Overview
The following should be read in conjunction with the condensed consolidated
financial statements and notes in Item I above and with the audited consolidated
financial statements and notes, the information under the headings "Risk
Factors" and "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 December 31, 2021. The Real Estate segment contributed only 0.1% to
the total revenue during the three months ended December 31, 2021.
Manufacturing
TTI develops and manufactures an extensive range of test equipment used in the
"front-end" and the "back-end" manufacturing processes of semiconductors. Our
equipment includes leak detectors, autoclaves, centrifuges, burn-in systems and
boards, HAST testers, temperature-controlled chucks, wet benches and more.
Testing
TTI provides comprehensive electrical, environmental, and burn-in testing
services to semiconductor manufacturers in our testing laboratories in Asia and
the U.S. Our customers include both manufacturers and end-users of semiconductor
and electronic components who look to us when they do not want to establish
their own facilities. The independent tests are performed to industry and
customer specific standards.
Distribution
In addition to marketing our proprietary products, we distribute complementary
products made by manufacturers mainly from the U.S., Europe, Taiwan and Japan.
The products include environmental chambers, handlers, interface systems,
vibration systems, shaker systems, solderability testers and other semiconductor
equipment. Besides equipment, we also distribute a wide range of components such
as connectors, sockets, LCD display panels and touch screen panels. Furthermore,
our range of products are mainly targeted for industrial products rather than
consumer products whereby the life cycle of the industrial products can last
from three years to seven years.
Real Estate
Beginning in 2007, TTI has invested in real estate property in Chongqing, China,
which has generated investment income from rental revenue, and investment
returns from deemed loan receivables, which are classified as other income. The
rental income is generated from the rental properties in MaoYe and FuLi in
Chongqing, China. In the second quarter of fiscal 2015, the investment in
JiaSheng, which was deemed as loans receivable, was transferred to down payment
for purchase of investment property in China.
Impact of COVID-19 on our Business
In December 2019, a novel strain of coronavirus ("COVID-19"), was reported to
have surfaced in China, resulting in shutdowns of manufacturing and commerce in
the months that followed. Since then, the COVID-19 pandemic has spread to
multiple countries worldwide and has resulted in authorities implementing
numerous measures to try to contain the disease and slow its spread, such as
travel bans and restrictions, quarantines, shelter-in-place orders and
shutdowns. These measures have created significant uncertainty and economic
disruption, both short-term and potentially long-term.
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Subsequent to the quarter ended December 31, 2021, the Company was required to
close its facility in Tianjin, China in compliance with the Tianjin city
government's imposed lockdown measures for mandatory testing of Tianjin city's
residents and China's ZERO-COVID policy. The Company then resumed 100% operating
capacity in Tianjin, China operation by January 21, 2022. The Company is
actively working on production output to catch up with backlog.
The health and safety of our employees and our customers are a top priority for
us. In an effort to protect our employees, we took and continue to take
proactive and aggressive actions, starting with the earliest signs of the
outbreak, to adopt social distancing policies at our locations, including
working from home and suspending employee travel. Our operations have been
classified as part of the global supply chain and essential businesses in many
jurisdictions, and employees who are working onsite are required to adhere to
strict safety measures, including the use of masks and sanitizer, wellness
screenings prior to accessing work sites, staggered break times to prevent
congregation, prohibitions on physical contact with coworkers or customers,
restrictions on access through only a single point of entry and exit, and
utilizing video conferencing. We have also incorporated other rules such as
restricting visitors to any of our facilities that remain open and proactively
providing employees with hand sanitizer.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for fair presentation have been included.
Operating results for the three months ended December 31, 2021, are not
necessarily indicative of the results that may be expected for the fiscal year
ending June 30, 2022. Certain accounting matters that generally require
consideration of forecasted financial information were assessed regarding
impacts from the COVID-19 pandemic as of December 31, 2021, and through the date
of filing of this Quarterly Report dated February 14, 2022 using reasonably
available information as of those dates. Those accounting matters assessed
included, but were not limited to, allowance for doubtful accounts, the carrying
value of long-lived tangible assets and the valuation allowances for tax assets.
While the assessments resulted in no material impacts to the consolidated
financial statements as of and for the quarter ended December 31, 2021, the
Company believes the full impact of the pandemic remains uncertain and the
Company will continue to assess if ongoing developments related to the pandemic
may cause future material impacts to our consolidated financial statements.
As of December 31, 2021, the Company had cash and cash equivalents and
short-term deposits totaling $12,523 and an unused line of credit of $5,207. We
finance operations primarily through our existing cash balances, cash collected
from operations, bank borrowings and capital lease financing. We believe these
sources are sufficient to fund our operations for the foreseeable future.
While we have implemented safeguards and procedures to counter the impact of the
COVID-19 pandemic, the full extent to which the pandemic has and will directly
or indirectly impact us, including our business, financial condition, and result
of operations, will depend on future developments that are highly uncertain and
cannot be accurately predicted. This may include further mitigation efforts
taken to contain the virus or treat its impact and the economic impact on local,
regional, national and international markets. We will continue to actively
monitor the situation and may take further actions that alter our business
operations as may be required by the governments or that we determine are in the
best interests of our employees, customers, suppliers and stockholders.
Critical Accounting Estimates & Policies
The discussion and analysis of the Company's financial condition presented in
this section are based upon our consolidated financial statements, which have
been prepared in accordance with generally accepted accounting principles in the
U.S. During the preparation of the consolidated financial statements, we are
required to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses, and related disclosure of contingent
assets and liabilities. On an ongoing basis, we evaluate our estimates and
judgments, including those related to sales, returns, pricing concessions, bad
debts, inventories, investments, fixed assets, intangible assets, income taxes
and other contingencies. Due to the COVID-19 pandemic, there has been
uncertainty and disruption in the global economy and financial markets. These
estimates and assumptions may change as new events occur and additional
information is obtained. Actual results may differ from these estimates under
different assumptions or conditions.
In response to the SEC's Release No. 33-8040, Cautionary Advice Regarding
Disclosure about Critical Accounting Policy, we have identified the most
critical accounting policies upon which our financial status depends. We
determined that those critical accounting policies are related to the inventory
valuation; allowance for doubtful accounts; revenue recognition; impairment of
property, plant and equipment; investment properties and income tax. These
accounting policies are discussed in the relevant sections in this management's
discussion and analysis, including the Recently Issued Accounting Pronouncements
discussed below.
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Account Receivables and Allowance for Doubtful Accounts
During the normal course of business, we extend unsecured credit to our
customers in all segments. Typically, credit terms require payment to be made
between 30 to 90 days from the date of the sale. We generally do not require
collateral from customers. We maintain our cash accounts at creditworthy
financial institutions.
The Company's management considers the following factors when determining the
collectibility of specific customer accounts: customer creditworthiness, past
transaction history with the customer, current economic industry trends, and
changes in customer payment terms. The Company includes any account balances
that are determined to be uncollectible, along with a general reserve, in the
overall allowance for doubtful accounts. After all attempts to collect a
receivable have failed, the receivable is written off against the allowance.
Based on the information available to management, the Company believed that its
allowance for doubtful accounts was adequate as of December 31, 2021.
Inventory Valuation
Inventories of our manufacturing and distribution segments, consisting
principally of raw materials, works in progress, and finished goods, are stated
at the lower of cost, using the first-in, first-out ("FIFO") method, or market
value. The semiconductor industry is characterized by rapid technological
change, short-term customer commitments and swiftly changing demand. Provisions
for estimated excess and obsolete inventory are based on regular reviews of
inventory quantities on hand and the latest forecasts of product demand and
production requirements from our customers. Inventories are written down for
not-saleable, excess or obsolete raw materials, works-in-process and finished
goods by charging such write-downs to cost of sales. In addition to write-downs
based on newly introduced parts, statistics and judgments are used for assessing
provisions of the remaining inventory based on salability and obsolescence.
