ITEM 7 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT
PERCENTAGES AND SHARE AMOUNTS)
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.
During
fiscal years 2021 and 2020, Trio-Tech International operated in
four segments: manufacturing, testing services, distribution, and
real estate. In fiscal year 2021, revenue from the manufacturing,
testing services, distribution and real estate segments represented
40.5%, 42.7%, 16.7% and 0.1% of our revenue, respectively, as
compared to 33.7%, 43.0%, 23.1% and 0.2%, respectively, in fiscal
year 2020.
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 Asia. At or
from our facilities in the U.S. and Asia, we also design,
manufacture and market equipment and systems to be used in the
testing and production of semiconductors and distribute
semiconductor processing and testing equipment manufactured by
other vendors.
Our
distribution segment operates primarily in Asia. This segment
markets and supports distributing complementary products supplied
by other manufacturers that are used by its customers and other
semiconductor and electronics manufacturers. We believe this will
help us to reduce our exposure to multiple risks arising from being
a mere distributor of manufactured products from
others.
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 years 2021 or
2020.
The
rental income is generated from the rental properties acquired from
MaoYe Property Ltd. (“MaoYe”) and Chongqing FuLi Real
Estate Development Co. Ltd (“FuLi”) in Chongqing,
China. In the second quarter of fiscal 2015, the investment made
with JiaSheng Property Development Co. Ltd
(“JiaSheng”), which was deemed as loans receivable, was
transferred to down payment for purchase of investment property in
China.
Trio-Tech
Chongqing Co., Ltd. (“TTCQ”) invested RMB 5,554 in
rental properties in MaoYe during fiscal year 2008, RMB 3,600 in
rental properties from JiangHuai Property Development Co. Ltd.
(“JiangHuai”) during fiscal year 2010 and RMB 4,025 in
rental properties in FuLi during fiscal year 2010. During fiscal
year 2019, TTCQ completed the sale of thirteen of the fifteen units
constituting the MaoYe property, which contributed a capital gain
of $685. The total investment in properties in China was RMB 9,649,
in fiscal year 2021 and 2020, approximately $1,493 and $1,363
respectively. The carrying value of these investment properties in
China was RMB 4,402 and RMB 4,884, or approximately $681 and $690,
in fiscal years 2021 and 2020, respectively. These properties
generated a total rental income of $28 and $62 for fiscal years
2021 and 2020, respectively. TTCQ’s investment in properties
that generated rental income is discussed further in this Form
10-K.
TTCQ
has yet to receive the title deed for properties purchased from
JiangHuai. TTCQ was in the legal process of obtaining the title
deed until the developer encountered cash flow difficulties in
recent years. Since then, JiangHuai company is under liquidation
and is now undergoing asset distribution. The JiangHuai property
did not generate any income during fiscal 2021 or
2020.
On
October 14, 2014, TTCQ and Jun Zhou Zhi Ye entered into a
memorandum of understanding. Based on the memorandum of
understanding, both parties agreed to register a sales and purchase
agreement upon Jun Zhou Zhi Ye obtaining a license to sell the
commercial property (the Singapore Themed Resort Project) located
in Chongqing, China. The proposed agreement is for the sale of shop
lots with a total area of 1,484.55 square meters as consideration
for the outstanding amounts owed to TTCQ by Jun Zhou Zhi Ye as
follows:
a)
Long-term loan receivable RMB 5,000, or approximately $773, as
disclosed in Note 6, plus the interest receivable on the long-term
loan receivable of RMB 1,250;
b)
Commercial units measuring 668 square meters and
c) RMB
5,900 as part of the unrecognized cash consideration of RMB 8,000
relating to the disposal of the joint venture.
These
considerations do not include the remaining outstanding amount of
RMB 2,000, or approximately $309, which will be paid to TTCQ in
cash.
The
shop lots are to be delivered to TTCQ upon completion of the
construction of the shop lots in the Singapore Themed Resort
Project. The initial targeted date of completion was December 31,
2016. Based on discussions with the developer, the completion date
is estimated to be December 31, 2022. The delay was primarily due
to the time needed by the developer to work with various parties to
inject sufficient funds into this project, especially during the
COVID-19 pandemic. Based on the available information, the
developer had applied for asset reorganization and this application
is currently pending for further approvals by the local government
departments.
The
Company recorded a one-time, non-cash impairment charge of $1,580
in the fourth quarter of fiscal 2021 related to the doubtful
recovery of a down payment on shop lots in the Singapore Theme
Resort Project in Chongqing, China. We 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.
Fiscal Year 2021
Highlights (in Thousands)
●
Total revenue
decreased by $2,003, or 5.8%, to $32,462 in fiscal year 2021
compared to $34,465 in fiscal year 2020.
●
Manufacturing
segment revenue increased by $1,546, or 13.3%, to $13,151 in fiscal
year 2021 compared to $11,605 in fiscal year 2020.
●
Testing services
segment revenue was $13,846 in fiscal year 2021, a decrease of
$994, or 6.7%, compared to $14,840 in fiscal year
2020.
