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 September 30, 20212022
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 |
|
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 nonnon-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 12b12b-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 November 1, 2021,2022, there were 3,913,0554,076,680 shares of the issuer’s Common Stock, no par value, outstanding.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE
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; the trade tension between U.S. and China; and other economic, financial and regulatory factors beyond the Company’s control.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.
ITEM 1. FINANCIAL STATEMENTS
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT NUMBER OF SHARES)
September 30, 2021 | June 30, 2021 | September 30, | June 30, | |||||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||||
ASSETS | ||||||||||||||||
CURRENT ASSETS: | ||||||||||||||||
Cash and cash equivalents | $ | 5,173 | $ | 5,836 | $ | 9,428 | $ | 7,698 | ||||||||
Short-term deposits | 5,925 | 6,651 | 2,829 | 5,420 | ||||||||||||
Trade accounts receivable, less allowance for doubtful accounts of $308 and $311, respectively | 9,403 | 8,293 | ||||||||||||||
Trade accounts receivable, less allowance for doubtful accounts of $215 and $243, respectively | 12,491 | 11,592 | ||||||||||||||
Other receivables | 692 | 662 | 942 | 998 | ||||||||||||
Inventories, less provision for obsolete inventories of $685 and $679, respectively | 2,410 | 2,080 | ||||||||||||||
Inventories, less provision for obsolete inventories of $625 and $674, respectively | 3,548 | 2,258 | ||||||||||||||
Prepaid expenses and other current assets | 1,315 | 418 | 631 | 1,215 | ||||||||||||
Financed sales receivable | 20 | 19 | 20 | 21 | ||||||||||||
Total current assets | 24,938 | 23,959 | 29,889 | 29,202 | ||||||||||||
NONCURRENT ASSETS: | ||||||||||||||||
NON-CURRENT ASSETS: | ||||||||||||||||
Deferred tax assets | 226 | 217 | 173 | 169 | ||||||||||||
Investment properties, net | 661 | 681 | 533 | 585 | ||||||||||||
Property, plant and equipment, net | 9,333 | 9,531 | 8,687 | 8,481 | ||||||||||||
Operating lease right-of-use assets | 2,901 | 1,876 | 2,759 | 3,152 | ||||||||||||
Other assets | 296 | 262 | 121 | 137 | ||||||||||||
Financed sales receivable | 34 | 39 | 11 | 17 | ||||||||||||
Restricted term deposits | 1,722 | 1,741 | 1,632 | 1,678 | ||||||||||||
Total noncurrent assets | 15,173 | 14,347 | ||||||||||||||
Total non-current assets | 13,916 | 14,219 | ||||||||||||||
TOTAL ASSETS | $ | 40,111 | $ | 38,306 | $ | 43,805 | $ | 43,421 | ||||||||
LIABILITIES | ||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||
Lines of credit | $ | 249 | $ | 72 | $ | 482 | $ | 929 | ||||||||
Accounts payable | 3,224 | 3,702 | 3,469 | 2,401 | ||||||||||||
Accrued expenses | 3,872 | 3,363 | 6,179 | 6,004 | ||||||||||||
Income taxes payable | 457 | 314 | 968 | 787 | ||||||||||||
Current portion of bank loans payable | 438 | 439 | 491 | 472 | ||||||||||||
Current portion of finance leases | 180 | 197 | 104 | 118 | ||||||||||||
Current portion of operating leases | 869 | 672 | 1,130 | 1,218 | ||||||||||||
Total current liabilities | 9,289 | 8,759 | 12,823 | 11,929 | ||||||||||||
NONCURRENT LIABILITIES: | ||||||||||||||||
NON-CURRENT LIABILITIES: | ||||||||||||||||
Bank loans payable, net of current portion | 1,489 | 1,621 | 1,251 | 1,272 | ||||||||||||
Finance leases, net of current portion | 211 | 253 | 91 | 119 | ||||||||||||
Operating leases, net of current portion | 2,033 | 1,204 | 1,629 | 1,934 | ||||||||||||
Income taxes payable | 326 | 385 | ||||||||||||||
Deferred taxes liabilities | 30 | 0 | ||||||||||||||
Other noncurrent liabilities | 29 | 31 | ||||||||||||||
Total noncurrent liabilities | 4,118 | 3,494 | ||||||||||||||
Income taxes payable, net of current portion | 137 | 137 | ||||||||||||||
Deferred tax liabilities | 30 | - | ||||||||||||||
Other non-current liabilities | 26 | 28 | ||||||||||||||
Total non-current liabilities | 3,164 | 3,490 | ||||||||||||||
TOTAL LIABILITIES | $ | 13,407 | $ | 12,253 | $ | 15,987 | $ | 15,419 | ||||||||
EQUITY | ||||||||||||||||
TRIO-TECH INTERNATIONAL’S SHAREHOLDERS' EQUITY: | ||||||||||||||||
Common stock, no par value, 15,000,000 shares authorized; 3,913,055 shares issued outstanding as at September 30 and June 30, 2021 | $ | 12,178 | $ | 12,178 | ||||||||||||
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 September 30 and June 30, 2022 | $ | 12,769 | 12,750 | |||||||||||||
Paid-in capital | 4,245 | 4,233 | 4,740 | 4,708 | ||||||||||||
Accumulated retained earnings | 7,741 | 6,824 | 10,101 | 9,219 | ||||||||||||
Accumulated other comprehensive income-translation adjustments | 2,117 | 2,399 | 1 | 1,197 | ||||||||||||
Total Trio-Tech International shareholders' equity | 26,281 | 25,634 | ||||||||||||||
Noncontrolling interest | 423 | 419 | ||||||||||||||
Total Trio-Tech International shareholders’ equity | 27,611 | 27,874 | ||||||||||||||
Non-controlling interest | 207 | 128 | ||||||||||||||
TOTAL EQUITY | $ | 26,704 | $ | 26,053 | $ | 27,818 | $ | 28,002 | ||||||||
TOTAL LIABILITIES AND EQUITY | $ | 40,111 | $ | 38,306 | $ | 43,805 | $ | 43,421 |
See notes to condensed consolidated financial statements.statements
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / (LOSS)
UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Three Months Ended | ||||||||||||||||
Sept. 30, | Sept. 30, | Three Months Ended | ||||||||||||||
2021 | 2020 | Sept. 30, | Sept. 30, | |||||||||||||
Revenue | ||||||||||||||||
Manufacturing | $ | 3,562 | $ | 2,625 | $ | 3,585 | $ | 3,562 | ||||||||
Testing services | 4,600 | 2,954 | 6,364 | 4,600 | ||||||||||||
Distribution | 1,998 | 1,258 | 1,982 | 1,998 | ||||||||||||
Real estate | 11 | 4 | 8 | 11 | ||||||||||||
10,171 | 6,841 | 11,939 | 10,171 | |||||||||||||
Cost of Sales | ||||||||||||||||
Cost of manufactured products sold | 2,434 | 1,937 | 2,525 | 2,434 | ||||||||||||
Cost of testing services rendered | 2,883 | 2,322 | 4,126 | 2,883 | ||||||||||||
Cost of distribution | 1,656 | 1,047 | 1,648 | 1,656 | ||||||||||||
Cost of real estate | 19 | 17 | 18 | 19 | ||||||||||||
6,992 | 5,323 | 8,317 | 6,992 | |||||||||||||
Gross Margin | 3,179 | 1,518 | 3,622 | 3,179 | ||||||||||||
Operating Expenses: | ||||||||||||||||
General and administrative | 1,980 | 1,660 | 2,305 | 1,980 | ||||||||||||
Selling | 147 | 111 | 173 | 147 | ||||||||||||
Research and development | 82 | 75 | 73 | 82 | ||||||||||||
Gain on disposal of property, plant and equipment | 0 | (1 | ) | 4 | - | |||||||||||
Total operating expenses | 2,209 | 1,845 | 2,555 | 2,209 | ||||||||||||
Income/(Loss) from Operations | 970 | (327 | ) | |||||||||||||
Income from Operations | 1,067 | 970 | ||||||||||||||
Other Income/(Expenses) | ||||||||||||||||
Interest expenses | (28 | ) | (37 | ) | (44 | ) | (28 | ) | ||||||||
Other income, net | 161 | 211 | 179 | 161 | ||||||||||||
Total other income | 133 | 174 | 135 | 133 | ||||||||||||
Income/(Loss) from Continuing Operations before Income Taxes | 1,103 | (153 | ) | |||||||||||||
Income from Continuing Operations before Income Taxes | 1,202 | 1,103 | ||||||||||||||
Income Tax Expenses | (180 | ) | (7 | ) | (225 | ) | (180 | ) | ||||||||
Income/(Loss) from Continuing Operations before Noncontrolling Interest, Net of Tax | 923 | (160 | ) | |||||||||||||
Income from Continuing Operations before Non-controlling Interest, Net of Tax | 977 | 923 | ||||||||||||||
Discontinued Operations | ||||||||||||||||
Income/(Loss) from discontinued operations, net of tax | 5 | (6 | ) | |||||||||||||
NET INCOME/(LOSS) | 928 | (166 | ) | |||||||||||||
Income from discontinued operations, net of tax | 1 | 5 | ||||||||||||||
NET INCOME | 978 | 928 | ||||||||||||||
Less: Net income/(loss) attributable to the noncontrolling interest | 11 | (158 | ) | |||||||||||||
Net Income/(Loss) Attributable to Trio-Tech International Common Shareholders | $ | 917 | $ | (8 | ) | |||||||||||
Less: Net income attributable to the non-controlling interest | 96 | 11 | ||||||||||||||
Net Income Attributable to Trio-Tech International Common Shareholders | $ | 882 | $ | 917 | ||||||||||||
Amounts Attributable to Trio-Tech International Common Shareholders: | ||||||||||||||||
Income/(Loss) from continuing operations, net of tax | 914 | (5 | ) | |||||||||||||
Income/(Loss) from discontinued operations, net of tax | 3 | (3 | ) | |||||||||||||
Net Income/(Loss) Attributable to Trio-Tech International Common Shareholders | $ | 917 | $ | (8 | ) | |||||||||||
Income from continuing operations, net of tax | 882 | 914 | ||||||||||||||
Income from discontinued operations, net of tax | - | 3 | ||||||||||||||
Net Income Attributable to Trio-Tech International Common Shareholders | $ | 882 | $ | 917 | ||||||||||||
Basic Earnings per Share: | ||||||||||||||||
Basic earnings per share from continuing operations attributable to Trio-Tech International | $ | 0.23 | $ | 0 | $ | 0.22 | $ | 0.23 | ||||||||
Basic earnings per share from discontinued operations attributable to Trio-Tech International | $ | 0 | $ | 0 | $ | - | $ | - | ||||||||
Basic Earnings per Share from Net Income | ||||||||||||||||
Attributable to Trio-Tech International | $ | 0.23 | $ | 0 | ||||||||||||
Basic Earnings per Share from Net Income Attributable to Trio-Tech International | $ | 0.22 | $ | 0.23 | ||||||||||||
Diluted Earnings per Share: | ||||||||||||||||
Diluted earnings per share from continuing operations attributable to Trio-Tech International | $ | 0.23 | $ | 0 | $ | 0.21 | $ | 0.23 | ||||||||
Diluted earnings per share from discontinued operations attributable to Trio-Tech International | $ | 0 | $ | 0 | $ | - | $ | - | ||||||||
Diluted Earnings per Share from Net Income | ||||||||||||||||
Attributable to Trio-Tech International | $ | 0.23 | $ | 0 | ||||||||||||
Diluted Earnings per Share from Net Income Attributable to Trio-Tech International | $ | 0.21 | $ | 0.23 | ||||||||||||
Weighted average number of common shares outstanding | ||||||||||||||||
Basic | 3,913 | 3,686 | 4,077 | 3,913 | ||||||||||||
Dilutive effect of stock options | 94 | 18 | 81 | 94 | ||||||||||||
Number of shares used to compute earnings per share diluted | 4,007 | 3,704 | $ | 4,158 | $ | 4,007 |
See notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(LOSS) / (LOSS)INCOME
UNAUDITED (IN THOUSANDS)
Three Months Ended | ||||||||
Sept. 30, | Sept. 30, | |||||||
2021 | 2020 | |||||||
Comprehensive Income Attributable to Trio-Tech International Common Shareholders: | ||||||||
Net income/(loss) | 928 | (166 | ) | |||||
Foreign currency translation, net of tax | (289 | ) | 640 | |||||
Comprehensive Income | 639 | 474 | ||||||
Less: Comprehensive income/(loss) attributable to the noncontrolling interests | 4 | (122 | ) | |||||
Comprehensive Income Attributable to Trio-Tech International Common Shareholders | $ | 635 | $ | 596 |
Three Months Ended | ||||||||
Sept. 30, | Sept. 30, | |||||||
2022 | 2021 | |||||||
Comprehensive Income Attributable to Trio-Tech International Common | ||||||||
Shareholders | ||||||||
Net income | $ | 978 | $ | 928 | ||||
Foreign currency translation, net of tax | (1,213 | ) | (289 | ) | ||||
Comprehensive (Loss) / Income | (235 | ) | 639 | |||||
Less: Comprehensive income attributable to the non-controlling interests | 79 | 4 | ||||||
Comprehensive (Loss) / Income Attributable to Trio-Tech International Common Shareholders | $ | (314 | ) | $ | 635 |
See notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(INUNAUDITED (IN THOUSANDS)
Three Monthsmonths ended September 30, 2021
2022
Common Stock | Paid-in | Accumulated Retained | Accumulated Other Comprehensive | Non- controlling | Common Stock | Paid-in | Accumulated Retained | Accumulated Other Comprehensive | Non- controlling | |||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income/ (Loss) | Interest | Total | Shares | Amount | Capital | Earnings | Income/ (Loss) | Interest | Total | |||||||||||||||||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | 3,913 | 12,178 | 4,233 | 6,824 | 2,399 | 419 | 26,053 | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | 4,072 | 12,750 | 4,708 | 9,219 | 1,197 | 128 | 28,002 | |||||||||||||||||||||||||||||||||||||||||||||||||
Stock option expenses | - | 0 | 12 | 0 | 0 | 0 | 12 | - | - | 32 | - | - | - | 32 | ||||||||||||||||||||||||||||||||||||||||||
Net income | - | 0 | 0 | 917 | 0 | 11 | 928 | 882 | - | 96 | 978 | |||||||||||||||||||||||||||||||||||||||||||||
Dividend declared by subsidiary | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock option | 5 | 19 | - | - | - | 19 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Translation adjustment | - | 0 | 0 | 0 |
| (282 | ) | (7 | ) | (289 | ) | - | - | - | (1,196 | ) | (17 | ) | (1,213 | ) | ||||||||||||||||||||||||||||||||||||
Balance at Sept. 30, 2021 | 3,913 | 12,178 | 4,245 | 7,741 | 2,117 | 423 | 26,704 | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance at Sept 30, 2022 | 4,077 | 12,769 | 4,740 | 10,101 | 1 | 207 | 27,818 |
Three Monthsmonths ended September 30, 2020
2021
Common Stock | Paid-in | Accumulated Retained | Accumulated Other Comprehensive | Non- controlling | ||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income | Interest | Total | ||||||||||||||||||||||
Balance at June 30, 2020 | 3,673 | 11,424 | 3,363 | 8,036 | 1,143 | 1,180 | 25,146 | |||||||||||||||||||||
Stock option expenses | - | 0 | 6 | 0 | 0 | 0 | 6 | |||||||||||||||||||||
Net loss | - | 0 | 0 | (8 | ) | 0 | (158 | ) | (166 | ) | ||||||||||||||||||
Dividend declared by subsidiary | - | 0 | 0 | 0 | 0 | (122 | ) | (122 | ) | |||||||||||||||||||
Exercise of stock option | 13 | 34 | 0 | 0 | 0 | 0 | 34 | |||||||||||||||||||||
Translation adjustment | - | 0 | 0 | 0 | 604 | 36 | 640 | |||||||||||||||||||||
Balance at Sept. 30, 2020 | 3,686 | 11,458 | 3,369 | 8,028 | 1,747 | 936 | 25,538 |
Common Stock | Paid-in | Accumulated Retained | Accumulated Other Comprehensive | Non- controlling | ||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income/ (Loss) | Interest | Total | ||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
Balance at June 30, 2021 | 3,913 | 12,178 | 4,233 | 6,824 | 2,399 | 419 | 26,053 | |||||||||||||||||||||
Stock option expenses | - | - | 12 | - | - | - | 12 | |||||||||||||||||||||
Net income | - | - | - | 917 | - | 11 | 928 | |||||||||||||||||||||
Translation adjustment | - | - | - | (282 | ) | (7 | ) | (289 | ) | |||||||||||||||||||
Balance at Sept. 30, 2021 | 3,913 | 12,178 | 4,245 | 7,741 | 2,117 | 423 | 26,704 |
See notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(IN THOUSANDS)
Three Months Ended | Three Months Ended | |||||||||||||||
Sept. 30, | Sept. 30, | Sept. 30, | Sept. 30, | |||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Cash Flow from Operating Activities | ||||||||||||||||
Net income/ (loss) | $ | 928 | $ | (166 | ) | $ | 978 | $ | 928 | |||||||
Adjustments to reconcile net income/(loss) to net cash flow provided by operating activities | ||||||||||||||||
Depreciation and amortization | 709 | 702 | 882 | 709 | ||||||||||||
Addition of provision for obsolete inventories | 11 | 6 | (38 | ) | 11 | |||||||||||
Stock option expense | 12 | 6 | 32 | 12 | ||||||||||||
Bad debt recovery | (2 | ) | (5 | ) | (17 | ) | (2 | ) | ||||||||
Accrued interest expense, net accrued interest income | 16 | 0 | 43 | 16 | ||||||||||||
Payment of interest portion of finance lease | (6 | ) | (10 | ) | (3 | ) | (6 | ) | ||||||||
Gain on sale of property, plant and equipment - continuing operations | 0 | (1 | ) | (15 | ) | - | ||||||||||
Deferred tax expense/ (benefit) | 18 | (19 | ) | |||||||||||||
Warranty recovery, net | 2 | - | ||||||||||||||
Deferred tax expense | 20 | 18 | ||||||||||||||
Changes in operating assets and liabilities, net of acquisition effects | ||||||||||||||||
Trade accounts receivable | (1,105 | ) | 219 | (886 | ) | (1,105 | ) | |||||||||
Other receivables | (30 | ) | 93 | 56 | (30 | ) | ||||||||||
Other assets | (52 | ) | (67 | ) | 11 | (52 | ) | |||||||||
Inventories | (362 | ) | 67 | (1,341 | ) | (362 | ) | |||||||||
Prepaid expenses and other current assets | (893 | ) | 71 | 537 | (893 | ) | ||||||||||
Accounts payable and accrued expenses | 68 | (236 | ) | 1,469 | 68 | |||||||||||
Income taxes payable | 123 | (23 | ) | 211 | 123 | |||||||||||
Operating lease liabilities | (146 | ) | (174 | ) | (380 | ) | (146 | ) | ||||||||
Net Cash (Used in) / Provided by Operating Activities | (711 | ) | 463 | |||||||||||||
Net Cash Provided by / (Used in) Operating Activities | $ | 1,561 | $ | (711 | ) | |||||||||||
Cash Flow from Investing Activities | ||||||||||||||||
Withdrawal from unrestricted term deposits, net | 664 | 0 | 2,486 | 664 | ||||||||||||
Short-term advances | 0 | (6 | ) | |||||||||||||
Additions to property, plant and equipment | (438 | ) | (87 | ) | (1,156 | ) | (438 | ) | ||||||||
Net Cash Provided by / (Used in) Investing Activities | 226 | (93 | ) | |||||||||||||
Net Cash Provided by Investing Activities | 1,330 | 226 | ||||||||||||||
Cash Flow from Financing Activities | ||||||||||||||||
Payment on lines of credit | (301 | ) | (174 | ) | (938 | ) | (301 | ) | ||||||||
Payment of bank loans | (107 | ) | (103 | ) | (117 | ) | (107 | ) | ||||||||
Payment of finance leases | (53 | ) | (54 | ) | (36 | ) | (53 | ) | ||||||||
Dividends paid on noncontrolling interest | 0 | (122 | ) | |||||||||||||
Proceeds from exercising stock options | 0 | 34 | 19 | - | ||||||||||||
Proceeds from lines of credit | 478 | 0 | 483 | 478 | ||||||||||||
Proceeds from bank loans | 0 | 208 | 175 | - | ||||||||||||
Net Cash Provided by / (Used in) Financing Activities | 17 | (211 | ) | |||||||||||||
Net Cash (Used in) / Provided by Financing Activities | (414 | ) | 17 | |||||||||||||
Effect of Changes in Exchange Rate | (214 | ) | 575 | (793 | ) | (214 | ) | |||||||||
Net (decrease) / increase in cash, cash equivalents, and restricted cash | (682 | ) | 734 | |||||||||||||
Cash, cash equivalents, and restricted cash at beginning of period | 7,577 | 5,810 | ||||||||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | 6,895 | $ | 6,544 | ||||||||||||
Net Increase / (Decrease) in Cash, Cash Equivalents, and Restricted Cash | 1,684 | (682 | ) | |||||||||||||
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 9,376 | 7,577 | ||||||||||||||
Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 11,060 | $ | 6,895 | ||||||||||||
Supplementary Information of Cash Flows | ||||||||||||||||
Cash paid during the period for: | ||||||||||||||||
Interest | $ | 122 | $ | 67 | $ | 43 | $ | 122 | ||||||||
Income taxes | $ | 52 | $ | 45 | $ | 1 | $ | 52 | ||||||||
Reconciliation of cash, cash equivalents, and restricted cash | ||||||||||||||||
cash | 5,173 | 4,849 | ||||||||||||||
Restricted Term deposits in noncurrent assets | 1,722 | 1,695 | ||||||||||||||
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows | $ | 6,895 | $ | 6,544 | ||||||||||||
Reconciliation of Cash, Cash Equivalents, and Restricted Cash | ||||||||||||||||
Cash | 9,428 | 5,173 | ||||||||||||||
Restricted Term-Deposits in Non-Current Assets | 1,632 | 1,722 | ||||||||||||||
Total Cash, Cash Equivalents, and Restricted Cash Shown in Statements of Cash Flows | $ | 11,060 | $ | 6,895 |
See notes to condensed consolidated financial statements.
