Annual Statements Open main menu

TRIO-TECH INTERNATIONAL - Quarter Report: 2022 December (Form 10-Q)

trt20221231_10q.htm
 


 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the Quarterly Period Ended December 31, 2022

 

OR

 

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

 

For the Transition Period from ___ to ___

 

Commission File Number 1-14523

 

TRIO-TECH INTERNATIONAL

(Exact name of Registrant as specified in its Charter

 

California

 

95-2086631

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

   

Block 1008 Toa Payoh North

  

Unit 03-09 Singapore

 

318996

(Address of principal executive offices)

 

(Zip Code)

 

Registrant's Telephone Number, Including Area Code:  (65) 6265 3300

 

Securities registered pursuant to Section 12(b) of the Act:

 

  

Name of each exchange

Title of each class

Trading Symbol

On which registered

Common Stock, no par value

        TRT

 NYSE American

 

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.   Yes ☒ No ☐  

 

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 and post such files).    Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‐accelerated filer, 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

Non-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 ☐   No ☒

 

As of February 1, 2023, there were 4,076,680 shares of the issuer’s Common Stock, no par value, outstanding.

 



 

 

 

 

TRIO-TECH INTERNATIONAL

INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE

 

   

Page

Part I.

Financial Information

 
     

Item 1.

Financial Statements

1

 

(a)   Condensed Consolidated Balance Sheets as of December 31, 2022 (Unaudited), and June 30, 2022

1
 

(b)   Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) for the Three Months Ended December 31, 2022 (Unaudited), and December 31, 2021 (Unaudited)

2
 

(c)   Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended December 31, 2022 (Unaudited), and December 31, 2021 (Unaudited)

4
 

(d)   Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2022 (Unaudited), and December 31, 2021 (Unaudited)

5
 

(e)   Notes to Condensed Consolidated Financial Statements (Unaudited)

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

39

Item 4.

Controls and Procedures

39
     

Part II.

Other Information

40
     

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

40

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

Item 3.

Defaults upon Senior Securities

40

Item 4.

Mine Safety Disclosures

40

Item 5.

Other Information

40

Item 6.

Exhibits

40
     

Signatures

41

 

 

 

 

 

 

 

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)

 

  

December 31,
2022

  

June 30,
2022

 
  

(Unaudited)

     

ASSETS

        

CURRENT ASSETS:

        

Cash and cash equivalents

 $6,379  $7,698 

Short-term deposits

  4,995   5,420 

Trade accounts receivable, less allowance for doubtful accounts of $220 and $243, respectively

  13,332   11,592 

Other receivables

  728   998 

Inventories, less provision for obsolete inventories of $649 and $674, respectively

  3,219   2,258 

Prepaid expenses and other current assets

  610   1,215 
Financed sales receivable  21   21 
Restricted term deposit  747   - 

Total current assets

  30,031   29,202 

NON-CURRENT ASSETS:

        

Deferred tax assets

  93   169 

Investment properties, net

  533   585 

Property, plant and equipment, net

  11,070   8,481 

Operating lease right-of-use assets

  2,580   3,152 

Other assets

  141   137 

Financed sales receivable

  6   17 

Restricted term deposits

  1,742   1,678 

Total non-current assets

  16,165   14,219 

TOTAL ASSETS

 $46,196  $43,421 
         

LIABILITIES

        

CURRENT LIABILITIES:

        

Lines of credit

 $-  $929 

Accounts payable

  3,067   2,401 

Accrued expenses

  6,807   6,004 

Income taxes payable

  461   787 

Current portion of bank loans payable

  511   472 

Current portion of finance leases

  101   118 

Current portion of operating leases

  1,140   1,218 

Total current liabilities

  12,087   11,929 

NON-CURRENT LIABILITIES:

        

Bank loans payable, net of current portion

  1,185   1,272 

Finance leases, net of current portion

  69   119 

Operating leases, net of current portion

  1,440   1,934 

Income taxes payable, net of current portion

  255   137 

Deferred tax liabilities

  15   - 

Other non-current liabilities

  1,172   28 

Total non-current liabilities

  4,136   3,490 

TOTAL LIABILITIES

 $16,223  $15,419 
         

EQUITY

        

TRIO-TECH INTERNATIONAL’S SHAREHOLDERS’ EQUITY:

        

Common stock, no par value, 15,000,000 shares authorized; 4,076,680 and 4,071,680 shares issued outstanding as at December 31 and June 30, 2022, respectively

 $12,769   12,750 

Paid-in capital

  4,762   4,708 

Accumulated retained earnings

  10,608   9,219 

Accumulated other comprehensive income-translation adjustments

  1,494   1,197 

Total Trio-Tech International shareholders’ equity

  29,633   27,874 

Non-controlling interest

  340   128 

TOTAL EQUITY

 $29,973  $28,002 

TOTAL LIABILITIES AND EQUITY

 $46,196  $43,421 

 

See notes to condensed consolidated financial statements

 

 

 

-1-

 

 

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / (LOSS)

UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)

 

 

   

Three Months Ended

   

Six Months Ended

 
   

Dec. 31,

   

Dec. 31,

   

Dec. 31,

   

Dec. 31,

 
   

2022

   

2021

   

2022

   

2021

 

Revenue

                               

Manufacturing

  $ 5,044     $ 3,528     $ 8,629     $ 7,090  

Testing services

    5,648       4,966       12,012       9,566  

Distribution

    1,694       2,420       3,676       4,418  

Real estate

    4       8       12       19  
      12,390       10,922       24,329       21,093  

Cost of Sales

                               

Cost of manufactured products sold

    3,849       2,874       6,374       5,308  

Cost of testing services rendered

    3,747       3,089       7,873       5,972  

Cost of distribution

    1,441       2,050       3,089       3,706  

Cost of real estate

    18       19       36       38  
      9,055       8,032       17,372       15,024  
                                 

Gross Margin

    3,335       2,890       6,957       6,069  
                                 

Operating Expenses:

                               

General and administrative

    1,919       1,947       4,224       3,927  

Selling

    193       156       366       303  

Research and development

    151       131       224       213  

Loss on disposal of property, plant and equipment

    3       -       7       -  

Total operating expenses

    2,266       2,234       4,821       4,443  
                                 

Income from Operations

    1,069       656       2,136       1,626  
                                 

Other (Expenses) /Income

                               

Interest expenses

    (10 )     (28

)

    (54 )     (56

)

Other income, net

    (243 )     381       (64 )     542  

Total other (expenses) / income

    (253 )     353       (118 )     486  
                                 

Income from Continuing Operations before Income Taxes

    816       1,009       2,018       2,112  
                                 

Income Tax Expenses

    (241 )     (153

)

    (466 )     (333

)

                                 

Income from Continuing Operations before Non-controlling Interest, Net of Tax

    575       856       1,552       1,779  
                                 

Discontinued Operations

                               

(Loss) / Income from discontinued operations, net of tax

    (10 )     -       (9 )     5  

NET INCOME

    565       856       1,543       1,784  
                                 

Less: net income attributable to non-controlling interest

    58       1       154       12  

Net Income Attributable to Trio-Tech International Common Shareholders

  $ 507     $ 855     $ 1,389     $ 1,772  
                                 

Amounts Attributable to Trio-Tech International Common Shareholders:

                               

Income from continuing operations, net of tax

    512       856       1,394       1,770  

(Loss) / Income from discontinued operations, net of tax

    (5 )     (1

)

    (5 )     2  

Net Income Attributable to Trio-Tech International Common Shareholders

  $ 507     $ 855     $ 1,389     $ 1,772  
                                 

Basic Earnings per Share:

                               

Basic earnings per share from continuing operations attributable to Trio-Tech International

  $ 0.12     $ 0.22     $ 0.34     $ 0.46  

Basic earnings per share from discontinued operations attributable to Trio-Tech International

  $ -     $ -     $ -     $ -  

Basic Earnings per Share from Net Income Attributable to Trio-Tech International

  $ 0.12     $ 0.22     $ 0.34     $ 0.46  

Diluted Earnings per Share:

                               

Diluted earnings per share from continuing operations attributable to Trio-Tech International

  $ 0.12     $ 0.20     $ 0.33     $ 0.43  

Diluted earnings per share from discontinued operations attributable to Trio-Tech International

  $ -     $ -     $ -     $ -  

Diluted Earnings per Share from Net Income Attributable to Trio-Tech International

  $ 0.12     $ 0.20     $ 0.33     $ 0.43  
                                 

Weighted average number of common shares outstanding

                               

Basic

    4,074       3,923       4,074       3,923  

Dilutive effect of stock options

    88       319       86       206  

Number of shares used to compute earnings per share diluted

    4,162       4,242       4,160       4,129  

 

See notes to condensed consolidated financial statements.

 

 

-2-

 

 

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) / INCOME

UNAUDITED (IN THOUSANDS)

 

   

Three Months Ended

   

Six Months Ended

 
   

Dec. 31,

   

Dec. 31,

   

Dec. 31,

   

Dec. 31,

 
   

2022

   

2021

   

2022

   

2021

 

Comprehensive Income Attributable to Trio-Tech International Common Shareholders:

                               
                                 

Net income

  $ 565     $ 856     $ 1,543     $ 1,784  

Foreign currency translation, net of tax

    1,568       251       355       (38

)

Comprehensive Income

    2,133       1,107       1,898       1,746  

Less: comprehensive income attributable to non- controlling interest

    133       2       212       6  

Comprehensive Income Attributable to Trio-Tech International Common Shareholders

  $ 2,000     $ 1,105     $ 1,686     $ 1,740  

 

See notes to condensed consolidated financial statements.

 

-3-

 

 

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

UNAUDITED (IN THOUSANDS)

 

Six months ended December 31, 2022

 

   

Common Stock

   

Paid-in

   

Accumulated Retained

   

Accumulated Other

Comprehensive

   

Non- controlling

         
   

Shares

   

Amount

   

Capital

   

Earnings

   

Income

   

Interest

   

Total

 
           

$

   

$

   

$

   

$

   

$

   

$

 
                                                         

Balance at June 30, 2022

    4,072       12,750       4,708       9,219       1,197       128       28,002  

Stock option expenses

    -       -       54       -       -       -       54  

Net income

    -       -       -       1,389       -       154       1,543  

Exercise of stock option

    5       19       -       -       -       -       19  

Translation adjustment

    -       -       -       -       297       58       355  

Balance at Dec. 31, 2022

    4,077       12,769       4,762       10,608       1,494       340       29,973  

 

 

Six months ended December 31, 2021

 

   

Common Stock

   

Paid-in

   

Accumulated Retained

   

Accumulated Other

Comprehensive

   

Non- controlling

         
   

Shares

   

Amount

   

Capital

   

Earnings

   

Income

   

Interest

   

Total

 
              $       $       $       $       $       $  
                                                         

Balance at June 30, 2021

    3,913       12,178       4,233       6,824       2,399       419       26,053  

Stock option expenses

    -       -       22       -       -       -       22  

Net income

    -       -       -       1,772       -       12       1,784  

Dividend declared by subsidiary

    -       -       -       -       -       (119

)

    (119

)

Exercise of stock option

    41       118       -       -       -       -       118  

Translation adjustment

    -       -       -             (32

)

    (6

)

    (38

)

Balance at Dec. 31, 2021

    3,954       12,296       4,255       8,596       2,367       306       27,820  

 

See notes to condensed consolidated financial statements.