●
Distribution
segment revenue was $5,437 in fiscal year 2021, a decrease of
$2,521, or 31.7%, compared to $7,958 in fiscal year
2020.
●
Real estate segment
revenue decreased by $34 to $28 in fiscal year 2021 compared to $62
in fiscal year 2020.
●
Overall gross
profit margin increased by 2.5% to 23.6% in fiscal year 2021
compared to 21.1% in fiscal year 2020.
●
General and
administrative expenses decreased by $126 to $6,938 in fiscal year
2021 compared to $7,064 in fiscal year 2020
(restated).
●
Selling expenses
decreased by $233, or 34.3%, to $446 for fiscal year 2021 compared
to $679 in fiscal year 2020.
●
Loss from
operations was $70 in fiscal year 2021, a decrease of $877 as
compared to loss from operations of $947 in fiscal year
2020.
●
An
impairment loss on other assets of $1,580 recorded for fiscal year
2021 arise from the doubtful recovery of down payment made to Jun
Zhou Zhi Ye for the shop lots in the Singapore Themed Resort
Project located in Chongqing, China.
●
The net other
income increased by $29 to $363 in fiscal year 2021 compared to
$334 in fiscal year 2020.
●
Loss from
continuing operations before income taxes was $899 in fiscal year
2021, a decrease of $2,001, as compared to income from continuing
operations of $1,107 in fiscal year 2020.(restated)
●
Net loss
attributable to Trio-Tech International for fiscal year 2021 was
$591 compared to net income of $878 in fiscal year 2020
(restated).
●
Net loss
attributable to noncontrolling interest for fiscal year 2021 was
$564 compared to net income of $238 in fiscal year
2020.
●
Working capital
increased by $2,243, or 17.3%, to $15,200 as of June 30, 2021
compared to $12,957 as of June 30, 2020 (restated).
The
highlights above are intended to identify some of our most
significant events and transactions during our fiscal year 2021.
However, these highlights are not intended to be a full discussion
of our results for the year. These highlights should be read in
conjunction with the discussion on these items in Item 7 and with
our consolidated financial statements and footnotes accompanying
this Annual Report.
General Financial Information
During
the fiscal year ended June 30, 2021, total assets increased by
$2,646 from $38,306 in fiscal year 2020 to $39,886 in fiscal year
2021. The increase was primarily due to an increase in cash and
cash equivalents, trade account receivables, inventories, prepaid
expenses and other current assets, operating lease right-of-use
assets, financed sales receivable and restricted term deposits. The
increase was partially offset by the decrease in short term
deposits, other receivables, other assets, deferred tax assets,
investment properties and property, plant and
equipment.
Cash
and cash equivalents at June 30, 2021, were $5,836, an increase of
$1,686, or 40.6%, compared to $4,150 at June 30, 2020, primarily
due to the cash inflow generated from the operating
activities.
Trade
account receivables at June 30, 2021, was $8,293, representing an
increase of $2,342, or 39.4%, compared to $5,951 at June 30, 2020.
The increase was attributable to an increase in the overall sales
for the fourth quarter of fiscal year 2021 compared to the same
period in the last fiscal year. The number of days’ sales
outstanding in account receivables was 79 days and 68 days for the
fiscal years ended June 30, 2021, and 2020,
respectively.
As at
June 30, 2021, other receivables were $662, a decrease of $336, or
33.7%, compared to $998 at June 30, 2020. The decrease was
primarily due to a decrease in advance payment to vendors and
government grant receivables in the Singapore
operations.
Inventories
at June 30, 2021, were $2,080, an increase of $158, or 8.2%,
compared to $1,922 at June 30, 2020. The increase in inventories
was mainly due to the delay requested by one customer for further
enhancement. The number of days’ inventory held was 73 days
at the end of fiscal 2021, compared to 88 days at the end of fiscal
year 2020.
Investment
properties in China as of June 30, 2021, were $681, a decrease of
$9 from $690 at June 30, 2020. The decrease was attributable
to the depreciation charged for the year.
Property,
plant and equipment at June 30, 2021, were $9,531, a decrease of
$779 compared to $10,310 at June 30, 2020. This was mainly due to
depreciation charged for the year and the foreign currency exchange
movement between fiscal year 2021 and 2020. The decrease was
partially offset by the new acquisition of property, plant and
equipment in the Singapore, Malaysia, China and Thailand
operations.
Other
assets at June 30, 2021, were $262, a decrease of $1,347, or 84%,
compared to $1,609 at June 30, 2020. The decrease in other assets was
primarily due to the impairment provision for down payment made to
Jun Zhou Zhi Ye for the shop lots in the Singapore Themed Resort
Project located in Chongqing, China.
Financed
sales receivable at June 30, 2021, was $58 arose from a sales-type
lease contract entered by the China operation.
Restricted
term deposits at June 30, 2021 were $1,741, compared to $1,660 at
June 30, 2020. The increase was mainly due to the currency
translation difference between functional currency and U.S.
dollars from June 30,
2020 to June 30, 2021.