Amounts included in 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. Restricted deposits are classified as noncurrentnon-current assets as they relate to long-term obligations and will become unrestricted only upon discharge of the obligations.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AND NUMBER OF SHARES)
1.ORGANIZATION AND BASIS OF PRESENTATION |
|
Trio-Tech International (“the Company”(the “Company”, or “TTI” hereafter)) was incorporated in fiscal year ended June 30, 1958under 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.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 first quarter of the fiscal year ended 2022,June 30, 2023 (“Fiscal 2023”), TTI conducted business in 4four 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 |
|
| ||||
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.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 reportAnnual Report for the fiscal year ended June 30, 2021. 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.
Certain accounting matters that generally require considerationThe results of forecasted financial information were assessed regarding impacts from the COVID-19 pandemic as of September 30, 2021 and through the Quarterly Report dated November 15, 2021 using reasonably available information as of those dates. Those accounting matters assessed included, but were not limited to, allowance for doubtful accounts, the carrying value of long-lived tangible assets and the valuation allowances for tax assets. While the assessments resulted in no material impacts to the consolidated financial statements as of andoperations for the quarterthree months ended September 30, 2021,2022 are not necessarily indicative of the Company believesresults that may be expected for any other interim period or for the full impact of the pandemic remains uncertain and the Company will continue to assess if ongoing developments related to the pandemic may cause future material impacts to our consolidated financial statements. As of September 30, 2021, the Company had cash and cash equivalents and short-terms deposits totaling $11,098 and unused lines of credit of $5,397. We finance operations primarily through our existing cash balances, cash collected from operations, bank borrowings and capital lease financing. We believe these sources are sufficient to fund our operations for the foreseeable future. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report for the fiscal year endedending June 30, 2021.2023.
Basis of Presentation and Summary of Significant Accounting Policies
The Company’s core businesses — testing services, manufacturing and distribution — operate in a volatile industry, whereby its average selling prices and product costs are influenced by competitive factors. These factors create pressures on sales, costs, earnings and cash flows, which will impact liquidity.
All dollar amounts in the consolidated financial statements and in the notes herein are presented in thousands of United States dollars (US$’000) unless otherwise designated.
Liquidity — The Company earned net income attributable to common shareholders of $917 and incurred net loss attributable to common shareholders of $8 for the 3 months endedSeptember 30, 2021, and September 30, 2020, respectively.
Foreign Currency Translation and Transactions— The U.S. dollar is the functional currency of the U.S. parent company. The Singapore dollar, the national currency of Singapore, is the primary currency of the economic environment in which the operations in Singapore are conducted. The Company also has business entities in Malaysia, Thailand, China and Indonesia of which the Malaysian ringgit (“RM”), Thai baht, Chinese renminbi (“RMB”) and Indonesian rupiah, are the national currencies. The Company uses the U.S. dollar for financial reporting purposes.
The Company translates assets and liabilities of its subsidiaries outside the U.S. into U.S. dollars using the rate of exchange prevailing at the fiscal year end, and the consolidated statements of operations and comprehensive income or loss is translated at average rates during the reporting period. Adjustments resulting from the translation of the subsidiaries’ financial statements from foreign currencies into U.S. dollars are recorded in shareholders' equity as part of accumulated other comprehensive gain - translation adjustments. Gains or losses resulting from transactions denominated in currencies other than functional currencies of the Company’s subsidiaries are reflected in income for the reporting period.
Use of Estimates — The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of AmericaGAAP 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, reserve for warranty, impairments, provision of income tax, stock options and the deferred income tax asset allowance. Actual results could materially differ from those estimates.
Revenue RecognitionSignificant Accounting Policies. — The Company follows ASUThere have been No.no material changes to our significant accounting policies summarized in Note 2014-09,1 ASC Topic“Basis of Presentation and Summary of Significant Accounting Policies” to our consolidated Financial Statements included in our Annual Report on Form 606,10Revenue from Contracts with Customers (“ASC Topic 606”). This standard update outlines a single comprehensive model-K for entities to use in accounting for revenue arising from contracts with customers.Fiscal 2022.
We apply a five2.-step approach as defined in ASC Topic 606 in determining the amount and timing of revenue to be recognized: (1) identifying the contract with customer; (2) identifying the performance obligations in the contracts; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when the corresponding performance obligation is satisfied.
Revenue derived from testing services is recognized when testing services are rendered. Revenue generated from sale of products in the manufacturing and distribution segments are recognized when persuasive evidence of an arrangement exists, delivery of the products has occurred, customer acceptance has been obtained (which means the significant risks and rewards of ownership have been transferred to the customer), the price is fixed or determinable and collectability is reasonably assured. Certain customers can request for installation and training services to be performed for certain products sold in the manufacturing segment. These services are mainly for helping customers with the test runs of the machines sold and are considered a separate performance obligation. Such services can be provided by other entities as well and these do not significantly modify the product. The Company recognizes the revenue at a point in time when the Company has satisfied its performance obligation.NEW ACCOUNTING PRONOUNCEMENTS
In March 2022, the real estate segment: (1Financial Accounting Standards Board (“FASB”) revenue from property development is earned and recognized on the earlier of the dates when the underlying property is sold or upon the maturity of the agreement; if this amount is uncollectible, the agreement empowers the repossession of the property, and (2issued Accounting Standards Update (“ASU”) rental revenue is recognized on a straight-line basis over the terms of the respective leases. This means that, with respect to a particular lease, actual amounts billed in accordance with the lease during any given period may 2022be higher or lower than the amount of rental revenue recognized for the period. Straight-line rental revenue is commenced when the tenant assumes possession of the leased premises. Accrued straight-line rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements.
GST / Indirect Taxes —The Company’s policy is to present taxes collected from customers and remitted to governmental authorities on a net basis. The Company records the amounts collected as a current liability and relieves such liability upon remittance to the taxing authority without impacting revenues or expenses.
Trade Account Receivables and Allowance for Doubtful Accounts —During the normal course of business, the Company extends unsecured credit to its customers in all segments. Typically, credit terms require payment to be made between 30 to 90 days from the date of the sale. The Company generally does not02 require collateral from our customers.
The Company’s management considers the following factors when determining the collectability of specific customer accounts: customer creditworthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. The Company includes any account balances that are determined to be uncollectible, along with a general reserve, in the overall allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available to management, the Company believed that its allowance for doubtful accounts was adequate as of September 30, 2021, and June 30, 2021.
Warranty Costs —The Company provides for the estimated costs that may be incurred under its warranty program at the time the sale is recorded in its manufacturing segment. The Company estimates 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.
Cash and Cash Equivalents —The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Term Deposits —Term deposits consist of bank balances and interest-bearing deposits having maturities of 3 to 6 months.
Restricted Term Deposits — The Company held certain term deposits in the Singapore and Malaysia operations which were considered restricted, as they were held as security against certain facilities granted by the financial institutions
Inventories — Inventories in the Company’s manufacturing and distribution segments, consisting principally of raw materials, works in progress, and finished goods, are stated at the lower of cost, using the first-in, first-out (“FIFO”) method, or market value. The semiconductor industry is characterized by rapid technological change, short-term customer commitments and rapid fluctuations in demand. Provisions for estimated excess and obsolete inventory are based on our regular reviews of inventory quantities on hand and the latest forecasts of product demand and production requirements from our customers. Inventories are written down for not-saleable, excess or obsolete raw materials, works-in-process and finished goods by charging such write-downs to cost of sales. In addition to write-downs based on newly introduced parts, statistics and judgments are used for assessing provisions of the remaining inventory based on salability and obsolescence.
Property, Plant and Equipment and Investment Properties — Property, plant and equipment and investment properties are stated at cost, less accumulated depreciation and amortization. Depreciation is provided for over the estimated useful lives of the assets using the straight-line method. Amortization of leasehold improvements is provided for over the lease terms or the estimated useful lives of the assets, whichever is shorter, using the straight-line method.
Maintenance, repairs and minor renewals are charged directly to expense as incurred. Additions and improvements to the assets are capitalized. When assets are disposed of, the related cost and accumulated depreciation thereon are removed from the accounts and any resulting gain or loss is included in the consolidated statements of operations and comprehensive income or loss.
Long-Lived Assets and Impairment –The Company’s business requires heavy investment in manufacturing facilities and equipment that are technologically advanced but can quickly become significantly underutilized or rendered obsolete by rapid changes in demand.
The Company evaluates the long-lived assets, including property, plant and equipment and investment property, for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Factors considered important that could result in an impairment review include significant underperformance relative to expected historical or projected future operating results, significant changes in the manner of use of the assets or the strategy for our business, significant negative industry or economic trends, and a significant decline in the stock price for a sustained period of time. Impairment is recognized based on the difference between the fair value of the asset and its carrying value, and fair value is generally measured based on discounted cash flow analysis if there is significant adverse change.
The Company applies the provisions of ASC Topic 360,Accounting for the Impairment or Disposal of Long-Lived Assets (“ASC Topic 360”), to property, plant and equipment. ASC Topic 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.
Leases - Company as Lessee
updating Accounting Standards Codification (“ASC”) Topic 842326: ("ASC TopicFinancial Instruments—Credit Losses (Topic 842"326) introduced new requirements to increase transparency : Troubled Debt Restructurings (“TDR") and comparability among organizationsVintage Disclosures (“ASU 2022-02”), which require that an entity disclose current-period gross write-offs by year of origination for leasing transactions for both lesseesfinancing receivables and lessors. It requires a lessee to record a right-of-use asset and a lease liability for allnet investment in leases with terms longer thanwithin the scope of Subtopic 12326-20. months. These leases will be either finance or operating, with classification affecting the pattern of expense recognition.
The Company applies the guidance in ASC Topic 842 to its individual leases of assets. When the Company receives substantially all the economic benefits from and directs the use of specified property, plant and equipment, the transactions give rise to leases. The Company’s classes of assets include real estate leases.
Operating leases are included in operating lease right-of-use ("ROU") assets under the noncurrent asset portion of our consolidated balance sheets and under the current portion and noncurrent liabilities portion of our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the related lease. Finance leases are included in property, plant and equipment under the noncurrent asset portion of our consolidated balance sheets and under the current portion and noncurrent liabilities portion of our consolidated balance sheets.
The Company has elected the practical expedient within ASC Topiccompleted its assessment and concluded that ASU 8422022-02 to not separate lease and non-lease components within lease transactions for all classes of assets. Additionally, the Company has elected the short-term lease exception for all classes of assets, does not apply the recognition requirements for leases of 12 months or less, and recognizes lease payments for short-term leases as expense either straight-line over the lease term or as incurred depending on whether the lease payments are fixed or variable. These elections are applied consistently for all leases.
As part of applying the transition method, the Company has elected to apply the package of transition practical expedients within the new guidance. As required by the new standard, these expedients have been elected as a package and are consistently applied across the Company’s lease portfolio. Given this election, the Company need not reassess:
|
|
|
|
|
|
When discount rates implicit in leases cannot be readily determined, the Company uses the applicable incremental borrowing rate at lease commencement to perform lease classification tests on lease components and to measure lease liabilities and ROU assets. The incremental borrowing rate used by the Company was based on baseline rates and adjusted by the credit spreads commensurate with the Company’s secured borrowing rate over a similar term. At each reporting period when there is a new lease initiated, the rates established for that quarter will be used.
Leases - Company as Lessor
All the leases under which the Company is the lessor will continue to be classified as operating leases and sales-type lease under the new standard. The new standard did not have a material effect on our consolidated financial statements and will not have a significant change in our leasing activities.
Comprehensive Income or Loss —ASC Topic 220,Reporting Comprehensive Income, (“ASC Topic 220”),establishes standards for reporting and presentation of comprehensive income or loss and its components in a full set of general-purpose consolidated financial statements. The Company has chosen to report comprehensive income or loss in the statements of operations. Comprehensive income or loss is comprised of net income or loss and all changes to shareholders’ equity except those due to investments by owners and distributions to owners.
Income Taxes —The Company accounts for income taxes using the liability method in accordance with ASC Topic 740,Accounting for Income Taxes (“ASC Topic 740”). ASC Topic 740 requires an entity to recognize deferred tax liabilities and assets. Deferred tax assets and liabilities are recognized for the future tax consequence attributable to the difference between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements, which will result in taxable or deductible amounts in future years. Further, the effects of enacted tax laws or rate changes are included as part of deferred tax expenses or benefits in the period that covers the enactment date.
The calculation of tax liabilities involves dealing with uncertainties in the application of complex global tax regulations. The Company recognizes potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on its estimate of whether, and the extent to which, additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary. If the estimate of tax liabilities provessignificant impact to be less than the ultimate assessment, a further charge to expense would result.
Retained Earnings — It is the intention of the Company to reinvest earnings of its foreign subsidiaries in the operations of those subsidiaries. These taxes are undeterminable at this time. The amount of earnings retained in subsidiaries was $16,319 and $16,683 at September 30, 2021, and June 30, 2021 respectively.
Stock-based compensation — The Company calculates compensation expense related to stock option awards made to employees and directors based on the fair value of stock-based awards on the date of grant. The Company determines the grant date fair value of our stock option awards using the Black-Scholes option pricing model and for awards without performance conditions, the related stock-based compensation is recognized over the period in which a participant is required to provide service in exchange for the stock-based award, which is generally four years. The Company recognizes stock-based compensation expense in the consolidated statements of shareholders' equity based on awards ultimately expected to vest. Forfeitures are estimated on the date of grant and revised if actual or expected forfeiture activity differs materially from original estimates.
Determining the fair value of stock-based awards at the grant date requires significant judgment. The determination of the grant date fair value of stock-based awards using the Black-Scholes option pricing model is affected by our estimated common stock fair value as well as other subjective assumptions including the expected term of the awards, the expected volatility over the expected term of the awards, expected dividend yield and risk-free interest rates. The assumptions used in our option pricing model represent management’s best estimates and are as follows:
|
| |
|
| |
|
|
Earnings per Share — Computation of basic earnings per share is conducted by dividing net income available to common shares (numerator) by the weighted average number of common shares outstanding (denominator) during a reporting period. Computation of diluted earnings per share gives effect to all dilutive potential common shares outstanding during a reporting period. In computing diluted earnings per share, the average market price of common shares for a reporting period is used in determining the number of shares assumed to be purchased from the exercise of stock options.
Fair Values of Financial Instruments — Carrying values of trade account receivables, accounts payable, accrued expenses, and term deposits approximate their fair value due to their short-term maturities. Carrying values of the Company’s lines of credit and long-term debt are considered to approximate their fair value because the interest rates associated with the lines of credit and long-term debt are adjustable in accordance with market situations when the Company tries to borrow funds with similar terms and remaining maturities. See Note 16 for detailed discussion of the fair value measurement of financial instruments.
ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The financial assets and financial liabilities that require recognition under the guidance include available-for-sale investments, employee deferred compensation plan and foreign currency derivatives. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. As such, fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. The hierarchy is broken down into three levels based on the reliability of inputs as follows:
|
|
|
|
|
|
Concentration of Credit Risk — Financial instruments that subject the Company to credit risk compose trade account receivables. The Company performs ongoing credit evaluations of its customers for potential credit losses. The Company generally does not require collateral. The Company believes that its credit policies do not result in significant adverse risk and historically it has not experienced significant credit related losses.
Investments — The Company (a) evaluates the sufficiency of the total equity at risk, (b) reviews the voting rights and decision-making authority of the equity investment holders as a group, and whether there are any guaranteed returns, protection against losses, or capping of residual returns within the group, and (c) establishes whether activities within the venture are on behalf of an investor with disproportionately few voting rights in making this Variable Interest Entity (“VIE”) determination. The Company would consolidate an investment that is determined to be a VIE if it was the primary beneficiary. The primary beneficiary of a VIE is determined by a primarily qualitative approach, whereby the variable interest holder, if any, has the power to direct the VIE’s most significant activities and is the primary beneficiary. A new accounting standard became effective and changed the method by which the primary beneficiary of a VIE is determined. Through a primarily qualitative approach, the variable interest holder who has the power to direct the VIE’s most significant activities is determined to be the primary beneficiary. To the extent that the investment does not qualify as VIE, the Company further assesses the existence of a controlling financial interest under a voting interest model to determine whether the investment should be consolidated.
Equity Method — The Company analyzes its investments to determine if they should be accounted for using the equity method. Management evaluates both Common Stock and in-substance Common Stock to determine whether they give the Company the ability to exercise significant influence over operating and financial policies of the investment even though the Company holds less than 50% of the Common Stock and in-substance Common Stock. The net income of the investment, if any, will be reported as “Equity in earnings of unconsolidated joint ventures, net of tax” in the Company’s consolidated statements of operations and comprehensive income.
Cost Method —Investee companies not accounted for under the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, the Company’s share of the earnings or losses of such investee companies is not included in the consolidated balance sheet or statements of operations and comprehensive income or loss. However, impairment charges are recognized in the consolidated statements of operations and comprehensive income or loss. If circumstances suggest that the value of the investee company has subsequently recovered, such recovery is not recorded.
