0000732026 TRIO-TECH INTERNATIONAL false --06-30 Q1 2022 215 243 625 674 0 0 15,000,000 15,000,000 4,076,680 4,076,680 4,071,680 4,071,680 2,000 281 5,000 702 2,000 14 2 4,025 2 2 9 10 5 22 10 803 1.85 5.5 1.85 5.5 2 1.85 5.5 1.85 5.5 2 2.00 2.00 3.6 3.791 2,375 2,372 3.2 3.2 3.0 3.0 3.0 3.0 17,203 4 4 2 1 10 5 0 0 0 0 0 0 5 0 0 0 0 0 0 0 0 0 0 0 20 4 3 4 1 4 2 100% owned by Trio-Tech International Pte. Ltd. Down Payment for Purchase of Investment Properties Down payment for purchase of investment properties included: RMB U.S. Dollars Original Investment (10% of Junzhou equity) $ 10,000 $ 1,606 Less: Management Fee (5,000 ) (803 ) Net Investment 5,000 803 Less: Share of Loss on Joint Venture (137 ) (22 ) Net Investment as Down Payment (Note *a) 4,863 781 Loans Receivable 5,000 814 Interest Receivable 1,250 200 Less: Impairment of Interest (906 ) (150 ) Transferred to Down Payment (Note *b) 5,344 864 * Down Payment for Purchase of Investment Properties 10,207 1,645 Less: Provision of Impairment loss on other assets (10,207 ) (1,645 ) Down Payment for Purchase of Investment Properties - - On December 2, 2010, the Company signed a Joint Venture agreement (“agreement”) with Jia Sheng Property Development Co. Ltd. (“Developer”) to form a new company, Junzhou Co. Limited (“Joint Venture” or “Junzhou”), to jointly develop the “Singapore Themed Park” project (the “project”). The Company paid RMB10 million for the 10% investment in the joint venture. The Developer paid the Company a management fee of RMB 5 million in cash upon signing of the agreement, with a remaining fee of RMB 5 million payable upon fulfilment of certain conditions in accordance with the agreement. The Company further reduced its investment by RMB 137, or approximately $22, through the losses from operations incurred by the Joint Venture. On October 2, 2013, the Company disposed of its entire 10% interest in the Joint Venture but to date has not received payment in full therefor. The Company recognized that disposal based on the recorded net book value of RMB 5 million, or equivalent to $803K, from net considerations paid, in accordance with GAAP under ASC Topic 845 Non-monetary Consideration. It is presented under “Other Assets” as noncurrent assets to defer the recognition of the gain on the disposal of the 10% interest in the joint venture investment until such time that the consideration is paid, so that the gain can be ascertained. Amounts of RMB 5,000, or approximately $773, as disclosed in Note 6, plus the interest receivable on long term loan receivable of RMB 1,250, or approximately $200, and impairment on interest of RMB 906, or approximately $150. 00007320262022-07-012022-09-30 xbrli:shares 00007320262022-11-01 thunderdome:item iso4217:USD 00007320262022-09-30 00007320262022-06-30 iso4217:USDxbrli:shares 0000732026trt:ManufacturingMember2022-07-012022-09-30 0000732026trt:ManufacturingMember2021-07-012021-09-30 0000732026trt:TestingServicesMember2022-07-012022-09-30 0000732026trt:TestingServicesMember2021-07-012021-09-30 0000732026trt:DistributionMember2022-07-012022-09-30 0000732026trt:DistributionMember2021-07-012021-09-30 0000732026trt:RealEstateSegmentMember2022-07-012022-09-30 0000732026trt:RealEstateSegmentMember2021-07-012021-09-30 00007320262021-07-012021-09-30 0000732026us-gaap:CommonStockMember2022-06-30 0000732026us-gaap:AdditionalPaidInCapitalMember2022-06-30 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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 September 30, 2022

 

OR

 

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

 

For the Transition Period from ___ to ___

 

Commission File Number 1-14523

 

TRIO-TECH INTERNATIONAL

(Exact name of Registrant as specified in its Charter)

 

California

 

95-2086631

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

 

 

 

Block 1008 Toa Payoh North

 

 

Unit 03-09 Singapore

 

318996

(Address of principal executive offices)

 

(Zip Code)

 

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

 

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

   

Name of each exchange

Title of each class

Trading Symbol

on which registered

Common Stock, no par value

        TRT

 NYSE American

 

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

 

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

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-­accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-­2 of the Exchange Act. (Check one):

 

Large Accelerated Filer

 

Accelerated Filer

Non-Accelerated Filer 

 

Smaller reporting company   

     

Emerging growth company

 

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

 

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

 

As of November 1, 2022, there were 4,076,680 shares of the issuer’s Common Stock, no par value, outstanding.

 



 

 

 

 

TRIO-TECH INTERNATIONAL

INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE

 

 

 

Page

Part I.

Financial Information

 

 

 

 

Item 1.

Financial Statements

1

 

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

1
 

(b)   Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) for the Three Months Ended September 30, 2022 (Unaudited), and September 30, 2021 (Unaudited)

2
 

(c)   Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended September 30, 2022 (Unaudited), and September 30, 2021 (Unaudited)

4
 

(d)   Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2022 (Unaudited), and September 30, 2021 (Unaudited)

5
 

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

6

Item 2.

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

27

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

37

Item 4.

Controls and Procedures

37
 

 

 

Part II.

Other Information

 
 

 

 

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

Defaults upon Senior Securities

38

Item 4.

Mine Safety Disclosures

38

Item 5.

Other Information

38

Item 6.

Exhibits

38

 

   

Signatures

39

 

 

 

 

FORWARD-LOOKING STATEMENTS

 

The discussions of Trio-Tech International’s (the “Company”) business and activities set forth in this Quarterly Report on Form 10-Q (this “Quarterly Report”) and in other past and future reports and announcements by the Company may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and assumptions regarding future activities and results of operations of the Company. In light of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the following factors, among others, could cause actual results to differ materially from those reflected in any forward-looking statements made by or on behalf of the Company: market acceptance of Company products and services; changing business conditions or technologies and volatility in the semiconductor industry, which could affect demand for the Company’s products and services; the impact of competition; problems with technology; product development schedules; delivery schedules; changes in military or commercial testing specifications which could affect the market for the Company’s products and services; difficulties in profitably integrating acquired businesses, if any, into the Company; risks associated with conducting business internationally and especially in Asia, including currency fluctuations and devaluation, currency restrictions, local laws and restrictions and possible social, political and economic instability; changes in U.S. and global financial and equity markets, including market disruptions and significant interest rate fluctuations; ongoing public health issues related to the COVID-19 pandemic; the trade tension between U.S. and China; other economic, financial and regulatory factors beyond the Company’s control and uncertainties relating to our ability to operate our business in China; uncertainties regarding the enforcement of laws and the fact that rules and regulation in China can change quickly with little advance notice, along with the risk that the Chinese government may intervene or influence our operation at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers could result in a material change in our operations, financial performance and/or the value of our common stock, no par value (“Common Stock”) or impair our ability to raise money. Other than statements of historical fact, all statements made in this Quarterly Report are forward-looking, including, but not limited to, statements regarding industry prospects, future results of operations or financial position, and statements of our intent, belief and current expectations about our strategic direction, prospective and future financial results and condition. In some cases, you can identify forward-looking statements by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” “believes,” “can impact,” “continue,” or the negative thereof or other comparable terminology. Forward-looking statements involve risks and uncertainties that are inherently difficult to predict, which could cause actual outcomes and results to differ materially from our expectations, forecasts and assumptions.

 

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

 

 

 

  

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

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

 

 

   

September 30,
2022

   

June 30,
2022

 
   

(Unaudited)

         

ASSETS

               

CURRENT ASSETS:

               

Cash and cash equivalents

  $ 9,428     $ 7,698  

Short-term deposits

    2,829       5,420  

Trade accounts receivable, less allowance for doubtful accounts of $215 and $243, respectively

    12,491       11,592  

Other receivables

    942       998  

Inventories, less provision for obsolete inventories of $625 and $674, respectively

    3,548       2,258  

Prepaid expenses and other current assets

    631       1,215  

Financed sales receivable

    20       21  

Total current assets

    29,889       29,202  

NON-CURRENT ASSETS:

               

Deferred tax assets

    173       169  

Investment properties, net

    533       585  

Property, plant and equipment, net

    8,687       8,481  

Operating lease right-of-use assets

    2,759       3,152  

Other assets

    121       137  

Financed sales receivable

    11       17  

Restricted term deposits

    1,632       1,678  

Total non-current assets

    13,916       14,219  

TOTAL ASSETS

  $ 43,805     $ 43,421  
                 

LIABILITIES

               

CURRENT LIABILITIES:

               

Lines of credit

  $ 482     $ 929  

Accounts payable

    3,469       2,401  

Accrued expenses

    6,179       6,004  

Income taxes payable

    968       787  

Current portion of bank loans payable

    491       472  

Current portion of finance leases

    104       118  

Current portion of operating leases

    1,130       1,218  

Total current liabilities

    12,823       11,929  

NON-CURRENT LIABILITIES:

               

Bank loans payable, net of current portion

    1,251       1,272  

Finance leases, net of current portion

    91       119  

Operating leases, net of current portion

    1,629       1,934  

Income taxes payable, net of current portion

    137       137  

Deferred tax liabilities

    30       -  

Other non-current liabilities

    26       28  

Total non-current liabilities

    3,164       3,490  

TOTAL LIABILITIES

  $ 15,987     $ 15,419  
                 

EQUITY

               

TRIO-TECH INTERNATIONAL’S SHAREHOLDERS’ EQUITY:

               

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

  $ 12,769       12,750  

Paid-in capital

    4,740       4,708  

Accumulated retained earnings

    10,101       9,219  

Accumulated other comprehensive income-translation adjustments

    1       1,197  

Total Trio-Tech International shareholders’ equity

    27,611       27,874  

Non-controlling interest

    207       128  

TOTAL EQUITY

  $ 27,818     $ 28,002  

TOTAL LIABILITIES AND EQUITY

  $ 43,805     $ 43,421  

 

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

 
   

Sept. 30,
2022

   