Total
liabilities at June 30, 2021, were $12,253, an increase of $1,739,
or 16.5%, compared to $10,514 at June 30, 2020. The increase in
liabilities was primarily due to the increase in accounts payable,
accrued expenses and operating leases, but partially offset by the
decrease in lines of credit, income taxes payable, bank loans
payable, finance lease, PPP loan and other non-current
liabilities.
Accounts
payable as of June 30, 2021, increased by $1,112, or 42.9% to
$3,702 from $2,590 as of June 30, 2020. The increase was mainly due
to the increase in purchases in the Singapore operations to meet
the increase of customer demand.
Accrued
expenses as at June 30, 2021, increased by $358, or 11.9% to $3,363
from $3,005 as at June 30, 2020. The increase was mainly due to an
increase in accrued payroll liability in the Singapore and China
operations.
Income
tax payable as at June 30, 2021, decreased by $75 to $699 from $774
as at June 30, 2020. The decrease was mainly due to the repayment
made for the Repatriation Tax that arose from the introduction of
the Tax Cuts & Jobs Act 2017 in fiscal year 2021.
Bank
loans payable decreased by $146 to $2,060 as at June 30, 2021, as
compared to $2,206 as at June 30, 2020. This was due to the
repayments made in the Malaysia operation.
Finance
leases decreased by $216 to $450 as at June 30, 2021, as compared
to $666 as at June 30, 2020. This was due to the repayments made in
the Singapore and Malaysia operations.
Operating
lease right-of-use assets and the corresponding lease liabilities
increased by $932 to $1,876 as of June 30, 2021, as compared to
$944 as at June 30, 2020. This was due to the renewal of the lease
agreements in the Singapore and China Operations. The increase was
partially offset with the repayment made and the operating lease
expenses charged for the period.
As of
June 30, 2021, the Company received the loan forgiveness for the
Paycheck Protection Program (PPP) of $121, which was created by the
United States Coronavirus Aid, Relief, and Economic Security
(CARES) Act.
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.
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 on-site 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.
The
most significant near-term impacts of the ongoing COVID-19 pandemic
on our financial performance are declines in customers’
revenue in our distribution segment in this fiscal year, as
compared to the prior fiscal year. However, we are seeing a
recovery in customers’ forecast, which were previously
impacted by the supply chain disruption and resulted in the delay
in deliveries. In addition, we are seeing an improvement in the
manufacturing and testing segments’ financial performance
beginning with the second and fourth quarter of fiscal year 2021,
respectively.
The
Company received government assistance amounting to $401 in the
Singapore and Malaysia operations to mitigate the adverse impact on
the business from the pandemic in fiscal year 2021. In fiscal year
2020, the Company also received a PPP loan of $121 in the U.S.
operation to support the business amid the pandemic, for which the
Company received the full loan forgiveness in fiscal year
2021.
As of
June 30, 2021, the Company had cash and cash equivalents and
short-term deposits totaling $12,487 and an unused line of credit
of $5,641. 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. The new variant of COVID-19 has resulted
in a surge of the number of Covid-19 cases worldwide. This may
require further mitigation efforts taken to contain the virus or
treat its impact and the economic impact on local, regional,
national and international markets despite a few countries that had
loosened their restriction policies. 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.
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 June 30, 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.
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 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 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.
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 2021, The Company recorded a
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 June 30, 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 judgement. The determination of the grant date fair
value of stock-based awards using the Black-Scholes option-pricing
model is affected by our estimated common stock fair value as well
as other subjective assumptions including the expected term of the
awards, the expected volatility over the expected term of the
awards, expected dividend yield and risk-free interest rates. The
assumptions used in our option-pricing model represent
management’s best estimates and are as follows:
●
Fair
Value of Common Stock. We determined the fair value of each share
of underlying common stock based on the closing price of our common
stock on the date of grant.
●
Expected
Term. The expected term of employee stock options reflects the
period for which we believe the option will remain outstanding
based on historical experience and future
expectations.
●
Expected
Volatility. We base expected volatility on our historical
information over a similar expected term.
Noncontrolling Interests in Consolidated Financial
Statements
We adopted ASC Topic 810, Consolidation
(“ASC Topic 810”). This
guidance establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation
of a subsidiary. This guidance requires that noncontrolling
interests in subsidiaries be reported in the equity section of the
controlling company’s balance sheet. It also changes the
manner in which the net income of the subsidiary is reported and
disclosed in the controlling company’s income
statement.
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
August 2020, the FASB issued ASU 2020-06: Debt – Debt with Conversion and Other
Options (Subtopic 470-20) and Derivative and Hedging –
Contracts in Entity’s Own Equity (Subtopic 815-40).
