Trio-Tech International(TRT) - 2022 Q4 - Annual Report

Part I Item 1. Business Trio-Tech International operates primarily in the semiconductor industry across manufacturing, testing, and distribution segments, with a minor real estate component and significant customer concentration - The company operates in four segments: manufacturing, testing services, distribution, and real estate, with operations spanning the U.S. and Asia[17] - Revenue from the semiconductor industry (testing, manufacturing, distribution) constituted 99.9% of total revenue for fiscal years 2022 and 2021[20] - Strategic goals include market share expansion, geographic growth, new product development, and pursuing strategic relationships or acquisitions[23] - In fiscal 2022, sales to the top three customers represented approximately 65.9% of total net revenue, with one major customer contributing 40.3%[37] Backlog by Segment (in thousands) | Backlog by Segment (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Manufacturing | $6,977 | $5,040 | | Testing services | $5,698 | $3,775 | | Distribution | $4,687 | $4,648 | | Real estate | $101 | $40 | | Total | $17,463 | $13,503 | - As of June 30, 2022, the company employed approximately 740 full-time employees, with 732 in Asia and 8 in the U.S.[47] Item 1A. Risk Factors As a smaller reporting company, Trio-Tech is exempt from providing detailed risk factor disclosures - As a smaller reporting company under Rule 12b-2 of the Exchange Act, Trio-Tech is not required to provide Item 1A information[49] Item 2. Properties The company operates from owned and leased facilities across the U.S. and Asia, primarily for testing services, deemed adequate for foreseeable needs - The company owns testing facilities in Selangor, Malaysia (approx. 78,706 sq. ft.) and Bangkok, Thailand (approx. 34,433 sq. ft.)[53] - Leased properties in California, Singapore, and China support corporate, testing, and manufacturing operations, with lease expirations between 2022 and 2026[53] Item 3. Legal Proceedings The company faces routine litigation, but management anticipates no material adverse effect on financial statements, with no significant proceedings involving key personnel - Management asserts that current litigation claims and assessments will not materially and adversely affect the company's consolidated financial statements[54] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NYSE American under 'TRT', with no cash dividends declared in fiscal years 2021 or 2022 - The company's common stock is traded on the NYSE American under the symbol "TRT"[58] - No cash dividends were declared for the fiscal years ended June 30, 2022, or June 30, 2021[59] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2022 saw significant revenue growth to $44,065 thousand, a shift to $2,395 thousand net profit, improved gross margin, and strengthened financial position, with sufficient liquidity for the next 12 months Fiscal 2022 Highlights and Financial Condition Fiscal 2022 highlights include a 35.7% revenue increase to $44,065 thousand, a turnaround to $2,395 thousand net profit, and strengthened financial health with increased assets and working capital Key Financial Metrics (in thousands) | Key Financial Metrics (in thousands) | Fiscal 2022 | Fiscal 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $44,065 | $32,462 | 35.7% | | Gross Profit | $11,733 | $7,670 | 53.0% | | Gross Margin | 26.6% | 23.6% | +3.0 pts | | Profit / (Loss) from Operations | $2,353 | $(61) | N/A | | Net Profit / (Loss) Attributable to Trio-Tech | $2,395 | $(591) | N/A | - Total assets increased by 13.3% to $43,421 thousand, driven by increases in cash, trade receivables, and inventories[72] - Total liabilities increased by 25.8% to $15,419 thousand, primarily due to higher lines of credit and accrued expenses[79] - Working capital increased by 13.6% to $17,273 thousand as of June 30, 2022[71][169] Comparison of Operating Results Fiscal 2022 revenue grew 35.7% to $44,065 thousand, driven by strong Testing and Distribution segment performance, leading to improved gross margin and a $2,353 thousand operating profit Revenue by Segment (in thousands) | Revenue by Segment (in thousands) | Fiscal 2022 | Fiscal 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Manufacturing | $13,526 | $13,151 | 2.9% | | Testing Services | $19,477 | $13,846 | 40.7% | | Distribution | $11,037 | $5,437 | 103.0% | | Real Estate | $25 | $28 | -10.7% | | Total | $44,065 | $32,462 | 35.7% | Gross Margin by Segment (%) | Gross Margin by Segment (%) | Fiscal 2022 | Fiscal 2021 | | :--- | :--- | :--- | | Manufacturing | 25.0% | 25.4% | | Testing Services | 33.5% | 24.7% | | Distribution | 17.1% | 17.7% | | Real Estate | (212.0)% | (157.0)% | - General and administrative expenses increased to $8,361 thousand from $6,929 thousand, primarily due to higher stock option compensation and payroll expenses[142] Earnings/(Loss) per Share | Earnings/(Loss) per Share | Fiscal 2022 | Fiscal 2021 | | :--- | :--- | :--- | | Basic EPS from continuing operations | $0.61 | $(0.16) | | Diluted EPS from continuing operations | $0.57 | $(0.15) | Liquidity and Capital Resources The company's liquidity is strong, supported by $2,123 thousand in operating cash flow, $17,273 thousand working capital, and approximately $4,575 thousand in unused credit lines, sufficient for the next 12 months - Net cash provided by operating activities was $2,123 thousand for fiscal 2022, an increase from $1,638 thousand in the prior year[165] - Capital expenditures totaled $1,468 thousand in Fiscal 2022, up from $1,112 thousand in Fiscal 2021, primarily for testing services across Asia[170] Unused Credit Facilities (as of June 30, 2022, in thousands) | Unused Credit Facilities (as of June 30, 2022, in thousands) | Credit Limitation | Unused Credit | | :--- | :--- | :--- | | Trio-Tech International Pte. Ltd., Singapore | $4,090 | $3,651 | | Universal (Far