Sept. 30,
2021

 

Revenue

               

Manufacturing

  $ 3,585     $ 3,562  

Testing services

    6,364       4,600  

Distribution

    1,982       1,998  

Real estate

    8       11  
      11,939       10,171  

Cost of Sales

               

Cost of manufactured products sold

    2,525       2,434  

Cost of testing services rendered

    4,126       2,883  

Cost of distribution

    1,648       1,656  

Cost of real estate

    18       19  
      8,317       6,992  

Gross Margin

    3,622       3,179  
                 

Operating Expenses:

               

General and administrative

    2,305       1,980  

Selling

    173       147  

Research and development

    73       82  

Gain on disposal of property, plant and equipment

    4       -  

Total operating expenses

    2,555       2,209  
                 

Income from Operations

    1,067       970  
                 

Other Income/(Expenses)

               

Interest expenses

    (44 )     (28 )

Other income, net

    179       161  

Total other income

    135       133  
                 

Income from Continuing Operations before Income Taxes

    1,202       1,103  
                 

Income Tax Expenses

    (225 )     (180 )
                 

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

    977       923  
                 

Discontinued Operations

               

Income from discontinued operations, net of tax

    1       5  

NET INCOME

    978       928  
                 

Less: Net income attributable to the non-controlling interest

    96       11  

Net Income Attributable to Trio-Tech International Common Shareholders

  $ 882     $ 917  
                 

Amounts Attributable to Trio-Tech International Common Shareholders:

               

Income from continuing operations, net of tax

    882       914  

Income from discontinued operations, net of tax

    -       3  

Net Income Attributable to Trio-Tech International Common Shareholders

  $ 882     $ 917  
                 

Basic Earnings per Share:

               

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

  $ 0.22     $ 0.23  

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

  $ -     $ -  

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

  $ 0.22     $ 0.23  
                 

Diluted Earnings per Share:

               

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

  $ 0.21     $ 0.23  

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

  $ -     $ -  

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

  $ 0.21     $ 0.23  
                 

Weighted average number of common shares outstanding

               

Basic

    4,077       3,913  

Dilutive effect of stock options

    81       94  

Number of shares used to compute earnings per share diluted

  $ 4,158     $ 4,007  

 

See notes to condensed consolidated financial statements.

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) / INCOME

UNAUDITED (IN THOUSANDS)

 

   

Three Months Ended

 
   

Sept. 30,

   

Sept. 30,

 
   

2022

   

2021

 

Comprehensive Income Attributable to Trio-Tech International Common

               

Shareholders

               

Net income

  $ 978     $ 928  

Foreign currency translation, net of tax

    (1,213 )     (289 )

Comprehensive (Loss) / Income

    (235 )     639  

Less: Comprehensive income attributable to the non-controlling interests

    79       4  

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

  $ (314 )   $ 635  

 

See notes to condensed consolidated financial statements.

 

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

UNAUDITED (IN THOUSANDS)

 

Three months ended September 30, 2022

   

Common Stock

   

Paid-in

   

Accumulated Retained

   

Accumulated Other

Comprehensive

   

Non- controlling

         
   

Shares

   

Amount

   

Capital

   

Earnings

   

Income/ (Loss)

   

Interest

   

Total

 
          $     $     $     $     $     $  
                                                         

Balance at June 30, 2022

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

Stock option expenses

    -       -       32       -       -       -       32  

Net income

                        882       -       96       978  

Dividend declared by subsidiary

    -       -       -       -       -       -       -  

Exercise of stock option

    5       19             -       -       -       19  

Translation adjustment

    -       -             -       (1,196

)

    (17

)

    (1,213

)

Balance at Sept 30, 2022

    4,077       12,769       4,740       10,101       1       207       27,818  

 

 

Three months ended September 30, 2021

   

Common Stock

   

Paid-in

   

Accumulated Retained

   

Accumulated Other

Comprehensive

   

Non- controlling

         
   

Shares

   

Amount

   

Capital

   

Earnings

   

Income/ (Loss)

   

Interest

   

Total

 
          $     $     $     $     $     $  
                                                         

Balance at June 30, 2021

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

Stock option expenses

    -       -       12       -       -       -       12  

Net income

    -       -       -       917       -       11       928  

Translation adjustment

    -       -       -             (282 )     (7 )     (289 )

Balance at Sept. 30, 2021

    3,913       12,178       4,245       7,741       2,117       423       26,704  

 

See notes to condensed consolidated financial statements.

 

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)

 

 

   

Three Months Ended

 
   

Sept. 30,

   

Sept. 30,

 
   

2022

   

2021

 
   

(Unaudited)

   

(Unaudited)

 

Cash Flow from Operating Activities

               

Net income/ (loss)

  $ 978     $ 928  

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

               

Depreciation and amortization

    882       709  

Addition of provision for obsolete inventories

    (38 )     11  

Stock option expense

    32       12  

Bad debt recovery

    (17 )     (2 )

Accrued interest expense, net accrued interest income

    43       16  

Payment of interest portion of finance lease

    (3 )     (6 )

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

    (15 )     -  

Warranty recovery, net

    2       -  

Deferred tax expense

    20       18  

Changes in operating assets and liabilities, net of acquisition effects

               

Trade accounts receivable

    (886 )     (1,105 )

Other receivables

    56       (30 )

Other assets

    11       (52 )

Inventories

    (1,341 )     (362 )

Prepaid expenses and other current assets

    537       (893 )

Accounts payable and accrued expenses

    1,469       68  

Income taxes payable

    211       123  

Operating lease liabilities

    (380 )     (146 )

Net Cash Provided by / (Used in) Operating Activities

  $ 1,561     $ (711 )
                 

Cash Flow from Investing Activities

               

Withdrawal from unrestricted term deposits, net

    2,486       664  

Additions to property, plant and equipment

    (1,156 )     (438 )

Net Cash Provided by Investing Activities

    1,330       226  
                 

Cash Flow from Financing Activities

               

Payment on lines of credit

    (938 )     (301 )

Payment of bank loans

    (117 )     (107 )

Payment of finance leases

    (36 )     (53 )

Proceeds from exercising stock options

    19       -  

Proceeds from lines of credit

    483       478  

Proceeds from bank loans

    175       -  

Net Cash (Used in) / Provided by Financing Activities

    (414 )     17  
                 

Effect of Changes in Exchange Rate

    (793 )     (214 )
                 

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

    1,684       (682 )

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

    9,376       7,577  

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

  $ 11,060     $ 6,895  
                 

Supplementary Information of Cash Flows

               

Cash paid during the period for:

               

Interest

  $ 43     $ 122  

Income taxes

  $ 1     $ 52  
                 

Reconciliation of Cash, Cash Equivalents, and Restricted Cash

               

Cash

    9,428       5,173  

Restricted Term-Deposits in Non-Current Assets

    1,632       1,722  

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

  $ 11,060     $ 6,895  

 

See notes to condensed consolidated financial statements.

 

Amounts included in restricted deposits represent the amount of cash pledged to secure loans payable or trade financing granted by financial institutions and serve as collateral for public utility agreements such as electricity and water. Restricted deposits are classified as non-current assets as they relate to long-term obligations and will become unrestricted only upon discharge of the obligations.

 

 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

1. ORGANIZATION AND BASIS OF PRESENTATION

 

Trio-Tech International (the “Company”, or “TTI”) was incorporated in fiscal year ended June 30, 1958 under the laws of the State of California. TTI provides third-party semiconductor testing and burn-in services primarily through its laboratories in Southeast Asia. In addition, TTI operates testing facilities in the United States (“U.S.”). The Company also designs, develops, manufactures and markets a broad range of equipment and systems used in the manufacturing and testing of semiconductor devices and electronic components. In the first quarter of the fiscal year ended June 30, 2023 (“Fiscal 2023”), TTI conducted business in four business segments: Manufacturing, Testing Services, Distribution and Real Estate. TTI has subsidiaries in the U.S., Singapore, Malaysia, Thailand, Indonesia, Ireland and China as follows:

 

 

Ownership

Location

Express Test Corporation (Dormant)

100%

Van Nuys, California

Trio-Tech Reliability Services (Dormant)

100%

Van Nuys, California

KTS Incorporated, dba Universal Systems (Dormant)

100%

Van Nuys, California

European Electronic Test Centre (Dormant)

100%

Dublin, Ireland

Trio-Tech International Pte. Ltd.

100%

Singapore

Universal (Far East) Pte. Ltd.*

100%

Singapore

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

100%

Bangkok, Thailand

Trio-Tech (Bangkok) Co. Ltd. *

100%

Bangkok, Thailand

Trio-Tech (Malaysia) Sdn. Bhd.

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

55%

Penang and Selangor, Malaysia

Trio-Tech (Kuala Lumpur) Sdn. Bhd.

55%

Selangor, Malaysia

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

   

Prestal Enterprise Sdn. Bhd.

76%

Selangor, Malaysia

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

   

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

100%

Suzhou, China

Trio-Tech (Chongqing) Co. Ltd. *

100%

Chongqing, China

SHI International Pte. Ltd. (Dormant)

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

55%

Singapore

PT SHI Indonesia (Dormant)

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

52%

Batam, Indonesia

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

100%

Tianjin, China

Trio-Tech (Jiangsu) Co., Ltd.

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

51%

Suzhou, China

 

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

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements are presented in U.S. dollars unless otherwise stated. The accompanying condensed consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report for the fiscal year ended June 30, 2022 (“Fiscal 2022”). The Company’s operating results are presented based on the translation of foreign currencies using the respective quarter’s average exchange rate.

 

The results of operations for the three months ended September 30, 2022 are not necessarily indicative of the results that may be expected for any other interim period or for the full year ending June 30, 2023.

 

- 6-

 

Use of Estimates — The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Among the more significant estimates included in these consolidated financial statements are the estimated allowance for doubtful account receivables, reserve for obsolete inventory, impairments, provision of income tax, stock options and the deferred income tax asset allowance. Actual results could materially differ from those estimates.

 

Significant Accounting Policies. There have been no material changes to our significant accounting policies summarized in Note 1 “Basis of Presentation and Summary of Significant Accounting Policies” to our consolidated Financial Statements included in our Annual Report on Form 10-K for Fiscal 2022.

