TRIO-TECH INTERNATIONAL Overview
The following should be read in conjunction with the condensed consolidated financial statements and notes in Item I above and with the audited consolidated financial statements and notes, the information under the headings "Management's discussion and analysis of financial condition and results of operations" in our Annual Report on Form 10-K for the fiscal year endedJune 30, 2022 .Trio-Tech International ("TTI") was incorporated in 1958 under the laws of theState of California . As used herein, the term "Trio-Tech" or "Company" or "we" or "us" or "Registrant" includesTrio-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 03-09Singapore 318996, and our telephone number is (65) 6265 3300.
The Company is a provider of reliability test equipment and services to the semiconductor industry. Our customers rely on us to verify that their semiconductor components meet or exceed the rigorous reliability standards demanded for aerospace, communications and other electronics products.
During the six months endedDecember 31, 2022 , TTI generated approximately 99.9% of its revenue from its three core business segments in the test and measurement industry, i.e., manufacturing of test equipment ("Manufacturing"), testing services ("Testing") and distribution of test equipment ("Distribution").The Real Estate segment contributed only 0.01% to the total revenue during the six months endedDecember 31, 2022 . Manufacturing TTI develops and manufactures an extensive range of test equipment used in the "front-end" and the "back-end" manufacturing processes of semiconductors. Our equipment includes leak detectors, autoclaves, centrifuges, burn-in systems and boards, HAST testers, temperature-controlled chucks, wet benches and more. Testing TTI provides comprehensive electrical, environmental, and burn-in testing services to semiconductor manufacturers in our testing laboratories inAsia andthe United States ("U.S."). Our customers include both manufacturers and end users of semiconductor and electronic components who look to us when they do not want to establish their own facilities. The independent tests are performed to industry and customer specific standards. Distribution In addition to marketing our proprietary products, we distribute complementary products made by manufacturers mainly from theU.S. ,Europe , andTaiwan . The products include environmental chambers, handlers, interface systems, vibration systems, shaker systems, solderability testers and other semiconductor equipment. Besides equipment, we also distribute a wide range of components such as connectors, sockets, LCD display panels and touch screen panels. Furthermore, our range of products are mainly targeted for industrial products rather than consumer products whereby the life cycle of the industrial products can last from three years to seven years. Real Estate Our real estate segment generates investment income from the investments made and rental revenue received from real estate that we purchased inChongqing, China .
Critical Accounting Estimates & Policies
The preparation of our Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted inthe United States of America requires management to make estimates and assumptions in applying our accounting policies that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base these estimates and assumptions on historical experience and evaluate them on an ongoing basis to ensure that they remain reasonable under current conditions. Actual results could differ from those estimates. We discuss the development and selection of the critical accounting estimates with the Audit Committee of our Board of Directors on a quarterly basis, and the Audit Committee has reviewed our related disclosure in this Quarterly Report on Form 10-Q. There have been no material changes in our critical accounting estimates and policies since our Annual Report on Form 10-K for the fiscal year endedJune 30, 2022 . Refer to Note 1 "Basis of Presentation and Summary of significant Accounting Policies" to our Condensed Consolidated Financial Statements for additional details. In addition, please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year endedJune 30, 2022 for a complete description of our critical accounting policies and estimates. -26-
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Second Quarter Fiscal Year 2023 Highlights
? Total revenue increased by
of our fiscal year ending
for the same period in the fiscal year ended
? Manufacturing segment revenue increased by
second quarter of Fiscal 2023, compared to
Fiscal 2022.
? Testing segment revenue increased by
quarter of Fiscal 2023, compared to
2022.
? Distribution segment revenue decreased by
second quarter of Fiscal 2023, compared to
Fiscal 2022.
? Real estate segment rental revenue decreased by
second quarter of Fiscal 2023, compared to
2022.
? The overall gross profit margin increased by 0.4% to 26.9% in the second
quarter of Fiscal 2023, from 26.5% for the same period in Fiscal 2022.
? General and administrative expense decreased by $28 , or 1.5%, to $1,919 in
the second quarter of Fiscal 2023, from
2022.
? Selling expense increased by
Fiscal 2023, from $156 for the same period in Fiscal 2022.
? Other income decreased by
second quarter of Fiscal 2023, from other income of
in Fiscal 2022.
? Income from operations was
increase of
? Income tax expense was$241 for the second quarter of Fiscal 2023, an increase of$88 as compared to$153 in the same period in Fiscal 2022.
? During the second quarter of Fiscal 2023, income from continuing operations
before non-controlling interest, net of tax was
from continuing operations before non-controlling interest of
same period in Fiscal 2022.
? Net income attributable to non-controlling interest for the second quarter of
Fiscal 2023 was
in Fiscal 2022.