This ASU reduces the number of accounting models for convertible
debt instruments and convertible preferred stock, as well as amend
the guidance for the derivatives scope exception for contracts in
an entity’s own equity to reduce form-over-substance-based
accounting conclusions. In addition, this ASU improves and amends
the related EPS guidance. These amendments are effective for the
Company for fiscal years beginning after December 15, 2023,
including interim periods within those fiscal years. Early adoption
is permitted, but no earlier than fiscal years beginning after
December 15, 2020, including interim periods within those fiscal
years. Adoption is either a modified retrospective method or a
fully retrospective method of transition. The Company has completed
its assessment and concluded that this update has no significant
impact to the Company’s consolidated financial
statements.
In March 2020, FASB issued ASU 2020-04 ASC Topic 848:
Reference
Rate Reform: Facilitation of the Effects of Reference Rate Reform
on Financial Reporting, which
provides optional expedients and exceptions for applying U.S. GAAP
to contracts, hedging relationships and other transactions affected
by the discontinuation of the London Interbank Offered Rate
(“LIBOR”) or by another reference rate expected to be
discontinued. The amendments are effective for all entities as of
March 12, 2020, and the Company may elect to apply the amendments
prospectively through December 31, 2022. The Company has completed
its assessment and concluded that this update has no significant
impact to the Company’s consolidated financial
statements.
In June 2016, FASB issued ASU 2016-13 ASC Topic 326:
Financial
Instruments — Credit Losses (“ASC Topic 326”) for the measurement
of all expected credit losses for financial assets held at the
reporting date based on historical experience, current conditions,
and reasonable and supportable forecasts. Financial institutions
and other organizations will now use forward-looking information to
better inform their credit loss estimates. Many of the loss
estimation techniques applied today will still be permitted,
although the inputs to those techniques will change to reflect the
full amount of expected credit losses. ASC Topic 326 is effective
for the Company for annual periods beginning after December 15,
2022. The Company has completed its assessment and concluded that
this update has no significant impact to the Company’s
consolidated financial statements.
Other new pronouncements issued but not yet effective until after
June 30, 2021, are not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
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
fiscal years ended June 30, 2021, and 2020:
|
|
For
the Year Ended June 30,
|
|
|
|
|
|
Revenue
|
100.0%
|
100.0%
|
|
Cost of
sales
|
76.4
|
78.9
|
|
Gross
Margin
|
23.6%
|
21.1%
|
|
Operating
expenses:
|
|
|
|
General and
administrative
|
21.3%
|
20.5%
|
|
Selling
|
1.4
|
2.0
|
|
Research and
development
|
1.1
|
1.0
|
|
Impairment loss on
long-lived assets
|
-
|
0.4
|
|
Total operating
expenses
|
23.8%
|
23.9%
|
|
Loss
from Operations
|
(0.2)%
|
(2.7)%
|
Overall Revenue
The
overall revenue is composed of the revenues from the manufacturing,
testing services, distribution and real estate segments. The
following table presents the components of the overall revenue
realized in fiscal years 2021 and 2020 in percentage
format.
|
|
For
the Year Ended June 30,
|
|
|
|
|
|
Manufacturing
|
40.5%
|
33.7%
|
|
Testing
|
42.7
|
43.0
|
|
Distribution
|
16.7
|
23.1
|
|
Real
estate
|
0.1
|
0.2
|
|
Total
|
100.0%
|
100.0%
|
|
|
|
|
Revenue
in fiscal year 2021 was $32,462, a decrease of $2,003, or 5.8%,
compared to $34,465 in fiscal year 2020. The decrease in revenue
was due to a decrease in sales across all segments amid the
pandemic except the manufacturing segment.
As a
percentage of total revenue, the revenue generated by the
manufacturing segment in fiscal year 2021 accounted for 40.5%, an
increase of 6.8%, as compared to 33.7% in fiscal year 2020. In
terms of dollar amount, the revenue generated by the manufacturing
segment in fiscal year 2021 was $13,151, reflecting an increase of
$1,546, or 13.3%, compared to $11,605 in fiscal year 2020. The
increase in revenue generated by the manufacturing segment was due
to an increase in the manufacturing segment in the U.S. and
Singapore operations. Despite substantial headwinds caused by the
pandemic, the demand for our equipment was strong in this fiscal
year.
Backlog
in the manufacturing segment was $5,040 as of June 30, 2021,
representing an increase of $30 from $5,010 as of June 30, 2020. We
expect the demand for our products to increase at a slower pace in
fiscal year 2022 as compared to fiscal year 2021, depending on the
recovery speed of the global market for testing equipment and
systems from the highly uncertain economy outlook caused by the
pandemic.
As a
percentage of total revenue, the revenue generated by the testing
services segment in fiscal year 2021 accounted for 42.7% of total
sales compared to 43.0% in fiscal year 2020. In terms of dollar
amounts, the revenue generated by the testing services segment for
fiscal year 2021 was $13,846, reflecting a decrease of $994, or
6.7% compared to $14,840 for fiscal year 2020. The decrease in
revenue generated by the testing segment was primarily
attributable to a decrease in revenue in the Malaysia and China
operations. The decrease was attributable to a decrease in the
volume of testing services requested by our customers in these
operations amid the global pandemic. These decreases were partially
offset by the increase in revenue as a result of higher volume in
the Singapore and Thailand operations during fiscal year 2021. With
effect from fiscal 2022, the Company had increased its average
selling price for testing services. Demand for testing services
varies from country to country, depending on changes taking place
in the market and our customers’ forecasts. Because it is
difficult to accurately forecast fluctuations in the market, we
believe that it is necessary to maintain testing facilities in
close proximity to our 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.