 

 

2.    NEW ACCOUNTING PRONOUNCEMENTS

 

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02 updating Accounting Standards Codification (“ASC”) Topic 326: Financial InstrumentsCredit Losses (Topic 326): Troubled Debt Restructurings (“TDR") and Vintage Disclosures (“ASU 2022-02”), which require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. The Company has completed its assessment and concluded that ASU 2022-02 has no significant impact to the Company’s consolidated financial statements.

 

In November 2021, FASB issued ASU 2021-10 ASC Topic 832: Government Assistance (“Topic 832”): Disclosures by Business Entities about Government Assistance (“ASU 2021-10”), which expected to increase transparency in financial reporting by requiring business entities to disclose information about certain types of government assistance received. ASU 2021-10 is effective for financial statements issued for annual periods beginning after December 15, 2021 for all entities except not-for-profit entities and employee benefit plans within the scope of Topics 960, 962, and 965 on plan accounting. The Company has completed its assessment and concluded that ASU 2021-10 is applicable to the Company as the Company received government grants. The Company will make the necessary disclosures in the financial statements for Fiscal 2023.

 

In March 2020, FASB issued ASU 2020-04, updating ASC Topic 848: Reference Rate Reform (“Topic 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. ASU 2020-04 is effective for all entities as of March 12, 2020, and the Company may elect to apply ASU 2020-04 prospectively through December 31, 2022. The Company has completed its assessment and concluded that ASU 2020-04 has no significant impact to the Company’s consolidated financial statements.

 

In June 2016, FASB issued ASU 2016-13 ASC Topic 326, Financial InstrumentsCredit Losses (“Topic 326”) (“ASU 2016-13”) for the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Topic 326 is effective for the Company for annual periods beginning after December 15, 2022. The Company has completed its assessment and concluded that ASU 2016-03 has no significant impact to the Company’s consolidated financial statements.

 

Other new pronouncements issued but not yet effective until after September 30, 2022, are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

 

- 7-

 
 

3.   TERM DEPOSITS

 

   

Sept. 30,

   

June 30,

 
   

2022

   

2022

 
   

(Unaudited)

         
                 

Short-term deposits

  $ 2,941     $ 5,619  

Currency translation effect on short-term deposits

    (112 )     (199 )

Total short-term deposits

    2,829       5,420  

Restricted term deposits

    1,680       1,746  

Currency translation effect on restricted term deposits

    (48 )     (68 )

Total restricted term deposits

    1,632       1,678  

Total term deposits

  $ 4,461     $ 7,098  

 

Restricted deposits represent the amount of cash pledged to secure loans payable to financial institutions and serve as collateral for public utility agreements such as electricity and water, and performance bonds related to customs duty payable. Restricted deposits are classified as noncurrent assets, as they relate to long-term obligations and will become unrestricted only upon discharge of the obligations. Short-term deposits represent bank deposits, which do not qualify as cash equivalents.

 

 

4.   TRADE ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

Accounts receivable are customer obligations due under normal trade terms. The Company performs continuing credit evaluations of its customers’ financial conditions, and although management generally does not require collateral, letters of credit may be required from the customers in certain circumstances.

 

Senior management reviews accounts receivable on a periodic basis to determine if any receivables will potentially be uncollectible. Management includes any accounts receivable balances that are determined to be uncollectible in the allowance for doubtful accounts. After all reasonable attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available, management believed the allowance for doubtful accounts as of September 30, 2022, and June 30, 2022, was adequate.  

 

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

   

Sept. 30,

   

June 30,

 
   

2022

   

2022

 
   

(Unaudited)

         
                 

Beginning

  $ 243     $ 311  

Additions charged to expenses

    -       48  

Recovered

    (17 )     (106 )

Currency translation effect

    (11 )     (10 )

Ending

  $ 215     $ 243  

 

- 8-

 
 

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 September 30, 2022.

 

 

Loan Expiry

 

Loan Amount

 

Loan Amount

 

Date

 

(RMB)

 

(U.S. Dollars)

Short-term loan receivables

 

       

JiangHuai (Project – Yu Jin Jiang An)

May 31, 2013

 

2,000

 

281

Less: allowance for doubtful receivables

   

(2,000)

 

(281) 

Net loan receivables from property development projects

   

-

 

-

           

Long-term loan receivables

         

Jun Zhou Zhi Ye

Oct 31, 2016

 

5,000

 

702

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

   

(5,000)

 

(702) 

Net loan receivables from property development projects

   

-

 

-

 

The short-term loan receivables amounting to renminbi (“RMB”) 2,000, or approximately $281 arose due to TTCQ entering into a Memorandum Agreement with JiangHuai Property Development Co. Ltd. (“JiangHuai”) to invest in their property development projects (Project - Yu Jin Jiang An) located in Chongqing City, China in the fiscal year ended June 30, 2011 (“Fiscal 2011”). Based on TTI’s financial policy, a provision for doubtful receivables of $281 on the investment in JiangHuai was recorded during the fiscal year ended June 30, 2014 (“Fiscal 2014”). TTCQ did not generate other income from JiangHuai for the quarter ended September 30, 2022 or for Fiscal 2022. TTCQ is in the legal process of recovering the outstanding amount of approximately $281.

 

The loan amounting to RMB 5,000, or approximately $702, arose due to TTCQ entering into a Memorandum Agreement with JiaSheng Property Development Co. Ltd. (“JiaSheng”) to invest in their property development projects (Project B-48 Phase 2) located in Chongqing City, China in Fiscal 2011. The amount was unsecured and repayable at the end of the term. During the fiscal year ended June 30, 2015, the loan receivable was transferred to down payment for purchase of investment property that is being developed in the Singapore Themed Resort Project (See Note 8).

 

 

6.  INVENTORIES

 

Inventories consisted of the following:

   

Sept. 30, 2022

   

June 30, 2022

 
   

(Unaudited)

         
                 

Raw materials

  $ 1,269     $ 1,764  

Work in progress

    2,211       683  

Finished goods

    793       238  

Less: provision for obsolete inventories

    (625 )     (674 )

Currency translation effect

    (100 )     247  
    $ 3,548     $ 2,258  

 

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

   

Sept. 30, 2022

   

June 30, 2022

 
   

(Unaudited)

         
                 

Beginning

  $ 674     $ 679  

Additions charged to expenses

    -       17  

Usage – disposition

    (38 )     (34 )

Currency translation effect

    (11 )     12  

Ending

  $ 625     $ 674  

 

- 9-

 
 

7.   INVESTMENT PROPERTIES

 

The following table presents the Company’s investment in properties in China as of September 30, 2022. The exchange rate is based on the market rate as of September 30, 2022.

 

 

Investment Date / Reclassification

 

Investment

   

Investment Amount

 
 

Date

 

Amount (RMB)

   

(U.S. Dollars)

 
                   

Purchase of rental property – Property I – MaoYe Property

Jan 04, 2008

    5,554       894  

Currency translation

    -       (87 )

Reclassification as “Assets held for sale”

July 01, 2018

    (5,554 )     (807 )

Reclassification from “Assets held for sale”

Mar 31, 2019

    2,024       301  
        2,024       301  

Purchase of rental property – Property II - JiangHuai

Jan 06, 2010

    3,600       580  

Purchase of rental property – Property III - FuLi

Apr 08, 2010

    4,025       648  
Currency translation       -       (175 )

Gross investment in rental property

    9,649       1,354  
                   

Accumulated depreciation on rental property

Sep 30, 2022

    (7,643 )     (1,088 )

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 )
        (5,850 )     (821 )

Net investment in property – China

    3,799       533  

 

The following table presents the Company’s investment in properties in China as of June 30, 2022. The exchange rate is based on the market rate as of June 30, 2022.

 

   

Investment

Date /

Reclassification

 

Investment

   

Investment Amount

 
   

Date

 

Amount (RMB)

   

(U.S. Dollars)

 
                     

Purchase of rental property – Property I – MaoYe Property

 

Jan 04, 2008

    5,554       894  

Currency translation

        -       (87 )

Reclassification as “Assets held for sale”

 

July 01, 2018

    (5,554 )     (807 )

Reclassification from “Assets held for sale”

 

Mar 31, 2019

    2,024       301  
          2,024       301  

Purchase of rental property – Property II - JiangHuai

 

Jan 06, 2010

    3,600       580  

Purchase of rental property – Property III - FuLi

 

Apr 08, 2010

    4,025       648  
Currency translation         -       (89 )

Gross investment in rental property

        9,649       1,440  
                     

Accumulated depreciation on rental property

 

Jun 30, 2022

    (7,523 )     (1,122 )

Reclassified as “Assets held for sale”- MaoYe Property

 

July 01, 2018

    2,822       410  

Reclassification from “Assets held for sale”- MaoYe Property

 

Mar 31, 2019

    (1,029 )     (143 )
          (5,730 )     (855 )

Net investment in property – China

        3,919       585  

 

- 10-

 

Rental Property I - MaoYe Property

 

In the fiscal year ended June 30, 2008, TTCQ purchased an office in Chongqing, China from MaoYe Property Ltd. (“MaoYe”) for a total cash purchase price of RMB 5,554, or approximately $894. During the year ended June 30, 2019, the Company sold thirteen of the fifteen units constituting the MaoYe Property. Management has decided not to sell the remaining two units of MaoYe properties in the near future, due to current conditions of the property market in China. A new lease agreement was entered into on February 10, 2022 for a period of 4 years at a monthly rate of RMB14, or approximately $2, after termination of the previous agreement. Pursuant to the agreement, monthly rental will increase by 5% each year.

 

Property purchased from MaoYe generated a rental income of $6 during the three months ended September 30, 2022, as compared to $2 for the same period in Fiscal 2022.

 

Depreciation expense for MaoYe was $4 for the three months ended September 30, 2022, as compared to $4 for the same period in Fiscal 2022.

 

Rental Property II - JiangHuai

 

During the year ended June 30, 2010 (“Fiscal 2010”), TTCQ purchased eight units of commercial property in Chongqing, China from Chongqing JiangHuai Real Estate Development Co. Ltd. (“JiangHuai”) for a total purchase price of RMB 3,600, or approximately $580. As of June 30, 2022, TTCQ had not received the title deed for properties purchased from JiangHuai. While the above is not expected to affect the property’s market value, the COVID-19 pandemic and current economic situation it is likely to cause delays in court to consummate the execution of the sale.