? Basic earnings per share for the second quarter of Fiscal 2023 was
compared to earnings per share of
? Diluted earnings per share for the second quarter of Fiscal 2023 was
as compared to earnings per share of
2022.
? Total assets increased by
to $43,421 as of June 30, 2022 .
? Total liabilities increased by $804 to $16,223 as of December 31, 2022 ,
compared to $15,419 as of June 30, 2022 .
Results of Operations and Business Outlook
The following table sets forth our revenue components for both three and six
months ended
Revenue Components Three Months Ended Six Months Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2022 2021 2022 2021
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Manufacturing 40.7 % 32.3 % 35.5 % 33.6 %
Testing Services 45.6 45.4 49.4 45.4
Distribution 13.7 22.2 15.1 20.9
Real Estate - 0.1 - 0.1
Total 100 % 100.0 % 100 % 100.0 %
Revenue for the three and six months ended December 31, 2022 , was $12,390 and
$24,329 , respectively, an increase of $1,468 and $3,236 , respectively, when
compared to the revenue for the same period of Fiscal 2022. As a percentage,
revenue increased by 13.4% and 15.3% for the three and six months ended December
31, 2022 , when compared to revenue for the same period of Fiscal 2022.
For the three and six months ended December 31, 2022 , there was an increase in
revenue in the Testing and Manufacturing segments when compared to the same
period of Fiscal 2022. The Distribution segment's revenue decreased compared to
the same period of Fiscal 2022.
Total revenue into and within
Total revenue into and within theU.S. was$321 and$814 for the three and six months endedDecember 31, 2022 , respectively, an increase of$53 and$47 from$268 and$767 for the same periods of Fiscal 2022, respectively.
Revenue within our four current segments for the three and six months ended
-27-
--------------------------------------------------------------------------------Manufacturing Segment Revenue in the Manufacturing segment as a percentage of total revenue was 40.7% and 35.5% for the three and six months endedDecember 31, 2022 , respectively, an increase of 8.4% and 1.9% of total revenue when compared to 32.3% and 33.6% in the same period of Fiscal 2022. The revenue increased by$1,516 to$5,044 from$3,528 and increased by$1,539 to$8,629 from$7,090 for the three and six months endedDecember 31, 2022 , respectively. Revenue in the Manufacturing segment from one customer accounted for 38.0% and 50.9% of our total revenue in the Manufacturing segment for the three months endedDecember 31, 2022 and 2021, respectively, and 28.2% and 42.0% of our total revenue in the Manufacturing segment for the six months endedDecember 31, 2022 , and 2021, respectively. Testing Services Segment The Testing segment's revenue was 45.6% for the three months endedDecember 31, 2022 , representing a marginal increase of 0.2%, compared to 45.4% for the same period of Fiscal 2022. Revenue in the Testing segment was 49.4% as a percentage of total revenue for the six months endedDecember 31, 2022 , an increase of 4% compared to the same period of Fiscal 2022. Total revenue increased by$682 to$5,648 and increased by$2,446 to$12,012 from$4,966 and$9,566 for the three and six months endedDecember 31, 2022 , respectively, as compared to the same periods of Fiscal 2022. The revenue in the Testing segment from one customer accounted for 40.9% and 63.0% of our revenue in the Testing segment for the three months endedDecember 31, 2022 and 2021, respectively, and 45.6% and 63.3% of our total revenue in the Testing segment for the six months endedDecember 31, 2022 and 2021, respectively. The future revenue in the Testing segment will be affected by the demands of this customer if the customer base cannot be increased. Demand for testing services varies from country to country, depending on any changes taking place in the market and our customers' forecasts. As it is challenging to forecast fluctuations in the market accurately, management believes it is necessary to maintain testing facilities in close proximity to the customers in order to make it convenient for them to send us their newly manufactured parts for testing and to enable us to maintain a share of the market. Distribution Segment Revenue in the Distribution segment was 13.7% and 15.1% as a percentage of total revenue for the three and six months endedDecember 31, 2022 , respectively, a decrease of 8.5% and 5.8%, compared to the same period of Fiscal 2022. Total revenue decreased by$726 to$1,694 and decreased by$742 to$3,676 from$2,420 and$4,418 for the three and six months endedDecember 31, 2022 , respectively, compared to the same period of Fiscal 2022. The revenue in the Distribution segment from one customer accounted for 78.9% and 80.8% of our revenue in the Distribution segment for the three months endedDecember 31, 2022 and 2021, respectively, and 82.4% and 74.4% of our total revenue in the Distribution segment for the six months endedDecember 31, 2022 and 2021, respectively. Demand for the Distribution segment varies depending on the demand for our customers' products, the changes taking place in the market, and our customers' forecasts. Hence it is difficult to forecast fluctuations in the market accurately. Real Estate SegmentThe Real Estate segment revenue decreased to$4 and$12 from$8 and$19 for the three and six months endedDecember 31, 2022 , compared to the same period of Fiscal 2022. Uncertainties and Remedies There are several influencing factors which create uncertainties when forecasting performance, such as the constantly changing nature of technology, specific requirements from the customer, decline in demand for certain types of burn-in devices or equipment, decline in demand for testing services and fabrication services, and other similar factors. One factor that influences uncertainty is the highly competitive nature of the semiconductor industry. Another is that some customers are unable to provide a forecast of the products required in the upcoming weeks; hence it is difficult to