TRIO-TECH INTERNATIONAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (form 10-Q)

Overview

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

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

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

TTI generated approximately 99.9% of its revenue from its three core business segments in the test and measurement industry, i.e., manufacturing of test equipment, testing services and distribution of test equipment during the three months ended March 31, 2022. The Real Estate segment contributed only 0.1% to the total revenue during the three months ended March 31, 2022.

Manufacturing

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

Testing

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

Distribution

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

Real Estate

Beginning in 2007, TTI has invested in real estate property in Chongqing, China, which has generated investment income from rental revenue and investment returns from deemed loan receivables, which are classified as other income. The rental income is generated from the rental properties in MaoYe and FuLi in Chongqing, China. In the second quarter of fiscal 2015, the investment in JiaSheng, which was deemed as loans receivable, was transferred to down payment for purchase of investment property in China.

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Impact of COVID-19 on our Business

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

During the quarter ended March 31, 2022, the Company was required to close its facility in Tianjin, China in compliance with the Tianjin city government's imposed lockdown measures for mandatory testing of Tianjin city's residents and China's ZERO-COVID policy. The Company then resumed 100% operating capacity in Tianjin, China operation by January 21, 2022. The Company had suffered negative financial impact from these twelve days closed down, which had lost its revenue of approximately $260.

The health and safety of our employees and our customers are a top priority for us. In an effort to protect our employees, we took and continue to take proactive and aggressive actions, starting with the earliest signs of the outbreak, to adopt social distancing policies at our locations, including working from home and suspending employee travel. Our operations have been classified as part of the global supply chain and essential businesses in many jurisdictions, and employees who are working onsite are required to adhere to strict safety measures, including the use of masks and sanitizer, wellness screenings prior to accessing work sites, staggered break times to prevent congregation, prohibitions on physical contact with coworkers or customers, restrictions on access through only a single point of entry and exit, and utilizing video conferencing. We have also incorporated other rules such as restricting visitors to any of our facilities that remain open and proactively providing employees with hand sanitizer. Most of these safeguards and procedures have been removed in our Singapore and Malaysia operations subsequent to the quarter ended March 31, 2022.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2022. Certain accounting matters that generally require consideration of forecasted financial information were assessed regarding impacts from the COVID-19 pandemic as of March 31, 2022, and through the date of filing of this Quarterly Report dated May 16, 2022 using reasonably available information as of those dates. Those accounting matters assessed included, but were not limited to, allowance for doubtful accounts, the carrying value of long-lived tangible assets and the valuation allowances for tax assets. While the assessments resulted in no material impacts to the consolidated financial statements as of and for the quarter ended March 31, 2022, the Company believes the full impact of the pandemic remains uncertain and the Company will continue to assess if ongoing developments related to the pandemic may cause future material impacts to our consolidated financial statements.

As of March 31, 2022, the Company had cash and cash equivalents and short-term deposits totaling $12,431 and an unused line of credit of $5,158. We finance operations primarily through our existing cash balances, cash collected from operations, bank borrowings and capital lease financing. We believe these sources are sufficient to fund our operations for the foreseeable future.

While we have implemented safeguards and procedures to counter the impact of the COVID-19 pandemic, the full extent to which the pandemic has and will directly or indirectly impact us, including our business, financial condition, and result of operations, will depend on future developments that are highly uncertain and cannot be accurately predicted. This may include further mitigation efforts taken to contain the virus or treat its impact and the economic impact on local, regional, national and international markets. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by the governments or that we determine are in the best interests of our employees, customers, suppliers and stockholders.

Critical Accounting Estimates & Policies

The discussion and analysis of the Company's financial condition presented in this section are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the U.S. During the preparation of the consolidated financial statements, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to sales, returns, pricing concessions, bad debts, inventories, investments, fixed assets, intangible assets, income taxes and other contingencies. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. These estimates and assumptions may change as new events occur and additional information is obtained. Actual results may differ from these estimates under different assumptions or conditions.

In response to the SEC's Release No. 33-8040, Cautionary Advice Regarding Disclosure about Critical Accounting Policy, we have identified the most critical accounting policies upon which our financial status depends. We determined that those critical accounting policies are related to inventory valuation; allowance for doubtful accounts; revenue recognition; impairment of property, plant and equipment; investment properties and income tax. These accounting policies are discussed in the relevant sections in this management's discussion and analysis, including the Recently Issued Accounting Pronouncements discussed below.

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Account Receivables and Allowance for Doubtful Accounts

During the normal course of business, we extend unsecured credit to our customers in all segments. Typically, credit terms require payment to be made between 30 to 90 days from the date of the sale. We generally do not require collateral from customers. We maintain our cash accounts at creditworthy financial institutions.

The Company's management considers the following factors when determining the collectibility of specific customer accounts: customer creditworthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. The Company includes any account balances that are determined to be uncollectible, along with a general reserve, in the overall allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available to management, the Company believed that its allowance for doubtful accounts was adequate as of March 31, 2022.

Inventory Valuation

Inventories of our manufacturing and distribution segments, consisting principally of raw materials, works in progress, and finished goods, are stated at the lower of cost, using the first-in, first-out ("FIFO") method, or market value. The semiconductor industry is characterized by rapid technological change, short-term customer commitments and swiftly changing demand. Provisions for estimated excess and obsolete inventory are based on regular reviews of inventory quantities on hand and the latest forecasts of product demand and production requirements from our customers. Inventories are written down for not-saleable, excess or obsolete raw materials, works-in-process and finished goods by charging such write-downs to cost of sales. In addition to write-downs based on newly introduced parts, statistics and judgments are used for assessing provisions of the remaining inventory based on salability and obsolescence.

Property, Plant and Equipment & Investment Properties

Property, plant and equipment and investment properties are stated at cost, less accumulated depreciation and amortization. Depreciation is provided for over the estimated useful lives of the assets using the straight-line method. Amortization of leasehold improvements is provided for over the lease terms or the estimated useful lives of the assets, whichever is shorter, using the straight-line method.

Maintenance, repairs and minor renewals are charged directly to expense as incurred. Additions and improvements to property and equipment are capitalized. When assets are disposed of, the related cost and accumulated depreciation thereon are removed from the accounts and any resulting gain or loss is included in the consolidated statements of operations and comprehensive income or loss.

