Trio-Tech International: Form 10-Q for the period ended Dec 31, 2023

Overview

The following should be read in conjunction with the condensed consolidated financial statements and notes in Item I above and with the audited consolidated financial statements and notes, the information under the headings “Management’s discussion and analysis of financial condition and results of operations” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 (“Fiscal 2023”).

Trio-Tech International (“TTI”) was incorporated in 1958 under the laws of the State of California. As used herein, the term “Trio-Tech” or “Company” or “we” or “us” or “Registrant” includes Trio-Tech International and its subsidiaries unless the context otherwise indicates. Our mailing address and executive offices are located at Block 1008 Toa Payoh North, Unit 03-09 Singapore 318996, and our telephone number is (65) 6265 3300.

The Company is a provider of reliability test equipment and services to the semiconductor industry. Our customers rely on us to verify that their semiconductor components meet or exceed the rigorous reliability standards demanded for automotive electronics, industrial electronics, computing and data storage, consumer electronics, and communication markets. We act as a global one-stop solution for our customers by designing and building reliability test solutions and offering comprehensive testing services through our testing laboratories in Asia and the United States (“U.S.”).

During the six months ended December 31, 2023, TTI generated approximately 100% of its revenue from its three core business segments in the test and measurement industry, i.e., manufacturing of test equipment (“Manufacturing”), testing services (“Testing”) and distribution of test equipment and electronic components (“Distribution”). Management is currently evaluating the ongoing contributions of each of its business segments to its current and future revenue and prospects, including its Testing segment. As a result, it may divest one or more business segments in the future, including its testing segment, to enable management to concentrate on segments where it anticipates opportunities for future revenue growth, thereby maximizing shareholder value.

Manufacturing

TTI develops and manufactures an extensive range of test equipment used in the “front-end” and the “back-end” manufacturing processes of semiconductors. Our equipment includes leak detectors, autoclaves, centrifuges, burn-in systems and boards, HAST testers, temperature-controlled chucks, wet benches and more. We also act as an extended development team of Integrated Device Manufacturers (“IDMs”) and Fabless semiconductor companies in the testing process with our expert technical skills, especially in the New Product Introduction (“NPI”) process.

Testing

TTI provides comprehensive electrical, environmental, and burn-in testing services to semiconductor manufacturers in our testing laboratories in Asia and the U.S. Our customers include both manufacturers and end users of semiconductor and electronic components who look to us when they decide to outsource their testing process. We also support the asset-light strategy of our customers by setting up test facilities and providing component level, package level and system level testing services with expert technology that improves the productivity of our customers. The independent tests are performed to industry and customer specific standards.

Distribution

In addition to marketing our proprietary products, we distribute complementary products made by manufacturers around the world. The products include environmental chambers, mechanical shock and vibration testers, and other semiconductor equipment. We also distribute a wide range of components such as connectors, sockets, cables, LCD displays and touch screen panels. We act as value-added resellers by enhancing the value of the distributed products by customizing each to the needs of our customers through our expert engineering, integration, and sub-assembly services. We also support our customers as their extended research & development arm in product design, leveraging the expert skills of our component engineers and design engineers.

Real Estate

Our real estate segment generates rental income and investment income from real estate investments made in Chongqing, China.

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Critical Accounting Estimates & Policies

The preparation of our Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in applying our accounting policies that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base these estimates and assumptions on historical experience and evaluate them on an ongoing basis to ensure that they remain reasonable under current conditions. Actual results could differ from those estimates. We discuss the development and selection of the critical accounting estimates with the Audit Committee of our Board of Directors on a quarterly basis, and the Audit Committee has reviewed our related disclosure in this Quarterly Report on Form 10-Q.

There have been no material changes in our critical accounting estimates and policies since our Annual Report on Form 10-K for Fiscal 2023. Refer to Note 1 “Basis of Presentation and Summary of Significant Accounting Policies” to our Condensed Consolidated Financial Statements for additional details. In addition, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II, Item 7 of our Annual Report on Form 10-K for Fiscal 2023 for a complete description of our critical accounting policies and estimates.