plan for the resources needed to meet these customers' requirements due to short lead time and last-minute order confirmation. This will normally result in a lower margin for these products as it is more expensive to purchase materials in a short time frame. However, the Company has taken certain actions and formulated certain plans to deal with and to help mitigate these unpredictable factors. For example, in order to meet manufacturing customers' demands upon short notice, the Company maintains higher inventories but continues to work closely with its customers to avoid stockpiling. We believe that we have improved customer service through our efforts to keep our staff up to date on the newest technology and stressing the importance of understanding and meeting the stringent requirements of our customers. Finally, the Company is exploring new markets and products, looking for new customers, and upgrading and improving burn-in technology while at the same time searching for improved testing methods for higher technology chips. -28-
-------------------------------------------------------------------------------- The Company's primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar-denominated sales and operating expense in its subsidiaries. Strengthening ofthe United States dollar ("U.S. Dollar") relative to foreign currencies adversely affects theU.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 theU.S. Dollar's strengthening, or at all, which would adversely affect theU.S. Dollar value of the Company's foreign currency-denominated sales and earnings. Conversely, a strengthening of foreign currencies relative to theU.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. As ofDecember 2022 , although we have seen improvements in both our operations and those of our suppliers, we may continue to experience supply shortages as well as inflationary cost pressures in at least the near term. Risks and uncertainties related to the COVID-19 pandemic, supply chain challenges, and inflationary pressures may continue to negatively impact our revenue and gross margin. We continue to monitor and evaluate the business impact to react proactively. OnAugust 9, 2022 , the CHIPS and Science Act of 2022 (CHIPS Act) was enacted inthe United States . The CHIPS Act will provide financial incentives to the semiconductor industry which are primarily directed at manufacturing activities withinthe United States . We continue to evaluate the business impact and potential opportunities related to the CHIPS Act. As of date, we do not see any direct effect of the CHIPS Act on the Company in the foreseeable future. There are legal and operational risks associated with having operations inChina . These risks could result in a material change in our operations and/or the value of our common stock or could limit or hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. In recent past,the Peoples Republic of China ("PRC") government initiated a series of regulatory actions and statements to regulate business operations inChina with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision overChina -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 inChina . Our business primarily consists of semiconductor testing and burn-in services for the automotive industry, avionics, and others. Our businesses are not impacted by anti-monopoly policies, variable interest entities policies, or data security policies, nor are our businesses subject to extraordinary oversight from the Chinese government. -29- --------------------------------------------------------------------------------
Comparison of the Three Months Ended
The following table sets forth certain consolidated statements of income data as a percentage of revenue for the three months endedDecember 31, 2022 and 2021 respectively: Three Months Ended December 31, 2022 2021 (Unaudited) (Unaudited) Revenue 100.0 % 100.0 % Cost of sales 73.1 % 73.5 % Gross Margin 26.9 % 26.5 % Operating expense General and administrative 15.5 % 17.8 % Selling 1.6 % 1.4 % Research and development 1.2 % 1.2 % Total operating expense 18.3 % 20.4 % Income from Operations 8.6 % 6.1 % Overall Gross Margin
Overall gross margin as a percentage of revenue increased by 0.4% to 26.9% for
the three months ended
Gross profit margin as a percentage of revenue in the Manufacturing segment increased by 5.2% to 23.7% for the three months endedDecember 31, 2022 , as compared to 18.5% for the same period in Fiscal 2022. Gross profits in the Manufacturing segment increased by$541 to$1,195 for the three months endedDecember 31, 2022 , from$654 for the same period in Fiscal 2022. The increase in gross profit margin was primarily due to a higher proportion of high profit margin product sales for the three months endedDecember 31, 2022 compared to the same period of Fiscal 2022. Gross profit margin as a percentage of revenue in the Testing segment decreased by 4.1% to 33.7% for the three months endedDecember 31, 2022 , compared to 37.8% in the same period of Fiscal 2022. The decrease in gross profit margin percentage was mainly due to lower margins in theSingapore andTianjin testing operations resulting from lower demand due to inventory corrections made by customers in the second quarter of Fiscal 2023. In absolute dollar amounts, gross profit in the testing segment increased by$24 to$1,901 for the three months endedDecember 31, 2022 , from$1,877 for the same period of Fiscal 2022. Gross profit margin of the Distribution segment is not only affected by the market price of the products we distribute, but also the mix of products we distribute, which frequently changes as a result of fluctuations in market demand. Gross profit margin as a percentage of revenue in the Distribution segment decreased by 0.4% to 14.9% for the three months endedDecember 31, 2022 , from 15.3% in the same period of Fiscal 2022. Gross profit in the Distribution segment for the three months endedDecember 31, 2022 , was$253 , a decrease of$117 , compared to$370 in the same period of Fiscal 2022.