Property, Plant and Equipment & Investment Properties
Property, plant and equipment and investment properties are stated at cost, less
accumulated depreciation and amortization. Depreciation is provided for over the
estimated useful lives of the assets using the straight-line method.
Amortization of leasehold improvements is provided for over the lease terms or
the estimated useful lives of the assets, whichever is shorter, using the
straight-line method.
Maintenance, repairs and minor renewals are charged directly to expense as
incurred. Additions and improvements to property and equipment are capitalized.
When assets are disposed of, the related cost and accumulated depreciation
thereon are removed from the accounts and any resulting gain or loss is included
in the consolidated statements of operations and comprehensive income or loss.
Foreign Currency Translation and Transactions
The United States dollar ("U.S. dollar") is the functional currency of the U.S.
parent company. The Singapore dollar, the national currency of Singapore, is the
primary currency of the economic environment in which the operations in
Singapore are conducted. We also have business entities in Malaysia, Thailand,
China and Indonesia, of which the Malaysian ringgit ("RM"), Thai baht, Chinese
renminbi ("RMB") and Indonesian rupiah, are the national currencies. The Company
uses the U.S. dollar for financial reporting purposes.
The Company translates assets and liabilities of its subsidiaries outside the
U.S. into U.S. dollars using the rate of exchange prevailing at the balance
sheet date, and the statement of operations is measured using average rates in
effect for the reporting period. Adjustments resulting from the translation of
the subsidiaries' financial statements from foreign currencies into U.S. dollars
are recorded in shareholders' equity as part of accumulated comprehensive income
or loss translation adjustment. Gains or losses resulting from transactions
denominated in currencies other than functional currencies of the Company's
subsidiaries are reflected in income for the reporting period.
Revenue Recognition
The Company adopted Accounting Standards Update ("ASU") No. 2014-09, ASC Topic
606, Revenue from Contracts with Customers ("ASC Topic 606"). This standard
outlines a single comprehensive model for entities to use in accounting for
revenue arising from contracts with customers.
We apply a five-step approach as defined in ASC Topic 606 in determining the
amount and timing of revenue to be recognized: (1) identifying the contract with
customer; (2) identifying the performance obligations in the contracts; (3)
determining the transaction price; (4) allocating the transaction price to the
performance obligations in the contract; and (5) recognizing revenue when the
corresponding performance obligation is satisfied.
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Revenue derived from testing services is recognized when testing services are
rendered. Revenue generated from sale of products in the manufacturing and
distribution segments are recognized when persuasive evidence of an arrangement
exists, delivery of the products has occurred, customer acceptance has been
obtained (which means the significant risks and rewards of ownership have been
transferred to the customer), the price is fixed or determinable and
collectibility is reasonably assured. Certain customers can request for
installation and training services to be performed for certain products sold in
the manufacturing segment. These services are mainly for helping customers with
the test runs of the machines sold and are considered a separate performance
obligation. Such services can be provided by other entities as well, and these
do not significantly modify the product. The Company recognizes the revenue at
the point in time when the Company has satisfied its performance obligation.
In the real estate segment: (1) revenue from property development is earned and
recognized on the earlier of the dates when the underlying property is sold or
upon the maturity of the agreement; if this amount is uncollectible, the
agreement empowers the repossession of the property, and (2) rental revenue is
recognized on a straight-line basis over the terms of the respective leases.
This means that, with respect to a particular lease, actual amounts billed in
accordance with the lease during any given period may be higher or lower than
the amount of rental revenue recognized for the period. Straight-line rental
revenue is commenced when the tenant assumes possession of the leased premises.
Accrued straight-line rents receivable represents the amount by which
straight-line rental revenue exceeds rents currently billed in accordance with
lease agreements.
Investment
The Company (a) evaluates the sufficiency of the total equity at risk, (b)
reviews the voting rights and decision-making authority of the equity investment
holders as a group, and whether there are any guaranteed returns, protection
against losses, or capping of residual returns within the group and (c)
establishes whether activities within the venture are on behalf of an investor
with disproportionately few voting rights in making this Variable Interest
Entity ("VIE") determination. The Company would consolidate a venture that is
determined to be a VIE if it was the primary beneficiary. Beginning January 1,
2010, a new accounting standard became effective and changed the method by which
the primary beneficiary of a VIE is determined. Through a primarily qualitative
approach, the variable interest holder, if any, who has the power to direct the
VIE's most significant activities is the primary beneficiary. To the extent that
the investment does not qualify as VIE, the Company further assesses the
existence of a controlling financial interest under a voting interest model to
determine whether the venture should be consolidated.
Equity Method
The Company analyzes its investments in joint ventures to determine if the joint
venture should be accounted for using the equity method. Management evaluates
both Common Stock and in-substance Common Stock as to whether they give the
Company the ability to exercise significant influence over operating and
financial policies of the joint venture even though the Company holds less than
50% of the Common Stock and in-substance Common Stock. If so, the net income of
the joint venture will be reported as "Equity in earnings of unconsolidated
joint ventures, net of tax" in the Company's consolidated statements of
operations and comprehensive income or loss.
Cost Method
Investee companies not accounted for under the consolidation or the equity
method of accounting are accounted for under the cost method of accounting.
Under this method, the Company's share of the earnings or losses of such
investee companies is not included in the consolidated balance sheet or
consolidated statements of operations and comprehensive income or loss. However,
impairment charges are recognized in the consolidated statements of operations
and comprehensive income or loss. If circumstances suggest that the value of the
investee company has subsequently recovered, such recovery is not recorded.
Long-Lived Assets & Impairment
Our business requires heavy investment in manufacturing facilities and equipment
that are technologically advanced but can quickly become significantly
underutilized or rendered obsolete by rapid changes in demand. We have recorded
intangible assets with finite lives related to our acquisitions.
We evaluate our long-lived assets with finite lives for impairment whenever
events or changes in circumstances indicate that the carrying value of such
assets may not be recoverable. Factors considered important that could result in
an impairment review include significant underperformance relative to expected
historical or projected future operating results, significant changes in the
manner of use of the assets or the strategy for our business, significant
negative industry or economic trends, and a significant decline in our stock
price for a sustained period of time. Impairment is recognized based on the
difference between the fair value of the asset and its carrying value, and fair
value is generally measured based on discounted cash flow analysis if there is
significant adverse change.
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While we have not identified any changes in circumstances requiring further
impairment test in fiscal year 2021 other than the circumstances related to the
Singapore Theme Resort Project, we will continue to monitor impairment
indicators, such as disposition activity, stock price declines or changes in
forecasted cash flows in future periods. If the fair value of our reporting unit
declines below the carrying value in the future, we may incur additional
impairment charges.
During the third quarter of 2020, our operation in China provided impairment
loss of $139 for seven pieces of equipment because one of our customers'
products came to the end of its product burn-in cycle earlier than expected. The
cost of converting the seven pieces of equipment outweighed the benefit of
utilizing said equipment. Operations did not foresee any future usage of these
assets. There will be no future economic cash inflow generated from these
assets. Based on these events, we concluded that it was more likely than not
that value-in-use of these assets was less than their carrying value. Full
impairment of these assets has been recorded.
