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Trio-Tech International (TRT)

Filed: 14 Feb 22, 11:36am
 


 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q         

 

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

 

For the Quarterly Period Ended December 31, 2021

 

OR

 

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

 

For the Transition Period from ___ to ___

 

Commission File Number 1-14523

 

TRIO-TECH INTERNATIONAL

(Exact name of Registrant as specified in its Charter)

 

California

 

95-2086631

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

 

 

 

Block 1008 Toa Payoh North

 

 

Unit 03-09 Singapore

 

318996

(Address of principal executive offices)

 

(Zip Code)

 

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

 

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

 

  

Name of each exchange

Title of each class

Trading Symbol

On which registered

Common Stock, no par value

        TRT

 NYSE American

 

Securities registered pursuant to Section 12(g) of the Act: None

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒ No ☐  

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non­accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b­2 of the Exchange Act. (Check one):

 

Large Accelerated Filer

 

Accelerated Filer

     

Non-Accelerated Filer 

 

Smaller reporting company   

   

Emerging growth company

     

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

 

As of February 1, 2022, there were 3,949,180 shares of the issuer’s Common Stock, no par value, outstanding.

 



 

 

 

TRIO-TECH INTERNATIONAL

 

INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE

 

 

 

Page

Part I.

Financial Information

 

 

 

 

Item 1.

Financial Statements

 

 

(a) Condensed Consolidated Balance Sheets as of December 31, 2021 (Unaudited), and June 30, 2021

1

 

(b) Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended December 31, 2021 (Unaudited), and December 31, 2020 (Unaudited)

2

 

(c) Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended December 31, 2021 (Unaudited), and the December 31, 2020 (Unaudited)

4

 

(d) Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2021 (Unaudited), and December 31, 2020 (Unaudited)

5

 

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

6

Item 2.

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

33

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

51

Item 4.

Controls and Procedures

51

 

 

 

Part II.

Other Information

 

 

 

 

Item 1.

Legal Proceedings

52

Item 1A.

Risk Factors

52

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

52

Item 3.

Defaults upon Senior Securities

52

Item 4.

Mine Safety Disclosures

52

Item 5.

Other Information

52

Item 6.

Exhibits

52

 

  

Signatures

53

 

 

 

 

 

 

FORWARD-LOOKING STATEMENTS

 

The discussions of Trio-Tech International’s (the “Company”) business and activities set forth in this Form 10-Q and in other past and future reports and announcements by the Company may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and assumptions regarding future activities and results of operations of the Company. In light of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the following factors, among others, could cause actual results to differ materially from those reflected in any forward-looking statements made by or on behalf of the Company: market acceptance of Company products and services; changing business conditions or technologies and volatility in the semiconductor industry, which could affect demand for the Company’s products and services; the impact of competition; problems with technology; product development schedules; delivery schedules; changes in military or commercial testing specifications which could affect the market for the Company’s products and services; difficulties in profitably integrating acquired businesses, if any, into the Company; risks associated with conducting business internationally and especially in Asia, including currency fluctuations and devaluation, currency restrictions, local laws and restrictions and possible social, political and economic instability; changes in U.S. and global financial and equity markets, including market disruptions and significant interest rate fluctuations; on-going 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 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 or impair our ability to raise money.. Other than statements of historical fact, all statements made in this Quarterly Report are forward-looking, including, but not limited to, statements regarding industry prospects, future results of operations or financial position, and statements of our intent, belief and current expectations about our strategic direction, prospective and future financial results and condition. In some cases, you can identify forward-looking statements by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” “believes,” “can impact,” “continue,” or the negative thereof or other comparable terminology. Forward-looking statements involve risks and uncertainties that are inherently difficult to predict, which could cause actual outcomes and results to differ materially from our expectations, forecasts and assumptions.

 

Unless otherwise required by law, we undertake no obligation to update forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events. You are cautioned not to place undue reliance on such forward-looking statements.

 

 

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT NUMBER OF SHARES)

 

  

December 31,

2021

  

June 30,

2021

 

ASSETS

 

(Unaudited)

     

CURRENT ASSETS:

        

Cash and cash equivalents

 $7,526  $5,836 

Short-term deposits

  4,997   6,651 

Trade accounts receivable, less allowance for doubtful accounts of $252 and $311, respectively

  9,839   8,293 

Other receivables

  2,387   662 

Inventories, less provision for obsolete inventories of $703 and $679, respectively

  2,572   2,080 

Prepaid expenses and other current assets

  511   418 

Financed sales receivable

  21   19 

Total current assets

  27,853   23,959 

NONCURRENT ASSETS:

        

Deferred tax assets

  169   217 

Investment properties, net

  653   681 

Property, plant and equipment, net

  9,267   9,531 

Operating lease right-of-use assets

  2,699   1,876 

Other assets

  147   262 

Restricted term deposits

  1,735   1,741 

Financed sales receivable

  29   39 

Total noncurrent assets

  14,699   14,347 

TOTAL ASSETS

 $42,552  $38,306 
         

LIABILITIES

        

CURRENT LIABILITIES:

        

Lines of credit

 $477  $72 

Accounts payable

  3,961   3,702 

Accrued expenses

  4,744   3,363 

Income taxes payable

  351   314 

Current portion of bank loans payable

  445   439 

Current portion of finance leases

  163   197 

Current portion of operating leases

  845   672 

Total current liabilities

  10,986   8,759 

NONCURRENT LIABILITIES:

        

Bank loans payable, net of current portion

  1,386   1,621 

Finance leases, net of current portion

  178   253 

Operating leases, net of current portion

  1,857   1,204 

Income taxes payable

  281   385 

Deferred tax liabilities

  15   0 

Other noncurrent liabilities

  29   31 

Total noncurrent liabilities

  3,746   3,494 

TOTAL LIABILITIES

 $14,732  $12,253 
         

EQUITY

        

TRIO-TECH INTERNATIONAL’S SHAREHOLDERS' EQUITY:

        

Common stock, no par value, 15,000,000 shares authorized; 3,939,180 shares issued outstanding as at December 31, 2021 and 3,913,055 shares as at June 30, 2021, respectively

 $12,178  $12,178 

Paid-in capital

  4,373   4,233 

Accumulated retained earnings

  8,596   6,824 

Accumulated other comprehensive income-translation adjustments

  2,367   2,399 

Total Trio-Tech International shareholders equity

  27,514   25,634 

Noncontrolling interest

  306   419 

TOTAL EQUITY

 $27,820  $26,053 

TOTAL LIABILITIES AND EQUITY

 $42,552  $38,306 

 

See notes to condensed consolidated financial statements 

 

 

-1-

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

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

UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)

 

  

Three Months Ended

  

Six Months Ended

 
  

Dec. 31,

  

Dec. 31,

  

Dec. 31,

  

Dec. 31,

 
  

2021

  

2020

  

2021

  

2020

 

Revenue

                

Manufacturing

  3,528  $3,569  $7,090  $6,194 

Testing services

  4,966   3,560   9,566   6,514 

Distribution

  2,420   1,065   4,418   2,323 

Real estate

  8   7   19   11 
   10,922   8,201   21,093   15,042 

Cost of Sales

                

Cost of manufactured products sold

  2,874   2,770   5,308   4,707 

Cost of testing services rendered

  3,089   2,678   5,972   5,000 

Cost of distribution

  2,050   861   3,706   1,908 

Cost of real estate

  19   22   38   39 
   8,032   6,331   15,024   11,654 
                 

Gross Margin

  2,890   1,870   6,069   3,388 
                 

Operating Expenses:

                

General and administrative

  1,947   1,662   3,927   3,322 

Selling

  156   122   303   233 

Research and development

  131   123   213   198 

Gain on disposal of property, plant and equipment

  0   0   0   (1

)

Total operating expenses

  2,234   1,907   4,443   3,752 
                 

Income / (Loss) from Operations

  656   (37

)

  1,626   (364

)

                 

Other Income / (Expenses)

                

Interest expenses

  (28

)

  (34

)

  (56

)

  (71

)

Other income, net

  381   143   542   354 

Total other income

  353   109   486   283 
                 

Income / (Loss) from Continuing Operations before Income Taxes

  1,009   72   2,112   (81

)

                 

Income Tax Expenses

  (153

)

  0   (133

)

  (7)
                 

Income / (Loss) from continuing operations before non-controlling interest, net of tax

  856   72   1,779   (88

)

                 

Discontinued Operations

                

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

  0   (21

)

  5   (27

)

NET INCOME / (LOSS)

  856   51   1,784   (115

)

                 

Less: net (income) / loss attributable to noncontrolling interest

  1   (184

)

  12   (342

)

Net Income Attributable to Trio-Tech International Common Shareholders

 $855  $235  $1,772  $227 
                 

Amounts Attributable to Trio-Tech International Common Shareholders:

                

Income from continuing operations, net of tax

  856   246   1,770   241 

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

  (1

)

  (11)  2   (14

)

Net Income Attributable to Trio-Tech International Common Shareholders

 $855  $235  $1,772  $227 
                 

Basic Earnings per Share:

                

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

 $0.22  $0.06  $0.46  $0.06 

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

 $0  $0  $0  $0 

Basic Earnings per Share from Net Income

                

Attributable to Trio-Tech International

 $0.22  $0.06  $0.46  $0.06 
                 

Diluted Earnings per Share:

                

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

 $0.20  $0.06  $0.43  $0.06 

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

 $0  $0  $0  $0 

Diluted Earnings per Share from Net Income

                

Attributable to Trio-Tech International

 $0.20  $0.06  $0.43  $0.06 
                 

Weighted average number of common shares outstanding

                

Basic

  3,923   3,710   3,923   3,710 

Dilutive effect of stock options

  319   90   206   83 

Number of shares used to compute earnings per share diluted

  4,242   3,800   4,129   3,793 

 

See notes to condensed consolidated financial statements.

 

-2-

 

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)

 

  Three Months Ended  Six Months Ended 
  

Dec. 31,

  

Dec. 31,

  

Dec. 31,

  Dec. 31, 

 

 2021  2020  2021  2020 
Comprehensive Income Attributable to Trio-Tech International Common Shareholders:                

Net income / (loss)

 $856  $51  $1,784  $(115

)

Foreign currency translation, net of tax

  251   943   (38

)

  1,583 

Comprehensive Income

  1,107   994   1,746   1,468 

Less: comprehensive income / (loss) attributable to non-controlling interest

  2   (197

)

  6   (319

)

Comprehensive Income Attributable to Trio-Tech International Common Shareholders

 $1,105  $1,191  $1,740  $1,787 

 

See notes to condensed consolidated financial statements.

 

-3-

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(IN THOUSANDS) 

 

Six months ended December 31, 2021

 

  

Common

Stock

  

Paid-in

  

Accumulated Retained

  

Accumulated Other

Comprehensive

  

Non- controlling

     
  

Shares

  

Amount

  

Capital

  

Earnings

  

Income

  

Interest

  

Total

 
                             

Balance at June 30, 2021

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

Stock option expenses

  -   0   22   0   0   0   22 

Net income/ (loss)

  -   0   0   1,772   0   12   1,784 

Dividend declared by subsidiary

  -   0   0   0   0   (119

)

  (119

)

Exercise of stock option

  41   0   118   0   0   0   118 

Translation adjustment

  -   0   0   0   (32

)

  (6

)

  (38

)

Balance at Dec. 31, 2021

  3,954   12,178   4,373   8,596   2,367   306   27,820 

 

Six months ended December 31, 2020

 

  

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   15   0   0   0   15 

Net income/ (loss)

  -   0   0   227   0   (342

)

  (115

)

Dividend declared by subsidiary

  -   0   0   0   0   (182

)

  (182

)

Exercise of stock option

  37   101   0   0   0   0   101 

Translation adjustment

  -   0   0   0   1,560   23   1,583 

Balance at Dec. 31, 2020

  3,710   11,525   3,378   8,263   2,703   679   26,548 

 

See notes to condensed consolidated financial statements.

