EDGAR 10-K Filing

Company CIK: 732026
Filing Year: 2021
Filename: 732026_10-K_2021_0001654954-21-010701.json

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ITEM 1. BUSINESS
ITEM 1 - BUSINESS (IN THOUSANDS, EXCEPT PERCENTAGES AND SHARE AMOUNTS)
Cautionary Statement Regarding Forward-Looking Statements
The discussions of Trio-Tech International’s (the “Company”) business and activities set forth in this Form 10-K and in other past and future reports and announcements by the Company may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and assumptions regarding future activities and results of operations of the Company. In light of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the following factors, among others, could cause actual results to differ materially from those reflected in any forward-looking statements made by or on behalf of the Company: market acceptance of Company’s products and services; changing business conditions or technologies and volatility in the semiconductor industry, which could affect demand for the Company’s products and services; the impact of competition; problems with technology; product development schedules; delivery schedules; changes in military or commercial testing specifications which could affect the market for the Company’s products and services; difficulties in profitably integrating acquired businesses, if any, into the Company; risks associated with conducting business internationally and especially in Asia, including currency fluctuations and devaluation, currency restrictions, local laws and restrictions and possible social, political and economic instability; ongoing public health issues related to the COVID-19 pandemic; credit risks in the Chinese real estate industry; changes in macroeconomic conditions and credit market conditions; and other economic, financial and regulatory factors beyond the Company’s control. In some cases, you can identify forward-looking statements by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” “believes,” “can impact,” “continue,” or the negative thereof or other comparable terminology.
Unless otherwise required by law, the Company undertakes no obligation to update forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events. You are cautioned not to place undue reliance on such forward-looking statements.
General
Trio-Tech International was incorporated in 1958 under the laws of the State of California. As used herein, the term "Trio-Tech" or "Company” or “we” or “us” or “Registrant” includes Trio-Tech International and its subsidiaries unless the context otherwise indicates. The mailing address and executive offices are located at Block 1008 Toa Payoh North, Unit 03-09 Singapore 318996, Singapore, and the telephone number is (65) 6265-3300.
We make available through our website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and any amendments to those reports or statements filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. The SEC also maintains an internet site at www.sec.gov that contains such reports and statements filed electronically with the SEC by the Company. Additional information about Trio-Tech is available on our website at www. triotech.com.
During the fiscal year ended June 30, 2021, the Company operated its business in four segments: manufacturing, testing services, distribution and real estate. Geographically, the Company operates in the United States (“U.S.”), Singapore, Malaysia, Thailand and China. It operates six testing service facilities: one in the U.S. and five in Asia. It operates two manufacturing facilities: one in the U.S. and the other in Asia. Its real estate segment operates in Asia and its distribution segment operates primarily in Asia. Its major customers are concentrated in Asia and they are either semiconductor chip manufacturers or testing facilities that purchase testing equipment. For information relating to revenues, profit and loss and total assets for each of the segments, see Note 18 - Business Segments contained in the consolidated financial statements included in this Form 10-K.
Company History - Certain Highlights for the Five Fiscal Years Ended June 30, 2021
Trio-Tech International Pte. Ltd., Singapore, recertified to biz SAFE Level 3 Workplace Safety and Health standards.
Trio-Tech (Tianjin) Co. Ltd. recertified to ISO 9001:2015 standards. (Apr 2018).
