TRIO-TECH INTERNATIONAL The following discussion and analysis should be read in conjunction with our disclaimer on "Forward-Looking Statements," "Item 1. Business," and our Consolidated Financial Statements, the notes to those statements and other financial information contained elsewhere in this Annual Report on Form 10-K (this "Annual Report").
During the years ended
Semiconductor testing and manufacturing (assembly) of test equipment is our core
business. We provide third-party semiconductor testing and burn-in services
primarily through our laboratories in
Our distribution segment operates primarily in
The main revenue component for the real estate segment was rental income.
No other investment income was recorded as revenue by the real estate segment in either of Fiscal 2022 or Fiscal 2021.
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On
a) long-term loan receivable
b) commercial units measuring 668 square meters and;
c)
These considerations do not include the remaining outstanding amount of
The Shop Lots were to be delivered to TTCQ upon completion of the construction
of the property in
The Company recorded a one-time, non-cash impairment charge of
Fiscal 2022 Highlights ? Total revenue increased by$11,603 , or 35.7%, to$44,065 in Fiscal 2022, as compared to$32,462 in Fiscal 2021. ? Manufacturing segment revenue increased by$375 , or 2.9%, to$13,526 in Fiscal 2022, as compared to$13,151 in Fiscal 2021. ? Testing services segment revenue was$19,477 in Fiscal 2022, an increase of$5,631 , or 40.7%, as compared to$13,846 in Fiscal 2021. ? Distribution segment revenue was$11,037 in Fiscal 2022, an increase of$5,600 , or 103%, as compared to$5,437 in Fiscal 2021. ? Real estate segment revenue decreased by$3 to$25 in Fiscal 2022, as compared to$28 in Fiscal 2021. ? Overall gross profit margin increased by 3% to 26.6% in Fiscal 2022, as compared to 23.6% in Fiscal 2021. ? General and administrative expense increased by$1,432 to$8,361 in Fiscal 2022, as compared to$6,929 in Fiscal 2021. ? Selling expense increased by$197 , or 44.2%, to$643 in Fiscal 2022, as compared to$446 in Fiscal 2021. ? Profit from operations was$2,353 in Fiscal 2022, an increase of$2,414 , as compared to loss from operations of$61 in Fiscal 2021. ? Net other income increased by$241 to$595 in Fiscal 2022, as compared to$354 in Fiscal 2021. ? Profit from continuing operations before income taxes was$3,054 in Fiscal 2022, an increase of$3,953 , as compared to loss from continuing operations of$899 in Fiscal 2021. ? Net profit attributable toTrio-Tech International for Fiscal 2022 was$2,395 , as compared to net loss of$591 in Fiscal 2021. ? Net loss attributable to noncontrolling interest for Fiscal 2022 was$96 , as compared to net loss of$564 in Fiscal 2021. ? Working capital increased by$2,073 , or 13.6%, to$17,273 as ofJune 30, 2022 , as compared to$15,200 as ofJune 30, 2021 .
The highlights above are intended to identify certain of the Company's significant events and transactions during Fiscal 2022. These highlights are not intended to be a full discussion of our results for the year, and should be read in conjunction with the discussion of these items in this Item 7 and with our consolidated financial statements and footnotes accompanying this Annual Report.
General Financial Information
Total assets as of
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Cash and cash equivalents as of
Trade account receivables as of
As of
Inventories as of
Investment properties in
Property, plant and equipment as of
Other assets as of
Restricted term deposits as of
Total liabilities as of
Accounts payable as of
Accrued expense as of
Income tax payable as of
Bank loans payable decreased by
Finance leases decreased by
Operating lease right-of-use assets and the corresponding lease liabilities
increased by
Impact of COVID-19 on our Business
In
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During the quarter ended
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.
As of
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
In response to the
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 credit-worthy financial institutions.
The Company's management considers the following factors when determining the
collectability of specific customer accounts: customer creditworthiness, past
transaction history with the customer, current economic industry trends, and
changes in customer payment terms. The Company includes any account balances
that are determined to be uncollectible, along with a general reserve, in the
overall allowance for doubtful accounts. After all attempts to collect a
receivable have failed, the receivable is written off against the allowance.
Based on the information available to management, the Company believed that its
allowance for doubtful accounts was adequate as of
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. 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.
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Property, Plant and
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 Company translates assets and liabilities of its subsidiaries outside the
Revenue Recognition
The Company follows Accounting Standards Update ("ASU") No. 2014-09, Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"). This standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.