During the fourth quarter of fiscal 2021, The Company recorded an impairment
charge of $1,580 related to the doubtful recovery of a down payment on shop lots
in the Singapore Theme Resort Project in Chongqing, China. The Company elected
to take this non-cash impairment charge because of increased uncertainties
regarding the project's viability given the developers weakening financial
condition as well as uncertainties arising from the negative real estate
environment in China, implementation of control measures on real estate lending
and its relevant government policies, together with effects of the ongoing
pandemic.
Fair Value Measurements
Under the standard ASC Topic 820, Fair Value Measurements and Disclosures ("ASC
Topic 820"), fair value refers to the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between
participants in the market in which the reporting entity transacts its business.
ASC Topic 820 clarifies the principle that fair value should be based on the
assumptions market participants would use when pricing the asset or liability.
In support of this principle, ASC Topic 820 establishes a fair value hierarchy
that prioritizes the information used to develop those assumptions. Under the
standard, fair value measurements would be separately disclosed by level within
the fair value hierarchy.
Income Tax
We account for income taxes using the liability method in accordance with the
provisions of ASC Topic 740, Accounting for Income Taxes ("ASC Topic 740"),
which requires an entity to recognize deferred tax liabilities and assets.
Deferred tax assets and liabilities are recognized for the future tax
consequence attributable to the difference between the tax bases of assets and
liabilities and their reported amounts in the financial statements, which will
result in taxable or deductible amounts in future years. Further, the effects of
enacted tax laws or rate changes are included as part of deferred tax expenses
or benefits in the period that covers the enactment date. Management believed it
was more likely than not that the future benefits from these timing differences
would not be realized. Accordingly, a full allowance was provided as of December
31, 2021 and 2020.
The calculation of tax liabilities involves dealing with uncertainties in the
application of complex global tax regulations. We recognize potential
liabilities for anticipated tax audit issues in the U.S. and other tax
jurisdictions based on our estimate of whether, and the extent to which,
additional taxes will be due. If the estimate of tax liabilities proves to be
less than the ultimate assessment, a further charge to expense would result.
Stock-Based Compensation
We calculate compensation expense related to stock option awards made to
employees and directors based on the fair value of stock-based awards on the
date of grant. We determine the grant date fair value of our stock option awards
using the Black-Scholes option pricing model and for awards without performance
condition the related stock-based compensation is recognized over the period in
which a participant is required to provide service in exchange for the
stock-based award, which is generally four years. We recognize stock-based
compensation expense in the consolidated statements of shareholders' equity
based on awards ultimately expected to vest. Forfeitures are estimated on the
date of grant and revised if actual or expected forfeiture activity differs
materially from original estimates.
Determining the fair value of stock-based awards at the grant date requires
significant judgment. The determination of the grant date fair value of
stock-based awards using the Black-Scholes option pricing model is affected by
our estimated common stock fair value as well as other subjective assumptions
including the expected term of the awards, the expected volatility over the
expected term of the awards, expected dividend yield and risk-free interest
rates. The assumptions used in our option-pricing model represent management's
best estimates and are as follows:
? Fair Value of Common Stock. We determined the fair value of each share of
underlying common stock based on the closing price of our common stock on the
date of grant.
? Expected Term. The expected term of employee stock options reflects the period
for which we believe the option will remain outstanding based on historical
experience and future expectations.
? Expected Volatility. We base expected volatility on our historical information
over a similar expected term.
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Noncontrolling Interests in Consolidated Financial Statements
We adopted ASC Topic 810, Consolidation ("ASC Topic 810"). This guidance
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. This guidance
requires that noncontrolling interests in subsidiaries be reported in the equity
section of the controlling company's balance sheet. It also changes the manner
in which the net income of the subsidiary is reported and disclosed in the
controlling company's income statement.
Second Quarter Fiscal Year 2022 Highlights
? Total revenue increased by $2,721, or 33.2%, to $10,922 in the second quarter
of fiscal year 2022, compared to $8,201 for the same period in fiscal year
2021.
? Manufacturing segment revenue decreased by $41, or 1.1%, to $3,528 for the
second quarter of fiscal year 2022, compared to $3,569 for the same period in
fiscal year 2021.
? Testing segment revenue increased by $1,406, or 39.5%, to $4,966 for the
second quarter of fiscal year 2022, compared to $3,560 for the same period in
fiscal year 2021.
? Distribution segment revenue increased by $1,355, or 127.2%, to $2,420 for the
second quarter of fiscal year 2022, compared to $1,065 for the same period in
fiscal year 2021.
? Real estate segment rental revenue increased from $7 to $8 for the second
quarter of fiscal year 2022, compared to the same period in fiscal year 2021.
? The overall gross profit margin increased by 3.7% to 26.5% for the second
quarter of fiscal year 2022, from 22.8% for the same period in fiscal year
2021.
? General and administrative expenses increased by $285, or 17.1%, to $1,947 for
the second quarter of fiscal year 2022, from $1,662 for the same period in
fiscal year 2021.
? Selling expenses increased by $34, or 27.9%, to $156 for the second quarter of
fiscal year 2022, from $122 for the same period in fiscal year 2021.
? Other income increased by $238, or 166.4% to $381 in the second quarter of
fiscal year 2022, compared to $143 in the same period in fiscal year 2021.
? Income from operations was $656 for the second quarter of fiscal year 2022, an
increase of $693 as compared to loss from operation of $37 for the same period
in fiscal year 2021.
? Income tax expenses was $153 in the second quarter of fiscal year 2022, an
increase of $153 as compared to an income tax expense of $nil in the same
period in fiscal year 2021.
? During the second quarter of fiscal year 2022, income from continuing
operations before noncontrolling interest, net of tax was $856, as compared to
income from continuing operations before noncontrolling interest of $72 for
the same period in fiscal year 2021.
? Net income attributable to noncontrolling interest for the second quarter of
fiscal year 2022 was $1, an improvement of $185 as compared to net loss
attributable to noncontrolling interest of $184 in the same period in fiscal
year 2021.
? Basic earnings per share for the second quarter of fiscal year 2022 were
$0.22, as compared to earnings per share of $0.06 for the same period in
fiscal year 2021.
? Dilutive earnings per share for the second quarter of fiscal year 2022 were
$0.20, as compared to earnings per share of 0.06 for the same period in fiscal
year 2021.
? Total assets increased by $4,246 to $42,552 as of December 31, 2021, compared
to $38,306 as of June 30, 2021.
? Total liabilities increased by $2,479 to $14,732 as of December 31, 2021,
compared to $12,253 as of June 30, 2021.
Results of Operations and Business Outlook
The following table sets forth our revenue components for both three months and
six months ended December 31, 2021 and 2020, respectively.
Revenue Components Three Months Ended Six Months Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2021 2020 2021 2020
Manufacturing 32.3 % 43.5 % 33.6 % 41.2 %
Testing Services 45.4 43.4 45.4 43.3
Distribution 22.2 13.0 20.9 15.4
Real Estate 0.1 0.1 0.1 0.1
Total 100.0 % 100.0 % 100.0 % 100.0 %
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Revenue for the three and six months ended December 31, 2021 was $10,922 and
$21,093, respectively, an increase of $2,721 and $6,051, respectively, when
compared to the revenue for the same period of the prior fiscal year. As a
percentage, revenue increased by 33.2% and 40.2% for the three and six months
ended December 31, 2021, respectively, when compared to revenue for the same
period of the prior year.
For the three and six months ended December 31, 2021, the $2,721 and $6,051
increase in overall revenue was primarily due to
? an increase in the testing segment in the Singapore, China, Malaysia and
Thailand operation; and
? an increase in the distribution segment in the Singapore operation.
These decreases were partially offset by:
? a decrease in the manufacturing segment in the U.S. and Singapore operations.