 

-4-

 

 

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)

 

   

Six Months Ended

 
   

Dec. 31,

   

Dec. 31,

 
   

2022

   

2021

 
   

(Unaudited)

   

(Unaudited)

 

Cash Flow from Operating Activities

               

Net income

  $ 1,543     $ 1,784  

Adjustments to reconcile net income/(loss) to net cash flow provided by operating activities

               

Depreciation and amortization

    2,143       1,502  

(Reversal) / Addition of provision for obsolete inventories

    (41

)

    26  

Stock option expense

    54       22  

Bad debt provision

    (17

)

    (62

)

Accrued interest expense, net accrued interest income

    (8

)

    51  

Payment of interest portion of finance lease

    (6

)

    (13

)

Loss on sale of property, plant and equipment - continuing operations

    8       -  

Warranty recovery, net

    2       -  

Deferred tax expense

    94       62  

Changes in operating assets and liabilities, net of acquisition effects

               

Trade accounts receivable

    (1,507

)

    (1,501

)

Other receivables

    60       (1,725

)

Other assets

    (4

)

    125  

Inventories

    (821

)

    (525

)

Prepaid expenses and other current assets

    588       (79

)

Accounts payable and accrued expenses

    1,338       1,638  

Income taxes payable

    (197

)

    2  

Other non-current liabilities

    1,144       -  

Operating lease liabilities

    (594

)

    (470

)

Net Cash Provided by Operating Activities

  $ 3,779     $ 837  
                 

Cash Flow from Investing Activities

               

Withdrawal from unrestricted term deposits, net

    2,841       1,957  

Investment in unrestricted term deposits, net

    (2,275

)

    (320

)

Additions to property, plant and equipment

    (3,994

)

    (795

)

Net Cash (Used in) / Provided by Investing Activities

    (3,428

)

    842  
                 

Cash Flow from Financing Activities

               

Payment on lines of credit

    (1,402

)

    (546

)

Payment of bank loans

    (234

)

    (216

)

Payment of finance leases

    (67

)

    (106

)

Dividends paid to non-controlling interest

    -       (119

)

Proceeds from exercising stock options

    19       118  

Proceeds from lines of credit

    476       942  

Proceeds from bank loans

    176       -  

Net Cash (Used in) / Provided by Financing Activities

    (1,032

)

    73  
                 

Effect of Changes in Exchange Rate

    173       (68

)

                 

Net (Decrease) / Increase in Cash, Cash Equivalents, and Restricted Cash

    (508

)

    1,684  

Cash, Cash Equivalents, and Restricted Cash at Beginning of Period

    9,376       7,577  

Cash, Cash Equivalents, and Restricted Cash at End of Period

  $ 8,868     $ 9,261  
                 

Supplementary Information of Cash Flows

               

Cash paid during the period for:

               

Interest

  $ 53     $ 56  

Income taxes

  $ 346     $ 281  
                 

Reconciliation of Cash, Cash Equivalents, and Restricted Cash

               

Cash

    6,379       7,526  
Restricted Term-Deposits in Current Assets     747       -  

Restricted Term-Deposits in Non-Current Assets

    1,742       1,735  

Total Cash, Cash Equivalents, and Restricted Cash Shown in Statements of Cash Flows

  $ 8,868     $ 9,261  

 

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 $747 is classified as current assets as it relates to short-term trade financing. On the other hand, restricted deposits of $1,742 is classified as non-current assets as they relate to long-term obligations and will become unrestricted only upon discharge of the obligations.

 

 

-5-

 

 

 

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 second 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)

100%

Van Nuys, California

Trio-Tech Reliability Services (Dormant)

100%

Van Nuys, California

KTS Incorporated, dba Universal Systems (Dormant)

100%

Van Nuys, California

European Electronic Test Centre (Dormant)

100%

Dublin, Ireland

Trio-Tech International Pte. Ltd.

100%

Singapore

Universal (Far East) Pte. Ltd.*

100%

Singapore

Trio-Tech International (Thailand) Co. Ltd. *

100%

Bangkok, Thailand

Trio-Tech (Bangkok) Co. Ltd. *

100%

Bangkok, Thailand

Trio-Tech (Malaysia) Sdn. Bhd.

(55% owned by Trio-Tech International Pte. Ltd.)

55%

Penang and Selangor, Malaysia

Trio-Tech (Kuala Lumpur) Sdn. Bhd.

55%

Selangor, Malaysia

(100% owned by Trio-Tech Malaysia Sdn. Bhd.)

  

Prestal Enterprise Sdn. Bhd.

76%

Selangor, Malaysia

(76% owned by Trio-Tech International Pte. Ltd.)

  

Trio-Tech (SIP) Co., Ltd. *

100%

Suzhou, China

Trio-Tech (Chongqing) Co. Ltd. *

100%

Chongqing, China

SHI International Pte. Ltd. (Dormant)

(55% owned by Trio-Tech International Pte. Ltd)

55%

Singapore

PT SHI Indonesia (Dormant)

(100% owned by SHI International Pte. Ltd.)

52%

Batam, Indonesia

Trio-Tech (Tianjin) Co., Ltd. *

100%

Tianjin, China

Trio-Tech (Jiangsu) Co., Ltd.

(51% owned by Trio-Tech (SIP) Co., Ltd.)

51%

Suzhou, China

 

* 100% owned by Trio-Tech International Pte. Ltd.

 

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 six months ended December 31, 2022 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.

 

- 6-

 
 

 

 

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 InstrumentsCredit 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 December 31, 2022, are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

 

 

3.   TERM DEPOSITS

 

  

Dec. 31,

  

June 30,

 
  

2022

  

2022

 
  

(Unaudited)

     
         

Short-term deposits

 $4,756  $5,619 

Currency translation effect on short-term deposits

  239   (199

)

Total short-term deposits

  4,995   5,420 
Restricted term deposits- Current  711   - 
Currency translation effect on restricted term deposits  36   - 
Total restricted term deposits-Current  747   - 

Restricted term deposits-Non-Current

  1,634   1,746 

Currency translation effect on restricted term deposits

  108   (68

)

Total restricted term deposits-Non-Current

  1,742   1,678 

Total term deposits

 $7,484  $7,098 

 

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 $747 is classified as current assets as it relates to short-term trade financing. On the other hand, restricted deposits of $1,742 is classified as non-current assets as they relate to long-term obligations and will become unrestricted only upon discharge of the obligations. Short-term deposits represent bank deposits, which do not qualify as cash equivalents.

 

 

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 December 31, 2022, and June 30, 2022, was adequate.  

 

- 7-

 
 

 

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

 

  

Dec. 31,

  

June 30,

 
  

2022

  

2022

 
  

(Unaudited)

     
         

Beginning

 $243  $311 

Additions charged to expenses

  -   48 

Recovered

  (17

)

  (106

)

Currency translation effect

  (6

)

  (10

)

Ending

 $220  $243 

 

 

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 December 31, 2022.

 

 

Loan Expiry

 

Loan Amount

  

Loan Amount

 
 

Date

 

(RMB)

  

(U.S. Dollars)

 

Short-term loan receivables

         

JiangHuai (Project – Yu Jin Jiang An)

May 31, 2013

  2,000   290 

Less: allowance for doubtful receivables

  (2,000

)

  (290)

Net loan receivables from property development projects

  -   - 
          

Long-term loan receivables

         

Jun Zhou Zhi Ye

Oct 31, 2016

  5,000   814 

Less: transfer – down-payment for purchase of investment property

  (5,000

)

  (814)

Net loan receivables from property development projects

  -   - 

 

The short-term loan receivables amounting to renminbi (“RMB”) 2,000, or approximately $290 arose due to TTCQ entering into a Memorandum Agreement with JiangHuai Property Development Co. Ltd. (“JiangHuai”) to invest in their property development projects (Project - Yu Jin Jiang An) located in Chongqing City, China during year ended June 30, 2011. TTCQ did not generate other income from JiangHuai for the quarter ended December 31, 2022 or for Fiscal 2022. TTCQ is in the legal process of recovering the outstanding amount of approximately $290.

 

The loan-term loan to RMB 5,000, or approximately $814, arose from TTCQ entering into a Memorandum Agreement with JiaSheng Property Development Co. Ltd. (“JiaSheng”) to invest in JiaSheng’s projects (Project B-48 Phase 2) located in Chongqing City, China during the year ended June 30, 2011. The loan receivable was unsecured and repayable at the end of the term. During the year ended June 30, 2015, the loan receivable was transferred to down payment for purchase of investment property that is being developed in the Singapore Themed Resort Project (See Note 8).

 

 

6.  INVENTORIES

 

Inventories consisted of the following:

 

  

Dec. 31, 2022

  

June 30, 2022

 
  

(Unaudited)

     
         

Raw materials

 $1,261  $1,764 

Work in progress

  1,669   683 

Finished goods

  821   238 

Less: provision for obsolete inventories

  (649

)

  (674

)

Currency translation effect

  117   247 
  $3,219  $2,258 

 

- 8-

 
 

 

The following table represents the changes in provision for obsolete inventories:

 

  

Dec. 31, 2022

  

June 30, 2022

 
  

(Unaudited)

     
         

Beginning

 $674  $679 

Additions charged to expenses

  -   17 

Usage – disposition

  (41

)

  (34

)

Currency translation effect

  16   12 

Ending

 $649  $674 

 

 

7.   INVESTMENT PROPERTIES

 

The following table presents the Company’s investment in properties in China as of December 31, 2022. The exchange rate is based on the market rate as of December 31, 2022.