 

-4-

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)

 

  

Six Months Ended

 
  

Dec. 31,

  

Dec. 31,

 
  

2021

  

2020

 
  

(Unaudited)

  

(Unaudited)

 

Cash Flow from Operating Activities

        

Net income / (loss)

 $1,784  $(115)

Adjustments to reconcile net income to net cash flow provided by operating activities

        

Depreciation and amortization

  1,502   1,469 

Stock compensation

  22   15 

Addition of provision for obsolete inventories

  26   10 

Bad debt recovery

  (62)  (15)

Accrued interest expense, net (accrued interest income)

  51   (18)

Payment of interest portion of finance lease

  (13)  (19)

Gain on sale of property, plant and equipment

  0   (1)

Dividend income

  0   (32)

Dividend received

  0   32 

Reversal of income tax provision

  0   55 

Deferred tax expense (benefit)

  62   (83)

Changes in operating assets and liabilities, net of acquisition effects

        

Trade accounts receivable

  (1,501)  (1,595)

Other receivables

  (1,725)  328 

Other assets

  125   (86)

Inventories

  (525)  (140)

Prepaid expenses and other current assets

  (79)  (1)

Accounts payable and accrued expenses

  1,638   1,000 

Income taxes payable

  2   (114)

Operating lease liabilities

  (470)  (375)

Net Cash Provided by Operating Activities

  837   315 
         

Cash Flow from Investing Activities

        

Withdrawal of unrestricted deposit

  1,957   520 

Investment in unrestricted term deposits, net

  (320)  (409)

Additions to property, plant and equipment

  (795)  (217)

Net Cash Provided by/ (Used in) Investing Activities

  842   (106)
         

Cash Flow from Financing Activities

        

Payment on lines of credit

  (546

)

  (174

)

Payment of bank loans

  (216

)

  (307

)

Payment of principal portion of finance leases

  (106

)

  0 

Dividends paid to noncontrolling interest

  (119

)

  (182

)

Proceeds from exercise stock options

  118   101 

Proceeds from lines of credit

  942   0 

Proceeds from bank loans

  0   205 

Net Cash Provided by/ (Used in) Financing Activities

  73   (357)
         

Effect of Changes in Exchange Rate

  (68)  560 
         

Net Increase in Cash, Cash Equivalents, and Restricted Cash

  1,684   412 

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

  7,577   5,810 

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

 $9,261  $6,222 
         

Supplementary Information of Cash Flows

        

Cash paid during the period for:

        

Interest

 $56  $71 

Income taxes

 $281  $114 

 

Reconciliation of Cash, Cash Equivalents, and Restricted Cash

        

Cash

  7,526   4,470 

Restricted Term-Deposits in Noncurrent Assets

  1,735   1,752 

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

 $9,261  $6,222 

 

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 noncurrent assets as they relate to long-term obligations and will become unrestricted only upon discharge of the obligations.

 

-5-

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AND NUMBER OF SHARES)

 

 

1. ORGANIZATION AND BASIS OF PRESENTATION

 

Trio-Tech International (“the Company” or “TTI” hereafter) was incorporated in fiscal year 1958 under the laws of the State of California. TTI provides third-party semiconductor testing and burn-in services primarily through its laboratories in Southeast Asia. In addition, TTI operates testing facilities in the United States. The Company also designs, develops, manufactures and markets a broad range of equipment and systems used in the manufacturing and testing of semiconductor devices and electronic components. In the second quarter of fiscal year 2021, TTI conducted business in four business segments: Manufacturing, Testing Services, Distribution and Real Estate. TTI has subsidiaries in the U.S., Singapore, Malaysia, Thailand, Indonesia, Ireland and China as follows:

 

 

Ownership

Location

Express Test Corporation (Dormant)

100%

Van Nuys, California

Trio-Tech Reliability Services (Dormant)

100%

Van Nuys, California

KTS Incorporated, dba Universal Systems (Dormant)

100%

Van Nuys, California

European Electronic Test Centre (Dormant)

100%

Dublin, Ireland

Trio-Tech International Pte. Ltd.

100%

Singapore

Universal (Far East) Pte. Ltd.  *

100%

Singapore

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

100%

Bangkok, Thailand

Trio-Tech (Bangkok) Co. Ltd.

100%

Bangkok, Thailand

Trio-Tech (Malaysia) Sdn. Bhd.

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

55%

Penang and Selangor, Malaysia

Trio-Tech (Kuala Lumpur) Sdn. Bhd.

55%

Selangor, Malaysia

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

  

Prestal Enterprise Sdn. Bhd.

76%

Selangor, Malaysia

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

  

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

100%

Suzhou, China

Trio-Tech (Chongqing) Co. Ltd. *

100%

Chongqing, China

SHI International Pte. Ltd. (Dormant)

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

55%

Singapore

PT SHI Indonesia (Dormant)

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

55%

Batam, Indonesia

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

100%

Tianjin, China

Trio-tech (Jiangsu) Co., Ltd. (See Note 24)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 inter-company accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements are presented in U.S. dollars. The accompanying condensed consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report for the fiscal year ended June 30, 2021. 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 consideration of forecasted financial information were assessed regarding impacts from the COVID-19 pandemic as of December 31, 2021, and through the Quarterly Report dated February 14, 2022 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 December 31, 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 December 31, 2021, the Company had cash and cash equivalents and short-terms deposits totaling $12,523 and unused lines of credit of $5,207. 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 ended June 30, 2021.

 

- 6-

 

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 $1,772 and earned net income attributable to common shareholders of $227 for the 6 months ended December 31, 2021, and December 31, 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 America 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 and the deferred income tax asset allowance. Actual results could materially differ from those estimates.

 

Revenue Recognition — The Company follows ASU No. 2014-09, ASC Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”). This standard update 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 collectibility 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.

 

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.

 

- 7-

 
 

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 not require collateral from our customers.

 

The Company’s management considers the following factors when determining the collectibility 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 December 31, 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 three to six 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.

 

- 8-

 
 

Leases - Company as Lessee

 

Accounting Standards Codification Topic 842 ("ASC Topic 842") introduced new requirements to increase transparency and comparability among organizations for leasing transactions for both lessees and lessors. It requires a lessee to record a right-of-use asset and a lease liability for all leases with terms longer than 12 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 Topic 842 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:

 

 

whether any expired or existing contracts are or contain leases;

 

the lease classification for any expired or existing leases;

 

treatment of initial direct costs relating to any existing leases.

 

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 leases 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 proves to be less than the ultimate assessment, a further charge to expense would result.

 

- 9-

 
 

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 $17,430 and $16,683 at December 31, 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:

 

 

Fair Value of Common Stock. We determined the fair value of each share of underlying common stock based on the closing price of our common stock on the date of grant.

 

Expected Term. The expected term of employee stock options reflects the period for which we believe the option will remain outstanding based on historical experience and future expectations.

 

Expected Volatility. We base expected volatility on our historical information over a similar expected term.

 

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 22 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:

 

 

 

Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. Financial assets utilizing Level 1 inputs include U.S. treasuries, most money market funds, marketable equity securities and our employee deferred compensation plan;

 

 

 

Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, directly or indirectly. Financial assets and liabilities utilizing Level 2 inputs include foreign currency forward exchange contracts, most commercial paper and corporate notes and bonds; and

 

 

 

Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

- 10-

 
 

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 generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.

 

- 11-

 

 

 

2.    NEW ACCOUNTING PRONOUNCEMENTS

 

In March 2020, FASB issued ASU 2020-04 ASC Topic 848: Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting, 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 are effective for all entities as of March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company has completed its assessment and concluded that this update has no significant impact to the Company’s consolidated financial statements.

 

In June 2016, FASB issued ASU 2016-13 ASC Topic 326: Financial Instruments Credit Losses (“ASC Topic 326”) 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 update has no significant impact to the Company’s consolidated financial statements.

 

Other new pronouncements issued but not yet effective until after December 31, 2021, are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

 

 

3.   TERM DEPOSITS

 

  

Dec. 31,

2021

(Unaudited)

  

June 30,

2021

 
         

Short-term deposits

 $5,032  $6,353 

Currency translation effect on short-term deposits

  (35

)

  298 

Total short-term deposits

  4,997   6,651 

Restricted term deposits

  1,742   1,682 

Currency translation effect on restricted term deposits

  (9

)

  59 

Total restricted term deposits

  1,735   1,741 

Total term deposits

 $6,732  $8,392 

 

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 December 31, 2021, and June 30, 2021, was adequate.  

 

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

 

  

Dec. 31,

2021

(Unaudited)

  

June 30,

2021

 

Beginning

 $311  $314 

Additions charged to expenses

  44   5 

Recovered

  (105

)

  (14

)

Write-off

  0   (16

)

Currency translation effect

  2   22 

Ending

 $252  $311 

 

- 12-

 
 

5.   LOANS RECEIVABLE FROM PROPERTY DEVELOPMENT PROJECTS

 

The following table presents Trio-Tech (Chongqing) Co. Ltd (“TTCQ”)’s loan receivables from property development projects in China as of December 31, 2021.

 

 

Loan Expiry

Date

 

Loan Amount

(RMB)

  

Loan Amount

(U.S. Dollars)

 

Short-term loan receivables

         

JiangHuai (Project – Yu Jin Jiang An)

May 31, 2013

  2,000   314 

Less: allowance for doubtful receivables

  (2,000

)

  (314

)

Net loan receivables from property development projects

  0   0 
          

Long-term loan receivables

         

Jun Zhou Zhi Ye

Oct 31, 2016

  5,000   784 

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

  (5,000

)

  (784

)

Net loan receivables from property development projects

  0   0 

 

The short-term loan receivables amounting to renminbi (“RMB”) 2,000, or approximately $314 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 fiscal 2011. Based on TTI’s financial policy, a provision for doubtful receivables of $314 on the investment in JiangHuai was recorded during fiscal 2014. TTCQ did not generate other income from JiangHuai for the quarter ended December 31, 2021 or for the fiscal year ended June 30, 2021. TTCQ is in the legal process of recovering the outstanding amount of approximately $314.

 

The loan amounting to RMB 5,000, or approximately $784, 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 fiscal 2011. The amount was unsecured and repayable at the end of the term. The book value of the loan receivable approximates its fair value. During fiscal year 2015, the loan receivable was transferred to down payment for purchase of investment property that is being developed in the Singapore Themed Resort Project (See Note 9).

 

 

6. OTHER RECEIVABLES

 

The other receivables mainly consist of advanced payments made to trade creditor.

 

 

7.  INVENTORIES

 

Inventories consisted of the following:

 

  

Dec. 31,

2021

(Unaudited)

  

June 30,

2021

 
         

Raw materials

 $1,383  $1,152 

Work in progress

  1,455   1,218 

Finished goods

  446   325 

Currency translation effect

  (9

)

  64 

Less: provision for obsolete inventories

  (703

)

  (679

)

  $2,572  $2,080 

 

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

 

  

Dec. 31,

2021

(Unaudited)

  

June 30,

2021

 
         

Beginning

 $679  $678 

Additions charged to expenses

  26   13 

Usage – disposition

  0   (28)

Currency translation effect

  (2)  16 

Ending

 $703  $679 

 

-13-

 
 

8.   INVESTMENT PROPERTIES

 

The following table presents the Company’s investment in properties in China as of December 31, 2021. The exchange rate is based on the market rate as of December 31, 2021.

 

 

 

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 

Currency translation

  0   (87

)

Reclassification as “Assets held for sale”

July 01, 2019

  (5,554

)

  (807

)

Reclassification from “Assets held for sale”

Mar 31, 2020

  2,024   301 
    2,024   301 

Purchase of rental property – Property II - JiangHuai

Jan 06, 2010

  3,600   580 

Purchase of rental property – Property III - FuLi

Apr 08, 2010

  4,025   648 

Currency translation

  0   (15

)

Gross investment in rental property

  9,649   1,514 

Accumulated depreciation on rental property

Dec 31, 2021

  (7,281

)

  (1,128

)

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

)

    (5,488

)

  (861

)

Net investment in property China

  4,161   653 

 

The following table presents the Company’s investment in properties in China as of June 30, 2021. The exchange rate is based on the market rate as of June 30, 2021.

 

 

 

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 

Currency translation

  0   (87

)

Reclassification as “Assets held for sale”

Jul 01, 2018

  (5,554

)

  (807

)

Reclassification from “Assets held for sale”

Mar 31, 2019

  2,024   301 
    2,024   301 

Purchase of rental property – Property II - JiangHuai

Jan 06, 2010

  3,600   580 

Purchase of rental property – Property III - FuLi

Apr 08, 2010

  4,025   648 

Currency translation

  0   (36

)

Gross investment in rental property

  9,649   1,493 

Accumulated depreciation on rental property

Jun 30, 2021

  (7,040

)

  (1,079

)

Reclassified as “Assets held for sale” - MaoYe Property

Jul 01, 2019

  2,822   410 

Reclassification from “Assets held for sale” - MaoYe Property

Mar 31, 2020

  (1,029

)

  (143

)

    (5,247

)

  (812

)

Net investment in properties China

  4,402   681 

 

Rental Property I - MaoYe Property

 

In fiscal 2008, TTCQ purchased an office in Chongqing, China from MaoYe Property Ltd. (“MaoYe”), for a total cash purchase price of RMB 5,554, or approximately $894.