For the three months ended
Operating Expense Operating expense for the three months endedDecember 31, 2022 and 2021 was as follows: Three Months Ended December 31, 2022 2021 (Unaudited) (Unaudited) General and administrative$ 1,919 $ 1,947 Selling 193 156 Research and development 151 131 Gain on disposal of property, plant and equipment 3 - Total$ 2,266 $ 2,234 General and administrative expense decreased by$28 or 1.5%, from$1,947 to$1,919 for the three months endedDecember 31, 2022 , compared to the same period of Fiscal 2022. The decrease in general and administrative expense was mainly attributable to the bonus provision adjustments in this quarter that offset the increase of administrative expense relating to the Company's new subsidiary Trio-Tech Jiangsu, which was setup in the third quarter of Fiscal 2022. Selling expense increased by$37 , or 23.7%, from$156 to$193 for the three months endedDecember 31, 2022 , compared to the same period of Fiscal 2022. The increase in selling expense was primarily attributable to an increase in commission costs in the Manufacturing segment of theSingapore operations as a result of an increase in commissionable revenue, and an increase in travel costs due to increased business travel in the second quarter of Fiscal 2023, compared to the same quarter of Fiscal 2022. -30- --------------------------------------------------------------------------------
Income from Operations Income from operations was$1,052 for the three months endedDecember 31, 2022 , an increase of$396 , compared to profit of$656 from operations for the same period of Fiscal 2022. This was mainly due to higher revenue and improved gross profit margin from Manufacturing and Testing segments. Interest Expense Interest expense for the three months endedDecember 31, 2022 and 2021 were as follows: Three Months Ended December 31, 2022 2021 (Unaudited) (Unaudited) Interest expense $ 10 $ 28 Interest expense was$10 for the three months endedDecember 31, 2022 , a decrease of$18 , or 64.3%, compared to$28 for the same period of Fiscal 2022. As ofDecember 31, 2022 , the Company had an unused line of credit of$6,139 as compared to$5,207 atDecember 31, 2021 . Other (Expense) / Income Other (expense) / income for the three months endedDecember 31, 2022 and 2021 were as follows: Three Months Ended December 31, 2022 2021 (Unaudited) (Unaudited) Interest income $ 37 $ 16 Other rental income 27 29 Exchange loss (349 ) (38 ) Bad debt recovery - 102 Commission income - 200 Government grant 21 28 Other miscellaneous income 21 44 Total$ (243 ) $ 381 Other income decreased by$624 from$381 to other expense of$243 for the three months endedDecember 31, 2022 compared to the same period in Fiscal 2022. The decrease was mainly contributed by a negative foreign currency impact in the second quarter of Fiscal 2023 and the absence of one-time commission income that was earned in the same period in Fiscal 2022. Our net income is impacted by the overall strengthening or weakening of theU.S. Dollars since the functional currency of our foreign subsidiaries is notU.S. Dollars. During the three months endedDecember 31, 2022 , exchange rate movement negatively impacted our net income due to the strengthening of theSingapore dollars against theU.S. Dollars. Income Tax Expense The Company's income tax expense was$241 and$153 for the three months endedDecember 31, 2022 , and 2021, respectively. The increase was primarily due to the increase in taxable income. Non-controlling Interest As ofDecember 31, 2022 , we held a 55% interest inTrio-Tech (Malaysia) Sdn . Bhd.,Trio-Tech (Kuala Lumpur ) Sdn. Bhd.,SHI International Pte. Ltd. , and 52% interest in PT. SHI Indonesia. We also held a 76% interest inPrestal Enterprise Sdn . Bhd and 51% interest inTrio-Tech JiangSu Co. Ltd. The share of non-controlling interest in the net profit from the subsidiaries for the three months endedDecember 31, 2022 was$58 , an increase of$57 compared to the share of non-controlling interest in the net income from the subsidiaries of$1 for the same period of Fiscal 2022. The increase in the net income shared by non-controlling interest in the subsidiaries was attributable to the increase in net income generated by theChina operation. -31- --------------------------------------------------------------------------------
Net Income Attributable to Trio-Tech International Common Shareholders
Net income attributable toTrio-Tech International common shareholders for the three months endedDecember 31, 2022 , was$507 , a change of$348 , compared to a net income of$855 for the same period Fiscal 2022. Earnings per Share Basic earnings per share from continuing operations were$0.12 for the three months endedDecember 31, 2022 , compared to$0.22 for the same period in Fiscal 2022. Basic earnings per share from discontinued operations were $nil for both the three months endedDecember 31, 2022 and 2021. Diluted earnings per share from continuing operations were$0.12 for the three months endedDecember 31, 2022 , as compared to$0.20 for the same period in Fiscal 2022. Diluted earnings per share from discontinued operations were $nil for both the three months endedDecember 31, 2022 and 2021. Segment Information The revenue, gross margin and income or loss from operations for each segment during the first quarter of Fiscal 2023 and Fiscal 2022 are presented below. As the revenue and gross margin for each segment have been discussed in the previous section, only the comparison of income or loss from operations is discussed below. Manufacturing Segment The revenue, gross margin and income from operations for the Manufacturing segment for the three months endedDecember 31, 2022 and 2021 were as follows: Three Months Ended December 31, 2022 2021 (Unaudited) (Unaudited) Revenue$ 5,044 $ 3,528 Gross margin 23.7 % 18.5 %