Foreign Currency Translation and Transactions

The United States dollar ("U.S. dollar") is the functional currency of the U.S. parent company. The Singapore dollar, the national currency of Singapore, is the primary currency of the economic environment in which the operations in Singapore are conducted. We also have business entities in Malaysia, Thailand, China and Indonesia, of which the Malaysian ringgit ("RM"), Thai baht, Chinese renminbi ("RMB") and Indonesian rupiah, are the national currencies. The Company uses the U.S. dollar for financial reporting purposes.

The Company translates assets and liabilities of its subsidiaries outside the U.S. into U.S. dollars using the rate of exchange prevailing at the balance sheet date, and the statement of operations is measured using average rates in effect for the reporting period. Adjustments resulting from the translation of the subsidiaries' financial statements from foreign currencies into U.S. dollars are recorded in shareholders' equity as part of accumulated comprehensive income or loss translation adjustment. Gains or losses resulting from transactions denominated in currencies other than functional currencies of the Company's subsidiaries are reflected in income for the reporting period.

Revenue Recognition

The Company adopted Accounting Standards Update ("ASU") No. 2014-09, ASC Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"). This standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.

We apply a five-step approach as defined in ASC Topic 606 in determining the amount and timing of revenue to be recognized: (1) identifying the contract with customer; (2) identifying the performance obligations in the contracts; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when the corresponding performance obligation is satisfied.

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Revenue derived from testing services is recognized when testing services are rendered. Revenue generated from sale of products in the manufacturing and distribution segments are recognized when persuasive evidence of an arrangement exists, delivery of the products has occurred, customer acceptance has been obtained (which means the significant risks and rewards of ownership have been transferred to the customer), the price is fixed or determinable and collectibility is reasonably assured. Certain customers can request for installation and training services to be performed for certain products sold in the manufacturing segment. These services are mainly for helping customers with the test runs of the machines sold and are considered a separate performance obligation. Such services can be provided by other entities as well, and these do not significantly modify the product. The Company recognizes the revenue at the point in time when the Company has satisfied its performance obligation.

In the real estate segment: (1) revenue from property development is earned and recognized on the earlier of the dates when the underlying property is sold or upon the maturity of the agreement; if this amount is uncollectible, the agreement empowers the repossession of the property, and (2) rental revenue is recognized on a straight-line basis over the terms of the respective leases. This means that, with respect to a particular lease, actual amounts billed in accordance with the lease during any given period may be higher or lower than the amount of rental revenue recognized for the period. Straight-line rental revenue is commenced when the tenant assumes possession of the leased premises. Accrued straight-line rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements.

Investment

The Company (a) evaluates the sufficiency of the total equity at risk, (b) reviews the voting rights and decision-making authority of the equity investment holders as a group, and whether there are any guaranteed returns, protection against losses, or capping of residual returns within the group and (c) establishes whether activities within the venture are on behalf of an investor with disproportionately few voting rights in making this Variable Interest Entity ("VIE") determination. The Company would consolidate a venture that is determined to be a VIE if it was the primary beneficiary. Beginning January 1, 2010, a new accounting standard became effective and changed the method by which the primary beneficiary of a VIE is determined. Through a primarily qualitative approach, the variable interest holder, if any, who has the power to direct the VIE's most significant activities is the primary beneficiary. To the extent that the investment does not qualify as VIE, the Company further assesses the existence of a controlling financial interest under a voting interest model to determine whether the venture should be consolidated.

Long-Lived Assets & Impairment

Our business requires heavy investment in manufacturing facilities and equipment that are technologically advanced but can quickly become significantly underutilized or rendered obsolete by rapid changes in demand. We have recorded intangible assets with finite lives related to our acquisitions.

We evaluate our long-lived assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Factors considered important that could result in an impairment review include significant underperformance relative to expected historical or projected future operating results, significant changes in the manner of use of the assets or the strategy for our business, significant negative industry or economic trends, and a significant decline in our stock price for a sustained period of time. Impairment is recognized based on the difference between the fair value of the asset and its carrying value, and fair value is generally measured based on discounted cash flow analysis if there is significant adverse change.

While we have not identified any changes in circumstances requiring further impairment test in fiscal year 2022 other than the circumstances related to the Singapore Theme Resort Project, we will continue to monitor impairment indicators, such as disposition activity, stock price declines or changes in forecasted cash flows in future periods. If the fair value of our reporting unit declines below the carrying value in the future, we may incur additional impairment charges.

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During the fourth quarter of fiscal 2021, The Company recorded an impairment charge of $1,580 related to the doubtful recovery of a down payment on shop lots in the Singapore Theme Resort Project in Chongqing, China. The Company elected to take this noncash impairment charge because of increased uncertainties regarding the project's viability given the developers' weakening financial condition as well as uncertainties arising from the negative real estate environment in China, implementation of control measures on real estate lending and its relevant government policies, together with effects of the ongoing pandemic.

Fair Value Measurements

Under the standard ASC Topic 820, Fair Value Measurements and Disclosures ("ASC Topic 820"), fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between participants in the market in which the reporting entity transacts its business. ASC Topic 820 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, ASC Topic 820 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy.

Income Tax

We account for income taxes using the liability method in accordance with the provisions of ASC Topic 740, Accounting for Income Taxes ("ASC Topic 740"), which requires an entity to recognize deferred tax liabilities and assets. Deferred tax assets and liabilities are recognized for the future tax consequence attributable to the difference between the tax bases of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in future years. Further, the effects of enacted tax laws or rate changes are included as part of deferred tax expenses or benefits in the period that covers the enactment date. Management believed it was more likely than not that the future benefits from these timing differences would not be realized. Accordingly, a full allowance was provided as of March 31, 2022 and 2021.

The calculation of tax liabilities involves dealing with uncertainties in the application of complex global tax regulations. We recognize potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. If the estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result.