Total revenue into and within China, the Southeast Asia regions and other
countries (except revenue into and within the United States) increased by $2,827
(or 36.1%), to $10,654 and by $6,091 (or 42.8%) to $20,326 for the three and six
months ended December 31, 2021, respectively, as compared with $7,827 and
$14,235, respectively, for the same period of last fiscal year.
Total revenue into and within the U.S. was $268 and $767 for the three and six
months ended December 31, 2021, respectively, a decrease of $106 and $40 from
$374 and $807 for the same periods of the prior year, respectively.
Revenue within our four current segments for the three and six months ended
December 31, 2021 is discussed below.
Manufacturing Segment
Revenue in the manufacturing segment was 32.3% and 33.6% as a percentage of
total revenue for the three and six months ended December 31, 2021,
respectively, a decrease of 11.2% and 7.6% of total revenue, respectively, when
compared to the same periods of the last fiscal year. The absolute amount of
revenue decreased by $41 to $3,528 from $3,569 and increased by $896 to $7,090
from $6,194 for the three and six months ended December 31, 2021, respectively,
compared to the same periods of the last fiscal year.
Revenue in the manufacturing segment from one customer accounted for 44.8% and
42.4% of our total revenue in the manufacturing segment for the three months
ended December 31, 2021 and 2020, respectively, and 38.6% and 29.7% of our total
revenue in the manufacturing segment for the six months ended December 31, 2021,
and 2020, respectively.
The future revenue in our manufacturing segment will be affected by this one
customer's purchase and capital expenditure plans if the customer base cannot be
increased.
Testing Services Segment
The testing segment's revenue was 45.4% for the three months ended December 31,
2021, representing an increase of 2%, compared to 43.4% for the same periods of
the last fiscal year. Revenue in the testing segment was 45.4% as a percentage
of total revenue for the six months ended December 31, 2021, an increase of 2.1%
compared to the same period of the last fiscal year. The absolute amount of
revenue increased by $1,406 to $4,966 from $3,560 and increased by $3,052 to
$9,566 from $6,514 for the three and six months ended December 31, 2021,
respectively, as compared to the same periods of the last fiscal year.
The revenue in the testing segment from the one customer noted above accounted
for 63.0% and 61.1% of our revenue in the testing segment for the three months
ended December 31, 2021 and 2020, respectively, and 63.3% and 58.8% of our total
revenue in the testing segment for the six months ended December 31, 2021 and
2020, respectively. The future revenue in the testing segment will be affected
by the demands of this customer if the customer base cannot be increased. Demand
for testing services varies from country to country, depending on any changes
taking place in the market and our customers' forecasts. As it is challenging to
forecast fluctuations in the market accurately, management believes it is
necessary to maintain testing facilities in close proximity to the customers in
order to make it convenient for them to send us their newly manufactured parts
for testing and to enable us to maintain a share of the market.
Distribution Segment
Revenue in the distribution segment was 22.2% and 20.9% as a percentage of total
revenue for the three and six months ended December 31, 2021, respectively, an
increase of 9.2% and 5.5%, respectively, compared to the same periods of the
last fiscal year. The absolute amount of revenue increased by $1,355 to $2,420
from $1,065 and increased by $2,095 to $4,418 from $2,323 for the three and six
months ended December 31, 2021, respectively, compared to the same periods of
the last fiscal year.
Demand for the distribution segment varies depending on the demand for our
customers' products, the changes taking place in the market, and our customers'
forecasts. Hence it is difficult to forecast fluctuations in the market
accurately.
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Real Estate Segment
The real estate segment accounted for 0.1% of total revenue for both the three
and six months ended December 31, 2021, respectively. The absolute amount of
revenue increased by $1 to $8 from $7 and increased by $8 to $19 from $11 for
the three and six months ended December 31, 2021, respectively, compared to the
same periods of the last fiscal year.
Uncertainties and Remedies
There are several influencing factors which create uncertainties when
forecasting performance, such as the constantly changing nature of technology,
specific requirements from the customer, decline in demand for certain types of
burn-in devices or equipment, decline in demand for testing services and
fabrication services, and other similar factors. One factor that influences
uncertainty is the highly competitive nature of the semiconductor industry.
Another is that some customers are unable to provide a forecast of the products
required in the upcoming weeks; hence it is difficult to plan for the resources
needed to meet these customers' requirements due to short lead time and
last-minute order confirmation. This will normally result in a lower margin for
these products as it is more expensive to purchase materials in a short time
frame. However, the Company has taken certain actions and formulated certain
plans to deal with and to help mitigate these unpredictable factors. For
example, in order to meet manufacturing customers' demands upon short notice,
the Company maintains higher inventories but continues to work closely with its
customers to avoid stockpiling. We believe that we have improved customer
service from staff through our efforts to keep our staff up to date on the
newest technology and stressing the importance of understanding and meeting the
stringent requirements of our customers. Finally, the Company is exploring new
markets and products, looking for new customers, and upgrading and improving
burn-in technology while at the same time searching for improved testing methods
for higher technology chips.
We are in the process of implementing an ERP System as part of a multi-year plan
to integrate and upgrade our systems and processes. The implementation of this
ERP system was scheduled to occur in phases over a few years. The operational
and financial systems in our Singapore, Malaysia and China operations were
transitioned to the new system in fiscal 2018, fiscal 2019 and fiscal 2021,
respectively.
The Company's consolidation process was scheduled to be substantially automated
using the new system in fiscal 2022. However, after extensive testing, we have
decided to discontinue the effort of using the new system for consolidation
process since the consolidation module of the system does not meet our
requirements. This decision does not have any impact on the existing internal
controls over financial reporting in the consolidation process.
The Company's primary exposure to movements in foreign currency exchange rates
relates to non-U.S. dollar-denominated sales and operating expenses in its
subsidiaries. Strengthening of the U.S. dollar relative to foreign currencies
adversely affects the U.S. dollar value of the Company's foreign
currency-denominated sales and earnings, and generally leads the Company to
raise international pricing, potentially reducing demand for the Company's
products. Margins on sales of the Company's products in foreign countries and on
sales of products that include components obtained from foreign suppliers could
be materially adversely affected by foreign currency exchange rate fluctuations.
In some circumstances, for competitive or other reasons, the Company may decide
not to raise local prices to fully offset the dollar's strengthening, or at all,
which would adversely affect the U.S. dollar value of the Company's foreign
currency-denominated sales and earnings. Conversely, a strengthening of foreign
currencies relative to the U.S. dollar, while generally beneficial to the
Company's foreign currency denominated sales and earnings, could cause the
Company to reduce international pricing, thereby limiting the benefit.
Additionally, strengthening of foreign currencies may also increase the
Company's cost of product components denominated in those currencies, thus
adversely affecting gross margins.
In December 2019, COVID-19 was reported to have surfaced in China, resulting in
shutdowns of manufacturing and commerce in the months that followed. Since then,
the COVID-19 pandemic has spread to multiple countries worldwide and has
resulted in authorities implementing numerous measures to try to contain the
disease and slow its spread, such as travel bans and restrictions, quarantines,
shelter-in-place orders and shutdowns. These measures have created significant
uncertainty and economic disruption, both short-term and potentially long-term.
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The spread of COVID-19 has caused us to modify our business practices (including
employee travel, employee work locations, and cancellation of physical
participation in meetings, events and conferences), and we may take further
actions as may be required by government authorities or that we determine are in
the best interest of our employees, customers, partners, and suppliers. There is
no certainty that such measures will be sufficient to mitigate the risks posed
by the virus and our ability to perform critical functions could be harmed.