Backlog
in the testing services segment as of June 30, 2021, was $3,775, an
increase of $860 as compared to $2,915 at June 30, 2020. The
increase in backlog was mainly from the China operations. The
backlog depends on the estimates volume provided by customers,
which are in turn dependent upon the customers’ inventory
levels and demand.
As a
percentage of total revenue, the revenue generated by the
distribution segment in fiscal year 2021 accounted for 16.7% of
total sales, a decrease of 6.4% compared to 23.1% in fiscal year
2020. In terms of dollar amounts, revenue for fiscal year 2021 was
$5,437, a decrease of $2,521, or 31.7%, compared to $7,958 for
fiscal year 2020. The decrease in revenue in our distribution
segment was due to the decrease in orders from the major customers
in our Singapore operations during the uncertain market caused by
the pandemic.
Backlog
in the distribution segment as of June 30, 2021, was $4,648,
reflecting an increase of $3,239 compared to the backlog of $1,409
at June 30, 2020. The increase in backlog was mainly due to an
increase in the forecast from customers, coupled with the
disruption of the supply, which resulted in the delay of
deliveries. We believe that our competitive advantage in the
distribution segment is our design and engineering capabilities in
components and touch screen products, which allow customization to
meet the specific requirement of our customers. Product volume for
the distribution segment depends on sales activities such as
placing orders and queries for products and backlog. Equipment and
electronic component sales are very competitive, as the products
are readily available in the market.
As a
percentage of total revenue, the revenue generated by the real
estate segment was 0.1% and 0.2% of total sales in fiscal year 2021
and 2020, respectively. In terms of dollar value, revenue generated
by the real estate segment for fiscal years 2021 was $28, a
decrease of $34, or 54.8%, compared to $62 for fiscal year 2020.
Our real estate segment saw a decrease in rental income due to the
low occupancy rate in MaoYe and FuLi properties amid the
pandemic.
Backlog
in the real estate segment as of June 30, 2021 was $40, an increase
of $34 as compared to $6 at June 30, 2020.
Overall Gross Margin
Overall
gross margin as a percentage of revenue was 23.6% in fiscal year
2021, an increase of 2.5% compared to 21.1% in fiscal year 2020.
The increase in gross margin as a percentage of revenue was mainly
attributable to the manufacturing segments. In terms of dollar
value, the overall gross profit for fiscal year 2021 was $7,670, an
increase of $404, or 5.6%, compared to $7,266 for fiscal year 2020.
The increase in the dollar value of the overall gross margin was
mainly due to an increase of sales in the manufacturing segments,
which was partially offset by a decrease in sales in the testing
and distribution segment.
The
gross margin as a percentage of revenue in the manufacturing
segment was 25.4% in fiscal year 2021, an increase of 2.3% compared
to 23.1% in fiscal year 2020. In terms of dollar amounts, the gross
profit for the manufacturing segment in fiscal year 2021 was
$3,342, an increase of $664, or 24.8%, compared to $2,678 in fiscal
year 2020. The increase in the absolute dollar amount of gross
margin was mainly due to an increase in revenue in our Singapore
operations.
The
gross margin as a percentage of revenue in the testing services
segment was 24.7% in fiscal year 2021, an increase of 1.2% compared
to 23.5% in fiscal year 2020. The increase in gross profit margin
as a percentage of revenue was primarily due to the continuous
effort of cost control in the China and Malaysia operations,
despite a decrease in revenue brought about by a decrease in orders
in the China and Malaysia operations. In terms of dollar amounts,
gross profit in the testing services segment in fiscal year 2021
was $3,415, a decrease of $72, or 2.1%, compared to $3,487 in
fiscal year 2020. A
significant portion of our cost of sales is fixed in the testing
segment. Thus, as the demand for services and factory utilization
decreases, the fixed costs are spread over the decreased output,
which decreases the gross profit margin. However, the negative
impact on gross profit margin was partially offset by the cost
saving measures.
The
gross margin as a percentage of revenue in the distribution segment
was 17.7% in fiscal year 2021, an increase of 3.7% compared to
14.0% in fiscal year 2020. The increase in gross margin
percentage was due to the distribution segment having more sales of
products with a higher profit margin compared to the same period of
last fiscal year. In terms of dollar amounts, gross profit in the
distribution segment was $962, a decrease of $149, or 13.4%,
compared to $1,111 in fiscal year 2020. The gross margin of the
distribution segment was not only affected by the market price of
our products, but also our product mix, which changed frequently as
a result of the changed in market demand.
