories |
( |
) |
||||||
| Prepaid expenses and other current assets |
( |
) |
||||||
| Accounts payable and accrued expenses |
( |
) | ||||||
| Income taxes payable |
( |
) | ||||||
| Other non-current liabilities |
||||||||
| Net Cash Provided by Operating Activities |
$ | $ | ||||||
| Cash Flow from Investing Activities |
||||||||
| Withdrawal from unrestricted term deposits |
||||||||
| Investment in unrestricted term deposits |
( |
) | ( |
) |
||||
| Additions to property, plant and equipment |
( |
) | ( |
) |
||||
| Net Cash (Used in) / Provided by Investing Activities |
( |
) | ||||||
| Cash Flow from Financing Activities |
||||||||
| Payment on lines of credit |
( |
) | ( |
) |
||||
| Payment of bank loans |
( |
) | ( |
) |
||||
| Payment of principal portion of finance leases |
( |
) | ( |
) |
||||
| Dividends paid to non-controlling interest |
( |
) |
||||||
| Proceeds from exercising stock options |
||||||||
| Proceeds from lines of credit |
||||||||
| Proceeds from bank loans |
||||||||
| Net Cash (Used in) / Provided by Financing Activities |
( |
) | ||||||
| Effect of Changes in Exchange Rate |
||||||||
| Net Increase in Cash, Cash Equivalents, and Restricted Cash |
||||||||
| Cash, Cash Equivalents, and Restricted Cash at Beginning of Period |
||||||||
| Cash, Cash Equivalents, and Restricted Cash at End of Period |
$ | $ | ||||||
| Supplementary Information of Cash Flows |
||||||||
| Cash paid during the period for: |
||||||||
| Interest |
$ | $ | ||||||
| Income taxes |
$ | $ | ||||||
| Reconciliation of Cash, Cash Equivalents, and Restricted Cash |
||||||||
| Cash |
||||||||
| Restricted Term-Deposits in Current Assets |
||||||||
| Restricted Term-Deposits in Non-Current Assets |
||||||||
| Total Cash, Cash Equivalents, and Restricted Cash Shown in Statements of Cash Flows |
$ | $ | ||||||
See notes to condensed consolidated financial statements.
Restricted deposits represent the amount of cash pledged to secure loans payable or trade financing granted by financial institutions, serve as collateral for public utility agreements such as electricity and water, and performance bonds related to customs duty payable. Restricted deposits are classified as current and non-current depending on whether they relate to long-term or short-term obligations. Restricted deposit of $755 is classified as current assets as it relates to short-term trade financing. On the other hand, restricted deposits of $1,762 is classified as non-current assets as they relate to long-term obligations and will become unrestricted only upon discharge of the obligations.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED 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”) was incorporated in fiscal year ended June 30, 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 (“U.S.”). The Company also designs, develops, manufactures, and markets a broad range of equipment and systems used in the manufacturing and testing of semiconductor devices and electronic components. In the third quarter of the fiscal year ended June 30, 2023 (“Fiscal 2023”), TTI conducted business in four business segments: Manufacturing, Testing Services, Distribution and Real Estate. TTI has subsidiaries in the U.S., Singapore, Malaysia, Thailand, Indonesia, Ireland, and China as follows:
| Ownership | Location | |
| Express Test Corporation (Dormant) | | Van Nuys, California |
| Trio-Tech Reliability Services (Dormant) | | Van Nuys, California |
| KTS Incorporated, dba Universal Systems (Dormant) | | Van Nuys, California |
| European Electronic Test Centre (Dormant) | | Dublin, Ireland |
| Trio-Tech International Pte. Ltd. | | Singapore |
| Universal (Far East) Pte. Ltd.* | | Singapore |
| Trio-Tech International (Thailand) Co. Ltd. * | | Bangkok, Thailand |
| Trio-Tech (Bangkok) Co. Ltd. * | | Bangkok, Thailand |
| Trio-Tech (Malaysia) Sdn. Bhd. (55% owned by Trio-Tech International Pte. Ltd.) | | Penang and Selangor, Malaysia |
| Trio-Tech (Kuala Lumpur) Sdn. Bhd. (100% owned by Trio-Tech Malaysia Sdn. Bhd.) | | Selangor, Malaysia |
| Prestal Enterprise Sdn. Bhd. (76% owned by Trio-Tech International Pte. Ltd.) | | Selangor, Malaysia |
| Trio-Tech (SIP) Co., Ltd. * | | Suzhou, China |
| Trio-Tech (Chongqing) Co. Ltd. * | | Chongqing, China |
| SHI International Pte. Ltd. (Dormant) (55% owned by Trio-Tech International Pte. Ltd) | | Singapore |
| PT SHI Indonesia (Dormant) (100% owned by SHI International Pte. Ltd.) | | Batam, Indonesia |
| Trio-Tech (Tianjin) Co., Ltd. * | | Tianjin, China |
| Trio-Tech (Jiangsu) Co., Ltd. (51% owned by Trio-Tech (SIP) Co., Ltd.) | | Suzhou, China |
*
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States 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 intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements are presented in U.S. dollars unless otherwise stated. The accompanying condensed consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements. 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, 2022 (“Fiscal 2022”). The Company’s operating results are presented based on the translation of foreign currencies using the respective quarter’s average exchange rate.
The results of operations for the nine months ended March 31, 2023 are not necessarily indicative of the results that may be expected for any other interim period or for the full year ending June 30, 2023.
Use of Estimates — The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Among the more significant estimates included in these consolidated financial statements are the estimated allowance for doubtful account receivables, reserve for obsolete inventory, impairments, provision of income tax, stock options and the deferred income tax asset allowance. Actual results could materially differ from those estimates.
Significant Accounting Policies. There have been no material changes to our significant accounting policies summarized in Note 1 “Basis of Presentation and Summary of Significant Accounting Policies” to our consolidated Financial Statements included in our Annual Report on Form 10-K for Fiscal 2022.
2. NEW ACCOUNTING PRONOUNCEMENTS
In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02 updating Accounting Standards Codification (“ASC”) Topic 326: Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings (“TDR") and Vintage Disclosures (“ASU 2022-02”), which require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. The Company has completed its assessment and concluded that ASU 2022-02 has no significant impact to the Company’s consolidated financial statements.
In November 2021, FASB issued ASU 2021-10 ASC Topic 832: Government Assistance (“Topic 832”): Disclosures by Business Entities about Government Assistance (“ASU 2021-10”), which expected to increase transparency in financial reporting by requiring business entities to disclose information about certain types of government assistance received. ASU 2021-10 is effective for financial statements issued for annual periods beginning after December 15, 2021 for all entities except not-for-profit entities and employee benefit plans within the scope of Topics 960, 962, and 965 on plan accounting. The Company has completed its assessment and concluded that ASU 2021-10 is applicable to the Company as the Company received government grants. The Company will make the necessary disclosures in the financial statements for Fiscal 2023.
In June 2016, FASB issued ASU 2016-13 ASC Topic 326, Financial Instruments — Credit Losses (“Topic 326”) (“ASU 2016-13”) 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. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Topic 326 is effective for the Company for annual periods beginning after December 15, 2022. The Company has completed its assessment and concluded that ASU 2016-03 has no significant impact to the Company’s consolidated financial statements.
Other new pronouncements issued but not yet effective until after March 31, 2023, are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
3. TERM DEPOSITS
| Mar. 31, | Jun. 30, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Short-term deposits | $ | $ | ||||||
| Currency translation effect on short-term deposits | ( | ) | ||||||
| Total short-term deposits | ||||||||
| Restricted term deposits - Current | ||||||||
| Currency translation effect on restricted term deposits | ||||||||
| Total restricted term deposits - Current | ||||||||
| Restricted term deposits - Non-Current | ||||||||
| Currency translation effect on restricted term deposits | ( | ) | ||||||
| Total restricted term deposits - Non-Current | ||||||||
| Total term deposits | $ | $ | ||||||
Restricted deposits represent the amount of cash pledged to secure loans payable or trade financing granted by financial institutions and serve as collateral for public utility agreements such as electricity and water, and performance bonds related to customs duty payable. Restricted deposits are classified as current and non-current depending on whether they relate to long-term or short-term obligations. Restricted deposit of $
4. TRADE ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are customer obligations due under normal trade terms. The Company performs continuing credit evaluations of its customers’ financial conditions, and although management generally does not require collateral, letters of credit may be required from the customers in certain circumstances.
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 March 31, 2023, and June 30, 2022, was adequate.
The following table represents the changes in the allowance for doubtful accounts:
| Mar. 31, | Jun. 30, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Beginning | $ | $ | ||||||
| Additions charged to expenses | ||||||||
| Recovered | ( | ) | ( | ) | ||||
| Currency translation effect | ( | ) | ( | ) | ||||
| Ending | $ | $ | ||||||
5. LOANS RECEIVABLE FROM PROPERTY DEVELOPMENT PROJECTS
The following table presents Trio-Tech (Chongqing) Co. Ltd (“TTCQ”)’s loan receivables from property development projects in China as of March 31, 2023.
| Loan Expiry | Loan Amount | Loan Amount | |||||||
| Date | (RMB) | (U.S. Dollars) | |||||||
| Short-term loan receivables | |||||||||
| JiangHuai (Project – Yu Jin Jiang An) | May 31, 2013 | ||||||||
| Less: allowance for doubtful receivables | ( | ) | ( | ) | |||||
| Net loan receivables from property development projects | |||||||||
| Long-term loan receivables | |||||||||
| Jun Zhou Zhi Ye | Oct 31, 2016 | ||||||||
| Less: transfer – down-payment for purchase of investment property | ( | ) | ( | ) | |||||
| Net loan receivables from property development projects | |||||||||
The short-term loan receivables amounting to renminbi (“RMB”) or approximately $
The long-term loan amounting to RMB
6. INVENTORIES
Inventories consisted of the following:
| Mar. 31, 2023 | Jun. 30, 2022 | |||||||
| (Unaudited) | ||||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Less: provision for obsolete inventories | ( | ) | ( | ) | ||||
| Currency translation effect | ||||||||
| $ | $ | |||||||
The following table represents the changes in provision for obsolete inventories:
| Mar. 31, 2023 | Jun. 30, 2022 | |||||||
| (Unaudited) | ||||||||
| Beginning | $ | $ | ||||||
| Additions charged to expenses | ||||||||
| Usage – disposition | ( | ) | ( | ) | ||||
| Currency translation effect | ||||||||
| Ending | $ | $ | ||||||
7. INVESTMENT PROPERTIES
The following table presents the Company’s investment in properties in China as of March 31, 2023. The exchange rate is based on the market rate as of March 31, 2023.