 

Property purchased from JiangHuai did not generate any rental income for the three months ended September 30, 2022 and 2021.

 

Depreciation expense for JiangHuai was $7 for the three months ended September 30, 2022, as compared to $7 for the same period in last Fiscal 2022.

 

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 transferred 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. This agreement was prematurely terminated in May 2022. As of mid August 2022, TTCQ had found a new tenant for this unit for a period of 1 year.

 

TTCQ is actively searching for tenants to occupy the one commercial properties, which is vacant as of the date of this Report.

 

Properties purchased from FuLi generated a rental income of $2 for the three months ended September 30, 2022, as compared to $9 for the same period in Fiscal 2022.

 

Depreciation expense for FuLi was $7 for the three months ended September 30, 2022, as compared to $8 for the same period in Fiscal 2022.

 

Summary

 

Total rental income for all investment properties in China was $8 for the three months ended September 30, 2022, as compared to $11 for the same period in Fiscal 2022.

 

Depreciation expenses for all investment properties in China were $18 for the three months ended September 30, 2022, as compared to $19 for the same period in Fiscal 2022.

 

- 11-

 
 

8.   OTHER ASSETS

 

Other assets consisted of the following:

   

Sept. 30,

   

June 30,

 
   

2022

   

2022

 
   

(Unaudited)

         

Down payment for purchase of investment properties *

  $ -     $ -  

Down payment for purchase of property, plant and equipment

    -       -  

Deposits for rental and utilities and others

    136       142  

Currency translation effect

    (15 )     (5 )

Total

  $ 121     $ 137  

 

*Down payment for purchase of investment properties included:

 

    2022  
   

RMB

   

U.S. Dollars

 

Original Investment (10% of Junzhou equity)

  $ 10,000     $ 1,606  

Less: Management Fee

    (5,000 )     (803 )

Net Investment

    5,000       803  

Less: Share of Loss on Joint Venture

    (137 )     (22 )

Net Investment as Down Payment (Note *a)

    4,863       781  

Loans Receivable

    5,000       814  

Interest Receivable

    1,250       200  

Less: Impairment of Interest

    (906 )     (150 )

Transferred to Down Payment (Note *b)

    5,344       864  

* Down Payment for Purchase of Investment Properties

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

Less: Provision of Impairment loss on other assets

    (10,207 )     (1,580 )

* Down Payment for Purchase of Investment Properties

  $ -     $ -  

 

 

a)

In Fiscal 2011, the Company signed a Joint Venture agreement (the “Agreement”) with Jia Sheng Property Development Co. Ltd. (the “Developer”) to form a new company, Junzhou Co. Limited (“Joint Venture” or “Junzhou”), to jointly develop the “Singapore Themed Park” project (the “Project”). The Company paid RMB10 million for the 10% investment in the Joint Venture. The Developer paid the Company a management fee of RMB 5 million in cash upon signing of the Agreement, with a remaining fee of RMB 5 million payable upon fulfilment of certain conditions in accordance with the Agreement. The Company further reduced its investment by RMB 137, or approximately $22, through the losses from operations incurred by the Joint Venture. 

 

In Fiscal 2014, the Company disposed of its entire 10% interest in the Joint Venture but, to date, has not received payment in full therefor. The Company recognized a disposal based on the recorded net book value of RMB 5 million, or equivalent to $803K, from net considerations paid, in accordance with GAAP under ASC Topic 845 Non-monetary Consideration. It is presented under “Other Assets” as noncurrent assets to defer the recognition of the gain on the disposal of the 10% interest in the Joint Venture investment until such time that the consideration is paid, so the gain can be ascertained.

 

 

b)

Amounts of RMB 5,000, or approximately $814, as disclosed in Note 7, plus the interest receivable on long-term loan receivable of RMB 1,250, or approximately $200, and impairment on interest of RMB 906, or approximately $150.

 

The shop lots are to be delivered to TTCQ upon completion of the construction of the shop lots in Singapore Themed Resort Project. The initial targeted date of completion was in the fiscal year ended June 30, 2017. However, the progress has been delayed as the developer is currently undergoing asset reorganization process, to re-negotiate with their creditors to complete the project.  

 

During the fourth quarter of Fiscal 2021, the Company accrued an impairment charge of $1,580 related to the doubtful recovery of the down payment on property in the Singapore Theme Resort Project in Chongging, China. The Company elected to take this non-cash impairment charge due to increased uncertainties regarding the project’s viability, given the developers weakening financial condition as well as uncertainties arising from the negative real-estate environment in China, implementation of control measures on real-estate lending in China and its relevant government policies, together with effects of the ongoing pandemic. The local court is verifying the documents due to the sizable number of creditors as of September 30, 2022.

 

- 12-

 
 

9. LINES OF CREDIT

 

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

 

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

 

As of September 30, 2022, the Company had certain lines of credit that are collateralized by restricted deposits.

 

Entity with

 

Type of

 

Interest

 

Credit

 

Unused

Facility

 

Facility

 

Rate

 

Limitation

 

Credit

Trio-Tech International Pte. Ltd., Singapore

 

Lines of Credit

 

Ranging from 1.85% to 5.5%

 

$

4,397

 

$

4,397

Universal (Far East) Pte. Ltd.

 

Lines of Credit

 

Ranging from 1.85% to 5.5%

 

$

1,047

 

$

565

Trio-Tech Malaysia Sdn. Bhd.

 

Revolving credit

 

Cost of Funds Rate +2%

 

$

327

 

$

327

 

As of June 30, 2022, the Company had certain lines of credit that are collateralized by restricted deposits.

 

Entity with

 

Type of

 

Interest

 

Credit

 

Unused

Facility

 

Facility

 

Rate

 

Limitation

 

Credit

Trio-Tech International Pte. Ltd., Singapore

 

Lines of Credit

 

Ranging from 1.85% to 5.5%

 

$

4,090

 

$

3,651

Universal (Far East) Pte. Ltd.

 

Lines of Credit

 

Ranging from 1.85% to 5.5%

 

$

1,076

 

$

586

Trio-Tech Malaysia Sdn. Bhd.

 

Revolving credit

 

Cost of Funds Rate +2%

 

$

338

 

$

338

 

 

10.  ACCRUED EXPENSE

 

Accrued expense consisted of the following:

   

Sept. 30,

   

June 30,

 
   

2022

   

2022

 
   

(Unaudited)

         
                 

Payroll and related costs

  $ 2,469     $ 2,158  

Commissions

    133       116  

Customer deposits

    9       10  

Legal and audit

    346       320  

Sales tax

    76       531  

Utilities

    215       273  

Warranty

    18       16  

Accrued purchase of materials and property, plant and equipment

    456       905  

Provision for reinstatement

    298       308  

Deferred income

    49       55  

Contract liabilities

    1,218       933  

Other accrued expense

    829       571  

Currency translation effect

    63       (192 )

Total

  $ 6,179     $ 6,004  

 

 

- 13-

 
 

11.    WARRANTY ACCRUAL

 

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

 

   

Sept. 30,

   

June 30,

 
   

2022

   

2022

 
   

(Unaudited)

         
                 

Beginning

  $ 16     $ 14  

Additions charged to cost and expense

    1       7  

Reversal

    (1 )     (4 )

Currency translation effect

    2       (1 )

Ending

  $ 18     $ 16  

 

 

12.   BANK LOANS PAYABLE

 

Bank loans payable consisted of the following:

   

Sept. 30,

   

June 30,

 
   

2022

   

2022

 
   

(Unaudited)

         
                 

Note payable denominated in the Malaysian Ringgit for expansion plans in Malaysia, maturing in April 2028, bearing interest at the bank’s prime rate less 2.00% (3.6% and 3.791% at September 30, 2022 and June 30, 2022) per annum, with monthly payments of principal plus interest through August 2028, collateralized by the acquired building with a carrying value of $2,375 and $2,372, as at September 30, 2022 and June 30, 2022, respectively.

  $ 1,254     $ 1,392  

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

    114       128  

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

    206       224  

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

    168       -  

Total bank loans payable

  $ 1,742     $ 1,744  
                 

Current portion of bank loans payable

    508       503  

Currency translation effect on current portion of bank loans

    (17 )     (31 )

Current portion of bank loans payable

    491       472  

Long-term portion of bank loans payable

    1,295       1,357  

Currency translation effect on long-term portion of bank loans

    (44 )     (85 )

Long-term portion of bank loans payable

  $ 1,251       1,272  

 

- 14-

 

Future minimum payments (excluding interest) as at September 30, 2022, were as follows:

 

Remainder of Fiscal 2023

  $ 367  

2024

    497  

2025

    270  

2026

    242  

2027

    221  

Thereafter

    145  

Total obligations and commitments

  $ 1,742  

 

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

 

2023

  $ 472  

2024

    481  

2025

    246  

2026

    214  

2027

    190  

Thereafter

    141  

Total obligations and commitments

  $ 1,744  

 

 

13.   COMMITMENTS AND CONTINGENCIES

 

The Company had capital commitments in China for the purchase of equipment and other related infrastructure costs amounting to RMB17,203, or approximately $2,415 as of September 30, 2022. These commitments are primarily due within the next 24 months.

 

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

 

 

14.   BUSINESS SEGMENTS

 

The Company operated in four segments; the testing service industry (which performs structural and electronic tests of semiconductor devices), the designing and manufacturing of equipment (assembly of equipment that tests the structural integrity of integrated circuits and other products), distribution of various products from other manufacturers in Singapore and Asia and the real estate segment in China.

 

The cost of equipment, current year investment in new equipment and depreciation expense are allocated into respective segments based on primary purpose for which the equipment was acquired.