Trio-Tech International Pte. Ltd. (Singapore) recertified to ISO 9001:2015 standards. (Jun 2018)
Trio-Tech (Malaysia) Sdn. Bhd. recertified to ISO 9001:2015 standards. (Jun 2018)
Trio-Tech (Bangkok) Co. Ltd. recertified to ISO 9001:2015 standards. (Jun 2018)
Trio-Tech International Pte. Ltd. (Singapore) recertified to ISO 14001:2015 standards. (Jun 2018)
Trio-Tech (Tianjin) Co. Ltd. recertified to ISO 14001:2015 standards. (Jul 2019)
Trio-Tech (Tianjin) Co. Ltd. recertified to OHSAS 18001:2007 standards. (Jul 2019)
Trio-Tech International certified to ISO 9001:2005 standards. (March 2020)
Trio-Tech (Tianjin) Co. Ltd. recertified to ISO 9001:2015 standards. (Mar 2021)
Trio-Tech (Tianjin) Co. Ltd. recertified to ISO 14001:2015 standards. (Mar 2021)
Trio-Tech (Tianjin) Co. Ltd. certified to ISO 45001:2018 standards. (Mar 2021)
Trio-Tech International Pte. Ltd. (Singapore) recertified to ISO 9001:2015 standards. (July 2021)
Trio-Tech International Pte. Ltd. (Singapore) recertified to ISO 14001:2015 standards. (July 2021)
Trio-Tech (Malaysia) Sdn. Bhd. recertified to ISO 9001:2015 standards. (July 2021)
Trio-Tech (Malaysia) Sdn. Bhd. recertified to ISO 14001:2015 standards. (July 2021)
Trio-Tech (Bangkok) Co. Ltd. recertified to ISO 9001:2015 standards. (July 2021)
Overall Business Strategies
Our core business is and historically has been in the semiconductor industry (testing services, manufacturing-assembly) manufacturing and distribution. Revenue from the semiconductor industry accounted for 99.9% and 99.8% of our total revenue for fiscal years 2021 and 2020 respectively. The semiconductor industry has experienced periods of rapid growth, but has also experienced downturns, often in connection with, or in anticipation of, maturing product cycles of both semiconductor companies’ and their customers’ products and declines in general economic conditions. To reduce our risks associated with sole industry focus and customer concentration, the Company continues to put effort into expanding its line of businesses. The Real Estate segment contributed only 0.1% and 0.2% to the total revenue for fiscal 2021 and 2020 respectively and has been an insignificant business operation since the property market in China has slowed down due to control measures in China to cool surging property prices.
To achieve our strategic plan for our semiconductor business, we believe that we must pursue and win new business in the following areas:
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Primary markets - Capturing additional market share within our primary markets by offering superior products and services to address the needs of our major customers.
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Growing markets - Expanding our geographic reach in areas of the world with significant growth potential.
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New markets - Developing new products and technologies that serve wholly new markets.
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Complementary strategic relationships - Through complementary acquisitions or similar arrangements, we believe we can expand our markets and strengthen our competitive position. As part of our growth strategy, the Company continues to selectively assess opportunities to develop strategic relationships, including acquisitions, investments and joint development projects with key partners and other businesses.
Business Segments
Testing Services
Our testing services are rendered to manufacturers and purchasers of semiconductors and other entities who either lack testing capabilities or whose in-house screening facilities are insufficient for testing devices in order for them to make sure that these products meet certain commercial specifications. Customers outsource their test services either to accommodate fluctuations in output or to benefit from economies that can be offered by third party service providers.
Our laboratories perform a variety of tests, including stabilization bake, thermal shock, temperature cycling, mechanical shock, constant acceleration, gross and fine leak tests, electrical testing, microprocessor equipment contract cleaning services, static and dynamic burn-in tests, reliability lab services and vibration testing. We also perform qualification testing, consisting of intense tests conducted on small samples of output from manufacturers who require qualification of their processes and devices.
We use our own proprietary equipment for certain burn-in, centrifugal and leak tests, and commercially available equipment for various other environmental tests. We conduct the majority of our testing operations in Asia with facilities in Singapore, Malaysia, Thailand and China, which have been certified to the relevant ISO quality management standards.
Manufacturing
We manufacture both front-end and back-end semiconductor test equipment and related peripherals at our facilities in Singapore and the U.S.