 

Property purchased from MaoYe generated a rental income of $2 and $4 during the three and six months ended December 31, 2021, as compared to $nil and $3 for the same periods, respectively, in last fiscal year.

 

Depreciation expense for MaoYe was $4 and $8 for the three and six months ended December 31, 2021 and 2020, respectively.

 

- 14-

 
 

Rental Property II - JiangHuai

 

In fiscal year 2010, TTCQ purchased eight units of commercial property in Chongqing, China from Chongqing JiangHuai Real Estate Development Co. Ltd. (“JiangHuai”) for a total purchase price of RMB 3,600, or approximately $580. TTCQ has yet to receive the title deed for these properties. TTCQ was in the legal process of obtaining the title deed until the developer encountered cash flow difficulties in recent years. Since fiscal year 2018, JiangHuai has been under liquidation and is now undergoing asset distribution. Nonetheless, this 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 for the court in their execution of the sale.

 

Property purchased from JiangHuai did not generate any rental income for the three and six months ended December 31, 2021 and 2020.         

 

Depreciation expense for JiangHuai was $7 and $14 for the three and six months ended December 31, 2021, as compared to $7 and $13 for the same period in last fiscal year.

 

Rental Property III FuLi

 

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

 

For the other leased property, TTCQ renewed the lease agreement to rent out the 161 square meter space at a monthly rate 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. As the space is currently vacant, TTCQ is still actively searching for a tenant for this space.

 

Properties purchased from FuLi generated a rental income of $5 and $14 for the three and six months ended December 31, 2021, as compared to $4 and $7 for the same period in the last fiscal year.

 

Depreciation expense for FuLi was $8 and $16 for the three and six months ended December 31, 2021, respectively as compared to $7 and $14 for the same period in the last fiscal year.

 

Summary

 

Total rental income for all investment properties in China was $7 and $18 for the three and six months ended December 31, 2021, as compared to $7 and $10 for the same periods, respectively, in the last fiscal year.

 

Depreciation expenses for all investment properties in China were $19 and $38 for the three and six months ended December 31, 2021, respectively, as compared to $18 and $35 same periods, respectively, in the last fiscal year.

 

 

9.   OTHER ASSETS

 

Other assets consisted of the following:

 

  

Dec. 31, 2021

(Unaudited)

  

June 30,

2021

 

Down payment for purchase of investment properties *

 $0  $0 

Down payment for purchase of property, plant and equipment

  6   372 

Deposits for rental and utilities and others

  159   160 

Currency translation effect

  (18)  (270

)

Total

 $147  $262 

 

- 15-

 
 

*Down payment for purchase of investment properties included:

 

  

RMB

  

US Dollars

 

Original Investment (10% of Jun Zhou equity)

 $10,000  $1,606 

Less: Management Fee

  (5,000)  (803

)

Net Investment

  5,000   803 

Less: Share of Loss on Joint Venture

  (137

)

  (22

)

Net Investment as Down Payment(Note *a)

  4,863   781 

Loans Receivable

  5,000   784 

Interest Receivable

  1,250   196 

Less: Impairment of Interest

  (906)  (142

)

Transferred to Down Payment(Note *b)

  5,344   838 

* Down Payment for Purchase of Investment Properties

  10,207   1,619 

Less: Provision of Impairment loss on other assets

  (10,207

)

  (1,619

)

* Down Payment for Purchase of Investment Properties

  -   - 

 

a) In fiscal year 2011, the Company signed a Joint Venture agreement (“agreement”) with Jia Sheng Property Development Co. Ltd. (“Developer”) to form a new company, Jun Zhou Co., Limited (“Joint Venture” or “Jun Zhou”) to joint develop the “Singapore Themed Park” project (the “project”), where the Company paid RMB 10 million for a 10% investment in the joint venture. The Developer paid the Company a management fee of RMB5 million in cash upon signing of the agreement with a remaining fee of RMB5 million payable upon fulfilment of certain conditions in accordance with the agreement. The Company further reduced its investment by RMB 137, or approximately $22, towards the losses from operations incurred by the joint venture.

 

In fiscal year 2014, the Company disposed of 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 $784K, from net considerations paid, in accordance with US GAAP under ASC Topic 845 Non-monetary 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 RMB 5,000, or approximately $784, as disclosed in Note 5, plus the interest receivable on long term loan receivable of RMB 1,250, or approximately $196, and impairment on interest of RMB 906, or approximately $142.

 

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 fiscal year 2017. Based on discussion with the developers, the completion date is currently estimated to be December 31, 2022. The delay was primarily due to the time needed by the developers to work with various parties to inject sufficient funds into this 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 shop lots in the Singapore Theme Resort Project in Chongqing, China, which the impairment loss translated based on the exchange rate used in the fiscal year 2021. The Company accounted for this noncash impairment charge because of increased uncertainties regarding the project’s viability given the developer’s 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.

 

 

10. 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.

 

- 16-

 
 

The Company’s credit rating provides it with readily and adequate access to funds in global markets.

 

As of December 31, 2021, the Company had certain lines of credit that are collateralized by restricted deposits.

 

Entity with

Type of

Interest

Expiration

 

Credit

 

Unused

Facility

Facility

Rate

Date

 

Limitation

 

Credit

Trio-Tech International Pte. Ltd., Singapore

Lines of Credit

 

Ranging from 1.85% to 5.5%, SIBOR rate +1.25% and LIBOR rate +1.25%

-

$

 

4,216

 

$

 

4,216

 

Universal (Far East) Pte. Ltd.Lines of CreditRanging from 1.85% to 5.5%-$1,109$632
Trio-Tech Malaysia Sdn. Bhd.Revolving CreditCost of Funds Rate +2%-$359$359

 

As of June 30, 2021, the Company had certain lines of credit that are collateralized by restricted deposits.

 

Entity with

Type of

Interest

Expiration

 

Credit

 

Unused

Facility

Facility

Rate

Date

 

Limitation

 

Credit

Trio-Tech International Pte. Ltd., Singapore

Universal (Far East) Pte. Ltd.

Lines of Credit

Ranging from 1.85% to 5.5%, SIBOR rate +1.25% and LIBOR rate +1.30%

-

$

4,806

$

4,806

Trio-Tech Malaysia Sdn. Bhd.Lines of CreditRanging from 1.85% to 5.5%-$359$187
Trio-Tech Malaysia Sdn. Bhd.Revolving CreditCost of Funds Rate +2%-$350$350

 

 

11.  ACCRUED EXPENSES

 

Accrued expenses consisted of the following:

 

  

Dec. 31,

2021

(Unaudited)

  

June 30,

2021

 

Payroll and related costs

 $1,419  $1,362 

Commissions

  91   51 

Customer deposits

  39   45 

Legal and audit

  146   321 

Sales tax

  24   9 

Utilities

  145   91 

Warranty

  16   14 

Accrued purchase of materials and property, plant and equipment

  473   144 

Provision for re-instatement

  308   290 

Deferred income

  64   67 

Contract liabilities

  1,178   628 

Other accrued expenses

  836   279 

Currency translation effect

  5   62 

Total

 $4,744  $3,363 

 

 

- 17-

 
 

12.   ASSURANCE WARRANTY ACCRUAL

 

The Company provides for the estimated costs that may be incurred under its warranty program at the time the sale is recorded.  The warranty period of the products manufactured by the Company is generally one year or the warranty period agreed upon with the customer.  The Company estimates the warranty costs based on the historical rates of warranty returns. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary.

 

  

Dec. 31,

2021

(Unaudited)

  

June 30,

2021

 

Beginning

 $14  $12 

Additions charged to cost and expenses

  2   7 

Reversal

  0   (4

)

Currency translation effect

  0   (1

)

Ending

 $16  $14 

 

 

13.   BANK LOANS PAYABLE

 

Bank loans payable consisted of the following:

 

  

Dec. 31, 2021

(Unaudited)

  

June 30, 2021

 

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% for December 31, 2021 and June 30, 2021) per annum, with monthly payments of principal plus interest through August 2028, collateralized by the acquired building with a carrying value of $2,543 and $2,579, as at December 31, 2021 and June 30, 2021, respectively.

  1,676   1,885 
         

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

  155   175 

Total bank loans payable

 $1,831  $2,060 

 

Current portion of bank loans payable

  448   428 

Currency translation effect on current portion of bank loans

  (3

)

  11 

Current portion of bank loans payable

  445   439 

Long-term portion of bank loans payable

  1,398   1,564 

Currency translation effect on long-term portion of bank loans

  (12

)

  57 

Long-term portion of bank loans payable

 $1,386  $1,621 

 

Future minimum payments (excluding interest) as at December 31, 2021, were as follows: 

 

Remainder of fiscal 2022

 $445 

2023

  462 

2024

  328 

2025

  191 

2026

  169 

Thereafter

  236 

Total obligations and commitments

 $1,831 

 

Future minimum payments (excluding interest) as at June 30, 2021, were as follows:          

2022

 $439 

2023

  457 

2024

  462 

2025

  208 

2026

  171 

Thereafter

  323 

Total obligations and commitments

 $2,060 

 

- 18-

 
 

14.   COMMITMENTS AND CONTINGENCIES

 

Trio-Tech (Malaysia) Sdn. Bhd. has 0 capital commitments as at December 31, 2021, as compared to capital commitment of $93 as at June 30, 2021.

 

Trio-Tech (Tianjin) Co., Ltd. in China has capital commitments for the purchase of equipment and other related infrastructure costs amounting to RMB 542, or approximately $91, as at December 31, 2021, as compared to 0 capital commitment as at June 30, 2021.

 

The Company is, from time to time, the subject of litigation claims and assessments arising out of matters occurring in its normal business operations. In the opinion of management, resolution of these matters will not have a material adverse effect on the Company’s financial statements.

 

 

15.   BUSINESS SEGMENTS

 

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 collectibility 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 standalone selling price basis (“SSP”). Determining the SSP for each distinct performance obligation and allocation of consideration from an arrangement to the individual performance obligations and the appropriate timing of revenue recognition are significant judgments with respect to these arrangements. The Company typically establishes the SSP based on observable prices of products or services sold separately in comparable circumstances to similar clients. The Company may estimate SSP by considering internal costs, profit objectives and pricing practices in certain circumstances.

 

Warranties, discounts and allowances are estimated using historical and recent data trends. The Company includes estimates in the transaction price only to the extent that a significant reversal of revenue is not probable in subsequent periods. The Company’s products and services are generally not sold with a right of return, nor has the Company experienced significant returns from or refunds to its customers.

 

Manufacturing

 

The Company primarily derives revenue from the sale of both front-end and back-end semiconductor test equipment and related peripherals, maintenance and support of all these products, installation and training services and the sale of spare parts. The Company’s revenues are measured based on consideration stipulated in the arrangement with each customer, net of any sales incentives and amounts collected on behalf of third parties, such as sales taxes.

 

- 19-

 
 

The Company recognizes revenue at a point in time when the Company has satisfied its performance obligation by transferring control of the product to the customer. The Company uses judgment to evaluate whether the control has transferred by considering several indicators, including:

 

 

whether the Company has a present right to payment;

 

 

the customer has legal title;

 

 

the customer has physical possession;

 

 

the customer has significant risk and rewards of ownership; and

 

 

the customer has accepted the product, or whether customer acceptance is considered a formality based on history of acceptance of similar products (for example, when the customer has previously accepted the same equipment, with the same specifications, and when we can objectively demonstrate that the tool meets all the required acceptance criteria, and when the installation of the system is deemed perfunctory).

 

Not all indicators need to be met for the Company to conclude that control has transferred to the customer. In circumstances in which revenue is recognized prior to the product acceptance, the portion of revenue associated with its performance obligations of product installation and training services are deferred and recognized upon acceptance.

 

The majority of sales under the Manufacturing segment include a standard 12-month warranty. The Company has concluded that the warranty provided for standard products are assurance type warranties and are not separate performance obligations. Warranty provided for customized products are service warranties and are separate performance obligations. Transaction prices are allocated to this performance obligation using cost plus method. The portion of revenue associated with warranty service is deferred and recognized as revenue over the warranty period, as the customer simultaneously receives and consumes the benefits of warranty services provided by the Company.

 

Testing

 

The Company 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. 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 $232 for the three months ended December 31, 2021, as compared to $375 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.

 

- 20-

 
 

The following segment information is unaudited for the six months ended December 31, 2021 and December 31, 2020:

 

Business Segment Information:

 

 

Six Months

Ended

Dec. 31,

 

Net

Revenue

  

Operating

Income / (Loss)

  

Total

Assets

  

Depr.