 

 

Investment Date / Reclassification

 

Investment

Amount

  

Investment Amount

 
 

Date

 

(RMB)

  

(U.S. Dollars)

 
          

Purchase of rental property – Property I – MaoYe Property

Jan 04, 2008

  5,554   894 

Currency translation

  -   (87

)

Reclassification as “Assets held for sale”

July 01, 2018

  (5,554

)

  (807

)

Reclassification from “Assets held for sale”

Mar 31, 2019

  2,024   301 
    2,024   301 

Purchase of rental property – Property II - JiangHuai

Jan 06, 2010

  3,600   580 

Purchase of rental property – Property III - FuLi

Apr 08, 2010

  4,025   648 

Currency translation

  -   (130

)

Gross investment in rental property

  9,649   1,399 
          

Accumulated depreciation on rental property

Dec 31, 2022

  (7,764

)

  (1,133

)

Reclassified as “Assets held for sale”- MaoYe Property

July 01, 2018

  2,822   410 

Reclassification from “Assets held for sale”- MaoYe Property

Mar 31, 2019

  (1,029

)

  (143

)

    (5,971

)

  (866

)

Net investment in property – China

  3,678   533 

 

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

  5,554   894 

Currency translation

  -   (87

)

Reclassification as “Assets held for sale”

July 01, 2018

  (5,554

)

  (807

)

Reclassification from “Assets held for sale”

Mar 31, 2019

  2,024   301 
    2,024   301 

Purchase of rental property – Property II - JiangHuai

Jan 06, 2010

  3,600   580 

Purchase of rental property – Property III - FuLi

Apr 08, 2010

  4,025   648 

Currency translation

  -   (89

)

Gross investment in rental property

  9,649   1,440 
          

Accumulated depreciation on rental property

Jun 30, 2022

  (7,523

)

  (1,122

)

Reclassified as “Assets held for sale”- MaoYe Property

July 01, 2018

  2,822   410 

Reclassification from “Assets held for sale”- MaoYe Property

Mar 31, 2019

  (1,029

)

  (143

)

    (5,730

)

  (855

)

Net investment in property – China

  3,919   585 

 

- 9-

 
 

 

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 5,554, or approximately $894. During the year ended June 30, 2019, the Company sold thirteen of the fifteen units constituting the MaoYe Property. Management has decided not to sell the remaining two units of MaoYe properties in the near future, due to current conditions of the property market in China. The lease agreement, which was entered into on February 10, 2022 has been terminated on October 2022. A new agreement has been secured and will be effective from February 1, 2023 for a period of 4 years at a monthly rate of RMB15, or approximately $2, after termination of the previous agreement. Pursuant to the agreement, monthly rental will increase by 5% each year from third year onwards.

 

Property purchased from MaoYe generated a rental income of $2 and $8 during the three and six months ended December 31, 2022, as compared to $2 and $4 for the same period in Fiscal 2022.

 

Depreciation expense for MaoYe was $4 and $8 during the three and six months ended December 31, 2022, as compared to $4 and $8 for the same period in Fiscal 2022.

 

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 3,600, or approximately $580. As of December 31, 2022, TTCQ had not received the title deed for properties purchased from JiangHuai. While the above is not expected to affect the property’s market value, the COVID-19 pandemic and current economic situation is likely to cause delays in court to consummate the execution of the sale.

 

Property purchased from JiangHuai did not generate any rental income for the three and six months ended December 31, 2022 and 2021.

 

Depreciation expense for JiangHuai was $7 and $14 for the three and six months ended December 31, 2022, as compared to $7 and $14 for the same period in Fiscal 2022.

 

Rental Property III FuLi

 

In Fiscal 2010, TTCQ entered into a Memorandum Agreement with Chongqing FuLi Real Estate Development Co. Ltd. (“FuLi”) to purchase two commercial properties totaling 311.99 square meters (“Office Space”) located in Jiang Bei District Chongqing. The total purchase price committed and paid was RMB 4,025, or approximately $648. The development was completed, the property was transferred to TTCQ in April 2013 and the title deed was received during the third quarter of Fiscal 2014.

 

As of mid August 2022, TTCQ had found a new tenant for one of the two commercial properties for a period of 1 year at a monthly rate of RMB6, or approximately $1. TTCQ is actively searching for tenants to occupy the other commercial property, which is vacant as of the date of this Report.

 

Properties purchased from FuLi generated a rental income of $2 and $4 for the three and six months ended December 31, 2022, as compared to $5 and $14 for the same period in Fiscal 2022.

 

Depreciation expense for FuLi was $7 and $15 for the three and six months ended December 31, 2022, as compared to $8 and $16 for the same period in Fiscal 2022.

 

Summary

 

Total rental income for all investment properties in China was $4 and $12 for the three and six months ended December 31, 2022, as compared to $8 and $19 for the same period in Fiscal 2022.

 

Depreciation expenses for all investment properties in China were $18 and $36 for the three and six months ended December 31, 2022, as compared to $19 and $38 for the same period in Fiscal 2022.

 

 

- 10-

 

 

 

8.   OTHER ASSETS

 

Other assets consisted of the following:

 

  

Dec. 31,

  

June 30,

 
  

2022

  

2022

 
  

(Unaudited)

     

Down payment for purchase of investment properties *

 $-  $- 

Deposits for rental and utilities and others

  134   142 

Currency translation effect

  7   (5

)

Total

 $141  $137 

 

*Down payment for purchase of investment properties included:

 

  

RMB

  

U.S. Dollars

 

Original Investment (10% of Junzhou equity)

 $10,000  $1,606 

Less: Management Fee

  (5,000

)

  (803

)

Net Investment

  5,000   803 

Less: Share of Loss on Joint Venture

  (137

)

  (22

)

Net Investment as Down Payment (Note *a)

  4,863   781 

Loans Receivable

  5,000   814 

Interest Receivable

  1,250   200 

Less: Impairment of Interest

  (906

)

  (150)

Transferred to Down Payment (Note *b)

  5,344   864 

* Down Payment for Purchase of Investment Properties

  10,207   1,645 
Less: Effect of foreign currency exchange  -   (65)

Less: Provision of Impairment loss on other assets

  (10,207

)

  (1,580)

* 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 RMB10,000 for the 10% investment in the Joint Venture. The Developer paid the Company a management fee of RMB 5,000 in cash upon signing of the Agreement, with a remaining fee of RMB 5,000 payable upon fulfilment of certain conditions in accordance with the Agreement. The Company further reduced its investment by RMB 137, or approximately $22, through the losses from operations incurred by the Joint Venture. 

 

In Fiscal 2014, the Company disposed of its entire 10% 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 5,000, or equivalent to $803, from net considerations paid, in accordance with GAAP under ASC Topic 845 Non-monetary Consideration. It is presented under “Other Assets” as noncurrent assets to defer the recognition of the gain on the disposal of the 10% interest in the Joint Venture investment until such time that the consideration is paid, so the gain can be ascertained.

 

b)

Amounts of RMB 5,000, or approximately $814, as disclosed in Note 5, plus the interest receivable on long-term loan receivable of RMB 1,250, or approximately $200, and impairment on interest of RMB 906, or approximately $150.

 

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 $1,580 related to the doubtful recovery of the down payment on property in the Project in Chongging, China. The Company recorded a non-cash impairment charge due to increased uncertainties regarding the project’s viability, given the developers weakening financial condition as well as uncertainties arising from the negative real-estate environment in China, implementation of control measures on real-estate lending in China and its relevant government policies, together with effects of the ongoing pandemic. The local court is verifying the documents due to the sizable number of creditors as of December 31, 2022.

 

 

- 11-

 
 

 

 

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 December 31, 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

 

Lines of Credit

 

Ranging from 1.85%

to5.5% 

$

3,957

 

$

3,957

Universal (Far East) Pte. Ltd.

 

Lines of Credit

 

Ranging from 1.85%

to5.5% 

$

1,867

 

$

1,841

Trio-Tech Malaysia Sdn. Bhd.

 

Revolving credit

 

Cost of Funds Rate +2%

 

$

341

 

$

341

 

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

 

Lines of Credit

 

Ranging from 1.85%

to5.5% 

$

4,090

 

$

3,651

Universal (Far East) Pte. Ltd.

 

Lines of Credit

 

Ranging from 1.85%

to5.5% 

$

1,076

 

$

586

Trio-Tech Malaysia Sdn. Bhd.

 

Revolving credit

 

Cost of Funds Rate +2%

 

$

338

 

$

338

 

 

10.  ACCRUED EXPENSE

 

Accrued expense consisted of the following:

 

  

Dec. 31,

  

June 30,

 
  

2022

  

2022

 
  

(Unaudited)

     
         

Payroll and related costs

 $1,864  $2,158 

Commissions

  125   116 

Legal and audit

  284   320 

Sales tax

  241   531 

Utilities

  194   273 

Warranty

  23   16 

Accrued purchase of materials and property, plant and equipment

  1,679   905 

Provision for reinstatement

  298   308 

Contract liabilities

  1,282   988 

Other accrued expense

  692   581 

Currency translation effect

  125   (192

)

Total

 $6,807  $6,004 

 

 

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.

 

  

Dec. 31,

  

June 30,

 
  

2022

  

2022

 
  

(Unaudited)

     
         

Beginning

 $16  $14 

Additions charged to cost and expense

  25   7 

Utilisation/Reversal

  (17

)

  (4

)

Currency translation effect

  (1

)

  (1

)

Ending

 $23  $16 

 

 

- 12-

 
 

 

 

12.   BANK LOANS PAYABLE

 

Bank loans payable consisted of the following:

 

  

Dec. 31,

  

June 30,

 
  

2022

  

2022

 
  

(Unaudited)

     
         

Note payable denominated in the Malaysian Ringgit for expansion plans in Malaysia, maturing in April 2028, bearing interest at the bank’s prime rate less 2.00% (4.6% and 3.791% at December 31, 2022 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 $2,372 as at December 31, 2022 and June 30, 2022.

 $1,215  $1,392 

Financing arrangement at fixed interest rate 3.2% per annum, with monthly payments of principal plus interest through July 2025.

  109   128 

Financing arrangement at fixed interest rate 3.0% per annum, with monthly payments of principal plus interest through December 2026.

  204   224 

Financing arrangement at fixed interest rate 3.0% per annum, with monthly payments of principal plus interest through August 2027.

  168   - 

Total bank loans payable

 $1,696  $1,744 
         

Current portion of bank loans payable

  506   503 

Currency translation effect on current portion of bank loans

  5   (31

)

Current portion of bank loans payable

  511   472 

Long-term portion of bank loans payable

  1,179   1,357 

Currency translation effect on long-term portion of bank loans

  6   (85

)

Long-term portion of bank loans payable

 $1,185   1,272 

 

Future minimum payments (excluding interest) as of December 31, 2022, were as follows:

 

Remainder of Fiscal 2023

 $269 

2024

  513 

2025

  283 

2026

  251 

2027

  216 

Thereafter

  164 

Total obligations and commitments

 $1,696 

 

Future minimum payments (excluding interest) as of June 30, 2022, were as follows:

 

2023

 $472 

2024

  481 

2025

  246 

2026

  214 

2027

  190 

Thereafter

  141 

Total obligations and commitments

 $1,744 

 

 

13.   COMMITMENTS AND CONTINGENCIES

 

Deposits with banks are not 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.

 

 

- 13-

 
 

 

 

14.   BUSINESS SEGMENTS

 

The Company operated in four 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 $115 and $669 for three and six months ended December 31, 2022, as compared to $232 and $820 for the same period in fiscal 2022. Corporate assets consisted primarily of cash and prepaid expenses. Corporate expenses consisted primarily of stock option expense, salaries, insurance, professional expenses and directors' fees. Corporate expenses are allocated to the four segments on a predetermined fixed amount calculated based on the annual budgeted sales, except the Malaysia operation, which is calculated based on actual sales. The following segment information table includes segment operating income or loss after including corporate expenses allocated to the segments, which gets eliminated in the consolidation.