The degree to which COVID-19 impacts our results will depend on future
developments, which are highly uncertain and cannot be predicted, including but
not limited to the duration and spread of the pandemic, its severity, the action
to contain the virus or treat its impact, and how quickly and to what extent
normal economic and operating conditions can resume. Even after the COVID-19
pandemic has subsided, we may experience material adverse impacts on our
business as a result of the global economic impact and any recession that has
occurred or may occur in the future. There are no comparable recent events that
provide guidance as to the effect the spread of COVID-19 as a global pandemic
may have, and, as a result, the ultimate impact of the pandemic on our
operations and financial results is highly uncertain and subject to change.
There are legal and operational risks associated with having operations in
China. These risks could result in a material change in our operations and/or
the value of our common stock or could limit or hinder our ability to offer or
continue to offer securities to investors and cause the value of such securities
to significantly decline or be worthless. Recently, the Peoples Republic of
China ("PRC") government initiated a series of regulatory actions and statements
to regulate business operations in China with little advance notice, including
cracking down on illegal activities in the securities market, enhancing
supervision over China-based companies listed overseas using variable interest
entity structure, adopting new measures to extend the scope of cybersecurity
reviews, and expanding the efforts in anti-monopoly enforcement.
The Company and its subsidiaries do not have any variable interest entities
based in China. Our business primarily consists of semiconductor testing and
burn-in services for the automotive industry, avionics, defense sectors, and
others. Our businesses are not impacted by anti-monopoly policies, variable
interest entities policies, or data security policies, nor are our businesses
subject to extraordinary oversight from the Chinese government. As of the date
of this prospectus, these new laws and guidelines have not impacted the
Company's ability to conduct its business, accept foreign investments, or list
on a U.S. or other foreign exchange; however, there are uncertainties in the
interpretation and enforcement of these new laws and guidelines, which could
materially and adversely impact our business and financial outlook.
Comparison of the Three Months Ended December 31, 2021, and December 31, 2020
The following table sets forth certain consolidated statements of income data as
a percentage of revenue for the three months ended December 31, 2021 and 2020
respectively:
Three Months Ended
December 31,
2021 2020
Revenue 100.0 % 100.0 %
Cost of sales 73.5 77.2
Gross Margin 26.5 % 22.8 %
Operating expenses
General and administrative 17.8 % 20.3 %
Selling 1.4 1.5
Research and development 1.2 1.5
Total operating expenses 20.4 23.3
Loss from Operations 6.1 % (0.5 )%
Overall Gross Margin
Overall gross margin as a percentage of revenue increased by 3.7% to 26.5% for
the three months ended December 31, 2021, from 22.8% for the same period of the
last fiscal year.
Gross profit margin as a percentage of revenue in the manufacturing segment
decreased by 3.9% to 18.5% for the three months ended December 31, 2021, as
compared to 22.4% for the same period in the last fiscal year. In absolute
dollar amounts, gross profits in the manufacturing segment decreased by $145 to
$654 for the three months ended December 31, 2021, from $799 for the same period
in the last fiscal year. The decrease in gross profit margin was primarily due
to a lower proportion of higher profit margin products sales for the three
months ended December 31, 2021.
Gross profit margin as a percentage of revenue in the testing segment increased
by 13.0% to 37.8% for the three months ended December 31, 2021, compared to
24.8% in the same period of the last fiscal year. Significant portions of our
cost of goods sold are fixed in the testing segment. Thus, as the demand for
services and factory utilization increases, the fixed costs are spread over the
increased output, which increases the gross profit margin. In absolute dollar
amounts, gross profit in the testing segment increased by $995 to $1,877 for the
three months ended December 31, 2021 from $882 for the same period of the last
fiscal year.
Gross profit margin of the distribution segment is not only affected by the
market price of the products we distribute, but also the mix of products we
distribute, which frequently changes as a result of fluctuations in market
demand. Gross profit margin as a percentage of revenue in the distribution
segment decreased by 4.0% to 15.3% for the three months ended December 31, 2021,
from 19.2% in the same period of the last fiscal year. The decrease in gross
margin as a percentage of revenue was due to the decrease in sales of
high-profit margin products in our Singapore operation compared to the same
period of last fiscal year, although there was an increase in the distribution
revenue. In absolute dollar amounts, gross profit in the distribution segment
for the three months ended December 31, 2021, was $370, indicating an increase
of $166, compared to $204 in the same period of the last fiscal year.
In absolute dollar amounts, for the three months ended December 31, 2021, gross
loss in the real estate segment was $11, as compared to $15 for the same period
of last fiscal year.
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Operating Expenses
Operating expenses for the three months ended December 31, 2021 and 2020 were as
follows:
Three Months Ended
December 31,
(Unaudited) 2021 2020
General and administrative $ 1,947 $ 1,662
Selling 156 122
Research and development 131 123
Total $ 2,234 $ 1,907
General and administrative expenses increased by $285, or 17.1%, from $1,662 to
$1,947 for the three months ended December 31, 2021, compared to the same period
of last fiscal year. The increase in general and administrative expenses was
mainly attributable to the higher payroll expenses in the Singapore operations
and higher staff benefit expenses in China.
Selling expenses increased by $34, or 27.9%, from $122 to $156 for the three
months ended December 31, 2021, compared to the same period of the last fiscal
year. The increase in selling expenses was primarily attributable to an increase
in payroll-related expenses in Thailand operation.
Income from Operations
Income from operations was $656 for the three months ended December 31, 2021, an
improvement of $693, compared to $37 loss from operations for the same period of
last fiscal year. The result was mainly due to the increase in gross profit
margin, offset with the increase in operating expenses, as previously discussed.
Interest Expense
Interest expense for the three months ended December 31, 2021 and 2020 were as
follows:
Three Months Ended
December 31,
(Unaudited) 2021 2020
Interest expenses $ 28 $ 34
Interest expense was $28 for the three months ended December 31, 2021, a
decrease of $6, or 17.6%, compared to $34 for the three months ended December
31, 2020. As of December 31, 2021, the Company had an unused line of credit of
$5,207 as compared to $6,187 at December 31, 2020.
Other Income
Other income for the three months ended December 31, 2021 and 2020 were as
follows:
Three Months Ended December 31,
(Unaudited) 2021 2020
Interest income $ 16 30
Other rental income 29 24
Exchange loss (38 ) (93 )
Dividend income - 30
Government grant 28 106
Commission income 200 -
Bad debts recovery 102 -
Other miscellaneous income 44 46
Total $ 381 $ 143
Other income increased by $238 from $143 to $381 for the three months ended
December 31, 2021 compared to the same period in the last fiscal year. The
increase was primarily due to the Company receiving a one-time commission income
amounting to $200, and bad debts recovery amounting to $102. The increase was
partially offset by a decrease of $98 in government grants.
In the three months ended December 31, 2020, the Company received the government
grants aggregating $106 from the local government in the Singapore and Malaysia
operations, of which $101 reflects financial assistance to mitigate the negative
impact on the businesses amid the pandemic.
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Income Tax Expenses
The Company's income tax expense was $153 and $nil for the three months ended
December 31, 2021, and December 31, 2020, respectively. The increase of $153 was
primarily due to the increase in taxable income.
Noncontrolling Interest
As of December 31, 2021, we held a 55% interest in Trio-Tech (Malaysia) Sdn.
Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd., and PT.
SHI Indonesia. We also held a 76% interest in Prestal Enterprise Sdn. Bhd. The
share of net income from the subsidiaries by the noncontrolling interest for the
three months ended December 31, 2021 was $1, a change of $185 compared to the
share of net loss from the subsidiaries by the noncontrolling interest of $184
for the same period of the previous fiscal year. The increase in the net income
of the noncontrolling interest in the subsidiaries was attributable to the
increase in net income generated by the Malaysia operation.