Front-End Products
Artic Temperature Controlled Wafer Chucks
Artic Temperature Controlled Wafer Chucks are used for test, characterization and failure analysis of semiconductor wafers and such other components at accurately controlled cold and hot temperatures. These systems provide excellent performance to meet the most demanding customer applications. Several unique mechanical design features provide excellent mechanical stability under high probing forces and across temperature ranges.
Wet Process Stations
Wet Process Stations are used for cleaning, rinsing and drying semiconductor wafers, flat panel display magnetic disks, and other microelectronic substrates. After the etching or deposition of integrated circuits, wafers are typically sent through a series of 100 to 300 additional processing steps. At many of these processing steps, the wafer is washed and dried using Wet Process Stations.
Back-End Products
Autoclaves and HAST (Highly Accelerated Stress Test) Equipment
We manufacture autoclaves, HAST systems and specialized test fixtures. Autoclaves provide pressurized, saturated vapor (100% relative humidity) test environments for fast and easy monitoring of integrated circuit manufacturing processes. HAST systems provide a fast and cost-effective alternative to conventional non-pressurized temperature and humidity testing.
Burn-in Equipment and Boards
We manufacture burn-in systems, burn-in boards and burn-in board test systems. Burn-in equipment is used to subject semiconductor devices to elevate temperatures while testing them electrically to identify early product failures and to assure long-term reliability. Burn-in boards are used to mount devices during high temperature environmental stressing tests.
We provide integrated burn-in automation solutions to improve products’ yield, reduce processing downtime and improve efficiency. In addition, we develop a cooling solution, which is used to cool or maintain the temperature of high power heat dissipation semiconductor devices.
Component Centrifuges and Leak Detection Equipment
We manufacture centrifuges that perform high speed constant acceleration to test the mechanical integrity of ceramic and other hermetically sealed semiconductor devices and electronic parts for high reliability and aerospace applications. Leak detection equipment is designed to detect leaks in hermetic packaging. The bubble tester is used for gross leak detection. A visual bubble trail will indicate when a device is defective.
Distribution
In addition to marketing our proprietary products, we distribute complementary products made by manufacturers mainly from the U.S., Europe, Taiwan, and Japan. The products include environmental chambers, handlers, interface systems, vibration systems, shaker systems, solderability testers and other semiconductor equipment. Besides equipment, we also distribute a wide range of components such as connectors, sockets, LCD display panels and touch-screen panels. Furthermore, our range of products are mainly targeted for industrial products, the life cycle of which can last from three years to seven years, rather than consumer products which have a shorter life cycle.
Real Estate
Beginning in 2007, TTI invested in real estate property in Chongqing, China, which has generated investment income from the rental revenue and investment returns from deemed loan receivables, which are classified as other income in the second quarter of fiscal 2015. The rental income is generated from the rental properties in MaoYe and FuLi in Chongqing, China.
Product Research and Development
We focus our research and development activities on improving and enhancing both product design and process technology. We conduct product and system research and development activities for our products in Singapore and the U.S. Research and development expenses were $357 and $355 in fiscal years 2021 and 2020, respectively.
Marketing, Distribution and Services
We market our products and services worldwide, directly and through independent sales representatives and our own marketing sales team. We have approximately five independent sales representatives operating in the U.S. and another twenty in various foreign countries. All sales representatives represented the testing services segment and the manufacturing segment for various products and services produced and provided from our facilities in different locations.
Dependence on Limited Number of Customers
In fiscal years 2021 and 2020, combined sales of equipment and services to our three largest customers accounted for approximately 55.5% and 60.3%, respectively, of our total net revenue. Of those sales, $12,208 (37.7%) and $13,229 (38.4%) of our total net revenue were from one major customer for fiscal years 2021 and 2020 respectively. Although the major customer is a U.S. company, the revenue generated from it was from facilities located outside of the U.S. The majority of our sales and services in fiscal years 2021 and 2020 were to customers outside of the U.S.
