0000732026 TRIO-TECH INTERNATIONAL false --06-30 Q3 2022 253 311 709 679 0 0 15,000,000 15,000,000 4,029,180 4,029,180 3,913,055 3,913,055 4 2,000 314 2 4,025 2 2 9 10 10 5 5 22 10 5 906 1.85 5.5 1.25 4,214 3,900 1.85 5.5 5.5 900 2 0 4 0 5 0 0 0 0 0 0 0 5 0 0 0 0 20 4 3 4 1 3 100% owned by Trio-Tech International Pte. Ltd. Down payment for purchase of investment properties included: Amounts of RMB5,000 or approximately $773 as disclosed in Note 5, plus the interest receivable on Long-term loan receivable of RMB1,250 or approximately $193, and impairment on interest of RMB 906 or approximately $140. The shop lots are to be delivered to TTCQ upon completion of the construction of the shop lots in the Singapore Themed Resort Project. The initial targeted date of completion was 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, especially during the COVID-19 pandemic During the fourth quarter of 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 Chongging, China, which the impairment loss translated based on the exchange rate used in the fiscal year 2021. The Company accounted for this non-cash 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. 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 RMB10 million for the 10% investment in the joint venture. The Developer paid Company a management fee of RMB5 million in cash upon signing of the agreement with a remaining fee of RMB5 million payable upon fulfillment of certain conditions in accordance with the agreement. The Company further reduced its investment by RMB137, or approximately $22 towards the losses from operations incurred by the joint venture. 19 In fiscal year 2014, the Company disposed its entire 10% interest in the joint venture. 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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 March 31, 2022

 

OR

 

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

 

For the Transition Period from ___ to ___

 

Commission File Number 1-14523

 

TRIO-TECH INTERNATIONAL

(Exact name of Registrant as specified in its Charter)

 

California

95-2086631

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

 

 

Block 1008 Toa Payoh North

 

Unit 03-09 Singapore

318996

(Address of principal executive offices)

(Zip Code)

 

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

 

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

 

Title of each class

Trading Symbol

Name of each exchange

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 May 1, 2022, there were 4,029,180 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 March 31, 2022 (Unaudited), and June 30, 2021

2
 

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

2

 

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

5
 

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

6

 

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

7

Item 2.

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

34

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

52

Item 4.

Controls and Procedures

52

 

 

 

Part II.

Other Information

 

 

 

 

Item 1.

Legal Proceedings

53

Item 1A.

Risk Factors

53

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

53

Item 3.

Defaults upon Senior Securities

53

Item 4.

Mine Safety Disclosures

53

Item 5.

Other Information

53

Item 6.

Exhibits

53

 

   

Signatures

54

 

 

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; ongoing public health issues related to the COVID-19 pandemic; the trade tension between U.S. and China; 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)

 

   

March 31,

2022

   

June 30,

2021

 

 

 

(Unaudited)

         
ASSETS                

CURRENT ASSETS:

               

Cash and cash equivalents

  $ 7,478     $ 5,836  

Short-term deposits

    4,953       6,651  

Trade accounts receivable, less allowance for doubtful accounts of $253 and $311, respectively

    10,585       8,293  

Other receivables

    735       325  
Contract assets     594       337  

Inventories, less provision for obsolete inventories of $709 and $679, respectively

    2,272       2,080  

Prepaid expenses and other current assets

    732       418  

Financed sales receivable

    21       19  

Total current assets

    27,370       23,959  

NONCURRENT ASSETS:

               

Deferred tax assets

    189       217  

Investment properties, net

    636       681  

Property, plant and equipment, net

    9,107       9,531  

Operating lease right-of-use assets

    2,602       1,876  

Other assets

    141       262  

Restricted term deposits

    1,735       1,741  

Financed sales receivable

    23       39  

Total noncurrent assets

    14,433       14,347  

TOTAL ASSETS

  $ 41,803     $ 38,306  
                 

LIABILITIES

               

CURRENT LIABILITIES:

               

Lines of credit

  $ 523     $ 72  

Accounts payable

    2,220       3,702  

Accrued expenses

    3,870       2,690  
Contract liabilities     1,172       673  

Income taxes payable

    476       314  

Current portion of bank loans payable

    493       439  

Current portion of finance leases

    136       197  

Current portion of operating leases

    758       672  

Total current liabilities

    9,648       8,759  

NONCURRENT LIABILITIES:

               

Bank loans payable, net of current portion

    1,470       1,621  

Finance leases, net of current portion

    152       253  

Operating leases, net of current portion

    1,844       1,204  

Income taxes payable, net of current portion

    281       385  

Other noncurrent liabilities

    31       31  

Total noncurrent liabilities

    3,778       3,494  

TOTAL LIABILITIES

  $ 13,426     $ 12,253  
                 

EQUITY

               

TRIO-TECH INTERNATIONAL’S SHAREHOLDERS’ EQUITY:

               