Stock-Based Compensation

We calculate compensation expense related to stock option awards made to employees and directors based on the fair value of stock-based awards on the date of grant. We determine the grant date fair value of our stock option awards using the Black-Scholes option pricing model and for awards without performance condition the related stock-based compensation is recognized over the period in which a participant is required to provide service in exchange for the stock-based award, which is generally four years. We recognize stock-based compensation expense in the consolidated statements of shareholders' equity based on awards ultimately expected to vest. Forfeitures are estimated on the date of grant and revised if actual or expected forfeiture activity differs materially from original estimates.

Determining the fair value of stock-based awards at the grant date requires significant judgment. The determination of the grant date fair value of stock-based awards using the Black-Scholes option pricing model is affected by our estimated common stock fair value as well as other subjective assumptions including the expected term of the awards, the expected volatility over the expected term of the awards, expected dividend yield and risk-free interest rates. The assumptions used in our option-pricing model represent management's best estimates and are as follows:

  ? Fair Value of Common Stock. We determined the fair value of each share of
    underlying common stock based on the closing price of our common stock on the
    date of grant.
  ? Expected Term. The expected term of employee stock options reflects the period
    for which we believe the option will remain outstanding based on historical
    experience and future expectations.
  ? Expected Volatility. We base expected volatility on our historical information
    over a similar expected term.

Noncontrolling Interests in Consolidated Financial Statements

We adopted ASC Topic 810, Consolidation ("ASC Topic 810"). This guidance establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance requires that noncontrolling interests in subsidiaries be reported in the equity section of the controlling company's balance sheet. It also changes the manner in which the net income of the subsidiary is reported and disclosed in the controlling company's income statement.

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Third Quarter Fiscal Year 2022 Highlights

  ? Total revenue increased by $3,026, or 37.3%, to $11,138 in the third quarter
    of fiscal year 2022, compared to $8,112 for the same period in fiscal year
    2021.
  ? Manufacturing segment revenue decreased by $33, or 1.1%, to $3,097 for the
    third quarter of fiscal year 2022, compared to $3,130 for the same period in
    fiscal year 2021.
  ? Testing segment revenue increased by $913, or 26.1%, to $4,417 for the third
    quarter of fiscal year 2022, compared to $3,504 for the same period in fiscal
    year 2021.
  ? Distribution segment revenue increased by $2,153, or 146.8%, to $3,620 for the
    third quarter of fiscal year 2022, compared to $1,467 for the same period in
    fiscal year 2021.
  ? Real estate segment rental revenue decreased by $7 to $4 for the third quarter
    of fiscal year 2022, compared to $11 for the same period in fiscal year 2021.
  ? The overall gross profit margin decreased by 3.2% to 22.2% for the third
    quarter of fiscal year 2022, from 25.4% for the same period in fiscal year
    2021.
  ? General and administrative expenses increased by $455, or 23.7%, to $2,378 for
    the third quarter of fiscal year 2022, from $1,923 for the same period in
    fiscal year 2021.
  ? Selling expenses increased by $23, or 18.7%, to $146 for the third quarter of
    fiscal year 2022, from $123 for the same period in fiscal year 2021.
  ? Other income decreased by $146, or 53.5% to $127 in the third quarter of
    fiscal year 2022, compared to $273 in the same period in fiscal year 2021.
  ? Loss from operations was $130 for the third quarter of fiscal year 2022, an
    increase of $65 as compared to $65 for the same period in fiscal year 2021.
  ? Income tax expenses was $170 in the third quarter of fiscal year 2022, an
    increase of $52 as compared to $118 in the same period in fiscal year 2021.
  ? During the third quarter of fiscal year 2022, loss from continuing operations
    before noncontrolling interest, net of tax was $204, as compared to income
    from continuing operations before noncontrolling interest of $65 for the same
    period in fiscal year 2021.
  ? Net loss attributable to noncontrolling interest for the third quarter of
    fiscal year 2022 was $37, an improvement of $75 as compared to $112 in the
    same period in fiscal year 2021.
  ? Basic earnings per share for the third quarter of fiscal year 2022 were
    negative $0.04, as compared to earnings per share of $0.05 for the same period
    in fiscal year 2021.
  ? Dilutive earnings per share for the third quarter of fiscal year 2022 were
    negative $0.04, as compared to earnings per share of 0.04 for the same period
    in fiscal year 2021.
  ? Total assets increased by $3,497 to $41,803 as of March 31, 2022, compared to
    $38,306 as of June 30, 2021.
  ? Total liabilities increased by $1,173 to $13,426 as of March 31, 2022,
    compared to $12,253 as of June 30, 2021.

Results of Operations and Business Outlook

The following table sets forth our revenue components for both three months and nine months ended March 31, 2022 and 2021, respectively.

Revenue Components       Three Months Ended             Nine Months Ended
                      Mar. 31,        Mar. 31,       Mar. 31,       Mar. 31,
                        2022            2021           2022           2021

Manufacturing              27.8 %          38.6 %         31.6 %         40.3 %
Testing Services           39.6            43.2           43.4           43.3
Distribution               32.5            18.1           24.9           16.3
Real Estate                 0.1             0.1            0.1            0.1

Total                     100.0 %         100.0 %        100.0 %        100.0 %




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Revenue for the three and nine months ended March 31, 2022 was $11,138 and $32,231, respectively, an increase of $3,026 and $9,077, respectively, when compared to the revenue for the same period of the prior fiscal year. As a percentage, revenue increased by 37.3% and 39.2% for the three and nine months ended March 31, 2022, respectively, when compared to revenue for the same period of the prior year.

For the three and nine months ended March 31, 2022, the $3,026 and $9,077 increase in overall revenue was primarily due to

  ? an increase in the testing segment in Singapore, China, Malaysia and Thailand
    operations; and
  ? an increase in the distribution segment in Singapore operations;

These increases were partially offset by:

  ? a decrease in the manufacturing segment in the U.S. operation.

Total revenue into and within China, the Southeast Asia regions and other countries (except revenue into and within the United States) increased by $3,214 (or 41.7%), to $10,927 and by $9,318 (or 42.4%) to $31,262 for the three and nine months ended March 31, 2022, respectively, as compared with $7,713 and $21,944, respectively, for the same period of last fiscal year.