Net Income Attributable to Trio-Tech International Common Shareholders
Net income attributable to Trio-Tech International common shareholders for the
three months ended December 31, 2021, was $855, a change of $620, compared to a
net income of $235 for the same period last fiscal year.
Earnings per Share
Basic earnings per share from continuing operations were $0.22 for the three
months ended December 31, 2021, compared to $0.06 for the same period in the
last fiscal year. Basic earnings per share from discontinued operations were
$nil for both the three months ended December 31, 2021 and 2020.
Diluted earnings per share from continuing operations were $0.20 for the three
months ended December 31, 2021, as compared to $0.06 for the same period in the
last fiscal year. Diluted earnings per share from discontinued operations were
$nil for both the three months ended December 31, 2021 and 2020.
Segment Information
The revenue, gross margin and income or loss from operations for each segment
during the second quarter of fiscal year 2022 and fiscal year 2021 are presented
below. As the revenue and gross margin for each segment have been discussed in
the previous section, only the comparison of income or loss from operations is
discussed below.
Manufacturing Segment
The revenue, gross margin and income / (loss) from operations for the
manufacturing segment for the three months ended December 31, 2021 and 2020 were
as follows
Three Months Ended
December 31,
(Unaudited) 2021 2020
Revenue $ 3,528 $ 3,569
Gross margin 18.5 % 22.4 %
(Loss) / Income from operations $ (48 ) $ 81
Loss from operations from the manufacturing segment was $47 compared to income
from operations of $81 in the same period of the last fiscal year, primarily due
to a decrease in gross margin of $145, offset with a decrease in operating
expenses of $17. Operating expenses for the manufacturing segment were $701 and
$718 for the three months ended December 31, 2021 and 2020, respectively. The
decrease in operating expenses was mainly due to a decrease of $40 in general
and administrative expenses, offset with an increase of $3 in selling expenses
and $20 in corporate overhead expenses. The decrease in general and
administrative expenses was mainly attributable to a decrease in payroll-related
expenses in the Singapore operations.
Testing Segment
The revenue, gross margin and loss from operations for the testing segment for
the three months ended December 31, 2021 and 2020 were as follows:
Three Months Ended
December 31,
(Unaudited) 2021 2020
Revenue $ 4,966 $ 3,560
Gross margin 37.8 % 24.8 %
Income / (Loss) from operations $ 588 $ (336 )
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Income from operations in the testing segment for the three months ended
December 31, 2021, was $588, an improvement of $924 from loss from operations of
$336 in the same period of the last fiscal year. The improvement was mainly
attributable to an increase of $995 in gross profit, as discussed earlier, and
an increase of $72 in operating expenses. Operating expenses were $1,290 and
$1,218 for the three months ended December 31, 2021 and 2020, respectively. The
increase of $72 in operating expenses was mainly due to an increase of $21 in
selling expenses, an increase of $163 in general and administrative expenses,
and an increase of $7 in research and development expenses. The increases were
partially offset by a decrease of $119 in corporate overhead expenses.
The increase in general and administrative expenses was mainly due to higher
payroll related expenses in the Singapore operation and higher staff benefit
expenses in China operation. The decrease in corporate overhead expenses was due
to a change in the corporate overhead allocation compared to the same period in
the last fiscal year. Corporate charges are allocated on a pre-determined fixed
charge basis.
Distribution Segment
The revenue, gross margin and income from operations for the distribution
segment for the three months ended December 31, 2021 and 2020 were as follows:
Three Months Ended
December 31,
(Unaudited) 2021 2020
Revenue $ 2,420 $ 1,065
Gross margin 15.3 % 19.2 %
Income from operations $ 277 $ 120
Income from operations was $277 for the three months ended December 31, 2021,
compared to $120 for the same period of last fiscal year. The increase of $157
was mainly due to an increase of $165 in the gross margin, as discussed earlier,
offset by an increase in operating expenses. Operating expenses were $92 and $84
for the three months ended December 31, 2021 and 2020, respectively.
Real Estate Segment
The revenue, gross margin and loss from operations for the real estate segment
for the three months ended December 31, 2021 and 2020 were as follows:
Three Months Ended
December 31,
(Unaudited) 2021 2020
Revenue $ 8 $ 7
Gross margin (137.5 )% (214.3 )%
Loss from operations $ (28 ) $ (34 )
Loss from operations in the real estate segment for the three months ended
December 31, 2021 was $28 compared to $34 for the same period of last fiscal
year. Operating expenses were $17 and $19 for the three months ended December
31, 2021 and 2020, respectively.
Corporate
The income from operations for Corporate for the three months ended December 31,
2021 and 2020 was as follows:
Three Months Ended
December 31,
(Unaudited) 2021 2020
Income from operations $ (133 ) $ 132
Corporate operating income was $133 for the three months ended December 31,
2021, comparable to $132 in the same period of last fiscal year.
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Comparison of the Six Months Ended December 31, 2021, and December 31, 2020
The following table sets forth certain consolidated statements of income data as
a percentage of revenue for the six months ended December 31, 2021 and 2020,
respectively:
Six Months Ended
Dec. 31, Dec. 31,
2021 2020
Revenue 100.0 % 100.0 %
Cost of sales 71.2 77.5
Gross Margin 28.8 % 22.5 %
Operating expenses:
General and administrative 18.6 % 22.1 %
Selling 1.4 1.5
Research and development 1.0 1.3
Gain on disposal of plant and equipment - -
Total operating expenses 21.0 % 24.9 %
Income / (Loss) from Operations 7.8 % (2.4 )%
Overall Gross Margin
Overall gross margin as a percentage of revenue increased by 6.3% to 28.8% for
the six months ended December 31, 2021, compared to 22.5% in the same period of
last fiscal year. In terms of absolute dollar amounts, gross profits increased
by $2,681 to $6,069 for the six months ended December 31, 2021, from $3,388 for
the same period of the last fiscal year.
Gross profit margin as a percentage of revenue in the manufacturing segment
increased by 1.1% to 25.1% for the six months ended December 31, 2021, from
24.0% in the same period of the last fiscal year. In absolute dollar amounts,
gross profit increased by $295 to $1,782 for the six months ended December 31,
2021 compared to $1,487 for the same period in the last fiscal year. The gross
margin increase was primarily due to an increase in manufacturing revenue in the
first quarter of fiscal 2022 compared to the same period of the prior fiscal
year.
Gross profit margin as a percentage of revenue in the testing segment increased
by 14.4% to 37.6% for the six months ended December 31, 2021, from 23.2% in the
same period of the last fiscal year. The increase in gross profit margin was
mainly due to an increase in orders across the Group, coupled with the price
adjustments. As the demand for services and factory utilization increase, the
fixed costs are spread over the increased output, which increases the gross
profit margin. In terms of absolute dollar amounts, gross profit in the testing
segment increased by $2,080 to $3,594 for the six months ended December 31,
2021, from $1,514 for the same period of the last fiscal year.
Gross profit margin as a percentage of revenue in the distribution segment
decreased by 1.8% to 16.1% for the six months ended December 31, 2021, from
17.9% in the same period of the last fiscal year. The decrease in gross margin
as a percentage of revenue was due to the decrease in sales of high-profit
margin products in our Singapore operation compared to the same period of last
fiscal year, although there was an increase in the distribution revenue. In
terms of absolute dollar amounts, gross profit in the distribution segment for
the six months ended December 31, 2021, was $712, an increase of $297 compared
to $415 in the same period of the last fiscal year. The gross profit margin of
the distribution segment was affected not only by the market price of our
products but also by our product mix, which frequently changes due to
fluctuations in market demand.