 

All intersegment sales were sales from the manufacturing segment to the testing and distribution segment. Total intersegment sales were $554 and $588 for 3 months ended September 30, 2022, and September 30, 2021 respectively. Corporate assets consisted primarily of cash and prepaid expense. Corporate expense consisted primarily of stock option expense, salaries, insurance, professional expenses and directors' fees. Corporate expenses are allocated to the four segments on a predetermined fixed amount calculated based on the annual budgeted sales, except the Malaysia operation, which is calculated based on actual sales. The following segment information table includes segment operating income or loss after including corporate expenses allocated to the segments, which gets eliminated in the consolidation.

 

- 15-

 

The following segment Information is unaudited for the three months ended September 30, 2022, and September 30, 2021:

 

Business Segment Information:

 

Three Months

                                       
 

Ended

 

Net

   

Operating

   

Total

   

Depr. And

   

Capital

 
 

Sept. 30,

 

Revenue

   

Income / (Loss)

   

Assets

   

Amort.

   

Expenditures

 

Manufacturing

2022

  $ 3,585     $ 176     $ 12,791     $ 97     $ -  
 

2021

  $ 3,562     $ 300     $ 18,558     $ 103     $ 60  
                                           

Testing Services

2022

    6,364       1,087       27,770       767       1,156  
 

2021

    4,600       536       18,363       585       377  
                                           

Distribution

2022

    1,982       265       1,603       -       -  
 

2021

    1,998       254       1,288       2       -  
                                           

Real Estate

2022

    8       (14 )     1,490       18       -  
 

2021

    11       (23 )     1,588       19       1  
                                           

Corporate & Unallocated

2022

    -       (447 )     151       -       -  
 

2021

    -       (97 )     314       -       -  
                                           

Total Company

2022

  $ 11,939     $ 1,067     $ 43,805     $ 882     $ 1,156  
 

2021

  $ 10,171     $ 970     $ 40,111     $ 709     $ 438  

 

 

15. OTHER INCOME

 

Other income consisted of the following:

   

Three Months Ended

 
   

September 30,

 
   

2022

   

2021

 
   

(Unaudited)

   

(Unaudited)

 
                 

Interest income

  $ 18     $ 22  

Other rental income

    27       29  

Exchange gain

    70       34  

Bad debt recovery

    -       2  

Government grant

    21       70  

Other miscellaneous income

    43       4  

Total

  $ 179     $ 161  

 

 

16.  INCOME TAX

 

The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining the provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws. The statute of limitations, in general, is open for years 2016 to 2022 for tax authorities in those jurisdictions to audit or examine income tax returns. The Company is under annual review by the tax authorities of the respective jurisdiction to which the subsidiaries belong.

 

Due to the enactment of the Tax Act, the Company is subject to a tax on global intangible low-taxed income (“GILTI”).  GILTI is a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. Companies subject to GILTI have the option to account for the GILTI tax as a period cost if and when incurred, or to recognize deferred taxes for temporary differences including outside basis differences expected to reverse as GILTI. The Company has elected to account for GILTI as a period cost. GILTI expense was $43 and $23 for the period ended September 30, 2022, and 2021, respectively.

 

The Company's income tax expense was $225 for the three months ended September 30, 2022, as compared to $180 for the same period in Fiscal 2022. Our effective tax rate (“ETR”) from continuing operations was 19% and 16% for the quarters ended September 30, 2022 and September 30, 2021, respectively. The increase in income tax expense and effective tax rate was due to the following:

 

1.

The Singapore operations incurred higher income tax due to higher income generated in period ended September 30,2022 compared to same period last fiscal year.

2.

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

 

- 16-

 

The Company accrues penalties and interest related to unrecognized tax benefits when necessary as a component of penalties and interest expense, respectively. The Company had no unrecognized tax benefits or related accrued penalties or interest expense at September 30, 2022.

 

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

 

 

17.  REVENUE

 

The Company generates revenue primarily from 3 different segments: Manufacturing, Testing and Distribution. The Company accounts for a contract with a customer when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company’s revenues are measured based on consideration stipulated in the arrangement with each customer, net of any sales incentives and amounts collected on behalf of third parties, such as sales taxes. The revenues are recognized as separate performance obligations that are satisfied by transferring control of the product or service to the customer.

 

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).

 

 

- 17-

 

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

 

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

 

Testing

 

The Company renders testing services to manufacturers and purchasers of semiconductors and other entities who either lack testing capabilities or whose in-house screening facilities are insufficient. The Company primarily derives testing revenue from burn-in services, manpower supply and other associated services. SSP is directly observable from the sales orders. Revenue is allocated to performance obligations satisfied at a point in time depending upon terms of the sales order. Generally, there is no other performance obligation other than what has been stated inside the sales order for each of these sales.

 

Terms of contract that may indicate potential variable consideration include warranty, late delivery penalty and reimbursement to solve nonconformance issues for rejected products. Based on historical and recent data trends, it is concluded that these terms of the contract do not represent potential variable consideration. The transaction price is not contingent on the occurrence of any future event.

 

Distribution

 

The Company distributes complementary products, particularly equipment, industrial products and components by manufacturers mainly from the U.S., Europe  and Taiwan. The Company recognizes revenue from product sales at a point in time when the Company has satisfied its performance obligation by transferring control of the product to the customer. The Company uses judgment to evaluate whether control has transferred by considering several indicators discussed above. The Company recognizes the revenue at a point in time, generally upon shipment or delivery of the products to the customer or distributors, depending upon terms of the sales order. 

 

Contract Balances

 

The timing of revenue recognition, billings and collections may result in billed accounts receivable, unbilled receivables, contract assets, customer advances, deposits and contract liabilities. The Company’s payment terms and conditions vary by contract type, although terms generally include a requirement of payment of 70% to 90% of total contract consideration within 30 to 60 days of shipment with the remainder payable within 30 days of acceptance. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that its contracts generally do not include a significant financing component.

 

The following table is the reconciliation of contract balances.

   

Sept. 30

   

June 30

 
   

2022

   

2022

 
   

(Unaudited)

         
                 

Trade Accounts Receivable

    12,491       11,592  

Accounts Payable

    3,469       2,401  

Contract Liabilities

    1,218       933  

 

Remaining Performance Obligation

 

As at September 30, 2022, the Company had $235 of remaining performance obligations, which represents our obligation to deliver products and services within two years.

 

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

 

Refer to Note 14 “Business Segments” of the Notes to Condensed Consolidated Financial Statements for information related to revenue.

 

- 18-

 
 

18.  EARNINGS PER SHARE

 

Options to purchase 636,375 shares of Common Stock at exercise prices ranging from $3.75 to $7.76 per share were outstanding as of September 30, 2022. 84,625 stock options were excluded in the computation of diluted earnings per share (“EPS”) for the three months ended September 30, 2022, because they were anti-dilutive.

 

Options to purchase 674,500 shares of Common Stock at exercise prices ranging from $2.53 to $5.98 per share were outstanding as of September 30, 2021. 94,011 stock options were included in the computation of diluted EPS for the three months ended September 30, 2021, because they were dilutive.

 

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

 

   

Three Months Ended

 
   

September 30,

 
   

2022

   

2021

 
   

(Unaudited)

   

(Unaudited)

 

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

  $ 882     $ 914  

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

    -       3  

Net Income attributable to Trio-Tech International common shareholders

  $ 882     $ 917  
                 

Weighted average number of common shares outstanding – basic

    4,077       3,913  

Dilutive effect of stock options

    81       94  

Number of shares used to compute earnings per share – diluted

    4,158       4,007  
                 

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

    0.22       0.23  
                 

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

    -       -  

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

  $ 0.22     $ 0.23  
                 

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

    0.21       0.23  
                 

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

    -       -  

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

  $ 0.21     $ 0.23  

 

 

19.  STOCK OPTIONS

 

On September 24, 2007, the Company’s Board of Directors unanimously adopted the 2007 Employee Stock Option Plan (the “2007 Employee Plan”) and the 2007 Directors Equity Incentive Plan (the “2007 Directors Plan” and, together with the 2007 Employee Plan, the “2007 Plans”), each of which was approved by the shareholders on December 3, 2007. Each of the 2007 Plans were amended during the term of such plan to increase the number of shares covered thereby. Each of the 2007 Plans terminated by their respective terms on September 24, 2017.

 

On September 14, 2017, the Company’s Board of Directors unanimously adopted the 2017 Employee Stock Option Plan (the “2017 Employee Plan”) and the 2017 Directors Equity Incentive Plan (the “2017 Directors Plan”) each of which was approved by the shareholders on December 4, 2017.

 

Assumptions

 

The fair value for the stock options granted to both employees and directors was estimated using the Black-Scholes option pricing model with the following weighted average assumptions, assuming: 

 

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

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

no expected dividend payments and

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

 

- 19-

 

2017 Employee Stock Option Plan

 

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

 

During the first quarter of Fiscal 2023, 25,000 stock options were granted under the 2017 Employee Plan. There were 5,000 stock options exercised during the three-month period ended September 30, 2022. The Company recognized $32 in stock-based compensation expense during the three months ended September 30, 2022.

 

During the first quarter of Fiscal 2022, the Company did not grant any options pursuant to the 2017 Employee Plan. There were no stock options exercised during the three-month period ended September 30, 2021. The Company recognized $12 in stock-based compensation expense during the three months ended September 30, 2021.

 

As of September 30, 2022, there were vested stock options granted under the 2017 Employee Plan covering a total of 131,750 shares of Common Stock. The weighted-average exercise price was $4.80 and the weighted average remaining contractual term was 1.95 years.

 

As of September 30, 2021, there were vested stock options granted under the 2017 Employee Plan covering a total of 164,750 shares of Common Stock. The weighted average exercise price was $4.35 and the weighted average remaining contractual term was 2.49 years.