Total revenue into and within the U.S. was $222 and $988 for the three and nine months ended March 31, 2022, respectively, a decrease of $177 and $222 from $399 and $1,210 for the same periods of the prior year, respectively.

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

Manufacturing Segment

Revenue in the manufacturing segment was 27.8% and 31.6% as a percentage of total revenue for the three and nine months ended March 31, 2022, respectively, a decrease of 10.8% and 8.7% of total revenue, respectively, when compared to the same periods of the last fiscal year. The absolute amount of revenue decreased by $33 to $3,097 from $3,130 and increased by $863 to $10,187 from $9,324 for the three and nine months ended March 31, 2022, respectively, compared to the same periods of the last fiscal year.

Revenue in the manufacturing segment from one customer accounted for 44.2% and 23.1% of our total revenue in the manufacturing segment for the three months ended March 31, 2022 and 2021, respectively, and 40.3% and 27.5% of our total revenue in the manufacturing segment for the nine months ended March 31, 2022 and 2021, respectively.

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

Testing Services Segment

The testing segment's revenue was 39.6% for the three months ended March 31, 2022, representing a decrease of 3.6%, compared to 43.2% for the same periods of the last fiscal year. Revenue in the testing segment was 43.4% as a percentage of total revenue for the nine months ended March 31, 2022, remaining consistent compared to the same period of the last fiscal year. The absolute amount of revenue increased by $913 to $4,417 from $3,504 and increased by $3,965 to $13,983 from $10,018 for the three and nine months ended March 31, 2022, respectively, as compared to the same periods of the last fiscal year.

During the third quarter of fiscal year 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.

Based on our current visibility, revenue attributable to this joint venture is not expected to be material this fiscal year, as the joint venture company is in the development stage at this time.

The revenue in the testing segment from the one customer noted above accounted for 59.5% and 58.6% of our revenue in the testing segment for the three months ended March 31, 2022 and 2021, respectively, and 62.09% and 58.8% of our total revenue in the testing segment for the nine months ended March 31, 2022 and 2021, respectively. The future revenue in the testing segment will be affected by the demands of this customer if the customer base cannot be increased. Demand for testing services varies from country to country, depending on any changes taking place in the market and our customers' forecasts. As it is challenging to forecast fluctuations in the market accurately, management believes it is necessary to maintain testing facilities in close proximity to the customers in order to make it convenient for them to send us their newly manufactured parts for testing and to enable us to maintain a share of the market.

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Distribution Segment

Revenue in the distribution segment was 32.5% and 24.9% as a percentage of total revenue for the three and nine months ended March 31, 2022, respectively, an increase of 14.4% and 8.6%, respectively, compared to the same periods of the last fiscal year. The absolute amount of revenue increased by $2,153 to $3,620 from $1,467 and increased by $4,248 to $8,038 from $3,790 for the three and nine months ended March 31, 2022, respectively, compared to the same periods of the last fiscal year.

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

Real Estate Segment

The real estate segment accounted for 0.1% of total revenue for both the three and nine months ended March 31, 2022, respectively. The absolute amount of revenue decreased by $7 to $4 from $11 and remained comparable for the three and nine months ended March 31, 2022, respectively, compared to the same periods of the last fiscal year.

Uncertainties and Remedies

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

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

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

The spread of COVID-19 has caused us to modify our business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interest of our employees, customers, partners, and suppliers. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus and our ability to perform critical functions could be harmed.

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

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

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

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

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



                               Three Months Ended
                                    March 31,
                               2022           2021
Revenue                          100.0 %       100.0 %
Cost of sales                     77.8          74.6
Gross Margin                      22.2 %        25.4 %
Operating expenses
General and administrative        21.4 %        23.7 %
Selling                            1.3           1.5
Research and development           0.7           1.0
Total operating expenses          23.4 %        26.2 %
Loss from Operations              (1.2 )%       (0.8 )%




Overall Gross Margin

Overall gross margin as a percentage of revenue decreased by 3.2% to 22.2% for the three months ended March 31, 2022, from 25.4% for the same period of the last fiscal year.

Gross profit margin as a percentage of revenue in the manufacturing segment decreased by 13.1% to 18.3% for the three months ended March 31, 2022, as compared to 31.4% for the same period in the last fiscal year. In absolute dollar amounts, gross profits in the manufacturing segment decreased by $415 to $567 for the three months ended March 31, 2022, from $982 for the same period in the last fiscal year. The decrease in gross profit margin was primarily due to a higher proportion of lower profit margin product sales for the three months ended March 31, 2022.

Gross profit margin as a percentage of revenue in the testing segment increased by 4.0% to 28.3% for the three months ended March 31, 2022, compared to 24.3% in the same period of the last fiscal year. The increase in gross profit margin was mainly due to an increase in orders across the Group, coupled with the price adjustments. Significant portions of our cost of goods sold are fixed in the testing segment. Thus, as the demand for services and factory utilization increases, the fixed costs are spread over the increased output, which increases the gross profit margin. In absolute dollar amounts, gross profit in the testing segment increased by $395 to $1,248 for the three months ended March 31, 2022, from $853 for the same period of the last fiscal year.

Gross profit margin of the distribution segment is not only affected by the market price of the products we distribute, but also the mix of products we distribute, which frequently changes as a result of fluctuations in market demand. Gross profit margin as a percentage of revenue in the distribution segment increased by 2.7% to 18.6% for the three months ended March 31, 2022, from 15.9% in the same period of the last fiscal year. In absolute dollar amounts, gross profit in the distribution segment for the three months ended March 31, 2022, was $675, indicating an increase of $442, compared to $233 in the same period of the last fiscal year. The increase in gross margin as a percentage of revenue was due to an increase in the distribution revenue.

In absolute dollar amounts, for the three months ended March 31, 2022, gross loss in the real estate segment was $16, as compared to $8 for the same period of last fiscal year.

Operating Expenses



Operating expenses for the three months ended March 31, 2022 and 2021 were as
follows:



                               Three Months Ended
                                    March 31,
(Unaudited)                     2022          2021
General and administrative   $    2,378      $ 1,923
Selling                             146          123
Research and development             80           79
Total                        $    2,604      $ 2,125




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General and administrative expenses increased by $455, or 23.7%, from $1,923 to $2,378 for the three months ended March 31, 2022, compared to the same period of last fiscal year. The increase in general and administrative expenses was mainly attributable to the higher stock option compensation expenses led by the higher volatility of stock prices.