Second Quarter Fiscal Year 2024 Highlights

• Total revenue decreased by $188, or 1.5%, to $12,202 in the second quarter of Fiscal 2024, compared to $12,390 for the same period in Fiscal 2023.
• Manufacturing segment revenue decreased by $254, or 5.0% to $4,790 for the second quarter of Fiscal 2024, compared to $5,044 for the same period in Fiscal 2023.
• Testing segment revenue decreased by $1,002, or 17.7%, to $4,646 for the second quarter of Fiscal 2024, compared to $5,648 for the same period in Fiscal 2023.
• Distribution segment revenue increased by $1,066, or 62.9%, to $2,760 for the second quarter of Fiscal 2024, compared to $1,694 for the same period in Fiscal 2023.
• Real estate segment rental revenue increased by $2, or 50.0% to $6 for the second quarter of Fiscal 2024, compared to $4 for the same period in Fiscal 2023.
• The overall gross profit margin decreased by 3.5% to 23.4% for the second quarter of Fiscal 2024, from 26.9% for the same period in Fiscal 2023.
• General and administrative expense decreased by $102, or 5.3%, to $1,817 for the second quarter of Fiscal 2024, from $1,919 for the same period in Fiscal 2023.
• Selling expense increased by $55, or 28.5%, to $248 for the second quarter of Fiscal 2024, from $193 for the same period in Fiscal 2023.
• Other expense decreased by $182, or 68.9%, to $82 for the second quarter of Fiscal 2024, from other expense of $264 for the same period in Fiscal 2023.
• Income from operations was $677 for the second quarter of Fiscal 2024, a decrease of $392 as compared to income from operations of $1,069 for the same period in Fiscal 2023.
• Income tax expense was $95 in the second quarter of Fiscal 2024, a decrease of $146 as compared to $241 in the same period in Fiscal 2023.
• During the second quarter of Fiscal 2024, income from continuing operations before non-controlling interest, net of tax was $482, as compared to income from continuing operations before non-controlling interest of $575 for the same period in Fiscal 2023.
• Net loss attributable to non-controlling interest for the second quarter of Fiscal 2024 was $21, a decrease of $79 as compared to net profit of $58 in the same period in Fiscal 2023.
• Basic earnings per share for the second quarter of Fiscal 2024 and Fiscal 2023 was $0.12.
• Diluted earnings per share for the second quarter of Fiscal 2024 and Fiscal 2023 was $0.12.
• Total assets increased by $4,412 to $46,598 as of December 31, 2023, compared to $42,186 as of June 30, 2023.
• Total liabilities increased by $2,455 to $15,070 as of December 31, 2023, compared to $12,615 as of June 30, 2023.

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Results of Operations and Business Outlook

The following table sets forth our revenue components for both three and six months ended December 31, 2023 and 2022.

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Revenue for the three and six months ended December 31, 2023, was $12,202 and $22,168, respectively, a decrease of $188 and $2,161, respectively, when compared to the revenue of $12,390 and $24,329 for the same period of Fiscal 2023. As a percentage, revenue decreased by 1.5% and 8.9% for the three and six months ended December 31, 2023, when compared to revenue for the same period of Fiscal 2023.

Revenue within our four current segments for the three and six months ended December 31, 2023, is discussed below.

Manufacturing Segment

Revenue in the Manufacturing segment as a percentage of total revenue was 39.3% and 34.6% for the three and six months ended December 31, 2023, respectively, a decrease of 1.4% and 0.9% of total revenue when compared to 40.7% and 35.5% in the same period of Fiscal 2023. The revenue decreased by $254 to $4,790 from $5,044 and decreased by $954 to $7,675 from $8,629 for the three and six months ended December 31, 2023, respectively.

Revenue in the Manufacturing segment has been on a downward trend since the beginning of the calendar year 2023 due to a decline in semiconductor industry capital spending. Demand recovery was noted in the first quarter of Fiscal 2024, resulting in a strong backlog in the Manufacturing segment. Part of these orders has been delivered in the quarter ended December 31, 2023, and the balance is expected to be delivered in the next two quarters.

During the three and six months ended December 31, 2023, one customer contributed 26.5% and 24.0%, respectively, to the total Manufacturing segment revenue.