And

Amort.

  

Capital

Expenditures

 

Manufacturing

2021

 $7,090   252   14,799   208   95 
 

2020

 $6,194   63   11,739   212   154 
                      

Testing Services

2021

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

2020

  6,514   (673

)

  21,900   1,222   63 
                      

Distribution

2021

  4,418   531   1,850   2   - 
 

2020

  2,323   244   802   0   - 
                      

Real Estate

2021

  19   (51

)

  1,283   41   1 
 

2020

  11   (61

)

  3,846   35   - 
                      

Fabrication

2021

  -   0   0   0   - 

Services *

2020

  -   0   0   0   - 
                      

Corporate &

2021

  -   (230)   74   0   - 

Unallocated

2020

  -   63   76   0   - 
                      

Total Company

2021

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

2020

 $15,042   (364

)

  38,363   1,469   217 

 

The following segment information is unaudited for the three months ended December 31, 2021, and December 31, 2020:

 

Business Segment Information:

 

 

 

Three Months

Ended

Dec. 31,

 

Net

Revenue

  

Operating

Income / (Loss)

  

Total

Assets

  

Depr.

And

Amort.

  

Capital

Expenditures

 

Manufacturing

2021

 $3,528   (48

)

  14,799   104   35 
 

2020

 $3,569   81   11,739   110   87 
                      

Testing Services

2021

  4,966   588   24,546   644   322 
 

2020

  3,560   (336

)

  21,900   636   41 
                      

Distribution

2021

  2,420   277   1,850   0   - 
 

2020

  1,065   120   802   0   - 
                      

Real Estate

2021

  8   (28

)

  1,283   21   - 
 

2020

  7   (34

)

  3,846   20   - 
                      

Fabrication

2021

  -   0   0   0   - 

Services *

2020

  -   0   0   0   - 
                      

Corporate &

2021

  -   133   74   0   - 

Unallocated

2020

  -   132   76   0   - 
                      

Total Company

2021

 $10,922   656   42,552   769   357 
 

2020

 $8,201   (37

)

  38,363   766   128 

 

* Fabrication services is a discontinued operation.

 

- 21-

 
 

16. OTHER INCOME

 

Other income consisted of the following:

 

  

Three Months Ended

  

Six Months Ended

 
  

Dec. 31,

  

Dec. 31,

  

Dec. 31,

  

Dec. 31,

 
  

2021

  

2020

  

2021

  

2020

 
  

Unaudited

  

Unaudited

  

Unaudited

  

Unaudited

 

Interest income

 $16  $30  $38  $70 

Other rental income

  29   24   58   45 

Exchange loss

  (38

)

  (93

)

  (4

)

  (137

)

Bad debt recovery

  102   0   104   0 

Dividend income

  0   30   0   32 

Commission income

  200   0   200   0 

Government grant

  28   106   98   260 

Other miscellaneous income

  44   46   48   84 

Total

 $381  $143  $542  $354 

 

The Company received financial assistance in the form of government grants from the  Malaysia and Thailand governments amid the COVID-19 pandemic. The grants amounted to $19 and $61 for the three and six months ended December 31, 2021, respectively.

 

The Company received financial assistance in the form of government grants from the Singapore and Malaysia governments amid the COVID-19 pandemic.

 

The grants amounted to $101 and $243 for the three and six months ended December 31, 2020, respectively.

 

 

17.  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 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 was $23 for the period ended December 31, 2021.

 

The Company's income tax expense was $153 and $333 for the 3 months and 6 months ended December 31, 2021, respectively as compared to $nil and $7 for the 3 months and 6 months ended December 31, 2020. Our effective tax rate (“ETR”) from continuing operations was 15.16% and 0% for the quarters ended December 31, 2021 and December 31, 2020, respectively. The increase in income tax expense and effective tax rate was due to the following:

 

1.

The Singapore operations incurred higher income tax due to higher income generated for the period ended December 31, 2021 compared to same period last fiscal year coupled with tax benefit, which was fully utilized in the last fiscal year.

2.

The Thailand and China operations also incurred higher income tax due to higher income generated in period ended December 31, 2021 compared to same period last fiscal year.

3.

The Company recognized $23 of GILTI tax expenses for the period ended December 31,2021 respectively due to higher income derived from controlled foreign corporation.

 

 

- 22-

 
 

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 December 31, 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.

 

 

18.  CONTRACT BALANCES

 

The timing of revenue recognition, billings and collections may result in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities). 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.

 

  Dec. 31,  June 30, 
  

2021

  

2021

 

 
  (Unaudited)     

Trade Accounts Receivable

  9,839   8,293 

Accounts Payable

  3,961   3,702 

Contract Assets

  292   337 

Contract Liabilities

  1,178   628 

 

Remaining Performance Obligation

 

As at December 31, 2021, the Company had $826 of remaining performance obligations, which represents our obligation to deliver products and services, with the remaining of the amount expected to be recognized between three and five years.

 

As at June 30, 2021, the Company had $924 of remaining performance obligations, which represents our obligation to deliver products and services.

 

Refer to note 15 “Business Segments” of the Notes to Condensed Consolidated Financial Statements for information related to revenue.

 

- 23-

 
 

19.   EARNINGS PER SHARE

 

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

 

Options to purchase 623,500 shares of Common Stock at exercise prices ranging from $2.69 to $5.98 per share were outstanding as of December 31, 2020. 188,125 stock options were excluded in the computation of diluted EPS for three months ended December 31, 2020 because they were anti-dilutive.

 

The following table is a reconciliation of the weighted average shares used in the computation of basic and diluted EPS for the period presented herein:  

 

 

 

  

Three Months Ended

  

Six Months Ended

 
  

Dec. 31,

  

Dec. 31,

  

Dec. 31,

  Dec. 31, 
  

2021

  

2020

  

2021

  2020 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

  (Unaudited) 
                 

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

 $856  $246  $1,770  $241 

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

  (1

)

  (11

)

  2   (14

)

Net income attributable to Trio-Tech International Common Shareholders

 $855  $235  $1,772  $227 
                 

Weighted average number of common shares outstanding - basic

  3,923   3,710   3,923   3,710 
                 

Dilutive effect of stock options

  319   90   206   83 

Number of shares used to compute earnings per share - diluted

  4,242   3,800   4,129   3,793 
                 

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

 $0.22   0.06   0.46   0.06 

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

  0   0   0   0 

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

 $0.22  $0.06  $0.46  $0.06 
                 

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

 $0.20   0.06   0.43   0.06 

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

  0   0   0   0 

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

 $0.20  $0.06  $0.43  $0.06 

 

 

 

20.  STOCK OPTIONS

 

On September 24, 2007, the Company’s Board of Directors unanimously adopted the 2007 Employee Stock Option Plan (the “2007 Employee Plan”) and the 2007 Directors Equity Incentive Plan (the “2007 Directors Plan”), each of which was approved by the shareholders on December 3, 2007. Each of those plans was amended during the term of such plan to increase the number of shares covered thereby. As 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 plans terminated by its respective terms on September 24, 2017. These two plans were administered by the Board, which also established the terms of the awards.

 

- 24-

 
 

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 2.35% (2021: 0.14% to 2.35%);

 

0 expected dividend payments and

 

expected volatility of 45.38% to 55.59% (2021: 45.38% to 76.85%).

 

2017 Employee Stock Option Plan

 

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

 

During the first two quarters of fiscal year 2022, there were no stock options granted under the 2017 Employee Plan. There were 41,125 stock options exercised during the six-month period ended December 31, 2021. The Company recognized $10 stock-based compensation expenses during the six months ended December 31, 2021.

 

During the first two quarters of fiscal year 2021, there were stock options granted under the 2017 Employee Plan covering a total of 11,000 shares of Common Stock. There were 0 stock options exercised during the six-month period ended December 31, 2020. The Company recognized $10 stock-based compensation expenses during the six months ended December 31, 2020.

 

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

 

As of December 31, 2020, there were vested stock options granted under the 2017 Employee Plan covering a total of 104,750 shares of Common Stock. The weighted-average exercise price was $4.40 and the weighted average remaining contractual term was 2.96 years.

 

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

 

  

Options

  

Weighted Average

Exercise

Price

  

Weighted Average Remaining

Contractual

Term (Years)

  

Aggregate

Intrinsic

Value

 
                 

Outstanding at July 1, 2021

  267,000  $4.21   3.22  $290 

Granted

  -   -   -   - 

Exercised

  (41,125)  2.87   -   - 

Forfeited or expired

  -   -   -   - 

Outstanding at December 31, 2021

  225,875  $4.46   2.66  $2,026 

Exercisable at December 31, 2021

  130,375  $4.79   2.00  $1,127 

 

- 25-

 
 

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

 

  

Options

  

Weighted Average Grant-Date

Fair Value

 
         

Non-vested at July 1, 2021

  102,250  $2.29 

Granted

  0   0 

Vested

  (6,750

)

  0 

Forfeited

  -   0 

Non-vested at December 31, 2021

  95,500  $4.00 

 

A summary of option activities under the 2017 Employee Plan during the six months period ended December 31, 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  $36.00 

Granted

  11,000   3.73   -   - 

Exercised

  -   -   -   - 

Forfeited or expired

  -   -   -   - 

Outstanding at December 31, 2020

  207,000  $3.91   3.31  $132.49 

Exercisable at December 31, 2020

  104,750  $4.40   2.96  $45.00 

 

A summary of the status of the Company’s non-vested employee stock options during the six months ended December 31, 2020, is presented below:

 

  

Options

  

Weighted Average Grant-Date

Fair Value

 
         

Non-vested at July 1, 2020

  98,000  $3.39 

Granted

  11,000   0 

Vested

  (6,750

)

  0 

Forfeited

  -   0 

Non-vested at December 31, 2020

  102,250  $3.40 

 

2007 Employee Stock Option Plan

 

The 2007 Employee Plan terminated by its terms on September 24, 2017 and no further options may be granted thereunder. However, the options outstanding thereunder continue to remain outstanding and in effect in accordance with their terms. The 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 six months ended December 31, 2021, and December 31, 2020, respectively.

 

There were 0 options exercised during the six months ended December 31, 2021 and December 31, 2020. The Company did not recognize any stock-based compensation expenses during the six months ended December 31, 2021, and December 31, 2020.

 

- 26-

 
 

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

 

As of December 31, 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 0.71 years.

 

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

 

  

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 

Granted

  -   -   -   - 

Exercised

  -   -   -   - 

Forfeited or expired

  -   -   -   - 

Outstanding at December 31, 2021

  37,500  $4.14   0.24  $348 

Exercisable at December 31, 2021

  37,500  $4.14   0.24  $348 

 

There were 0 non-vested employee stock options during the six months ended December 31, 2021.

 

A summary of option activities under the 2007 Employee Plan during the six months ended December 31, 2020, is presented as follows:

 

  

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 December 31, 2020

  77,500  $3.69   0.71  $28.00 

Exercisable at December 31, 2020

  77,500  $3.69   0.71  $28.00 

 

There were 0 non-vested employee stock options during the six months ended December 31, 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 board of directors approved an amendment to the 2017 Directors Plan in September 2020 to increase the shares covered thereby from 300,000 shares to an aggregate of 600,000 shares, which amendment was approved by the Company’s shareholders at the annual meeting held in December 2020. The 2017 Directors Plan permits the grant of options to its directors in the form of nonqualified options and restricted stock. The exercise price of the nonqualified options is required to be 100% of the fair value of the underlying shares on the grant date. The options have five-year contractual terms and are exercisable immediately as of the grant date.

 

During the first two quarters of fiscal year 2022, the Company did not grant any options pursuant to the 2017 Directors Plan. There were 0 stock options exercised during the six months ended December 31, 2021. The Company did not recognize any stock-based compensation expenses during the six months ended December 31, 2021.

 

During the first two quarters 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 six months ended December 31, 2020. The Company did not recognize any stock-based compensation expenses during the six months ended December 31, 2020.

 

- 27-

 
 

As all the stock options granted under the 2017 Directors Plan vest immediately on the date of grant, there were 0 unvested stock options granted under the 2017 Directors Plan as of December 31, 2021, or December 31, 2020.

 

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

 

As of December 31, 2020, there were vested stock options granted under the 2017 Directors Plan covering a total of 240,000 shares of Common Stock. The weighted-average exercise price was $3.93 and the weighted average remaining contractual term was 3.24 years.