Backlog
The following table sets forth the Company's backlog at the dates indicated:
For the Year Ended
June 30,
Manufacturing backlog
$5,040
$5,010
Testing services backlog
3,775
2,915
Distribution backlog
4,648
1,409
Real estate backlog*
$13,503
$9,340
* Real estate backlog is based on the rental income from a non-cancellable lease.
Based on our past experience, we do not anticipate any significant cancellations or renegotiation of sales. The purchase orders for the manufacturing, testing services and distribution businesses generally require delivery within 12 months from the date of the purchase order and certain costs are incurred before delivery. In the event of a cancellation of a confirmed purchase order, we require our customers to reimburse us for all costs incurred. We do not anticipate any difficulties in meeting delivery schedules. For testing services, the backlog is based on estimates provided by our customers and is not based on a customer’s purchase order, as it is a practice that the purchase orders are provided only during the process of delivery.
Materials and Supplies
Our products are designed by our engineers and are assembled and tested at our facilities in the U.S., China and Singapore. We purchase all parts and certain components from outside vendors for assembly purposes. We have no written contracts with any of our key suppliers. As these parts and components are available from a variety of sources, we believe that the loss of any one of our suppliers would not have a material adverse effect on our results of operations taken as a whole.
Competition
Our ability to compete depends on our ability to develop, introduce and sell new products or enhanced versions of existing products on a timely basis and at competitive prices, while reducing our costs.
There are numerous testing laboratories in the areas where we operate that perform a range of testing services similar to those, we offer. However, due to severe competition in the Asia testing and burn-in services industry there has been a reduction in the total number of competitors. The existence of competing laboratories and the purchase of testing equipment by semiconductor manufacturers and users are potential threats to our future testing services revenue and earnings. Although these laboratories and new competitors may challenge us at any time, we believe that other factors, including reputation, long service history and strong customer relationships, are instrumental in determining our position in the market.
The distribution segment sells a wide range of equipment to be used for testing products. As the semiconductor equipment industry is highly competitive, we offer a one-stop service alternative to customers by complementing our products with design consultancy and other value-added services.
The principal competitive factors in the manufacturing industry include product performance, reliability, service and technical support, product improvements, price, established relationships with customers and product familiarity. We make every effort to compete favorably with respect to each of these factors. Although we have competitors for our various products, we believe that our products compete favorably with respect to each of the above factors. We have been in business for more than 60 years and have operation facilities mostly located in Asia. Those factors combined have helped us to establish and nurture long-term relationships with customers and will allow us to continue doing business with our existing customers upon their relocation to other regions where we have a local presence or are able to reach.
Patents
In fiscal years 2021 and 2020, we did not register any patents within the U.S.
It is typical in the semiconductor industry to receive notices from time to time alleging infringement of patents or other intellectual property rights of others. We do not believe that we infringe on the intellectual property rights of any others. However, should any claims be brought against us, the cost of litigating such claims and any damages could materially and adversely affect our business, financial condition, and results of operations.
Employees
As of June 30, 2021, we had approximately 501 full time employees and no part time employees. Geographically, approximately seven full time employees were located in the U.S. and approximately 494 full time employees in Asia. None of our employees are represented by a labor union.
There were approximately sixty-two employees in the manufacturing segment, 404 employees in the testing services segment, four employees in the distribution segment, three employees in the real estate segment and twenty-eight employees in general administration, logistics and others.

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ITEM 1A. RISK FACTORS
ITEM 1A - RISK FACTORS
As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, we are not required to provide the information required by this item.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B - UNRESOLVED STAFF COMMENTS
Not applicable.

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ITEM 2. PROPERTIES
ITEM 2 - PROPERTIES
As of the date of filing of this Form 10-K, we believe that our existing facilities are adequate and suitable to cover any sudden increase in our needs in the foreseeable future.
The following table presents the relevant information regarding the location and general character of our principal manufacturing and testing facilities:
Location
Segment
Approx. Sq. Ft.