Gross loss margin as a percentage of revenue in the real estate segment
decreased by 154.5% to 100.00% for the six months ended December 31, 2021, from
254.5% in the same period of the last fiscal year. In terms of absolute dollar
amounts, gross loss decreased by $9 to $19 for the six months ended December 31,
2021, compared to gross loss
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Operating Expenses
Operating expenses for the six months ended December 31, 2021 and 2020 were as
follows:
Six Months Ended
Dec. 31, Dec. 31,
2021 2020
(Unaudited)
General and administrative $ 3,927 $ 3,322
Selling 303 233
Research and development 213 198
Gain on disposal of plant and equipment - (1 )
Total $ 4,443 $ 3,752
General and administrative expenses increased by $605, or 18.2%, from $3,322 to
$3,927 for the six months ended December 31, 2021, compared to the same period
of the last fiscal year. The increase in general and administrative expenses was
primarily due to the higher payroll-related expenses in the Singapore and U.S.
operations and an increase in staff-related expenses in the China operation.
Selling expenses increased by $70, or 30.0%, for the six months ended December
31, 2021, from $233 to $303 compared to the same period of the last fiscal year.
The increase in selling expenses was primarily attributable to an increase in
commission expenses in the manufacturing segment of Singapore operation as a
result of an increase in commissionable revenue. In addition, there was also an
increase in payroll expenses in the Thailand operation.
Income / (Loss) from Operations
Income from operations was $1,626 for the six months ended December 31, 2021,
compared to loss from operations of $364 for the same period of the last fiscal
year. The increase was mainly due to the increase in gross profit margin, offset
with an increase in operating expenses, as discussed earlier.
Interest Expense
Interest expense for the six months ended December 31, 2021 and 2020 were as
follows:
Six Months Ended
Dec. 31, Dec. 31,
2021 2020
(Unaudited)
Interest expense $ 56 $ 71
Interest expense decreased by $15 to $56 from $71 for the six months ended
December 31, 2021, compared to the same period of the last fiscal year. The
decrease was mainly due to lower bank-loan principal in the Malaysia operation.
Additionally, the bank loans payables decreased by $375 to $1,831 for the six
months ended December 31, 2021, compared to $2,206 as of June 30, 2021.
Other Income
Other income for the six months ended December 31, 2021 and 2020 was as follows:
Six Months Ended
Dec. 31, Dec. 31,
2021 2020
(Unaudited)
Interest income $ 38 $ 70
Other rental income 58 45
Exchange loss (4 ) (137 )
Bad debt recovery 104 -
Dividend Income - 32
Government grant 98 260
Commission income 200 -
Other miscellaneous income 48 84
Total $ 542 $ 354
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Other income for the six months ended December 31, 2021 was $542, an increase of
$188 compared to $354 for the same period of last fiscal year. The increase in
other income was mainly due to the Company receiving a one-time commission
income amounting to $200, and bad debts recovery amounting to $104. The increase
was partially offset by a decrease of $162 in government grants.
In the six months ended December 31, 2020, the Company received government
grants aggregating of $260 from the local governments in the Singapore and
Malaysia operations, of which $243 reflects financial assistance to mitigate the
negative impact on the businesses amid the pandemic.
Income Tax Expenses
Income tax expenses for the six months ended December 31, 2021 was $333, an
increase of $326 compared to tax benefit of $7 for the same period last fiscal
year. The increase in income tax expense was primarily due to increase in the
taxable income across the Group in the six months ended December 31, 2021.
Noncontrolling Interest
As of December 31, 2021, we held a 55% interest in Trio-Tech Malaysia, Trio-Tech
(Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd. and PTSHI Indonesia, and a
76% interest in Prestal Enterprise Sdn. Bhd. The net income attributable to the
noncontrolling interest in these subsidiaries for the six months ended December
31, 2021, was $12, a change of $354, compared to a net loss of $342 for the same
period of last fiscal year. The improvement was attributable to the increase in
net income by the Malaysia operation in the six months ended December 31, 2021.
Net Income Attributable to Trio-Tech International Common Shareholders
Net income was $1,772 for the six months ended December 31, 2021, an increase of
$1,545 compared to a net income of $227 for the same period in the last fiscal
year. The increase was mainly due to the increase in revenue and gross margin.
However, the increase was partially offset with an increase in operating
expenses, as discussed earlier.
Earnings per Share
Basic earnings per share from continuing operations was $0.46 for the six months
ended December 31, 2021, compared to $0.06 for the same period in the last
fiscal year. Basic earnings per share from discontinued operations were nil for
both the six months ended December 31, 2021 and 2020.
Diluted earnings per share from continuing operations was $0.43 for the six
months ended December 31, 2021, compared to $0.06 for the same period in the
last fiscal year. Diluted earnings per share from discontinued operations were
nil for both the six months ended December 31, 2021 and 2020.
Segment Information
The revenue, gross profit margin, and income or loss from operations in each
segment for the six months ended December 31, 2021 and 2020, respectively, are
presented below. As the segment revenue and gross margin for each segment have
been discussed in the previous section, only the comparison of income / (loss)
from operations is discussed below.
Manufacturing Segment
The revenue, gross margin and income from operations for the manufacturing
segment for the six months ended December 31, 2021 and 2020 were as follows:
Six Months Ended
Dec. 31, Dec. 31,
2021 2020
(Unaudited)
Revenue $ 7,090 $ 6,194
Gross margin 25.1 % 24.0 %
Income from operations $ 252 $ 63
Income from operations from the manufacturing segment was $253 for the six
months ended December 31, 2021, an increase of $190 as compared to $63 in the
same period of the last fiscal year due to an increase in gross margin. The
increase in gross margin was partially offset with an increase in operating
expenses. The manufacturing segment's operating expenses were $1,529 and $1,424
for the six months ended December 31, 2021 and 2020, respectively. The increase
in operating expenses of $105 was mainly due to an increase in general and
administrative expenses by $42, an increase in selling expenses by $25, and an
increase in corporate overhead by $32 compared to the same period of last fiscal
year. The increase in general and administrative expenses was mainly
attributable to an increase in payroll-related expenses in the Singapore
operations. The increase in selling expenses was primarily attributable to an
increase in commission expenses in the manufacturing segment of Singapore
operation as a result of an increase in commissionable revenue.
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Testing Segment
The revenue, gross margin and loss from operations for the testing segment for
the six months ended December 31, 2021 and 2020 were as follows:
Six Months Ended
Dec. 31, Dec. 31,
2021 2020
(Unaudited)
Revenue $ 9,566 $ 6,514
Gross margin 37.6 % 23.2 %
Income / (Loss) from operations $ 1,124 $ (673 )
Income from operations in the testing segment for the six months ended December
31, 2021, was $1,123, an improvement of $1,796 compared to loss from operation
$673 in the same period of the last fiscal year due to an increase in gross
margin and testing volume. The increase in gross margin was partially offset
with an increase in operating expenses by $284. Operating expenses were $2,471
and $2,187 for the six months ended December 31, 2021 and 2020, respectively.
The higher operating expenses were mainly attributed to an increase in general
and administrative expenses and selling expenses by $289 and $30, respectively.
The increase offset with a decrease in corporate overheads by $45.
The increase in general and administrative expenses was mainly due to higher
payroll related expenses in the Singapore operation and higher staff benefit
expenses in China operations. The decrease in corporate overhead expenses was
due to a change in the corporate overhead allocation compared to the same period
last fiscal year. Corporate charges are allocated on a predetermined fixed
charge basis.