| Investment Date / Reclassification | Investment Amount | Investment Amount | |||||||
| Date | (RMB) | (U.S. Dollars) | |||||||
| Purchase of rental property – Property I – MaoYe Property | Jan 04, 2008 | ||||||||
| Currency translation | ( | ) | |||||||
| Reclassification as “Assets held for sale” | July 01, 2018 | ( | ) | ( | ) | ||||
| Reclassification from “Assets held for sale” | Mar 31, 2019 | ||||||||
| Purchase of rental property – Property II - JiangHuai | Jan 06, 2010 | ||||||||
| Purchase of rental property – Property III - FuLi | Apr 08, 2010 | ||||||||
| Currency translation | ( | ) | |||||||
| Gross investment in rental property | |||||||||
| Accumulated depreciation on rental property | Mar 31, 2023 | ( | ) | ( | ) | ||||
| Reclassified as “Assets held for sale”- MaoYe Property | July 01, 2018 | ||||||||
| Reclassification from “Assets held for sale”- MaoYe Property | Mar 31, 2019 | ( | ) | ( | ) | ||||
| ( | ) | ( | ) | ||||||
| Net investment in property – China | |||||||||
The following table presents the Company’s investment in properties in China as of June 30, 2022. The exchange rate is based on the market rate as of June 30, 2022.
| Investment Date / Reclassification | Investment Amount | Investment Amount | ||||||||
| Date | (RMB) | (U.S. Dollars) | ||||||||
| Purchase of rental property – Property I – MaoYe Property | Jan 04, 2008 | |||||||||
| Currency translation | ( | ) | ||||||||
| Reclassification as “Assets held for sale” | July 01, 2018 | ( | ) | ( | ) | |||||
| Reclassification from “Assets held for sale” | Mar 31, 2019 | |||||||||
| Purchase of rental property – Property II - JiangHuai | Jan 06, 2010 | |||||||||
| Purchase of rental property – Property III - FuLi | Apr 08, 2010 | |||||||||
| Currency translation | ( | ) | ||||||||
| Gross investment in rental property | ||||||||||
| Accumulated depreciation on rental property | Jun 30, 2022 | ( | ) | ( | ) | |||||
| Reclassified as “Assets held for sale”- MaoYe Property | July 01, 2018 | |||||||||
| Reclassification from “Assets held for sale”- MaoYe Property | Mar 31, 2019 | ( | ) | ( | ) | |||||
| ( | ) | ( | ) | |||||||
| Net investment in property – China | ||||||||||
Rental Property I - MaoYe Property
In the fiscal year ended June 30, 2008, TTCQ purchased an office in Chongqing, China from MaoYe Property Ltd. (“MaoYe”) for a total cash purchase price of RMB
Property purchased from MaoYe generated a rental income of and $
Depreciation expense for MaoYe was $
Rental Property II - JiangHuai
During the year ended June 30, 2010 (“Fiscal 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
Property purchased from JiangHuai did not generate any rental income for the three and nine months ended March 31, 2023 and 2022.
Depreciation expense for JiangHuai was $
Rental Property III – FuLi
In Fiscal 2010, TTCQ entered into a Memorandum Agreement with Chongqing FuLi Real Estate Development Co. Ltd. (“FuLi”) to purchase commercial properties totaling
In August 2022, TTCQ signed a new tenancy agreement for one of the two commercial properties for a period of 1 year at a monthly rate of or approximately $
Properties purchased from FuLi generated a rental income of $
Depreciation expense for FuLi was $
Summary
Total rental income for all investment properties in China was $
Depreciation expenses for all investment properties in China were $
8. OTHER ASSETS
Other assets consisted of the following:
| Mar. 31, | Jun. 30, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Down payment for purchase of investment properties * | $ | $ | ||||||
| Deposits for rental and utilities and others | ||||||||
| Currency translation effect | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
*Down payment for purchase of investment properties included:
| RMB | U.S. Dollars | |||||||
| Original Investment (10% of Junzhou equity) | $ | $ | ||||||
| Less: Management Fee | ( | ) | ( | ) | ||||
| Net Investment | ||||||||
| Less: Share of Loss on Joint Venture | ( | ) | ( | ) | ||||
| Net Investment as Down Payment (Note *a) | ||||||||
| Loans Receivable | ||||||||
| Interest Receivable | ||||||||
| Less: Impairment of Interest | ( | ) | ( | ) | ||||
| Transferred to Down Payment (Note *b) | ||||||||
| * Down Payment for Purchase of Investment Properties | ||||||||
| Add: Effect of foreign currency exchange | - | |||||||
| Less: Provision of Impairment loss on other assets | ( | ) | ( | ) | ||||
| * Down Payment for Purchase of Investment Properties | $ | - | $ | - | ||||
| a) | In Fiscal 2011, the Company signed a Joint Venture agreement (the “Agreement”) with Jia Sheng Property Development Co. Ltd. (the “Developer”) to form a new company, Junzhou Co. Limited (“Joint Venture” or “Junzhou”), to jointly develop the “Singapore Themed Park” project (the “Project”). The Company paid for the
In Fiscal 2014, the Company disposed of its entire interest in the Joint Venture but, to date, has not received payment in full. The Company recognized a disposal based on the recorded net book value of RMB |
| b) | Amounts of RMB
The shop lots are to be delivered to TTCQ upon completion of the construction of the shop lots in the Project. The initial targeted date of completion was in the fiscal year ended June 30, 2017. However, the progress has been delayed as the developer is currently undergoing asset reorganization process, to re-negotiate with their creditors to complete the project.
During the fourth quarter of Fiscal 2021, the Company accrued an impairment charge of $ |
9. LINES OF CREDIT
Carrying value of the Company’s lines of credit approximates its fair value because the interest rates associated with the lines of credit are adjustable in accordance with market situations when the Company borrowed funds with similar terms and remaining maturities.
The Company’s credit rating provides it with ready and adequate access to funds in global markets.
As of March 31, 2023, the Company had certain lines of credit that are collateralized by restricted deposits.
| Entity with | Type of | Interest | Credit | Unused | ||||||||||
| Facility | Facility | Rate | Limitation | Credit | ||||||||||
| Trio-Tech International Pte. Ltd., Singapore |
| Ranging from 1.85% | to | $ | $ | |||||||||
| Universal (Far East) Pte. Ltd. |
| Ranging from 1.85% | to | $ | $ | |||||||||
| Trio-Tech Malaysia Sdn. Bhd. | Revolving credit Bank guarantee |
| $ | $ | ||||||||||
As of June 30, 2022, the Company had certain lines of credit that are collateralized by restricted deposits.
| Entity with | Type of | Interest | Credit | Unused | ||||||||||
| Facility | Facility | Rate | Limitation | Credit | ||||||||||
| Trio-Tech International Pte. Ltd., Singapore |
| Ranging from 1.85% | to | $ | $ | |||||||||
| Universal (Far East) Pte. Ltd. |
| Ranging from 1.85% | to | $ | $ | |||||||||
| Trio-Tech Malaysia Sdn. Bhd. | Revolving credit |
| $ | $ | ||||||||||
10. ACCRUED EXPENSE
Accrued expense consisted of the following:
| Mar. 31, | Jun. 30, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Payroll and related costs | $ | $ | ||||||
| Commissions | ||||||||
| Legal and audit | ||||||||
| Sales tax | ||||||||
| Utilities | ||||||||
| Warranty | ||||||||
| Accrued purchase of materials and property, plant and equipment | ||||||||
| Provision for reinstatement | ||||||||
| Contract liabilities | ||||||||
| Other accrued expense | ||||||||
| Currency translation effect | ( | ) | ||||||
| Total | $ | $ | ||||||
11. 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 upon with the customer. The Company estimates the warranty costs based on the historical rates of warranty returns. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary.
| Mar. 31, | Jun. 30, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Beginning | $ | $ | ||||||
| Additions charged to cost and expense | ||||||||
| Utilisation / Reversal | ( | ) | ( | ) | ||||
| Currency translation effect | - |
| ||||||
| Ending | $ | $ | ||||||
12. BANK LOANS PAYABLE
Bank loans payable consisted of the following:
| Mar. 31, | Jun. 30, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Note payable denominated in the Malaysian Ringgit for expansion plans in Malaysia, maturing in August 2028, bearing interest at the bank’s prime rate less % (% and % at March 31, 2023 and June 30, 2022) per annum, with monthly payments of principal plus interest through August 2028, collateralized by the acquired building with a carrying value of $ and $ as at March 31, 2023 and June 30, 2022. | $ | $ | ||||||
| Financing arrangement at fixed interest rate % per annum, with monthly payments of principal plus interest through July 2025. | ||||||||
| Financing arrangement at fixed interest rate % per annum, with monthly payments of principal plus interest through December 2026. | ||||||||
| Financing arrangement at fixed interest rate % per annum, with monthly payments of principal plus interest through August 2027. | ||||||||
| Total bank loans payable | $ | $ | ||||||
| Current portion of bank loans payable | ||||||||
| Currency translation effect on current portion of bank loans | ( | ) | ( | ) | ||||
| Current portion of bank loans payable | ||||||||
| Long-term portion of bank loans payable | ||||||||
| Currency translation effect on long-term portion of bank loans | ( | ) | ( | ) | ||||
| Long-term portion of bank loans payable | $ | |||||||
Future minimum payments (excluding interest) as of March 31, 2023, were as follows:
| Remainder of Fiscal 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total obligations and commitments | $ |
Future minimum payments (excluding interest) as of June 30, 2022, were as follows:
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total obligations and commitments | $ |
13. COMMITMENTS AND CONTINGENCIES
Deposits with banks are not fully insured by the local government or agency and are consequently exposed to risk of loss. The Company believes that the probability of 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.
14. BUSINESS SEGMENTS
The Company operated in segments; the testing service industry (which performs structural and electronic tests of semiconductor devices), the designing and manufacturing of equipment (assembly of equipment that tests the structural integrity of integrated circuits and other products), distribution of various products from other manufacturers in Singapore and Asia and the real estate segment in China.