 

The following segment Information is unaudited for the six months ended December 31, 2022, and December 31, 2021:

 

Business Segment Information:

 

 

Six Months

     

Operating

             
 

Ended

 

Net

  

Income /

  

Total

  

Depr. And

  

Capital

 
 

Dec. 31,

 

Revenue

  

(Loss)

  

Assets

  

Amort.

  

Expenditures

 

Manufacturing

2022

 $8,629  $477  $15,345  $230  $15 
 

2021

 $7,090  $252  $14,799  $208  $95 
                      

Testing Services

2022

  12,012   1,129   27,757   1,875   3,967 
 

2021

  9,566   1,124   24,546   1,251   699 
                      

Distribution

2022

  3,676   482   1,437   -   - 
 

2021

  4,418   531   1,850   2   - 
                      

Real Estate

2022

  12   (42

)

  1,580   38   - 
 

2021

  19   (51

)

  1,283   41   1 
                      

Corporate & Unallocated

2022

  -   90   77   -   12 
 

2021

  -   (230

)

  74   -   - 
                      

Total Company

2022

 $24,329  $2,136  $46,196  $2,143  $3,994 
 

2021

 $21,093  $1,626  $42,552  $1,502  $795 

 

The following segment Information is unaudited for the three months ended December 31, 2022, and December 31, 2021:

 

Business Segment Information:

 

 

Three Months

     

Operating

             
 

Ended

 

Net

  

Income /

  

Total

  

Depr. And

  

Capital

 
 

Dec. 31,

 

Revenue

  

(Loss)

  

Assets

  

Amort.

  

Expenditures

 

Manufacturing

2022

 $5,044  $301  $15,345  $99  $15 
 

2021

 $3,528   (48

)

  14,799   104   35 
                      

Testing Services

2022

  5,648   547   27,757   1,111   2,811 
 

2021

  4,966   588   24,546   644   322 
                      

Distribution

2022

  1,694   217   1,437   -   - 
 

2021

  2,420   277   1,850   -   - 
                      

Real Estate

2022

  4   (28

)

  1,580   20   - 
 

2021

  8   (28

)

  1,283   21   - 
                      

Corporate & Unallocated

2022

  -   32   77   6   12 
 

2021

  -   (133

)

  74   -   - 
                      

Total Company

2022

 $12,390  $1,069  $46,196  $1,236  $2,838 
 

2021

 $10,922   656   42,552   769   357 

 

 

- 14-

 
 

 

 

15. OTHER (EXPENSES) / INCOME

 

Other (expenses) / income consisted of the following:

 

  

Three Months Ended

  

Six Months Ended

 
  

Dec. 31,

  

Dec. 31,

  

Dec. 31,

  

Dec. 31,

 
  

2022

  

2021

  

2022

  

2021

 
  

Unaudited

  

Unaudited

  

Unaudited

  

Unaudited

 

Interest income

 $37  $16  $55  $38 

Other rental income

  27   29   54   58 

Exchange loss

  (349

)

  (38

)

  (279

)

  (4

)

Bad debt recovery

  -   102   -   104 

Commission income

  -   200   -   200 

Government grant

  21   28   42   98 

Other miscellaneous income

  21   44   64   48 

Total

 $(243

)

 $381  $(64

)

 $542 

 

 

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 $41 and $83 for the three and six months ended December 31, 2022, as compared to $23 and $46 for the same period in Fiscal 2022.

 

The Company's income tax expense was $241 and $466 for the three and six months ended December 31, 2022, as compared to $153 and $333 for the same period in Fiscal 2022. Our effective tax rate (“ETR”) from continuing operations was 30.2% and 15.16% for the quarters ended December 31, 2022 and December 31, 2021, respectively. The increase in income tax expense and effective tax rate was due to the following:

 

 

1.

The Thailand operation incurred higher income tax due to higher income generated in period ended December 31, 2022 compared to same period last fiscal year.

 

 

2.

The Company recognized higher GILTI expenses due to higher income derived from controlled foreign corporation.

 

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 no unrecognized tax benefits or related accrued penalties or interest expense at December 31, 2022.

 

 

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.

 

- 15-

 
 

 

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.

 

- 16-

 
 

 

Distribution

 

The Company distributes complementary products, particularly equipment, industrial products and components by manufacturers mainly from the U.S., Europe and Taiwan. 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.

 

  

Dec. 31,

  

June 30,

 
  

2022

  

2022

 
  

(Unaudited)

     
         

Trade Accounts Receivable

  13,332   11,592 

Accounts Payable

  3,067   2,401 

Contract Liabilities

  1,282   988 

 

Remaining Performance Obligation

 

As at December 31, 2022, the Company had $296 of remaining performance obligations, which represents our obligation to deliver products and services within two years.

 

As at June 30, 2022, the Company had $326 of remaining performance obligations, which represents our obligation to deliver products and services.

 

 

18.  EARNINGS PER SHARE

 

Options to purchase 636,375 shares of Common Stock at exercise prices ranging from $2.53 to $7.76 per share were outstanding as of December 31, 2022. 405,500 stock options were excluded in the computation of diluted earnings per share (“EPS”) for the three months ended December 31, 2022, because they were anti-dilutive.

 

Options to purchase 724,500 shares of Common Stock at exercise prices ranging from $2.53 to $5.98 per share were outstanding as of December 31, 2021. 212,500 stock options were excluded in the computation of diluted EPS for the three months ended December 31, 2021, because they were anti-dilutive.

 

- 17-

 
 

 

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

  

Six Months Ended

 
  

Dec. 31,

  

Dec. 31,

  

Dec. 31,

  

Dec. 31,

 
  

2022

  

2021

  

2022

  

2021

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

 
                 

Income attributable to Trio-Tech International common shareholders from continuing operations, net of tax

 $512  $856  $1,394  $1,770 

Income / (loss) attributable to Trio-Tech International common shareholders from discontinued operations, net of tax

  (5)  (1

)

  (5)  2 

Net income attributable to Trio-Tech International Common Shareholders

 $507  $855  $1,389  $1,772 
                 

Weighted average number of common shares outstanding - basic

  4,074   3,923   4,074   3,923 
                 

Dilutive effect of stock options

  88   319   86   206 

Number of shares used to compute earnings per share - diluted

  4,162   4,242   4,160   4,129 
                 

Basic earnings per share from continuing operations attributable to Trio-Tech International

 $0.12   0.22   0.34   0.46 

Basic earnings per share from discontinued operations attributable to Trio-Tech International

  -   -   -   - 

Basic earnings per share from net income attributable to Trio-Tech International

 $0.12  $0.22  $0.34  $0.46 
                 

Diluted earnings per share from continuing operations attributable to Trio-Tech International

 $0.12   0.20   0.33   0.43 

Diluted earnings per share from discontinued operations attributable to Trio-Tech International

  -   -   -   - 

Diluted earnings per share from net income attributable to Trio-Tech International

 $0.12  $0.20  $0.33  $0.43 

 

 

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 2.50 to 3.25 years, calculated in accordance with the guidance provided in SEC Staff bulletin No. 110 for plain vanilla options using the simplified method, since our equity shares have been publicly traded for only a limited period of time and we did not have sufficient historical exercise data at the grant date of the options;

 

A risk-free interest rate varying from 0.11% to 3.15% (2022: 0.11% to 2.35%);

 

no expected dividend payments and;

 

expected volatility of 47.3% to 73.85% (2022: 45.38% to 55.59%).

 

- 18-

 
 

 

2017 Employee Stock Option Plan

 

The Company’s 2017 Employee Plan permits the grant of stock options to its employees covering up to an aggregate of 300,000 shares of Common Stock. The Company’s Board of Directors approved an amendment to the 2017 Employee Plan in December, 2021 to increase the shares covered thereby from 300,000 shares to an aggregate of 600,000 shares, which amendment was approved by the Company’s shareholders at the annual meeting held in December 2021. Under the 2017 Employee Plan, all options must be granted with an exercise price of not less than fair value as of the grant date and the options granted must be exercisable within a maximum of ten years after the date of grant, or such lesser period of time as is set forth in the stock option agreements. The options may be exercisable (a) immediately as of the effective date of the stock option agreement granting the option, or (b) in accordance with a schedule related to the date of the grant of the option, the date of first employment, or such other date as may be set by the Compensation Committee. Generally, options granted under the 2017 Employee Plan are exercisable within five years after the date of grant and vest over the period as follows: 25% vesting on the grant date and the remaining balance vesting in equal installments on the next three succeeding anniversaries of the grant date. The share-based compensation will be recognized in terms of the grade method on a straight-line basis for each separately vesting portion of the award. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the 2017 Employee Plan).

 

During the first two quarters of Fiscal 2023, 25,000 stock options were granted under the 2017 Employee Plan. There were 5,000 stock options exercised during the six-month period ended December 31, 2022. The Company recognized $54 in stock-based compensation expense during the six months ended December 31, 2022.

 

During the first two quarters of Fiscal 2022, there were no stock options granted under the 2017 Employee Plan. There were 41,125 stock options exercised during the six-month period ended December 31, 2021. The Company recognized $22 stock-based compensation expenses during the six months ended December 31, 2021.

 

As of December 31, 2022, there were vested stock options granted under the 2017 Employee Plan covering a total of 134,500 shares of Common Stock. The weighted-average exercise price was $4.78 and the weighted average remaining contractual term was 1.73 years.

 

As of December 31, 2021, there were vested stock options granted under the 2017 Employee Plan covering a total of 130,375 shares of Common Stock. The weighted-average exercise price was $4.79 and the weighted average remaining contractual term was 2.00 years.

 

A summary of option activities under the 2017 Employee Plan during the six months period ended December 31, 2022, is presented as follows:

 

      

Weighted Average

  

Weighted Average Remaining Contractual

  

Aggregate

 
      

Exercise

  

Term

  

Intrinsic

 
  

Options

  

Price

  

(Years)

  

Value

 
                 

Outstanding at July 1, 2022

  236,375  $5.21   2.61  $87 

Granted

  25,000   5.18   -   - 

Exercised

  (5,000

)

  3.75   -   - 

Forfeited or expired

  (40,000

)

  -   -   - 

Outstanding at December 31, 2022

  216,375  $5.16   2.49  $96 

Exercisable at December 31, 2022

  134,500  $4.78   1.73  $75 

 

A summary of the status of the Company’s non-vested employee stock options during the six months ended December 31, 2022, is presented below:

 

      

Weighted Average

 
  

Options

  

Grant-Date Fair Value

 
         

Non-vested at July 1, 2022

  75,875  $5.98 

Granted

  25,000   5.18 

Vested

  (9,000)  - 

Forfeited

  (10,000)  - 

Non-vested at December 31, 2022

  81,875  $5.79 

 

- 19-

 
 

 

A summary of option activities under the 2017 Employee Plan during the six months period ended December 31, 2021, is presented as follows: 

 

      

Weighted Average

  

Weighted Average Remaining Contractual

  

Aggregate

 
      

Exercise

  

Term

  

Intrinsic

 
  

Options

  

Price

  

(Years)

  

Value

 
                 

Outstanding at July 1, 2021

  267,000  $4.21   3.22  $290 

Granted

  -   -   -   - 

Exercised

  (41,125

)

  2.87   -   - 

Forfeited or expired

  -   -   -   - 

Outstanding at December 31, 2021

  225,875  $4.46   2.66  $2,026 

Exercisable at December 31, 2021

  130,375  $4.79   2.00  $1,127 

 

A summary of the status of the Company’s non-vested employee stock options during the six months period ended December 31, 2021, is presented below:

 

      

Weighted Average

 
  

Options

  

Grant-Date Fair Value

 
         

Non-vested at July 1, 2021

  102,250  $2.29 

Granted

  -   - 

Vested

  (6,750

)

  - 

Forfeited

  -   - 

Non-vested at December 31, 2021

  95,500  $2.29 

 

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 600,000 shares of the Company’s Common Stock. The 2007 Employee Plan terminated by its terms on September 24, 2017 and no further options may be granted thereunder.  Options outstanding thereunder continue to remain outstanding and in effect in accordance with their terms.