Distribution Segment
The revenue, gross margin and income from operations for the distribution
segment for the six months ended December 31, 2021 and 2020 were as follows:
Six Months Ended
Dec. 31, Dec. 31,
2021 2020
(Unaudited)
Revenue $ 4,418 $ 2,323
Gross margin 16.1 % 17.9 %
Income from operations $ 531 $ 244
Income from operations in the distribution segment for the six months ended
December 31, 2021 was $531, an increase of $287 compared to $244 in the same
period of the last fiscal year. The increase in operating income was primarily
due to an increase in gross margin by $296, which was partially offset with a
decrease in operating expenses of $9. Operating expenses were $180 and $171 for
the six months ended December 31, 2021 and 2020, respectively.
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Real Estate Segment
The revenue, gross loss margin and loss from operations for the real estate
segment for the six months ended December 31, 2021 and 2020 were as follows:
Six Months Ended
Dec. 31, Dec. 31,
2021 2020
(Unaudited)
Revenue $ 19 $ 11
Gross loss margin 111.1 % 254.5 %
Loss from operations $ (51 ) $ (61 )
Loss from operations in the real estate segment for the six months ended
December 31, 2021 was $52, a decrease of $9 compared to $61 for the same period
of the last fiscal year. The decrease in operating loss was mainly due to a
decrease in gross loss margin, as discussed earlier. Operating expenses were $32
and $33 for the six months ended December 31, 2021 and 2020, respectively.
Corporate
The (loss) / income from operations for corporate for the six months ended
December 31, 2021 and 2020 were as follows:
Six Months Ended
Dec. 31, Dec. 31,
2021 2020
(Unaudited)
Loss / Income from operations $ (230 ) $ 63
The deterioration of $293 was mainly due to a change in the corporate overhead
allocation as compared to the same period last fiscal year. Corporate charges
are allocated on a predetermined fixed charge basis.
Financial Condition
During the six months ended December 31, 2021 total assets increased by $4,246
to $42,552 compared to $38,306 as of June 30, 2021. The increase in total assets
was primarily due to an increase in cash and cash equivalents, trade account
receivables, other receivables, inventories, prepaid expenses and other current
assets, deferred tax assets and operating lease right-of-use. This was partially
offset by a decrease in short-term deposits, investment properties, other
assets, property, plant and equipment, restricted term deposits and financed
sales receivable.
Cash and cash equivalents were $7,526 as at December 31, 2021, reflecting an
increase of $1,690 from $5,836 as at June 30, 2021, primarily due to the
withdrawal of the short-term deposit for the six months ended December 31, 2021.
Short-term deposits were $4,997 as at December 31, 2021, reflecting a decrease
of $1,654 from $6,651 as at June 30, 2021. The decrease was primarily due to
withdrawal of the short-term deposit for the six months ended December 31, 2021
and reflected in the cash and cash equivalents.
As at December 31, 2021, the trade accounts receivable balance increased by
$1,546 to $9,839, from $8,293 as at June 30, 2021, primarily due to an increase
in revenue in the Singapore, China, and Thailand operations. This increase was
partially offset by the decrease in the U.S. operations. The number of days'
sales outstanding in accounts receivables for the Group was 77 and 79 days at
the end of the second quarter of the fiscal year 2022 and the end of the last
fiscal year, respectively.
As at December 31, 2021, other receivables were $2,387, reflecting an increase
of $1,725 from $662 as at June 30, 2021. The increase was primarily due to an
increase in advance payments made to suppliers in the Singapore operation.
Inventories as at December 31, 2021, were $2,572, an increase of $492, compared
to $2,080 as at June 30, 2021. The increase in inventories was in line with an
increase in orders by customers in the manufacturing segment of the Singapore
operations, which resulted in an increase in the work-in-progress.
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Prepaid expenses were $511 as at December 31, 2021 compared to $418 as at June
30, 2021. The increase of $93 was primarily due to the advance payment made for
the new factory's utilities deposit in the China operation.
Investment properties' net in China was $653 as at December 31, 2021 and $681 as
at June 30, 2021. The decrease was primarily due to the foreign currency
exchange movement between June 30, 2021 and December 31, 2021. The increase was
partially offset by the depreciation charged for the period.
Property, plant and equipment decreased by $264 from $9,531 as at June 30, 2021,
to $9,267 as at December 31, 2021, mainly due to depreciation charged for the
period and the foreign currency exchange movement between June 30, 2021 and
December 31, 2021. The decrease was partially offset by the new acquisition of
property, plant and equipment in the Singapore, Malaysia, Thailand and China
operations.
Restricted term deposits remained consistent at $1,735 as at December 31, 2021
as compared to $1,741 as at June 30, 2021. This was primarily due to the foreign
currency exchange movement between June 30, 2021 and December 31, 2021.
Other assets decreased by $115 to $147 as at December 31, 2021 compared to $262
as at June 30, 2021. This was mainly due to the reclassification of down
payments made for the purchase of equipment in the Malaysia operation.
Lines of credit increased by $405 to $477 as at December 31, 2021 as compared to
$72 as at June 30, 2021. This was due to the utilization of the bank facilities
in the Singapore operation.
Accounts payable increased by $259 to $3,961 as at December 31, 2021 as compared
to $3,702 as at June 30, 2021. This was due to an increase in sales, which led
to more materials purchased to meet customer requirements in the Singapore
operation.
Accrued expenses increased by $1,381 to $4,744 as at December 31, 2021, as
compared to $3,363 as at June 30, 2021. The increase in accrued expenses was
mainly due to an increase in the accrued purchases in the Singapore operation
and accrued payroll costs in the Singapore and China operations.
Bank loans payable decreased by $229 to $1,831 as at December 31, 2021, as
compared to $2,060 as at June 30, 2021. This was due to the repayments made in
the Malaysia operation.
Finance leases decreased by $109 to $341 as at December 31, 2021, as compared to
$450 as at June 30, 2021. This was due to the repayments made in the Singapore
and Malaysia operations.
Operating lease right-of-use assets and the corresponding lease liability
increased by $823 to $2,699 as of December 31, 2021, as compared to $1,876 as at
June 30, 2021. This was due to the new lease agreement entered in the China
operation. The increase was partially offset with the repayment made and the
operating lease expenses charged for the period.
Liquidity Comparison
Net cash provided by operating activities increased by $522 to an inflow of $837
for the six months ended December 31, 2021, from an inflow of $315 for the same
period of the last fiscal year. The increase in net cash inflow provided by
operating activities was primarily due to an increase in net income by $1,899
and an increase in cash inflow of $638 from accounts payable and accrued
expenses. These increases were partially offset by an increase in cash inflow
from other receivables amounting to $2,053.
Net cash used in investing activities increased by $948 to an inflow of $842 for
the six months ended December 31, 2021, from an outflow of $106 for the same
period of the last fiscal year. The increase in cash inflow was primarily due
to an increase in withdrawal of unrestricted deposit amounting to $1,437 and a
decrease in cash outflow of $89 from investment in unrestricted term deposit.
These increases were partially offset by an increase in cash outflow of $578
from capital expenditure.
Net cash provided by financing activities for the six months ended December 31,
2021, was $73, representing an increase of $430, as compared to cash outflow of
$357 during the six months ended December 31, 2020. The increase in cash inflow
was mainly attributable to an increase in cash inflow by $942 from the lines of
credit proceeds. This increase was partially offset by an increase in cash
outflow of $372 from the payments on lines of credit and a decrease in cash
inflow of $205 from the bank loans proceeds.
The Company has filed the S3 registration statement on December 3, 2021. We may
raise capital of US$10,000,000 of any combination of securities (common stock,
warrants, debt securities or units) for expansion of the Company's testing
capacity and working capital purposes if necessary.
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