Selling expenses increased by $23, or 18,7%, from $123 to $146 for the three months ended March 31, 2022, compared to the same period of the last fiscal year. The increase in selling expenses was primarily attributable to an increase in commission expenses in the distribution segment of the Singapore operations as a result of an increase in commissionable revenue, coupled with an increase in payroll-related expenses in Thailand operation.

Loss from Operations

Loss from operations was $130 for the three months ended March 31, 2022, an increase of $65, compared to $65 loss from operations for the same period of last fiscal year. The result was mainly due to the increase in operating expenses, offset with the increase in gross profit margin, as previously discussed.

Interest Expense



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



                       Three Months Ended
                           March 31,
(Unaudited)           2022             2021
Interest expenses   $      31         $   25

Interest expense was $31 for the three months ended March 31, 2022, an increase of $6, or 24.0%, compared to $25 for the three months ended March 31, 2021. As of March 31, 2022, the Company had an unused line of credit of $5,158 as compared to $5,520 at March 31, 2021.

Other Income

Other income for the three months ended March 31, 2022 and 2021 were as follows:

                                Three Months Ended March 31,
(Unaudited)                      2022                  2021
Interest income              $          13                    26
Other rental income                     30                    25
Exchange (loss) / gain                  (9 )                  58
Government grant                        62                   152
Other miscellaneous income              31                    12
Total                        $         127         $         273

Other income decreased by $146 from $273 to $127 for the three months ended March 31, 2022 compared to the same period in the last fiscal year. The decrease was primarily due to a decrease in the government grant received amounting to $90, coupled with an increase of 67 in exchange loss.

In the three months ended March 31, 2022, the Company received government grants aggregating $62 from the local government in the Malaysia and Thailand operations, of which $nil reflects financial assistance to mitigate the negative impact on the businesses amid the pandemic.

In the three months ended March 31, 2021, the Company received government grants aggregating $152 from the local government in the Singapore and Malaysia operations, of which $107 reflects financial assistance to mitigate the negative impact on the businesses amid the pandemic.

Income Tax Expenses

The Company's income tax expense was $170 and $118 for the three months ended March 31, 2022, and March 31, 2021, respectively. Income tax expenses increased despite increased of loss mainly due to Singapore operations incurring higher income tax due to full utilization of tax allowances coupled with the additional tax arising from under provision of tax expenses for the financial year ended 2020.

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Noncontrolling Interest

As of March 31, 2022, we held a 55% interest in Trio-Tech (Malaysia) Sdn. Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd., and PT. SHI Indonesia. We also held a 76% interest in Prestal Enterprise Sdn. Bhd and 51% of interest in Trio-Tech JiangSu Ltd. The share of net loss from the subsidiaries by the noncontrolling interest for the three months ended March 31, 2022 was $37, a decrease of $75 compared to the share of net loss from the subsidiaries by the noncontrolling interest of $112 for the same period of the previous fiscal year. The decrease in the net loss of the noncontrolling interest in the subsidiaries was attributable to the decrease in net loss generated by the Malaysia operation.

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

Net loss attributable to Trio-Tech International common shareholders for the three months ended March 31, 2022, was $167, a change of $345, compared to a net income of $178 for the same period last fiscal year.

Earnings per Share

Basic earnings per share from continuing operations were negative $0.04 for the three months ended March 31, 2022, compared to $0.05 for the same period in the last fiscal year. Basic earnings per share from discontinued operations were $nil for both the three months ended March 31, 2022 and 2021.

Diluted earnings per share from continuing operations were negative $0.04 for the three months ended March 31, 2022, as compared to $0.04 for the same period in the last fiscal year. Diluted earnings per share from discontinued operations were $nil for both the three months ended March 31, 2022 and 2021.

Segment Information

The revenue, gross margin and income or loss from operations for each segment during the third quarter of fiscal year 2022 and fiscal year 2021 are presented below. As the revenue and gross margin for each segment have been discussed in the previous section, only the comparison of income or loss from operations is discussed below.

Manufacturing Segment



The revenue, gross margin and loss / income from operations for the
manufacturing segment for the three months ended March 31, 2022 and 2021 were as
follows



                                    Three Months Ended
                                         March 31,
(Unaudited)                          2022          2021
Revenue                           $    3,097      $ 3,130
Gross margin                            18.3 %       31.4 %

(Loss) / Income from operations $ (145 ) $ 214

Loss from operations from the manufacturing segment was $145 compared to income from operations of $214 in the same period of the last fiscal year, primarily due to a decrease in gross margin of $415, offset with a decrease in operating expenses of $56. Operating expenses for the manufacturing segment were $712 and $768 for the three months ended March 31, 2022 and 2021, respectively. The decrease in operating expenses was mainly due to a decrease of $49 in general and administrative expenses and $11 in selling expenses, offset with an increase of $4 in corporate overhead expenses. The decrease in general and administrative expenses was mainly attributable to a decrease in payroll-related expenses in the Singapore operations.

Testing Segment

The revenue, gross margin and loss / income from operations for the testing segment for the three months ended March 31, 2022 and 2021 were as follows:

                         Three Months Ended
                              March 31,
(Unaudited)               2022          2021
Revenue                $    4,417      $ 3,504
Gross margin                 28.3 %       24.3 %

Loss from operations $ (124 ) $ (320 )

Loss from operations in the testing segment for the three months ended March 31, 2022, was $124, a decrease of $196 from loss from operations of $320 in the same period of the last fiscal year. The improvement was mainly attributable to an increase of $395 in gross profit, as discussed earlier, offset by an increase of $199 in operating expenses. Operating expenses were $1,372 and $1,173 for the three months ended March 31, 2022 and 2021, respectively. The increase of $199 in operating expenses was mainly due to an increase of $7 in selling expenses, and an increase of $204 in general and administrative expenses. The increases were partially offset by a decrease of $12 in corporate overhead expenses. The increase in general and administrative expenses was mainly due to higher payroll related expenses in the Singapore operation and higher staff benefit expenses in China operations.