We apply a five-step approach as defined in ASC Topic 606 in determining the amount and timing of revenue to be recognized: (1) identifying the contract with customer; (2) identifying the performance obligations in the contracts; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when the corresponding performance obligation is satisfied.
Revenue derived from testing services is recognized when testing services are rendered. Revenue generated from sale of products in the manufacturing and distribution segments are recognized when persuasive evidence of an arrangement exists, delivery of the products has occurred, customer acceptance has been obtained (which means the significant risks and rewards of ownership have been transferred to the customer), the price is fixed or determinable and collectability is reasonably assured. Certain customers can request for installation and training services to be performed for certain products sold in the manufacturing segment. These services are mainly for helping customers with the test runs of the machines sold and are considered a separate performance obligation. Such services can be provided by other entities as well, and these do not significantly modify the product. The Company recognizes the revenue at the point in time when the Company has satisfied its performance obligation.
In the real estate segment: (1) revenue from property development is earned and recognized on the earlier of the dates when the underlying property is sold or upon the maturity of the agreement; if this amount is uncollectible, the agreement empowers the repossession of the property, and (2) rental revenue is recognized on a straight-line basis over the terms of the respective leases. This means that, with respect to a particular lease, actual amounts billed in accordance with the lease during any given period may be higher or lower than the amount of rental revenue recognized for the period. Straight-line rental revenue is commenced when the tenant assumes possession of the leased premises. Accrued straight-line rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements.
Investment
The
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Equity Method
The Company analyzes its investments in joint ventures to determine if the joint venture should be accounted for using the equity method. Management evaluates both Common Stock and in-substance Common Stock as to whether they give the Company the ability to exercise significant influence over operating and financial policies of the joint venture even though the Company holds less than 50% of the Common Stock and in-substance Common Stock. If so, the net income of the joint venture will be reported as "Equity in earnings of unconsolidated joint ventures, net of tax" in the Company's consolidated statements of operations and comprehensive income or loss.
Cost Method
Investee companies not accounted for under the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, the Company's share of the earnings or losses of such investee companies is not included in the consolidated balance sheet or consolidated statements of operations and comprehensive income or loss. However, impairment charges are recognized in the consolidated statements of operations and comprehensive income or loss. If circumstances suggest that the value of the investee company has subsequently recovered, such recovery is not recorded.
Long-Lived Assets & Impairment
Our business requires heavy investment in manufacturing facilities and equipment that are technologically advanced but can quickly become significantly underutilized or rendered obsolete by rapid changes in demand. We have recorded intangible assets with finite lives related to our acquisitions.
We evaluate our long-lived assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Factors considered important that could result in an impairment review include significant underperformance relative to expected historical or projected future operating results, significant changes in the manner of use of the assets or the strategy for our business, significant negative industry or economic trends, and a significant decline in our stock price for a sustained period of time. Impairment is recognized based on the difference between the fair value of the asset and its carrying value, and fair value is generally measured based on discounted cash flow analysis, if there is significant adverse change.
While we have not identified any changes in circumstances requiring further impairment test in Fiscal 2022, we will continue to monitor impairment indicators, such as disposition activity, stock price declines or changes in forecasted cash flows in future periods. If the fair value of our reporting unit declines below the carrying value in the future, we may incur additional impairment charges.
During the fourth quarter of 2021, the Company recorded a impairment charge of
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 expense 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
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
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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 follow ASC Topic 810, Consolidation ("ASC Topic 810"). ASC Topic 810 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. ASC Topic 810 requires that noncontrolling interests in subsidiaries be reported in the equity section of the controlling company's balance sheet. ASC Topic 810 also changes the manner in which the net income of the subsidiary is reported and disclosed in the controlling company's income statement.
Loan Receivables
The loan receivables are classified as current assets carried at face value and are individually evaluated for impairment. The allowance for loan losses reflects management's best estimate of probable losses determined principally on the basis of historical experience and specific allowances for known loan accounts. All loans or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for losses.
Interest Income
Interest income on loans is recognized on an accrual basis. Discounts and premiums on loans are amortized to income using the interest method over the remaining period to contractual maturity. The amortization of discounts into income is discontinued on loans that are contractually 90 days past due or when collection of interest appears doubtful.