 

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

 

  

Options

  

Weighted Average

Exercise

Price

  

Weighted Average Remaining

Contractual

Term (Years)

  

Aggregate

Intrinsic

Value

 
                 

Outstanding at July 1, 2021

  320,000  $4.27   3.22  $340 

Granted

  -   -   -   - 

Exercised

  -   -   -   - 

Forfeited or expired

  -   -   -   - 

Outstanding at December 31, 2021

  320,000   4.27   2.97   2,933 

Exercisable at December 31, 2021

  320,000   4.27   2.97  $2,933 

 

A summary of option activities under the 2017 Directors Plan during the six months ended December 31, 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  $48.00 

Granted

  -   -   -   - 

Exercised

  -   -   -   - 

Forfeited or expired

  -   -   -   - 

Outstanding at December 31, 2020

  240,000  $3.93   3.24  $168.8 

Exercisable at December 31, 2020

  240,000  $3.93   3.24  $168.8 

 

2007 Directors Equity Incentive Plan

 

The 2007 Directors Plan terminated by its terms on September 24, 2017 and no further options may be granted thereunder. However, the options outstanding thereunder continue to remain outstanding and in effect in accordance with their terms. The 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 six months ended December 31, 2021, and December 31, 2020.

 

There were 0 stock options exercised during the six months ended December 31, 2021. The Company did not recognize any stock-based compensation expenses during the six months ended December 31, 2021.

 

50,000 shares of stock options were exercised during the six months ended December 31, 2020. The Company did not recognize any stock-based compensation expenses during the six months ended December 31, 2020.

 

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

 

- 28-

 
 

As of December 31, 2020, there were vested stock options granted under the 2007 Directors Plan covering a total of 200,000 shares of Common Stock. The weighted-average exercise price was $3.48 and the weighted average remaining contractual term was 0.47 years.

 

A summary of option activities under the 2007 Directors Plan during the three months ended December 31, 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 December 31, 2021

  50,000  $4.14   0.24  $465 

Exercisable at December 31, 2021

  50,000  $4.14   0.24  $465 

 

A summary of option activities under the 2007 Directors Plan during the six months ended December 31, 2020 is presented as follows: 

 

  

Options

  

Weighted Average

Exercise

Price

  

Weighted

Average

Remaining

Contractual

Term (Years)

  

Aggregate

Intrinsic

Value

 
                 

Outstanding at July 1, 2020

  250,000  $3.32   0.83  $22 

Granted

  -   -   -   - 

Exercised

  (50,000

)

  2.69   -   0 

Forfeited or expired

  -   -   -   - 

Outstanding at December 31, 2020

  200,000  $3.48   0.47  $105 

Exercisable at December 31, 2020

  200,000  $3.48   0.47  $105 

 

 

21.  LEASES

 

Company as Lessor

 

Operating leases where we are lessor arise from the leasing of the Company’s commercial and residential real estate investment property. 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 expenses relating to the property held as investments in operating leases was $18 for both the 3 months ended December 31, 2021 and December 31, 2020. Depreciation expenses relating to the property held as investments in operating leases amounted to $36 for both 6 months ended December 31, 2021, and December 31, 2020.

 

Future minimum rental income in China and Thailand to be received from fiscal year 2022 to fiscal year 2023 on noncancelable operating leases is contractually due as follows as of December 31, 2021:

 

Remainder of fiscal 2022

 $74 

Fiscal 2023

  8 
  $82 

 

- 29-

 
 

Future minimum rental income in China and Thailand to be received from fiscal year 2022 to fiscal year 2023 on noncancelable operating leases is contractually due as follows as of June 30, 2021:

 

Fiscal 2022

 $145 

Fiscal 2023

  16 
  $161 

 

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 3 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 cost 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

 

December 31,

 
  

2021

 

Assets

    

Gross financial sales receivable

 $55 

Unearned finance income

  (5)

Financed sales receivable

 $50 
     

Net financed sales receivables due within one year

 $21 

Net financed sales receivables due after one year

 $29 

 

As of December 31, 2021, the financed sale receivables had a weighted average effective interest rate of 13.2% and weighted average remaining lease term of 2.5 years.

 

Company as Lessee

 

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

 

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

 

  

Dec. 31,

2021

(Unaudited)

  

June 30,

2021

 

Finance Leases (Plant and Equipment)

        

Plant and equipment, at cost

  1,825   1,413 

Accumulated depreciation

  (1,126)  (1,199)

Plant and Equipment, Net

  699   214 

Current portion of finance leases

  163   197 

Net of current portion of finance leases

  178   253 

Total Finance Lease Liabilities

  341   450 
         

Operating Leases (Corporate Offices, Research and Development Facilities)

        

Operating lease right-of-use assets

  2,699   1,876 

Current portion of operating leases

  845   672 

Net of current portion of operating leases

  1,857   1,204 

Total Operating Lease Liabilities

  2,702   1,876 

 

 

 

- 30-

 
 
  

Three Months Ended

  

Six Months Ended

 
  

Dec. 31,

  

Dec. 31,

  

Dec. 31,

    Dec. 31, 
  

2021

  

2020

  

2021

    2020 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

   (Unaudited)  
                 

Lease Cost

                

Finance lease cost:

                

Interest on finance lease

 $5  $8  $11  $20 

Amortization of right-of -use assets

  62   63   90   125 

Total finance lease cost

  67   71   101   145 
                 

Operating Lease Costs

 $231  $189  $470  $375 

 

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

 

  

Six months ended

  

Six months ended

 
  

Dec. 31,

  

Dec. 31,

 
  

2021

  

2020

 
  

(Unaudited)

  

(Unaudited)

 

Cash Paid for Amounts Included in the Measurement of Lease Liabilities

        

Operating cash flows from finance leases

 $13  $19 

Operating cash flows from operating leases

  470   375 
         

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

  0   847 
         

Weighted-Average Remaining Lease Term:

        

Finance leases

  2.69   3.31 

Operating leases

  3.57   2.97 

Weighted-Average Discount Rate:

        

Finance leases

  3.50%  3.36%

Operating leases

  4.81%  4.72%

 

As of December 31, 2021, the maturities of the Company's operating and finance lease liabilities are as follow:

 

  

Operating Lease Liabilities

  

Finance Lease Liabilities

 

Fiscal Year

        

Remainder of 2022

  516   173 

2023

  805   114 

2024

  566   76 

2025

  565   4 

2026

  444   0 

Thereafter

  73   0 

Total future minimum lease payments

  2,969   367 

Less: amount representing interest

  (267)  (26)

Present value of net minimum lease payments

  2,702   341 
         

Presentation on statement of financial position

        

Current

  845   163 

Noncurrent

  1,857   178 

 

- 31-

 
 

As of June 30, 2021, future minimum lease payments under finance leases and noncancelable operating leases were as follows:

 

  

Operating Lease Liabilities

  

Finance Lease Liabilities

 

Fiscal Year

        

2022

  748   218 

2023

  537   137 

2024

  313   111 

2025

  291   22 

Thereafter

  156   0 

Total future minimum lease payments

  2,045   488 

Less: amount representing interest

  (169)  (38)

Present value of net minimum lease payments

  1,876   450 
         

Presentation on statement of financial position

        

Current

  672   197 

Noncurrent

  1,204   253 

 

 

22.  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 December 31, 2021 and 2020.

 

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

 

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

 

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

 

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

 

 

23. CONCENTRATION OF CUSTOMERS

 

The Company had two major customer that accounted for the following revenue and trade account receivables:

 

  

For the Period Ended Dec 31,

 
  

2021

  

2020

 

Revenue

        

- Customer A

  42.8

%

  37.1

%

- Customer B

  15.6

%

  7.5

%

Trade Account Receivables

        

- Customer A

  40.1

%

  48.5

%

- Customer B

  16.7

%

  7.2

%

 

 

24. SUBSEQUENT EVENTS

 

On December 1, 2021, the Company’s wholly owned subsidiary Trio-Tech (SIP) Co., Ltd. (:TTSZ”) entered into a joint venture agreement (the “Agreement”) with Suzhou Anchuang Technology Management LLP (“SATM”), both parties are governed under the laws of the People’s Republic of China. The Agreement provides for the establishment of a joint venture for the provision of sub-contract services in the semiconductor and/or other related services in the electronics industry, mainly in Suzhou, China. Subsequent to the quarter ended December 31, 2021, the Company had incorporated Trio-Tech (Jiangsu) Co. Ltd. (“TTJS”), located in Suzhou, China together with SATM. TTSZ owns 51% of TTJS and 49% is owned by SATM. Based on our current visibility, revenue attributable to this joint-venture is not expected to be material this fiscal year, as the joint venture company is in the development stage at this time.

 

Subsequent to the quarter ended December 31, 2021, the Company had temporarily closed its facility in Tianjin, China in compliance with the Tianjin city government's imposed lockdown measures for mandatory testing of Tianjin city's residents and China’s ZERO-COVID policy. The Company then resumed 100% operating capacity in Tianjin, China operation by January 21, 2022. The Company is actively working on production output to catch up with backlog.

 

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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 

Overview

 

The following should be read in conjunction with the condensed consolidated financial statements and notes in Item I above and with the audited consolidated financial statements and notes, the information under the headings Risk Factors and Managements discussion and analysis of financial condition and results of operations in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

 

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.

 

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 December 31, 2021. The Real Estate segment contributed only 0.1% to the total revenue during the three months ended December 31, 2021.

 

Manufacturing

 

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

 

Testing

 

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

 

Distribution

 

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

 

Real Estate

 

Beginning in 2007, TTI has invested in real estate property in Chongqing, China, which has generated investment income from rental revenue, and investment returns from deemed loan receivables, which are classified as other income. The rental income is generated from the rental properties in MaoYe 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.

 

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Subsequent to the quarter ended December 31, 2021, the Company was required to close its facility in Tianjin, China in compliance with the Tianjin city government's imposed lockdown measures for mandatory testing of Tianjin city's residents and China’s ZERO-COVID policy. The Company then resumed 100% operating capacity in Tianjin, China operation by January 21, 2022. The Company is actively working on production output to catch up with backlog.

 

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 December 31, 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 December 31, 2021, and through the date of filing of this Quarterly Report dated February 14, 2022 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 December 31, 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 December 31, 2021, the Company had cash and cash equivalents and short-term deposits totaling $12,523 and an unused line of credit of $5,207. 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. 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 analysis of the Company’s financial condition presented in this section are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the U.S. During the preparation of the consolidated financial statements, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to sales, returns, pricing concessions, bad debts, inventories, investments, fixed assets, intangible assets, income taxes and other contingencies. Due to the COVID-19 pandemic, there has been uncertainty and disruption 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 most 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.

 

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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 collectibility 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 December 31, 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.

 

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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 collectibility 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.

 

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While we have not identified any changes in circumstances requiring further impairment test in fiscal year 2021 other than the circumstances related to the 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 fiscal 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 December 31, 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:

 

 

Fair Value of Common Stock. We determined the fair value of each share of underlying common stock based on the closing price of our common stock on the date of grant.

 

Expected Term. The expected term of employee stock options reflects the period for which we believe the option will remain outstanding based on historical experience and future expectations.

 

Expected Volatility. We base expected volatility on our historical information over a similar expected term.

 

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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.

 

Second Quarter Fiscal Year 2022 Highlights

 

 

Total revenue increased by $2,721, or 33.2%, to $10,922 in the second quarter of fiscal year 2022, compared to $8,201 for the same period in fiscal year 2021.

 

Manufacturing segment revenue decreased by $41, or 1.1%, to $3,528 for the second quarter of fiscal year 2022, compared to $3,569 for the same period in fiscal year 2021.

 

Testing segment revenue increased by $1,406, or 39.5%, to $4,966 for the second quarter of fiscal year 2022, compared to $3,560 for the same period in fiscal year 2021.

 

Distribution segment revenue increased by $1,355, or 127.2%, to $2,420 for the second quarter of fiscal year 2022, compared to $1,065 for the same period in fiscal year 2021.

 

Real estate segment rental revenue increased from $7 to $8 for the second quarter of fiscal year 2022, compared to the same period in fiscal year 2021.

 

The overall gross profit margin increased by 3.7% to 26.5% for the second quarter of fiscal year 2022, from 22.8% for the same period in fiscal year 2021.

 

General and administrative expenses increased by $285, or 17.1%, to $1,947 for the second quarter of fiscal year 2022, from $1,662 for the same period in fiscal year 2021.

 

Selling expenses increased by $34, or 27.9%, to $156 for the second quarter of fiscal year 2022, from $122 for the same period in fiscal year 2021.

 

Other income increased by $238, or 166.4% to $381 in the second quarter of fiscal year 2022, compared to $143 in the same period in fiscal year 2021.