Loan Receivables from Property Development Projects — The loan receivables from property development projects are classified as current assets, carried at face value, and are individually evaluated for impairment. The allowance for loan losses reflects management’s best estimate of probable losses determined principally on the basis of historical experience and specific allowances for known loan accounts. All loans or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for losses.
Interest income on the loan receivables from property development projects are recognized on an accrual basis. Discounts and premiums on loans are amortized to income using the interest method over the remaining period to contractual maturity. The amortization of discounts into income is discontinued on loans that are contractually 90 days past due or when collection of interest appears doubtful.
Contingent Liabilities — Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
Loss contingencies considered remote are generallyIn 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 disclosed unless they involve guarantees,-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 which case the nature of the guarantee would be disclosed.financial statements for Fiscal 2023.
|
|
In March 2020, FASB issued ASU 2020-04, updating ASC Topic 848: Reference Rate Reform:Reform (“Topic 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting(“ASU 2020-04”), which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The amendments areASU 2020-04 is effective for all entities as of March 12, 2020, and the Company may elect to apply the amendmentsASU 2020-04 prospectively through December 31, 2022. The Company has completed its assessment and concluded that this updateASU 2020-04 has no significant impact to the Company’s consolidated financial statements.
In June 2016, FASB issued ASU 2016-13 ASC Topic 326:326, Financial Instruments — Credit Losses (“ASC 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. ASC Topic 326 is effective for the Company for annual periods beginning after December 15, 2022. The Company has completed its assessment and concluded that this updateASU 2016-03 has no significant impact to the Company’s consolidated financial statements.
Other new pronouncements issued but not yet effective until after September 30, 2021,2022, are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
3.TERM DEPOSITS |
|
Sept. 30, | June 30, | |||||||||||||||
2022 | 2022 | |||||||||||||||
(Unaudited) | ||||||||||||||||
Sep. 30, 2021 (Unaudited) | June 30, 2021 | |||||||||||||||
Short-term deposits | $ | 5,997 | $ | 6,353 | $ | 2,941 | $ | 5,619 | ||||||||
Currency translation effect on short-term deposits | (72 | ) | 298 | (112 | ) | (199 | ) | |||||||||
Total short-term deposits | 5,925 | 6,651 | 2,829 | 5,420 | ||||||||||||
Restricted term deposits | 1,743 | 1,682 | 1,680 | 1,746 | ||||||||||||
Currency translation effect on restricted term deposits | (21 | ) | 59 | (48 | ) | (68 | ) | |||||||||
Total restricted term deposits | 1,722 | 1,741 | 1,632 | 1,678 | ||||||||||||
Total term deposits | $ | 7,647 | $ | 8,392 | $ | 4,461 | $ | 7,098 |
Restricted deposits represent the amount of cash pledged to secure loans payable to 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 noncurrent 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 September 30, 2021,2022, and June 30, 2021,2022, was adequate.
The following table represents the changes in the allowance for doubtful accounts:
Sept. 30, | June 30, | |||||||||||||||
2022 | 2022 | |||||||||||||||
(Unaudited) | ||||||||||||||||
Sept. 30, 2021 (Unaudited) | June 30, 2021 | |||||||||||||||
Beginning | $ | 311 | $ | 314 | $ | 243 | $ | 311 | ||||||||
Additions charged to expenses | 0 | 5 | - | 48 | ||||||||||||
Recovered | (2 | ) | (14 | ) | (17 | ) | (106 | ) | ||||||||
Write-off | 0 | (16 | ) | |||||||||||||
Currency translation effect | (1 | ) | 22 | (11 | ) | (10 | ) | |||||||||
Ending | $ | 308 | $ | 311 | $ | 215 | $ | 243 |
5.LOANS RECEIVABLE FROM PROPERTY DEVELOPMENT PROJECTS |
|
The following table presents Trio-Tech (Chongqing) Co. Ltd.’sLtd (“TTCQ”)’s loan receivables from property development projects in China as of September 30, 2021.2022.
Loan Expiry | Loan Amount | Loan Amount | ||||||||||||||
Loan Expiry Date | Loan Amount (RMB) | Loan Amount (U.S. Dollars) | Date | (RMB) | (U.S. Dollars) | |||||||||||
Short-term loan receivables |
| |||||||||||||||
JiangHuai (Project – Yu Jin Jiang An) | May 31, 2013 | 2,000 | 309 | May 31, 2013 | 2,000 | 281 | ||||||||||
Less: allowance for doubtful receivables | (2,000 | ) | (309 | ) | (2,000) | (281) | ||||||||||
Net loan receivables from property development projects | 0 | 0 | - | - | ||||||||||||
Long-term loan receivables | ||||||||||||||||
Jun Zhou Zhi Ye | Oct 31, 2016 | 5,000 | 773 | Oct 31, 2016 | 5,000 | 702 | ||||||||||
Less: transfer – down-payment for purchase of investment property | (5,000 | ) | (773 | ) | (5,000) | (702) | ||||||||||
Net loan receivables from property development projects | 0 | 0 | - | - |
The short-term loan receivables amounting to renminbi (“RMB”) 2,000, or approximately $309,$281 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 in the fiscal year ended 2011.June 30, 2011 (“Fiscal 2011”). Based on TTI’s financial policy, a provision for doubtful receivables of $309$281 on the investment in JiangHuai was recorded during the fiscal year ended 2014.June 30, 2014 (“Fiscal 2014”). TTCQ did not generate other income from JiangHuai for the quarter ended September 30, 2021,2022 or for the fiscal year endedFiscal June 30, 2021. 2022.TTCQ is in the legal process of recovering the outstanding amount of $309.approximately $281.
The loan amounting to RMB5,000,RMB 5,000, or approximately $773$702, arose due to TTCQ entering into a Memorandum Agreement with JiaSheng Property Development Co. Ltd. (“JiaSheng”) to invest in their property development projects (Project B-48 Phase 2) located in Chongqing City, China in fiscalFiscal 2011. The amount was unsecured and repayable at the end of the term. The book value ofDuring the loan receivable approximates its fair value. During fiscal 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:
Sept. 30, 2022 | June 30, 2022 | |||||||||||||||
Sept. 30, 2021 (Unaudited) | June 30, 2021 | (Unaudited) | ||||||||||||||
Raw materials | $ | 1,436 | $ | 1,152 | $ | 1,269 | $ | 1,764 | ||||||||
Work in progress | 1,436 | 1,218 | 2,211 | 683 | ||||||||||||
Finished goods | 250 | 325 | 793 | 238 | ||||||||||||
Less: provision for obsolete inventories | (685 | ) | (679 | ) | (625 | ) | (674 | ) | ||||||||
Currency translation effect | (27 | ) | 64 | (100 | ) | 247 | ||||||||||
$ | 2,410 | $ | 2,080 | $ | 3,548 | $ | 2,258 |
The following table represents the changes in provision for obsolete inventories:
Sept. 30, 2022 | June 30, 2022 | |||||||||||||||
Sept. 30, 2021 (Unaudited) | June 30, 2021 | (Unaudited) | ||||||||||||||
Beginning | $ | 679 | $ | 678 | $ | 674 | $ | 679 | ||||||||
Additions charged to expenses | 11 | 13 | - | 17 | ||||||||||||
Usage – disposition | 0 | (28 | ) | (38 | ) | (34 | ) | |||||||||
Currency translation effect | (5 | ) | 16 | (11 | ) | 12 | ||||||||||
Ending | $ | 685 | $ | 679 | $ | 625 | $ | 674 |
7.INVESTMENT PROPERTIES |
|
The following table presents the Company’s investment in properties in China as of September 30, 2021.2022. The exchange rate is based on the market rate as of September 30, 2021.2022.
Investment Date / Reclassification | Investment | Investment Amount | ||||||||||||||||||
Date | Amount (RMB) | (U.S. Dollars) | ||||||||||||||||||
Investment Date / Reclassification Date | Investment Amount (RMB) | Investment Amount (U.S. Dollars) | ||||||||||||||||||
Purchase of rental property – Property I – MaoYe Property | Jan 04, 2008 | 5,554 | 894 | Jan 04, 2008 | 5,554 | 894 | ||||||||||||||
Currency translation | 0 | (87 | ) | Currency translation | - | (87 | ) | |||||||||||||
Reclassification as “Assets held for sale” | July 01, 2019 | (5,554 | ) | (807 | ) | July 01, 2018 | (5,554 | ) | (807 | ) | ||||||||||
Reclassification from “Assets held for sale” | Mar 31, 2020 | 2,024 | 301 | Mar 31, 2019 | 2,024 | 301 | ||||||||||||||
2,024 | 301 | 2,024 | 301 | |||||||||||||||||
Purchase of rental property – Property II - JiangHuai | Jan 06, 2010 | 3,600 | 580 | Jan 06, 2010 | 3,600 | 580 | ||||||||||||||
Purchase of rental property – Property III - FuLi | Apr 08, 2010 | 4,025 | 648 | Apr 08, 2010 | 4,025 | 648 | ||||||||||||||
Currency translation | 0 | (38 | ) | - | (175 | ) | ||||||||||||||
Gross investment in rental property | 9,649 | 1,491 | Gross investment in rental property | 9,649 | 1,354 | |||||||||||||||
Accumulated depreciation on rental property | Sep 30, 2021 | (7,161 | ) | (1,097 | ) | Sep 30, 2022 | (7,643 | ) | (1,088 | ) | ||||||||||
Reclassified as “Assets held for sale” - MaoYe Property | July 01, 2019 | 2,822 | 410 | |||||||||||||||||
Reclassification from “Assets held for sale” - MaoYe Property | Mar 31, 2020 | (1,029 | ) | (143 | ) | |||||||||||||||
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 | ) | |||||||||||||||
(5,368 | ) | (830 | ) | (5,850 | ) | (821 | ) | |||||||||||||
Net investment in properties – China | 4,281 | 661 | ||||||||||||||||||
Net investment in property – China | Net investment in property – China | 3,799 | 533 |
The following table presents the Company’s investment in properties in China as of June 30, 2021.2022. The exchange rate is based on the market rate as of June 30, 2021.2022.
Investment Date / Reclassification | Investment | Investment Amount | |||||||||||||||||||
Date | Amount (RMB) | (U.S. Dollars) | |||||||||||||||||||
Investment Date / Reclassification Date | Investment Amount (RMB) | Investment Amount (U.S. Dollars) | |||||||||||||||||||
Purchase of rental property – Property I – MaoYe Property | Jan 04, 2008 | 5,554 | 894 | Jan 04, 2008 | 5,554 | 894 | |||||||||||||||
Currency translation | 0 | (87 | ) | - | (87 | ) | |||||||||||||||
Reclassification as “Assets held for sale” | Jul 01, 2018 | (5,554 | ) | (807 | ) | July 01, 2018 | (5,554 | ) | (807 | ) | |||||||||||
Reclassification from “Assets held for sale” | Mar 31, 2019 | 2,024 | 301 | Mar 31, 2019 | 2,024 | 301 | |||||||||||||||
2,024 | 301 | 2,024 | 301 | ||||||||||||||||||
Purchase of rental property – Property II - JiangHuai | Jan 06, 2010 | 3,600 | 580 | Jan 06, 2010 | 3,600 | 580 | |||||||||||||||
Purchase of rental property – Property III - FuLi | Apr 08, 2010 | 4,025 | 648 | Apr 08, 2010 | 4,025 | 648 | |||||||||||||||
Currency translation | 0 | (36 | ) | - | (89 | ) | |||||||||||||||
Gross investment in rental property | 9,649 | 1,493 | 9,649 | 1,440 | |||||||||||||||||
Accumulated depreciation on rental property | Jun 30, 2021 | (7,040 | ) | (1,079 | ) | Jun 30, 2022 | (7,523 | ) | (1,122 | ) | |||||||||||
Reclassified as “Assets held for sale” - Mao Ye Property | Jul 01, 2019 | 2,822 | 410 | ||||||||||||||||||
Reclassification from “Assets held for sale” - Mao Ye Property | Mar 31, 2020 | (1,029 | ) | (143 | ) | ||||||||||||||||
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 | ) | ||||||||||||||||
(5,247 | ) | (812 | ) | (5,730 | ) | (855 | ) | ||||||||||||||
Net investment in properties – China | 4,402 | 681 | |||||||||||||||||||
Net investment in property – China | 3,919 | 585 |
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 RMB5,554,RMB 5,554, or approximately $894.
TTCQ signed a 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. A new lease agreement to rent out the 403 square meter spacewas entered into on February 10, 2022 for a period of 4 years at a monthly rate of RMB14, or approximately $2, fromafter termination of the previous agreement. Pursuant to the agreement, monthly rental will increase by September 1, 2021 5%to February 28, 2022. each year.
Property purchased from MaoYe generated a rental income of $2$6 during the three months ended September 30, 2021,2022, as compared to $nil$2 for the same period in last fiscal year.Fiscal 2022.
Depreciation expense for MaoYe was $4 for the three months ended September 30, 20212022, andas compared to $4 for the same period in Fiscal 2020,2022. respectively.
Rental Property II - JiangHuai
In fiscalDuring 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 RMB3,600,RMB 3,600, or approximately $580. As of June 30, 2022, TTCQ had yet to receivenot received the title deed for these properties. TTCQ was inproperties purchased from JiangHuai. While the legal process of obtaining the title deed until the developer encountered cash flow difficulties in the recent years. Since then, JiangHuai has been under liquidation and is now undergoing asset distribution. Nonetheless, thisabove is not expected to affect the property’s market value, but, in view of the COVID-19 pandemic and current economic situation it is likely to be more tedious and time-consuming forcause delays in court to consummate the court in their execution of the sale.
Property purchased from JiangHuai did not generate any rental income for the three months ended September 30, 20212022 and 2020.2021.
Depreciation expense for JiangHuai was $7 and $6 for the three months ended September 30, 20212022, andas compared to $7 for the same period in last Fiscal 2020,2022. respectively.
Rental Property III – FuLi
In fiscalFiscal 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”Office Space”) located in Jiang Bei District Chongqing. The total purchase price committed and paid was RMB 4,025, or approximately $622.$648. The development was completed, the property was handed overtransferred to TTCQ in April 2013 and the title deed was received during the third quarter of fiscalFiscal 2014.
One of the two commercial properties was leased from TTCQ by a third party under a two-year lease to rent out the 154.49 square meter space at a monthly rate of RMB9, or approximately $1, commencing from May 21, 2021, to May 23, 2023.This agreement was prematurely terminated in May 2022. As of mid August 2022, TTCQ had found a new tenant for this unit for a period of 1 year.
ForTTCQ is actively searching for tenants to occupy the other leased property, TTCQ renewedone commercial properties, which is vacant as of the lease agreement to rent out the 161 square meter space at a monthly ratedate of RMB10, or approximately $1, from November 1, 2019, to October 31, 2020. After which, TTCQ renewed the lease agreement at a monthly rate of RMB10, or approximately $1, from November 1, 2020, to April 30, 2021, and May 1, 2021, to October 31, 2021.this Report.
Properties purchased from FuLi generated a rental income of $9$2 for the three months ended September 30, 2021,2022, and $4as compared to $9 for the same period in the last fiscal year.Fiscal 2022.
Depreciation expense for FuLi was $8 and $7 for the three months ended September 30, 20212022, andas compared to $8 for the same period in Fiscal 2020,2022. respectively.
Summary
Total rental income for all investment properties in China was $11$8 for the three months ended September 30, 2021,2022, and $4as compared to $11 for the same period in the last fiscal year.Fiscal 2022.
Depreciation expenses for all investment properties in China were $19 and $17$18 for the three months ended September 30, 2021,2022, andas compared to $19 for the same period in the last fiscal year, respectively.Fiscal 2022.
8.OTHER ASSETS |
|
Other assets consisted of the following:
Sept. 30, | June 30, | |||||||||||||||
2022 | 2022 | |||||||||||||||
Sept. 30, 2021 (Unaudited) | June 30, 2021 | (Unaudited) | ||||||||||||||
Down payment for purchase of investment properties * | $ | 0 | $ | 0 | $ | - | $ | - | ||||||||
Down payment for purchase of property, plant and equipment | 140 | 372 | - | - | ||||||||||||
Deposits for rental and utilities | 163 | 160 | ||||||||||||||
Asset in transit | 12 | 0 | ||||||||||||||
Deposits for rental and utilities and others | 136 | 142 | ||||||||||||||
Currency translation effect | (19 | ) | (270 | ) | (15 | ) | (5 | ) | ||||||||
Total | $ | 296 | $ | 262 | $ | 121 | $ | 137 |
*Down payment for purchase of investment properties included:
RMB | US Dollars | 2022 | ||||||||||||||
Original investment (10% of Jun Zhou equity) | $ | 10,000 | $ | 1,606 | ||||||||||||
RMB | U.S. Dollars | |||||||||||||||
Original Investment (10% of Junzhou equity) | $ | 10,000 | $ | 1,606 | ||||||||||||
Less: Management Fee | (5,000 | ) | (803 | ) | (5,000 | ) | (803 | ) | ||||||||
Net Investment | 5,000 | 803 | 5,000 | 803 | ||||||||||||
Less: Share of Loss on Joint Venture | (137 | ) | (22 | ) | (137 | ) | (22 | ) | ||||||||
Net Investment as Down Payment (Note *a) | 4,863 | 781 | 4,863 | 781 | ||||||||||||
Loans Receivable | 5,000 | 773 | 5,000 | 814 | ||||||||||||
Interest Receivable | 1,250 | 193 | 1,250 | 200 | ||||||||||||
Less: Impairment of Interest | (906 | ) | (140 | ) | (906 | ) | (150 | ) | ||||||||
Transferred to Down Payment (Note *b) | 5,344 | 826 | 5,344 | 864 | ||||||||||||
* Down Payment for purchase of investment properties | 10,207 | 1,607 | ||||||||||||||
* 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 | ) | (1,607 | ) | (10,207 | ) | (1,580 | ) | ||||||||
* Down Payment for Purchase of Investment Properties | - | - | $ | - | $ | - |
a) | In In Fiscal 2014, the Company disposed of its entire 10% interest in the Joint Venture but, to date, has not received payment in full therefor. The Company recognized a disposal based on the recorded net book value of RMB 5 million, or equivalent to $803K, 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. |
In fiscal year 2014, the Company disposed its entire 10% interest in the joint venture. The Company recognized the disposal of its 10% investment in Jun Zhou based on the recorded net book value of RMB5 million, or equivalent to $803, from net considerations paid, in accordance with US GAAP under ASC Topic 845Nonmonetary Consideration, and it’s 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 that the gain can be ascertained.
b) | Amounts of The shop lots are to be delivered to TTCQ upon completion of the construction of the shop lots in Singapore Themed Resort 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 Singapore Theme Resort Project in Chongging, China. The Company elected to take this 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 September 30, 2022. |
The shop lots are to be delivered to TTCQ upon completion
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 September 30, 2021,2022, the Company had certain lines of credit that are collateralized by restricted deposits.