Income / (loss) from operations $ 301 $ (48 )
Income from operations from the Manufacturing segment was$301 compared to loss from operations of$48 in the same period of Fiscal 2022, primarily due to an increase in gross profit margin offset by an increase in operating expense of$315 . Operating expense for the Manufacturing segment were$894 and$701 for the three months endedDecember 31, 2022 and 2021, respectively. The increase in operating expense was mainly due to an increase of$76 in general and administrative expense,$52 in selling expense and an increase of$29 in corporate overhead expense. Testing Segment
The revenue, gross margin and income from operations for the Testing segment for
the three months ended
Three Months Ended
December 31,
2022 2021
(Unaudited) (Unaudited)
Revenue $ 5,648 $ 4,966
Gross margin 33.7 % 37.8 %
Income from operations $ 547 $ 588
Income from operations in the Testing segment for the three months ended
December 31, 2022 was $547 compared to $588 in the same period of Fiscal 2022,
was mainly attributable to an increase of operating expenses. Operating expense
was $1,354 and $1,290 for the three months ended December 31, 2022 and 2021,
respectively. The increase of $64 in operating expense was mainly due to an
increase of $124 in general and administrative expense while offset by decrease
in selling expense and corporate expense.
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Distribution Segment The revenue, gross margin and income from operations for the Distribution segment for the three months endedDecember 31, 2022 and 2021 were as follows: Three Months Ended December 31, 2022 2021 (Unaudited) (Unaudited) Revenue$ 1,694 $ 2,420 Gross margin 14.9 % 15.3 % Income from operations $ 217 $ 277
Income from operations in the Distribution segment for three months ended
Real Estate Segment
The revenue, gross margin and loss from operations for the Real Estate segment
for the three months ended
Three Months Ended
December 31,
2022 2021
(Unaudited) (Unaudited)
Revenue $ 4 $ 8
Gross margin (350.0 )% (137.5 )%
Loss from operations $ (28 ) $ (28 )
Loss from operations in the Real Estate segment was $28 for the three months
ended December 31, 2022 and for the same period of Fiscal 2022. Operating
expense was $14 and $17 for the three months ended December 31, 2022 and 2021,
respectively.
Corporate
The income / (loss) from operations for Corporate for the three months ended
Three Months Ended
December 31,
2022 2021
(Unaudited) (Unaudited)
Income / (Loss) from operations $ 32
Corporate operating profit was
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Comparison of the Six Months Ended
The following table sets forth certain consolidated statements of income data as a percentage of revenue for the six months endedDecember 31, 2022 and 2021, respectively: Six Months Ended Dec. 31, Dec. 31, 2022 2021 Revenue 100.0 % 100.0 % Cost of sales 71.4 71.2 Gross Margin 28.6 % 28.8 % Operating expenses: General and administrative 17.4 % 18.6 % Selling 1.5 1.4 Research and development 0.9 1.0 Total operating expenses 19.8 % 21.0 % Income from Operations 8.8 % 7.8 % Overall Gross Margin Overall gross margin as a percentage of revenue decreased marginally by 0.2% to 28.6% for the six months endedDecember 31, 2022 , compared to 28.8% in the same period of Fiscal 2022. Gross profit increased by$888 to$6,957 for the six months endedDecember 31, 2022 , from$6,069 for the same period of Fiscal 2022. Gross profit margin as a percentage of revenue in the Manufacturing segment increased by 1.0% to 26.1% for the six months endedDecember 31, 2022 , from 25.1% in the same period of Fiscal 2022. Gross profit increased by$473 to$2,255 for the six months endedDecember 31, 2021 compared to$1,782 for the same period of Fiscal 2022. The gross margin increase was primarily due to an increase in Manufacturing segment revenue in the first half of Fiscal 2023 compared to the same period of Fiscal 2022. Gross profit margin as a percentage of revenue in the Testing segment decreased by 3.1% to 34.5% for the six months endedDecember 31, 2022 , from 37.6% in the same period of Fiscal 2022. Gross profit in the Testing segment increased by$545 to$4,139 for the six months endedDecember 31, 2022 , from$3,594 for the same period of Fiscal 2022 due to improved performance in the first quarter of Fiscal 2023. The decrease in gross profit margin was mainly due to lower margins in the Testing segment resulting from lower demand due to inventory corrections made by customers in the second quarter of Fiscal 2023. Gross profit margin as a percentage of revenue in the Distribution segment was 16.0% for the six months endedDecember 31, 2022 , compared to 16.1% in the same period of Fiscal 2022. Gross profit in the Distribution segment for the six months endedDecember 31, 2022 , was$587 , a decrease of$125 compared to$712 in the same period of Fiscal 2022. The decrease in gross profit was due to the decrease in distribution sales in ourSingapore operation compared to the same period of Fiscal 2022.