The
gross loss margin as a percentage of revenue in the real estate
segment was a negative of 175.0% in fiscal year 2021, an increase
of 158.9% compared to 16.1% in fiscal year 2020. In absolute dollar
amount, gross loss margin in the real estate segment was $49 in
fiscal year 2021, an increase of $39 as compared to $10 in fiscal
year 2020. The increase in gross loss was due to lower rental
income amid the pandemic.
Operating Expenses
Operating
expenses for the fiscal years ended June 30, 2021 and 2020 were as
follows:
|
|
For
the Year Ended June 30,
|
|
|
|
|
|
General and
administrative
|
$6,938
|
$7,064
|
|
Selling
|
446
|
679
|
|
Research and
development
|
357
|
355
|
|
Impairment loss on
long-lived assets
|
-
|
139
|
|
Gain on disposal of
property, plant and equipment
|
(1)
|
(24)
|
|
Total
|
$7,740
|
$8,213
|
General
and administrative expenses were $6,938 in fiscal year 2021,
compared to $7,064 in fiscal year.
Selling
expenses decreased by $233, or 34.3%, to $446 in fiscal year 2021,
compared to $679 in fiscal year 2020. The decrease in selling
expenses was primarily attributable to a decrease in commission
expenses in the Singapore operations as a result of fewer
commissionable sales, coupled with lower traveling expenses due to
the worldwide travel restrictions imposed to contain the spread of
the pandemic.
Loss from Operations
Loss
from operations was $70 in fiscal year 2021, an increase of $877,
as compared to $947 in fiscal year 2020 (restated).
Interest Expenses
The
interest expenses for fiscal years 2021 and 2020 were as
follows:
|
|
For the Year Ended June
30,
|
|
|
|
|
|
Interest
expenses
|
$126
|
$230
|
Interest
expenses decreased by $104, or 45.2%, to $126 in fiscal year 2021
from $230 in fiscal year 2020. The decrease in interest
expenses was mainly due to lower utilization of short-term loans in
the Singapore operations. Additionally, the bank loan payable
decreased by $146 to $2,060 in fiscal year 2021, as compared to
$2,206 in fiscal year 2020.
Other Income, Net
Other
income, net for fiscal years 2021 and 2020 was as
follows:
|
|
For
the Year Ended June 30,
|
|
|
|
|
|
Interest
income
|
$118
|
$177
|
|
Other rental
income
|
100
|
110
|
|
Exchange
loss
|
(69)
|
(35)
|
|
Bad debt recovery/
(expense)
|
9
|
(59)
|
|
Extinguishment of
PPP loan
|
121
|
-
|
|
Dividend
income
|
32
|
-
|
|
Other miscellaneous
income
|
52
|
141
|
|
Total
|
$363
|
$334
|
Other
income increased by $29 to $363 for fiscal year 2021 as compared to
$334 for fiscal year 2020. The increase in other income in fiscal
year 2021 was mainly due to an increase of $32 and $121 from
dividend income and forgiveness of the PPP loan, respectively. The
increase was partially offset by a decrease of $59 in interest
income.
Government grant
During
fiscal year 2021, the Company received government grants amounting
to $514, of which $401 were the financial assistance received from
the Singapore and Malaysia governments amid the COVID-19
pandemic.
During
fiscal year 2020, the Company received government grants amounting
to $778, of which $718 were the financial assistance received from
the Singapore, Malaysia and China governments amid the COVID-19
pandemic.
Gain on Sale of Properties
The
Company’s Malaysia operation completed the sale of properties
and recognized a net gain of RM4,901 or $1,172 in the fiscal year
2020, excluding capital gain tax.
Income Tax (Expenses) / Benefits
Income
tax expenses for fiscal year 2021 were $228, representing an
increase of $240, as compared to income tax benefits of $12 for
fiscal year 2020. The change was primarily because the Company had
fully utilized the tax benefits and was subject to tax in the
Singapore operation. The one-off and non-cash impairment charge
resulted in higher losses before tax, which the Company was still
subjected to tax for those profitable operations.
At June
30, 2021, the Company had no federal net operating loss
carry-forwards, and a state net operating loss carry-forward of
$1,248, which expires in 2033. These carryovers may be subject to
limitations under I.R.C. Section 382. Management of the Company is
uncertain whether it is more likely than not that these future
benefits will be realized. Accordingly, a full valuation allowance
was established.
Loss from Discontinued Operations
Loss
from discontinued operations was $28 and $3 in fiscal years 2021
and 2020, respectively. We discontinued our fabrication segment in
fiscal year 2013.
Noncontrolling Interest
As of
June 30, 2021, we held an indirect 55% interest each in Trio-Tech
(Malaysia) Sdn. Bhd. (“TTM”), Trio-Tech (Kuala Lumpur)
Sdn. Bhd. (“TTKL”), SHI and PT SHI, and a 76% interest
in Prestal Enterprise Sdn. Bhd. (“Prestal”). The
noncontrolling interest for fiscal year 2021, in the net loss of
subsidiaries, was $564, a change of $802 compared to a
noncontrolling interest in the net income of $238 for the previous
fiscal year. The change in the noncontrolling interest was
primarily attributable to the net loss generated by the Malaysia
operation in fiscal year 2021, as compared to the net income
generated by the Malaysia operations from the sales of properties
in fiscal year 2020.