Common stock, no par value, 15,000,000 shares authorized; 4,029,180 shares issued outstanding as at March 31, 2022 and 3,913,055 shares as at June 30, 2021, respectively

  $ 12,607     $ 12,178  

Paid-in capital

    4,692       4,233  

Accumulated retained earnings

    8,429       6,824  

Accumulated other comprehensive income-translation adjustments

    2,392       2,399  

Total Trio-Tech International shareholdersequity

    28,120       25,634  

Noncontrolling interest

    257       419  

TOTAL EQUITY

  $ 28,377     $ 26,053  

TOTAL LIABILITIES AND EQUITY

  $ 41,803     $ 38,306  

 

See notes to condensed consolidated financial statements 

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

 

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

UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)

 

   

Three Months Ended

   

Nine Months Ended

 
   

Mar. 31,

   

Mar. 31,

   

Mar. 31,

   

Mar. 31,

 
   

2022

   

2021

   

2022

   

2021

 

Revenue

                               

Manufacturing

  $ 3,097     $ 3,130     $ 10,187     $ 9,324  

Testing services

    4,417       3,504       13,983       10,018  

Distribution

    3,620       1,467       8,038       3,790  

Real estate

    4       11       23       22  
      11,138       8,112       32,231       23,154  

Cost of Sales

                               

Cost of manufactured products sold

    2,530       2,148       7,838       6,855  

Cost of testing services rendered

    3,169       2,651       9,141       7,651  

Cost of distribution

    2,945       1,234       6,651       3,142  

Cost of real estate

    20       19       58       58  
      8,664       6,052       23,688       17,706  
                                 

Gross Margin

    2,474       2,060       8,543       5,448  
                                 

Operating Expenses:

                               

General and administrative

    2,378       1,923       6,305       5,245  

Selling

    146       123       449       356  

Research and development

    80       79       293       277  

Gain on disposal of property, plant and equipment

    -       -       -       (1

)

Total operating expenses

    2,604       2,125       7,047       5,877  
                                 

(Loss)/ Income from Operations

    (130

)

    (65

)

    1,496       (429

)

                                 

Other Income / (Expenses)

                               

Interest expenses

    (31

)

    (25

)

    (87

)

    (96

)

Other income, net

    127       273       669       627  

Total other income

    96       248       582       531  
                                 

(Loss) / Income from Continuing Operations before Income Taxes

    (34 )     183       2,078       102  
                                 

Income Tax Expenses

    (170

)

    (118 )     (503

)

    (125

)

                                 

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

    (204 )     65       1,575       (23

)

                                 

Discontinued Operations

                               

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

    -       1       5       (26

)

NET (LOSS) / INCOME

    (204 )     66       1,580       (49

)

                                 

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

    (37 )     (112

)

    (25

)

    (454

)

Net (Loss) / Income Attributable to Trio-Tech International Common Shareholders

  $ (167

)

  $ 178     $ 1,605     $ 405  
                                 

Amounts Attributable to Trio-Tech International Common Shareholders:

                               

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

    (167

)

    177       1,603       418  

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

    -       1       2       (13

)

Net (Loss) / Income Attributable to Trio-Tech International Common Shareholders

  $ (167

)

  $ 178     $ 1,605     $ 405  
                                 

Basic (Loss) / Earnings per Share:

                               

Basic (loss) / earnings per share from continuing operations attributable to Trio-Tech International

  $ (0.04

)

  $ 0.05     $ 0.40     $ 0.11  

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

  $ -     $ -     $ -     $ -  

Basic (Loss) / Earnings per Share from Net Income Attributable to Trio-Tech International

  $ (0.04

)

  $ 0.05     $ 0.40     $ 0.11  
                                 

Diluted (Loss) / Earnings per Share:

                               

Diluted (loss) / earnings per share from continuing operations attributable to Trio-Tech International

  $ (0.04

)

  $ 0.04     $ 0.38     $ 0.10  

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

  $ -     $ -     $ -     $ -  

Diluted (Loss) / Earnings per Share from Net Income Attributable to Trio-Tech International

  $ (0.04

)

  $ 0.04     $ 0.38     $ 0.10  
                                 

Weighted average number of common shares outstanding

                               

Basic

    3,949       3,913       3,949       3,913  

Dilutive effect of stock options

    272       133       191       117  

Number of shares used to compute earnings per share diluted

    4,221       4,046       4,140       4,030  

 

See notes to condensed consolidated financial statements.

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)

UNAUDITED (IN THOUSANDS)

 

   

Three Months Ended

    Nine Months Ended  
   

Mar. 31,

   

Mar. 31,

   

Mar. 31,

    Mar. 31,  
   

2022

   

2021

   

2022

    2021  

Comprehensive Income Attributable to Trio-Tech International Common Shareholders:

                               
                                 

Net (loss) / income

  $ (204 )   $ 66     $ 1,580     $ (49 )

Foreign currency translation, net of tax

    16       (468 )     (22 )     1,115  

Comprehensive (Loss) / Income

    (188 )     (402 )     1,558       1,066  

Less: comprehensive loss attributable to noncontrolling interest

    (46 )     (136 )     (40 )     (455 )

Comprehensive (Loss) / Income Attributable to Trio-Tech International Common Shareholders

  $ (142 )   $ (266 )   $ 1,598     $ 1,521  

 

See notes to condensed consolidated financial statements.