Gross loss in the Real Estate segment increased by
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Operating Expense Operating expense for the six months endedDecember 31, 2022 and 2021 were as follows: Six Months Ended Dec. 31, Dec. 31, 2022 2021 (Unaudited) General and administrative$ 4,224 $ 3,927 Selling 366 303 Research and development 224 213 Gain on disposal of plant and equipment 7 - Total$ 4,821 $ 4,443 General and administrative expense increased by$297 , or 18.2%, from$3,927 to$4,224 for the six months endedDecember 31, 2022 , compared to the same period of Fiscal 2022. The increase in general and administrative expense was primarily due to the general and administrative expense relating to the Company's new subsidiary Trio-Tech Jiangsu, which was setup in the third quarter of Fiscal 2022, coupled with increased manpower costs.
Selling expense increased by
Income / (Loss) from Operations
Income from operations was$2,136 for the six months endedDecember 31, 2022 , compared to$1,626 for the same period of Fiscal 2022. The increase was mainly due to the increase in gross profit margin, offset by an increase in operating expense, as discussed earlier. Interest Expense Interest expense for the six months endedDecember 31, 2022 and 2021 were as follows: Six Months Ended Dec. 31, Dec. 31, 2022 2021 (Unaudited) Interest expense$ 54 $ 56 Interest expense decreased marginally by$2 to$54 from$56 for the six months endedDecember 31, 2022 , compared to the same period of Fiscal 2022. The decrease was mainly due to lower utilization of lines of credit inSingapore operation. Other (Expense) / Income Other (expense) / income for the six months endedDecember 31, 2022 and 2021 was as follows: Six Months Ended Dec. 31, Dec. 31, 2022 2021 (Unaudited) Interest income$ 55 $ 38 Other rental income 54 58 Exchange loss (279 ) (4 ) Bad debt recovery - 104 Dividend Income - - Government grant 42 98 Commission income - 200 Other miscellaneous income 64 48 Total$ (64 ) $ 542 -35-
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Other expense for the six months endedDecember 31, 2022 was$64 , a decrease of$606 compared to other income of$542 for the same period of Fiscal 2022. The decrease was mainly contributed by a negative foreign currency impact in the second quarter of Fiscal 2023 and the absence of one-time commission income that was earned in the same period in Fiscal 2022. Our net income is impacted by the overall strengthening or weakening of theU.S. Dollar since the functional currency of our foreign subsidiaries is not theU.S. Dollar. During the second quarter in Fiscal 2023, exchange rate movement negatively impacted our net income due to the strengthening ofSingapore dollars against theU.S. Dollar which was partially offset by the exchange gain that arose in the first quarter of Fiscal 2023. Income Tax Expense
Income tax expense for the six months ended
Noncontrolling Interest As ofDecember 31, 2022 , we held a 55% interest inTrio-Tech (Malaysia) Sdn . Bhd.,Trio-Tech (Kuala Lumpur ) Sdn. Bhd.,SHI International Pte. Ltd. , and 52% interest in PT. SHI Indonesia. We also held a 76% interest in PrestalEnterprise Sdn . Bhd and 51% interest inTrio-Tech JiangSu Co. Ltd. The net income attributable to the noncontrolling interest in these subsidiaries for the six months endedDecember 31, 2022 , was$154 , a change of$142 , compared to a net income of$12 for the same period of Fiscal 2022. The increase was attributable to the increase in net income generated by theChina operation.