Testing Segment

Revenue in the Testing segment as a percentage of total revenue was 38.1% for the three months ended December 31, 2023, representing a decrease of 7.5% compared to 45.6% in the same period of Fiscal 2023. Revenue in the Testing segment was 44.2% as a percentage of total revenue for the six months ended December 31, 2023, a decrease of 5.2% compared to the same period of Fiscal 2023. Total revenue decreased by $1,002 and $2,202 to $4,646 and $9,810 for the three and six months ended December 31, 2023, respectively, as compared to the same periods of Fiscal 2023.

The decrease in revenue in the Testing segment reflects the weak demand environment in the semiconductor industry in calendar year 2023.

The revenue in the Testing segment from one customer accounted for 34.1% and 40.9% of our revenue in the Testing segment for the three months ended December 31, 2023 and 2022, respectively, and 34.9% and 45.6% of our total revenue in the Testing segment for the six months ended December 31, 2023 and 2022, respectively. The future revenue in the Testing segment will be affected by the demands of this customer if the customer base cannot be increased. Demand for testing services varies from country to country, depending on any changes taking place in the market and our customers’ forecasts. As it is challenging to forecast fluctuations in the market accurately, management believes it is necessary to maintain testing facilities in close proximity to the customers in order to make it convenient for them to send us their newly manufactured parts for testing and to enable us to maintain a share of the market.

Distribution Segment

Revenue in the Distribution segment was 22.6% and 21.1% as a percentage of total revenue for the three and six months ended December 31, 2023, respectively, an increase of 8.9% and 6.0%, compared to the same period of Fiscal 2023. Total revenue increased by $1,066 to $2,760 and increased by $994 to $4,670 from $1,694 and $3,676 for the three and six months ended December 31, 2023, respectively, compared to the same period of Fiscal 2023.

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In the Distribution segment, there has been a demand recovery in the electronics components and display products from our customers compared to the same period of Fiscal 2023.

The revenue in the Distribution segment from one customer accounted for 84.7% and 78.9% of our revenue in the Distribution segment for the three months ended December 31, 2023 and 2022, respectively, and 84.0% and 82.5% of our total revenue in the Distribution segment for the six months ended December 31, 2023 and 2022, respectively. Demand for the Distribution segment varies depending on the demand for our customers’ products, the changes taking place in the market, and our customers’ forecasts. Hence it is difficult to forecast fluctuations in the market accurately.

Real Estate Segment

Revenue increased to $6 and $13 from $4 and $12 for the three and six months ended December 31, 2023, compared to the same period of Fiscal 2023. Our real estate (“Real Estate”) segment saw an increase in rental income due to occupancy in MaoYe properties.

Uncertainties and Remedies

There are several influencing factors which create uncertainties when forecasting performance, such as the changing nature of technology, specific customer requirements, decline in demand for certain types of burn-in devices or equipment, decline in demand for testing services and fabrication services, and other factors. One factor that influences uncertainty is the highly competitive nature of the semiconductor industry. Additionally, certain customers are unable to provide a forecast of the products required in the upcoming weeks, rendering it, difficult to plan adequate resources needed to meet these customers’ requirements because of short lead time and last-minute order confirmation. This will normally result in a lower margin for these products as it is often more expensive to purchase materials in a short time frame. However, the Company has taken certain actions and formulated certain plans to deal with and to help mitigate these unpredictable factors. For example, to meet manufacturing customers’ demands upon short notice, the Company maintains higher inventories but continues to work closely with its customers to avoid stockpiling. We believe that we have improved customer service through our efforts to keep our staff up to date on the newest technology and stressing the importance of understanding and meeting the stringent requirements of our customers. Finally, the Company is exploring new markets and products, looking for new customers, and upgrading and improving burn-in technology while at the same time searching for improved testing methods for higher technology chips.

The Company’s primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar-denominated sales and operating expense in its subsidiaries. Strengthening of the United States dollar (“U.S. Dollar”) relative to foreign currencies adversely affects the U.S. Dollar value of the Company’s foreign currency-denominated sales and earnings, and generally leads the Company to raise international pricing, potentially reducing demand for the Company’s products. Margins on sales of the Company’s products in foreign countries and on sales of products that include components obtained from foreign suppliers could be materially adversely affected by foreign currency exchange rate fluctuations. In some circumstances, for competitive or other reasons, the Company may decide not to raise local prices to fully offset the U.S. Dollar’s strengthening, or at all, which would adversely affect the U.S. Dollar value of the Company’s foreign currency-denominated sales and earnings. Conversely, a strengthening of foreign currencies relative to the U.S. Dollar, while generally beneficial to the Company’s foreign currency denominated sales and earnings, could cause the Company to reduce international pricing, thereby limiting the benefit. Additionally, strengthening of foreign currencies may also increase the Company’s cost of product components denominated in those currencies, thus adversely affecting gross margins.