Entity with | Type of | Interest | Expiration | Credit | Unused | Type of | Interest | Credit | Unused | ||||||||||||||||||
Facility | Facility | Rate | Date | Limitation | Credit | Facility | Rate | Limitation | Credit | ||||||||||||||||||
Trio-Tech International Pte. Ltd., Singapore | Lines of Credit | Ranging from 1.85% to 5.5%, SIBOR rate +1.2% and LIBOR rate +1.25% | - | $ | 4,187 | $ | 4,187 | Lines of Credit | Ranging from 1.85% to 5.5% | $ | 4,397 | $ | 4,397 | ||||||||||||||
Universal (Far East) Pte. Ltd. | Lines of Credit | Ranging from 1.85% to 5.5% | - | $ | 1,102 | $ | 853 | Lines of Credit | Ranging from 1.85% to 5.5% | $ | 1,047 | $ | 565 | ||||||||||||||
Trio-Tech Malaysia Sdn. Bhd. | Revolving Credit | Cost of Funds Rate +2% | - | $ | 357 | $ | 357 | Revolving credit | Cost of Funds Rate +2% | $ | 327 | $ | 327 |
As of June 30, 2021,2022, the Company had certain lines of credit that are collateralized by restricted deposits.
Entity with | Type of | Interest | Expiration | Credit | Unused | Type of | Interest | Credit | Unused | ||||||||||||||||||
Facility | Facility | Rate | Date | Limitation | Credit | Facility | Rate | Limitation | Credit | ||||||||||||||||||
Trio-Tech International Pte. Ltd., Singapore | Lines of Credit | Ranging from 1.85% to 5.5%, SIBOR rate +1.2% and LIBOR rate +1.25% | - | $ | 4,237 | $ | 4,237 | Lines of Credit | Ranging from 1.85% to 5.5% | $ | 4,090 | $ | 3,651 | ||||||||||||||
Universal (Far East) Pte. Ltd. | Lines of Credit | Ranging from 1.85% to 5.5% | - | $ | 1,115 | $ | 1,043 | Lines of Credit | Ranging from 1.85% to 5.5% | $ | 1,076 | $ | 586 | ||||||||||||||
Trio-Tech Malaysia Sdn. Bhd. | Revolving Credit | Cost of Funds Rate +2% | - | $ | 361 | $ | 361 | Revolving credit | Cost of Funds Rate +2% | $ | 338 | $ | 338 |
10.ACCRUED EXPENSE |
|
Accrued expensesexpense consisted of the following:
Sept. 30, | June 30, | |||||||
2022 | 2022 | |||||||
(Unaudited) | ||||||||
Payroll and related costs | $ | 2,469 | $ | 2,158 | ||||
Commissions | 133 | 116 | ||||||
Customer deposits | 9 | 10 | ||||||
Legal and audit | 346 | 320 | ||||||
Sales tax | 76 | 531 | ||||||
Utilities | 215 | 273 | ||||||
Warranty | 18 | 16 | ||||||
Accrued purchase of materials and property, plant and equipment | 456 | 905 | ||||||
Provision for reinstatement | 298 | 308 | ||||||
Deferred income | 49 | 55 | ||||||
Contract liabilities | 1,218 | 933 | ||||||
Other accrued expense | 829 | 571 | ||||||
Currency translation effect | 63 | (192 | ) | |||||
Total | $ | 6,179 | $ | 6,004 |
Sept. 30, 2021 (Unaudited) | June 30, 2021 | |||||||
Payroll and related costs | $ | 1,560 | $ | 1,362 | ||||
Commissions | 83 | 51 | ||||||
Customer deposits | 44 | 45 | ||||||
Legal and audit | 346 | 321 | ||||||
Sales tax | 31 | 9 | ||||||
Utilities | 92 | 91 | ||||||
Warranty | 16 | 14 | ||||||
Accrued purchase of materials and property, plant and equipment | 435 | 144 | ||||||
Provision for reinstatement | 308 | 290 | ||||||
Deferred income | 70 | 67 | ||||||
Contract liabilities | 603 | 628 | ||||||
Other accrued expenses | 318 | 279 | ||||||
Currency translation effect | (34 | ) | 62 | |||||
Total | $ | 3,872 | $ | 3,363 |
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.
Sept. 30, | June 30, | |||||||||||||||
2022 | 2022 | |||||||||||||||
(Unaudited) | ||||||||||||||||
Sept. 30, 2021 (Unaudited) | June 30, 2021 | |||||||||||||||
Beginning | $ | 14 | $ | 12 | $ | 16 | $ | 14 | ||||||||
Additions charged to cost and expenses | 2 | 7 | ||||||||||||||
Additions charged to cost and expense | 1 | 7 | ||||||||||||||
Reversal | 0 | (4 | ) | (1 | ) | (4 | ) | |||||||||
Currency translation effect | 0 | (1 | ) | 2 | (1 | ) | ||||||||||
Ending | $ | 16 | $ | 14 | $ | 18 | $ | 16 |
12.BANK LOANS PAYABLE |
|
Bank loans payable consisted of the following:
Sept. 30, 2021 (Unaudited) | June 30, 2021 | Sept. 30, | June 30, | |||||||||||||
Note payable denominated in RM for expansion plans in Malaysia, maturing in August 2028, bearing interest at the bank’s prime rate less 2.00% (3.60% at September 30, 2021, and June 30, 2021, respectively) per annum, with monthly payments of principal plus interest through August 2028, collateralized by the acquired building with a carrying value of $2,590 and $2,579, as at September 30, 2021, and June 30, 2021, respectively. | 1,764 | 1,885 | ||||||||||||||
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% (3.6% and 3.791% at September 30, 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 $2,375 and $2,372, as at September 30, 2022 and June 30, 2022, respectively. | $ | 1,254 | $ | 1,392 | ||||||||||||
Financing arrangement at fixed interest rate 3.2% per annum, with monthly payments of principal plus interest through July 2025. | 163 | 175 | 114 | 128 | ||||||||||||
Financing arrangement at fixed interest rate 3.0% per annum, with monthly payments of principal plus interest through December 2026. | 206 | 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 | $ | 1,927 | $ | 2,060 | $ | 1,742 | $ | 1,744 | ||||||||
Current portion of bank loans payable | 444 | 428 | 508 | 503 | ||||||||||||
Currency translation effect on current portion of bank loans | (6 | ) | 11 | (17 | ) | (31 | ) | |||||||||
Current portion of bank loans payable | 438 | 439 | 491 | 472 | ||||||||||||
Long-term portion of bank loans payable | 1,510 | 1,564 | 1,295 | 1,357 | ||||||||||||
Currency translation effect on long-term portion of bank loans | (21 | ) | 57 | (44 | ) | (85 | ) | |||||||||
Long-term portion of bank loans payable | $ | 1,489 | $ | 1,621 | $ | 1,251 | 1,272 |
Future minimum payments (excluding interest) as at September 30, 2021,2022, were as follows:
Remainder of fiscal 2022 | $ | 438 | ||||||
2023 | 455 | |||||||
Remainder of Fiscal 2023 | $ | 367 | ||||||
2024 | 391 | 497 | ||||||
2025 | 200 | 270 | ||||||
2026 | 167 | 242 | ||||||
2027 | 221 | |||||||
Thereafter | 276 | 145 | ||||||
Total obligations and commitments | $ | 1,927 | $ | 1,742 |
Future minimum payments (excluding interest) as at June 30, 2021,2022, were as follows:
2022 | $ | 439 | ||||||
2023 | 457 | $ | 472 | |||||
2024 | 462 | 481 | ||||||
2025 | 208 | 246 | ||||||
2026 | 171 | 214 | ||||||
2027 | 190 | |||||||
Thereafter | 323 | 141 | ||||||
Total obligations and commitments | $ | 2,060 | $ | 1,744 |
13.COMMITMENTS AND CONTINGENCIES |
|
Trio-Tech (Malaysia) Sdn. Bhd. has 0 capital commitments as at September 30, 2021, as compared to capital commitment of $93 as at June 30, 2021.
Trio-Tech (SIP) Co., Ltd.The Company had capital commitments in China has capital commitments for the purchase of equipment and other related infrastructure costs amounting to RMB5,799,RMB17,203, or approximately $1,378,$2,415 as atof September 30, 2021, as compared to 0 capital commitment as at June 30, 2021.2022. These commitments ariseare primarily due to a new project that is under negotiation betweenwithin the long-term customer and Trio-Tech (SIP) Co., Ltd. As of the date of this report, the negotiation of the terms and conditions with the customer is still on-going.
Trio-Tech (Tianjin) Co., Ltd. in China has capital commitments for the purchase of equipment and other related infrastructure costs amounting to RMB284, or approximately $68, as atnext September 30, 2021, as compared to no24 capital commitment as at June 30, 2021.months.
The Company is, from time to time, the subject of litigation claims and assessments arising out of matters occurring in its normal business operations. In the opinion of management, resolution of these matters will not have a material adverse effect on the Company’s financial statements.
14.BUSINESS SEGMENTS
The Company operated in 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 $554 and $588 for 3 months endedSeptember 30, 2022, and September 30, 2021 respectively. Corporate assets consisted primarily of cash and prepaid expense. Corporate expense 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 three months ended September 30, 2022, and September 30, 2021:
Business Segment Information:
Three Months | |||||||||||||||||||||
Ended | Net | Operating | Total | Depr. And | Capital | ||||||||||||||||
Sept. 30, | Revenue | Income / (Loss) | Assets | Amort. | Expenditures | ||||||||||||||||
Manufacturing | 2022 | $ | 3,585 | $ | 176 | $ | 12,791 | $ | 97 | $ | - | ||||||||||
2021 | $ | 3,562 | $ | 300 | $ | 18,558 | $ | 103 | $ | 60 | |||||||||||
Testing Services | 2022 | 6,364 | 1,087 | 27,770 | 767 | 1,156 | |||||||||||||||
2021 | 4,600 | 536 | 18,363 | 585 | 377 | ||||||||||||||||
Distribution | 2022 | 1,982 | 265 | 1,603 | - | - | |||||||||||||||
2021 | 1,998 | 254 | 1,288 | 2 | - | ||||||||||||||||
Real Estate | 2022 | 8 | (14 | ) | 1,490 | 18 | - | ||||||||||||||
2021 | 11 | (23 | ) | 1,588 | 19 | 1 | |||||||||||||||
Corporate & Unallocated | 2022 | - | (447 | ) | 151 | - | - | ||||||||||||||
2021 | - | (97 | ) | 314 | - | - | |||||||||||||||
Total Company | 2022 | $ | 11,939 | $ | 1,067 | $ | 43,805 | $ | 882 | $ | 1,156 | ||||||||||
2021 | $ | 10,171 | $ | 970 | $ | 40,111 | $ | 709 | $ | 438 |
15. OTHER INCOME
Other income consisted of the following:
Three Months Ended | ||||||||
September 30, | ||||||||
2022 | 2021 | |||||||
(Unaudited) | (Unaudited) | |||||||
Interest income | $ | 18 | $ | 22 | ||||
Other rental income | 27 | 29 | ||||||
Exchange gain | 70 | 34 | ||||||
Bad debt recovery | - | 2 | ||||||
Government grant | 21 | 70 | ||||||
Other miscellaneous income | 43 | 4 | ||||||
Total | $ | 179 | $ | 161 |
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 $43 and $23 for the period ended September 30, 2022, and 2021, respectively.
The Company's income tax expense was $225 for the three months ended September 30, 2022, as compared to $180 for the same period in Fiscal 2022. Our effective tax rate (“ETR”) from continuing operations was 19% and 16% for the quarters ended September 30, 2022 and September 30, 2021, respectively. The increase in income tax expense and effective tax rate was due to the following:
|
|
2. | The Company recognizing 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 September 30, 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.
The revenue allocated to individual countries was based on where the customers were located. The allocation of the cost of equipment, the current year investment in new equipment and depreciation expense have been made based on the primary purpose for which the equipment was acquired.
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 stand-alonestandalone 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:
● |
|
● | 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). |
• the customer has legal title;
• the customer has physical possession;
• the customer has significant risk and rewards
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. The Company has concluded that the warranty provided for standard productswhich are mainly assurance type warrantieswarranty and are not separate performance obligations. Warranty provided for some customized products aremay be classified as service warranties and are separate performance obligations. Transaction prices are allocated to this performance obligation using cost plus method. The portion of revenue associated with warranty service is deferred and recognized as revenue over the warranty period, as the customer simultaneously receives and consumes the benefits of warranty services provided by the Company.
Testing
The Company renders testing services to manufacturers and purchasers of semiconductors and other entities who either lack testing capabilities or whose in-house screening facilities are insufficient. The Company primarily derives testing revenue from burn-in services, manpower supply and other associated services. SSP is directly observable from the sales orders. Revenue is allocated to performance obligations satisfied at a point in time depending upon terms of the sales order. Generally, there is no other performance obligation other than what has been stated inside the sales order for each of these sales.
Terms of contract that may indicate potential variable consideration include warranty, late delivery penalty and reimbursement to solve nonconformance issues for rejected products. Based on historical and recent data trends, it is concluded that these terms of the contract do not represent potential variable consideration. The transaction price is not contingent on the occurrence of any future event.
Distribution
The Company distributes complementary products, particularly equipment, industrial products and components by manufacturers mainly from the U.S., Europe Taiwan and Japan.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.
All intersegment revenue was from the manufacturing segment to the testing and distribution segments. Total intersegment revenue was $92 for the three months ended September 30, 2021, as compared to $381 for the same period in the last fiscal year. Corporate assets mainly consisted of cash and prepaid expenses. Corporate expenses mainly consisted of stock option expenses, salaries, insurance, professional expenses and directors' fees. Corporate expenses are allocated to the four segments. The following segment information table includes segment operating income or loss after including the corporate expenses allocated to the segments, which gets eliminated in the consolidation.Contract Balances
The following segment information is unaudited for the three months ended September 30, 2021, and September 30, 2020:
Business Segment Information:
Three Months Ended Sept. 30, | Net Revenue | Operating Income / (Loss) | Total Assets | Depr. And Amort. | Capital Expenditures | |||||||||||||||||
Manufacturing | 2021 | $ | 3,562 | 300 | 18,558 | 103 | 60 | |||||||||||||||
2020 | $ | 2,625 | (18 | ) | 10,383 | 106 | 67 | |||||||||||||||
Testing Services | 2021 | 4,600 | 536 | 18,363 | 585 | 377 | ||||||||||||||||
2020 | 2,954 | (337 | ) | 20,848 | 579 | 20 | ||||||||||||||||
Distribution | 2021 | 1,998 | 254 | 1,288 | 2 | - | ||||||||||||||||
2020 | 1,258 | 124 | 758 | 0 | - | |||||||||||||||||
Real Estate | 2021 | 11 | (23 | ) | 1,588 | 19 | 1 | |||||||||||||||
2020 | 4 | (27 | ) | 3,722 | 17 | - | ||||||||||||||||
Fabrication | 2021 | - | 0 | 0 | 0 | - | ||||||||||||||||
Services * | 2020 | - | 0 | 25 | 0 | - | ||||||||||||||||
Corporate & | 2021 | - | (97 | ) | 314 | 0 | - | |||||||||||||||
Unallocated | 2020 | - | (69 | ) | 92 | 0 | - | |||||||||||||||
Total Company | 2021 | $ | 10,171 | 970 | 40,111 | 709 | 438 | |||||||||||||||
2020 | $ | 6,841 | (327 | ) | 35,828 | 702 | 87 |
* Fabrication services is a discontinued operation.
|
|
Other income consisted of the following:
Three Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
Interest income | 22 | 40 | ||||||
Other rental income | 29 | 21 | ||||||
Exchange gain/(loss) | 34 | (44 | ) | |||||
Bad debt recovery | 2 | 5 | ||||||
Dividend income | 0 | 2 | ||||||
Government grant | 70 | 154 | ||||||
Other miscellaneous income | 4 | 33 | ||||||
Total | $ | 161 | $ | 211 |
During the first quarter of fiscal year 2022, the Company received government grants amounting to $70, of which $42 were the financial assistance received from the Malaysia and Thailand governments amid the COVID-19 pandemic.
During the first quarter of fiscal year 2021, the Company received government grants of $154 from the local government in the Singapore and Malaysia operations, of which $142 reflects financial assistance to mitigate the negative impact on the businesses amid the pandemic.
|
|
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 2014 to 2020 for tax authorities in those jurisdictions to audit or examine income tax returns. The Company is under annual review by the tax authorities of the respective jurisdiction to which the subsidiaries belong.
The Tax Cuts and Jobs Act (the “Tax Act”) was enacted in fiscal year 2018, and reduced the U.S. federal corporate tax rate from 35% to 21%, eliminated corporate Alternative Minimum Tax, modified rules for expensing capital investment, and limited the deduction of interest expense for certain companies. The Act is a fundamental change to the taxation of multinational companies, including a shift from a system of worldwide taxation with some deferral elements to a territorial system, current taxation of certain foreign income, a minimum tax on low tax foreign earnings, and new measures to curtail base erosion and promote U.S. production.
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 is $23 and $Nil for the period ended September 30, 2021 and September 30, 2020, respectively.
The Company's income tax expense was $180 and $7 for the three months ended September 30, 2021, and September 30, 2020, respectively. Our effective tax rate (“ETR”) from continuing operations was 16% and 5% for the quarter ended September 30, 2021, and September 30, 2020, respectively. The increase in income tax expense and effective tax rate was due to the following:
|
|
|
|
|
|
The Company accrues penalties and interest related to unrecognized tax benefits when necessary as a component of penalties and interest expenses, respectively. The Company had 0 unrecognized tax benefits or related accrued penalties or interest expenses at September 30, 2021.
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 full valuation allowance has been established.
|
|
The timing of revenue recognition, billings and collections may result in billed accounts receivable, unbilled receivables, (contract assets), andcontract assets, customer advances, deposits and deposits (contract liabilities).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.
Contract assets were recorded under other receivable while contract liabilities were recorded under accrued expenses in the balance sheet.
The following table is the reconciliation of contract balances.
Sept. 30 | June 30 | |||||||||||||||
2022 | 2022 | |||||||||||||||
(Unaudited) | ||||||||||||||||
Sept. 30, 2021 (Unaudited) | Jun 30, 2021
| |||||||||||||||
Trade Accounts Receivable | 9,403 | 8,293 | 12,491 | 11,592 | ||||||||||||
Accounts Payable | 3,224 | 3,702 | 3,469 | 2,401 | ||||||||||||
Contract Assets | 216 | 337 | ||||||||||||||
Contract Liabilities | 603 | 628 | 1,218 | 933 |
Remaining Performance Obligation
As at September 30, 2021,2022, the Company had $505$235 of remaining performance obligations, which represents our obligation to deliver products and services. Given the profile of contract terms, majority of this amount is expected to be recognized as revenue over the nextservices 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.
Refer to Note 1414 “Business Segments” of the Notes to Condensed Consolidated Financial Statements for information related to revenue.
|
|
As at September 30, 2021, the Company had $505
18.EARNINGS PER SHARE
Options to purchase 751,000636,375 shares of Common Stock at exercise prices ranging from $3.75 to $7.76 per share were outstanding as of September 30, 2022. 84,625 stock options were excluded in the computation of diluted earnings per share (“EPS”) for the three months ended September 30, 2022, because they were anti-dilutive.
Options to purchase 674,500 shares of Common Stock at exercise prices ranging from $2.53 to $5.98 per share were outstanding as of September 30, 2020.2021. 17,71494,011 stock options were included in the computation of diluted EPS for the three months ended September 30, 2020,2021, because they were dilutive.