 

A summary of option activities under the 2017 Employee Plan during the three months period ended September 30, 2022, is presented as follows:

 

           

Weighted

   

Weighted Average Remaining

   

Aggregate

 
           

Average

   

Contractual

   

Intrinsic

 
   

Options

   

Exercise Price

   

Term (Years)

   

Value

 
                                 

Outstanding at July 1, 2022

    236,375     $ 5.21       2.61     $ 87  

Granted

    25,000       5.18       -       -  

Exercised

    (5,000 )     3.75       -       -  

Forfeited or expired

    (40,000 )     -       -       -  

Outstanding at September 30, 2022

    216,375     $ 5.16     $ 2.74     $ 106,419  

Exercisable at September 30, 2022

    131,750     $ 4.80     $ 1.95     $ 80,314  

 

A summary of the status of the Company’s non-vested employee stock options during the three months ended September 30, 2022, is presented below:

 

   

 

   

Weighted Average

 
       Options    

Grant-Date Fair Value

 
                 

Non-vested at July 1, 2022

    75,875     $ 5.98  

Granted

    25,000       5.18  

Vested

    (16,250 )     -  

Non-vested at September 30, 2022

    84,625     $ 5.72  

 

- 20-

 

A summary of option activities under the 2017 Employee Plan during the three months period ended September 30, 2021, is presented as follows:

 

           

Weighted

   

Weighted Average Remaining

   

Aggregate

 
           

Average

   

Contractual

   

Intrinsic

 
   

Options

   

Exercise Price

   

Term (Years)

   

Value

 
                                 

Outstanding at July 1, 2021

    267,000     $ 4.21       3.22     $ 290  

Granted

    -       -       -       -  

Exercised

    -       -       -       -  

Forfeited or expired

    -       -       -       -  

Outstanding at September 30, 2021

    267,000     $ 4.21     $ 2.97     $ 170  

Exercisable at September 30, 2021

    164,750     $ 4.35     $ 2.49     $ 100  

 

A summary of the status of the Company’s non-vested employee stock options during the three months period ended September 30, 2021, is presented below:

 

   

 

   

Weighted Average

 
       Options    

Grant-Date Fair Value

 
                 

Non-vested at July 1, 2021

    102,250     $ 2.29  

Granted

    -       -  

Vested

    -       -  

Forfeited

    -       -  

Non-vested at September 30, 2021

    102,250     $ 2.29  

 

2007 Employee Stock Option Plan

 

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

 

There were no options exercised during the three months ended September 30, 2022, and September 30, 2021. The Company did not recognize any stock-based compensation expense during the three months ended September 30, 2022, and September 30, 2021.

 

As of July 1, 2022 and September 30, 2022, there were no vested or unvested stock options outstanding under the 2007 Employee Plan.

 

As of September 30, 2021, there were vested stock options granted under the 2007 Employee Plan covering a total of 37,500 shares of Common Stock. The weighted average exercise price was $4.14 and the weighted average remaining contractual term was 0.49 years.

 

A summary of option activities under the 2007 Employee Plan during the three months ended September 30 2021, is presented as follows:

 

           

Weighted

   

Weighted Average Remaining

   

Aggregate

 
           

Average

   

Contractual

   

Intrinsic

 
   

Options

   

Exercise Price

   

Term (Years)

   

Value

 
                                 

Outstanding at July 1, 2021

    37,500     $ 4.14       0.75     $ 34  

Granted

    -       -       -       -  

Exercised

    -       -       -       -  

Forfeited or expired

    -       -       -       -  

Outstanding at September 30, 2021

    37,500     $ 4.14     $ 0.49     $ 3  

Exercisable at September 30, 2021

    37,500     $ 4.14     $ 0.49     $ 3  

 

There were no non-vested employee stock options during the three months ended September 30, 2021.

 

- 21-

 

2017 Directors Equity Incentive Plan

 

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

 

During the first quarter of Fiscal 2023 and Fiscal 2022, the Company did not grant any options pursuant to the 2017 Directors Plan. There were no stock options exercised and the Company did not recognize any stock-based compensation expense during the three months ended September 30, 2022 and 2021.

 

As all the stock options granted under the 2017 Directors Plan vest immediately on the date of grant, there were no unvested stock options granted under the 2017 Directors Plan as of September 30, 2022, or September 30, 2021.

 

As of September 30, 2022, there were vested stock options granted under the 2017 Directors Plan covering a total of 420,000 shares of Common Stock. The weighted average exercise price was $5.10 and the weighted average remaining contractual term was 2.57 years.

 

As of September 30, 2021, there were vested stock options granted under the 2017 Directors Plan covering a total of 320,000 shares of Common Stock. The weighted average exercise price was $4.27 and the weighted average remaining contractual term was 2.97 years.

 

A summary of option activities under the 2017 Directors Plan during the three months ended September 30, 2022, is presented as follows: 

 

           

Weighted

   

Weighted Average Remaining

   

Aggregate

 
           

Average

   

Contractual

   

Intrinsic

 
   

Options

   

Exercise Price

   

Term (Years)

   

Value

 
                                 

Outstanding at July 1, 2022

    420,000     $ 5.10       2.85     $ 228  

Granted

    -       -               -  

Exercised

    -       -       -       -  

Forfeited or expired

    -       -       -       -  

Outstanding at September 30, 2022

    420,000     $ 5.10     $ 2.57     $ 278  

Exercisable at September 30, 2022

    420,000     $ 5.10     $ 2.57     $ 278  

 

A summary of option activities under the 2017 Directors Plan during the three months ended September 30, 2021, is presented as follows: 

 

           

Weighted

   

Weighted Average Remaining

   

Aggregate

 
           

Average

   

Contractual

   

Intrinsic

 
   

Options

   

Exercise Price

   

Term (Years)

   

Value

 
                                 

Outstanding at July 1, 2021

    320,000     $ 4.27       3.22     $ 340  

Granted

    -       -       -       -  

Exercised

    -       -       -       -  

Forfeited or expired

    -       -       -       -  

Outstanding at September 30, 2022

    320,000     $ 4.27     $ 2.97     $ 210  

Exercisable at September 30, 2022

    320,000     $ 4.27     $ 2.97     $ 210  

 

- 22-

 

2007 Directors Equity Incentive Plan

 

The Company’s 2007 Directors Plan permitted the grant of stock options to its directors in the form of nonqualified options and restricted stock. As of the last amendment thereof, the 2007 Directors Plan covered an aggregate of 500,000 shares of the Company’s Common Stock. The 2007 Directors Plan terminated by its terms on September 24, 2017, and no further options may be granted thereunder.  Options outstanding thereunder continue to remain outstanding and in effect in accordance with their terms. 

 

There were no stock options exercised during the three months ended September 30, 2022 and 2021. The Company did not recognize any stock-based compensation expense during the three months ended September 30, 2022 and 2021.

 

As of July 1, 2022 and September 30, 2022, there were no vested stock options outstanding under the 2007 Directors Plan.

 

As of September 30, 2022, there were no vested stock options granted under the 2007 Directors Plan.

 

As of September 30, 2021, there were vested stock options granted under the 2007 Directors Plan covering a total of 50,000 shares of Common Stock. The weighted average exercise price was $4.14 and the weighted average remaining contractual term was 0.49 years.

 

A summary of option activities under the 2007 Directors Plan during the three months ended September 30, 2021 is presented as follows: 

 

           

Weighted

   

Weighted Average Remaining

   

Aggregate

 
           

Average

   

Contractual

   

Intrinsic

 
   

Options

   

Exercise Price

   

Term (Years)

   

Value

 
                                 

Outstanding at July 1, 2021

    50,000     $ 4.14       0.75     $ 45  

Granted

    -       -       -       -  

Exercised

    -       -       -       -  

Forfeited or expired

    -       -       -       -  

Outstanding at September 30, 2021

    50,000     $ 4.14     $ 0.49     $ 4  

Exercisable at September 30, 2021

    50,000     $ 4.14     $ 0.49     $ 4  

 

 

20.  LEASES

 

Company as Lessor

 

Operating leases under which the Company is the lessor arise from leasing the Company’s commercial real estate investment property to third parties. Initial lease terms generally range from 12 to 60 months. Depreciation expense for assets subject to operating leases is taken into account primarily on the straight-line method over a period of twenty years in amounts necessary to reduce the carrying amount of the asset to its estimated residual value. Depreciation expense relating to the property held as investments in operating leases was $17 and $18 for 3 months ended September 30, 2022, and September 30, 2021, respectively.

 

Future minimum rental income in China and Thailand to be received from Fiscal 2023 to the fiscal year ended June 30, 2027 (“Fiscal 2027”) on noncancelable operating leases is contractually due as follows as of September 30, 2022:

 

Remainder of fiscal 2023

  $ 86  

Fiscal 2024

    133  

Fiscal 2025

    135  

Fiscal 2026

    46  

Fiscal 2027

    10  
    $ 410  

 

- 23-

 

Future minimum rental income in China and Thailand to be received from Fiscal 2023 to Fiscal 2024 on non-cancelable operating leases is contractually due as follows as of June 30, 2022:

 

2023

  $ 6  

2024

  $ 27  

2025

  $ 28  

2026

  $ 29  

2027

  $ 10  
    $ 100  

 

Sales-type leases under which the Company is the lessor arise from the lease of four units of chiller systems. The Company classifies its lease arrangements at inception of the arrangement. The lease term is three years, contains an automatic transfer of title at the end of the lease term and a guarantee of residual value at the end of the lease term. The customer is required to pay for executory costs such as taxes.

 

Financing receivables, consisting of net investment in sales-type leases and receivables from financed sales of four units of chiller systems are as follows:

 

Components of Lease Balances

 

Sept. 30,

 
   

2022

 

Assets

       

Gross financial sales receivable

  $ 33  

Unearned finance income

    (2 )

Financed sales receivable

  $ 31  
         

Net financed sales receivables due within one year

  $ 20  

Net financed sales receivables due after one year

  $ 11  

 

As of September 30, 2022, the financed sale receivables had a weighted average effective interest rate of 11.2% and weighted average remaining lease term of 1.5 years.