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

UNAUDITED (IN THOUSANDS)

 

Nine months ended March 31, 2022

   

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

    -       -       459       -       -       -       459  

Net income / (loss)

    -       -       -       1,605       -       (25

)

    1,580  

Dividend declared by subsidiary

    -       -       -       -       -       (122

)

    (122

)

Exercise of stock option

    116       429       -       -       -       -       429  

Translation adjustment

    -       -       -       -       (7

)

    (15

)

    (22

)

Balance at Mar. 31, 2022

    4,029       12,607       4,692       8,429       2,392       257       28,377  

 

 

Nine months ended March 31, 2021

   

Common

Stock

   

Paid-in

   

Accumulated Retained

   

Accumulated Other

Comprehensive

   

Non- controlling

         
   

Shares

   

Amount

   

Capital

   

Earnings

   

Income

   

Interest

   

Total

 
           

$

   

$

   

$

   

$

   

$

   

$

 

Balance at June 30, 2020

    3,673       11,424       3,363       8,036       1,143       1,180       25,146  

Stock option expenses

    -       -       144       -       -       -       144  

Net income / (loss)

    -       -       -       405       -       (454

)

    (49

)

Dividend declared by subsidiary

    -       -       -       -       -       (189

)

    (189

)

Exercise of stock option

    240       754       -       -       -       -       754  

Translation adjustment

    -       -       -       -       1,116       (1

)

    1,115  

Balance at Mar. 31, 2021

    3,913       12,178       3,507       8,441       2,259       536       26,921  

 

See notes to condensed consolidated financial statements.

 

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)

 

   

Nine Months Ended

 
   

Mar. 31,

   

Mar. 31,

 
   

2022

   

2021

 
   

(Unaudited)

   

(Unaudited)

 

Cash Flow from Operating Activities

               

Net income / (loss)

  $ 1,580     $ (49 )

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

               

Depreciation and amortization

    2,263       2,224  

Stock compensation

    459       144  

Addition / (reversal) of provision for obsolete inventories

    25       (2

)

Bad debt recovery, net of allowance charged

    (61

)

    (15

)

Accrued interest expense, net (accrued interest income)

    85       (18

)

Payment of interest portion of finance lease

    (20

)

    (32

)

Gain on sale of property, plant and equipment

    -       (1

)

Dividend income

    -       (32

)

Dividend received

    -       32  

Reversal of income tax provision

    (18

)

    -  

Deferred tax benefit

    (7

)

    (70

)

Changes in operating assets and liabilities, net of acquisition effects

               

Trade accounts receivable

    (2,214

)

    (1,013

)

Other receivables

    (688

)

    320  

Other assets

    134       (33

)

Inventories

    (233

)

    (624

)

Prepaid expenses and other current assets

    (312

)

    (76

)

Accounts payable and accrued expenses

    242       754  

Income taxes payable

    145       (44

)

Operating lease liabilities

    (801

)

    (565

)

Net Cash Provided by Operating Activities

    579       900  
                 

Cash Flow from Investing Activities

               

Proceeds from disposal of property, plant and equipment

            -  

Proceeds from sale of asset held for sale

            -  

Withdrawal of unrestricted deposit

    3,761       1,166  

Investment in unrestricted term deposits, net

    (2,079 )     (1,370

)

Additions to property, plant and equipment

    (1,144 )     (621

)

Net Cash Provided by/ (Used in) Investing Activities

    538       (825

)

                 

Cash Flow from Financing Activities

               

Payment on lines of credit

    (1,025 )     (174

)

Payment of bank loans

    (322 )     (296

)

Payment of principal portion of finance leases

    (168 )     (192

)

Dividends paid to noncontrolling interest

    (122 )     (189

)

Proceeds from bank loan

    255       189  

Proceeds from exercise stock options

    429       754  

Proceeds from lines of credit

    1,463       187  

Proceeds from principal of finance leases

    -       -  

Net Cash Provided by Financing Activities

    510       279  
                 

Effect of Changes in Exchange Rate

    9       753  
                 

Net Increase in Cash, Cash Equivalents, and Restricted Cash

    1,636       1,107  

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

    7,577       5,810  

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

  $ 9,213     $ 6,917  
                 

Supplementary Information of Cash Flows

               

Cash paid during the period for:

               

Interest

  $ 84     $ 69  

Income taxes

  $ 342     $ 203  
                 

Reconciliation of Cash, Cash Equivalents, and Restricted Cash

               

Cash

    7,478       5,178  

Restricted Term-Deposits in Noncurrent Assets

    1,735       1,739  

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

  $ 9,213     $ 6,917  

 

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.