Net (Loss) / Income Attributable to Trio-Tech International Common
Shareholders
Net
loss attributable for fiscal year 2021 was $591 compared to the net
income of $878 for fiscal year 2020 (restated).
(Loss) / Earnings per Share
Basic
loss per share from continuing operations was $0.16 in fiscal year
2021, as compared to basic earnings per share of $0.24 in fiscal
year 2020 (restated). Basic loss per share from discontinued
operations was $nil for fiscal year 2021 and $nil for fiscal year
2020.
Diluted
loss per
share from continuing operations was $0.15 in fiscal year 2021, as
compared to diluted earnings per share of $0.24 in fiscal year 2020
(restated). Diluted loss per share from discontinued operations was
$nil for fiscal year 2021 and $nil for fiscal year
2020.
Segment Information
The
revenue, gross margin and income or loss from each segment for
fiscal years 2021 and 2020 are presented below. As the segment
revenue and gross margin have been discussed in previous sections,
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 fiscal years 2021 and 2020 were as
follows:
|
|
For
the Year Ended
June
30,
|
|
|
|
|
|
Revenue
|
$13,151
|
$11,605
|
|
Gross
margin
|
25.4%
|
23.1%
|
|
Income/(Loss) from
operations
|
$376
|
$(326)
|
Income
from operations in the manufacturing segment was $376 in fiscal
year 2021, an improvement of $702 as compared to a loss from
operations of $326 in fiscal year 2020. The net income was
attributable to an increase in the absolute amount of gross margin
amounting to $664 and a decrease in operating expenses of $38.
Operating expenses were $2,966 and $3,004 for fiscal years 2021 and
2020, respectively. The decrease in operating expenses was mainly
due to a decrease in selling expenses of $76. The decrease was
partially offset by the increase in general and administrative
expenses of $43.
The
decrease in selling expenses was primarily due to lower traveling
expenses amid the pandemic. The increase in general and
administrative expenses was mainly attributable to an increase in
payroll-related expenses.
Testing Services Segment
The
revenue, gross margin and loss from operations for the testing
services segment for fiscal years 2021 and 2020 were as
follows:
|
|
For
the Year Ended
June
30,
|
|
|
|
|
|
Revenue
|
$13,846
|
$14,840
|
|
Gross
margin
|
24.7%
|
23.5%
|
|
Loss from
operations
|
$(997)
|
$(1,040)
|
Loss
from operations in the testing services segment in fiscal year 2021
was $997 remained comparable from $1,040 in fiscal year 2020. The
slight decrease in operating loss was attributable to a decrease in
operating expense of $115, partially offset by a decrease in
absolute amount of gross margin of $72. Operating expenses were
$4,412 and $4,527 for fiscal years 2021 and 2020, respectively. The
decrease in operating expenses was mainly attributable to a
decrease in selling expenses, general and administrative expenses
and research and development expenses, coupled with the absence of
any impairment on the long-lived asset in this fiscal
year.
Distribution Segment
The
revenue, gross margin and income from operations for the
distribution segment for fiscal years 2021 and 2020 were as
follows:
|
|
For
the Year Ended
June
30,
|
|
|
|
|
|
Revenue
|
$5,437
|
$7,958
|
|
Gross
margin
|
17.7%
|
14.0%
|
|
Income from
operations
|
$657
|
$751
|
Income
from operations in the distribution segment was $657 in fiscal year
2021 as compared to $751 in fiscal year 2020. The decrease was
mainly due to the decrease in gross margin of $149, as discussed
earlier. These decreases were partly offset by a decrease in
operating expenses. Operating expenses were $306 and $362 for
fiscal years 2021 and 2020, respectively.
Real Estate
The
revenue, gross margin and loss from operations for the real estate
segment for fiscal years 2021 and 2020 were as
follows:
|
|
For
the Year Ended
June
30,
|
|
|
|
|
|
Revenue
|
$28
|
$62
|
|
Gross
margin
|
(175.0)%
|
(16.1)%
|
|
Loss from
operations
|
$(116)
|
$(97)
|
Loss
from operations in the real estate segment was $116 in fiscal year
2021 as compared to $97 in fiscal year 2020. Operating expenses
were $67 and $87 in fiscal years 2021 and 2020,
respectively.
Corporate
The
following table presents the loss from operations for Corporate for
fiscal years 2021 and 2020, respectively:
|
|
For the Year
Ended
June 30,
|
|
|
|
|
|
Income / (Loss) from
operations
|
$10
|
$(235)
|
In
fiscal year 2021, corporate operating income was $10, a change of
$245 compared to operating loss of $235 in fiscal year
2020.