As of December 2023, although we have seen improvements in both our operations and those of our suppliers, we may continue to experience supply shortages as well as inflationary cost pressures in at least the near term. Risks and uncertainties related to supply chain challenges, and inflationary pressures may continue to negatively impact our revenue and gross margin. We continue to monitor and evaluate the business impact to react proactively.

On August 9, 2022, the CHIPS and Science Act of 2022 (CHIPS Act) was enacted in the United States. The CHIPS Act will provide financial incentives to the semiconductor industry which are primarily directed at manufacturing activities within the U.S. We continue to evaluate the business impact and potential opportunities related to the CHIPS Act. As of date, we do not see any direct effect of the CHIPS Act on the Company in the foreseeable future.

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Comparison of the Three Months Ended December 31, 2023, and December 31, 2022

The following table sets forth certain consolidated statements of income data as a percentage of revenue for the three months ended December 31, 2023 and 2022 respectively:

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(Unaudited)

Overall Gross Margin

Overall gross margin as a percentage of revenue decreased by 3.5% to 23.4% for the three months ended December 31, 2023, from 26.9% for the same period of Fiscal 2023. Gross profits decreased by $481 to $2,854 for the three months ended December 31, 2023, from $3,335 for the same period in Fiscal 2023.

Gross profit margin as a percentage of revenue in the Manufacturing segment increased marginally by 1% to 24.7% for the three months ended December 31, 2023, as compared to 23.7% for the same period in Fiscal 2023. In absolute dollar amounts, gross profit in the Manufacturing segment for the three months ended December 31, 2023, was $1,181, indicating a decrease of $14, compared to $1,195 in the same period in Fiscal 2023. Gross profit margin as a percentage increased despite a decline in revenue due to a favourable sales mix.

Gross profit margin as a percentage of revenue in the Testing segment decreased by 8.3% to 25.4% for the three months ended December 31, 2023, compared to 33.7% in the same period in Fiscal 2023. The decrease in gross profit margin percentage was mainly due to lower volume across all test operations. A significant portion of the cost of sales in Testing segment are fixed costs. As the demand for services and factory utilization decrease, the fixed costs are spread over the decreased output, which decreases the gross profit margin. In absolute dollar amounts, gross profit in the Testing segment decreased by $719 to $1,182 for the three months ended December 31, 2023, from $1,901 for the same period in Fiscal 2023.

Gross profit margin of the Distribution segment is not only affected by the market price of the products we distribute, but also the mix of products we distribute, which frequently changes because of fluctuations in market demand. Gross profit margin as a percentage of revenue in the Distribution segment increased by 3.4% to 18.3% for the three months ended December 31, 2023, from 14.9% in the same period in Fiscal 2023. In absolute dollar amounts, gross profit in the Distribution segment for the three months ended December 31, 2023, was $504, indicating an increase of $251, compared to $253 in the same period in Fiscal 2023. The strong demand for electronics components and display products from our customers has contributed to the increase of gross profit margin.

In absolute dollar amounts, gross loss in the Real Estate segment was $13 for three months ended December 31, 2023, as compared to $14 for the same period in Fiscal 2023.

Operating Expense

Operating expense for the three months ended December 31, 2023 and 2022 was as follows:

(Unaudited)

(Unaudited)

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General and administrative expense decreased by $102, or 5.3%, from $1,919 to $1,817 for the three months ended December 31, 2023, compared to the same period in Fiscal 2023. The decrease in general and administrative expense was mainly attributable to the lower remuneration related expense resulting from the unfavorable financial performance compared to same period of Fiscal 2023.

Selling expense increased by $55, or 28.5%, from $193 to $248 for the three months ended December 31, 2023, compared to the same period in Fiscal 2023. The increase in selling expense was primarily attributable to an increase in commission costs in the Singapore and U.S. operations because of an increase in commissionable revenue, and an increase in travel costs due to increased business travel in the second quarter of Fiscal 2024, compared to the same quarter of Fiscal 2023.