 

 

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 third quarter of fiscal year 2022, 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.

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

55%

 

Selangor, Malaysia

Prestal Enterprise Sdn. Bhd.

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

76%

 

Selangor, Malaysia

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.

51%

 

Suzhou, China

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

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements are presented in U.S. dollars. 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 March 31, 2022, and through the Quarterly Report dated May 16, 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 March 31, 2022, 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 March 31, 2022, the Company had cash and cash equivalents and short-term deposits totaling $12,431 and unused lines of credit of $5,158. 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.

 

- 7-

 

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 $1,605 and earned net income attributable to common shareholders of $405 for the nine months ended March 31, 2022, and March 31, 2021, 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 period 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, impairments, provision of income tax, stock options and the deferred income 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.

 

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.

 

- 8-

 

Trade Accounts 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 March 31, 2022, 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.

 

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.

 

- 9-

 

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.

 

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 standard.

 

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.

 

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 $17,803 and $16,683 at March 31, 2022, and June 30, 2021 respectively.

 

- 10-

 

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.

 

(Loss) / 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.

 

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.

 

- 11-

 

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.

 

Consolidation of subsidiaries- A subsidiary is an investee that is controlled by the Group. The Group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The Group elects voting interest entity model (referred to as the “VOE” model) in consolidation as the Group has a controlling financial interest in an entity. A controlling financial interest is generally based on the concept that a reporting entity should have the unilateral right to make the significant financial and operating decisions of an entity without regard to probability. In the Company’s separate financial statements, investments in subsidiaries are accounted for at cost less impairment losses.

 

The consolidated financial statements of Group include the accounts of Trio-Tech International and its subsidiaries. Intercompany transactions and balances have been eliminated.

 

 

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.

 

- 12-

 

In June 2016, FASB issued ASU 2016-13 ASC Topic 326, Financial InstrumentsCredit 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 March 31, 2022, are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

 

 

3.   TERM DEPOSITS

 

   

Mar. 31,

2022

(Unaudited)

   

June 30,

2021

 
                 

Short-term deposits

  $ 4,961     $ 6,353  

Currency translation effect on short-term deposits

    (8 )     298  

Total short-term deposits

    4,953       6,651  

Restricted term deposits

    1,736       1,682  

Currency translation effect on restricted term deposits

    (1 )     59  

Total restricted term deposits

    1,735       1,741  

Total term deposits

  $ 6,688     $ 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 March 31, 2022, and June 30, 2021, was adequate.  

 

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

 

   

Mar. 31,

2022

(Unaudited)

   

June 30,

2021

 

Beginning

  $ 311     $ 314  

Additions charged to expenses

    44       5  

Recovered

    (105 )     (14

)

Write-off

    -       (16

)

Currency translation effect

    3       22  

Ending

  $ 253     $ 311  

 

- 13-

 

 

 

5.   LOANS RECEIVABLE FROM PROPERTY DEVELOPMENT PROJECTS

 

The following table presents Trio-Tech (Chongqing) Co. Ltd (“TTCQ”)’s loan receivables from property development projects in China as of March 31, 2022.

 

 

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

      -       -  
                   

Long-term loan receivables

                 

Jun Zhou Zhi Ye

Oct 31, 2016

    5,000       788  

Less: transfer – downpayment for purchase of investment property

      (5,000

)

    (788

)

Net loan receivables from property development projects

      -       -  

 

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 March 31, 2022 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 $788, 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 8).

 

 

6.  INVENTORIES

 

Inventories consisted of the following:

 

   

Mar. 31,

2022

(Unaudited)

   

June 30,

2021

 
                 

Raw materials

  $ 1,340     $ 1,152  

Work in progress

    1,332       1,218  

Finished goods

    319       325  

Less: provision for obsolete inventories

    (709

)

    (679

)

Currency translation effect

    (10

)

    64  
    $ 2,272     $ 2,080  

 

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

 

   

Mar. 31,

2022

(Unaudited)

   

June 30,

2021

 
                 

Beginning

  $ 679     $ 678  

Additions charged to expenses

    25       13  

Usage – disposition

    -       (28 )

Currency translation effect

    5

 

    16  

Ending

  $ 709     $ 679  

 

- 14-

 

 

 

7.   INVESTMENT PROPERTIES

 

The following table presents the Company’s investment in properties in China (with estimated 20 years useful life in years) as of March 31, 2022. The exchange rate is based on the market rate as of March 31, 2022.

 

 

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

      -       (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

      -       (15

)

Gross investment in rental property

      9,649       1,514  

Accumulated depreciation on rental property

Mar 31, 2022

    (7,402

)

    (1,145

)

Reclassified as “Assets held for sale”- MaoYe Property

July 01, 2018

    2,822       410  

Reclassification from “Assets held for sale”- MaoYe Property

Mar 31, 2019

    (1,029

)

    (143

)

        (5,488

)

    (878

)

Net investment in propertyChina

      4,161       636  

 

The following table presents the Company’s investment in properties in China (with estimated 20 years useful life in years) 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

      -       (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

      -       (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 propertiesChina

      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 $nil and $4 during the three and nine months ended March 31, 2022, as compared to $6 and $9 for the same periods, respectively, in last fiscal year.