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Distribution Segment

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

                           Three Months Ended
                                March 31,
(Unaudited)                 2022          2021
Revenue                  $    3,620      $ 1,467
Gross margin                   18.6 %       15.9 %
Income from operations   $      576      $   163

Income from operations for the distribution segment for the three months ended March 31, 2022 was $576 compared to $163 for the same period of last fiscal year. The increase of $413 was mainly due to an increase of $442 in the gross margin, as discussed earlier, offset by an increase in operating expenses. Operating expenses were $99 and $70 for the three months ended March 31, 2022 and 2021, respectively.

Real Estate Segment

The revenue, gross margin and loss from operations for the real estate segment for the three months ended March 31, 2022 and 2021 were as follows:

                         Three Months Ended
                              March 31,
(Unaudited)               2022          2021
Revenue                $        4      $    11
Gross margin               (400.0 )%     (82.0 )%
Loss from operations   $      (35 )    $   (23 )

Loss from operations in the real estate segment for the three months ended March 31, 2022, was $35 compared to $23 for the same period of last fiscal year. Operating expenses were $19 and $15 for the three months ended March 31, 2022 and 2021, respectively.

Corporate

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

                           Three Months Ended
                                March 31,
(Unaudited)                 2022           2021

Income from operations   $     (402 )     $  (99 )

Corporate operating loss was $402 for the three months ended March 31, 2022, compared to loss of $99 in the same period of the last fiscal year. The increase in operating loss was mainly due to the stock option compensation expenses incurred.

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Comparison of the Nine Months Ended March 31, 2022, and March 31, 2021

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



                                      Nine Months Ended
                                   Mar. 31,       Mar. 31,
                                     2022           2021

Revenue                                100.0 %        100.0 %
Cost of sales                           73.5           76.5
Gross Margin                            26.5 %         23.5 %
Operating expenses:
General and administrative              19.6 %         22.7 %
Selling                                  1.4            1.5
Research and development                 0.9            1.2
Total operating expenses                21.9 %         25.4 %

Income / (Loss) from Operations 4.6 % (1.9 )%

Overall Gross Margin

Overall gross margin as a percentage of revenue increased by 3.0% to 26.5% for the nine months ended March 31, 2022, compared to 23.5% in the same period of last fiscal year. In terms of absolute dollar amounts, gross profits increased by $3,095 to $8,543 for the nine months ended March 31, 2022, from $5,448 for the same period of the last fiscal year.

Gross profit margin as a percentage of revenue in the manufacturing segment decreased by 3.4% to 23.1% for the nine months ended March 31, 2022, from 26.5% in the same period of the last fiscal year. In absolute dollar amounts, gross profit decreased by $120 to $2,349 for the nine months ended March 31, 2022 compared to $2,469 for the same period in the last fiscal year. The decrease in gross profit margin was primarily due to a higher proportion of lower profit margin product sales, despite an increase in revenue for the nine months ended March 31, 2022.

Gross profit margin as a percentage of revenue in the testing segment increased by 11.0% to 34.6% for the nine months ended March 31, 2022, from 23.6% in the same period of the last fiscal year. The increase in gross profit margin was mainly due to an increase in orders across the Group, coupled with the price adjustments. As the demand for services and factory utilization increase, the fixed costs are spread over the increased output, which increases the gross profit margin. In terms of absolute dollar amounts, gross profit in the testing segment increased by $2,476 to $4,842 for the nine months ended March 31, 2022, from $2,366 for the same period of the last fiscal year.

Gross profit margin as a percentage of revenue in the distribution segment remained comparable for the nine months ended March 31, 2022, as compared to the same period of the last fiscal year. The gross margin as a percentage of revenue remained comparable, despite there being an increase in the distribution revenue due to an increase in sales of low profit margin products in our Singapore operation for the nine months ended March 31, 2022, compared to the same period of last fiscal year. In terms of absolute dollar amounts, gross profit in the distribution segment for the nine months ended March 31, 2022, was $1,386, an increase of $738 compared to $648 in the same period of the last fiscal year. The gross profit margin of the distribution segment was affected not only by the market price of our products but also by our product mix, which frequently changes due to fluctuations in market demand.

Gross loss margin as a percentage of revenue in the real estate segment increased by 21.9% to 163.6% for the nine months ended March 31, 2022, from 141.7% in the same period of the last fiscal year. In terms of absolute dollar amounts, gross loss was $36 for the nine months ended March 31, 2022, compared to gross loss of $34 for the same period in the last fiscal year.

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Operating Expenses



Operating expenses for the nine months ended March 31, 2022 and 2021 were as
follows:



                                              Nine Months Ended
                                           Mar. 31,       Mar. 31,
                                             2022           2021
(Unaudited)
General and administrative                $    6,305     $    5,245
Selling                                          449            356
Research and development                         293            277
Gain on disposal of plant and equipment            -             (1 )
Total                                     $    7,047     $    5,877

General and administrative expenses increased by $1,060, or 20.3%, from $5,245 to $6,305 for the nine months ended March 31, 2022, compared to the same period of the last fiscal year. The increase in general and administrative expenses was primarily due to the higher payroll-related expenses in the Singapore and U.S. operations and an increase in staff-related expenses in the China operation, coupled with the higher stock option compensation.

Selling expenses increased by $93, or 26.1%, for the nine months ended March 31, 2022, from $356 to $449 compared to the same period of the last fiscal year. The increase in selling expenses was primarily attributable to an increase in commission expenses in the manufacturing and distribution segment of Singapore operation as a result of an increase in commissionable revenue. In addition, there was also an increase in payroll expenses in the Thailand operation.

Income / (Loss) from Operations

Income from operations was $1,496 for the nine months ended March 31, 2022, compared to loss from operations of $429 for the same period of the last fiscal year. The improvement was mainly due to the increase in gross profit margin, offset with an increase in operating expenses, as discussed earlier.