Income from Operations

Income from operations was $677 for the three months ended December 31, 2023, a decrease of $392, compared to income of $1,069 from operations for the same period in Fiscal 2023. The decrease was mainly due to the decreased revenue and gross profit in absolute dollars amount in the Testing segment.

Interest Expense

Interest expense for the three months ended December 31, 2023 and 2022 was as follows:

(Unaudited)

(Unaudited)

Interest expense was $22 for the three months ended December 31, 2023, an increase of $12, or 120.0%, compared to $10 for the same period of Fiscal 2023 due to utilization of credit facilities. As of December 31, 2023, the Company had an unused line of credit of $5,256 as compared to $6,139 at December 31, 2022.

Other Expenses

Other expense for the three months ended December 31, 2023 and 2022 was as follows:

(Unaudited)

(Unaudited)

Other expense decreased by $182 from $264 to $82 for the three months ended December 31, 2023 compared to the same period in Fiscal 2023. The decrease was primarily contributed by lower negative foreign currency impact and an increase in interest income earned in the three months ended December 31, 2023 compared to the same period in Fiscal 2023.

Government Grant

(Unaudited)

(Unaudited)

In the three months ended December 31, 2023, the Company received government grants amounting to $4, related to capital expenditure subsidy received from the China government. During the same period in 2022, the Company received government grants amounting to $21, $17 of which was an incentive from the Singapore government for local resident recruitment, and the remaining $4 related to capital expenditure subsidy received from the China government.

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Income Tax Expense

The Company's income tax expense was $95 and $241 for the three months ended December 31, 2023, and 2022, respectively. Income tax expense decreased due to lower net income resulting from decrease in revenue discussed above.

Non-controlling Interest

As of December 31, 2023, we held a 55% interest in Trio-Tech (Malaysia) Sdn. Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd., and 52% interest in PT. SHI Indonesia. We also held a 76% interest in Prestal Enterprise Sdn. Bhd and 51% interest in Trio-tech JiangSu Co. Ltd. The share of non-controlling interest in the net loss from the subsidiaries for the three months ended December 31, 2023 was $21, a decrease of $79 compared to the share of non-controlling interest in the net income from the subsidiaries of $58 for the same period of Fiscal 2023. The decrease in the net income shared by non-controlling interest in the subsidiaries was attributable to the decrease in net income generated by the Company’s Malaysia and China operations.

Net Income Attributable to Trio-Tech International Common Shareholders

Net income attributable to Company’s common shareholders were $507 for both the three months ended December 31, 2023 and December 31, 2022.

Earnings per Share

Basic earnings per share from continuing operations were $0.12 for both the three months ended December 31, 2023 and December 31, 2022. Basic earnings per share from discontinued operations were $nil for both the three months ended December 31, 2023 and 2022.

Diluted earnings per share from continuing operations were $0.12 for both the three months ended December 31, 2023 and December 31, 2022. Diluted earnings per share from discontinued operations were $nil for both the three months ended December 31, 2023 and 2022.

Segment Information

The revenue, gross margin, and income / (loss) from operations for each segment during the first quarter of Fiscal 2024 and Fiscal 2023 are presented below. As the revenue and gross margin for each segment have been discussed in the previous section, only the comparison of income / (loss) from operations is discussed below.

Manufacturing Segment

The revenue, gross margin and income from operations for the Manufacturing segment for the three months ended December 31, 2023 and 2022 were as follows:

(Unaudited)

(Unaudited)

Income from operations from the Manufacturing segment was $191 compared to income from operations of $301 in the same period in Fiscal 2023. The decrease in income from operations was mainly due to an increase in operating expense. Operating expense was $990 and $892 for the three months ended December 31, 2023 and 2022, respectively. The increase in operating expense was mainly due to higher commission expense resulting from higher commissionable revenue, and an increase in travel and entertainment expense incurred in three months ended December 31, 2023 compared to same period in Fiscal 2023.

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Testing Segment

The revenue, gross margin, and (loss)/ income from operations for the Testing segment for the three months ended December 31, 2023 and 2022 were as follows:

(Unaudited)

(Unaudited)

Loss from operations in the Testing segment for the three months ended December 31, 2023, was $152, a decrease of $699 from income from operations of $547 in the same period in Fiscal 2023. The decrease was mainly attributable to a decrease in gross profit due to lower revenue. Operating expense was $1,334 and $1,354 for the three months ended December 31, 2023 and 2022, respectively.