 

Depreciation expense for MaoYe was $4 and $12 for the three and nine months ended March 31, 2022 and 2021, respectively as compared to $4 and $11 for the same period in the lsat fiscal year.

 

- 15-

 

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. During the third quarter of fiscal 2022, TTCQ agreed to the local court’s administration’s proposal for the amounts owed by JiangHuai to be paid to TTCQ in the form of assets after the fall through of the three auctions conducted. Nonetheless, this is not expected to affect the property’s recoverable amount but, in view of the COVID-19 pandemic and the complexity of this case, the process and execution will take some time.

 

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

 

Depreciation expense for JiangHuai was $7 and $21 for the three and nine months ended March 31, 2022, as compared to $6 and $19 for the same period in last fiscal year.

 

Rental Property IIIFuLi

 

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 actively searching for a tenant for this space.

 

Properties purchased from FuLi generated a rental income of $4 and $19 for the three and nine months ended March 31, 2022, as compared to $5 and $12 for the same period in the last fiscal year.

 

Depreciation expense for FuLi was $8 and $23 for the three and nine months ended March 31, 2022, respectively, as compared to $7 and $22 for the same period in the last fiscal year.

 

Summary

 

Total rental income for all investment properties in China was $4 and $23 for the three and nine months ended March 31, 2022, as compared to $11 and $21 for the same periods, respectively, in the last fiscal year.

 

Depreciation expenses for all investment properties in China were $19 and $56 for the three and nine months ended March 31, 2022, respectively, as compared to $17 and $52 same periods, respectively, in the last fiscal year.

 

 

8.   OTHER ASSETS

 

Other assets consisted of the following:

 

   

Mar. 31,

2022

(Unaudited)

   

June 30,

2021

 

Down payment for purchase of investment properties *

  $ -     $ -  

Down payment for purchase of property, plant and equipment

    6       372  

Deposits for rental and utilities and others

    153       160  

Currency translation effect

    (18 )     (270

)

Total

  $ 141     $ 262  

 

- 16-

 

*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       788  

Interest Receivable

    1,250       197  

Less: Impairment of Interest

    (906 )     (143

)

Transferred to Down Payment (Note *b)

    5,344       842  

* Down Payment for Purchase of Investment Properties

    10,207       1,623  

Less: Provision of Impairment loss on other assets

    (10,207

)

    (1,623

)

* 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 $788, 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. As of Mar 31, 2022, asset reorganization undertaken by local government still in process.

 

b)

Amounts of RMB 5,000, or approximately $788, as disclosed in Note 5, plus the interest receivable on long term loan receivable of RMB 1,250, or approximately $197, and impairment on interest of RMB 906, or approximately $143.

 

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. However, the progress has been delayed as the developer is currently undergoing asset reorganization process, to re-negotiate with their creditors to complete the project.

 

During the fourth quarter of fiscal 2021, the Company accrued an impairment charge of $1,580 related to the doubtful recovery of the down payment on 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.

 

 

9. LINES OF CREDIT

 

Carrying value of the Company’s lines of credit approximates its fair value because the interest rates associated with the lines of credit are adjustable in accordance with market situations when the Company borrowed funds with similar terms and remaining maturities.

 

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

 

As of March 31, 2022, the Company had certain lines of credit that are collateralized by restricted deposits.

 

- 17-

 

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%

    -     $ 4,214     $ 3,900  
Universal (Far East) Pte. Ltd.   Lines of Credit   Ranging from 1.85% to 5.5%     -     $ 1,109     $ 900  
Trio-Tech Malaysia Sdn. Bhd.   Revolving Credit   Cost of Funds Rate +2%     -     $ 358     $ 358  

 

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

 

Lines of Credit

 

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

    -     $ 4,806     $ 4,806  
Universal (Far East) Pte. Ltd.   Lines of Credit   Ranging from 1.85% to 5.5%     -     $ 359     $ 187  
Trio-Tech Malaysia Sdn. Bhd.   Revolving Credit   Cost of Funds Rate +2%     -     $ 350     $ 350  

 

 

10.  ACCRUED EXPENSES

 

Accrued expenses consisted of the following:

 

   

Mar. 31,

2022

(Unaudited)

   

June 30,

2021

 

Payroll and related costs

  $ 1,641     $ 1,362  

Commissions

    81       51  

Legal and audit

    412       321  

Sales tax

    488       9  

Utilities

    153       91  

Warranty

    16       14  

Accrued purchase of materials and property, plant and equipment

    362       144  

Provision for reinstatement

    309       290  

Deferred income

    60       67  

Other accrued expenses

    347       279  

Currency translation effect

    1       62  

Total

  $ 3,870     $ 2,690  

 

 

11.   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.