 

There were no options exercised during the six months ended December 31, 2022, and December 31, 2021. The Company did not recognize any stock-based compensation expense during the six months ended December 31, 2022, and December 31, 2021.

 

As of July 1, 2022 and December 31, 2022, there were no vested or unvested stock options outstanding under the 2007 Employee Plan.

 

As of December 31, 2021, there were vested stock options granted under the 2007 Employee Plan covering a total of 37,500 shares of Common Stock. The weighted average exercise price was $4.14 and the weighted average remaining contractual term was 0.24 years.

 

A summary of option activities under the 2007 Employee Plan during the six months ended December 31, 2021, is presented as follows:

 

      

Weighted Average

  

Weighted Average Remaining Contractual

  

Aggregate

 
      

Exercise

  

Term

  

Intrinsic

 
  

Options

  

Price

  

(Years)

  

Value

 
                 

Outstanding at July 1, 2021

  37,500  $4.14   0.75  $34 

Granted

  -   -   -   - 

Exercised

  -   -   -   - 

Forfeited or expired

  -   -   -   - 

Outstanding at December 31, 2021

  37,500  $4.14   0.24  $348 

Exercisable at December 31, 2021

  37,500  $4.14   0.24  $348 

 

- 20-

 
 

 

2017 Directors Equity Incentive Plan

 

The 2017 Directors Plan initially covered an aggregate of 300,000 shares of the Company’s common stock.  The Company’s Board of Directors approved an amendment to the 2017 Directors Plan in September 2020 to increase the shares covered thereby from 300,000 shares to an aggregate of 600,000 shares, which amendment was approved by the Company’s shareholders at the annual meeting held in December 2020. The 2017 Directors Plan permits the grant of options to its directors in the form of nonqualified options and restricted stock. The exercise price of the nonqualified options is required to be 100% of the fair value of the underlying shares on the grant date. The options have five-year contractual terms and are exercisable immediately as of the grant date.

 

During the first two quarters of Fiscal 2023 and Fiscal 2022, the Company did not grant any options pursuant to the 2017 Directors Plan. There were no stock options exercised and the Company did not recognize any stock-based compensation expense during the six months ended December 31, 2022 and 2021.

 

As all the stock options granted under the 2017 Directors Plan vest immediately on the date of grant, there were no unvested stock options granted under the 2017 Directors Plan as of December 31, 2022, or December 31, 2021.

 

As of December 31, 2022, there were vested stock options granted under the 2017 Directors Plan covering a total of 420,000 shares of Common Stock. The weighted average exercise price was $5.10 and the weighted average remaining contractual term was 2.34 years.

 

As of December 31, 2021, there were vested stock options granted under the 2017 Directors Plan covering a total of 320,000 shares of Common Stock. The weighted-average exercise price was $4.27 and the weighted average remaining contractual term was 2.72 years.

 

A summary of option activities under the 2017 Directors Plan during the six months ended December 31, 2022, is presented as follows: 

 

      

Weighted Average

  

Weighted Average Remaining Contractual

  

Aggregate

 
      

Exercise

  

Term

  

Intrinsic

 
  

Options

  

Price

  

(Years)

  

Value

 
                 

Outstanding at July 1, 2022

  420,000  $5.10   2.85  $228 

Granted

  -   -       - 

Exercised

  -   -   -   - 

Forfeited or expired

  -   -   -   - 

Outstanding at December 31, 2022

  420,000  $5.10  $2.34  $255 

Exercisable at December 31, 2022

  420,000  $5.10  $2.34  $255 

 

A summary of option activities under the 2017 Directors Plan during the six months ended December 31, 2021, is presented as follows: 

 

      

Weighted Average

  

Weighted Average Remaining Contractual

  

Aggregate

 
      

Exercise

  

Term

  

Intrinsic

 
  

Options

  

Price

  

(Years)

  

Value

 
                 

Outstanding at July 1, 2021

  320,000  $4.27   3.22  $340 

Granted

  -   -   -   - 

Exercised

  -   -   -   - 

Forfeited or expired

  -   -   -   - 

Outstanding at December 31, 2021

  320,000   4.27   2.97  $2,933 

Exercisable at December 31, 2021

  320,000   4.27   2.97  $2,933 

 

- 21-

 
 

 

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 500,000 shares of the Company’s Common Stock. The 2007 Directors Plan terminated by its terms on September 24, 2017, and no further options may be granted thereunder.  Options outstanding thereunder continue to remain outstanding and in effect in accordance with their terms. 

 

There were no stock options exercised during the six months ended December 31, 2022 and 2021. The Company did not recognize any stock-based compensation expense during the six months ended December 31, 2022 and 2021.

 

As of July 1, 2022 and December 31, 2022, there were no vested stock options granted under the 2007 Directors Plan.

 

As of December 31, 2021, there were vested stock options granted under the 2007 Directors Plan covering a total of 50,000 shares of Common Stock. The weighted-average exercise price was $4.14 and the weighted average remaining contractual term was 0.24 years.

 

A summary of option activities under the 2007 Directors Plan during the six months ended December 31, 2021 is presented as follows: 

 

      

Weighted Average

  

Weighted Average Remaining Contractual

  

Aggregate

 
      

Exercise

  

Term

  

Intrinsic

 
  

Options

  

Price

  

(Years)

  

Value

 
                 

Outstanding at July 1, 2021

  50,000  $4.14   0.75  $45 

Granted

  -   -   -   - 

Exercised

  -   -   -   - 

Forfeited or expired

  -   -   -   - 

Outstanding at December 31, 2021

  50,000  $4.14   0.24  $465 

Exercisable at December 31, 2021

  50,000  $4.14   0.24  $465 

 

 

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 12 to 60 months. Depreciation expense for assets subject to operating leases is taken into account primarily on the straight-line method over a period of twenty years in amounts necessary to reduce the carrying amount of the asset to its estimated residual value. Depreciation expense relating to the property held as investments in operating leases were $38 and $41 for three months ended December 31, 2022, and December 31, 2021, respectively.

 

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 noncancelable operating leases is contractually due as follows as of December 31, 2022:

 

Remainder of Fiscal 2023

 $60 

Fiscal 2024

  130 

Fiscal 2025

  131 

Fiscal 2026

  44 

Fiscal 2027

  15 
  $380 

 

 

- 22-

 
 

 

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

 $6 

2024

 $27 

2025

 $28 

2026

 $29 

2027

 $10 
  $100 

 

Sales-type leases under which the Company is the lessor arise from the lease of four units of chiller systems. The Company classifies its lease arrangements at inception of the arrangement. The lease term is three 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 four units of chiller systems are as follows:

 

Components of Lease Balances

 

Dec. 31,

 
  

2022

 

Assets

    

Gross financial sales receivable

 $28

 

Unearned finance income

  (1

)

Financed sales receivable

 $27 
     

Net financed sales receivables due within one year

 $21 

Net financed sales receivables due after one year

 $6 

 

As of December 31, 2022, the financed sale receivables had a weighted average effective interest rate of 11.16% and weighted average remaining lease term of 1.25 years.

 

Company as Lessee

 

The Company is the lessee under operating leases for corporate offices and research and development facilities with remaining lease terms of one year to four years and finance leases for plant and equipment.

 

Supplemental balance sheet information related to leases was as follows (in thousands):

 

  

Dec. 31,

  

June 30,

 
  

2022

  

2022

 
  

(Unaudited)

     

Finance Leases (Plant and Equipment)

        

Plant and equipment, at cost

 $1,751  $1,727 

Accumulated depreciation

  (1,289

)

  (1,179

)

Plant and Equipment, Net

 $462  $548 
         

Current portion of finance leases

 $101  $118 

Net of current portion of finance leases

  69   119 

Total Finance Lease Liabilities

 $170  $237 
         

Operating Leases (Corporate Offices, Research and Development Facilities)

        

Operating lease right-of-use assets

 $2,580  $3,152 

Operating lease right-of-use assets, Net

 $2,580  $3,152 

Current portion of operating leases

  1,140   1,218 

Net of current portion of operating leases

  1,440   1,934 

Total Operating Lease Liabilities

 $2,580  $3,152 

 

  

Three Months Ended

  

Six Months Ended

     
  

Dec. 31,

  

Dec. 31,

  

Dec. 31,

  

Dec. 31,

 
  

2022

  

2021

  

2022

  

2021

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

 
                 

Lease Cost

                

Finance lease cost:

                

Interest on finance lease

 $3  $5  $6  $11 

Amortization of right-of-use assets

  44   62   92   90 

Total finance lease cost

  47   67   98   101 
                 

Operating Lease Costs

 $369  $231  $749  $470 

 

- 23-

 
 

Other information related to leases was as follows (in thousands except lease term and discount rate):

 

  

Six Months Ended

 
  

Dec. 31,

  

Dec. 31,

 
  

2022

  

2021

 
  

(Unaudited)

  

(Unaudited)

 

Cash Paid for Amounts Included in the Measurement of Lease Liabilities

        

Operating cash flows from finance leases

 $6  $13 

Operating cash flows from operating leases

  594   470 

Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities

  -   - 
         

Weighted-Average Remaining Lease Term:

        

Finance leases

  1.59   2.69 

Operating leases

  2.67   3.57 

Weighted-Average Discount Rate:

        

Finance leases

  3.22

%

  3.50

%

Operating leases

  5.54

%

  4.81

%

 

As of December 31, 2022, 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

 $650  $54 

2024

  1,074   105 

2025

  577   21 

2026

  414   - 

Thereafter

  67   - 

Total future minimum lease payments

 $2,782  $180 

Less: amount representing interest

  (202)  (10)

Present value of net minimum lease payments

 $2,580  $170 
         

Presentation on statement of financial position

        

Current

  1,140   101 

Non-Current

  1,440   69 

 

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

 $1,357  $129 

2024

  1,032   104 

2025

  554   20 

2026

  423   - 

Thereafter

  69   - 

Total future minimum lease payments

 $3,435  $253 

Less: amount representing interest

  (283

)

  (16

)

Present value of net minimum lease payments

 $3,152  $237 
         

Presentation on statement of financial position

        

Current

  1,218   118 

Non-Current

  1,934   119 

 

 

- 24-

 
 

 

 

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 six months ended December 31, 2022 and 2021.