East) Pte. Ltd., Singapore | $1,076 | $586 | | Trio-Tech Malaysia Sdn. Bhd., Malaysia | $338 | $338 | - An S-3 registration statement filed in December 2021 allows the company to potentially raise up to $10 million for capacity expansion and working capital[168] Item 9A. Controls and Procedures As of June 30, 2022, management concluded that disclosure controls and internal control over financial reporting were effective, with no material changes during Q4 FY2022 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[179] - Management concluded that internal controls over financial reporting were effective as of June 30, 2022, based on the COSO framework[180][184] - No material changes to internal control over financial reporting occurred during the fourth quarter of Fiscal 2022[185] Part III Items 10-14. Directors, Executive Compensation, Security Ownership, and Related Transactions Information for Items 10-14, covering directors, executive compensation, and security ownership, is incorporated by reference from the company's Proxy Statement - Information for Items 10-14 is incorporated by reference from the company's definitive Proxy Statement for its 2022 Annual Meeting of Shareholders[190] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists financial statements and exhibits filed with the Form 10-K, including governing documents, compensatory plans, and required certifications - The financial statements, including the independent auditors' report, are filed as part of the Annual Report[192] - Exhibits include Articles of Incorporation, Bylaws, stock plans, employment agreements, and required certifications[198] Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm Mazars LLP issued an unqualified opinion on the consolidated financial statements for FY2022 and FY2021, confirming fair presentation in conformity with U.S. GAAP and no critical audit matters - Mazars LLP provided an unqualified audit opinion on the company's consolidated financial statements[204] - The audit was conducted per PCAOB standards, with no critical audit matters identified[206][209] Consolidated Financial Statements This section presents the audited consolidated financial statements, including Balance Sheets, Statements of Operations, Shareholders' Equity, and Cash Flows for fiscal years 2022 and 2021 Balance Sheet Highlights (in thousands) | Balance Sheet Highlights (in thousands) | June 30, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Total Current Assets | $29,202 | $23,959 | | Total Assets | $43,421 | $38,306 | | Total Current Liabilities | $11,929 | $8,759 | | Total Liabilities | $15,419 | $12,253 | | Total Shareholders' Equity | $28,002 | $26,053 | Statement of Operations Highlights (in thousands) | Statement of Operations Highlights (in thousands) | Year Ended June 30, 2022 | Year Ended June 30, 2021 | | :--- | :--- | :--- | | Total Revenue | $44,065 | $32,462 | | Gross Margin | $11,733 | $7,670 | | Profit / (Loss) from Operations | $2,353 | $(61) | | Net Income / (Loss) | $2,299 | $(1,155) | | Net Income / (Loss) Attributable to Trio-Tech | $2,395 | $(591) | Cash Flow Highlights (in thousands) | Cash Flow Highlights (in thousands) | Year Ended June 30, 2022 | Year Ended June 30, 2021 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $2,123 | $1,638 | | Net Cash Used in Investing Activities | $(444) | $(567) | | Net Cash Provided by / (Used in) Financing Activities | $911 | $(2) | | Net Increase in Cash | $1,799 | $1,767 | Notes to Consolidated Financial Statements These notes provide detailed disclosures on accounting policies, segment performance, customer concentration, revenue recognition, leases, stock compensation, and a $1,580 thousand FY2021 impairment charge Note 9. Other Assets and Note 7. Investment Properties The company holds investment properties in China, generating $25 thousand rental income in FY2022, and recorded a $1,580 thousand impairment charge in FY2021 on a Chongqing property project - The company recorded a non-cash impairment charge of $1,580 thousand in Q4 fiscal 2021 due to doubtful recovery of a down payment on a Chongqing property project[110][309] - Investment properties in China generated rental income of $25 thousand in FY2022 and $28 thousand in FY2021[301] Note 16. Concentration of Customers The company faces significant customer concentration, with two major customers accounting for 40.3% and 19.4% of FY2022 revenue and substantial trade receivables Customer Concentration (%) | Customer Concentration (%) | 2022 | 2021 | | :--- | :--- | :--- | | Revenue | | | | - Customer A | 40.3% | 37.7% | | - Customer B | 19.4% | 9.7% | | Trade Account Receivables | | | | - Customer A | 36.0% | 34.7% | | - Customer B | 24.2% | 11.8% | Note 17. Business Segments Detailed segment performance for FY2022 shows Testing Services as the largest revenue contributor with a significant profit turnaround, strong growth in Distribution, and stable Manufacturing revenue with declining operating income Segment Performance (FY2022, in thousands) | Segment Performance (FY2022, in thousands) | Net Revenue | Operating Income (Loss) | Total Assets | Capital Expenditures | | :--- | :--- | :--- | :--- | :--- | | Manufacturing | $13,526 | $275 | $14,652 | $116 | | Testing Services | $19,477 | $1,313 | $25,148 | $1,351 | | Distribution | $11,037 | $1,525 | $1,740 | $- | | Real Estate | $25 | $(119) | $1,608 | $1 | | Corporate & Unallocated | $- | $(641) | $273 | $- | Note 24. Leases As of June 30, 2022, the company reported $3,152 thousand in operating lease right-of-use assets and $3,389 thousand in total lease liabilities, with weighted average remaining terms of 2.83 and 2.02 years for operating and finance leases, respectively Lease Balances (as of June 30, 2022, in thousands) | Lease Balances (as of June 30, 2022, in thousands) | Assets | Liabilities | | :--- | :--- | :--- | | Operating Leases | $3,152 | $3,152 | | Finance Leases | $548 | $237 | | Total | $3,700 | $3,389 |