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 | Three Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2021 (Unaudited) | 2020 (Unaudited) | 2022 | 2021 | |||||||||||||
Income / (Loss) attributable to Trio-Tech International common shareholders from continuing operations, net of tax | $ | 914 | $ | (5 | ) | |||||||||||
Income/ (Loss) attributable to Trio-Tech International common shareholders from discontinued operations, net of tax | 3 | (3 | ) | |||||||||||||
Net Income / (Loss) attributable to Trio-Tech International common shareholders | $ | 917 | $ | (8 | ) | |||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Weighted average number of common shares outstanding - basic | 3,913 | 3,686 | ||||||||||||||
Income attributable to Trio-Tech International common shareholders from continuing operations, net of tax | $ | 882 | $ | 914 | ||||||||||||
Income attributable to Trio-Tech International common shareholders from discontinued operations, net of tax | - | 3 | ||||||||||||||
Net Income attributable to Trio-Tech International common shareholders | $ | 882 | $ | 917 | ||||||||||||
Weighted average number of common shares outstanding – basic | 4,077 | 3,913 | ||||||||||||||
Dilutive effect of stock options | 94 | 18 | 81 | 94 | ||||||||||||
Number of shares used to compute earnings per share – diluted | 4,007 | 3,704 | 4,158 | 4,007 | ||||||||||||
Basic earnings per share from continuing operations attributable to Trio-Tech International | 0.23 | 0 | 0.22 | 0.23 | ||||||||||||
Basic earnings per share from discontinued operations attributable to Trio-Tech International | 0 | 0 | - | - | ||||||||||||
Basic earnings per share from net income attributable to Trio-Tech International | $ | 0.23 | $ | 0 | $ | 0.22 | $ | 0.23 | ||||||||
Diluted earnings per share from continuing operations attributable to Trio-Tech International | 0.23 | 0 | 0.21 | 0.23 | ||||||||||||
Diluted earnings per share from discontinued operations attributable to Trio-Tech International | 0 | 0 | - | - | ||||||||||||
Diluted earnings per share from net income attributable to Trio-Tech International | $ | 0.23 | $ | 0 | $ | 0.21 | $ | 0.23 |
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 those plans wasthe 2007 Plans were amended during the term of such plan to increase the number of shares covered thereby. AsEach of the last amendment thereof, the 2007 Employee Plan covered an aggregate of 600,000 shares of the Company’s Common Stock and the 2007 Directors Plan covered an aggregate of 500,000 shares of the Company’s Common Stock. Each of those plansPlans terminated by itstheir respective terms on September 24, 2017.These two plans were administered by the Board, which also established the terms of the awards.
On September 14, 2017, the Company’s Board of Directors unanimously adopted the 2017 Employee Stock Option Plan (the “2017 Employee Plan”) and the 2017 Directors Equity Incentive Plan (the “2017 Directors Plan”) each of which was approved by the shareholders on December 4, 2017.Each of these plans is administered by the Board of Directors of the Company.
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 |
● |
|
● | expected volatility of 47.3% to 73.85% (2022:45.38% to 55.59%). |
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 quarter of fiscal yearFiscal 2021,2023, 25,000 stock options were granted under the 2017 Employee Plan. There were 5,000 stock options exercised during the three-month period ended September 30, 2022. The Company recognized $32 in stock-based compensation expense during the three months ended September 30, 2022.
During the first quarter of Fiscal 2022, the Company did not grant any options pursuant to the 2017 Employee Plan. There were 0no stock options exercised during the three-month period ended September 30, 2021. The Company recognized $12 in stock-based compensation expensesexpense during the three months ended September 30, 2021.
During theAs of firstSeptember 30, 2022, quarter of fiscal year 2020, the Company did not grant anythere were vested stock options pursuant togranted under the 2017 Employee Plan. There were 0 stock options exercised duringPlan covering a total of 131,750 shares of Common Stock. The weighted-average exercise price was $4.80 and the three-month period ended September 30, 2020. The Company recognized $6 stock-based compensation expenses during the three months ended September 30, 2020.weighted average remaining contractual term was 1.95 years.
As of September 30, 2021, there were vested stock options granted under the 2017 Employee Plan covering a total of 164,750 shares of Common Stock. The weighted average exercise price was $4.35 and the weighted average remaining contractual term was 2.49 years.
AsA summary of September 30, 2020, there were vested stock options grantedoption activities under the 2017 Employee Plan covering a total of 98,000 shares of Common Stock. The weighted average exercise price was $4.44 andduring the weighted average remaining contractual term was 3.16 years.three months period ended September 30, 2022, is presented as follows:
Weighted | Weighted Average Remaining | Aggregate | ||||||||||||||
Average | Contractual | Intrinsic | ||||||||||||||
Options | Exercise Price | Term (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 September 30, 2022 | 216,375 | $ | 5.16 | $ | 2.74 | $ | 106,419 | |||||||||
Exercisable at September 30, 2022 | 131,750 | $ | 4.80 | $ | 1.95 | $ | 80,314 |
A summary of the status of the Company’s non-vested employee stock options during the three months ended September 30, 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 | (16,250 | ) | - | |||||
Non-vested at September 30, 2022 | 84,625 | $ | 5.72 |
A summary of option activities under the 2017 Employee Plan during the three months period ended September 30, 2021, is presented as follows:
Weighted | Weighted Average Remaining | Aggregate | ||||||||||||||||||||||||||||||
Average | Contractual | Intrinsic | ||||||||||||||||||||||||||||||
Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | Options | Exercise Price | Term (Years) | Value | |||||||||||||||||||||||||
Outstanding at July 1, 2021 | 267,000 | $ | 4.21 | 3.22 | $ | 290 | 267,000 | $ | 4.21 | 3.22 | $ | 290 | ||||||||||||||||||||
Granted | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Exercised | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Forfeited or expired | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Outstanding at September 30, 2021 | 267,000 | 4.21 | 2.97 | 170 | 267,000 | $ | 4.21 | $ | 2.97 | $ | 170 | |||||||||||||||||||||
Exercisable at September 30, 2021 | 164,750 | 4.35 | 2.49 | $ | 100 | 164,750 | $ | 4.35 | $ | 2.49 | $ | 100 |
A summary of the status of the Company’s non-vested employee stock options during the three months period ended September 30, 2021, is presented below:
Options | Weighted Average Grant-Date Fair Value | |||||||
Non-vested at July 1, 2021 | 102,250 | $ | 2.29 | |||||
Granted | 0 | 0 | ||||||
Vested | 0 | 0 | ||||||
Forfeited | - | 0 | ||||||
Non-vested at September 30, 2021 | 102,250 | $ | 2.29 |
A summary of option activities under the 2017 Employee Plan during the three months period ended September 30, 2020, is presented as follows:
Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
Outstanding at July 1, 2020 | 196,000 | $ | 3.92 | 3.72 | $ | 36 | ||||||||||
Granted | - | - | - | - | ||||||||||||
Exercised | - | - | - | - | ||||||||||||
Forfeited or expired | - | - | - | - | ||||||||||||
Outstanding at September 30, 2020 | 196,000 | 3.92 | 3.47 | 62 | ||||||||||||
Exercisable at September 30, 2020 | 98,000 | 4.44 | 3.16 | $ | 18 |
A summary of the status of the Company’s non-vested employee stock options during the three months ended September 30, 2020, is presented below:
Options | Weighted Average Grant-Date Fair Value |
| Weighted Average | |||||||||||||
Options | Grant-Date Fair Value | |||||||||||||||
Non-vested at July 1, 2020 | 98,000 | $ | 3.39 | |||||||||||||
Non-vested at July 1, 2021 | 102,250 | $ | 2.29 | |||||||||||||
Granted | 0 | 0 | - | - | ||||||||||||
Vested | 0 | 0 | - | - | ||||||||||||
Forfeited | - | 0 | - | - | ||||||||||||
Non-vested at September 30, 2020 | 98,000 | $ | 3.39 | |||||||||||||
Non-vested at September 30, 2021 | 102,250 | $ | 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. However, the optionsOptions outstanding thereunder continue to remain outstanding and in effect in accordance with their terms. The 2007 Employee Plan permitted the issuance of options to employees.
As the 2007 Plan has terminated, the Company did not grant any options pursuant to the 2007 Employee Plan during the three months ended September 30, 2021, and September 30, 2020 respectively.
There were 0no options exercised during the three months ended September 30, 2021,2022, and September 30, 2020.2021. The Company did not recognize any stock-based compensation expensesexpense during the three months ended September 30, 2021,2022, and September 30, 2020.2021.
As of July 1, 2022 and September 30, 2022, there were no vested or unvested stock options outstanding under the 2007 Employee Plan.
As of September 30, 2021, there were vested stock options granted under the 2007 Employee Plan covering a total of 37,500 shares of Common Stock. The weighted-averageweighted average exercise price was $4.14 and the weighted average remaining contractual term was 0.49 years.
As of September 30, 2020, there were vested stock options granted under the 2007 Employee Plan covering a total of 77,500 shares of Common Stock. The weighted-average exercise price was $3.69 and the weighted average remaining contractual term was 0.96 years.
A summary of option activities under the 2007 Employee Plan during the three months ended September 30 2021, is presented as follows:
Weighted | Weighted Average Remaining | Aggregate | ||||||||||||||||||||||||||||||
Average | Contractual | Intrinsic | ||||||||||||||||||||||||||||||
Options | Exercise Price | Term (Years) | Value | |||||||||||||||||||||||||||||
Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||||||||||||||||||
Outstanding at July 1, 2021 | 37,500 | $ | 4.14 | 0.75 | $ | 34 | 37,500 | $ | 4.14 | 0.75 | $ | 34 | ||||||||||||||||||||
Granted | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Exercised | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Forfeited or expired | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Outstanding at September 30, 2021 | 37,500 | $ | 4.14 | 0.49 | $ | 3 | 37,500 | $ | 4.14 | $ | 0.49 | $ | 3 | |||||||||||||||||||
Exercisable at September 30, 2021 | 37,500 | $ | 4.14 | 0.49 | $ | 3 | 37,500 | $ | 4.14 | $ | 0.49 | $ | 3 |
There were 0no non-vested employee stock options during the three months ended September 30, 2021.
A summary of option activities under the
Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
Outstanding at July 1, 2020 | 77,500 | $ | 3.69 | 1.22 | $ | - | ||||||||||
Granted | - | - | - | - | ||||||||||||
Exercised | - | - | - | - | ||||||||||||
Forfeited or expired | - | - | - | - | ||||||||||||
Outstanding at September 30, 2020 | 77,500 | $ | 3.69 | 0.96 | $ | 6 | ||||||||||
Exercisable at September 30, 2020 | 77,500 | $ | 3.69 | 0.96 | $ | 6 |
There were 0 non-vested employee stock options during the three months ended September 30, 2020.
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 boardBoard of directorsDirectors 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 quarter of fiscal yearFiscal 2023 and Fiscal 2022, the Company did not grant any options pursuant to the 2017 Directors Plan. There were 0no stock options exercised and the Company did not recognize any stock-based compensation expense during the three months ended September 30, 2022 and 2021.The Company did not recognize any stock-based compensation expenses during the three months ended September 30, 2021.
During the first quarter of fiscal year 2021, the Company did not grant any options pursuant to the 2017 Directors Plan. There were 0 stock options exercised during the three months ended September 30, 2020. The Company did not recognize any stock-based compensation expenses during the three months ended September 30, 2020.
As all the stock options granted under the 2017 Directors Plan vest immediately on the date of grant, there were 0no unvested stock options granted under the 2017 Directors Plan as of September 30, 2022, or September 30, 2021.
As of September 30, 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 2.57 years.
As of September 30, 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 2.97 years.
AsA summary of September 30, 2020, there were vested stock options grantedoption activities under the 2017 Directors Plan covering a total of 240,000 shares of Common Stock. The weighted average exercise price was $3.93 andduring the weighted average remaining contractual term was 3.49 years.three months ended September 30, 2022, is presented as follows:
Weighted | Weighted Average Remaining | Aggregate | ||||||||||||||
Average | Contractual | Intrinsic | ||||||||||||||
Options | Exercise Price | Term (Years) | Value | |||||||||||||
Outstanding at July 1, 2022 | 420,000 | $ | 5.10 | 2.85 | $ | 228 | ||||||||||
Granted | - | - | - | |||||||||||||
Exercised | - | - | - | - | ||||||||||||
Forfeited or expired | - | - | - | - | ||||||||||||
Outstanding at September 30, 2022 | 420,000 | $ | 5.10 | $ | 2.57 | $ | 278 | |||||||||
Exercisable at September 30, 2022 | 420,000 | $ | 5.10 | $ | 2.57 | $ | 278 |
A summary of option activities under the 2017 Directors Plan during the three months ended September 30, 2021, is presented as follows:
Weighted | Weighted Average Remaining | Aggregate | ||||||||||||||||||||||||||||||
Average | Contractual | Intrinsic | ||||||||||||||||||||||||||||||
Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | Options | Exercise Price | Term (Years) | Value | |||||||||||||||||||||||||
Outstanding at July 1, 2021 | 320,000 | $ | 4.27 | 3.22 | $ | 340 | 320,000 | $ | 4.27 | 3.22 | $ | 340 | ||||||||||||||||||||
Granted | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Exercised | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Forfeited or expired | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Outstanding at September 30, 2021 | 320,000 | 4.27 | 2.97 | 210 | ||||||||||||||||||||||||||||
Exercisable at September 30, 2021 | 320,000 | 4.27 | 2.97 | $ | 210 | |||||||||||||||||||||||||||
Outstanding at September 30, 2022 | 320,000 | $ | 4.27 | $ | 2.97 | $ | 210 | |||||||||||||||||||||||||
Exercisable at September 30, 2022 | 320,000 | $ | 4.27 | $ | 2.97 | $ | 210 |
A summary of option activities under the 2017 Directors Plan during the three months ended September 30, 2020, is presented as follows:
Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
Outstanding at July 1, 2020 | 240,000 | $ | 3.93 | 3.75 | $ | 48 | ||||||||||
Granted | - | - | - | - | ||||||||||||
Exercised | - | - | - | - | ||||||||||||
Forfeited or expired | - | - | - | - | ||||||||||||
Outstanding at September 30, 2020 | 240,000 | 3.93 | 3.49 | 82 | ||||||||||||
Exercisable at September 30, 2020 | 240,000 | 3.93 | 3.49 | $ | 82 |
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. However, the optionsOptions outstanding thereunder continue to remain outstanding and in effect in accordance with their terms. The 2007 Directors Plan permitted the issuance of options to directors.
As the 2007 Plan has terminated, the Company did not grant any options pursuant to the 2007 Directors Plan during the three months ended September 30, 2021, and September 30, 2020.
There were 0no stock optionoptions exercised during the three months ended September 30, 2022 and 2021.The Company did not recognize any stock-based compensation expensesexpense during the three months ended September 30, 2022 and 2021.
12,500As of July 1, 2022 and September 30, 2022, there were no vested stock options were exercised duringoutstanding under the three2007 months endedDirectors Plan.
As of September 30, 2020.2022, The Company did not recognize any stock-based compensation expenses duringthere were no vested stock options granted under the three2007 months ended September 30, 2020.Directors Plan.
As of September 30, 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 0.49 years.
As of September 30, 2020, there were vested stock options granted under the 2007 Directors Plan covering a total of 237,500 shares of Common Stock. The weighted average exercise price was $3.36 and the weighted average remaining contractual term was 0.61 years.
A summary of option activities under the 2007 Directors Plan during the three months ended September 30, 2021 is presented as follows:
Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
Outstanding at July 1, 2021 | 50,000 | $ | 4.14 | 0.75 | $ | 45 | ||||||||||
Granted | - | - | - | - | ||||||||||||
Exercised | - | - | - | - | ||||||||||||
Forfeited or expired | - | - | - | - | ||||||||||||
Outstanding at September 30, 2021 | 50,000 | $ | 4.14 | 0.49 | $ | 4 | ||||||||||
Exercisable at September 30, 2021 | 50,000 | $ | 4.14 | 0.49 | $ | 4 |
A summary of option activities under the 2007 Directors Plan during the three months ended September 30, 2020, is presented as follows:
Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | Weighted | Weighted Average Remaining | Aggregate | ||||||||||||||||||||||||||
Average | Contractual | Intrinsic | ||||||||||||||||||||||||||||||
Outstanding at July 1, 2020 | 250,000 | $ | 3.32 | 0.83 | $ | 22 | ||||||||||||||||||||||||||
Options | Exercise Price | Term (Years) | Value | |||||||||||||||||||||||||||||
Outstanding at July 1, 2021 | 50,000 | $ | 4.14 | 0.75 | $ | 45 | ||||||||||||||||||||||||||
Granted | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Exercised | (12,500 | ) | 2.69 | - | 11 | - | - | - | - | |||||||||||||||||||||||
Forfeited or expired | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Outstanding at September 30, 2020 | 237,500 | $ | 3.36 | 0.61 | $ | 51 | ||||||||||||||||||||||||||
Exercisable at September 30, 2020 | 237,500 | $ | 3.36 | 0.61 | $ | 51 | ||||||||||||||||||||||||||
Outstanding at September 30, 2021 | 50,000 | $ | 4.14 | $ | 0.49 | $ | 4 | |||||||||||||||||||||||||
Exercisable at September 30, 2021 | 50,000 | $ | 4.14 | $ | 0.49 | $ | 4 |
20.LEASES |
|
Company as Lessor
Operating leases where we areunder which the Company is the lessor arise from the leasing of the Company’s commercial and residential 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 expensesexpense relating to the property held as investments in operating leases was $18$17 and $17$18 for 3 months ended September 30, 2021,2022, and September 30, 20202021, respectively.
Future minimum rental income in China and Thailand to be received from Fiscal 2023 to the fiscal year ended 2022June 30, 2027 ( to fiscal year“Fiscal 20232027”) on noncancelable operating leases is contractually due as follows as of September 30, 2021:2022:
Remainder of fiscal 2022 | $ | 110 | ||
Fiscal 2023 | $ | 12 | ||
$ | 122 |
Remainder of fiscal 2023 | $ | 86 | ||
Fiscal 2024 | 133 | |||
Fiscal 2025 | 135 | |||
Fiscal 2026 | 46 | |||
Fiscal 2027 | 10 | |||
$ | 410 |
Future minimum rental income in China and Thailand to be received from fiscal yearFiscal 20222023 to fiscal yearFiscal 20232024 on noncancelablenon-cancelable operating leases is contractually due as follows as of June 30, 2021:2022:
Fiscal 2022 | $ | 145 | ||
Fiscal 2023 | $ | 16 | ||
$ | 161 |
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 3three 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 costcosts 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 | September 30, | Sept. 30, | ||||||
2021 | 2022 | |||||||
Assets | ||||||||
Gross financial sales receivable | $ | 60 | $ | 33 | ||||
Unearned finance income | (6 | ) | (2 | ) | ||||
Financed sales receivable | $ | 54 | $ | 31 | ||||
Net financed sales receivables due within one year | $ | 20 | $ | 20 | ||||
Net financed sales receivables due after one year | $ | 34 | $ | 11 |
As of September 30, 2021,2022, the financed sale receivables had a weighted average effective interest rate of 13.2%11.2% and weighted average remaining lease term of 2.51.5 years.
Company as Lessee
The Company (or an affiliate) is the lessee under operating leases for corporate offices and research and development facilities with remaining lease terms of 1one year to 3four years and finance leases for plant and equipment.