The cost of equipment, current year investment in new equipment and depreciation expense are allocated into respective segments based on primary purpose for which the equipment was acquired.
All intersegment sales were sales from the manufacturing segment to the testing and distribution segment. Total intersegment sales were $
The following segment Information is unaudited for the nine months ended March 31, 2023, and March 31, 2022:
Business Segment Information:
| Nine Months | Operating | ||||||||||||||||||||
| Ended |
| Income / | Total | Depr. And | Capital | ||||||||||||||||
| Mar. 31, | Revenue | (Loss) | Assets | Amort. | Expenditures | ||||||||||||||||
| Manufacturing | 2023 | $ | $ | $ | $ | $ | |||||||||||||||
| 2022 | $ | $ | $ | $ | $ | ||||||||||||||||
| Testing Services | 2023 | ||||||||||||||||||||
| 2022 | |||||||||||||||||||||
| Distribution | 2023 | ||||||||||||||||||||
| 2022 | |||||||||||||||||||||
| Real Estate | 2023 | ( | ) | ||||||||||||||||||
| 2022 | ( | ) | |||||||||||||||||||
| Corporate & Unallocated | 2023 | ( | ) | ||||||||||||||||||
| 2022 | ( | ) | |||||||||||||||||||
| Total Company | 2023 | $ | $ | $ | $ | $ | |||||||||||||||
| 2022 | $ | $ | $ | $ | $ | ||||||||||||||||
The following segment Information is unaudited for the three months ended March 31, 2023, and March 31, 2022:
Business Segment Information:
| Three Months | Operating | ||||||||||||||||||||
| Ended |
| Income / | Total | Depr. And | Capital | ||||||||||||||||
| Mar. 31, | Revenue | (Loss) | Assets | Amort. | Expenditures | ||||||||||||||||
| Manufacturing | 2023 | $ | $ | ( | ) | $ | $ | $ | |||||||||||||
| 2022 | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||
| Testing Services | 2023 | ||||||||||||||||||||
| 2022 | ( | ) | |||||||||||||||||||
| Distribution | 2023 | ||||||||||||||||||||
| 2022 | ( | ) | |||||||||||||||||||
| Real Estate | 2023 | ( | ) | ||||||||||||||||||
| 2022 | ( | ) | |||||||||||||||||||
| Corporate & Unallocated | 2023 | ( | ) | ||||||||||||||||||
| 2022 | ( | ) | |||||||||||||||||||
| Total Company | 2023 | $ | $ | ( | ) | $ | $ | $ | |||||||||||||
| 2022 | $ | ( | ) | ||||||||||||||||||
15. OTHER INCOME
Other income consisted of the following:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| Mar. 31, | Mar. 31, | Mar. 31, | Mar. 31, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Unaudited | Unaudited | Unaudited | Unaudited | |||||||||||||
| Interest income | $ | $ | $ | $ | ||||||||||||
| Other rental income | ||||||||||||||||
| Exchange gain / (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Bad debt recovery | ||||||||||||||||
| Commission income | ||||||||||||||||
| Government grant | ||||||||||||||||
| Other miscellaneous income | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
16. 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 2016 to 2022 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.
Due to the enactment of the Tax Act, the Company is subject to a tax on global intangible low-taxed income (“GILTI”). GILTI is a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. Companies subject to GILTI have the option to account for the GILTI tax as a period cost if and when incurred, or to recognize deferred taxes for temporary differences including outside basis differences expected to reverse as GILTI. The Company has elected to account for GILTI as a period cost. GILTI expense was and $
The Company's income tax expense was $
| 1. | A $ |
| 2. | Tax expense for three months ending March 31, 2022 included additional tax arising from tax assessments of prior periods. |
The Company accrues penalties and interest related to unrecognized tax benefits when necessary, as a component of penalties and interest expense, respectively. The Company had
In assessing the ability to realize the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on these criteria, management believes it is more likely than not the Company will not realize the benefits of the federal, state, and foreign deductible differences. Accordingly, a valuation allowance has been established against deferred tax assets recorded in the U.S. and various foreign jurisdictions.
17. REVENUE
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.
Significant Judgments
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”). Determining the SSP for each distinct performance obligation and allocation of consideration from an arrangement to the individual performance obligations and the appropriate timing of revenue recognition are significant judgments with respect to these arrangements. 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 the required acceptance criteria, and when the installation of the system is deemed perfunctory). |
Not all 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 of product installation and training services are deferred and recognized upon acceptance.
The majority of sales under the Manufacturing segment include a standard 12-month warranty which are mainly assurance warranty and are not separate performance obligations. Warranty provided for some customized products may be classified as 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 renders 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. SSP is directly observable 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 than what has been stated inside the sales order for each of these sales.
Terms of contract that may indicate potential variable consideration include warranty, late delivery penalty and reimbursement to solve nonconformance 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 made by manufacturers around the world. 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 control has transferred by considering several indicators discussed above. 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 Balances
The timing of revenue recognition, billings and collections may result in billed accounts receivable, unbilled receivables, contract assets, customer advances, deposits and contract 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 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.
The following table is the reconciliation of contract balances.
| Mar. 31, | Jun. 30, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Trade Accounts Receivable | $ | $ | ||||||
| Accounts Payable | ||||||||
| Contract Liabilities | ||||||||
Remaining Performance Obligation
As at March 31, 2023, the Company had $
As at June 30, 2022, the Company had $
18. EARNINGS PER SHARE
Options to purchase
Options to purchase
The following table is a reconciliation of the weighted average shares used in the computation of basic and diluted EPS for the period presented herein:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| Mar. 31, | Mar. 31, | Mar. 31, | Mar. 31, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| (Loss) / Income attributable to Trio-Tech International common shareholders from continuing operations, net of tax | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Income / (loss) attributable to Trio-Tech International common shareholders from discontinued operations, net of tax | ( | ) | ||||||||||||||
| Net (loss) / income attributable to Trio-Tech International Common Shareholders | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Weighted average number of common shares outstanding - basic | ||||||||||||||||
| Dilutive effect of stock options | ||||||||||||||||
| Number of shares used to compute earnings per share - diluted | ||||||||||||||||
| Basic (loss) / earnings per share from continuing operations attributable to Trio-Tech International | $ | ( | ) | |||||||||||||
| Basic earnings per share from discontinued operations attributable to Trio-Tech International | ||||||||||||||||
| Basic (loss) / earnings per share from net income attributable to Trio-Tech International | $ | $ | ( | ) | $ | $ | ||||||||||
| Diluted (loss) / earnings per share from continuing operations attributable to Trio-Tech International | $ | ( | ) | |||||||||||||
| Diluted earnings per share from discontinued operations attributable to Trio-Tech International | ||||||||||||||||
| Diluted (loss) / earnings per share from net income attributable to Trio-Tech International | $ | $ | ( | ) | $ | $ | ||||||||||
19. 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” and, together with the 2007 Employee Plan, the “2007 Plans”), each of which was approved by the shareholders on December 3, 2007. Each of the 2007 Plans were amended during the term of such plan to increase the number of shares covered thereby. Each of the 2007 Plans terminated by their respective terms on September 24, 2017.
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.