 

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 two major customers mainly contributed to manufacturing and testing segments that accounted for the following revenue and trade account receivables:

 

   

Six Months Ended Dec. 31,

 
   

2022

   

2021

 
   

(Unaudited)

   

(Unaudited)

 

Revenue

               

- Customer A

    34.7

%

    42.8

%

- Customer B

    15.3

%

    5.3

%

- Customer C     13.3 %     15.6 %

Trade Account Receivables

               

- Customer A

    32.1

%

    40.1

%

- Customer B

    15.6

%

    6.1

%

- Customer C     17.3 %     16.7 %

 

 

- 25-

 
 

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

ITEM 2. MANAGEMENTS 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 Managements 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 aerospace, communications and other electronics products.

 

During the six months ended December 31, 2022, TTI generated approximately 99.9% 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 (“Distribution”). The Real Estate segment contributed only 0.01% to the total revenue during the six months ended December 31, 2022.

 

Manufacturing

 

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

 

Testing

 

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

 

Distribution

 

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

 

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.

 

-26-

 

 

 

Second Quarter Fiscal Year 2023 Highlights

 

Total revenue increased by $1,468, or 13.4%, to $12,390 in the second quarter of our fiscal year ending June 30, 2023 (“Fiscal 2023”), compared to $10,922 for the same period in the fiscal year ended June 30, 2022 (“Fiscal 2022”).

 

Manufacturing segment revenue increased by $1,516, or 43%, to $5,044 in the second quarter of Fiscal 2023, compared to $3,528 for the same period in Fiscal 2022.

 

Testing segment revenue increased by $682, or 13.7%, to $5,648 in the second quarter of Fiscal 2023, compared to $4,966 for the same period in Fiscal 2022.

 

Distribution segment revenue decreased by $726, or 30%, to $1,694 in the second quarter of Fiscal 2023, compared to $2,420 for the same period in Fiscal 2022.

 

Real estate segment rental revenue decreased by $4, or 50%, to $4 in the second quarter of Fiscal 2023, compared to $8 for the same period in Fiscal 2022.

 

The overall gross profit margin increased by 0.4% to 26.9% in the second quarter of Fiscal 2023, from 26.5% for the same period in Fiscal 2022.

 

General and administrative expense decreased by $28, or 1.5%, to $1,919 in the second quarter of Fiscal 2023, from $1,947 for the same period in Fiscal 2022.

 

Selling expense increased by $37, or 34.6%, to $193 in the second quarter of Fiscal 2023, from $156 for the same period in Fiscal 2022.

 

Other income decreased by $624, or 163.8%, to other expenses of $243 in the second quarter of Fiscal 2023, from other income of $381 for the same period in Fiscal 2022.

 

Income from operations was $1,069 for the second quarter of Fiscal 2023, an increase of $413 as compared to $656 for the same period in Fiscal 2022.

 

Income tax expense was $241 for the second quarter of Fiscal 2023, an increase of $88 as compared to $153 in the same period in Fiscal 2022.

 

During the second quarter of Fiscal 2023, income from continuing operations before non-controlling interest, net of tax was $575, as compared to income from continuing operations before non-controlling interest of $856 for the same period in Fiscal 2022.

 

Net income attributable to non-controlling interest for the second quarter of Fiscal 2023 was $58, an increase of $57 as compared to $1 in the same period in Fiscal 2022.

 

Basic earnings per share for the second quarter of Fiscal 2023 was $0.12, as compared to earnings per share of $0.22 for the same period in Fiscal 2022.

 

Diluted earnings per share for the second quarter of Fiscal 2023 was $0.12, as compared to earnings per share of $0.20 for the same period in Fiscal 2022.

 

Total assets increased by $2,775 to $46,196 as of December 31, 2022, compared to $43,421 as of June 30, 2022.

 

Total liabilities increased by $804 to $16,223 as of December 31, 2022, 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 six months ended December 31, 2022 and 2021.

 

Revenue Components

 

Three Months Ended

   

Six Months Ended

 
   

Dec. 31,

   

Dec. 31,

   

Dec. 31,

   

Dec. 31,

 
   

2022

   

2021

   

2022

   

2021

 
   

(Unaudited)

   

(Unaudited)

   

(Unaudited)

   

(Unaudited)

 
                                 

Manufacturing

    40.7

%

    32.3

%

    35.5

%

    33.6

%

Testing Services

    45.6       45.4       49.4       45.4  

Distribution

    13.7       22.2       15.1       20.9  

Real Estate

    -       0.1       -       0.1  

Total

    100

%

    100.0

%

    100

%

    100.0

%

 

Revenue for the three and six months ended December 31, 2022, was $12,390 and $24,329, respectively, an increase of $1,468 and $3,236, respectively, when compared to the revenue for the same period of Fiscal 2022. As a percentage, revenue increased by 13.4% and 15.3% for the three and six months ended December 31, 2022, when compared to revenue for the same period of Fiscal 2022.

 

For the three and six months ended December 31, 2022, there was an increase in revenue in the Testing and Manufacturing 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.) increased by $1,413 (or 13.2%), to $12,067 and by $3,187 (or 15.7%) to $23,513 for the three and six months ended December 31, 2022, respectively, as compared with $10,654 and $20,326 for the same period of Fiscal 2022, respectively. 

 

Total revenue into and within the U.S. was $321 and $814 for the three and six months ended December 31, 2022, respectively, an increase of $53 and $47 from $268 and $767 for the same periods of Fiscal 2022, respectively.

 

Revenue within our four current segments for the three and six months ended December 31, 2022, is discussed below.

 

-27-

 

 

Manufacturing Segment

 

 

Revenue in the Manufacturing segment as a percentage of total revenue was 40.7% and 35.5% for the three and six months ended December 31, 2022, respectively, an increase of 8.4% and 1.9% of total revenue when compared to 32.3% and 33.6% in the same period of Fiscal 2022. The revenue increased by $1,516 to $5,044 from $3,528 and increased by $1,539 to $8,629 from $7,090 for the three and six months ended December 31, 2022, respectively.

 

Revenue in the Manufacturing segment from one customer accounted for 38.0% and 50.9% of our total revenue in the Manufacturing segment for the three months ended December 31, 2022 and 2021, respectively, and 28.2% and 42.0% of our total revenue in the Manufacturing segment for the six months ended December 31, 2022, and 2021, respectively.

 

Testing Services Segment

 

The Testing segment's revenue was 45.6% for the three months ended December 31, 2022, representing a marginal increase of 0.2%, compared to 45.4% for the same period of Fiscal 2022. Revenue in the Testing segment was 49.4% as a percentage of total revenue for the six months ended December 31, 2022, an increase of 4% compared to the same period of Fiscal 2022. Total revenue increased by $682 to $5,648 and increased by $2,446 to $12,012 from $4,966 and $9,566 for the three and six months ended December 31, 2022, respectively, as compared to the same periods of Fiscal 2022.

 

The revenue in the Testing segment from one customer accounted for 40.9% and 63.0% of our revenue in the Testing segment for the three months ended December 31, 2022 and 2021, respectively, and 45.6% and 63.3% of our total revenue in the Testing segment for the six months ended December 31, 2022 and 2021, 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 13.7% and 15.1% as a percentage of total revenue for the three and six months ended December 31, 2022, respectively, a decrease of 8.5% and 5.8%, compared to the same period of Fiscal 2022. Total revenue decreased by $726 to $1,694 and decreased by $742 to $3,676 from $2,420 and $4,418 for the three and six months ended December 31, 2022, respectively, compared to the same period of Fiscal 2022. 

 

The revenue in the Distribution segment from one customer accounted for 78.9% and 80.8% of our revenue in the Distribution segment for the three months ended December 31, 2022 and 2021, respectively, and 82.4% and 74.4% of our total revenue in the Distribution segment for the six months ended December 31, 2022 and 2021, 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 $4 and $12 from $8 and $19 for the three and six months ended December 31, 2022, 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.

 

 

-28-

 

 

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 December 2022, 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.

 

-29-

 

 

 

Comparison of the Three Months Ended December 31, 2022, and December 31, 2021

 

The following table sets forth certain consolidated statements of income data as a percentage of revenue for the three months ended December 31, 2022 and 2021 respectively:

 

   

Three Months Ended

 
   

December 31,

 
   

2022

   

2021

 
   

(Unaudited)

   

(Unaudited)

 

Revenue

    100.0

%

    100.0

%

Cost of sales

    73.1

%

    73.5

%

Gross Margin

    26.9

%

    26.5

%

Operating expense

               

General and administrative

    15.5

%

    17.8

%

Selling

    1.6

%

    1.4

%

Research and development

    1.2

%

    1.2

%

Total operating expense

    18.3

%

    20.4

%

Income from Operations

    8.6

%

    6.1

%

 

Overall Gross Margin       

 

Overall gross margin as a percentage of revenue increased by 0.4% to 26.9% for the three months ended December 31, 2022, from 26.5% for the same period of Fiscal 2022. Gross profits increased by $445 to $3,335 for the three months ended December 31, 2022, from $2,890 for the same period in Fiscal 2022.

 

Gross profit margin as a percentage of revenue in the Manufacturing segment increased by 5.2% to 23.7% for the three months ended December 31, 2022, as compared to 18.5% for the same period in Fiscal 2022. Gross profits in the Manufacturing segment increased by $541 to $1,195 for the three months ended December 31, 2022, from $654 for the same period in Fiscal 2022. The increase in gross profit margin was primarily due to a higher proportion of high profit margin product sales for the three months ended December 31, 2022 compared to the same period of Fiscal 2022.

 

Gross profit margin as a percentage of revenue in the Testing segment decreased by 4.1% to 33.7% for the three months ended December 31, 2022, compared to 37.8% in the same period of Fiscal 2022. The decrease in gross profit margin percentage was mainly due to lower margins in the Singapore and Tianjin testing operations resulting from lower demand due to inventory corrections made by customers in the second quarter of Fiscal 2023. In absolute dollar amounts, gross profit in the testing segment increased by $24 to $1,901 for the three months ended December 31, 2022, from $1,877 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 0.4% to 14.9% for the three months ended December 31, 2022, from 15.3% in the same period of Fiscal 2022.  Gross profit in the Distribution segment for the three months ended December 31, 2022, was $253, a decrease of $117, compared to $370 in the same period of Fiscal 2022. 

 

For the three months ended December 31, 2022, gross loss in the Real Estate segment was $14, as compared to $11 for the same period of Fiscal 2022.