 

Income from operations was $656 for the second quarter of fiscal year 2022, an increase of $693 as compared to loss from operation of $37 for the same period in fiscal year 2021.

 

Income tax expenses was $153 in the second quarter of fiscal year 2022, an increase of $153 as compared to an income tax expense of $nil in the same period in fiscal year 2021.

 

During the second quarter of fiscal year 2022, income from continuing operations before noncontrolling interest, net of tax was $856, as compared to income from continuing operations before noncontrolling interest of $72 for the same period in fiscal year 2021.

 

Net income attributable to noncontrolling interest for the second quarter of fiscal year 2022 was $1, an improvement of $185 as compared to net loss attributable to noncontrolling interest of $184 in the same period in fiscal year 2021.

 

Basic earnings per share for the second quarter of fiscal year 2022 were $0.22, as compared to earnings per share of $0.06 for the same period in fiscal year 2021.

 

Dilutive earnings per share for the second quarter of fiscal year 2022 were $0.20, as compared to earnings per share of 0.06 for the same period in fiscal year 2021.

 

Total assets increased by $4,246 to $42,552 as of December 31, 2021, compared to $38,306 as of June 30, 2021.

 

Total liabilities increased by $2,479 to $14,732 as of December 31, 2021, compared to $12,253 as of June 30, 2021.

 

Results of Operations and Business Outlook

 

The following table sets forth our revenue components for both three months and six months ended December 31, 2021 and 2020, respectively.

 

Revenue Components

 

Three Months Ended

  

Six Months Ended

 
  

Dec. 31,

  

Dec. 31,

  

Dec. 31,

  

Dec. 31,

 
  

2021

  

2020

  

2021

  

2020

 
                 

Manufacturing

  32.3

%

  43.5

%

  33.6

%

  41.2

%

Testing Services

  45.4   43.4   45.4   43.3 

Distribution

  22.2   13.0   20.9   15.4 

Real Estate

  0.1   0.1   0.1   0.1 

Total

  100.0

%

  100.0

%

  100.0

%

  100.0

%

 

 

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Revenue for the three and six months ended December 31, 2021 was $10,922 and $21,093, respectively, an increase of $2,721 and $6,051, respectively, when compared to the revenue for the same period of the prior fiscal year. As a percentage, revenue increased by 33.2% and 40.2% for the three and six months ended December 31, 2021, respectively, when compared to revenue for the same period of the prior year.

 

For the three and six months ended December 31, 2021, the $2,721 and $6,051 increase in overall revenue was primarily due to

 

 

an increase in the testing segment in the Singapore, China, Malaysia and Thailand operation; and

 

an increase in the distribution segment in the Singapore operation.

 

These decreases were partially offset by:

 

 

a decrease in the manufacturing segment in the U.S. and Singapore operations.

 

Total revenue into and within China, the Southeast Asia regions and other countries (except revenue into and within the United States) increased by $2,827 (or 36.1%), to $10,654 and by $6,091 (or 42.8%) to $20,326 for the three and six months ended December 31, 2021, respectively, as compared with $7,827 and $14,235, respectively, for the same period of last fiscal year. 

 

Total revenue into and within the U.S. was $268 and $767 for the three and six months ended December 31, 2021, respectively, a decrease of $106 and $40 from $374 and $807 for the same periods of the prior year, respectively.

 

Revenue within our four current segments for the three and six months ended December 31, 2021 is discussed below.

 

Manufacturing Segment

 

Revenue in the manufacturing segment was 32.3% and 33.6% as a percentage of total revenue for the three and six months ended December 31, 2021, respectively, a decrease of 11.2% and 7.6% of total revenue, respectively, when compared to the same periods of the last fiscal year. The absolute amount of revenue decreased by $41 to $3,528 from $3,569 and increased by $896 to $7,090 from $6,194 for the three and six months ended December 31, 2021, respectively, compared to the same periods of the last fiscal year. 

 

Revenue in the manufacturing segment from one customer accounted for 44.8% and 42.4% of our total revenue in the manufacturing segment for the three months ended December 31, 2021 and 2020, respectively, and 38.6% and 29.7% of our total revenue in the manufacturing segment for the six months ended December 31, 2021, and 2020, respectively.

 

The future revenue in our manufacturing segment will be affected by this one customer's purchase and capital expenditure plans if the customer base cannot be increased.

 

Testing Services Segment

 

The testing segment's revenue was 45.4% for the three months ended December 31, 2021, representing an increase of 2%, compared to 43.4% for the same periods of the last fiscal year. Revenue in the testing segment was 45.4% as a percentage of total revenue for the six months ended December 31, 2021, an increase of 2.1% compared to the same period of the last fiscal year. The absolute amount of revenue increased by $1,406 to $4,966 from $3,560 and increased by $3,052 to $9,566 from $6,514 for the three and six months ended December 31, 2021, respectively, as compared to the same periods of the last fiscal year. 

 

The revenue in the testing segment from the one customer noted above accounted for 63.0% and 61.1% of our revenue in the testing segment for the three months ended December 31, 2021 and 2020, respectively, and 63.3% and 58.8% of our total revenue in the testing segment for the six months ended December 31, 2021 and 2020, respectively. The future revenue in the testing segment will be affected by the demands of this customer if the customer base cannot be increased. Demand for testing services varies from country to country, depending on any changes taking place in the market and our customers’ forecasts. As it is challenging to forecast fluctuations in the market accurately, management believes it is necessary to maintain testing facilities in close proximity to the customers in order to make it convenient for them to send us their newly manufactured parts for testing and to enable us to maintain a share of the market.

 

Distribution Segment

 

Revenue in the distribution segment was 22.2% and 20.9% as a percentage of total revenue for the three and six months ended December 31, 2021, respectively, an increase of 9.2% and 5.5%, respectively, compared to the same periods of the last fiscal year. The absolute amount of revenue increased by $1,355 to $2,420 from $1,065 and increased by $2,095 to $4,418 from $2,323 for the three and six months ended December 31, 2021, respectively, compared to the same periods of the last fiscal year. 

 

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

 

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Real Estate Segment

 

The real estate segment accounted for 0.1% of total revenue for both the three and six months ended December 31, 2021, respectively. The absolute amount of revenue increased by $1 to $8 from $7 and increased by $8 to $19 from $11 for the three and six months ended December 31, 2021, respectively, compared to the same periods of the last fiscal year.

 

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.

 

The Company’s consolidation process was scheduled to be substantially automated using the new system in fiscal 2022. However, after extensive testing, we have decided to discontinue the effort of using the new system for consolidation process since the consolidation module of the system does not meet our requirements. This decision does not have any impact on the existing internal controls over financial reporting in the consolidation process.

 

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

 

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.

 

-40-

 

 

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.

 

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. Recently, 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, defense sectors, 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. As of the date of this prospectus, these new laws and guidelines have not impacted the Company’s ability to conduct its business, accept foreign investments, or list on a U.S. or other foreign exchange; however, there are uncertainties in the interpretation and enforcement of these new laws and guidelines, which could materially and adversely impact our business and financial outlook.

 

Comparison of the Three Months Ended December 31, 2021, and December 31, 2020

 

The following table sets forth certain consolidated statements of income data as a percentage of revenue for the three months ended December 31, 2021 and 2020 respectively:

 

  

Three Months Ended

December 31,

 
  

2021

  

2020

 

Revenue

  100.0

%

  100.0

%

Cost of sales

  73.5   77.2 

Gross Margin

  26.5

%

  22.8

%

Operating expenses

        

General and administrative

  17.8

%

  20.3

%

Selling

  1.4   1.5 

Research and development

  1.2   1.5 

Total operating expenses

 

20.4

  23.3  

Loss from Operations

  6.1

%

  (0.5

)%

 

Overall Gross Margin         

 

Overall gross margin as a percentage of revenue increased by 3.7% to 26.5% for the three months ended December 31, 2021, from 22.8% for the same period of the last fiscal year.

 

Gross profit margin as a percentage of revenue in the manufacturing segment decreased by 3.9% to 18.5% for the three months ended December 31, 2021, as compared to 22.4% for the same period in the last fiscal year. In absolute dollar amounts, gross profits in the manufacturing segment decreased by $145 to $654 for the three months ended December 31, 2021, from $799 for the same period in the last fiscal year. The decrease in gross profit margin was primarily due to a lower proportion of higher profit margin products sales for the three months ended December 31, 2021.

 

Gross profit margin as a percentage of revenue in the testing segment increased by 13.0% to 37.8% for the three months ended December 31, 2021, compared to 24.8% in the same period of the last fiscal year. Significant portions of our cost of goods sold are fixed in the testing segment.  Thus, as the demand for services and factory utilization increases, the fixed costs are spread over the increased output, which increases the gross profit margin. In absolute dollar amounts, gross profit in the testing segment increased by $995 to $1,877 for the three months ended December 31, 2021 from $882 for the same period of the last fiscal year.

 

Gross profit margin of the distribution segment is not only affected by the market price of the products we distribute, but also the mix of products we distribute, which frequently changes as a result of fluctuations in market demand. Gross profit margin as a percentage of revenue in the distribution segment decreased by 4.0% to 15.3% for the three months ended December 31, 2021, from 19.2% in the same period of the last fiscal year. The decrease in gross margin as a percentage of revenue was due to the decrease in sales of high-profit margin products in our Singapore operation compared to the same period of last fiscal year, although there was an increase in the distribution revenue. In absolute dollar amounts, gross profit in the distribution segment for the three months ended December 31, 2021, was $370, indicating an increase of $166, compared to $204 in the same period of the last fiscal year. 

 

In absolute dollar amounts, for the three months ended December 31, 2021, gross loss in the real estate segment was $11, as compared to $15 for the same period of last fiscal year.

 

 

-41-

 

 

Operating Expenses

 

Operating expenses for the three months ended December 31, 2021 and 2020 were as follows:

 

  

Three Months Ended

December 31,

 

(Unaudited)

 

2021

  

2020

 

General and administrative

 $1,947  $1,662 

Selling

  156   122 

Research and development

  131   123 

Total

 $2,234  $1,907 

 

General and administrative expenses increased by $285, or 17.1%, from $1,662 to $1,947 for the three months ended December 31, 2021, compared to the same period of last fiscal year. The increase in general and administrative expenses was mainly attributable to the higher payroll expenses in the Singapore operations and higher staff benefit expenses in China.

 

Selling expenses increased by $34, or 27.9%, from $122 to $156 for the three months ended December 31, 2021, compared to the same period of the last fiscal year. The increase in selling expenses was primarily attributable to an increase in payroll-related expenses in Thailand operation.

 

Income from Operations

 

Income from operations was $656 for the three months ended December 31, 2021, an improvement of $693, compared to $37 loss from operations for the same period of last fiscal year. The result was mainly due to the increase in gross profit margin, offset with the increase in operating expenses, as previously discussed.

 

Interest Expense

 

Interest expense for the three months ended December 31, 2021 and 2020 were as follows:

 

  

Three Months Ended

December 31,

 

(Unaudited)

 

2021

  

2020

 

Interest expenses

 $28  $34 

 

Interest expense was $28 for the three months ended December 31, 2021, a decrease of $6, or 17.6%, compared to $34 for the three months ended December 31, 2020. As of December 31, 2021, the Company had an unused line of credit of $5,207 as compared to $6,187 at December 31, 2020.

 

Other Income

 

Other income for the three months ended December 31, 2021 and 2020 were as follows:

 

  

Three Months Ended December 31,

 

(Unaudited)

 

2021

  

2020

 

Interest income

 $16   30 

Other rental income

  29   24 

Exchange loss

  (38

)

  (93

)

Dividend income

  -   30 

Government grant

  28   106 

Commission income

  200   - 

Bad debts recovery

  102   - 

Other miscellaneous income

  44   46 

Total

 $381  $143 

 

Other income increased by $238 from $143 to $381 for the three months ended December 31, 2021 compared to the same period in the last fiscal year. The increase was primarily due to the Company receiving a one-time commission income amounting to $200, and bad debts recovery amounting to $102. The increase was partially offset by a decrease of $98 in government grants.

 

In the three months ended December 31, 2020, the Company received the government grants aggregating $106 from the local government in the Singapore and Malaysia operations, of which $101 reflects financial assistance to mitigate the negative impact on the businesses amid the pandemic.

 

-42-

 

 

Income Tax Expenses

 

The Company's income tax expense was $153 and $nil for the three months ended December 31, 2021, and December 31, 2020, respectively. The increase of $153 was primarily due to the increase in taxable income.