Occupied
Owned (O) or Leased (L)
& Expiration Date
16139 Wyandotte Street, Van Nuys,
CA 91406,
United States of America
Corporate, Testing Services / Manufacturing
5,200
(L) Mar 2023
1004, Toa Payoh North, Singapore
Unit No. HEX 07-01/07
Testing Services
6,864
(L) Sep 2025
Unit No. HEX 07-01/07, (ancillary site)
Testing Services
2,532
(L) Sep 2025
Unit No. HEX 03-01/02/03
Testing Services / Manufacturing
2,959
(L) Sep 2025
Unit No. HEX 01-08/15
Testing Services / Manufacturing / Logistics Store
6,864
(L) Jan 2023
Unit No. HEX 01-08/15, (ancillary site)
Testing Services / Manufacturing
(L) Jan 2023
Unit No. HEX 07-10/11
Testing Services / Manufacturing
1,953
(L) Dec 2021
1008, Toa Payoh North, Singapore
Unit No. HEX 03-09/17
Manufacturing
6,099
(L) Jan 2023
Unit No. HEX 03-09/17, (ancillary site)
Manufacturing
(L) Jan 2023
Unit No. HEX 01-09/10/11
Manufacturing
2,202
(L) Nov 2023
Unit No. HEX 01-15/16
Manufacturing
1,400
(L) Sep 2023
Unit No. HEX 01-08
Manufacturing
(L) Sep 2023
Unit No. HEX 01-12/14
Manufacturing
1,664
(L) Jul 2022
Lot No. 11A, Jalan SS8/2,
Sungai Way Free Industrial Zone,
47300 Petaling Jaya,
Selangor Darul Ehsan, Malaysia
Testing Services
78,706
(O)
4809-3-35,CBD Perdana 2
Persiaran Flora Cyber 12
63000 Cyberjaya
Manufacturing
(L) May 2022
327, Chalongkrung Road,
Lamplathew, Lat Krabang,
Bangkok 10520, Thailand
Testing Services
34,433
(O)
No. 5, Xing Han Street, Block A
#04-15/16, Suzhou Industrial Park
China 215021
Testing Services
6,200
(L) Jan 2022
27-05, Huang Jin Fu Pan.
No. 26 Huang Jin Qiao Street
Hechuan District Chongqing
China 401520
Real Estate
(L) Aug 2023
B7-2, Xiqing Economic Development Area International Industrial Park
Tianjin City, China 300385
Testing Services
45,940
(L) April 2026

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3 - LEGAL PROCEEDINGS
The Company is, from time to time, the subject of litigation claims and assessments arising out of matters occurring in its normal business operations. In the opinion of management, resolution of these matters will not have a material adverse effect on our consolidated financial statements.
There are no material proceedings to which any director, officer or affiliate of the Company, any beneficial owner of more than five percent of the Company’s Common Stock, or any associate of such person, is a party that is adverse to the Company or its properties.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Common Stock is traded on the NYSE American exchange under the symbol “TRT.”
As of September 1, 2021, there were 3,913,055 shares of our Common Stock issued and outstanding, and the Company had approximately fifty six record holders of Common Stock. The number of holders of record does not include the number of persons whose stock is in nominee or “street name” accounts through brokers.
Dividend Policy
We did not declare any cash dividends in either fiscal year 2021 or fiscal year 2020.
The determination as to whether to pay any future cash dividends will depend upon our earnings and financial position at that time and other factors as the Board of Directors may deem appropriate. In general, California law prohibits the payment of dividends unless the corporation’s retained earnings prior to the dividend equals or exceeds the dividend or, immediately after payment of the dividends, the corporation’s assets would equal or exceed its total liabilities. There is no assurance that dividends will be paid to holders of Common Stock in the foreseeable future.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6 - [RESERVED]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
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.
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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.
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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.
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Real estate segment revenue decreased by $34 to $28 in fiscal year 2021 compared to $62 in fiscal year 2020.
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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).
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Selling expenses decreased by $233, or 34.3%, to $446 for fiscal year 2021 compared to $679 in fiscal year 2020.