Supplemental balance sheet information related to leases was as follows (in thousands):
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
|
Sept. 30, | June 30, | |||||||
2022 | 2022 | |||||||
(Unaudited) | ||||||||
Finance Leases (Plant and Equipment) | ||||||||
Plant and equipment, at cost | $ | 1,671 | $ | 1,727 | ||||
Accumulated depreciation | (1,066 | ) | (1,179 | ) | ||||
Plant and Equipment, Net | $ | 605 | $ | 548 | ||||
Current portion of finance leases | $ | 104 | $ | 118 | ||||
Net of current portion of finance leases | 91 | 119 | ||||||
Total Finance Lease Liabilities | $ | 195 | $ | 237 | ||||
Operating Leases (Corporate Offices, Research and Development Facilities) | ||||||||
Operating lease right-of-use assets | $ | 2,759 | $ | 3,152 | ||||
Operating lease right-of-use assets, Net | $ | 2,759 | $ | 3,152 | ||||
Current portion of operating leases | 1,130 | 1,218 | ||||||
Net of current portion of operating leases | 1,629 | 1,934 | ||||||
Total Operating Lease Liabilities | $ | 2,759 | $ | 3,152 |
Three Months Ended | ||||||||
Sept. 30, | Sept. 30, | |||||||
2022 | 2021 | |||||||
(Unaudited) | (Unaudited) | |||||||
Lease Cost | ||||||||
Finance lease cost: | ||||||||
Interest on finance lease | $ | 16 | $ | 6 | ||||
Amortization of right-of-use assets | 48 | 28 | ||||||
Total finance lease cost | 64 | 34 | ||||||
Operating lease cost | $ | 380 | $ | 242 |
Other information related to leases was as follows (in thousands except lease term and discount rate):
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
|
Three Months Ended | ||||||||
Sept. 30, | Sept. 30, | |||||||
2022 | 2021 | |||||||
(Unaudited) | (Unaudited) | |||||||
Cash Paid for Amounts Included in the Measurement of Lease Liabilities | ||||||||
Operating cash flows from finance leases | $ | (16 | ) | $ | (6 | ) | ||
Operating cash flows from operating leases | (380 | ) | (146 | ) | ||||
Finance cash flows from finance leases | (36 | ) | (53 | ) | ||||
Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities | - | |||||||
Weighted-Average Remaining Lease Term: | ||||||||
Finance leases | 1.79 | 2.72 | ||||||
Operating leases | 2.83 | 3.64 | ||||||
Weighted-Average Discount Rate: | ||||||||
Finance leases | 3.23 | % | 3.56 | % | ||||
Operating leases | 5.52 | % | 4.57 | % |
June 30, | ||||||
Components of Lease Balances | Classification | 2021 | ||||
Assets | ||||||
Operating lease assets | Right-of-use asset - operating, net | $ | 1,876 | |||
Finance lease assets | Property, plant & equipment | 1,413 | ||||
Accumulated amortization | (1,199 | ) | ||||
Right-of-use asset | ||||||
Assets | Property, plant & equipment | $ | 214 | |||
Total Leased Assets | $ | 2,090 | ||||
Liabilities | ||||||
Operating Lease Liabilities | ||||||
Current portion | Current portion of lease liability - operating | $ | 672 | |||
Long-term portion | Lease liability - operating, net of current portion | 1,204 | ||||
Total Operating Lease Liabilities | $ | 1,876 | ||||
Finance Lease Liabilities | ||||||
Current portion of finance leases | Current portion of lease liability - finance | $ | 197 | |||
Net of current portion of finance leases | Lease liability - finance, net of current portion | 253 | ||||
Total Finance Lease Liabilities | $ | 450 | ||||
Total Lease Liabilities | $ | 2,326 | ||||
Lease Cost | ||||||
Finance lease cost: | ||||||
Interest on finance lease | 7 | |||||
Amortization of right-of -use asset | 74 | |||||
Total Finance Lease Cost | 81 | |||||
Operating Lease Costs | 199 |
Other information related to leases was as follows (in thousands except lease term and discount rate):
June 30, | ||||
2021 | ||||
Cash paid for amounts included in the measurement of lease liabilities | ||||
Operating cash flows from finance leases | $ | (40 | ) | |
Operating cash flows from operating leases | $ | (764 | ) | |
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 932 | ||
Weighted average remaining lease term (years): | ||||
Finance leases | 2.72 | |||
Operating leases | 3.09 | |||
Weighted average discount rate: | ||||
Finance leases | 3.56 | |||
Operating leases | 4.60 |
As of September 30, 2021,2022, the maturities of the Company'sCompany’s operating and finance lease liabilities are as follow:
Operating Lease Liabilities | Finance Lease Liabilities | Operating Lease Liabilities | Finance Lease Liabilities | |||||||||||||
Fiscal Year | $ | $ | ||||||||||||||
Remainder of 2022 | 763 | 195 | ||||||||||||||
2023 | 812 | 122 | ||||||||||||||
Remainder of Fiscal 2023 | 1,969 | 110 | ||||||||||||||
2024 | 559 | 97 | 1,005 | 89 | ||||||||||||
2025 | 558 | 8 | 552 | 7 | ||||||||||||
2026 | 438 | 0 | 399 | - | ||||||||||||
Thereafter | 72 | 0 | 65 | - | ||||||||||||
Total future minimum lease payments | 3,202 | 422 | 2,990 | 206 | ||||||||||||
Less: amount representing interest | (300 | ) | (31 | ) | (231 | ) | (11 | ) | ||||||||
Present value of net minimum lease payments | 2,902 | 391 | 2,759 | 195 | ||||||||||||
Presentation on statement of financial position | $ | $ | ||||||||||||||
Current | 869 | 180 | 1,130 | 104 | ||||||||||||
Noncurrent | 2,033 | 211 | ||||||||||||||
Non-Current | 1,629 | 91 |
As of June 30, 2021,2022, future minimum lease payments under finance leases and noncancelable operating leases were as follows:
Operating Lease Liabilities | Finance Lease Liabilities | Operating Lease Liabilities | Finance Lease Liabilities | |||||||||||||
Fiscal Year | $ | $ | ||||||||||||||
2022 | 748 | 218 | ||||||||||||||
2023 | 537 | 137 | 1,357 | 129 | ||||||||||||
2024 | 313 | 111 | 1,032 | 104 | ||||||||||||
2025 | 291 | 22 | 554 | 20 | ||||||||||||
2026 | 423 | - | ||||||||||||||
Thereafter | 156 | 0 | 69 | - | ||||||||||||
Total future minimum lease payments | 2,045 | 488 | 3,435 | 253 | ||||||||||||
Less: amount representing interest | (169 | ) | (38 | ) | (283 | ) | (16 | ) | ||||||||
Present value of net minimum lease payments | 1,876 | 450 | 3,152 | 237 | ||||||||||||
Presentation on statement of financial position | $ | $ | ||||||||||||||
Current | 672 | 197 | 1,218 | 118 | ||||||||||||
Noncurrent | 1,204 | 253 | ||||||||||||||
Non-Current | 1,934 | 119 |
21.FAIR VALUE OF FINANCIAL INSTRUMENTS APPROXIMATE CARRYING VALUE |
|
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 three months ended September 30, 20212022 and 2020.2021.
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 Bankbank 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 customercustomers that accounted for the following revenue and trade account receivables:
For the Three Months Ended Sep 30, | ||||||||
2021 | 2020 | |||||||
Revenue | ||||||||
- Customer A | 40.3 | % | 29.0 | % | ||||
- Customer B | 13.0 | % | 11.8 | % | ||||
Trade Account Receivables | ||||||||
- Customer A | 38.4 | % | 33.1 | % | ||||
- Customer B | 13.6 | % | 5.3 | % |
For the Period Ended Sept. 30, | ||||||||
2022 | 2021 | |||||||
(Unaudited) | (Unaudited) | |||||||
Revenue | ||||||||
- Customer A | 38.9 | % | 40.3 | % | ||||
- Customer B | 16.4 | % | 13.0 | % | ||||
Trade Account Receivables | ||||||||
- Customer A | 36.7 | % | 38.4 | % | ||||
- Customer B | 16.9 | % | 13.6 | % |
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Overview
The following should be read in conjunction with the condensed consolidated financial statements and notes in Item I above and with the audited consolidated financial statements and notes, the information under the headings “Risk Factors” and “Management’s discussion and analysis of financial condition and results of operations” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.2022.
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 three months ended September 30, 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, testing services and distribution of test equipment during the three months ended September 30, 2021.equipment. The Real Estate segment contributed only 0.1%0.01% to the total revenue during the three months ended September 30, 2021.2022.
Manufacturing
TTI develops and manufactures an extensive range of test equipment used in the "front end"“front-end” and the "back end"“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-usersend users of semiconductor and electronic components who look to us when they do not want to establish their own facilities. The independent tests are performed to industry and customer specific standards.
Distribution
In addition to marketing our proprietary products, we distribute complementary products made by manufacturers mainly from the U.S., Europe, Taiwan and Japan.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
Beginning in 2007, TTI has invested inOur real estate property in Chongqing, China, which has generatedsegment generates investment income from the investments made and rental revenue and investment returnsreceived from deemed loan receivables, which are classified as other income. The rental income is generated from the rental propertiesreal estate that we purchased in MaoYe and FuLi in Chongqing, China. In the second quarter of fiscal 2015, the investment in JiaSheng, which was deemed as loans receivable, was transferred to down payment for purchase of investment property in China.
Impact of COVID-19 on our Business
In December 2019, a novel strain of coronavirus (“COVID-19”), was reported to have surfaced in China, resulting in shutdowns of manufacturing and commerce in the months that followed. Since then, the COVID-19 pandemic has spread to multiple countries worldwide and has resulted in authorities implementing numerous measures to try to contain the disease and slow its spread, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns. These measures have created significant uncertainty and economic disruption, both short-term and potentially long-term.
The health and safety of our employees and our customers are a top priority for us. In an effort to protect our employees, we took and continue to take proactive and aggressive actions, starting with the earliest signs of the outbreak, to adopt social distancing policies at our locations, including working from home and suspending employee travel. Our operations have been classified as part of the global supply chain and essential businesses in many jurisdictions, and employees who are working onsite are required to adhere to strict safety measures, including the use of masks and sanitizer, wellness screenings prior to accessing work sites, staggered break times to prevent congregation, prohibitions on physical contact with coworkers or customers, restrictions on access through only a single point of entry and exit, and utilizing video conferencing. We have also incorporated other rules such as restricting visitors to any of our facilities that remain open and proactively providing employees with hand sanitizer.
In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the three months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2022. Certain accounting matters that generally require consideration of forecasted financial information were assessed regarding impacts from the COVID-19 pandemic as of September 30, 2021, and through the date of filing of this Quarterly Report dated November 15, 2021 using reasonably available information as of those dates. Those accounting matters assessed included, but were not limited to, allowance for doubtful accounts, the carrying value of long-lived tangible assets and the valuation allowances for tax assets. While the assessments resulted in no material impacts to the consolidated financial statements as of and for the quarter ended September 30, 2021, the Company believes the full impact of the pandemic remains uncertain and the Company will continue to assess if ongoing developments related to the pandemic may cause future material impacts to our consolidated financial statements.
As of September 30, 2021, the Company had cash and cash equivalents and short-term deposits totaling $11,098 and an unused line of credit of $5,397. We finance operations primarily through our existing cash balances, cash collected from operations, bank borrowings and capital lease financing. We believe these sources are sufficient to fund our operations for the foreseeable future.
While we have implemented safeguards and procedures to counter the impact of the COVID-19 pandemic, the full extent to which the pandemic has and will directly or indirectly impact us, including our business, financial condition, and result of operations, will depend on future developments that are highly uncertain and cannot be accurately predicted. This may include further mitigation efforts taken to contain the virus or treat its impact and the economic impact on local, regional, national and international markets although some of the countries had removed such policies. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by the governments or that we determine are in the best interests of our employees, customers, suppliers and stockholders.
Critical Accounting Estimates & Policies
The discussion and analysispreparation of the Company’s financial condition presentedour Condensed Consolidated Financial Statements in this section are based upon our consolidated financial statements, which have been prepared in accordanceconformity with accounting principles generally accepted accounting principles in the U.S. During the preparationUnited States of the consolidated financial statements, we are requiredAmerica requires management to make estimates and judgmentsassumptions in applying our accounting policies that affect the reported amounts of assets, liabilities, revenuerevenues and expenses, and related disclosure of contingent assets and liabilities. OnWe base these estimates and assumptions on historical experience and evaluate them on an ongoing basis we evaluateto 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 judgments, including those relatedpolicies since our Annual Report on Form 10-K for the fiscal year ended June 30, 2022. Refer to sales, returns, pricing concessions, bad debts, inventories, investments, fixed assets, intangible assets, income taxesNote 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 other contingencies. Due to the COVID-19 pandemic, there has been uncertaintyAnalysis of Financial Condition and disruptionResults of Operations” contained in the global economy and financial markets. These estimates and assumptions may change as new events occur and additional information is obtained. Actual results may differ from these estimates under different assumptions or conditions.
In response to the SEC’s Release No. 33-8040, Cautionary Advice Regarding Disclosure about Critical Accounting Policy, we have identified the mostPart 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 upon which our financial status depends. We determined that those critical accounting policies are related to the inventory valuation; allowance for doubtful accounts; revenue recognition; impairment of property, plant and equipment; investment properties and income tax. These accounting policies are discussed in the relevant sections in this management’s discussion and analysis, including the Recently Issued Accounting Pronouncements discussed below.
Account Receivables and Allowance for Doubtful Accounts
During the normal course of business, we extend unsecured credit to our customers in all segments. Typically, credit terms require payment to be made between 30 to 90 days from the date of the sale. We generally do not require collateral from customers. We maintain our cash accounts at creditworthy financial institutions.
The Company’s management considers the following factors when determining the collectability of specific customer accounts: customer creditworthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. The Company includes any account balances that are determined to be uncollectible, along with a general reserve, in the overall allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available to management, the Company believed that its allowance for doubtful accounts was adequate as of September 30, 2021.
Inventory Valuation
Inventories of our manufacturing and distribution segments, consisting principally of raw materials, works in progress, and finished goods, are stated at the lower of cost, using the first-in, first-out (“FIFO”) method, or market value. The semiconductor industry is characterized by rapid technological change, short-term customer commitments and swiftly changing demand. Provisions for estimated excess and obsolete inventory are based on regular reviews of inventory quantities on hand and the latest forecasts of product demand and production requirements from our customers. Inventories are written down for not-saleable, excess or obsolete raw materials, works-in-process and finished goods by charging such write-downs to cost of sales. In addition to write-downs based on newly introduced parts, statistics and judgments are used for assessing provisions of the remaining inventory based on salability and obsolescence.
Property, Plant and Equipment & Investment Properties
Property, plant and equipment and investment properties are stated at cost, less accumulated depreciation and amortization. Depreciation is provided for over the estimated useful lives of the assets using the straight-line method. Amortization of leasehold improvements is provided for over the lease terms or the estimated useful lives of the assets, whichever is shorter, using the straight-line method.
Maintenance, repairs and minor renewals are charged directly to expense as incurred. Additions and improvements to property and equipment are capitalized. When assets are disposed of, the related cost and accumulated depreciation thereon are removed from the accounts and any resulting gain or loss is included in the consolidated statements of operations and comprehensive income or loss.
Foreign Currency Translation and Transactions
The United States dollar (“U.S. dollar”) is the functional currency of the U.S. parent company. The Singapore dollar, the national currency of Singapore, is the primary currency of the economic environment in which the operations in Singapore are conducted. We also have business entities in Malaysia, Thailand, China and Indonesia, of which the Malaysian ringgit (“RM”), Thai baht, Chinese renminbi (“RMB”) and Indonesian rupiah, are the national currencies. The Company uses the U.S. dollar for financial reporting purposes.
The Company translates assets and liabilities of its subsidiaries outside the U.S. into U.S. dollars using the rate of exchange prevailing at the balance sheet date, and the statement of operations is measured using average rates in effect for the reporting period. Adjustments resulting from the translation of the subsidiaries’ financial statements from foreign currencies into U.S. dollars are recorded in shareholders' equity as part of accumulated comprehensive income or loss translation adjustment. Gains or losses resulting from transactions denominated in currencies other than functional currencies of the Company’s subsidiaries are reflected in income for the reporting period.
Revenue Recognition
The Company adopted Accounting Standards Update (“ASU”) No. 2014-09, ASC Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”). This standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.
We apply a five-step approach as defined in ASC Topic 606 in determining the amount and timing of revenue to be recognized: (1) identifying the contract with customer; (2) identifying the performance obligations in the contracts; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when the corresponding performance obligation is satisfied.
Revenue derived from testing services is recognized when testing services are rendered. Revenue generated from sale of products in the manufacturing and distribution segments are recognized when persuasive evidence of an arrangement exists, delivery of the products has occurred, customer acceptance has been obtained (which means the significant risks and rewards of ownership have been transferred to the customer), the price is fixed or determinable and collectability is reasonably assured. Certain customers can request for installation and training services to be performed for certain products sold in the manufacturing segment. These services are mainly for helping customers with the test runs of the machines sold and are considered a separate performance obligation. Such services can be provided by other entities as well, and these do not significantly modify the product. The Company recognizes the revenue at the point in time when the Company has satisfied its performance obligation.
In the real estate segment: (1) revenue from property development is earned and recognized on the earlier of the dates when the underlying property is sold or upon the maturity of the agreement; if this amount is uncollectible, the agreement empowers the repossession of the property, and (2) rental revenue is recognized on a straight-line basis over the terms of the respective leases. This means that, with respect to a particular lease, actual amounts billed in accordance with the lease during any given period may be higher or lower than the amount of rental revenue recognized for the period. Straight-line rental revenue is commenced when the tenant assumes possession of the leased premises. Accrued straight-line rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements.
Investment
The Company (a) evaluates the sufficiency of the total equity at risk, (b) reviews the voting rights and decision-making authority of the equity investment holders as a group, and whether there are any guaranteed returns, protection against losses, or capping of residual returns within the group and (c) establishes whether activities within the venture are on behalf of an investor with disproportionately few voting rights in making this Variable Interest Entity (“VIE”) determination. The Company would consolidate a venture that is determined to be a VIE if it was the primary beneficiary. Beginning January 1, 2010, a new accounting standard became effective and changed the method by which the primary beneficiary of a VIE is determined. Through a primarily qualitative approach, the variable interest holder, if any, who has the power to direct the VIE’s most significant activities is the primary beneficiary. To the extent that the investment does not qualify as VIE, the Company further assesses the existence of a controlling financial interest under a voting interest model to determine whether the venture should be consolidated.
Equity Method
The Company analyzes its investments in joint ventures to determine if the joint venture should be accounted for using the equity method. Management evaluates both Common Stock and in-substance Common Stock as to whether they give the Company the ability to exercise significant influence over operating and financial policies of the joint venture even though the Company holds less than 50% of the Common Stock and in-substance Common Stock. If so, the net income of the joint venture will be reported as “Equity in earnings of unconsolidated joint ventures, net of tax” in the Company’s consolidated statements of operations and comprehensive income or loss.
Cost Method
Investee companies not accounted for under the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, the Company’s share of the earnings or losses of such investee companies is not included in the consolidated balance sheet or consolidated statements of operations and comprehensive income or loss. However, impairment charges are recognized in the consolidated statements of operations and comprehensive income or loss. If circumstances suggest that the value of the investee company has subsequently recovered, such recovery is not recorded.
Long-Lived Assets & Impairment
Our business requires heavy investment in manufacturing facilities and equipment that are technologically advanced but can quickly become significantly underutilized or rendered obsolete by rapid changes in demand. We have recorded intangible assets with finite lives related to our acquisitions.
We evaluate our long-lived assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Factors considered important that could result in an impairment review include significant underperformance relative to expected historical or projected future operating results, significant changes in the manner of use of the assets or the strategy for our business, significant negative industry or economic trends, and a significant decline in our stock price for a sustained period of time. Impairment is recognized based on the difference between the fair value of the asset and its carrying value, and fair value is generally measured based on discounted cash flow analysis if there is significant adverse change.
While we have not identified any changes in circumstances requiring further impairment test in fiscal year 2021 other than the circumstances related to Singapore Theme Resort Project, we will continue to monitor impairment indicators, such as disposition activity, stock price declines or changes in forecasted cash flows in future periods. If the fair value of our reporting unit declines below the carrying value in the future, we may incur additional impairment charges.