 

Noncontrolling Interest

 

As of December 31, 2021, we held a 55% interest in Trio-Tech (Malaysia) Sdn. Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd., and PT. SHI Indonesia. We also held a 76% interest in Prestal Enterprise Sdn. Bhd. The share of net income from the subsidiaries by the noncontrolling interest for the three months ended December 31, 2021 was $1, a change of $185 compared to the share of net loss from the subsidiaries by the noncontrolling interest of $184 for the same period of the previous fiscal year. The increase in the net income of the noncontrolling interest in the subsidiaries was attributable to the increase in net income generated by the Malaysia operation.

 

Net Income Attributable to Trio-Tech International Common Shareholders

 

Net income attributable to Trio-Tech International common shareholders for the three months ended December 31, 2021, was $855, a change of $620, compared to a net income of $235 for the same period last fiscal year.

 

Earnings per Share

 

Basic earnings per share from continuing operations were $0.22 for the three months ended December 31, 2021, compared to $0.06 for the same period in the last fiscal year. Basic earnings per share from discontinued operations were $nil for both the three months ended December 31, 2021 and 2020.

 

Diluted earnings per share from continuing operations were $0.20 for the three months ended December 31, 2021, as compared to $0.06 for the same period in the last fiscal year. Diluted earnings per share from discontinued operations were $nil for both the three months ended December 31, 2021 and 2020.

 

Segment Information

 

The revenue, gross margin and income or loss from operations for each segment during the second quarter of fiscal year 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) from operations for the manufacturing segment for the three months ended December 31, 2021 and 2020 were as follows

 

  

Three Months Ended

December 31,

 

(Unaudited)

 

2021

  

2020

 

Revenue

 $3,528  $3,569 

Gross margin

  18.5

%

  22.4

%

(Loss) / Income from operations

 $(48

)

 $81 

 

Loss from operations from the manufacturing segment was $47 compared to income from operations of $81 in the same period of the last fiscal year, primarily due to a decrease in gross margin of $145, offset with a decrease in operating expenses of $17. Operating expenses for the manufacturing segment were $701 and $718 for the three months ended December 31, 2021 and 2020, respectively. The decrease in operating expenses was mainly due to a decrease of $40 in general and administrative expenses, offset with an increase of $3 in selling expenses and $20 in corporate overhead expenses. The decrease in general and administrative expenses was mainly attributable to a decrease in payroll-related expenses in the Singapore operations.

 

Testing Segment

 

The revenue, gross margin and loss from operations for the testing segment for the three months ended December 31, 2021 and 2020 were as follows:

 

  

Three Months Ended

December 31,

 

(Unaudited)

 

2021

  

2020

 

Revenue

 $4,966  $3,560 

Gross margin

  37.8

%

  24.8

%

Income / (Loss) from operations

 $588  $(336

)

 

-43-

 

 

Income from operations in the testing segment for the three months ended December 31, 2021, was $588, an improvement of $924 from loss from operations of $336 in the same period of the last fiscal year. The improvement was mainly attributable to an increase of $995 in gross profit, as discussed earlier, and an increase of $72 in operating expenses. Operating expenses were $1,290 and $1,218 for the three months ended December 31, 2021 and 2020, respectively. The increase of $72 in operating expenses was mainly due to an increase of $21 in selling expenses, an increase of $163 in general and administrative expenses, and an increase of $7 in research and development expenses. The increases were partially offset by a decrease of $119 in corporate overhead expenses.

 

The increase in general and administrative expenses was mainly due to higher payroll related expenses in the Singapore operation and higher staff benefit expenses in China operation. The decrease in corporate overhead expenses was due to a change in the corporate overhead allocation compared to the same period in the last fiscal year. Corporate charges are allocated on a pre-determined fixed charge basis.

 

Distribution Segment

 

The revenue, gross margin and income from operations for the distribution segment for the three months ended December 31, 2021 and 2020 were as follows: 

 

  

Three Months Ended

December 31,

 

(Unaudited)

 

2021

  

2020

 

Revenue

 $2,420  $1,065 

Gross margin

  15.3

%

  19.2

%

Income from operations

 $277  $120 

 

Income from operations was $277 for the three months ended December 31, 2021, compared to $120 for the same period of last fiscal year. The increase of $157 was mainly due to an increase of $165 in the gross margin, as discussed earlier, offset by an increase in operating expenses. Operating expenses were $92 and $84 for the three months ended December 31, 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 December 31, 2021 and 2020 were as follows: 

 

  

Three Months Ended

December 31,

 

(Unaudited)

 

2021

  

2020

 

Revenue

 $8  $7 

Gross margin

  (137.5

)%

  (214.3

)%

Loss from operations

 $(28

)

 $(34

)

 

Loss from operations in the real estate segment for the three months ended December 31, 2021 was $28 compared to $34 for the same period of last fiscal year. Operating expenses were $17 and $19 for the three months ended December 31, 2021 and 2020, respectively.

 

Corporate

 

The income from operations for Corporate for the three months ended December 31, 2021 and 2020 was as follows:   

 

 

Three Months Ended 

December 31,

 

(Unaudited)

2021

 

2020

 

Income from operations

 

$

(133

)

 

$

132

 

 

Corporate operating income was $133 for the three months ended December 31, 2021, comparable to $132 in the same period of last fiscal year.

 

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Comparison of the Six Months Ended December 31, 2021, and December 31, 2020

 

The following table sets forth certain consolidated statements of income data as a percentage of revenue for the six months ended December 31, 2021 and 2020, respectively:

 

  

Six Months Ended

 
  

Dec. 31,

2021

  

Dec. 31,

2020

 
         

Revenue

  100.0

%

  100.0

%

Cost of sales

  71.2   77.5 

Gross Margin

  28.8

%

  22.5

%

Operating expenses:

        

General and administrative

  18.6

%

  22.1

%

Selling

  1.4   1.5 

Research and development

  1.0   1.3 

Gain on disposal of plant and equipment

  -   - 

Total operating expenses

  21.0

%

  24.9

%

Income / (Loss) from Operations

  7.8

%

  (2.4

)%

 

Overall Gross Margin

 

Overall gross margin as a percentage of revenue increased by 6.3% to 28.8% for the six months ended December 31, 2021, compared to 22.5% in the same period of last fiscal year. In terms of absolute dollar amounts, gross profits increased by $2,681 to $6,069 for the six months ended December 31, 2021, from $3,388 for the same period of the last fiscal year.

 

Gross profit margin as a percentage of revenue in the manufacturing segment increased by 1.1% to 25.1% for the six months ended December 31, 2021, from 24.0% in the same period of the last fiscal year. In absolute dollar amounts, gross profit increased by $295 to $1,782 for the six months ended December 31, 2021 compared to $1,487 for the same period in the last fiscal year. The gross margin increase was primarily due to an increase in manufacturing revenue in the first quarter of fiscal 2022 compared to the same period of the prior fiscal year.

 

Gross profit margin as a percentage of revenue in the testing segment increased by 14.4% to 37.6% for the six months ended December 31, 2021, from 23.2% in the same period of the last fiscal year.  The increase in gross profit margin was mainly due to an increase in orders across the Group, coupled with the price adjustments. As the demand for services and factory utilization increase, the fixed costs are spread over the increased output, which increases the gross profit margin. In terms of absolute dollar amounts, gross profit in the testing segment increased by $2,080 to $3,594 for the six months ended December 31, 2021, from $1,514 for the same period of the last fiscal year.

 

Gross profit margin as a percentage of revenue in the distribution segment decreased by 1.8% to 16.1% for the six months ended December 31, 2021, from 17.9% in the same period of the last fiscal year. The decrease in gross margin as a percentage of revenue was due to the decrease in sales of high-profit margin products in our Singapore operation compared to the same period of last fiscal year, although there was an increase in the distribution revenue. In terms of absolute dollar amounts, gross profit in the distribution segment for the six months ended December 31, 2021, was $712, an increase of $297 compared to $415 in the same period of the last fiscal year. The gross profit margin of the distribution segment was affected not only by the market price of our products but also by our product mix, which frequently changes due to fluctuations in market demand.

 

Gross loss margin as a percentage of revenue in the real estate segment decreased by 154.5% to 100.00% for the six months ended December 31, 2021, from 254.5% in the same period of the last fiscal year. In terms of absolute dollar amounts, gross loss decreased by $9 to $19 for the six months ended December 31, 2021, compared to gross loss

 

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Operating Expenses

 

Operating expenses for the six months ended December 31, 2021 and 2020 were as follows:

  

Six Months Ended

 
  

Dec. 31,

2021

  

Dec. 31,

2020

 

(Unaudited)

        

General and administrative

 $3,927  $3,322 

Selling

  303   233 

Research and development

  213   198 

Gain on disposal of plant and equipment

  -   (1

)

Total

 $4,443  $3,752 

 

General and administrative expenses increased by $605, or 18.2%, from $3,322 to $3,927 for the six months ended December 31, 2021, compared to the same period of the last fiscal year. The increase in general and administrative expenses was primarily due to the higher payroll-related expenses in the Singapore and U.S. operations and an increase in staff-related expenses in the China operation.

 

Selling expenses increased by $70, or 30.0%, for the six months ended December 31, 2021, from $233 to $303 compared to the same period of the last fiscal year. The increase in selling expenses was primarily attributable to an increase in commission expenses in the manufacturing segment of Singapore operation as a result of an increase in commissionable revenue. In addition, there was also an increase in payroll expenses in the Thailand operation.

 

Income / (Loss) from Operations

 

Income from operations was $1,626 for the six months ended December 31, 2021, compared to loss from operations of $364 for the same period of the last fiscal year. The increase was mainly due to the increase in gross profit margin, offset with an increase in operating expenses, as discussed earlier.

 

Interest Expense

 

Interest expense for the six months ended December 31, 2021 and 2020 were as follows:

 

  

Six Months Ended

 
  

Dec. 31,

2021

  

Dec. 31,

2020

 

(Unaudited)

        

Interest expense

 $56  $71 

 

Interest expense decreased by $15 to $56 from $71 for the six months ended December 31, 2021, compared to the same period of the last fiscal year. The decrease was mainly due to lower bank-loan principal in the Malaysia operation. Additionally, the bank loans payables decreased by $375 to $1,831 for the six months ended December 31, 2021, compared to $2,206 as of June 30, 2021.

 

Other Income

 

Other income for the six months ended December 31, 2021 and 2020 was as follows:

 

  

Six Months Ended

 
  

Dec. 31,

2021

  

Dec. 31,

2020

 

(Unaudited)

        

Interest income

 $38  $70 

Other rental income

  58   45 

Exchange loss

  (4

)

  (137

)

Bad debt recovery

  104   - 

Dividend Income

  -   32 

Government grant

  98   260 

Commission income

  200   - 

Other miscellaneous income

  48   84 

Total

 $542  $354 

 

-46-

 

 

Other income for the six months ended December 31, 2021 was $542, an increase of $188 compared to $354 for the same period of last fiscal year. The increase in other income was mainly due to the Company receiving a one-time commission income amounting to $200, and bad debts recovery amounting to $104. The increase was partially offset by a decrease of $162 in government grants.

 

In the six months ended December 31, 2020, the Company received government grants aggregating of $260 from the local governments in the Singapore and Malaysia operations, of which $243 reflects financial assistance to mitigate the negative impact on the businesses amid the pandemic.

 

Income Tax Expenses

 

Income tax expenses for the six months ended December 31, 2021 was $333, an increase of $326 compared to tax benefit of $7 for the same period last fiscal year. The increase in income tax expense was primarily due to increase in the taxable income across the Group in the six months ended December 31, 2021.

 

Noncontrolling Interest

 

As of December 31, 2021, we held a 55% interest in Trio-Tech Malaysia, Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd. and PTSHI Indonesia, and a 76% interest in Prestal Enterprise Sdn. Bhd. The net income attributable to the noncontrolling interest in these subsidiaries for the six months ended December 31, 2021, was $12, a change of $354, compared to a net loss of $342 for the same period of last fiscal year. The improvement was attributable to the increase in net income by the Malaysia operation in the six months ended December 31, 2021.

 

Net Income Attributable to Trio-Tech International Common Shareholders

 

Net income was $1,772 for the six months ended December 31, 2021, an increase of $1,545 compared to a net income of $227 for the same period in the last fiscal year. The increase was mainly due to the increase in revenue and gross margin. However, the increase was partially offset with an increase in operating expenses, as discussed earlier.  

 

Earnings per Share

 

Basic earnings per share from continuing operations was $0.46 for the six months ended December 31, 2021, compared to $0.06 for the same period in the last fiscal year. Basic earnings per share from discontinued operations were nil for both the six months ended December 31, 2021 and 2020.