Assumptions
The fair value for the stock options granted to both employees and directors was estimated using the Black-Scholes option pricing model with the following weighted average assumptions, assuming:
| ● | An expected life varying from |
| ● | A risk-free interest rate varying from |
| ● | |
| ● | Expected volatility of |
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
During the third quarter of Fiscal 2023,
During the third quarter of Fiscal 2022, there were
As of March 31, 2023, there were vested stock options granted under the 2017 Employee Plan covering a total of
As of March 31, 2022, there were vested stock options granted under the 2017 Employee Plan covering a total of
A summary of option activities under the 2017 Employee Plan during the nine months ended March 31, 2023, is presented as follows:
| Weighted Average | Weighted Average Remaining Contractual | Aggregate | ||||||||||||||
| Exercise | Term | Intrinsic | ||||||||||||||
| Options | Price | (Years) | Value | |||||||||||||
| Outstanding at July 1, 2022 | $ | $ | ||||||||||||||
| Granted | - | - | ||||||||||||||
| Exercised | ( | ) | - | - | ||||||||||||
| Forfeited or expired | ( | ) | - | - | - | |||||||||||
| Outstanding at March 31, 2023 | $ | $ | ||||||||||||||
| Exercisable at March 31, 2023 | $ | $ | ||||||||||||||
A summary of the status of the Company’s non-vested employee stock options during the nine months ended March 31, 2023, is presented below:
| Weighted Average | ||||||||
| Options | Grant-Date Fair Value | |||||||
| Non-vested at July 1, 2022 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | - | |||||
| Forfeited | ( | ) | - | |||||
| Non-vested at March 31, 2023 | $ | |||||||
A summary of option activities under the 2017 Employee Plan during the nine months ended March 31, 2022, is presented as follows:
| Weighted Average | Weighted Average Remaining Contractual | Aggregate | ||||||||||||||
| Exercise | Term | Intrinsic | ||||||||||||||
| Options | Price | (Years) | Value | |||||||||||||
| Outstanding at July 1, 2021 | $ | $ | ||||||||||||||
| Granted | - | - | - | |||||||||||||
| Exercised | ( | ) | - | - | ||||||||||||
| Forfeited or expired | - | - | - | - | ||||||||||||
| Outstanding at March 31, 2022 | $ | $ | ||||||||||||||
| Exercisable at March 31, 2022 | $ | $ | ||||||||||||||
A summary of the status of the Company’s non-vested employee stock options during the nine months ended March 31, 2022, is presented below:
| Weighted Average | ||||||||
| Options | Grant-Date Fair Value | |||||||
| Non-vested at July 1, 2021 | $ | |||||||
| Granted | 40,500 | - | ||||||
| Vested | ( | ) | - | |||||
| Forfeited | - | - | ||||||
| Non-vested at March 31, 2022 | $ | |||||||
2007 Employee Stock Option Plan
The Company’s 2007 Employee Plan permitted the issuance of options to employees. As of the last amendment thereof, the 2007 Employee Plan covered an aggregate of
There were
As of July 1, 2022 and March 31, 2023, there were
As of March 31, 2022, there were
A summary of option activities under the 2007 Employee Plan during the nine months ended March 31, 2022, is presented as follows:
| Weighted Average | Weighted Average Remaining Contractual | Aggregate | ||||||||||||||
| Exercise | Term | Intrinsic | ||||||||||||||
| Options | Price | (Years) | Value | |||||||||||||
| Outstanding at July 1, 2021 | $ | $ | ||||||||||||||
| Granted | - | - | - | - | ||||||||||||
| Exercised | (37,500 | ) | 4.14 | - | - | |||||||||||
| Forfeited or expired | - | - | - | - | ||||||||||||
| Outstanding at March 31, 2022 | $ | - | $ | |||||||||||||
2017 Directors Equity Incentive Plan
The 2017 Directors Plan initially covered an aggregate of
During the third quarter of Fiscal 2023, the Company granted options to purchase
During the third quarter of Fiscal 2022, the Company granted options to purchase
As all the stock options granted under the 2017 Directors Plan vest immediately on the date of grant, there were
As of March 31, 2023, there were vested stock options granted under the 2017 Directors Plan covering a total of
As of March 31, 2022, there were vested stock options granted under the 2017 Directors Plan covering a total of
A summary of option activities under the 2017 Directors Plan during the nine months ended March 31, 2023, is presented as follows:
| Weighted Average | Weighted Average Remaining Contractual | Aggregate | ||||||||||||||
| Exercise | Term | Intrinsic | ||||||||||||||
| Options | Price | (Years) | Value | |||||||||||||
| Outstanding at July 1, 2022 | $ | $ | ||||||||||||||
| Granted | 100,000 | 4.51 | - | |||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Forfeited or expired | (80,000 | ) | 5.98 | - | - | |||||||||||
| Outstanding at March 31, 2023 | $ | $ | $ | |||||||||||||
| Exercisable at March 31, 2023 | $ | $ | $ | |||||||||||||
A summary of option activities under the 2017 Directors Plan during the nine months ended March 31, 2022, is presented as follows:
| Weighted Average | Weighted Average Remaining Contractual | Aggregate | ||||||||||||||
| Exercise | Term | Intrinsic | ||||||||||||||
| Options | Price | (Years) | Value | |||||||||||||
| Outstanding at July 1, 2021 | $ | $ | ||||||||||||||
| Granted | 100,000 | 7.76 | - | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Forfeited or expired | - | - | - | - | ||||||||||||
| Outstanding at March 31, 2022 | ||||||||||||||||
| Exercisable at March 31, 2022 | ||||||||||||||||
2007 Directors Equity Incentive Plan
The Company’s 2007 Directors Plan permitted the grant of stock options to its directors in the form of nonqualified options and restricted stock. As of the last amendment thereof, the 2007 Directors Plan covered an aggregate of
There were
As of March 31, 2023 and March 31, 2022, there were
A summary of option activities under the 2007 Directors Plan during the nine months ended March 31, 2022 is presented as follows:
| Weighted Average | Weighted Average Remaining Contractual | Aggregate | ||||||||||||||
| Exercise | Term | Intrinsic | ||||||||||||||
| Options | Price | (Years) | Value | |||||||||||||
| Outstanding at July 1, 2021 | $ | $ | ||||||||||||||
| Granted | - | - | - | - | ||||||||||||
| Exercised | ( | ) | - | - | ||||||||||||
| Forfeited or expired | - | - | ||||||||||||||
| Outstanding at March 31, 2022 | $ | - | $ | - | ||||||||||||
| Exercisable at March 31, 2022 | $ | - | $ | - | ||||||||||||
20. LEASES
Company as Lessor
Operating leases under which the Company is the lessor arise from leasing the Company’s commercial real estate investment property to third parties. Initial lease terms generally range from
Future minimum rental income in China and Thailand to be received from Fiscal 2023 to the fiscal year ended June 30, 2027 (“Fiscal 2027”) on non-cancelable operating leases is contractually due as follows as of March 31, 2023:
| Remainder of Fiscal 2023 | $ | |||
| Fiscal 2024 | ||||
| Fiscal 2025 | ||||
| Fiscal 2026 | ||||
| Fiscal 2027 | ||||
| $ |
Future minimum rental income in China and Thailand to be received from Fiscal 2023 to Fiscal 2027 on non-cancelable operating leases is contractually due as follows as of June 30, 2022:
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| $ |
Sales-type leases under which the Company is the lessor arise from the lease of units of chiller systems. The Company classifies its lease arrangements at inception of the arrangement. The lease term is years, contains an automatic transfer of title at the end of the lease term and a guarantee of residual value at the end of the lease term. The customer is required to pay for executory costs such as taxes.
Financing receivables, consisting of net investment in sales-type leases and receivables from financed sales of units of chiller systems are as follows:
| Components of Lease Balances | Mar. 31, | |||
| 2023 | ||||
| Assets | ||||
| Gross financial sales receivable | $ | |||
| Unearned finance income | ( | ) | ||
| Financed sales receivable | $ | |||
| Net financed sales receivables due within one year | $ | |||
| Net financed sales receivables due after one year | $ | |||
As of March 31, 2023, the financed sale receivables had a weighted average effective interest rate of
Company as Lessee
The Company is the lessee under operating leases for corporate offices and research and development facilities with remaining lease terms of year to years and finance leases for plant and equipment.
Supplemental balance sheet information related to leases was as follows (in thousands):
| Mar. 31, | Jun. 30, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Finance Leases (Plant and Equipment) | ||||||||
| Plant and equipment, at cost | $ | $ | ||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Plant and Equipment, Net | $ | $ | ||||||
| Current portion of finance leases | $ | $ | ||||||
| Net of current portion of finance leases | ||||||||
| Total Finance Lease Liabilities | $ | $ | ||||||
| Operating Leases (Corporate Offices, Research and Development Facilities) | ||||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Operating lease right-of-use assets, Net | $ | $ | ||||||
| Current portion of operating leases | ||||||||
| Net of current portion of operating leases | ||||||||
| Total Operating Lease Liabilities | $ | $ | ||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| Mar. 31, | Mar. 31, | Mar. 31, | Mar. 31, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Lease Cost | ||||||||||||||||
| Finance lease cost: | ||||||||||||||||
| Interest on finance lease | $ | $ | $ | $ | ||||||||||||
| Amortization of right-of-use assets | ||||||||||||||||
| Total finance lease cost | ||||||||||||||||
| Operating Lease Costs | $ | $ | $ | $ | ||||||||||||
Other information related to leases was as follows (in thousands except lease term and discount rate):
| Nine Months Ended | ||||||||
| Mar. 31, | Mar. 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash Paid for Amounts Included in the Measurement of Lease Liabilities | ||||||||
| Operating cash flows from finance leases | $ | ( | ) | $ | ( | ) | ||
| Operating cash flows from operating leases | ( | ) | ( | ) | ||||
| Finance cash flows from finance leases | ( | ) | ( | ) | ||||
| Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities | ||||||||
| Weighted-Average Remaining Lease Term: | ||||||||
| Finance leases | ||||||||
| Operating leases | ||||||||
| Weighted-Average Discount Rate: | ||||||||
| Finance leases | % | % | ||||||
| Operating leases | % | % | ||||||
As of March 31, 2023, the maturities of the Company’s operating and finance lease liabilities are as follow:
| Operating Lease Liabilities | Finance Lease Liabilities | |||||||
| Fiscal Year | ||||||||
| Remainder of Fiscal 2023 | $ | $ | ||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
| Total future minimum lease payments | $ | $ | ||||||
| Less: amount representing interest | ( | ) | ( | ) | ||||
| Present value of net minimum lease payments | $ | $ | ||||||
| Presentation on statement of financial position | ||||||||
| Current | ||||||||
| Non-Current | ||||||||
As of June 30, 2022, future minimum lease payments under finance leases and noncancelable operating leases were as follows:
| Operating Lease Liabilities | Finance Lease Liabilities | |||||||
| Fiscal Year | ||||||||
| 2023 | $ | $ | ||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
| Total future minimum lease payments | $ | $ | ||||||
| Less: amount representing interest | ( | ) | ( | ) | ||||
| Present value of net minimum lease payments | $ | $ | ||||||
| Presentation on statement of financial position | ||||||||
| Current | ||||||||
| Non-Current | ||||||||
21. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with ASC Topics 825 and 820, the following presents assets and liabilities measured and carried at fair value and classified by level of fair value measurement hierarchy:
There were no transfers between Levels 1 and 2 during the nine months ended March 31, 2023 and 2022.
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 loans payable 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.
22. CONCENTRATION OF CUSTOMERS
The Company had
| Nine Months Ended | ||||||||
| Mar. 31, 2023 | Mar. 31, 2022 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenue | ||||||||
| - Customer A | % | % | ||||||
| - Customer B | % | % | ||||||
| - Customer C | % | % | ||||||
| Trade Account Receivables | ||||||||
| - Customer A | % | % | ||||||
| - Customer B | % | % | ||||||
| - Customer C | % | % | ||||||
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Overview
The following should be read in conjunction with the condensed consolidated financial statements and notes in Item I above and with the audited consolidated financial statements and notes, the information under the headings “Management’s discussion and analysis of financial condition and results of operations” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022.
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 Block 1008 Toa Payoh North, Unit 03-09 Singapore 318996, and our telephone number is (65) 6265 3300.
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 automotive electronics, industrial electronics, computing and data storage, consumer electronics, and communication markets. We act as a global one-stop solution for our customers by designing and building reliability test solutions, and offering comprehensive testing services through our testing laboratories in Asia and the United States (“U.S.”).
During the nine months ended March 31, 2023, TTI generated approximately 100% of its revenue from its three core business segments in the test and measurement industry, i.e., manufacturing of test equipment (“Manufacturing”), testing services (“Testing”) and distribution of test equipment and electronic components (“Distribution”).
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, and more. We also act as an extended development team of Integrated Device Manufacturers (IDMs) and Fabless semiconductor companies in the testing processes with our expert technical skills, especially in the New Product Introduction (NPI) process.