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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.
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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.
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The net other income increased by $29 to $363 in fiscal year 2021 compared to $334 in fiscal year 2020.
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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)
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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.
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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:
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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.
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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.
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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,
(Restated)
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,
(Restated)
General and administrative
$6,938
$7,064
Selling
Research and development
Impairment loss on long-lived assets
-
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
Exchange loss
(69)
(35)
Bad debt recovery/ (expense)
(59)
Extinguishment of PPP loan
-
Dividend income
-
Other miscellaneous income
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,
(Restated)
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
Expiration
Credit
Unused
Facility
Facility
Rate
Date
Limitation
Credit
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
Expiration
Credit
Unused
Facility
Facility
Rate
Date
Limitation
Credit
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.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, we are not required to provide the information required by this item.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is included in the Company's consolidated financial statements beginning on page of this Annual Report on Form 10-K.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A - CONTROLS AND PROCEDURES
An evaluation was carried out by the Company’s Chief Executive Officer and Chief Financial Officer (the principal executive and principal financial officers, respectively, of the Company) of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of June 30, 2021, the end of the period covered by this Form 10-K. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2021.
Additionally, management has the responsibility for establishing and maintaining adequate internal control over financial reporting for the Company and thus also assessed the effectiveness of our internal controls over financial reporting as of June 30, 2021. Management used the framework set forth in the report entitled “Internal Control - Integrated Framework” published by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 to evaluate the effectiveness of the Company’s internal control over financial reporting.
Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purpose in accordance with U.S. generally accepted accounting principles, and includes those policies and procedures that:
1. Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and
3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, and use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, the risk.
Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s internal controls over financial reporting were effective as of June 30, 2021.
Changes in Internal Control Over Financial Reporting
Except as discussed below, there has been no change in the Company’s internal control over financial reporting during the fourth quarter of Fiscal 2021, which were identified in connection with management’s evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Change in Technical Accounting Consultant
Effective Q4 FY21, we have hired a technical accounting consultant believed to possess expert knowledge on GAAP reporting to perform review on matters that are assessed to be complex, subjective and judgemental and at the management’s discretion. We expect the new consultant to further strengthen our internal financial controls that support accurate and reliable financial reporting.
Enterprise Resource Planning (ERP) Implementation
We are in the process of implementing an ERP System, as part of a multi-year plan to integrate and upgrade our systems and processes. The implementation of this ERP system was scheduled to occur in phases over a few years. The operational and financial systems in our Singapore and Malaysia operations were transitioned to the new system in fiscal 2018 and fiscal 2019, respectively.
The operational and financial systems in our Tianjin and Suzhou operations were fully transitioned to the new system during the second quarter of fiscal 2021. This implementation effort will continue until the Company's consolidation process is substantially automated using the new system in fiscal 2022.
As a phased implementation of this system occurs, we are experiencing certain changes to our processes and procedures which, in turn, result in changes to our internal control over financial reporting. While we expect the new ERP system to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as processes and procedures in each of the affected areas evolve.

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ITEM 9B. OTHER INFORMATION
ITEM 9B - OTHER INFORMATION
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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ITEM 11. EXECUTIVE COMPENSATION

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1 and 2)
FINANCIAL STATEMENTS AND SCHEDULES:
The following financial statements, including notes thereto and the independent auditors' report with respect thereto, are filed as part of this Annual Report on Form 10-K, starting on page 34 hereof:
1.
Report of Independent Registered Public Accounting Firm
2.
Consolidated Balance Sheets
3.
Consolidated Statements of Operations and Comprehensive Income (Loss)
4.
Consolidated Statements of Shareholders' Equity
5.
Consolidated Statements of Cash Flows
6.
Notes to Consolidated Financial Statements
(b)
The exhibits filed as part of this Annual Report on Form 10K are set forth on the Exhibit Index immediately preceding such exhibits, and are incorporated herein by reference.