 

Operating Expense

 

Operating expense for the three months ended December 31, 2022 and 2021 was as follows:

 

   

Three Months Ended

 
   

December 31,

 
   

2022

   

2021

 
   

(Unaudited)

   

(Unaudited)

 

General and administrative

  $ 1,919     $ 1,947  

Selling

    193       156  

Research and development

    151       131  

Gain on disposal of property, plant and equipment

    3       -  

Total

  $ 2,266     $ 2,234  

 

General and administrative expense decreased by $28 or 1.5%, from $1,947 to $1,919 for the three months ended December 31, 2022, compared to the same period of Fiscal 2022. The decrease in general and administrative expense was mainly attributable to the bonus provision adjustments in this quarter that offset the increase of administrative expense relating to the Company’s new subsidiary Trio-Tech Jiangsu, which was setup in the third quarter of Fiscal 2022.

 

Selling expense increased by $37, or 23.7%, from $156 to $193 for the three months ended December 31, 2022, 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 second quarter of Fiscal 2023, compared to the same quarter of Fiscal 2022.

 

-30-

 

 

 

Income from Operations

 

Income from operations was $1,052 for the three months ended December 31, 2022, an increase of $396, compared to profit of $656 from operations for the same period of Fiscal 2022. This was mainly due to higher revenue and improved gross profit margin from Manufacturing and Testing segments.

 

Interest Expense

 

Interest expense for the three months ended December 31, 2022 and 2021 were as follows:

 

   

Three Months Ended

 
   

December 31,

 
   

2022

   

2021

 
   

(Unaudited)

   

(Unaudited)

 

Interest expense

  $ 10     $ 28  

 

Interest expense was $10 for the three months ended December 31, 2022, a decrease of $18, or 64.3%, compared to $28 for the same period of Fiscal 2022. As of December 31, 2022, the Company had an unused line of credit of $6,139 as compared to $5,207 at December 31, 2021.

 

Other (Expense) / Income

 

Other (expense) / income for the three months ended December 31, 2022 and 2021 were as follows:

 

   

Three Months Ended

 
   

December 31,

 
   

2022

   

2021

 
   

(Unaudited)

   

(Unaudited)

 
                 

Interest income

  $ 37     $ 16  

Other rental income

    27       29  

Exchange loss

    (349

)

    (38

)

Bad debt recovery

    -       102  

Commission income

    -       200  

Government grant

    21       28  

Other miscellaneous income

    21       44  

Total

  $ (243

)

  $ 381  

 

Other income decreased by $624 from $381 to other expense of $243 for the three months ended December 31, 2022 compared to the same period in 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 U.S. Dollars since the functional currency of our foreign subsidiaries is not U.S. Dollars. During the three months ended December 31, 2022, exchange rate movement negatively impacted our net income due to the strengthening of the Singapore dollars against the U.S. Dollars.

 

Income Tax Expense

 

The Company's income tax expense was $241 and $153 for the three months ended December 31, 2022, and 2021, respectively. The increase was primarily due to the increase in taxable income.

 

Non-controlling Interest

 

As of December 31, 2022, 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 December 31, 2022 was $58, an increase of $57 compared to the share of non-controlling interest in the net income from the subsidiaries of $1 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.

 

-31-

 

 

Net Income Attributable to Trio-Tech International Common Shareholders

 

Net income attributable to Trio-Tech International common shareholders for the three months ended December 31, 2022, was $507, a change of $348, compared to a net income of $855 for the same period Fiscal 2022.

 

Earnings per Share

 

Basic earnings per share from continuing operations were $0.12 for the three months ended December 31, 2022, compared to $0.22 for the same period in Fiscal 2022. Basic earnings per share from discontinued operations were $nil for both the three months ended December 31, 2022 and 2021.

 

Diluted earnings per share from continuing operations were $0.12 for the three months ended December 31, 2022, as compared to $0.20 for the same period in Fiscal 2022. Diluted earnings per share from discontinued operations were $nil for both the three months ended December 31, 2022 and 2021.

 

Segment Information

 

The revenue, gross margin and income or loss from operations for each segment during the first 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 income from operations for the Manufacturing segment for the three months ended December 31, 2022 and 2021 were as follows:

 

   

Three Months Ended

 
   

December 31,

 
   

2022

   

2021

 
   

(Unaudited)

   

(Unaudited)

 

Revenue

  $ 5,044     $ 3,528  

Gross margin

    23.7

%

    18.5

%

Income / (loss) from operations

  $ 301     $ (48

)

 

Income from operations from the Manufacturing segment was $301 compared to loss from operations of $48 in the same period of Fiscal 2022, primarily due to an increase in gross profit margin offset by an increase in operating expense of $315. Operating expense for the Manufacturing segment were $894 and $701 for the three months ended December 31, 2022 and 2021, respectively. The increase in operating expense was mainly due to an increase of $76 in general and administrative expense, $52 in selling expense and an increase of $29 in corporate overhead expense.

 

Testing Segment

 

The revenue, gross margin and income from operations for the Testing segment for the three months ended December 31, 2022 and 2021 were as follows:

 

   

Three Months Ended

 
   

December 31,

 
   

2022

   

2021

 
   

(Unaudited)

   

(Unaudited)

 

Revenue

  $ 5,648     $ 4,966  

Gross margin

    33.7

%

    37.8

%

Income from operations

  $ 547     $ 588  

 

Income from operations in the Testing segment for the three months ended December 31, 2022 was $547 compared to $588 in the same period of Fiscal 2022, was mainly attributable to an increase of operating expenses. Operating expense was $1,354 and $1,290 for the three months ended December 31, 2022 and 2021, respectively. The increase of $64 in operating expense was mainly due to an increase of $124 in general and administrative expense while offset by decrease in selling expense and corporate expense.

 

 

-32-

 

 

 

Distribution Segment

 

The revenue, gross margin and income from operations for the Distribution segment for the three months ended December 31, 2022 and 2021 were as follows: 

 

   

Three Months Ended

 
   

December 31,

 
   

2022

   

2021

 
   

(Unaudited)

   

(Unaudited)

 

Revenue

  $ 1,694     $ 2,420  

Gross margin

    14.9

%

    15.3

%

Income from operations

  $ 217     $ 277  

 

Income from operations in the Distribution segment for three months ended December 31, 2022 was $217, compared to $277 for the same period of Fiscal 2022. The decrease of $60 was mainly due to lower sales, thereby reducing the gross profit. Operating expense were $36 and $92 for the three months ended December 31, 2022 and 2021, respectively.

 

Real Estate Segment

 

The revenue, gross margin and loss from operations for the Real Estate segment for the three months ended December 31, 2022 and 2021 were as follows: 

 

   

Three Months Ended

 
   

December 31,

 
   

2022

   

2021

 
   

(Unaudited)

   

(Unaudited)

 

Revenue

  $ 4     $ 8  

Gross margin

    (350.0

)%

    (137.5

)%

Loss from operations

  $ (28

)

  $ (28

)

 

Loss from operations in the Real Estate segment was $28 for the three months ended December 31, 2022 and for the same period of Fiscal 2022. Operating expense was $14 and $17 for the three months ended December 31, 2022 and 2021, respectively.

 

Corporate

 

The income / (loss) from operations for Corporate for the three months ended December 31, 2022, and 2021 was as follows:   

 

 

   

Three Months Ended

 
   

December 31,

 
   

2022

   

2021

 
   

(Unaudited)

   

(Unaudited)

 

Income / (Loss) from operations

  $ 32     $ (133

)

 

Corporate operating profit was $32 for the three months ended December 31, 2022, compared to loss of $133 in the same period of Fiscal 2022.

 

 

-33-

 

 

 

Comparison of the Six Months Ended December 31, 2022, and December 31, 2021

 

The following table sets forth certain consolidated statements of income data as a percentage of revenue for the six months ended December 31, 2022 and 2021, respectively:

 

   

Six Months Ended

 
   

Dec. 31,

2022

   

Dec. 31,

2021

 
                 

Revenue

    100.0

%

    100.0

%

Cost of sales

    71.4       71.2  

Gross Margin

    28.6

%

    28.8

%

Operating expenses:

               

General and administrative

    17.4

%

    18.6

%

Selling

    1.5       1.4  

Research and development

    0.9       1.0  

Total operating expenses

 

19.8

%     21.0

%

Income from Operations

    8.8

%

    7.8

%

 

Overall Gross Margin

 

Overall gross margin as a percentage of revenue decreased marginally by 0.2% to 28.6% for the six months ended December 31, 2022, compared to 28.8% in the same period of Fiscal 2022. Gross profit increased by $888 to $6,957 for the six months ended December 31, 2022, from $6,069 for the same period of Fiscal 2022.

 

Gross profit margin as a percentage of revenue in the Manufacturing segment increased by 1.0% to 26.1% for the six months ended December 31, 2022, from 25.1% in the same period of Fiscal 2022. Gross profit increased by $473 to $2,255 for the six months ended December 31, 2021 compared to $1,782 for the same period of Fiscal 2022. The gross margin increase was primarily due to an increase in Manufacturing segment revenue in the first half of Fiscal 2023 compared to the same period of Fiscal 2022.

 

Gross profit margin as a percentage of revenue in the Testing segment decreased by 3.1% to 34.5% for the six months ended December 31, 2022, from 37.6% in the same period of Fiscal 2022. Gross profit in the Testing segment increased by $545 to $4,139 for the six months ended December 31, 2022, from $3,594 for the same period of Fiscal 2022 due to improved performance in the first quarter of Fiscal 2023. The decrease in gross profit margin was mainly due to lower margins in the Testing segment resulting from lower demand due to inventory corrections made by customers in the second quarter of Fiscal 2023.

 

Gross profit margin as a percentage of revenue in the Distribution segment was 16.0% for the six months ended December 31, 2022, compared to 16.1% in the same period of Fiscal 2022.  Gross profit in the Distribution segment for the six months ended December 31, 2022, was $587, a decrease of $125 compared to $712 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.

 

Gross loss in the Real Estate segment increased by $5 for the six months ended December 31, 2022, from $19 in the same period of Fiscal 2022.

 

 

-34-

 

 

 

Operating Expense

 

Operating expense for the six months ended December 31, 2022 and 2021 were as follows:

 

   

Six Months Ended

 
   

Dec. 31,

2022

   

Dec. 31,

2021

 

(Unaudited)

               

General and administrative

  $ 4,224     $ 3,927  

Selling

    366       303  

Research and development

    224       213  

Gain on disposal of plant and equipment

    7       -  

Total

  $ 4,821     $ 4,443  

 

General and administrative expense increased by $297, or 18.2%, from $3,927 to $4,224 for the six months ended December 31, 2022, compared to the same period of Fiscal 2022. The increase in general and administrative expense 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 increased manpower costs.

 

Selling expense increased by $63, or 20.8%, for the six months ended December 31, 2022, from $303 to $366 compared to the same period of Fiscal 2022. The increase in selling expense was primarily attributable to an increase in commission expense in the Manufacturing segment of Singapore operation as a result of an increase in commissionable revenue and increased travel costs.