Testing
TTI provides comprehensive electrical, environmental, and burn-in testing services to semiconductor manufacturers in our testing laboratories in Asia and the United States (“U.S.”). Our customers include both manufacturers and end users of semiconductors and electronic components who look to us when they decide to outsource their testing process. We also support the asset-light strategy of our customers by setting up test facilities and providing component level, package level and system level testing services with expert technology that improves the productivity of our customers. 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 around the world. The products include environmental chambers, mechanical shock & vibration testers, and other semiconductor equipment. Besides equipment, we also distribute a wide range of components such as connectors, sockets, cables, LCD display and touch screen panels. We act as value-added resellers by enhancing the value of the distributed products by customizing them to the needs of our customers through our expert engineering, integration, and sub-assembly services. We also support our customers as their extended research & development arm in product designing, by leveraging the expert skills of our component engineers and design engineers.
Real Estate
Our real estate segment generates investment income from the investments made and rental revenue received from real estate that we purchased in Chongqing, China.
Critical Accounting Estimates & Policies
The preparation of our Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in applying our accounting policies that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base these estimates and assumptions on historical experience and evaluate them on an ongoing basis to ensure that they remain reasonable under current conditions. Actual results could differ from those estimates. We discuss the development and selection of the critical accounting estimates with the Audit Committee of our Board of Directors on a quarterly basis, and the Audit Committee has reviewed our related disclosure in this Quarterly Report on Form 10-Q.
There have been no material changes in our critical accounting estimates and policies since our Annual Report on Form 10-K for the fiscal year ended June 30, 2022. Refer to Note 1 “Basis of Presentation and Summary of significant Accounting Policies” to our Condensed Consolidated Financial Statements for additional details. In addition, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended June 30, 2022 for a complete description of our critical accounting policies and estimates.
Third Quarter Fiscal Year 2023 Highlights
| ● |
Total revenue decreased by $1,296, or 11.6%, to $9,842 in the third quarter of our fiscal year ending June 30, 2023 (“Fiscal 2023”), compared to $11,138 for the same period in the fiscal year ended June 30, 2022 (“Fiscal 2022”). |
| ● |
Manufacturing segment revenue decreased by $134, or 4.3%, to $2,963 in the third quarter of Fiscal 2023, compared to $3,097 for the same period in Fiscal 2022. |
| ● |
Testing segment revenue increased by $1,280, or 29.0%, to $5,697 in the third quarter of Fiscal 2023, compared to $4,417 for the same period in Fiscal 2022. |
| ● |
Distribution segment revenue decreased by $2,441, or 67.4%, to $1,179 in the third quarter of Fiscal 2023, compared to $3,620 for the same period in Fiscal 2022. |
| ● |
Real estate segment rental revenue decreased by $1, or 25%, to $3 in the third quarter of Fiscal 2023, compared to $4 for the same period in Fiscal 2022. |
| ● |
The overall gross profit decreased by $16, or 0.6%, to $2,458 in the third quarter of Fiscal 2023, from 2,474 for the same period in Fiscal 2022. |
| ● |
General and administrative expense decreased by $130, or 5.5%, to $2,248 in the third quarter of Fiscal 2023, from $2,378 for the same period in Fiscal 2022. |
| ● |
Selling expense increased by increased by $14, or 9.6%, to $160 in the third quarter of Fiscal 2023, from $146 for the same period in Fiscal 2022. |
| ● |
Other income decreased by $4, or 3.1%, to $123 in the third quarter of Fiscal 2023, from other income of $127 for the same period in Fiscal 2022. |
| ● |
Loss from operations was $37 for the third quarter of Fiscal 2023, a decrease of $93 as compared to loss from operations of $130 for the same period in Fiscal 2022. |
| ● |
Income tax expense was $8 for the third quarter of Fiscal 2023, a decrease of $162 as compared to $170 in the same period in Fiscal 2022. |
| ● |
During the third quarter of Fiscal 2023, income from continuing operations before non-controlling interest, net of tax was $49, as compared to loss from continuing operations before non-controlling interest of $204 for the same period in Fiscal 2022. |
| ● |
Net income attributable to non-controlling interest for the second quarter of Fiscal 2023 was $61, an increase of $98 as compared to net loss attributable to non-controlling interest of $37 in the same period in Fiscal 2022. |
| ● |
Basic earnings per share for the third quarter of Fiscal 2023 was $Nil, as compared to loss per share of $0.04 for the same period in Fiscal 2022. |
| ● |
Diluted earnings per share for the third quarter of Fiscal 2023 was $Nil, as compared to loss per share of $0.04 for the same period in Fiscal 2022. |
| ● |
Total assets increased by $1,953 to $45,374 as of March 31, 2023, compared to $43,421 as of June 30, 2022. |
| ● |
Total liabilities decreased by $521 to $14,898 as of March 31, 2023, compared to $15,419 as of June 30, 2022. |
Results of Operations and Business Outlook
The following table sets forth our revenue components for both three and nine months ended March 31, 2023 and 2022.
| Revenue Components |
Three Months Ended |
Nine Months Ended |
||||||||||||||
| Mar. 31, |
Mar. 31, |
Mar. 31, |
Mar. 31, |
|||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| (Unaudited) |
(Unaudited) |
(Unaudited) |
(Unaudited) |
|||||||||||||
| Manufacturing |
30.1 | % |
27.8 | % |
33.9 | % |
31.6 | % |
||||||||
| Testing Services |
57.9 | % |
39.6 | % |
51.8 | % |
43.4 | % |
||||||||
| Distribution |
12.0 | % |
32.5 | % |
14.2 | % |
24.9 | % |
||||||||
| Real Estate |
0.0 | % |
0.1 | % |
0.0 | % |
0.1 | % |
||||||||
| Total |
100.0. | % |
100.0 | % |
100.0 | % |
100.0 | % |
||||||||
Revenue for the three and nine months ended March 31, 2023, was $9,842 and $34,171, respectively, a decrease of $1,296 and an increase of $1,940, respectively, when compared to the revenue for the same period of Fiscal 2022. As a percentage, revenue decreased by 11.6% and increased by 6 % for the three and nine months ended March 31, 2023, when compared to revenue for the same period of Fiscal 2022.
For the three months ended March 31, 2023, there was an increase in revenue in the Testing segment when compared to the same period of Fiscal 2022. The Manufacturing and Distribution segment’s revenue decreased compared to the same period of Fiscal 2022. For the nine months ended March 31, 2023, there was an increase in revenue in the Manufacturing and Testing segments when compared to the same period of Fiscal 2022. The Distribution segment’s revenue decreased compared to the same period of Fiscal 2022.
Total revenue into and within China, the Southeast Asia regions and other countries (except revenue into and within the U.S. decreased by $1,208 (or 11%), to $9,719 and increased by $1,970 (or 6.3%) to $33,232 for the three and nine months ended March 31, 2023, respectively, as compared with $10,927 and $31,262 for the same period of Fiscal 2022, respectively.
Total revenue into and within the U.S. was $123 and $937 for the three and nine months ended March 31, 2023, respectively, a decrease of $99 and $51 from $222 and $988 for the same periods of Fiscal 2022, respectively.
Revenue within our four current segments for the three and nine months ended March 31, 2023, is discussed below.
Manufacturing Segment
Revenue in the Manufacturing segment as a percentage of total revenue was 30.1% and 33.9% for the three and nine months ended March 31, 2023, respectively, an increase of 2.3% of total revenue when compared to 27.8% and 31.6% in the same period of Fiscal 2022. The absolute amount of revenue decreased by $134 to $2,963 from $3,097 for three months ended March 31, 2023 due to decrease in burn-in-board sales in Singapore operation. On the other hand, the absolute amount of revenue increased by $1,405 to $11,592 from $10,187 for the nine months ended March 31, 2023 mainly attributed to increased board and system sales in the first half of Fiscal 2023 compared to the same period of Fiscal 2022.
Revenue in the Manufacturing segment from one customer accounted for 44.6% and 55.8% of our total revenue in the Manufacturing segment for the three months ended March 31, 2023, and 2022, respectively, and 32.4% and 46.2% of our total revenue in the Manufacturing segment for the nine months ended March 31, 2023, and 2022, respectively.
Testing Services Segment
The Testing segment's revenue was 57.9% for the three months ended March 31, 2023, representing an increase of 18.3%, compared to 39.6% for the same period of Fiscal 2022. Revenue in the Testing segment was 51.8% as a percentage of total revenue for the nine months ended March 31, 2023, an increase of 8.4% compared to the same period of Fiscal 2022. The absolute amount of revenue increased by $1,280 to $5,697 and increased by $3,726 to $17,709 from $4,417 and $13,983 for the three and nine months ended March 31, 2023, respectively, as compared to the same periods of Fiscal 2022. The increase is mainly attributed to the new subsidiary in China which was not yet operational in the same period of Fiscal 2022. The increase was partially offset by a drop in volume in other test plants due to the lower demand resulting from weakening of global semiconductor industry.
The revenue in the Testing segment from one customer accounted for 41.6% and 59.5% of our revenue in the Testing segment for the three months ended March 31, 2023 and 2022, respectively, and 44.3% and 62.1% of our total revenue in the Testing segment for the nine months ended March 31, 2023 and 2022, respectively. The future revenue in the Testing segment will be affected by the demands of this customer if the customer base cannot be increased. Demand for testing services varies from country to country, depending on any changes taking place in the market and our customers’ forecasts. As it is challenging to forecast fluctuations in the market accurately, management believes it is necessary to maintain testing facilities in close proximity to the 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 was 12.0% and 14.2% as a percentage of total revenue for the three and nine months ended March 31, 2023, respectively, a decrease of 20.5% and 10.7%, compared to the same period of Fiscal 2022. The absolute amount of revenue decreased by $2,441 to $1,179 and by $3,183 to $4,855 from $3,620 and $8,038 for the three and nine months ended March 31, 2023, respectively, compared to the same period of Fiscal 2022. The decrease is mainly due to inventory adjustments made by our end customers who are currently carrying excess inventory, due to which demand is weak and deliveries are being pushed out to next fiscal year.
The revenue in the Distribution segment from one customer accounted for 66.8% and 82.2% of our revenue in the Distribution segment for the three months ended March 31, 2023 and 2022, respectively, and 78.7% and 77.9% of our total revenue in the Distribution segment for the nine months ended March 31, 2023 and 2022, respectively. Demand for the Distribution segment varies depending on the demand for our customers’ products, the changes taking place in the market, and our customers’ forecasts. Hence it is difficult to forecast fluctuations in the market accurately.