Recent Accounting Pronouncements
In
In
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In
Other new pronouncements issued but not yet effective until after
Comparison of Operating Results
The following table presents certain data from the consolidated statements of operating income as a percentage of net sales for the years endedJune 30, 2022 , and 2021: For the Year Ended June 30, 2022 2021 Revenue 100.0 % 100.0 % Cost of sales 73.4 76.4 Gross Margin 26.6 % 23.6 % Operating expense: General and administrative 19.0 % 21.3 % Selling 1.5 1.4 Research and development 0.9 1.1 Impairment loss on long-lived assets - - Total operating expense 21.4 % 23.8 % Profit / (loss) from Operations 5.2 % (0.2 )% Overall revenue
Overall revenue is composed of the revenue from the manufacturing, testing
services, distribution and real estate segments. The following table presents
the components of the overall revenue realized for the years ended
For the Year Ended June 30,
2022 2021
Manufacturing 30.7 % 40.5 %
Testing 44.2 42.7
Distribution 25.0 16.7
Real estate 0.1 0.1
Total 100.0 % 100.0 %
Overall revenue during Fiscal 2022 was
Manufacturing Segment Revenue
The manufacturing segment accounted for 30.7% of revenue during Fiscal 2022, a
decrease of 9.8%, compared to 40.5% during the year ended
Backlog in the manufacturing segment was
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Testing Segment Revenue
Revenue generated by the testing services segment accounted for 44.2% of total
revenue during Fiscal 2022, as compared to 42.7% during Fiscal 2021. Revenue
generated by the testing services segment for Fiscal 2022 was
Backlog in the testing services segment as of
Distribution Segment Revenue
Revenue generated by the distribution segment during Fiscal 2022 accounted for
25% of total revenue, an increase of 8.3% compared to 16.7% for Fiscal 2021.
Revenue for Fiscal 2022 was
Backlog in the distribution segment as of
Real Estate Segment Revenue
Revenue generated by the real estate segment was 0.1% of total revenue for each
of the years ended
Backlog in the real estate segment as of
Overall Gross Margin
Overall gross margin as a percentage of revenue was 26.6% in Fiscal 2022, an
increase of 3% compared to 23.6% in Fiscal 2021. The increase in gross margin as
a percentage of revenue was mainly attributable to the testing segment. Overall
gross profit for Fiscal 2022 was
Gross margin as a percentage of revenue in the manufacturing segment was 25% in
Fiscal 2022, a decrease of 0.4%, compared to 25.4% in Fiscal 2021, mainly due to
increased payroll expeneses. Gross profit for the manufacturing segment in
Fiscal 2022 was
Gross margin as a percentage of revenue in the testing services segment was
33.5% in Fiscal 2022, an increase of 8.8%, compared to 24.7% in Fiscal 2021. The
increase in gross profit margin as a percentage of revenue was primarily due to
the continuous effort of cost control in the
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Gross margin as a percentage of revenue in the distribution segment was 17.1% in
Fiscal 2022, a decrease of 0.6%, compared to 17.7% in Fiscal 2021. The decrease
in gross margin percentage was due to an increase in direct material costs and
freight charges. Gross profit in the distribution segment was
Gross margin as a percentage of revenue in the real estate segment was (212.0)%
in Fiscal 2022, a decrease of 55% compared to (157.0)% in Fiscal 2021. Gross
(loss) margin in the real estate segment was
Operating Expense
Operating expense for the years ended
For the Year Ended June 30,
2022 2021
General and administrative $ 8,361 $ 6,929
Selling 643 446
Research and development 375 357
Gain on disposal of property, plant and equipment 1 (1 )
Total $ 9,380 $ 7,731 General and administrative expense was
Selling expense increased by
Profit / (loss) from Operations
Profit from operations was
Interest Expense
Interest expense for the years ended
For the Year Ended June 30,
2022 2021
Interest expense $ 122 $ 126
Interest expense decreased by
Other Income, Net
Other income, net, for the years ended
For the Year Ended June 30,
2022 2021
Interest income $ 69 $ 118
Other rental income 116 100
Exchange gain/ (loss) 129 (69 )
Extinguishment of PPP loan - 121
Commission income 189 -
Dividend income 10 32
Deposit Forfeited 32 -
Other miscellaneous income 50 52
Total $ 595 $ 354
Other income increased by
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Government Grant
During Fiscal 2022, the Company received government grants amounting to
During Fiscal 2021, the Company received government grants amounting to
Income Tax (Expense) / Benefits
Income tax expense for Fiscal 2022 was
At
Profit / loss from Discontinued Operations
Profit from discontinued operations was
Noncontrolling Interest
As of
Net Income / (Loss) Attributable to Trio-Tech International Common Shareholders
Net income attributable to Trio-Tech International Common Shareholders for
Fiscal 2022 was
Earnings/(Loss) per Share
Basic earnings per share from continuing operations was
Diluted earnings per share from continuing operations was
Income (loss) by Segment
The revenue, gross margin and income or loss from each segment for the years
ended
Manufacturing Segment
The revenue, gross margin and income from operations for the manufacturing
segment for the years ended
For the Year Ended June 30,
2022 2021
Revenue $ 13,526 $ 13,151
Gross margin 25 % 25.4 %
Income from operations $ 275 $ 376
Income from operations in the manufacturing segment was
The increase in selling expense was primarily due to travelling expenses as travel restriction eased and economic activities resumed. The increase in corporate overhead was mainly attributable to an increase in payroll-related expense.