 

   

Mar. 31,

2022

(Unaudited)

   

June 30,

2021

 

Beginning

  $ 14     $ 12  

Additions charged to cost and expenses

    2       7  

Reversal

    -       (4

)

Currency translation effect

    -       (1

)

Ending

  $ 16     $ 14  

 

- 18-

 

 

 

12.   BANK LOANS PAYABLE

 

Bank loans payable consisted of the following:

 

   

Mar. 31, 2022

(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 March 31, 2022 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 March 31, 2022 and June 30, 2021, respectively.

    1,571       1,885  
                 

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

    145       175  
                 

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

    246       -  

Total bank loans payable

  $ 1,962     $ 2,060  
                 

Current portion of bank loans payable

    498       428  

Currency translation effect on current portion of bank loans

    (5

)

    11  

Current portion of bank loans payable

    493       439  

Long-term portion of bank loans payable

    1,487       1,564  

Currency translation effect on long-term portion of bank loans

    (17

)

    57  

Long-term portion of bank loans payable

  $ 1,470     $ 1,621  

 

Future minimum payments (excluding interest) as at March 31, 2022, were as follows: 

 

Remainder of fiscal 2022

  $ 459  

2023

    512  

2024

    311  

2025

    233  

2026

    227  

Thereafter

    221  

Total obligations and commitments

  $ 1,962  

 

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  

 

 

13.   COMMITMENTS AND CONTINGENCIES

 

Trio-Tech (Malaysia) Sdn. Bhd. has no capital commitments as at March 31, 2022, as compared to capital commitment of $93 as at June 30, 2021.

 

- 19-

 

 

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

 

 

14.   BUSINESS SEGMENTS

 

The Company 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.

 

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).

 

- 20-

 

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 March 31, 2022, 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.

 

The following segment information is unaudited for the nine months ended March 31, 2022 and March 31, 2021:

 

Business Segment Information:

 

 

Nine Months

Ended

Mar. 31,

 

Net

Revenue

   

Operating

Income / (Loss)

   

Total

Assets

   

Depr.

And

Amort.

   

Capital

Expenditures

 

Manufacturing

2022

  $ 10,187       107       14,204       318       103  
 

2021

  $ 9,324       277       12,576       310       214  
                                           

Testing Services

2022

    13,983       1,000       24,030       1,884       1,040  
 

2021

    10,018       (993

)

    21,364       1,859       407  
                                           

Distribution

2022

    8,038       1,108       1,601       -       -  
 

2021

    3,790       407       983       -       -  
                                           

Real Estate

2022

    23       (86

)

    1,730       61       1  
 

2021

    22       (84

)

    3,784       55       -  
                                           

Corporate &

2022

    -       (632

)

    238       -       -  

Unallocated

2021

    -       (36

)

    418       -       -  
                                           

Total Company

2022

  $ 32,231       1,496       41,803       2,263       1,144  
 

2021

  $ 23,154       (429

)

    39,125       2,224       621  

 

- 21-

 

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

 

Business Segment Information:

 

 

Three Months

Ended

Mar. 31,

 

Net

Revenue

   

Operating

Income / (Loss)

   

Total

Assets

   

Depr.

And

Amort.

   

Capital

Expenditures

 

Manufacturing

2022

  $ 3,097       (145

)

    14,204       110       8  
 

2021

  $ 3,130       214       12,576       98       60  
                                           

Testing Services

2022

    4,417       (124

)

    24,030       633       341  
 

2021

    3,504       (320

)

    21,364       637       344  
                                           

Distribution

2022

    3,620       576       1,601       (2 )     -  
 

2021

    1,467       163       983       -       -  
                                           

Real Estate

2022

    4       (35

)

    1,730       20       -  
 

2021

    11       (23

)

    3,784       20       -  
                                           

Corporate &

2022

    -       (402

)

    238       -       -  

Unallocated

2021

    -       (99

)

    418       -       -  
                                           

Total Company

2022

  $ 11,138       (130 )     41,803       761       349  
 

2021

  $ 8,112       (65 )     39,125       755       404  

 

 

15. OTHER INCOME

 

Other income consisted of the following:

 

   

Three Months Ended

   

Nine Months Ended

 
   

Mar. 31,

   

Mar. 31,

   

Mar. 31,

   

Mar. 31,

 
   

2022

   

2021

   

2022

   

2021

 
   

Unaudited

   

Unaudited

   

Unaudited

   

Unaudited

 

Interest income

  $ 13     $ 26     $ 51     $ 96  

Other rental income

    30       25       88       70  

Exchange (loss) / Gain

    (9 )     58       (13

)

    (79 )

Bad debt recovery

    -       -       104       10  

Dividend income

    -       -       -       32  

Government grant

    62       152       160       412  

Commission income

    -       -       200       -  

Other miscellaneous income

    31       12       79       86  

Total

  $ 127     $ 273     $ 669     $ 627  

 

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 $nil and $61 for the three and nine months ended March 31, 2022, 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 $107 and $350 for the three and nine months ended March 31, 2021, respectively.