Real Estate Segment
The Real Estate segment revenue decreased to $3 and $15 from $4 and $23 for the three and nine months ended March 31, 2023, compared to the same period of Fiscal 2022.
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 stockpiling. We believe that we have improved customer service 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 for higher technology chips.
The Company’s primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar-denominated sales and operating expense in its subsidiaries. Strengthening of the United States dollar (“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 U.S. 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.
As of March 2023, although we have seen improvements in both our operations and those of our suppliers, we may continue to experience supply shortages as well as inflationary cost pressures in at least the near term. Risks and uncertainties related to the COVID-19 pandemic, supply chain challenges, and inflationary pressures may continue to negatively impact our revenue and gross margin. We continue to monitor and evaluate the business impact to react proactively.
On August 9, 2022, the CHIPS and Science Act of 2022 (CHIPS Act) was enacted in the United States. The CHIPS Act will provide financial incentives to the semiconductor industry which are primarily directed at manufacturing activities within the United States. We continue to evaluate the business impact and potential opportunities related to the CHIPS Act. As of date, we do not see any direct effect of the CHIPS Act on the Company in the foreseeable future.
There are legal and operational risks associated with having operations in China. These risks could result in a material change in our operations and/or the value of our common stock or could limit or hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. In recent past, the Peoples Republic of China (“PRC”) government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement.
The Company and its subsidiaries do not have any variable interest entities based in China. Our business primarily consists of semiconductor testing and burn-in services for the automotive industry, avionics, and others. Our businesses are not impacted by anti-monopoly policies, variable interest entities policies, or data security policies, nor are our businesses subject to extraordinary oversight from the Chinese government.
Comparison of the Three Months Ended March 31, 2023, and March 31, 2022
The following table sets forth certain consolidated statements of income data as a percentage of revenue for the three months ended March 31, 2023 and 2022 respectively:
| Three Months Ended |
||||||||
| March 31, |
||||||||
| 2023 |
2022 |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| Revenue |
100.0 | % |
100.0 | % |
||||
| Cost of sales |
75.0 | % |
77.8 | % |
||||
| Gross Margin |
25.0 | % |
22.2 | % |
||||
| Operating expense |
||||||||
| General and administrative |
22.8 | % |
21.4 | % |
||||
| Selling |
1.6 | % |
1.3 | % |
||||
| Research and development |
0.9 | % |
0.7 | % |
||||
| Total operating expense |
25.3 | % |
23.4 | % |
||||
| Income from Operations |
(0.3 | )% | (1.2 | )% |
||||
Overall Gross Margin
Overall gross margin as a percentage of revenue increased by 2.8% to 25% for the three months ended March 31, 2023, from 22.2% for the same period of Fiscal 2022. Gross profits decreased by $14 to $2,458 for the three months ended March 31, 2023, from $2,474 for the same period in Fiscal 2022.
Gross profit margin as a percentage of revenue in the Manufacturing segment decreased by 1.0% to 17.3% for the three months ended March 31, 2023, as compared to 18.3% for the same period in Fiscal 2022. Gross profits in the Manufacturing segment decreased by $55 to $512 for the three months ended March 31, 2023, from $567 for the same period in Fiscal 2022. The decrease in gross profit margin was primarily due to a lower sales for the three months ended March 31, 2023 compared to the same period of Fiscal 2022.
Gross profit margin as a percentage of revenue in the Testing segment increased by 2.5% to 30.8% for the three months ended March 31, 2023, compared to 28.3% in the same period of Fiscal 2022. The increase in gross profit margin percentage was mainly due to higher proportion of high-margin services coupled with effective cost control measures, mainly in Malaysia, China, and Thailand operations. In absolute dollar amounts, gross profit in the testing segment increased by $519 to $1,757 for the three months ended March 31, 2023, from $1,248 for the same period of Fiscal 2022.
Gross profit margin of the Distribution segment is not only affected by the market price of the products we distribute, but also the mix of products we distribute, which frequently changes as a result of fluctuations in market demand. Gross profit margin as a percentage of revenue in the Distribution segment decreased by 1.3% to 17.3% for the three months ended March 31, 2023, from 18.6% in the same period of Fiscal 2022. Gross profit in the Distribution segment for the three months ended March 31, 2023, was $204, a decrease of $472, compared to $675 in the same period of Fiscal 2022. The decrease in gross profit was primarily due to a lower sales for the three months ended March 31, 2023 compared to the same period of Fiscal 2022, due to inventory adjustments by customers.
For the three months ended March 31, 2023, gross loss in the Real Estate segment was $15, as compared to $16 for the same period of Fiscal 2022.
Operating Expense
Operating expense for the three months ended March 31, 2023 and 2022 was as follows:
| Three Months Ended |
||||||||
| March 31, |
||||||||
| 2023 |
2022 |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| General and administrative |
$ | 2,248 | $ | 2,378 | ||||
| Selling |
160 | 146 | ||||||
| Research and development |
87 | 80 | ||||||
| Gain on disposal of property, plant and equipment |
- | - | ||||||
| Total |
$ | 2,495 | $ | 2,604 | ||||
General and administrative expense decreased by $130 or 5.5%, from $2,378 to $2,248 for the three months ended March 31, 2023, compared to the same period of Fiscal 2022. The decrease in general and administrative expense was mainly attributable to the decrease in stock compensation costs and effective cost control in China operations.
Selling expense increased by $14 or 9.6%, from $146 to $160 for the three months ended March 31, 2023, compared to the same period of Fiscal 2022. The increase in selling expense was primarily attributable to an increase in commission costs in the Manufacturing segment of the Singapore operations as a result of an increase in commissionable revenue, and an increase in travel costs due to increased business travel in the third quarter of Fiscal 2023, compared to the same quarter of Fiscal 2022.
Loss from Operations
Loss from operations was $37 for the three months ended March 31, 2023, a decrease of $93, compared to loss of $130 from operations for the same period of Fiscal 2022. This was mainly due to a decrease in general and administrative expenses.
Interest Expense
Interest expense for the three months ended March 31, 2023 and 2022 were as follows:
| Three Months Ended |
||||||||
| March 31, |
||||||||
| 2023 |
2022 |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| Interest expense |
$ | 29 | $ | 31 | ||||
Interest expense was $29 for the three months ended March 31, 2023, a decrease of $2, or 6.4%, compared to $31 for the same period of Fiscal 2022. As of March 31, 2023, the Company had an unused line of credit of $5,806 as compared to $5,158 at March 31, 2022.
Other Income
Other income for the three months ended March 31, 2023 and 2022 were as follows:
| Three Months Ended |
||||||||
| March 31, |
||||||||
| 2023 |
2022 |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| Interest income |
$ | 49 | $ | 13 | ||||
| Other rental income |
30 | 30 | ||||||
| Exchange loss |
(47 | ) | (9 | ) |
||||
| Government grant |
83 | 62 | ||||||
| Other miscellaneous income |
8 | 31 | ||||||
| Total |
$ | 123 | $ | 127 | ||||
Other income decreased marginally by $4 from $127 to other expenses of $123 for the three months ended March 31, 2023 compared to the same period in Fiscal 2022. The decrease was mainly contributed by a negative foreign currency impact in the third quarter of Fiscal 2023, partially offset by an increase in interest income compared to the same period in Fiscal 2022.
Income Tax Expense
The Company's income tax expense was $8 and $170 for the three months ended March 31, 2023 and 2022, respectively. The decrease was primarily due to tax provision adjustments made pursuant to tax filings for Fiscal 2022.
Non-controlling Interest
As of March 31, 2023, we held a 55% interest in Trio-Tech (Malaysia) Sdn. Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd., and 52% interest in PT. SHI Indonesia. We also held a 76% interest in Prestal Enterprise Sdn. Bhd and 51% interest in Trio-Tech JiangSu Co. Ltd. The share of non-controlling interest in the net profit from the subsidiaries for the three months ended March 31, 2023 was $61, an increase of $98 compared to the share of non-controlling interest in the net loss from the subsidiaries of $37 for the same period of Fiscal 2022. The increase in the net income shared by non-controlling interest in the subsidiaries was attributable to the increase in net income generated by the China operation.
Net Loss Attributable to Trio-Tech International Common Shareholders
Net loss attributable to Trio-Tech International common shareholders for the three months ended March 31, 2023, was $7, a change of $160, compared to a net loss of $167 for the same period in Fiscal 2022.
Earnings / (Losses) per Share
Basic earnings per share from continuing operations were $nil for the three months ended March 31, 2023, compared to basic losses per share from continuing operations of $0.04 for the same period in Fiscal 2022. Basic earnings per share from discontinued operations were $nil for both the three months ended March 31, 2023, and 2022.
Diluted earnings per share from continuing operations were $nil for the three months ended March 31, 2023, as compared to diluted losses per share from continuing operations of $0.04 for the same period in Fiscal 2022. Diluted earnings per share from discontinued operations were $nil for both the three months ended March 31, 2023, and 2022.
Segment Information
The revenue, gross margin and income or loss from operations for each segment during the third quarter of Fiscal 2023 and Fiscal 2022 are presented below. As the 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 loss from operations for the Manufacturing segment for the three months ended March 31, 2023 and 2022 were as follows:
| Three Months Ended |
||||||||
| March 31, |
||||||||
| 2023 |
2022 |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| Revenue |
$ | 2,963 | $ | 3,097 | ||||
| Gross margin |
17.3 | % |
18.3 | % |
||||
| Loss from operations |
$ | (104 | ) |
$ | (145 | ) |
||
Loss from operations from the Manufacturing segment was $104 compared to loss from operations of $145 in the same period of Fiscal 2022, primarily due to decrease in operating expense of $97. Operating expense for the Manufacturing segment were $615 and $712 for the three months ended March 31, 2023 and 2022, respectively. The decrease in operating expense was mainly due to a decrease of $216 in corporate overhead expense partially offset by an increase in general and administrative and selling expenses.