During the third quarter of 2020, our operation in China provided impairment loss of $139 for seven pieces of equipment because one of our customers’ products came to the end of its product burn-in cycle earlier than expected. The cost of converting the seven pieces of equipment outweighed the benefit of utilizing said equipment. Operations did not foresee any future usage of these assets. There will be no future economic cash inflow generated from these assets. Based on these events, we concluded that it was more likely than not that value-in-use of these assets was less than their carrying value. Full impairment of these assets has been recorded.
During the fourth quarter of 2021, The Company recorded an impairment charge of $1,580 related to the doubtful recovery of a down payment on shop lots in the Singapore Theme Resort Project in Chongqing, China. The Company elected to take this non-cash impairment charge because of 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 and its relevant government policies, together with effects of the ongoing pandemic.
Fair Value Measurements
Under the standard ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”), fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between participants in the market in which the reporting entity transacts its business. ASC Topic 820 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, ASC Topic 820 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy.
Income Tax
We account for income taxes using the liability method in accordance with the provisions of ASC Topic 740, Accounting for Income Taxes (“ASC Topic 740”), which requires an entity to recognize deferred tax liabilities and assets. Deferred tax assets and liabilities are recognized for the future tax consequence attributable to the difference between the tax bases of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in future years. Further, the effects of enacted tax laws or rate changes are included as part of deferred tax expenses or benefits in the period that covers the enactment date. Management believed it was more likely than not that the future benefits from these timing differences would not be realized. Accordingly, a full allowance was provided as of September 30, 2021 and 2020.
The calculation of tax liabilities involves dealing with uncertainties in the application of complex global tax regulations. We recognize potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. If the estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result.
Stock-Based Compensation
We calculate compensation expense related to stock option awards made to employees and directors based on the fair value of stock-based awards on the date of grant. We determine the grant date fair value of our stock option awards using the Black-Scholes option pricing model and for awards without performance condition the related stock-based compensation is recognized over the period in which a participant is required to provide service in exchange for the stock-based award, which is generally four years. We recognize stock-based compensation expense in the consolidated statements of shareholders' equity based on awards ultimately expected to vest. Forfeitures are estimated on the date of grant and revised if actual or expected forfeiture activity differs materially from original estimates.
Determining the fair value of stock-based awards at the grant date requires significant judgment. The determination of the grant date fair value of stock-based awards using the Black-Scholes option-pricing model is affected by our estimated common stock fair value as well as other subjective assumptions including the expected term of the awards, the expected volatility over the expected term of the awards, expected dividend yield and risk-free interest rates. The assumptions used in our option-pricing model represent management’s best estimates and are as follows:
|
| |
|
| |
|
|
Noncontrolling Interests in Consolidated Financial Statements
We adopted ASC Topic 810, Consolidation (“ASC Topic 810”). This guidance establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance requires that noncontrolling interests in subsidiaries be reported in the equity section of the controlling company’s balance sheet. It also changes the manner in which the net income of the subsidiary is reported and disclosed in the controlling company’s income statement.
First Quarter Fiscal Year 20222023 Highlights
● | Total revenue increased by |
● | Manufacturing segment revenue increased by |
● | Testing segment revenue increased by |
● | Distribution segment revenue |
● | Real estate segment rental revenue |
● | The overall gross profit margin |
● | General and administrative |
● | Selling |
● | Other income |
● | Income from operations was |
● | Income tax |
● | During the first quarter of |
● | Net income attributable to |
● | Basic |
● |
|
● | Total assets increased by |
● | Total liabilities increased by |
Results of Operations and Business Outlook
The following table sets forth our revenue components for the three months ended September 30, 20212022 and 2020, respectively.2021.
Revenue Components | Three Months Ended September 30, | Three Months Ended | ||||||||||||||
2021 | 2020 | Sept. 30, | ||||||||||||||
Revenue: | ||||||||||||||||
2022 | 2021 | |||||||||||||||
Manufacturing | 35.0 | % | 38.3 | % | 30.0 | % | 35.0 | % | ||||||||
Testing Services | 45.2 | 43.2 | 53.3 | % | 45.2 | % | ||||||||||
Distribution |
| 19.7 | 18.4 | 16.6 | % | 19.6 | % | |||||||||
Real Estate | 0.1 | 0.1 | 0.1 | % | 0.1 | % | ||||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
Revenue for the three months ended September 30, 2021,2022, was $10,171,$11,939, an increase of $3,330$1,768 from $6,841,$10,171, when compared to the revenue for the same period of the prior fiscal year. As a percentage, revenue increased by 48.7%17.4% for the three months ended September 30, 2021,2022, when compared to revenue for the same period of the prior year.
For the three months ended September 30, 2021,2022, there was an increase in revenue across all segmentsin Testing segment when compared to the same period of the prior fiscal year. Manufacturing and Distribution segments revenue remained almost at the same level as the same period of prior year.
Total revenue into and within China, the Southeast Asia regions and other countries (except revenue into and within the United States) increased by $3,265,$1,774, or 51.1%18.3%, to $9,672$11,446 for the three months ended September 30, 2021,2022, as compared with $6,407$9,672 for the same period of last fiscal year.Fiscal 2022.
Total revenue into and within the U.S. was $499$493 for the three months ended September 30, 2021, an increase2022, a decrease of $66$6 from $434$499 for the same period of the prior year.
Revenue within our four current segments for the three months ended September 30, 2021,2022, is discussed below.
Manufacturing Segment
Revenue in the manufacturing segment as a percentage of total revenue was 35.0%30.0% for the three months ended September 30, 2021,2022, a decrease of 3.3%5% of total revenue when compared to 38.3%35.0% in the same period of the last fiscal year.Fiscal 2022. The absolute amount of revenue increased by $937$23 to $3,562$3,585 for the three months ended September 30, 2021,2022, compared to $2,625,$3,562, for the same period of the last fiscal year.
Revenue in the manufacturing segment for the three months ended September 30, 2021, increased primarily due to an increase in orders by customers in the Singapore and U.S. operations.
Revenue in the manufacturing segment from a major customer accounted for 33.2% and 12.5% of our revenue in the manufacturing segment for the three months ended September 30, 2021, and 2020, respectively. The future revenue in our manufacturing segment will be affected by the purchase and capital expenditure plans of this major customer if the customer base cannot be increased.Fiscal 2022.
Testing Services Segment
Revenue in theThe testing segment as a percentage of totalsegment's revenue was 45.2%53.3% for the three months ended September 30, 2021,2022, representing an increase of 2.0% of the total revenue when8.1%, compared to 43.2%45.2% for the same period of the last fiscal year.Fiscal 2022. The absolute amount of revenue increased by $1,646$1,764 to $6,364 from $4,600 for the three months ended September 30, 2021,2022, as compared to $2,954 for the same period of the last fiscal year.Fiscal 2022.
RevenueDuring the third quarter of Fiscal 2022, the Company incorporated Trio-Tech (Jiangsu) Co. Ltd. (“TTJS”), located in Suzhou, China together with Suzhou Anchuang Technology Management L.L.P. (“SATM”) to provide subcontract services in the semiconductor and/or other related services in the electronics industry, mainly in Suzhou, China. The joint venture contributed 22% of revenue in the testing segment for the three months ended September 30, 2021, increased primarily due to an increase in the orders across the Group, except for the Malaysia operation. Price adjustments also partially contributed to the increase in revenue from the testing segment.2022.
RevenueThe revenue in the testing segment from a majorone customer accounted for 63.7%30.8% and 56.3%40.4% of our revenue in the testing segment for the three months ended September 30, 20212022 and 2020,2021, respectively. The future revenue in the testing segment will be affected by the demands of this major customer if the customer base cannot be increased. Demand for testing services varies from country to country, depending on any changes taking place in the market and our customers’ forecasts. As it is difficultchallenging to accurately 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.
At the date
��
Distribution Segment
Revenue in the distribution segment was 16.6% as a percentage of total revenue was 19.7% for the three months ended September 30, 2021, an increase2022, a decrease of 1.3% of total revenue when3%, compared to 18.4% in the same period of the last fiscal year.Fiscal 2022. The absolute amount of revenue increaseddecreased by $740$16 to $1,982 from $1,998 for the three months ended September 30, 2021,2022, compared to $1,258 for the same period of the last fiscal year.
Revenue in the distribution segment for the three months ended September 30, 2021, increased primarily due to an increase in revenue generated from customers in the Singapore operation.Fiscal 2022.
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 accurately forecast fluctuations in the market.market accurately.
Real Estate Segment
The real estate segment accounted for 0.1% of total revenue for the three months ended September 30, 2021 and 0.1% of total revenue for three months ended September 30, 2020.2022. The absolute amount of revenue in the real estate segment wasdecreased by $3 to $8 from $11 and remained comparable for the three months ended September 30, 2021 and $4 for2022, compared to the three months ended September 30, 2020.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 from staff through our efforts to keep our staff up to date on the newest technology and stressing the importance of understanding and meeting the stringent requirements of our customers. Finally, the Company is exploring new markets and products, looking for new customers, and upgrading and improving burn-in technology while at the same time searching for improved testing methods for higher technology chips.
We are in the process of implementing an ERP System as part of a multi-year plan to integrate and upgrade our systems and processes. The implementation of this ERP system was scheduled to occur in phases over a few years. The operational and financial systems in our Singapore, Malaysia and China operations were transitioned to the new system in fiscal 2018, fiscal 2019 and fiscal 2021, respectively.
This implementation effort will continue until the Company's consolidation process is substantially automated using the new system by the end of fiscal 2022.
As a phased implementation of this system occurs, we are experiencing certain changes to our processes and procedures which, in turn, result in changes to our internal control over financial reporting. While we expect the new ERP system to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as processes and procedures in each of the affected areas evolve.
The Company’s primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar-denominated sales and operating expensesexpense in its subsidiaries. Strengthening of the U.S. dollar relative to foreign currencies adversely affects the U.S. dollar value of the Company’s foreign currency-denominated sales and earnings, and generally leads the Company to raise international pricing, potentially reducing demand for the Company’s products. Margins on sales of the Company’s products in foreign countries and on sales of products that include components obtained from foreign suppliers could be materially adversely affected by foreign currency exchange rate fluctuations. In some circumstances, for competitive or other reasons, the Company may decide not to raise local prices to fully offset the dollar’s strengthening, or at all, which would adversely affect the U.S. dollar value of the Company’s foreign currency-denominated sales and earnings. Conversely, a strengthening of foreign currencies relative to the U.S. dollar, while generally beneficial to the Company’s foreign currency denominated sales and earnings, could cause the Company to reduce international pricing, thereby limiting the benefit. Additionally, strengthening of foreign currencies may also increase the Company’s cost of product components denominated in those currencies, thus adversely affecting gross margins.
In December 2019, COVID-19 was reported to have surfaced in China, resulting in shutdowns of manufacturing and commerce in the months that followed. Since then, the COVID-19 pandemic has spread to multiple countries worldwide and has resulted in authorities implementing numerous measures to try to contain the disease and slow its spread, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns. These measures have created significant uncertainty and economic disruption, both short-term and potentially long-term.
The spread of COVID-19 has caused us to modify our business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interest of our employees, customers, partners, and suppliers. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus and our ability to perform critical functions could be harmed.
The degree to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including but not limited to the duration and spread of the pandemic, its severity, the action to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may experience material adverse impacts on our business as a result of the global economic impact and any recession that has occurred or may occur in the future. There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the pandemic on our operations and financial results is highly uncertain and subject to change.
We also continue to consider the potential impact of increasing inflation on our business operations. Although no material impairment or other material adverse effects have been identified to date related to such factors, there is substantial uncertainty in the nature and degree of their continued effects over time. That uncertainty could affect management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions as additional events and information become known. Further, although we have not experienced any material adverse effects on our business due to increasing inflation, it has raised operating costs and, in the future, could impact demand or pricing of our products, foreign exchange rates or manpower costs. We are actively monitoring the effects these disruptions and increasing inflation could have on our business operations.
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 Act on the Company in the foreseeable future.
There are legal and operational risks associated with having operations in China. These risks could result in a material change in our operations and/or the value of our common stock or could limit or hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. In recent past, the Peoples Republic of China (“PRC”) government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement.
The Company and its subsidiaries do not have any variable interest entities based in China. Our business primarily consists of semiconductor testing and burn-in services for the automotive industry, avionics, and others. Our businesses are not impacted by anti-monopoly policies, variable interest entities policies, or data security policies, nor are our businesses subject to extraordinary oversight from the Chinese government.
Comparison of the Three Months Ended September 30, 2021,2022, and September 30, 20202021
The following table sets forth certain consolidated statements of income data as a percentage of revenue for the three months ended September 30, 20212022 and 2020,2021 respectively:
Three Months Ended | ||||||||||||||||
Sept. 30, | ||||||||||||||||
Three Months Ended September 30, | 2022 | 2021 | ||||||||||||||
2021 | 2020 | (Unaudited) | (Unaudited) | |||||||||||||
Revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of sales | 68.8 | 77.8 | 69.7 | % | 68.8 | % | ||||||||||
Gross Margin | 31.2 | % | 22.2 | % | 30.3 | % | 31.2 | % | ||||||||
Operating expenses | ||||||||||||||||
Operating expense | ||||||||||||||||
General and administrative | 19.4 | % | 24.3 | % | 19.3 | % | 19.4 | % | ||||||||
Selling | 1.4 | 1.6 | 1.4 | % | 1.4 | % | ||||||||||
Research and development | 1.0 | 1.1 | 0.6 | % | 1.0 | % | ||||||||||
Gain on disposal of property, plant and equipment | - | - | ||||||||||||||
Total operating expenses | 21.8 | % | 27.0 | % | ||||||||||||
Income / (Loss) from Operations | 9.4 | % | (4.8 | )% | ||||||||||||
Total operating expense | 21.3 | % | 21.8 | % | ||||||||||||
Income from Operations | 9.0 | % | 9.4 | % |
Overall Gross Margin
Overall gross margin as a percentage of revenue increaseddecreased by 9.0%1.0% to 31.2%30.3% for the three months ended September 30, 2021,2022, from 22.2%31.2% for the same period of the last fiscal year.Fiscal 2022.
Gross profit margin as a percentage of revenue in the manufacturing segment increaseddecreased by 5.1%2.1% to 31.1%29.6% for the three months ended September 30, 2021,2022, as compared to 26.2%31.7% for the same period in last fiscal year.Fiscal 2022. In absolute dollar amounts, gross profits in the manufacturing segment decreased by $68 to $1,060 for the three months ended September 30, 2022, from $1,128 for the same period in Fiscal 2022. The increasedecrease in gross profit margin was primarily due to an increase in revenue coupled with a higher proportion of sales of highlower profit margin products in the three months ended September 30, 2021, as compared to the same period in the last fiscal year. In absolute dollar amounts, gross profit in the manufacturing segment increased by $440 to $1,128product sales for the three months ended September 30, 2021, from $688 for2022 compared to the same period of the last fiscal year.Fiscal 2022.
Gross profit margin as a percentage of revenue in the testing segment increaseddecreased by 15.9%2.2% to 37.3%35.2% for the three months ended September 30, 2021, from 21.4%2022, compared to 37.3% in the same period of the last fiscal year. Significant portions of our cost of goods sold are fixedFiscal 2022. The decrease in the testing segment. Thus, as the demand of services and factory utilization increases, the fixed costs are spread over the increased output, which increases the gross profit margin.margin percentage was mainly due to difference in product mix coupled with increased manpower costs. In absolute dollar amounts, gross profit in the testing segment increased by $1,085$521 to $1,717$2,238 for the three months ended September 30, 2021,2022, from $632$1,717 for the same period of the last fiscal year.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 frequently as a result of changesfluctuations in market demand. Gross profit margin as a percentage of revenue in the distribution segment increaseddecreased by 0.03%0.2% to 17.1%16.9% for the three months ended September 30, 2021,2022, from 16.8%17.1% in the same period of the last fiscal year.Fiscal 2022. In absolute dollar amounts, gross profit in the distribution segment for the three months ended September 30, 2021,2022, was $342 as$334, indicating a decrease of $8, compared to $211$342 in the same period of the last fiscal year.Fiscal 2022.
In absolute dollar amounts, for the three months ended September 30, 2021,2022, gross loss in the real estate segment was $8,$10, as compared to $13$8 for the same period of last fiscal year. The decrease in gross loss was mainly due to an increase in rental income.Fiscal 2022.
Operating ExpensesExpense
Operating expensesExpense for the three months ended September 30, 2022 and 2021 and 2020 werewas as follows:
Three Months Ended September 30, | Three Months Ended | |||||||||||||||
(Unaudited) | 2021 | 2020 | ||||||||||||||
Sept. 30, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
General and administrative | $ | 1,980 | $ | 1,660 | $ | 2,305 | $ | 1,980 | ||||||||
Selling | 147 | 111 | 173 | 147 | ||||||||||||
Research and development | 82 | 75 | 73 | 82 | ||||||||||||
Gain on disposal of property, plant and equipment | - | (1 | ) | 4 | - | |||||||||||
Total | $ | 2,209 | $ | 1,845 | $ | 2,555 | $ | 2,209 |
General and administrative expensesexpense increased by $320,$325, or 19.3%16.4%, from $1,660$1,980 to $1,980$2,305 for the three months ended September 30, 2021,2022, compared to the same period of last fiscal year.Fiscal 2022. The increase in general and administrative expensesexpense was mainly attributable to higher payroll expensesthe general and administrative expense relating to the Company’s new subsidiary Trio-Tech Jiangsu, which was setup in the U.S. and Singapore operations and higher staff benefits expenses in the China operation.third quarter of Fiscal 2022, coupled with increased manpower costs.
Selling expensesexpense increased by $36,$26, or 32.4%17.7%, from $111$147 to $147$173 for the three months ended September 30, 2021,2022, compared to the same period of last fiscal year.Fiscal 2022. The increase in selling expensesexpense was primarily attributable to an increase in commission expensescosts in the manufacturingdistribution segment of the Singapore operations as a result of an increase in commissionable revenue.revenue, and an increase in travel costs due to relaxation of travel restrictions in the first quarter of Fiscal 2023, compared to the same quarter of Fiscal 2022.
Income / (Loss) from Operations
Income from operations was $970$1,067 for the three months ended September 30, 2021,2022, an improvementincrease of $1,297 , as$97, compared to the lossprofit of $970 from operations of $327 for the three months ended September 30, 2020.same period of Fiscal 2022. The increaseresult was mainly due to the increase inincreased revenue and gross profit which was partiallymargin in absolute dollars amount, offset by the increase inhigher operating expenses, as previously discussed.expense.
Interest Expense
Interest expense for the three months ended September 30, 20212022 and 20202021 were as follows:
Three Months Ended September 30, | ||||||||
(Unaudited) | 2021 | 2020 | ||||||
Interest expenses | $ | 28 | $ | 37 |
Three Months Ended | ||||||||
Sept. 30, | ||||||||
2022 | 2021 | |||||||
(Unaudited) | (Unaudited) | |||||||
Interest expense | $ | 44 | $ | 28 |
Interest expense was $28$44 for the three months ended September 30, 2021, a decrease2022, an increase of $9,$16, or 24.3% as57.1%, compared to $37$28 for the three months ended September 30, 2020. The decrease was due to a decrease in the utilizationsame period of bank facilities in Malaysia.Fiscal 2022. As of September 30, 2021,2022, the Company had an unused line of credit of $5,397$5,289 as compared to $5,621$5,397 at September 30, 2020.2021.