 

Company as Lessee

 

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

 

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

 

   

Sept. 30,

   

June 30,

 
   

2022

   

2022

 
   

(Unaudited)

         

Finance Leases (Plant and Equipment)

               

Plant and equipment, at cost

  $ 1,671     $ 1,727  

Accumulated depreciation

    (1,066 )     (1,179 )

Plant and Equipment, Net

  $ 605     $ 548  
                 

Current portion of finance leases

  $ 104     $ 118  

Net of current portion of finance leases

    91       119  

Total Finance Lease Liabilities

  $ 195     $ 237  
                 

Operating Leases (Corporate Offices, Research and Development Facilities)

               

Operating lease right-of-use assets

  $ 2,759     $ 3,152  

Operating lease right-of-use assets, Net

  $ 2,759     $ 3,152  

Current portion of operating leases

    1,130       1,218  

Net of current portion of operating leases

    1,629       1,934  

Total Operating Lease Liabilities

  $ 2,759     $ 3,152  

 

 

- 24-

 
   

Three Months Ended

 
   

Sept. 30,

   

Sept. 30,

 
   

2022

   

2021

 
   

(Unaudited)

   

(Unaudited)

 

Lease Cost

               

Finance lease cost:

               

Interest on finance lease

  $ 16     $ 6  

Amortization of right-of-use assets

    48       28  

Total finance lease cost

    64       34  
                 

Operating lease cost

  $ 380     $ 242  

 

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

 

   

Three Months Ended

 
   

Sept. 30,

   

Sept. 30,

 
   

2022

   

2021

 
      (Unaudited)       (Unaudited)  

Cash Paid for Amounts Included in the Measurement of Lease Liabilities

               

Operating cash flows from finance leases

  $ (16 )   $ (6 )

Operating cash flows from operating leases

    (380 )     (146 )

Finance cash flows from finance leases

    (36 )     (53 )

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

          -  
                 

Weighted-Average Remaining Lease Term:

               

Finance leases

    1.79       2.72  

Operating leases

    2.83       3.64  

Weighted-Average Discount Rate:

               

Finance leases

    3.23 %     3.56 %

Operating leases

    5.52 %     4.57 %

 

As of September 30, 2022, the maturities of the Company’s operating and finance lease liabilities are as follow:

 

   

Operating Lease Liabilities

   

Finance Lease Liabilities

 

Fiscal Year

               

Remainder of Fiscal 2023

    1,969       110  

2024

    1,005       89  

2025

    552       7  

2026

    399       -  

Thereafter

    65       -  

Total future minimum lease payments

    2,990       206  

Less: amount representing interest

    (231 )     (11 )

Present value of net minimum lease payments

    2,759       195  
                 

Presentation on statement of financial position

               

Current

    1,130       104  

Non-Current

    1,629       91  

 

- 25-

 

As of June 30, 2022, future minimum lease payments under finance leases and noncancelable operating leases were as follows:

 

   

Operating Lease Liabilities

   

Finance Lease Liabilities

 

Fiscal Year

               

2023

    1,357       129  

2024

    1,032       104  

2025

    554       20  

2026

    423       -  

Thereafter

    69       -  

Total future minimum lease payments

    3,435       253  

Less: amount representing interest

    (283 )     (16 )

Present value of net minimum lease payments

    3,152       237  
                 

Presentation on statement of financial position

               

Current

    1,218       118  

Non-Current

    1,934       119  

 

 

21.  FAIR VALUE OF FINANCIAL INSTRUMENTS APPROXIMATE CARRYING VALUE

 

In accordance with ASC Topics 825 and 820, the following presents assets and liabilities measured and carried at fair value and classified by level of fair value measurement hierarchy:

 

There were no transfers between Levels 1 and 2 during the three months ended September 30, 2022 and 2021.

 

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

 

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

 

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

 

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

 

 

22. CONCENTRATION OF CUSTOMERS

 

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

   

For the Period Ended Sept. 30,

 
   

2022

   

2021

 
   

(Unaudited)

   

(Unaudited)

 

Revenue

               

- Customer A

    38.9 %     40.3 %

- Customer B

    16.4 %     13.0 %

Trade Account Receivables

               

- Customer A

    36.7 %     38.4 %

- Customer B

    16.9 %     13.6 %

 

 

- 26-

 
 

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

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

 

Overview

 

The following should be read in conjunction with the condensed consolidated financial statements and notes in Item I above and with the audited consolidated financial statements and notes, the information under the headingsManagements discussion and analysis of financial condition and results of operationsin our Annual Report on Form 10-K for the fiscal year ended June 30, 2022.

 

Trio-Tech International (“TTI”) was incorporated in 1958 under the laws of the State of California. As used herein, the term “Trio-Tech” or “Company” or “we” or “us” or “Registrant” includes Trio-Tech International and its subsidiaries unless the context otherwise indicates. Our mailing address and executive offices are located at Block 1008 Toa Payoh North, Unit 03-09 Singapore 318996, and our telephone number is (65) 6265 3300.

 

The Company is a provider of reliability test equipment and services to the semiconductor industry. Our customers rely on us to verify that their semiconductor components meet or exceed the rigorous reliability standards demanded for aerospace, communications and other electronics products.

 

During the three months ended September 30, 2022, TTI generated approximately 99.9% of its revenue from its three core business segments in the test and measurement industry, i.e., manufacturing of test equipment, testing services and distribution of test equipment. The Real Estate segment contributed only 0.01% to the total revenue during the three months ended September 30, 2022.

 

Manufacturing

 

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

 

Testing

 

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

 

Distribution

 

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

 

Real Estate

 

Our real estate segment generates investment income from the investments made and rental revenue received from real estate that we purchased in Chongqing, China.

 

 

Critical Accounting Estimates & Policies

 

The preparation of our Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in applying our accounting policies that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base these estimates and assumptions on historical experience and evaluate them on an ongoing basis to ensure that they remain reasonable under current conditions. Actual results could differ from those estimates. We discuss the development and selection of the critical accounting estimates with the Audit Committee of our Board of Directors on a quarterly basis, and the Audit Committee has reviewed our related disclosure in this Quarterly Report on Form 10-Q.

 

There have been no material changes in our critical accounting estimates and policies since our Annual Report on Form 10-K for the fiscal year ended June 30, 2022. Refer to Note 1 “Basis of Presentation And Summary of significant Accounting Policies” to our Condensed Consolidated Financial Statements for additional details. In addition, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended June 30, 2022 for a complete description of our critical accounting policies and estimates.

 

First Quarter Fiscal Year 2023 Highlights

 

Total revenue increased by $1,768, or 17.4%, to $11,939 in the first quarter of Fiscal 2023, compared to $10,171 for the same period in the fiscal year ended June 30, 2022 (“Fiscal 2022”).

Manufacturing segment revenue increased by $23, or 0.6% to $3,585 for the first quarter of Fiscal 2023, compared to $3,562 for the same period in Fiscal 2022.

Testing segment revenue increased by $1,764, or 38.3%, to $6,364 for the first quarter of Fiscal 2023, compared to $4,600 for the same period in Fiscal 2022.

Distribution segment revenue decreased by $16, or 0.0%, to $1,982 for the first quarter of Fiscal 2023, compared to $1,998 for the same period in Fiscal 2022.

Real estate segment rental revenue decreased by $3, or 27.3% to $8 for the first quarter of Fiscal 2023, compared to $11 for the same period in Fiscal 2022.

The overall gross profit margin decreased by 0.9% to 30.3% for the first quarter of Fiscal 2023, from 31.2% for the same period in Fiscal 2022.

General and administrative expense increased by $325, or 16.4%, to $2,305 for the first quarter of Fiscal 2023, from $1,980 for the same period in Fiscal 2022.

Selling expense increased by $26, or 17.7%, to $173 for the first quarter of Fiscal 2023, from $147 for the same period in Fiscal 2022.

Other income increased by $18, or 11.2%, to $179 for the first quarter of Fiscal 2023, from $161 for the same period in Fiscal 2022.

Income from operations was $1,067 for the first quarter of Fiscal 2023, an increase of $97 as compared to $970 for the same period in Fiscal 2022.

Income tax expense was $225 in the first quarter of Fiscal 2023, an increase of $45 as compared to $180 in the same period in Fiscal 2022.

During the first quarter of Fiscal 2023, income from continuing operations before non-controlling interest, net of tax was $977, as compared to income from continuing operations before non-controlling interest of $923 for the same period in Fiscal 2022.

Net income attributable to non-controlling interest for the first quarter of Fiscal 2023 was $96, an improvement of $85 as compared to $11 in the same period in Fiscal 2022.

Basic earnings per share for the first quarter of Fiscal 2023 was $0.22, as compared to earnings per share of $0.23 for the same period in Fiscal 2022.

Diluted earnings per share for the first quarter of Fiscal 2023 was $0.21, as compared to earnings per share of $0.23 for the same period in Fiscal 2022.

Total assets increased by $384 to $43,805 as of September 30, 2022, compared to $43,421 as of June 30, 2022.

Total liabilities increased by $568 to $15,987 as of September 30, 2022, compared to $15,419 as of June 30, 2022.

 

 

Results of Operations and Business Outlook

 

The following table sets forth our revenue components for three months ended September 30, 2022 and 2021.

 

Revenue Components

 

Three Months Ended

 
   

Sept. 30,

 
   

2022

   

2021

 
                 

Manufacturing

    30.0 %     35.0 %

Testing Services

    53.3 %     45.2 %

Distribution

    16.6 %     19.6 %

Real Estate

    0.1 %     0.1 %

Total

    100.0 %     100.0 %

 

Revenue for the three months ended September 30, 2022, was $11,939, an increase of $1,768 from $10,171, when compared to the revenue for the same period of the prior fiscal year. As a percentage, revenue increased by 17.4% for the three months ended September 30, 2022, when compared to revenue for the same period of the prior year.

 

For the three months ended September 30, 2022, there was an increase in revenue in Testing segment when compared to the same period of the prior fiscal year. Manufacturing and Distribution segments revenue remained almost at the same level as the same period of prior year.

 

Total revenue into and within China, the Southeast Asia regions and other countries (except revenue into and within the United States) increased by $1,774, or 18.3%, to $11,446 for the three months ended September 30, 2022, as compared with $9,672 for the same period of Fiscal 2022. 

 

Total revenue into and within the U.S. was $493 for the three months ended September 30, 2022, a decrease of $6 from $499 for the same period of the prior year.

 

Revenue within our four current segments for the three months ended September 30, 2022, is discussed below.

 

Manufacturing Segment

 

Revenue in the manufacturing segment as a percentage of total revenue was 30.0% for the three months ended September 30, 2022, a decrease of 5% of total revenue when compared to 35.0% in the same period of Fiscal 2022. The absolute amount of revenue increased by $23 to $3,585 for the three months ended September 30, 2022, compared to $3,562, for the same period of Fiscal 2022. 