Testing Segment
The revenue, gross margin and income / (loss) from operations for the Testing segment for the three months ended March 31, 2023 and 2022 were as follows:
| Three Months Ended |
||||||||
| March 31, |
||||||||
| 2023 |
2022 |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| Revenue |
$ | 5,697 | $ | 4,417 | ||||
| Gross margin |
30.8 | % |
28.3 | % |
||||
| Income / (Loss) from operations |
$ | 37 | $ | (124 | ) |
|||
Income from operations in the Testing segment for the three months ended March 31, 2023 was $37 compared to loss from operations of $124 in the same period of Fiscal 2022. It was mainly attributable to an increase in revenue coupled with effective cost control. Operating expense was $1,720 and $1,372 for the three months ended March 31, 2023 and 2022, respectively. The increase of $348 in operating expenses was due to increase in general and administrative expenses and corporate expenses mainly relating to the new subsidiary in China, while offset by decrease in selling expenses.
Distribution Segment
The revenue, gross margin and income from operations for the Distribution segment for the three months ended March 31, 2023 and 2022 were as follows:
| Three Months Ended |
||||||||
| March 31, |
||||||||
| 2023 |
2022 |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| Revenue |
$ | 1,179 | $ | 3,620 | ||||
| Gross margin |
17.3 | % |
18.6 | % |
||||
| Income from operations |
$ | 151 | $ | 576 | ||||
Income from operations in the Distribution segment for three months ended March 31, 2023 was $151, compared to $576 for the same period of Fiscal 2022. The decrease of $425 was mainly due to lower sales. Operating expense were $53 and $99 for the three months ended March 31, 2023 and 2022, respectively.
Real Estate Segment
The revenue, gross margin and loss from operations for the Real Estate segment for the three months ended March 31, 2023 and 2022 were as follows:
| Three Months Ended |
||||||||
| March 31, |
||||||||
| 2023 |
2022 |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| Revenue |
$ | 3 | $ | 4 | ||||
| Gross margin |
(500 | )% |
(400 | )% |
||||
| Loss from operations |
$ | (34 | ) |
$ | (35 | ) |
||
Loss from operations in the Real Estate segment was $34 for the three months ended March 31, 2023 compared to $35 for the same period of Fiscal 2022. Operating expense was $19 for the three months ended March 31, 2023 and 2022.
Corporate
The loss from operations for Corporate for the three months ended March 31, 2023 and 2022 was as follows:
| Three Months Ended |
||||||||
| March 31, |
||||||||
| 2023 |
2022 |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| Loss from operations |
$ | (87 | ) |
$ | (402 | ) |
||
Corporate operating loss was $87 for the three months ended March 31, 2023, compared to loss of $402 in the same period of Fiscal 2022.
Comparison of the Nine Months Ended March 31, 2023 and March 31, 2022
The following table sets forth certain consolidated statements of income data as a percentage of revenue for the nine months ended March 31, 2023 and 2022, respectively:
| Nine Months Ended | ||||||||
| Mar. 31, 2023 |
Mar. 31, 2022 |
|||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenue |
100.0 | % |
100.0 | % |
||||
| Cost of sales |
72.4 | 73.5 | ||||||
| Gross Margin |
27.6 | % |
26.5 | % |
||||
| Operating expenses: |
||||||||
| General and administrative |
18.9 | % |
19.6 | % |
||||
| Selling |
1.5 | 1.4 | ||||||
| Research and development |
0.9 | 0.9 | ||||||
| Total operating expenses |
21.3 | % |
21.9 | % |
||||
| Income from Operations |
6.3 | % |
4.6 | % |
||||
Overall Gross Margin
Overall gross margin as a percentage of revenue increased marginally by 1.1% to 27.6% for the nine months ended March 31, 2023, compared to 26.5% in the same period of Fiscal 2022. Gross profits increased by $872 to $9,415 for the nine months ended March 31, 2023, from $8,543 for the same period of Fiscal 2022.
Gross profit margin as a percentage of revenue in the Manufacturing segment increased by 0.8% to 23.9% for the nine months ended March 31, 2023, from 23.1% in the same period of Fiscal 2022. Gross profit increased by $418 to $2,767 for the nine months ended March 31, 2023 compared to $2,349 for the same period of Fiscal 2022. The gross margin increase was primarily due to an increase in Manufacturing segment revenue in the nine months ended March 31, 2023, compared to the same period of Fiscal 2022.
Gross profit margin as a percentage of revenue in the Testing segment decreased by 1.3% to 33.3% for the nine months ended March 31, 2023, from 34.6% in the same period of Fiscal 2022. Gross profit in the Testing segment increased by $1,054 to $5,896 for the nine months ended March 31, 2023, from $4,842 for the same period of Fiscal 2022 due to an increase in testing services revenue, mainly contributed by the new subsidiary in China which was not yet operational in the same period of Fiscal 2022. The drop in margin resulted from lower demand due to inventory corrections made by customers in the second and third quarters of Fiscal 2023.
Gross profit margin as a percentage of revenue in the Distribution segment was 16.3% for the nine months ended March 31, 2023, compared to 17.3% in the same period of Fiscal 2022. Gross profit in the Distribution segment for the nine months ended March 31, 2023, was $791, a decrease of $595 compared to $1,386 in the same period of Fiscal 2022. The decrease in gross profit was due to the decrease in distribution sales in our Singapore operation compared to the same period of Fiscal 2022 resulting from inventory corrections made by customers.
Gross loss in the Real Estate segment increased by $3 to $39 for the nine months ended March 31, 2023, from $36 in the same period of Fiscal 2022.
Operating Expenses
Operating expenses for the nine months ended March 31, 2023 and 2022 were as follows:
| Nine Months Ended |
||||||||
| Mar. 31, 2023 |
Mar. 31, 2022 |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| General and administrative |
$ | 6,472 | $ | 6,305 | ||||
| Selling |
526 | 449 | ||||||
| Research and development |
311 | 293 | ||||||
| Loss on disposal of plant and equipment |
7 | - | ||||||
| Total |
$ | 7,316 | $ | 7,047 | ||||
General and administrative expenses increased by $167 or 2.6%, from $6,305 to $6,472 for the nine months ended March 31, 2023, compared to the same period of Fiscal 2022. The increase in general and administrative expenses was primarily due to the general and administrative expense relating to the Company’s new subsidiary Trio-Tech Jiangsu, which was setup in the third quarter of Fiscal 2022, coupled with inflationary impact on costs.
Selling expenses increased by $107 or 23.8%, for the nine months ended March 31, 2023, from $449 to $556 compared to the same period of Fiscal 2022. The increase in selling expenses was primarily attributable to an increase in commission expenses in the Manufacturing segment of Singapore operation as a result of an increase in commissionable revenue and increased travel costs.
Income from Operations
Income from operations was $2,099 for the nine months ended March 31, 2023, compared to $1,496 for the same period of Fiscal 2022. The increase was mainly due to the increase in gross profit margin, partially offset by an increase in operating expenses, as discussed earlier.
Interest Expense
Interest expense for the nine months ended March 31, 2023 and 2022 were as follows:
| Nine Months Ended |
||||||||
| Mar. 31, 2023 |
Mar. 31, 2022 |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| Interest expense |
$ | 83 | $ | 87 | ||||
Interest expense decreased marginally by $4 to $83 from $87 for the nine months ended March 31, 2023, compared to the same period of Fiscal 2022. The decrease was mainly due to lower utilization of lines of credit in the Singapore operations.
Other Income
Other income for the nine months ended March 31, 2023 and 2022 was as follows:
| Nine Months Ended |
||||||||
| Mar. 31, 2023 |
Mar. 31, 2022 |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| Interest income |
$ | 104 | $ | 51 | ||||
| Other rental income |
85 | 88 | ||||||
| Exchange loss |
(326 | ) |
(13 | ) |
||||
| Bad debt recovery |
- | 104 | ||||||
| Government grant |
108 | 160 | ||||||
| Commission income |
- | 200 | ||||||
| Other miscellaneous income |
88 | 79 | ||||||
| Total |
$ | 59 | $ | 669 | ||||
Other income for the nine months ended March 31, 2023 was $59, a decrease of $610 compared to other income of $669 for the same period of Fiscal 2022. The decrease was mainly contributed by a negative foreign currency impact in the second quarter of Fiscal 2023 and the absence of one-time commission income that was earned in the same period in Fiscal 2022.
Our net income is impacted by the overall strengthening or weakening of the US dollars since the functional currency of our foreign subsidiaries is not the U.S. Dollars. During the second quarter in Fiscal 2023, exchange rate movement negatively impacted our net income due to the strengthening of Singapore dollars against the U.S. Dollar which was partially offset by the exchange gain that arose in the first quarter of fiscal 2023.
Income Tax Expenses
Income tax expenses for the nine months ended March 31, 2023 was $474, a decrease of $29 compared to of $503 for the same period of Fiscal 2022. The marginal decrease was contributed by tax provision adjustments made pursuant to the tax filings for Fiscal 2022.
Non-controlling Interest
As of March 31, 2023, we held a 55% interest in Trio-Tech (Malaysia) Sdn. Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd., and 52% interest in PT. SHI Indonesia. We also held a 76% interest in Prestal Enterprise Sdn. Bhd and 51% interest in Trio-Tech JiangSu Co. Ltd. The net income attributable to the non-controlling interest in these subsidiaries for the nine months ended March 31, 2023, was $215, a change of $240, compared to a net loss of $25 for the same period of Fiscal 2022. The increase was attributable to the increase in net income generated by the China operation.
Net Income Attributable to Trio-Tech International Common Shareholders
Net income was $1,382 for the nine months ended March 31, 2023, a decrease of $223 compared to a net income of $1,605 for the same period of Fiscal 2022. The decrease was mainly due to the lower demand from customers in the second and third quarter of Fiscal 2023 in response to the overall inventory corrections in the semiconductor industry.
Earnings per Share
Basic earnings per share from continuing operations was $0.34 for the nine months ended March 31, 2023, compared to $0.40 for the same period in Fiscal 2022. Basic earnings per share from discontinued operations were $nil for both the nine months ended March 31, 2023 and 2022.
Diluted earnings per share from continuing operations was $0.33 for the nine months ended March 31, 2023, compared to $0.38 for the same period of Fiscal 2022. Diluted earnings per share from discontinued operations were $nil for both the nine months ended March 31, 2023 and 2022.
Segment Information
The revenue, gross profit margin, and income / (loss) from operations in each segment for the nine months ended March 31, 2023 and 2022, respectively, are presented below. As the segment revenue and gross margin for each segment have been discussed in the previous section, only the comparison of income / (loss) from operations is discussed below.