Interest Expense



Interest expense for the nine months ended March 31, 2022 and 2021 were as
follows:



                        Nine Months Ended
                   Mar. 31,           Mar. 31,
                     2022               2021
(Unaudited)
Interest expense   $      87         $       96

Interest expense decreased by $9 to $87 from $96 for the nine months ended March 31, 2022, compared to the same period of the last fiscal year. The decrease was mainly due to lower bank-loan principal in the Malaysia operation. Additionally, the bank loans payables decreased by $97 to $1,963 for the nine months ended March 31, 2022, compared to $2,060 as of June 30, 2021.

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Other Income

Other income for the nine months ended March 31, 2022 and 2021 was as follows:

                                 Nine Months Ended
                             Mar. 31,         Mar. 31,
                               2022             2021
(Unaudited)
Interest income              $      51       $       96
Other rental income                 88               70
Exchange loss                      (13 )            (79 )
Bad debt recovery                  104               10
Dividend Income                      -               32
Government grant                   160              412
Commission income                  200                -
Other miscellaneous income          79               86
Total                        $     669       $      627

Other income for the nine months ended March 31, 2022 was $669, an increase of $42 compared to $627 for the same period of last fiscal year.

In the nine months ended March 31, 2022, the Company received government grants aggregating $160 from the local governments in the Singapore and Malaysia operations, of which $61 reflects financial assistance to mitigate the negative impact on the businesses amid the pandemic.

In the nine months ended March 31, 2021, the Company received government grants aggregating $412 from the local governments in the Singapore and Malaysia operations, of which $263 reflects financial assistance to mitigate the negative impact on the businesses amid the pandemic.

Income Tax Expenses

Income tax expenses for the nine months ended March 31, 2022 was $503, an increase of $378 compared to tax expenses of $125 for the same period last fiscal year. The increase in income tax expense was primarily due to increase in the taxable income across the Group for the nine months ended March 31, 2022.

Noncontrolling Interest

As of March 31, 2022, we held a 55% interest in Trio-Tech Malaysia, Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd. and PTSHI Indonesia, and a 76% interest in Prestal Enterprise Sdn. Bhd. The net income attributable to the noncontrolling interest in these subsidiaries for the nine months ended March 31, 2022, was $25, a decrease of $429, compared to a net loss of $454 for the same period of last fiscal year. The improvement was attributable to the increase in net income by the Malaysia operation for the nine months ended March 31, 2022.

Net Income Attributable to Trio-Tech International Common Shareholders

Net income was $1,605 for the nine months ended March 31, 2022, an increase of $1,200 compared to a net income of $405 for the same period in the last fiscal year. The increase was mainly due to the increase in revenue and gross margin. However, the increase was partially offset with an increase in operating expenses, as discussed earlier.

Earnings per Share

Basic earnings per share from continuing operations was $0.40 for the nine months ended March 31, 2022, compared to $0.11 for the same period in the last fiscal year. Basic earnings per share from discontinued operations were nil for both the nine months ended March 31, 2022 and 2021.

Diluted earnings per share from continuing operations was $0.38 for the nine months ended March 31, 2022, compared to $0.10 for the same period in the last fiscal year. Diluted earnings per share from discontinued operations were nil for both the nine months ended March 31, 2022 and 2021.

Segment Information

The revenue, gross profit margin, and income or loss from operations in each segment for the nine months ended March 31, 2022 and 2021, respectively, are presented below. As the segment revenue and gross margin for each segment have been discussed in the previous section, only the comparison of income / (loss) from operations is discussed below.

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Manufacturing Segment

The revenue, gross margin and income from operations for the manufacturing segment for the nine months ended March 31, 2022 and 2021 were as follows:

                             Nine Months Ended
                          Mar. 31,       Mar. 31,
                            2022           2021
(Unaudited)
Revenue                  $   10,187     $    9,324
Gross margin                   23.1 %         26.5 %
Income from operations   $      107     $      277

Income from operations from the manufacturing segment was $107 for the nine months ended March 31, 2022, a decrease of $170 as compared to $277 in the same period of the last fiscal year due to a decrease in gross margin. The decrease in operating income was mainly due to a decrease in gross margin. The manufacturing segment's operating expenses were $2,242 and $2,193 for the nine months ended March 31, 2022 and 2021, respectively. The increase in operating expenses of $43 was mainly due to an increase in selling expenses by $14, and an increase in corporate overhead by $36 compared to the same period of last fiscal year. The increase was offset by a decrease in general and administrative expenses by $7.

Testing Segment

The revenue, gross margin and loss from operations for the testing segment for the nine months ended March 31, 2022 and 2021 were as follows:

                                     Nine Months Ended
                                  Mar. 31,      Mar. 31,
                                    2022          2021
(Unaudited)
Revenue                           $  13,983     $  10,018
Gross margin                           34.6 %        23.6 %

Income / (Loss) from operations $ 999 $ (993 )

Income from operations in the testing segment for the nine months ended March 31, 2022, was $999, an improvement of $1,992 compared to loss from operation $993 in the same period of the last fiscal year due to an increase in gross margin and testing volume. The increase in gross margin was partially offset with an increase in operating expenses by $483. Operating expenses were $3,843 and $3,360 for the nine months ended March 31, 2022 and 2021, respectively. The higher operating expenses were mainly attributed to an increase in general and administrative expenses and selling expenses by $493 and $37, respectively. The increase offset with a decrease in corporate overheads by $56.

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

Distribution Segment

The revenue, gross margin and income from operations for the distribution segment for the nine months ended March 31, 2022 and 2021 were as follows:

                             Nine Months Ended
                          Mar. 31,       Mar. 31,
                            2022           2021
(Unaudited)
Revenue                  $    8,038     $    3,790
Gross margin                   17.2 %         17.1 %
Income from operations   $    1,108     $      407

Income from operations in the distribution segment for the nine months ended March 31, 2022, was $1,108, an increase of $701 compared to $407 in the same period of the last fiscal year. The increase in operating income was primarily due to an increase in gross margin by $739, which was partially offset with a decrease in operating expenses of $38. Operating expenses were $279 and $241 for the nine months ended March 31, 2022 and 2021, respectively.