 

Testing Services Segment

 

The testing segment's revenue was 53.3% for the three months ended September 30, 2022, representing an increase of 8.1%, compared to 45.2% for the same period of Fiscal 2022. The absolute amount of revenue increased by $1,764 to $6,364 from $4,600 for the three months ended September 30, 2022, as compared to the same period of Fiscal 2022. 

 

During the third quarter of Fiscal 2022, the Company incorporated Trio-Tech (Jiangsu) Co. Ltd. (“TTJS”), located in Suzhou, China together with Suzhou Anchuang Technology Management L.L.P. (“SATM”) to provide subcontract services in the semiconductor and/or other related services in the electronics industry, mainly in Suzhou, China. The joint venture contributed 22% of revenue in the testing segment for the three months ended September 30, 2022.

 

The revenue in the testing segment from one customer accounted for 30.8% and 40.4% of our revenue in the testing segment for the three months ended September 30, 2022 and 2021, respectively. The future revenue in the testing segment will be affected by the demands of this customer if the customer base cannot be increased. Demand for testing services varies from country to country, depending on any changes taking place in the market and our customers’ forecasts. As it is challenging to forecast fluctuations in the market accurately, management believes it is necessary to maintain testing facilities in close proximity to the customers in order to make it convenient for them to send us their newly manufactured parts for testing and to enable us to maintain a share of the market.

 

 

Distribution Segment

 

Revenue in the distribution segment was 16.6% as a percentage of total revenue for the three months ended September 30, 2022, a decrease of 3%, compared to the same period of Fiscal 2022. The absolute amount of revenue decreased by $16 to $1,982 from $1,998 for the three months ended September 30, 2022, compared to the same period of Fiscal 2022. 

 

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

 

Real Estate Segment

 

The real estate segment accounted for 0.1% of total revenue for the three months ended September 30, 2022. The absolute amount of revenue decreased by $3 to $8 from $11 and remained comparable for the three months ended September 30, 2022, compared to the same period of Fiscal 2022.

 

Uncertainties and Remedies

 

There are several influencing factors which create uncertainties when forecasting performance, such as the constantly changing nature of technology, specific requirements from the customer, decline in demand for certain types of burn-in devices or equipment, decline in demand for testing services and fabrication services, and other similar factors. One factor that influences uncertainty is the highly competitive nature of the semiconductor industry. Another is that some customers are unable to provide a forecast of the products required in the upcoming weeks; hence it is difficult to plan for the resources needed to meet these customers’ requirements due to short lead time and last-minute order confirmation. This will normally result in a lower margin for these products as it is more expensive to purchase materials in a short time frame.  However, the Company has taken certain actions and formulated certain plans to deal with and to help mitigate these unpredictable factors.  For example, in order to meet manufacturing customers’ demands upon short notice, the Company maintains higher inventories but continues to work closely with its customers to avoid stockpiling.  We believe that we have improved customer service through our efforts to keep our staff up to date on the newest technology and stressing the importance of understanding and meeting the stringent requirements of our customers. Finally, the Company is exploring new markets and products, looking for new customers, and upgrading and improving burn-in technology while at the same time searching for improved testing methods for higher technology chips.

 

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

 

In December 2019, COVID-19 was reported to have surfaced in China, resulting in shutdowns of manufacturing and commerce in the months that followed. Since then, the COVID-19 pandemic has spread to multiple countries worldwide and has resulted in authorities implementing numerous measures to try to contain the disease and slow its spread, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns. These measures have created significant uncertainty and economic disruption, both short-term and potentially long-term.

 

The degree to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including but not limited to the duration and spread of the pandemic, its severity, the action to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may experience material adverse impacts on our business as a result of the global economic impact and any recession that has occurred or may occur in the future. There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the pandemic on our operations and financial results is highly uncertain and subject to change.

 

We also continue to consider the potential impact of increasing inflation on our business operations. Although no material impairment or other material adverse effects have been identified to date related to such factors, there is substantial uncertainty in the nature and degree of their continued effects over time. That uncertainty could affect management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions as additional events and information become known. Further, although we have not experienced any material adverse effects on our business due to increasing inflation, it has raised operating costs and, in the future, could impact demand or pricing of our products, foreign exchange rates or manpower costs. We are actively monitoring the effects these disruptions and increasing inflation could have on our business operations.

 

On August 9, 2022, the CHIPS and Science Act of 2022 (CHIPS Act) was enacted in the United States. The CHIPS Act will provide financial incentives to the semiconductor industry which are primarily directed at manufacturing activities within the United States. We continue to evaluate the business impact and potential opportunities related to the CHIPS Act. As of date, we do not see any direct effect of the Act on the Company in the foreseeable future.

 

There are legal and operational risks associated with having operations in China. These risks could result in a material change in our operations and/or the value of our common stock or could limit or hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. In recent past, the Peoples Republic of China (“PRC”) government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement.

 

The Company and its subsidiaries do not have any variable interest entities based in China. Our business primarily consists of semiconductor testing and burn-in services for the automotive industry, avionics, and others. Our businesses are not impacted by anti-monopoly policies, variable interest entities policies, or data security policies, nor are our businesses subject to extraordinary oversight from the Chinese government.

 

 

Comparison of the Three Months Ended September 30, 2022, and September 30, 2021

 

The following table sets forth certain consolidated statements of income data as a percentage of revenue for the three months ended September 30, 2022 and 2021 respectively:

 

   

Three Months Ended

 
   

Sept. 30,

 
   

2022

   

2021

 
   

(Unaudited)

    (Unaudited)  

Revenue

    100.0 %     100.0 %

Cost of sales

    69.7 %     68.8 %

Gross Margin

    30.3 %     31.2 %

Operating expense

               

General and administrative

    19.3 %     19.4 %

Selling

    1.4 %     1.4 %

Research and development

    0.6 %     1.0 %

Total operating expense

    21.3 %     21.8 %

Income from Operations

    9.0 %     9.4 %

 

Overall Gross Margin       

 

Overall gross margin as a percentage of revenue decreased by 1.0% to 30.3% for the three months ended September 30, 2022, from 31.2% for the same period of Fiscal 2022.

 

Gross profit margin as a percentage of revenue in the manufacturing segment decreased by 2.1% to 29.6% for the three months ended September 30, 2022, as compared to 31.7% for the same period in Fiscal 2022. In absolute dollar amounts, gross profits in the manufacturing segment decreased by $68 to $1,060 for the three months ended September 30, 2022, from $1,128 for the same period in Fiscal 2022. The decrease in gross profit margin was primarily due to a higher proportion of lower profit margin product sales for the three months ended September 30, 2022 compared to the same period of Fiscal 2022.

 

Gross profit margin as a percentage of revenue in the testing segment decreased by 2.2% to 35.2% for the three months ended September 30, 2022, compared to 37.3% in the same period of Fiscal 2022. The decrease in gross profit margin percentage was mainly due to difference in product mix coupled with increased manpower costs. In absolute dollar amounts, gross profit in the testing segment increased by $521 to $2,238 for the three months ended September 30, 2022, from $1,717 for the same period of Fiscal 2022.

 

Gross profit margin of the distribution segment is not only affected by the market price of the products we distribute, but also the mix of products we distribute, which frequently changes as a result of fluctuations in market demand. Gross profit margin as a percentage of revenue in the distribution segment decreased by 0.2% to 16.9% for the three months ended September 30, 2022, from 17.1% in the same period of Fiscal 2022.  In absolute dollar amounts, gross profit in the distribution segment for the three months ended September 30, 2022, was $334, indicating a decrease of $8, compared to $342 in the same period of Fiscal 2022. 

 

In absolute dollar amounts, for the three months ended September 30, 2022, gross loss in the real estate segment was $10, as compared to $8 for the same period of Fiscal 2022.

 

 

Operating Expense

 

Operating Expense for the three months ended September 30, 2022 and 2021 was as follows:

 

   

Three Months Ended

 
   

Sept. 30,

 
   

2022

   

2021

 
   

(Unaudited)

    (Unaudited)  

General and administrative

  $ 2,305     $ 1,980  

Selling

    173       147  

Research and development

    73       82  

Gain on disposal of property, plant and equipment

    4       -  

Total

  $ 2,555     $ 2,209  

 

General and administrative expense increased by $325, or 16.4%, from $1,980 to $2,305 for the three months ended September 30, 2022, compared to the same period of Fiscal 2022. The increase in general and administrative expense was mainly attributable to the general and administrative expense relating to the Company’s new subsidiary Trio-Tech Jiangsu, which was setup in the third quarter of Fiscal 2022, coupled with increased manpower costs.

 

Selling expense increased by $26, or 17.7%, from $147 to $173 for the three months ended September 30, 2022, compared to the same period of Fiscal 2022. The increase in selling expense was primarily attributable to an increase in commission costs in the distribution segment of the Singapore operations as a result of an increase in commissionable revenue, and an increase in travel costs due to relaxation of travel restrictions in the first quarter of Fiscal 2023, compared to the same quarter of Fiscal 2022.

 

Income from Operations

 

Income from operations was $1,067 for the three months ended September 30, 2022, an increase of $97, compared to profit of $970 from operations for the same period of Fiscal 2022. The result was mainly due to the increased revenue and gross profit margin in absolute dollars amount, offset by the higher operating expense.

 

Interest Expense

 

Interest expense for the three months ended September 30, 2022 and 2021 were as follows:

 

   

Three Months Ended

 
   

Sept. 30,

 
   

2022

   

2021

 
   

(Unaudited)

    (Unaudited)  

Interest expense

  $ 44     $ 28  

 

Interest expense was $44 for the three months ended September 30, 2022, an increase of $16, or 57.1%, compared to $28 for the same period of Fiscal 2022. As of September 30, 2022, the Company had an unused line of credit of $5,289 as compared to $5,397 at September 30, 2021.

 

Other Income

Other income for the three months ended September 30, 2022 and 2021 were as follows:

   

Three Months Ended

 
   

September 30,

 
   

2022

   

2021

 
   

(Unaudited)

   

(Unaudited)

 
                 

Interest income

  $ 18     $ 22  

Other rental income

    27       29  

Exchange gain

    70