 

- 22-

 

 

 

16.  INCOME TAX

 

The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining the provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws. The statute of limitations, in general, is open for years 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 $Nil for the period ended March 31, 2022.

 

The Company's income tax expense was $170 and $503 for the 3 months and 9 months ended March 31, 2022, respectively as compared to $118 and $125 for the 3 months and 9 months ended March 31, 2021. Our effective tax rate (“ETR”) from continuing operations was 500.0% and 64.5% for the quarters ended March 31, 2022 and March 31, 2021, respectively. The increase in effective tax rate was due to Singapore operations incurring higher income tax due to full utilization of tax allowances coupled with the additional tax arising from under provision of tax expenses for the financial year ended 2020.

 

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 no unrecognized tax benefits or related accrued penalties or interest expenses at March 31, 2022.

 

In assessing the ability to realize the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on these criteria, management believes it is more likely than not the Company will not realize the benefits of the federal, state, and foreign deductible differences. Accordingly, a full valuation allowance has been established.

 

 

17.  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.

 

The following table is the reconciliation of contract balances.

 

   

Mar. 31,

2022

(Unaudited)

   

June 30,

2021

 

Trade Accounts Receivable

    10,585       8,293  

Accounts Payable

    2,220       3,702  

Contract Assets

    594       337  

Contract Liabilities

    1,172       673  

 

- 23-

 

Remaining Performance Obligation

 

As at March 31, 2022, the Company had $636 of remaining performance obligations, which represents our obligation to deliver products and services within 2 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.

 

 

18.   (LOSSES) / EARNINGS PER SHARE

 

Options to purchase 698,875 shares of Common Stock at exercise prices ranging from $3.28 to $7.76 per share were outstanding as of March 31, 2022. 140,500 stock options were excluded in the computation of diluted EPS for the three and nine months ended March 31, 2022, because they were anti-dilutive.

 

Options to purchase 674,500 shares of Common Stock at exercise prices ranging from $2.53 to $5.98 per share were outstanding as of March 31, 2021. 140,000 stock options were excluded in the computation of diluted EPS for three and nine months ended March 31, 2021 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

   

Nine Months Ended

 
   

Mar. 31,

   

Mar. 31,

   

Mar. 31,

    Mar. 31,  
   

2022

   

2021

   

2022

    2021  
   

(Unaudited)

   

(Unaudited)

   

(Unaudited)

    (Unaudited)  
                                 

(Loss)/income attributable to Trio-Tech International common shareholders from continuing operations, net of tax

  $ (167 )   $ 177     $ 1,603     $ 418  

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

    -       1       2       (13

)

Net (loss)/income attributable to Trio-Tech International Common Shareholders

  $ (167 )   $ 178     $ 1,605     $ 405  
                                 

Weighted average number of common shares outstanding - basic

    3,949       3,913       3,949       3,913  
                                 

Dilutive effect of stock options

    272       133       191       117  

Number of shares used to compute earnings per share - diluted

    4,221       4,046       4,140       4,030  
                                 

Basic (losses) / earnings per share from continuing operations attributable to Trio-Tech International

  $ (0.04 )     0.05       0.40       0.11  

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

    -       -       -       -  

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

  $ (0.04

)

  $ 0.05     $ 0.40     $ 0.11  
                                 

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

  $ (0.04 )     0.04       0.38       0.10  

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

    -       -       -       -  

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

  $ (0.04 )   $ 0.04     $ 0.38     $ 0.10  

 

- 24-

 

 

 

19.  STOCK OPTIONS

 

On September 24, 2007, the Company’s Board of Directors unanimously adopted the 2007 Employee Stock Option Plan (the “2007 Employee Plan”) and the 2007 Directors Equity Incentive Plan (the “2007 Directors Plan”), 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.

 

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%);

 

no 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 third quarter of fiscal year 2022, 40,500 stock options were granted under the 2017 Employee Plan. There were 41,125 stock options exercised during the nine-month period ended March 31, 2022. The Company recognized $106 stock-based compensation expenses during the nine months ended March 31, 2022.

 

During the third quarter of fiscal year 2021, the Company granted options to purchase 71,000 shares of its Common Stock to employees pursuant to the 2017 Employee Plan. There were no stock options granted under the 2017 Employee Plan exercised during the nine-month period ended March 31, 2021. The Company recognized $45 in stock-based compensation expenses during the nine months ended March 31, 2021.

 

As of March 31, 2022, there were vested stock options granted under the 2017 Employee Plan covering a total of 170,500 shares of Common Stock. The weighted-average exercise price was $4.81 and the weighted average remaining contractual term was 2.24 years.

 

As of March 31, 2021, there were vested stock options granted under the 2017 Employee Plan covering a total of 149,750 shares of Common Stock. The weighted-average exercise price was $4.46 and the weighted average remaining contractual term was 2.99 years.