Other Income
Other income for the three months ended September 30, 20212022 and 20202021 were as follows:
Three Months Ended | ||||||||||||||||
September 30, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
Three Months Ended September 30, | (Unaudited) | (Unaudited) | ||||||||||||||
2021 | 2020 | |||||||||||||||
Interest income | $ | 22 | 40 | $ | 18 | $ | 22 | |||||||||
Other rental income | 29 | 21 | 27 | 29 | ||||||||||||
Exchange gain / (loss) | 34 | (44 | ) | |||||||||||||
Exchange gain | 70 | 34 | ||||||||||||||
Bad debt recovery | 2 | 5 | - | 2 | ||||||||||||
Dividend income | - | 2 | - | - | ||||||||||||
Government grant | 70 | 154 | 21 | 70 | ||||||||||||
Other miscellaneous income | 4 | 33 | 43 | 4 | ||||||||||||
Total | $ | 161 | $ | 211 | $ | 179 | $ | 161 |
Other income decreasedincreased by $50$18 from $161 to $161$179 for the three months ended September 30, 2021 from $211 as2022 compared to the same period in the last fiscal year.Fiscal 2022. The decreaseincrease was mainly due to a decrease in the interest income and the government grant. The decreases wereprimarily contributed by exchange gains partially offset with the favorable foreign exchange movement forby reduction in government grants received during that period.
In the three months ended September 30, 2021.2022, the Company received government grants amounting to $21 from the local government in the China and Singapore operations.
DuringIn the first quarter of fiscal year 2022,three months ended September 30, 2021, the Company received government grants amounting to $70, of which $42 were the financial assistance received from the Malaysia and Thailand governments amid the COVID-19 pandemic.
During the first quarter of fiscal year 2021, the Company received government grants of $154 from the local government in the Singapore and Malaysia operations, of which $142 reflects financial assistance to mitigate the negative impact on the businesses amid the pandemic.
Income Tax ExpensesExpense
The Company's income tax expense was $180$225 and $7$180 for the three months ended September 30, 2022, and 2021, and September 30, 2020, respectively. The increase in incomeIncome tax expenses was primarilyexpense increased due to an increase in the taxablehigher net income in the U.S., Singapore and Thailand operation.coupled with higher GILTI tax provision.
NoncontrollingNon-controlling Interest
As of September 30, 2021,2022, 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.Bhd and 51% interest in Trio-tech JiangSu Co. Ltd. The share of non-controlling interest in the net profit from the subsidiaries by the noncontrolling interest for the three months ended September 30, 2021, $11, a change2022 was $96, an increase of $169$85 compared to the share of non-controlling interest in the net lossincome from the subsidiaries by the noncontrolling interest of $158$11 for the same period of the previous fiscal year. The improvementincrease in the net income shared by non-controlling interest in the subsidiaries was attributable to the increase in net profitincome generated by the Malaysia operation as compared to the same period in the previous fiscal year.China operation.
Net Income / (Loss) Attributable to Trio-Tech International Common Shareholders
Net Incomeincome attributable to Trio-Tech International common shareholders for the three months ended September 30, 2021,2022, was $917, an improvement$882, a change of $925, as$35, compared to a net lossincome of $8$917 for the same period last fiscal year.Fiscal 2022.
Earnings per Share
Basic earnings per share from continuing operations were $0.23$0.22 for the three months ended September 30, 2021, as2022, compared to $nil$0.23 for the same period in the last fiscal year.Fiscal 2022. Basic earnings per share from discontinued operations were $nil for both the three months ended September 30, 20212022 and 2020.2021.
Diluted earnings per share from continuing operations were $0.23$0.21 for the three months ended September 30, 2021,2022, as compared to $nil$0.23 for the same period in the last fiscal year.Fiscal 2022. Diluted earnings per share from discontinued operations were $nil for both the three months ended September 30, 20212022 and 2020.2021.
Segment Information
The revenue, gross margin and income or loss from operations for each segment during the first quarter of fiscal yearFiscal 2023 and Fiscal 2022 and fiscal year 2021 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/(loss)income from operations for the manufacturing segment for the three months ended September 30, 20212022 and 20202021 were as follows:
Three Months Ended September 30, | Three Months Ended | |||||||||||||||
(Unaudited) | 2021 | 2020 | ||||||||||||||
Sept. 30, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Revenue | $ | 3,562 | $ | 2,625 | $ | 3,585 | $ | 3,562 | ||||||||
Gross margin | 31.7 | % | 26.2 | % | 29.6 | % | 31.7 | % | ||||||||
Income / (Loss) from operations | $ | 300 | $ | (18 | ) | |||||||||||
Income from operations | $ | 176 | $ | 300 |
Income from operations from the manufacturing segment was $300 as$176 compared to lossincome from operations of $18$300 in the same period of the last fiscal year,Fiscal 2022, primarily due to a decrease in gross profit margin coupled with an increase in gross marginoperating expense of $440 which was partially offset by the increase in operating expenses of $122.$56. Operating expensesexpense for the manufacturing segment were $828$884 and $706$828 for the three months ended September 30, 20212022 and 2020,2021, respectively. The increase in operating expensesexpense was mainly due to an increase of $82 in general and administrative expenses, $22$30 in selling expenses, $5 in researchexpense and development expenses and $12an increase of $34 in corporate overhead expenses. The increase in general and administrative expenses was mainly attributable to an increase in payroll related expenses in the Singapore operations. The increase in selling expenses was primarily attributable to an increase in commission expenses in the manufacturing segment of the Singapore operations as a result of an increase in commissionable revenue.expense.
Testing Segment
The revenue, gross margin and income/(loss)income from operations for the testing segment for the three months ended September 30, 20212022 and 20202021 were as follows:
Three Months Ended September 30, | Three Months Ended | |||||||||||||||
(Unaudited) | 2021 | 2020 | ||||||||||||||
Sept. 30, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Revenue | $ | 4,600 | $ | 2,954 | $ | 6,364 | $ | 4,600 | ||||||||
Gross margin | 37.3 | % | 21.4 | % | 35.2 | % | 37.3 | % | ||||||||
Income/(Loss) from operations | $ | 536 | $ | (337 | ) | |||||||||||
Income from operations | $ | 581 | $ | 536 |
Income from operations in the testing segment for the three months ended September 30, 2021,2022, was $536,$581, an improvementincrease of $873$45 from lossincome from operations of $337$536 in the same period of the last fiscal year.Fiscal 2022. The improvement was mainly attributable to an increase of gross profit margin as discussed earlier whichprofit. Operating expense was partially offset by the increase in operating expenses. Operating expenses were$1,657 and $1,181 and $970 for the three months ended September 30, 2022 and 2021, and 2020, respectively.
The increase of $476 in operating expensesexpense was mainly due to an increase of $126$231 in general and administrative expensesexpense and $74an increase of $249 in corporate overhead expenses. The increase in general and administrative expenses was mainly attributable to an increase in payroll related and staff-benefit expenses in the China operation. The increase in corporate overhead expenses was due to a change in the corporate overhead allocation as compared to the same period last fiscal year. Corporate charges are allocated on a predetermined fixed charge basis.expense.
Distribution Segment
The revenue, gross margin and income from operations for the distribution segment for the three months ended September 30, 20212022 and 20202021 were as follows:
Three Months Ended September 30, | Three Months Ended | |||||||||||||||
(Unaudited) | 2021 | 2020 | ||||||||||||||
Sept. 30, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Revenue | $ | 1,998 | $ | 1,258 | $ | 1,982 | $ | 1,998 | ||||||||
Gross margin | 17.1 | % | 16.8 | % | 16.9 | % | 17.1 | % | ||||||||
Income from operations | $ | 254 | $ | 124 | $ | 265 | $ | 254 |
Income from operations in the distribution segment for three months ended September 30, 2022 was $265, compared to $254 for the same period of Fiscal 2022. The increase of $11 was mainly due to a decrease in operating expense. Operating expense were $69 and $88 for the three months ended September 30, 2021, as compared to $124 for the same period of last fiscal year. The increase of $130 was mainly due to an increase of $131 in the gross margin, as discussed earlier. Operating expenses were $882022 and $87 for the three months ended September 30, 2021, and 2020, respectively.
Real Estate Segment
The revenue, gross margin and loss from operations for the real estate segment for the three months ended September 30, 20212022 and 20202021 were as follows:
Three Months Ended September 30, | Three Months Ended | |||||||||||||||
(Unaudited) | 2021 | 2020 | ||||||||||||||
Sept. 30, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Revenue | $ | 11 | $ | 4 | $ | 8 | $ | 11 | ||||||||
Gross margin | (72.7 | )% | (325.0 | )% | (125.0 | )% | (72.7 | )% | ||||||||
Loss from operations | $ | (23 | ) | $ | (27 | ) | $ | (14 | ) | $ | (23 | ) |
Loss from operations in the real estate segment for the three months ended September 30, 2021,2022, was $23$14 compared to $27$23 for the same period of last fiscal year.Fiscal 2022. Operating expensesexpense were $15$4 and $14$15 for the three months ended September 30, 20212022 and 2020,2021, respectively.
Corporate
The loss from operations for Corporate for the three months ended September 30, 20212022, and 20202021 was as follows:
Three Months Ended September 30, | ||||||||
(Unaudited) | 2021 | 2020 | ||||||
Loss from operations | $ | (97 | ) | $ | (69 | ) |
Three Months Ended | ||||||||
Sept. 30, | ||||||||
2022 | 2021 | |||||||
(Unaudited) | (Unaudited) | |||||||
Loss from operations | $ | 58 | $ | (97 | ) |
Corporate operating lossprofit was $97$58 for the three months ended September 30, 2021, an increase2022, compared to loss of $28 from $69$97 in the same period of the last fiscal year. The increase was mainly attributable to an increase in general and administrative expenses.Fiscal 2022.
Financial Condition
During the three months ended September 30, 2021,2022 total assets increased by $1,805$384 to $40,111$43,805 compared to $38,306$43,421 as atof June 30, 2021.2022. The increase in total assets was primarily due to an increase in inventories, and trade account receivables other receivables, inventories, prepaid expenses and other current assets, deferred tax assets, other assets, and operating lease right-of-use assets, which was partially offset by a decrease in cash and cash equivalents, short-term deposits, investment properties, property, plant and equipment, financed sales receivablepartially offset by decrease in other receivables, prepaid expenses and restricted term deposits. operating right-of-use assets.
Cash and cash equivalents were $5,173$9,428 as at September 30, 2021,2022, reflecting a decreasean increase of $663$1,730 from $5,836$7,698 as at June 30, 2021,2022, primarily due to the Company generated operating cash outflowmaturity of $765, which was partially offset by the cash inflowshort-term deposit of $226 generated from investing activitiesSingapore operation for the three months ended September 30, 2021.2022.
Short-term deposits were $5,925$2,829 as at September 30, 2021,2022, reflecting a decrease of $726$2,591 from $6,651$5,420 as at June 30, 2021.2022. The withdrawaldecrease was primarily due to maturity of the short-term deposits was mainlydeposit of Singapore operation for operational purposesthe three months ended September 30, 2022 and reflected in the Chinacash and Malaysia operations.cash equivalents.
As at September 30, 2021,2022, the trade accounts receivable balance increased by $1,110$899 to $9,403,$12,491, from $8,293$11,592 as at June 30, 2021,2022, primarily due to an increase in the overall revenue for the first three months of fiscal year 2022 as compared to the overall revenue in the fourth quarter of last fiscal year.all entities on a consolidated basis. The number of days’ sales outstanding in accounts receivables for the Group was 7879 days and 7981 days at the end of the first quarter of fiscal year 2022Fiscal 2023 and the end of the last fiscal year,Fiscal 2022, respectively.
AsOther receivable as at September 30, 2021, other receivables were $692, reflecting an increase2022 mainly comprised of $30 from $662 as at June 30, 2021.advance payments made to suppliers and refundable services taxes in the Singapore Operation.
Inventories as at September 30, 2021,2022, were $2,410,$3,548, an increase of $330, as$1,290, compared to $2,080$2,258 as at June 30, 2021.2022. The increase in inventories was in line with an increase in orders by customersthe backlog in the manufacturing segment of our Singapore operations, which resulted in an increase in the work-in-progress.operations.
Prepaid expensesexpense were $1,315$631 as at September 30, 2021,2022 compared to $418$1,215 as at June 30, 2021. The increase of $8972022. This was primarilymainly due to the advance paymentasset capitalization of down payments made for the renovation expensepurchase of equipment in the China operation.
Investment properties’ net in China were $661was $533 as at September 30, 2021,2022 and $681$585 as at June 30, 2021.2022. The decrease was primarily due to the depreciation charged for the period. foreign currency exchange movement between June 30, 2022 and September 30, 2022.
Property, plant and equipment decreasedincreased by $198$206 from $9,531$8,481 as at June 30, 2021,2022, to $9,333$8,687 as at September 30, 2021,2022, mainly due to the new acquisition of property, plant and equipment in the Singapore and China operations. The increase was partially offset by the depreciation charged for the period and the foreign currency exchange movement between June 30, 2021 to2022 and September 30, 2021. The decrease was partially offset by the new acquisition of property, plant and equipment in the Singapore, Malaysia, Thailand and China operations.2022.
Restricted cashterm deposits decreased by $19$46 to $1,722$1,632 as at September 30, 2021,2022 as compared to $1,741$1,678 as at June 30, 2021.2022. This was primarily due to the foreign currency exchange movement between June 30, 2021,2022 and September 30, 2021.2022.
Other assets increaseddecreased by $34$16 to $296$121 as at September 30, 2021, as2022 compared to $262$137 as at June 30, 2021.2022. This was mainlyprimarily due to down payments made for the purchase of equipment to property, plantforeign currency exchange movement between June 30, 2022 and equipment in the Malaysia operation.September 30, 2022.
LineLines of credit increaseddecreased by $177$447 to $249$482 as at September 30, 2021,2022 as compared to $72$929 as at June 30, 2021.2022. This was due to higherlower utilization of the bank facilitieslines of credit in the Singapore operation.operations.
Accounts payable decreasedincreased by $478$1,068 to $3,224$3,469 as at September 30, 2021,2022 as compared to $3,702$2,401 as at June 30, 2021. This2022 which was due to more payments made in line with the first quarterincrease of fiscal 2022, compared to the last quarter of fiscal 2021 in the Singapore operation.inventories.
Accrued expensesexpense increased by $509$175 to $3,872$6,179 as at September 30, 2021,2022, as compared to $3,363$6,004 as at June 30, 2021.2022. The increase in accrued expensesexpense was mainly due to an increase in the accrued purchases and accrued payroll costscustomers’ deposit received in the Singapore operation.operations.
BankThere was no significant change in bank loans payable as it decreased by $133$2 to $1,927$1,742 as at September 30, 2021,2022, as compared to $2,060$929 as of June 30, 2022. The loan repayments made by the Malaysia operation during the three months ended September 30, 2022 was offset by the new loan of $175 that was availed to finance purchase of equipment.
Finance leases decreased by $42 to $195 as at September 30, 2022, as compared to $237 as at June 30, 2021.2022. This was due to the repayments made in our Malaysia operations.
Finance leases decreased by $59 to $391 as at September 30, 2021, as compared to $450 as at June 30, 2021. This was due to the repayment of finance leases made in the Singapore and Malaysia operations.
Operating lease right-of-use assets and the corresponding lease liability increaseddecreased by $1,025$393 to $2,901,$2,759 as at September 30, 2021,2022, as compared to $1,876$3,152 as at June 30, 2021. The increase2022. This was due to the new lease agreement entered in the China operation. The decrease was partially offset by the repayment made and the operating lease expenses charged for the period.
Liquidity Comparison
Net cash used inprovided by operating activities increased by $1,174$2,272 to an outflowinflow of $711$1,561 for the three months ended September 30, 20212022, from an inflowoutflow of $463$711 for the same period of the last fiscal year.Fiscal 2022. The increase in net cash outflow used ininflow provided by operating activities was primarily due to a decrease in tradelower payments made to account receivablespayables and accrued expenses by $1,324, a decrease in$1,401 and prepaid expenses and other current assetsexpense by $964.$1,403. These decreases wereare partially offset against higher cash outflow for inventories by an increase in net income by $1,094.$979, payments for operating lease $234.
Net cash provided by investing activities increased by $319$1,249 to an inflow of $226$1,475 for the three months ended September 30, 2021,2022, from an outflowinflow of $93$226 for the same period of the last fiscal year.Fiscal 2022. The increase in cash inflow was primarily due to uplift froman increase in withdrawal of unrestricted term deposits by $664. The increase wasdeposit amounting to $1,822. These increases were partially offset by an increase in additions to property, plant and equipment of cash outflow of $351 from capital expenditure.$718.
Net cash provided byoutflow from financing activities for the three months ended September 30, 2021,2022, was $17,$414, representing an increasea decrease of $228,$431, as compared to cash outflowinflow of $211$17 during the three months ended September 30, 2020.2021. The increase in cash inflowdecrease was mainly attributable to an increase in cash inflow by $478 from the proceeds ofa higher payment on lines of credit and aby $637. This decrease in cash outflow by $122 from the dividends paid on noncontrolling interest. These increases werewas partially offset by an increase in cash outflow of $127inflow $175 from the payment on lines of credit and a decrease in cash inflow of $208proceeds from proceeds of bank loans.loan.
We believe that our projected cash flows from operations, borrowing availability under our revolving linesThe Company filed the Registration Statement, pursuing to which we may raise capital of credit, cash on hand, trade creditUS$10,000,000 of any combination of securities (common stock, warrants, debt securities or units) for expansion of the Company’s testing capacity and the secured bank loan will provide the necessary financial resources to meet our projected cash requirements for at least the next 12 months including the project that is under negotiation in our Suzhou, China operation.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 September 30, 2021,2022, 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
Except as discussed below, thereThere has been no change in the Company’s internal control over financial reporting during the fiscal quarter ended September 30, 2021,2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Enterprise Resource Planning (ERP) Implementation
We are in the process of implementing an ERP System as part of a multi-year plan to integrate and upgrade our systems and processes. The implementation of this ERP system was scheduled to occur in phases over a few years. The operational and financial systems in our Singapore, Malaysia and China operations were transitioned to the new system in fiscal 2018, fiscal 2019 and fiscal 2021, respectively.
This implementation effort will continue till the Company's consolidation process is substantially automated using the new system in fiscal 2022.
As a phased implementation of this system occurs, we are experiencing certain changes to our processes and procedures which, in turn, result in changes to our internal control over financial reporting. While we expect the new ERP system to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as processes and procedures in each of the affected areas evolve.
TRIO-TECH INTERNATIONAL
PART II. OTHER INFORMATION
|
Not applicable.
|
Not applicable
|
|
Malaysia and Singapore regulations prohibit the payment of dividends if the Company does not have sufficient retained earnings and tax credit. In addition, the payment of dividends can only be made after making deductions for income tax pursuant to the regulations. Furthermore, the cash movements from the Company’s 55% owned Malaysian subsidiary to overseas are restricted and must be authorized by the Central Bank of Malaysia. California law also prohibits the payment of dividends if the Company does not have sufficient retained earnings or cannot meet certain asset to liability ratios.
|
|
Not applicable.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds |
|
Not applicable.
|
|
Not applicable.
Item 4.Mine Safety Disclosures Not applicable. Not applicable. |
|
Rule 13a-14(a) Certification of Principal Executive Officer of Registrant | ||
Rule 13a-14(a) Certification of Principal Financial Officer of Registrant | ||
| Section 1350 Certification | |
101.INS | 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) |
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 Chief Financial Officer | |||
(Principal Financial Officer) | |||
Dated: November | 10, 2022 |