Manufacturing Segment
The revenue, gross margin and income from operations for the Manufacturing segment for the nine months ended March 31, 2023 and 2022 were as follows:
| Nine Months Ended |
||||||||
| Mar. 31, 2023 |
Mar. 31, 2022 |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| Revenue |
$ | 11,592 | $ | 10,187 | ||||
| Gross margin |
23.9 | % |
23.1 | % |
||||
| Income from operations |
$ | 373 | $ | 107 | ||||
Income from operations from the Manufacturing segment was $373 for the nine months ended March 31, 2023, an increase of $266 as compared to $107 in the same period of Fiscal 2022 due to an increase in gross margin. The increase in gross margin was partially offset with an increase in operating expenses. The Manufacturing segment's operating expenses were $2,392 and $2,242 for the nine months ended March 31, 2023 and 2022, respectively. The increase in operating expenses of $150 was mainly due to an increase in general and administrative expenses by $150, compared to the same period of Fiscal 2022. The increase in general and administrative expenses was mainly attributable to an increase in payroll-related expenses in the Singapore operations. The increase in selling expenses was primarily attributable to an increase in commission expenses in the Manufacturing segment of Singapore operation because of an increase in commissionable revenue and increase in business travel.
Testing Segment
The revenue, gross margin and income from operations for the Testing segment for the nine months ended March 31, 2023 and 2022 were as follows:
| Nine Months Ended |
||||||||
| Mar. 31, 2023 |
Mar. 31, 2022 |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| Revenue |
$ | 17,709 | $ | 13,983 | ||||
| Gross margin |
33.3 | % |
34.6 | % |
||||
| Income from operations |
$ | 1,445 | $ | 999 | ||||
Income from operations in the Testing segment for the nine months ended March 31, 2023, was $1,445, an increase of $446 compared to $999 in the same period of Fiscal 2022 mainly because of increase in revenue and gross profits. Operating expenses was $4,730 and $3,843 for the nine months ended March 31, 2023 and 2022, respectively. The higher operating expenses was mainly attributed to an increase in corporate overheads of $567.
The increase in corporate overhead expenses was due to a change in the corporate overhead allocation compared to the same period of Fiscal 2022. Corporate charges are allocated on a predetermined fixed charge basis.
Distribution Segment
The revenue, gross margin and income from operations for the Distribution segment for the nine months ended March 31, 2023 and 2022 were as follows:
| Nine Months Ended |
||||||||
| Mar. 31, 2023 |
Mar. 31, 2022 |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| Revenue |
$ | 4,855 | $ | 8,038 | ||||
| Gross margin |
16.3 | % |
17.2 | % |
||||
| Income from operations |
$ | 633 | $ | 1,107 | ||||
Income from operations in the Distribution segment for the nine months ended March 31, 2023 was $633, a decrease of $474 compared to $1,107 in the same period of Fiscal 2022. The decrease in operating income was primarily due to a decrease in gross margin of $596, which was partially offset with a decrease in operating expenses of $121. Operating expenses were $158 and $279 for the nine months ended March 31, 2023 and 2022, respectively. The decrease in operating expenses was mainly contributed by a decrease in general and administrative expenses of $86.
Real Estate Segment
The revenue, gross margin and loss from operations for the Real Estate segment for the nine months ended March 31, 2023 and 2022 were as follows:
| Nine Months Ended |
||||||||
| Mar. 31, 2023 |
Mar. 31, 2022 |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| Revenue |
$ | 15 | $ | 23 | ||||
| Gross margin |
260 | % |
163.6 | % |
||||
| Loss from operations |
$ | (76 | ) |
$ | (86 | ) |
||
Loss from operations in the Real Estate segment for the nine months ended March 31, 2023 was $76, a decrease of $10 compared to $86 for the same period of Fiscal 2022. The decrease in operating loss was mainly due to a decrease in operating expenses. Operating expenses was $37 and $51 for the nine months ended March 31, 2023 and 2022, respectively.
Corporate
The loss from operations for corporate for the nine months ended March 31, 2023 and 2022 were as follows:
| Nine Months Ended |
||||||||
| Mar. 31, 2023 |
Mar. 31, 2022 |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| Loss from operations | $ | (276 | ) | $ | (632 | ) |
||
The improvement of $356 was mainly due to a change in the corporate overhead allocation as compared to the same period last fiscal year. Corporate charges are allocated on a predetermined fixed charge basis.
Financial Condition
During the nine months ended March 31, 2023, total assets increased by $1,953 to $45,374 compared to $43,421 as of June 30, 2022. The increase was primarily due to an increase in inventories, cash and cash equivalents, term deposits, and property, plant and equipment, partially offset by decrease in trade receivables, other receivables and prepaid expenses.
Cash and cash equivalents were $8,430 as at March 31, 2023, reflecting an increase of $732 from $7,698 as at June 30, 2022, primarily due to increased collections from customers.
Short-term deposits and restricted term deposits were $8,220 as at March 31, 2023, reflecting an increase of $1,122 from $7,098 as at June 30, 2022. The increase was primarily due to increased placement of term deposits.
As at March 31, 2023, the trade accounts receivable balance decreased by $588 to $11,004, from $11,592 as at June 30, 2022, primarily due to a decrease in overall revenue of all entities on a consolidated basis in the third quarter of Fiscal 2023. The number of days’ sales outstanding in accounts receivables for the Group was 87 days and 81 days at the end of the third quarter of Fiscal 2023 and the end of Fiscal 2022, respectively.
Other receivables as at March 31, 2023 mainly comprised of advance payments made to suppliers.
Inventories as at March 31, 2023, were $2,324, an increase of $66, compared to $2,258 as at June 30, 2022. The inventories are primarily held for fulfilling sales backlog and are expected to be delivered within the next two quarters.
Prepaid expenses were $731 as at March 31, 2023 compared to $1,215 as at June 30, 2022. This was mainly due to the asset capitalization of down payments made for the purchase of equipment in the China operation.
Investment properties (net) in China was $517 as at March 31, 2023 and $585 as at June 30, 2022. The decrease was primarily due to the foreign currency exchange movement between June 30, 2022 and March 31, 2023.
Property, plant and equipment increased by $1,506 from $8,481 as at June 30, 2022, to $9,987 as at March 31, 2023, mainly due to the acquisition of new property, plant and equipment in the China operations. The increase was partially offset by the depreciation charged for the period and the foreign currency exchange movement between June 30, 2022 and March 31, 2023.
Other assets increased by $95 to $232 as at March 31, 2023 compared to $137 as at June 30, 2022. This was primarily due to rental deposits and foreign currency exchange movement between June 30, 2022 and March 31, 2023.
Lines of credit was $107 as at March 31, 2023 as compared to $929 as at June 30, 2022. This was due to lower utilization of the lines of credit in the Singapore Operations as of March 31, 2023.
Accounts payable decreased by $566 to $1,835 as at March 31, 2023 as compared to $2,401 as at June 30, 2022 which was in line with the decrease in sales.
Accrued expense increased by $566 to $6,570 as at March 31, 2023, as compared to $6,004 as at June 30, 2022. The increase in accrued expense was mainly due to an increase in accruals relating to acquisition of property, plant and equipment in the China operations, and increase in contract liabilities in Singapore operation.
Bank loans payable decreased by $177 to $1,567 as at March 31, 2023, as compared to $1,744 as of June 30, 2022. This was due to the repayments made in the Malaysia operations.
Finance leases decreased by $91 to $146 as at March 31, 2023, as compared to $237 as at June 30, 2022. This was due to the repayments made in the Singapore and Malaysia operations.
Operating lease right-of-use assets and the corresponding lease liability decreased by $93 to $3,059 as at March 31, 2023, as compared to $3,152 as at June 30, 2022. This was due to the repayment made and the operating lease expenses charged for the period.
Other non-current liabilities increased by $924 to $952 as at March 31, 2023, as compared to $28 as at June 30, 2022. The increase was mainly due to an increase in accruals relating to acquisition of property, plant and equipment in the China operations where the payments term is more than 12 months.
Liquidity Comparison
Net cash provided by operating activities increased by $5,832 to an inflow of $6,411 for the nine months ended March 31, 2023, from an inflow of $579 for the same period of Fiscal 2022. The increase in net cash provided by operating activities was primarily due to an increase of $7,104 in cash inflow from changes in depreciation, deferred tax benefit, trade receivables, other receivables, inventories, prepaid expenses and other current assets and other non-current liabilities in third quarter of Fiscal 2023 as compared to same period of Fiscal 2022. It was partially offset by an increase of $1,400 in cash outflow from changes in stock compensation expense, accrued interest, other assets, account payable and accrued expenses, income tax payable and operating lease in third quarter of Fiscal 2023 as compared to same period of Fiscal 2022.
Net cash provided by investing activities decreased by $4,717 to an outflow of $4,179 for the nine months ended March 31, 2023, from an inflow of $538 for the same period of Fiscal 2022. The increase in cash outflow was primarily due to an additions to property, plant and equipment of $2,933..
Net cash outflow from financing activities for the nine months ended March 31, 2023, was $1,078, representing a decrease of $1,588, as compared to cash inflow of $510 during the nine months ended March 31, 2022. The decrease was mainly attributable to a higher payment on lines of credit by $377, lower proceeds from exercising of stock options $410 and lower proceeds from lines of credits $883.
On March 1, 2022, the Company’s Registration Statement on Form S-3 (File No. 333-261485) was declared effective by the SEC, pursuant to which we may raise capital of S$10,000,000 USD of any combination of securities (common stock, warrants, debt securities or units) for expansion of the Company’s testing capacity and working capital purposes if necessary.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was carried out by the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2023, 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
There has been no change in the Company’s internal control over financial reporting during the fiscal quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
TRIO-TECH INTERNATIONAL
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
| 31.1 |
Rule 13a-14(a) Certification of Principal Executive Officer of Registrant |
| 31.2 |
Rule 13a-14(a) Certification of Principal Financial Officer of Registrant |
| 32 |
|
| 101.INS |
Inline XBRL Instance Document |
| 101.SCH |
Inline XBRL Taxonomy Extension Schema |
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase |
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase |
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase |
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TRIO-TECH INTERNATIONAL |
||
| By: |
/s/ Srinivasan Anitha SRINIVASAN ANITHA Chief Financial Officer (Principal Financial Officer) Dated: May 15, 2023 |
|