 

- 25-

 

A summary of option activities under the 2017 Employee Plan during the nine months period ended March 31, 2022, 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

    40,500       -       -       -  

Exercised

    (41,125

)

    2.86       -       -  

Forfeited or expired

    -       -       -       -  

Outstanding at March 31, 2022

    266,375     $ 4.96       2.80     $ 621  

Exercisable at March 31, 2022

    170,500     $ 4.81       2.24     $ 415  

 

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

 

   

Options

   

Weighted

Average

Grant-Date

Fair Value

 
                 

Non-vested at July 1, 2021

    102,250     $ 2.29  

Granted

    40,500       -  

Vested

    (46,875

)

    -  

Forfeited

    -       -  

Non-vested at March 31, 2022

    95,875     $ 5.23  

 

A summary of option activities under the 2017 Employee Plan during the nine months period ended March 31, 2021, 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

    71,000       5.03       -       -  

Exercised

    -       -       -       -  

Forfeited or expired

    -       -       -       -  

Outstanding at March 31, 2021

    267,000     $ 4.21       3.47     $ 210.40  

Exercisable at March 31, 2021

    149,750     $ 4.46       2.99     $ 106.07  

 

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

 

   

Options

   

Weighted

Average

Grant-Date

Fair Value

 
                 

Non-vested at July 1, 2020

    98,000     $ 3.39  

Granted

    71,000       -  

Vested

    (51,750

)

    -  

Forfeited

    -       -  

Non-vested at March 31, 2021

    117,250     $ 3.90  

 

- 26-

 

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 nine months ended March 31, 2022, and March 31, 2021 respectively.

 

There were 37,500 options exercised during the nine months ended March 31, 2022 and none exercised in March 31, 2021. The Company did not recognize any stock-based compensation expenses during the nine months ended March 31, 2022, and March 31, 2021.

 

As of March 31, 2022, there were no vested stock options granted under the 2007 Employee Plan.

 

As of March 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 0.99 years.

 

A summary of option activities under the 2007 Employee Plan during the nine months ended March 31, 2022, 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

    (37,500 )     4.14       -       -  

Forfeited or expired

    -       -       -       -  

Outstanding at March 31, 2022

    -     $ -       -     $ -  

 

There were no non-vested employee stock options during the nine months ended March 31, 2022.

 

A summary of option activities under the 2007 Employee Plan during the nine months ended March 31, 2021, 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

    (40,000 )     3.26       -       -  

Forfeited or expired

    -       -       -       -  

Outstanding at March 31, 2021

    37,500     $ 4.14       0.99     $ 13.13  

Exercisable at March 31, 2021

    37,500     $ 4.14       0.99     $ 13.13  

 

There were no non-vested employee stock options during the nine months ended March 31, 2021.

 

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.

 

- 27-

 

During the third quarters of fiscal year 2022, the Company granted options to purchase 100,000 shares of its Common Stock pursuant to the 2017 Directors Plan. There were no stock options exercised during the nine months ended March 31, 2022. The Company recognize $353 stock-based compensation expenses during the nine months ended March 31, 2022.

 

During the third quarter of fiscal year 2021, the Company granted options to purchase 80,000 shares of its Common Stock pursuant to the 2017 Directors Plan. There were no stock options exercised during the nine months ended March 31, 2021. The Company recognized $99 stock-based compensation expenses during the nine months ended March 31, 2021.

 

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

 

As of March 31, 2022, there were vested stock options granted under the 2017 Directors Plan covering a total of 420,000 shares of Common Stock. The weighted-average exercise price was $5.10 and the weighted average remaining contractual term was 3.10 years.

 

As of March 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 3.47 years.

 

A summary of option activities under the 2017 Directors Plan during the three months ended March 31, 2022, 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

    100,000       7.76       -       -  

Exercised

    -       -       -       -  

Forfeited or expired

    -       -       -       -  

Outstanding at March 31, 2022

    420,000       5.10       0.60       942  

Exercisable at March 31, 2022

    420,000       5.10       3.07       942  

 

- 28-

 

A summary of option activities under the 2017 Directors Plan during the nine months ended March 31, 2021, 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

    80,000       5.27       4.89       -  

Exercised

    -       -       -       -  

Forfeited or expired

    -       -       -       -  

Outstanding at March 31, 2021

    320,000     $ 4.27       3.47     $ 253.6  

Exercisable at March 31, 2021

    320,000     $ 4.27       3.47     $ 253.6  

 

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 nine months ended March 31, 2022, and March 31, 2021.

 

There were 50,000 stock options exercised during the nine months ended March 31, 2022. The Company did not recognize any stock-based compensation expenses during the nine months ended March 31, 2022.

 

200,000 shares of stock options were exercised during the nine months ended March 31, 2021. The Company did not recognize any stock-based compensation expenses during the nine months ended March 31, 2021.

 

As of March 31, 2022, there were no vested stock options granted under the 2007 Directors Plan

 

As of March 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 0.99 years.

 

A summary of option activities under the 2007 Directors Plan during the three months ended March 31, 2022, 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