Net Income Attributable to Trio-Tech International Common Shareholders
Net income was$1,389 for the six months endedDecember 31, 2022 , a decrease of$383 compared to a net income of$1,772 for the same period of Fiscal 2022. The increase was mainly due to the increase in revenue and gross margin. However, the increase was partially offset by an increase in operating expense and other expense. Earnings per Share Basic earnings per share from continuing operations was$0.34 for the six months endedDecember 31, 2022 , compared to$0.46 for the same period in Fiscal 2022. Basic earnings per share from discontinued operations were $nil for both the six months endedDecember 31, 2022 and 2021. Diluted earnings per share from continuing operations was$0.33 for the six months endedDecember 31, 2022 , compared to$0.43 for the same period of Fiscal 2022. Diluted earnings per share from discontinued operations were $nil for both the six months endedDecember 31, 2022 and 2021. Segment Information The revenue, gross profit margin, and income or loss from operations in each segment for the six months endedDecember 31, 2022 and 2021, respectively, are presented below. As the segment revenue and gross margin for each segment have been discussed in the previous section, only the comparison of income / (loss) from operations is discussed below. Manufacturing Segment The revenue, gross margin and income from operations for the Manufacturing segment for the six months endedDecember 31, 2022 and 2021 were as follows: Six Months Ended Dec. 31, Dec. 31, 2022 2021 (Unaudited) Revenue$ 8,629 $ 7,090 Gross margin 26.1 % 25.1 % Income from operations$ 477 $ 252 Income from operations from the Manufacturing segment was$477 for the six months endedDecember 31, 2022 , an increase of$225 as compared to$252 in the same period of Fiscal 2022 due to an increase in gross margin. The increase in gross margin was partially offset with an increase in operating expense. The Manufacturing segment's operating expense were$1,778 and$1,529 for the six months endedDecember 31, 2022 and 2021, respectively. The increase in operating expense of$249 was mainly due to an increase in general and administrative expense by$75 , and an increase in selling expense by$82 compared to the same period of Fiscal 2022. The increase in general and administrative expense was mainly attributable to an increase in payroll-related expenses in theSingapore operations. The increase in selling expense was primarily attributable to an increase in commission expenses in the Manufacturing segment ofSingapore operation because of an increase in commissionable revenue. -36-
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Testing Segment
The revenue, gross margin and loss from operations for the Testing segment for
the six months ended
Six Months Ended
Dec. 31, Dec. 31,
2022 2021
(Unaudited)
Revenue $ 12,012 $ 9,566
Gross margin 34.5 % 37.6 %
Income from operations $ 1,129 $ 1,124
Income from operations in the Testing segment for the six months ended December
31, 2022 , was $1,129 , a slight improvement of $5 compared to $1,124 in the same
period of Fiscal 2022. The increase in gross profit of $545 was partially offset
by an increase in operating expense by $540 . Operating expense was $3,011 and
$2,471 for the six months ended December 31, 2022 and 2021, respectively. The
higher operating expense was mainly attributed to an increase in general and
administrative expense and corporate overhead by $356 and $234 , respectively.
The increase in general and administrative expense was mainly due to costs incurred in Company's new subsidiary Trio-Tech Jiangsu, which was setup in the third quarter of Fiscal 2022, coupled with increased manpower costs. The increase in corporate overhead expense was due to a change in the corporate overhead allocation compared to the same period of Fiscal 2022. Corporate charges are allocated on a predetermined fixed charge basis.
Distribution Segment The revenue, gross margin and income from operations for the Distribution segment for the six months endedDecember 31, 2022 and 2021 were as follows: Six Months Ended Dec. 31, Dec. 31, 2022 2021 (Unaudited) Revenue$ 3,676 $ 4,418 Gross margin 16.0 % 16.1 % Income from operations$ 482 $ 531 Income from operations in the Distribution segment for the six months endedDecember 31, 2022 was$482 , a decrease of$49 compared to$531 in the same period of Fiscal 2022. The decrease in operating income was primarily due to a decrease in gross margin by$125 , which was partially offset with a decrease in operating expense of$76 . Operating expense were$106 and$180 for the six months endedDecember 31, 2022 and 2021, respectively. The decrease in operating expense was mainly contributed by decrease in general and administrative expense of$60 . -37-
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Real Estate Segment The revenue, gross loss margin and loss from operations for the Real Estate segment for the six months endedDecember 31, 2022 and 2021 were as follows: Six Months Ended Dec. 31, Dec. 31, 2022 2021 (Unaudited) Revenue$ 12 $ 19 Gross loss margin 200.0 % 100.0 % Loss from operations$ (42 ) $ (51 ) Loss from operations in the Real Estate segment for the six months endedDecember 31, 2022 was$42 , a decrease of$9 compared to$51 for the same period of Fiscal 2022. The decrease in operating loss was mainly due to a decrease in operating expense. Operating expense was$18 and$32 for the six months endedDecember 31, 2022 and 2021, respectively. Corporate
The income/(loss) from operations for corporate for the six months ended
Six Months Ended
Dec. 31 , Dec. 31,
2022 2021
(Unaudited)
Income / (Loss) from operations
The improvement of$320 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 endedDecember 31, 2022 total assets increased by$2,775 to$46,196 compared to$43,421 as ofJune 30, 2022 . The increase was primarily due to increase in inventories, trade receivables and property, plant and equipment and restricted term deposits, partially offset by decrease in cash and cash equivalents, short-term deposit, other receivables, prepaid expense, deferred tax assets, investment properties, right-of-use assets and operating right-of-use assets. Cash and cash equivalents were$6,379 as atDecember 31, 2022 , reflecting an decrease of$1,319 from$7,698 as atJune 30, 2022 , primarily due to placement of additional term deposits and repayment in lines of credit for the six months endedDecember 31, 2022 .