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Testing Services Segment
The revenue, gross margin and profit / (loss) from operations for the testing
services segment for the years ended
For the Year Ended June 30,
2022 2021
Revenue $ 19,477 $ 13,846
Gross margin 33.5 % 24.7 %
Income/ (loss) from operations
Profit from operations in the testing services segment in Fiscal 2022 was
Distribution Segment
The revenue, gross margin and income from operations for the distribution
segment for the years ended
For the Year Ended June 30,
2022 2021
Revenue $ 11,037 $ 5,437
Gross margin 17.1 % 17.7 %
Income from operations $ 1,525 $ 657 Income from operations in the distribution segment was
Real Estate
The revenue, gross margin and loss from operations for the real estate segment
for the years ended
For the Year Ended June 30,
2022 2021
Revenue $ 25 $ 28
Gross margin (212.0 )% (175.0 )%
Loss from operations $ (119 ) $ (116 ) Loss from operations in the real estate segment was
Corporate
The following table presents the income / (loss) from operations for Corporate
for the years ended
For the Year Ended June 30,
2022 2021
(Loss) / Income from operations $ (641 )
In Fiscal 2022, corporate operating loss was
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Liquidity
The Company's core businesses, including its testing services, manufacturing and distribution, operate in a volatile industry, in which average selling prices and product costs are influenced by competitive factors. These factors create pressures on sales, costs, earnings and cash flows, which impact liquidity.
Net cash provided by operating activities increased by
Net cash used in investing activities decreased by
Net cash provided by financing activities for the year ended
We believe that our projected cash flows from operations, borrowing availability
under our revolving lines of credit, cash on hand, trade credit and the secured
bank loans will provide the necessary financial resources to meet our projected
cash requirements for at least the next 12 months. The Company has filed the S3
registration statement on
Capital Resources
Our working capital (defined as current assets minus current liabilities) has
historically been generated primarily from the following sources: operating cash
flow, availability under our revolving line of credit, and short-term loans. The
working capital was
The majority of our capital expenditures are based on demands from our
customers, as we are operating in a capital-intensive industry. Our capital
expenditures were
Our credit rating provides us with ready and adequate access to funds in the
global market. At
Entity with Type of Interest Expiration Credit Unused
Facility Facility Rate Date Limitation Credit
Trio-Tech Lines of Ranging -
Pte. Ltd., to 5.5%Singapore Universal Lines of Ranging -$ 1,076 $ 586 (Far East) Credit from 1.85% Pte. Ltd., to 5.5% Singapore Trio-Tech Revolving Cost of -$ 338 $ 338 Malaysia Sdn. Credit Funds Rate Bhd., +2% Malaysia -19-
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As of
Entity with Type of Interest Expiration Credit Unused
Facility Facility Rate Date Limitation Credit
Trio-Tech Lines of Ranging -
Pte. Ltd., to 5.5%,
Singapore SIBOR rate
+1.25% and
LIBOR rate
+1.30%
Universal Lines of Ranging - $ 359 $ 187
(Far East) Credit from 1.85%
Pte. Ltd., to 5.5%
Singapore
Trio-Tech Revolving Cost of -
Bhd., +2%
Malaysia Off-Balance Sheet Arrangements
We do not consider the Company to have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expense, results of operations, liquidity, capital expenditures or capital resources.
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