Liquidity
The
Company’s core businesses—testing services,
manufacturing and distribution—operate in a volatile
industry, in which its 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 decreased by $1,373 to $1,638
for the twelve months ended June 30, 2021, from $3,011 in the same
period of last fiscal year. The decrease in net cash provided by
operating activities was primarily due to a decrease in net income
of $2,271, an increase of $121 due to forgiveness of our PPP loan
and a decrease of $3,457 cash inflow from trade account
receivables. The decrease was partially offset by an increase in
the impairment loss on other assets of $1,580 and an increase in
accounts payables and accrued expenses of $2,345.
Net
cash used in investing activities decreased by $2,050 to an outflow
of $567 for the twelve months ended June 30, 2021 from $2,617 for
the same period of last fiscal year. The decrease in net cash
used in investing activities was primarily due to an increase in
cash inflows of $2,335 from the withdrawal of unrestricted deposits
and a decrease of $1,016 for investments in restricted and
unrestricted deposits. The decrease in cash outflow partially
offset by a decrease of $1,167 from the assets held for sale
proceeds.
Net
cash used in financing activities for the twelve months ended June
30, 2021, was $2, representing a decrease of $730 compared to
$732 during the twelve months ended June 30, 2020. Cash outflow
decreased mainly due to a decrease in a cash outflow of $1,848 from
the payment on lines of credit, and an increase in cash inflow of
$754 and $205 from the stock option exercise proceeds and bank
loans proceeds, respectively. The increase in cash outflow was
partially offset by a decrease in lines of credit payments by
$1,888, and elimination of PPP loan amounting to $121.
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. Should we find an attractive capital
investment, we may seek additional debt or equity financing in
order to fund the transaction, in the form of bank financing,
convertible debt, or the issuance of Common Stock.
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 $15,200 as of June 30, 2021, representing an increase of
$2,243, or 17.3%, compared to working capital of $12,957 as of June
30, 2020 (restated). The increase in working capital was mainly due
to increases in current assets such as cash and cash equivalents,
trade account receivables, inventories, prepaid expenses and other
current assets and decreases in current liabilities such as lines
of credit, income taxes payable, bank loans payable, finance leases
and PPP loan. Such fluctuations were partially offset by decreases
in current assets such as short-term deposits, other receivables
and increases in current liabilities such as accounts payable,
accrued expenses, and operating lease payable, as discussed
above.
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 $1,112 and $1,017 for fiscal year 2021
and fiscal year 2020, respectively. The capital expenditures in
fiscal year 2021 were mainly in the Singapore, China, Malaysia and
Thailand operations, which provide testing services to our
customers. We financed our capital expenditures and other operating
expenses through operating cash flows and long-term
debts.
Our
credit rating provides us with ready and adequate access to funds
in the global market. At June 30, 2021, the Company had certain
lines of credit that are collateralized by restricted
deposits.
|
Entity
with
|
Type
of
|
Interest
|
|
|
|
|
Facility
|
Facility
|
Rate
|
|
|
|
Trio-Tech
International Pte. Ltd., Singapore
|
Lines of
Credit
|
Ranging from 1.85%
to 5.5%,
SIBOR rate +1.2%
and LIBOR rate +1.25%
|
-
|
$4,237
|
$4,237
|
Universal (Far
East) Pte. Ltd., Singapore
|
Lines of
Credit
|
Ranging from 1.85%
to 5.5%
|
-
|
$1,115
|
$1,043
|
Trio-Tech Malaysia
Sdn. Bhd., Malaysia
|
Revolving
Credit
|
Cost of Funds Rate
+2%
|
-
|
$361
|
$361
|
As of
June 30, 2020, the Company had certain lines of credit that are
collateralized by restricted deposits.
|
Entity
with
|
Type
of
|
Interest
|
|
|
|
|
Facility
|
Facility
|
Rate
|
|
|
|
Trio-Tech
International Pte. Ltd., Singapore
|
Lines of
Credit
|
Ranging from 1.85%
to 5.5%,
SIBOR rate +1.25%
and LIBOR rate +1.30%
|
-
|
$4,806
|
$4,806
|
Universal (Far
East) Pte. Ltd., Singapore
|
Lines of
Credit
|
Ranging from 1.85%
to 5.5%
|
-
|
$359
|
$187
|
Trio-Tech Malaysia
Sdn. Bhd., Malaysia
|
Revolving
Credit
|
Cost of Funds Rate
+2%
|
-
|
$350
|
$350
|
On
November 18, 2019, Trio-Tech International Pte. Ltd. signed an
agreement with JECC Leasing (Singapore) Pte. Ltd. for an Account
Receivables Financing facility for SGD 1,000, or approximately $743
based on the market exchange rate. Interest is charged at LIBOR
rate +1.3% for USD financing and SIBOR rate +1.25% for SGD
financing. The financing facility was set up to facilitate the
working capital in our operations in Singapore. The Company started
to use this facility in the second quarter of fiscal year
2020.
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,
revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.