Short-term deposits and restricted term deposits were
As atDecember 31, 2022 , the trade accounts receivable balance increased by$1,740 to$13,332 , from$11,592 as atJune 30, 2022 , primarily due to an increase in overall revenue of all entities on a consolidated basis. The number of days' sales outstanding in accounts receivables for the Group was 91 days and 81 days at the end of the second quarter of Fiscal 2023 and the end of Fiscal 2022, respectively.
Other receivables as at
Inventories as atDecember 31, 2022 , were$3,219 , an increase of$961 , compared to$2,258 as atJune 30, 2022 . The increase in inventories was in line with the backlog in the manufacturing and distribution segments of ourSingapore operations. Prepaid expenses were$610 as atDecember 31, 2022 compared to$1,215 as atJune 30, 2022 . This was mainly due to the asset capitalization of down payments made for the purchase of equipment in theChina operation.
Investment properties' net in
Property, plant and equipment increased by$2,589 from$8,481 as atJune 30, 2022 , to$11,070 as atDecember 31, 2022 , mainly due to the acquisition of new property, plant and equipment in theChina operations. The increase was partially offset by the depreciation charged for the period and the foreign currency exchange movement betweenJune 30, 2022 andDecember 31, 2022 .
Other assets increased by
Lines of credit was $nil as at
Accounts payable increased by$666 to$3,067 as atDecember 31, 2022 as compared to$2,401 as atJune 30, 2022 which was in line with the increase of sales and inventories. -38-
-------------------------------------------------------------------------------- Accrued expense increased by$803 to$6,807 as atDecember 31, 2022 , as compared to$6,004 as atJune 30, 2022 . The increase in accrued expense was mainly due to an increase in accruals relating to acquisition pf property, plant and equipment in theChina operations. There was no significant change in bank loans payable as it decreased by$48 to$1,696 as atDecember 31, 2022 , as compared to$1,744 as ofJune 30, 2022 . This was due to the repayments made in theMalaysia operations. Finance leases decreased by$67 to$170 as atDecember 31, 2022 , as compared to$237 as atJune 30, 2022 . This was due to the repayments made in theSingapore andMalaysia operations.
Operating lease right-of-use assets and the corresponding lease liability
decreased by
Other non-current liabilities increased by$1,144 to$1,172 as atDecember 31, 2022 , as compared to$28 as atJune 30, 2022 . The increase was mainly due to an increase in accruals relating to acquisition of property, plant and equipment in theChina operations where the payments term is more than 12 months. Liquidity Comparison Net cash provided by operating activities increased by$2,942 to an inflow of$3,779 for the six months endedDecember 31, 2022 , from an inflow of$837 for the same period of Fiscal 2022. The increase in net cash provided by operating activities was primarily due to an increase of$3,393 in cash inflow from changes in depreciation, other receivables, prepaid expense and other current assets and account payables and accrued expense in first half of Fiscal 2023 as compared to same period of Fiscal 2022. It was partially offset by an increase of$420 in cash outflow from changes in inventories and operating lease in first half of Fiscal 2023 as compared to same period of Fiscal 2022. Net cash provided by investing activities decreased by$4,270 to an outflow of$3,428 for the six months endedDecember 31, 2022 , from an inflow of$842 for the same period of Fiscal 2022. The increase in cash outflow was primarily due to an additions to property, plant and equipment of$3,994 . Net cash outflow from financing activities for the six months endedDecember 31, 2022 , was$1,032 , representing a decrease of$1,105 , as compared to cash inflow of$73 during the six months endedDecember 31, 2021 . The decrease was mainly attributable to a higher payment on lines of credit by$856 . OnMarch 1, 2022 , the Company's Registration Statement on Form S-3 (File No. 333-261485) was declared effective by theSEC , pursuant to which we may raise capital of$10,000,000 USD 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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