 

Diluted earnings per share from continuing operations was $0.43 for the six months ended December 31, 2021, compared to $0.06 for the same period in the last fiscal year. Diluted earnings per share from discontinued operations were nil for both the six months ended December 31, 2021 and 2020.

 

Segment Information

 

The revenue, gross profit margin, and income or loss from operations in each segment for the six months ended December 31, 2021 and 2020, respectively, are presented below. As the segment revenue and gross margin for each segment have been discussed in the previous section, only the comparison of income / (loss) from operations is discussed below.

 

Manufacturing Segment

 

The revenue, gross margin and income from operations for the manufacturing segment for the six months ended December 31, 2021 and 2020 were as follows:

 

  

Six Months Ended

 
  

Dec. 31,

2021

  

Dec. 31,

2020

 

(Unaudited)

        

Revenue

 $7,090  $6,194 

Gross margin

  25.1

%

  24.0

%

Income from operations

 $252  $63 

 

Income from operations from the manufacturing segment was $253 for the six months ended December 31, 2021, an increase of $190 as compared to $63 in the same period of the last fiscal year due to an increase in gross margin. The increase in gross margin was partially offset with an increase in operating expenses. The manufacturing segment's operating expenses were $1,529 and $1,424 for the six months ended December 31, 2021 and 2020, respectively. The increase in operating expenses of $105 was mainly due to an increase in general and administrative expenses by $42, an increase in selling expenses by $25, and an increase in corporate overhead by $32 compared to the same period of last fiscal year. The increase in general and administrative expenses was mainly attributable to an increase in payroll-related expenses in the Singapore operations. The increase in selling expenses was primarily attributable to an increase in commission expenses in the manufacturing segment of Singapore operation as a result of an increase in commissionable revenue.

 

-47-

 

 

Testing Segment

 

The revenue, gross margin and loss from operations for the testing segment for the six months ended December 31, 2021 and 2020 were as follows:

 

  

Six Months Ended

 
  

Dec. 31,

2021

  

Dec. 31,

2020

 

(Unaudited)

        

Revenue

 $9,566  $6,514 

Gross margin

  37.6

%

  23.2

%

Income / (Loss) from operations

 $1,124  $(673

)

 

Income from operations in the testing segment for the six months ended December 31, 2021, was $1,123, an improvement of $1,796 compared to loss from operation $673 in the same period of the last fiscal year due to an increase in gross margin and testing volume. The increase in gross margin was partially offset with an increase in operating expenses by $284.  Operating expenses were $2,471 and $2,187 for the six months ended December 31, 2021 and 2020, respectively. The higher operating expenses were mainly attributed to an increase in general and administrative expenses and selling expenses by $289 and $30, respectively. The increase offset with a decrease in corporate overheads by $45.

 

The increase in general and administrative expenses was mainly due to higher payroll related expenses in the Singapore operation and higher staff benefit expenses in China operations. The decrease in corporate overhead expenses was due to a change in the corporate overhead allocation compared to the same period last fiscal year. Corporate charges are allocated on a predetermined fixed charge basis.

 

Distribution Segment

 

The revenue, gross margin and income from operations for the distribution segment for the six months ended December 31, 2021 and 2020 were as follows: 

 

  

Six Months Ended

 
  

Dec. 31,

2021

  

Dec. 31,

2020

 

(Unaudited)

        

Revenue

 $4,418  $2,323 

Gross margin

  16.1

%

  17.9

%

Income from operations

 $531  $244 

 

Income from operations in the distribution segment for the six months ended December 31, 2021 was $531, an increase of $287 compared to $244 in the same period of the last fiscal year. The increase in operating income was primarily due to an increase in gross margin by $296, which was partially offset with a decrease in operating expenses of $9. Operating expenses were $180 and $171 for the six months ended December 31, 2021 and 2020, respectively.

 

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Real Estate Segment

 

The revenue, gross loss margin and loss from operations for the real estate segment for the six months ended December 31, 2021 and 2020 were as follows: 

 

  

Six Months Ended

 
  

Dec. 31,

2021

  

Dec. 31,

2020

 

(Unaudited)

        

Revenue

 $19  $11 

Gross loss margin

  111.1

%

  254.5

%

Loss from operations

 $(51

)

 $(61

)

 

Loss from operations in the real estate segment for the six months ended December 31, 2021 was $52, a decrease of $9 compared to $61 for the same period of the last fiscal year. The decrease in operating loss was mainly due to a decrease in gross loss margin, as discussed earlier. Operating expenses were $32 and $33 for the six months ended December 31, 2021 and 2020, respectively.

 

Corporate

 

The (loss) / income from operations for corporate for the six months ended December 31, 2021 and 2020 were as follows:   

 

  

Six Months Ended

 
  

Dec. 31,

2021

  

Dec. 31,

2020

 

(Unaudited)

        

Loss / Income from operations

 $(230) $63

 

 

The deterioration of $293 was mainly due to a change in the corporate overhead allocation as compared to the same period last fiscal year. Corporate charges are allocated on a predetermined fixed charge basis.

 

Financial Condition

 

During the six months ended December 31, 2021 total assets increased by $4,246 to $42,552 compared to $38,306 as of June 30, 2021. The increase in total assets was primarily due to an increase in cash and cash equivalents, trade account receivables, other receivables, inventories, prepaid expenses and other current assets, deferred tax assets and operating lease right-of-use. This was partially offset by a decrease in short-term deposits, investment properties, other assets, property, plant and equipment, restricted term deposits and financed sales receivable.

 

Cash and cash equivalents were $7,526 as at December 31, 2021, reflecting an increase of $1,690 from $5,836 as at June 30, 2021, primarily due to the withdrawal of the short-term deposit for the six months ended December 31, 2021.

 

Short-term deposits were $4,997 as at December 31, 2021, reflecting a decrease of $1,654 from $6,651 as at June 30, 2021. The decrease was primarily due to withdrawal of the short-term deposit for the six months ended December 31, 2021 and reflected in the cash and cash equivalents.

 

As at December 31, 2021, the trade accounts receivable balance increased by $1,546 to $9,839, from $8,293 as at June 30, 2021, primarily due to an increase in revenue in the Singapore, China, and Thailand operations. This increase was partially offset by the decrease in the U.S. operations. The number of days’ sales outstanding in accounts receivables for the Group was 77 and 79 days at the end of the second quarter of the fiscal year 2022 and the end of the last fiscal year, respectively.

 

As at December 31, 2021, other receivables were $2,387, reflecting an increase of $1,725 from $662 as at June 30, 2021. The increase was primarily due to an increase in advance payments made to suppliers in the Singapore operation.

 

Inventories as at December 31, 2021, were $2,572, an increase of $492, compared to $2,080 as at June 30, 2021. The increase in inventories was in line with an increase in orders by customers in the manufacturing segment of the Singapore operations, which resulted in an increase in the work-in-progress. 

 

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Prepaid expenses were $511 as at December 31, 2021 compared to $418 as at June 30, 2021. The increase of $93 was primarily due to the advance payment made for the new factory’s utilities deposit in the China operation.

 

Investment properties’ net in China was $653 as at December 31, 2021 and $681 as at June 30, 2021. The decrease was primarily due to the foreign currency exchange movement between June 30, 2021 and December 31, 2021. The increase was partially offset by the depreciation charged for the period. 

 

Property, plant and equipment decreased by $264 from $9,531 as at June 30, 2021, to $9,267 as at December 31, 2021, mainly due to depreciation charged for the period and the foreign currency exchange movement between June 30, 2021 and December 31, 2021. The decrease was partially offset by the new acquisition of property, plant and equipment in the Singapore, Malaysia, Thailand and China operations.

 

Restricted term deposits remained consistent at $1,735 as at December 31, 2021 as compared to $1,741 as at June 30, 2021. This was primarily due to the foreign currency exchange movement between June 30, 2021 and December 31, 2021.

 

Other assets decreased by $115 to $147 as at December 31, 2021 compared to $262 as at June 30, 2021.  This was mainly due to the reclassification of down payments made for the purchase of equipment in the Malaysia operation.

 

Lines of credit increased by $405 to $477 as at December 31, 2021 as compared to $72 as at June 30, 2021. This was due to the utilization of the bank facilities in the Singapore operation.

 

Accounts payable increased by $259 to $3,961 as at December 31, 2021 as compared to $3,702 as at June 30, 2021. This was due to an increase in sales, which led to more materials purchased to meet customer requirements in the Singapore operation.

 

Accrued expenses increased by $1,381 to $4,744 as at December 31, 2021, as compared to $3,363 as at June 30, 2021. The increase in accrued expenses was mainly due to an increase in the accrued purchases in the Singapore operation and accrued payroll costs in the Singapore and China operations.

 

Bank loans payable decreased by $229 to $1,831 as at December 31, 2021, as compared to $2,060 as at June 30, 2021. This was due to the repayments made in the Malaysia operation.

 

Finance leases decreased by $109 to $341 as at December 31, 2021, as compared to $450 as at June 30, 2021. This was due to the repayments made in the Singapore and Malaysia operations.

 

Operating lease right-of-use assets and the corresponding lease liability increased by $823 to $2,699 as of December 31, 2021, as compared to $1,876 as at June 30, 2021. This was due to the new lease agreement entered in the China operation. The increase was partially offset with the repayment made and the operating lease expenses charged for the period.

 

Liquidity Comparison

 

Net cash provided by operating activities increased by $522 to an inflow of $837 for the six months ended December 31, 2021, from an inflow of $315 for the same period of the last fiscal year. The increase in net cash inflow provided by operating activities was primarily due to an increase in net income by $1,899 and an increase in cash inflow of $638 from accounts payable and accrued expenses. These increases were partially offset by an increase in cash inflow from other receivables amounting to $2,053.

 

Net cash used in investing activities increased by $948 to an inflow of $842 for the six months ended December 31, 2021, from an outflow of $106 for the same period of the last fiscal year.  The increase in cash inflow was primarily due to an increase in withdrawal of unrestricted deposit amounting to $1,437 and a decrease in cash outflow of $89 from investment in unrestricted term deposit. These increases were partially offset by an increase in cash outflow of $578 from capital expenditure.

 

Net cash provided by financing activities for the six months ended December 31, 2021, was $73, representing an increase of $430, as compared to cash outflow of $357 during the six months ended December 31, 2020. The increase in cash inflow was mainly attributable to an increase in cash inflow by $942 from the lines of credit proceeds.  This increase was partially offset by an increase in cash outflow of $372 from the payments on lines of credit and a decrease in cash inflow of $205 from the bank loans proceeds.

 

The Company has filed the S3 registration statement on December 3, 2021. We may raise capital of US$10,000,000 of any combination of securities (common stock, warrants, debt securities or units) for expansion of the Company’s testing capacity and working capital purposes if necessary.

 

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

An evaluation was carried out by the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2021, the end of the period covered by this Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective at a reasonable level.  

 

Changes in Internal Control Over Financial Reporting

 

There has been no change in the Company’s internal control over financial reporting during the fiscal quarter ended December 31, 2021, 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.

 

The Company’s consolidation process was scheduled to be substantially automated using the new system in fiscal 2022. However, after extensive testing, we have decided to discontinue the effort of using the new system for consolidation process since the consolidation module of the system does not meet our requirements. This decision does not have any impact on the existing internal controls over financial reporting in the consolidation process.

 

-51-

 

 

TRIO-TECH INTERNATIONAL

PART II. OTHER INFORMATION

 

Item 1.         Legal Proceedings

 

Not applicable.

 

Item 1A.      Risk Factors

 

Not applicable

 

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

 

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

 

Item 3.         Defaults Upon Senior Securities

 

Not applicable.

 

Item 4.         Mine Safety Disclosures

 

Not applicable.

 

Item 5.         Other Information

 

Not applicable.

 

Item 6.        Exhibits

 

10.1 Joint Venture Agreement between Trio-Tech SIP) Co., Ltd and Suzhou Anchuang Technology Management LLP dated December 1, 2021

31.1

 

Rule 13a-14(a) Certification of Principal Executive Officer of Registrant

31.2

 

Rule 13a-14(a) Certification of Principal Financial Officer of Registrant 

32

 

Section 1350 Certification

 

 

 

101.INS

 Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

 Inline XBRL Taxonomy Extension Schema Document

101.CAL

 Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (embedded within the Inline XBRL Document and included in Exhibit 101)

 

 

-52-

 

 

SIGNATURES

 

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

 

 

 

TRIO-TECH INTERNATIONAL

 

By:

/s/ Victor H.M. Ting

VICTOR H.M. TING

Vice President and Chief Financial Officer

(Principal Financial Officer)

Dated: February 14, 2022

 

 

 

 

 

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