 

Income / (Loss) from Operations

 

Income from operations was $2,136 for the six months ended December 31, 2022, compared to $1,626 for the same period of Fiscal 2022. The increase was mainly due to the increase in gross profit margin, offset by an increase in operating expense, as discussed earlier.

 

 

Interest Expense

 

Interest expense for the six months ended December 31, 2022 and 2021 were as follows:

 

   

Six Months Ended

 
   

Dec. 31,

2022

   

Dec. 31,

2021

 

(Unaudited)

               

Interest expense

  $ 54     $ 56  

 

Interest expense decreased marginally by $2 to $54 from $56 for the six months ended December 31, 2022, compared to the same period of Fiscal 2022. The decrease was mainly due to lower utilization of lines of credit in Singapore operation.

 

Other (Expense) /  Income

 

Other (expense) / income for the six months ended December 31, 2022 and 2021 was as follows:

 

 

   

Six Months Ended

 
   

Dec. 31,

2022

   

Dec. 31,

2021

 

(Unaudited)

               

Interest income

  $ 55     $ 38  

Other rental income

    54       58  

Exchange loss

    (279

)

    (4

)

Bad debt recovery

    -       104  

Dividend Income

    -       -  

Government grant

    42       98  

Commission income

    -       200  

Other miscellaneous income

    64       48  

Total

  $ (64

)

  $ 542  

 

 

-35-

 

 

 

Other expense for the six months ended December 31, 2022 was $64, a decrease of $606 compared to other income of $542 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 U.S. Dollar since the functional currency of our foreign subsidiaries is not the U.S. Dollar. 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 Expense

 

Income tax expense for the six months ended December 31, 2021 was $466, an increase of $133 compared to of $333 for the same period of Fiscal 2022. The increase in income tax expense was primarily due to increase in the taxable income across the Company in the six months ended December 31, 2022.

 

Noncontrolling Interest

 

As of December 31, 2022, 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 noncontrolling interest in these subsidiaries for the six months ended December 31, 2022, was $154, a change of $142, compared to a net income of $12 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 $1,389 for the six months ended December 31, 2022, a decrease of $383 compared to a net income of $1,772 for the same period of Fiscal 2022. The increase was mainly due to the increase in revenue and gross margin. However, the increase was partially offset by an increase in operating expense and other expense.  

 

Earnings per Share

 

Basic earnings per share from continuing operations was $0.34 for the six months ended December 31, 2022, compared to $0.46 for the same period in Fiscal 2022. Basic earnings per share from discontinued operations were $nil for both the six months ended December 31, 2022 and 2021.

 

Diluted earnings per share from continuing operations was $0.33 for the six months ended December 31, 2022, compared to $0.43 for the same period of Fiscal 2022. Diluted earnings per share from discontinued operations were $nil for both the six months ended December 31, 2022 and 2021.

 

Segment Information

 

The revenue, gross profit margin, and income or loss from operations in each segment for the six months ended December 31, 2022 and 2021, 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 six months ended December 31, 2022 and 2021 were as follows:

 

   

Six Months Ended

 
   

Dec. 31,

2022

   

Dec. 31,

2021

 

(Unaudited)

               

Revenue

  $ 8,629     $ 7,090  

Gross margin

    26.1

%

    25.1

%

Income from operations

  $ 477     $ 252  

 

Income from operations from the Manufacturing segment was $477 for the six months ended December 31, 2022, an increase of $225 as compared to $252 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 expense. The Manufacturing segment's operating expense were $1,778 and $1,529 for the six months ended December 31, 2022 and 2021, respectively. The increase in operating expense of $249 was mainly due to an increase in general and administrative expense by $75, and an increase in selling expense by $82 compared to the same period of Fiscal 2022. The increase in general and administrative expense was mainly attributable to an increase in payroll-related expenses in the Singapore operations. The increase in selling expense was primarily attributable to an increase in commission expenses in the Manufacturing segment of Singapore operation because of an increase in commissionable revenue.

 

 

-36-

 

 

Testing Segment

 

The revenue, gross margin and loss from operations for the Testing segment for the six months ended December 31, 2022 and 2021 were as follows:

 

   

Six Months Ended

 
   

Dec. 31,

2022

   

Dec. 31,

2021

 

(Unaudited)

               

Revenue

  $ 12,012     $ 9,566  

Gross margin

    34.5

%

    37.6

%

Income from operations

  $ 1,129     $ 1,124  

 

Income from operations in the Testing segment for the six months ended December 31, 2022, was $1,129, a slight improvement of $5 compared to $1,124 in the same period of Fiscal 2022. The increase in gross profit of $545 was partially offset by an increase in operating expense by $540.  Operating expense was $3,011 and $2,471 for the six months ended December 31, 2022 and 2021, respectively. The higher operating expense was mainly attributed to an increase in general and administrative expense and corporate overhead by $356 and $234, respectively.

 

The increase in general and administrative expense was mainly due to costs incurred in Company’s new subsidiary Trio-Tech Jiangsu, which was setup in the third quarter of Fiscal 2022, coupled with increased manpower costs. The increase in corporate overhead expense 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 six months ended December 31, 2022 and 2021 were as follows: 

 

   

Six Months Ended

 
   

Dec. 31,

2022

   

Dec. 31,

2021

 

(Unaudited)

               

Revenue

  $ 3,676     $ 4,418  

Gross margin

    16.0

%

    16.1

%

Income from operations

  $ 482     $ 531  

 

Income from operations in the Distribution segment for the six months ended December 31, 2022 was $482, a decrease of $49 compared to $531 in the same period of Fiscal 2022. The decrease in operating income was primarily due to a decrease in gross margin by $125, which was partially offset with a decrease in operating expense of $76. Operating expense were $106 and $180 for the six months ended December 31, 2022 and 2021, respectively. The decrease in operating expense was mainly contributed by decrease in general and administrative expense of $60.

 

 

-37-

 

 

 

Real Estate Segment

 

The revenue, gross loss margin and loss from operations for the Real Estate segment for the six months ended December 31, 2022 and 2021 were as follows: 

 

   

Six Months Ended

 
   

Dec. 31,

2022

   

Dec. 31,

2021

 

(Unaudited)

               

Revenue

  $ 12     $ 19  

Gross loss margin

    200.0

%

    100.0

%

Loss from operations

  $ (42

)

  $ (51

)

 

Loss from operations in the Real Estate segment for the six months ended December 31, 2022 was $42, a decrease of $9 compared to $51 for the same period of Fiscal 2022. The decrease in operating loss was mainly due to a decrease in operating expense. Operating expense was $18 and $32 for the six months ended December 31, 2022 and 2021, respectively.

 

Corporate

 

The income/(loss) from operations for corporate for the six months ended December 31, 2022 and 2021 were as follows:   

 

   

Six Months Ended

 
   

Dec. 31,

2022

   

Dec. 31,

2021

 

(Unaudited)

               

Income / (Loss) from operations

  $ 90     $ (230 )

 

The improvement of $320 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 six months ended December 31, 2022 total assets increased by $2,775 to $46,196 compared to $43,421 as of June 30, 2022. The increase was primarily due to increase in inventories, trade receivables and property, plant and equipment and restricted term deposits, partially offset by decrease in cash and cash equivalents, short-term deposit, other receivables, prepaid expense, deferred tax assets, investment properties, right-of-use assets and operating right-of-use assets.

 

Cash and cash equivalents were $6,379 as at December 31, 2022, reflecting an decrease of $1,319 from $7,698 as at June 30, 2022, primarily due to placement of additional term deposits and repayment in lines of credit for the six months ended December 31, 2022.

 

Short-term deposits and restricted term deposits were $7,484 as at December 31, 2022, reflecting an increase of $386 from $7,098 as at June 30, 2022. The increase was primarily due to additional term deposits placement and also foreign currency movement.

 

As at December 31, 2022, the trade accounts receivable balance increased by $1,740 to $13,332, from $11,592 as at June 30, 2022, primarily due to an increase in overall revenue of all entities on a consolidated basis. The number of days’ sales outstanding in accounts receivables for the Group was 91 days and 81 days at the end of the second quarter of Fiscal 2023 and the end of Fiscal 2022, respectively.

 

Other receivables as at December 31, 2022 mainly comprised of advance payments made to suppliers and refundable services taxes in the Singapore operations.

 

Inventories as at December 31, 2022, were $3,219, an increase of $961, compared to $2,258 as at June 30, 2022. The increase in inventories was in line with the backlog in the manufacturing and distribution segments of our Singapore operations. 

 

Prepaid expenses were $610 as at December 31, 2022 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 $533 as at December 31, 2022 and $585 as at June 30, 2022. The decrease was primarily due to the foreign currency exchange movement between June 30, 2022 and December 31, 2022.

 

Property, plant and equipment increased by $2,589 from $8,481 as at June 30, 2022, to $11,070 as at December 31, 2022, 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 December 31, 2022.

 

Other assets increased by $4 to $141 as at December 31, 2022 compared to $137 as at June 30, 2022.  This was primarily due to the foreign currency exchange movement between June 30, 2022 and December 31, 2022.

 

Lines of credit was $nil as at December 31, 2022 as compared to $929 as at June 30, 2022. This was because of repayment of lines of credit in the Singapore Operation with no new utilization as of December 31, 2022.

 

Accounts payable increased by $666 to $3,067 as at December 31, 2022 as compared to $2,401 as at June 30, 2022 which was in line with the increase of sales and inventories.

 

 

-38-

 

Accrued expense increased by $803 to $6,807 as at December 31, 2022, 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 pf property, plant and equipment in the China operations.

 

There was no significant change in bank loans payable as it decreased by $48 to $1,696 as at December 31, 2022, 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 $67 to $170 as at December 31, 2022, 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 $572 to $2,580 as at December 31, 2022, 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 $1,144 to $1,172 as at December 31, 2022, 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 $2,942 to an inflow of $3,779 for the six months ended December 31, 2022, from an inflow of $837 for the same period of Fiscal 2022. The increase in net cash provided by operating activities was primarily due to an increase of $3,393 in cash inflow from changes in depreciation, other receivables, prepaid expense and other current assets and account payables and accrued expense in first half of Fiscal 2023 as compared to same period of Fiscal 2022. It was partially offset by an increase of $420 in cash outflow from changes in inventories and operating lease in first half of Fiscal 2023 as compared to same period of Fiscal 2022.

 

Net cash provided by investing activities decreased by $4,270 to an outflow of $3,428 for the six months ended December 31, 2022, from an inflow of $842 for the same period of Fiscal 2022.  The increase in cash outflow was primarily due to an additions to property, plant and equipment of $3,994.

 

Net cash outflow from financing activities for the six months ended December 31, 2022, was $1,032, representing a decrease of $1,105, as compared to cash inflow of $73 during the six months ended December 31, 2021. The decrease was mainly attributable to a higher payment on lines of credit by $856.

 

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 $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 December 31, 2022, 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 December 31, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

-39-

 

 

 

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

 

Section 1350 Certification

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)

 

 

-40-

 

 

 

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: February 10, 2023

 

 

-41-