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Real Estate Segment

The revenue, gross loss margin and loss from operations for the real estate segment for the nine months ended March 31, 2022 and 2021 were as follows:

                           Nine Months Ended
                        Mar. 31,       Mar. 31,
                          2022           2021
(Unaudited)
Revenue                $       23     $       22
Gross loss margin           163.6 %        163.6 %
Loss from operations   $      (86 )   $      (84 )

Loss from operations in the real estate segment for the nine months ended March 31, 2022, was $86, compared to $84 for the same period of the last fiscal year. Operating expenses were $51 and $48 for the nine months ended March 31, 2022 and 2021, respectively.

Corporate

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

                                     Nine Months Ended
                                  Mar. 31,        Mar. 31,
                                    2022            2021
(Unaudited)

(Loss)/ Income from operations $ (636 ) $ (36 )

The deterioration of $600 was mainly due to higher stock option compensation expense, coupled with a change in the corporate overhead allocation as compared to the same period last fiscal year. Corporate charges are allocated on a predetermined fixed charge basis.

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Financial Condition

During the nine months ended March 31, 2022 total assets increased by $3,497 to $41,803 compared to $38,306 as of June 30, 2021. The increase in total assets was primarily due to an increase in cash and cash equivalents, trade account receivables, other receivables, inventories, prepaid expenses and other current assets, and operating lease right-of-use. This was partially offset by a decrease in short-term deposits, deferred tax assets, investment properties, other assets, property, plant and equipment, restricted term deposits and financed sales receivable.

Cash and cash equivalents were $7,478 as at March 31, 2022, reflecting an increase of $1,642 from $5,836 as at June 30, 2021, primarily due to the withdrawal of the short-term deposit for the nine months ended March 31, 2022.

Short-term deposits were $4,953 as at March 31, 2022, reflecting a decrease of $1,698 from $6,651 as at June 30, 2021. The decrease was primarily due to withdrawal of the short-term deposit for the nine months ended March 31, 2022 and reflected in the cash and cash equivalents.

As at March 31, 2022, the trade accounts receivable balance increased by $2,292 to $10,585, from $8,293 as at June 30, 2021, primarily due to an increase in overall Group's revenue. This increase was partially offset by the decrease in the U.S. operations. The number of days' sales outstanding in accounts receivables for the Group was 79 days at the end of the third quarter of the fiscal year 2022 and the end of the last fiscal year, respectively.

As at March 31, 2022, other receivables were $1,329, reflecting an increase of $667 from $662 as at June 30, 2021. The increase was primarily due to an increase in advance payments made to suppliers in the Singapore operation.

Inventories as at March 31, 2022, were $2,272, an increase of $192, compared to $2,080 as at June 30, 2021. The increase in inventories was in line with an increase in orders by customers in the distribution segment of the Singapore operations.

Prepaid expenses were $732 as at March 31, 2022 compared to $418 as at June 30, 2021. The increase of $314 was primarily due to the advance payment made for the new factory's utilities deposit in the China operation.

Investment properties' net in China was $636 as at March 31, 2022 and $681 as at June 30, 2021. The decrease was primarily due to the foreign currency exchange movement between June 30, 2021 and March 31, 2022. The increase was partially offset by the depreciation charged for the period.

Property, plant and equipment decreased by $424 from $9,531 as at June 30, 2021, to $9,107 as at March 31, 2022, mainly due to depreciation charged for the period and the foreign currency exchange movement between June 30, 2021 and March 31, 2022. The decrease was partially offset by the new acquisition of property, plant and equipment in the Singapore, Malaysia, Thailand and China operations.

Restricted term deposits remained consistent at $1,735 as at March 31, 2022 as compared to $1,741 as at June 30, 2021. This was primarily due to the foreign currency exchange movement between June 30, 2021 and March 31, 2022.

Other assets decreased by $121 to $141 as at March 31, 2022 compared to $262 as at June 30, 2021. This was mainly due to the reclassification of down payments made for the purchase of equipment in the Malaysia operation.

Lines of credit increased by $451 to $523 as at March 31, 2022 as compared to $72 as at June 30, 2021. This was due to the utilization of the bank facilities in the Singapore operation.

Accounts payable decreased by $1,482 to $2,220 as at March 31, 2022 as compared to $3,702 as at June 30, 2021. This was due to more payments having been made.

Accrued expenses increased by $1,680 to $5,043 as at March 31, 2022, as compared to $3,363 as at June 30, 2021. The increase in accrued expenses was mainly due to an increase in the accrued purchases and customers' deposit received in the Singapore operations.

Bank loans payable decreased by $97 to $1,963 as at March 31, 2022, as compared to $2,060 as at June 30, 2021. This was due to the repayments made in the Malaysia operation.

Finance leases decreased by $162 to $288 as at March 31, 2022, as compared to $450 as at June 30, 2021. This was due to the repayments made in the Singapore and Malaysia operations.

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Operating lease right-of-use assets and the corresponding lease liability increased by $725 to $2,601 as of March 31, 2022, as compared to $1,876 as at June 30, 2021. This was due to the new lease agreement entered in the China operation. The increase was partially offset with the repayment made and the operating lease expenses charged for the period.

Liquidity Comparison

Net cash provided by operating activities decreased by $325 to an inflow of $579 for the nine months ended March 31, 2022, from an inflow of $900 for the same period of the last fiscal year. The decrease in net cash inflow provided by operating activities was primarily due to an increase in cash outflow of $1,201 from trade account receivables, partially offset by an increase in net income of $1,629.

Net cash provided by investing activities increased by $1,363 to an inflow of $538 for the nine months ended March 31, 2022, from an outflow of $825 for the same period of the last fiscal year. The increase in cash inflow was primarily due to an increase in withdrawal of unrestricted deposit amounting to $2,595. These increases were partially offset by an increase in cash outflow of $709 and $523 from investment in unrestricted term deposit and capital expenditure respectively.

Net cash provided by financing activities for the nine months ended March 31, 2022, was $510, representing an increase of $231, as compared to cash inflow of $279 during the nine months ended March 31, 2021. The increase in cash inflow was mainly attributable to an increase in cash inflow by $1,276 from the lines of credit proceeds. This increase was partially offset by an increase in cash outflow of $851 from the payments on lines of credit and a decrease in cash inflow of $373 from the stock option exercise proceeds.

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

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