Distribution Segment

The revenue, gross margin, and income from operations for the Distribution segment for the three months ended December 31, 2023 and 2022 were as follows:

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Income from operations in the Distribution segment for three months ended December 31, 2023 was $401, compared to $217 for the same period in Fiscal 2023. The increase of $184 was mainly due to an increase in gross profit margin. Operating expense was $103 and $36 for the three months ended December 31, 2023 and 2022, respectively. The increase in operating expense primarily resulted from an increase in business travel.

Real Estate Segment

The revenue, gross margin and loss from operations for the Real Estate segment for the three months ended December 31, 2023 and 2022 were as follows:

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Loss from operations in the Real Estate segment for the three months ended December 31, 2023, was $27 compared to $28 for the same period of Fiscal 2023. Operating expense was $14 for both the three months ended December 31, 2023 and 2022.

Corporate

The income from operations for corporate for the three months ended December 31, 2023, and 2022 was as follows:

(Unaudited)

(Unaudited)

Corporate operating income was $264 for the three months ended December 31, 2023, compared to profit of $32 in the same period in Fiscal 2023. Corporate expense is allocated to the four segments on a combination of factors involving revenue, manpower costs and fixed assets investments, except the Malaysia and China operations, which is calculated based on actual sales. Corporate operating income was higher for the three months ended December 31, 2023 since the allocation to the individual segments was based on budgeted corporate expense for the quarter. Any excess/under allocation to each segment is reviewed and adjusted over the last two quarters of the fiscal year.

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Comparison of the Six Months Ended December 31, 2023, and December 31, 2022

The following table sets forth certain consolidated statements of income data as a percentage of revenue for the six months ended December 31, 2023 and 2022, respectively:

Overall Gross Margin

Overall gross margin as a percentage of revenue decreased by 4.4% to 24.2% for the six months ended December 31, 2023, compared to 28.6% in the same period of Fiscal 2023. Gross profits decreased by $1,583 to $5,374 for the six months ended December 31, 2023, from $6,957 for the same period of Fiscal 2023.

Gross profit margin as a percentage of revenue in the Manufacturing segment increased marginally by 0.2% to 26.3% for the six months ended December 31, 2023, from 26.1% in the same period of Fiscal 2023. Gross profit in absolute value decreased by $238 to $2,017 for the six months ended December 31, 2023 compared to $2,255 for the same period of Fiscal 2023. The gross profit decrease was primarily due to a decrease in Manufacturing segment revenue in the six months ended December 31, 2023 compared to the same period of Fiscal 2023.

Gross profit margin as a percentage of revenue in the Testing segment decreased by 8.4% to 26.1% for the six months ended December 31, 2023, from 34.5% in the same period of Fiscal 2023. Gross profit in the Testing segment decreased by $1,577 to $2,562 for the six months ended December 31, 2023, from $4,139 for the same period of Fiscal 2023 due to lower margins in the Testing segment resulting from lower demand. The gross margin was negatively impacted by the decrease in revenue across all test operations where a significant portion of our cost of goods sold are fixed, and as the demand for services and factory utilization decrease, the fixed costs are spread over the decreased output, which reduces the gross profit margin.

Gross profit margin as a percentage of revenue in the Distribution segment was 17.5% for the six months ended December 31, 2023, compared to 16.0% in the same period of Fiscal 2023. Gross profit in the Distribution segment for the six months ended December 31, 2023, was $818, an increase of $231 compared to $587 in the same period of Fiscal 2023. The increase in gross profit was due to the increase in distribution sales, coupled with an increase in gross margin compared to the same period of Fiscal 2023.

Gross loss in the Real Estate segment decreased by $1 to $23 for the six months ended December 31, 2023, from $24 in the same period of Fiscal 2023.

Operating Expenses

Operating expense for the six months ended December 31, 2023 and 2022 was as follows:

(Unaudited)

(Unaudited)

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General and administrative expense decreased by $249, or 5.9%, from $4,224 to $3975 for the six months ended December 31, 2023, compared to the same period of Fiscal 2023. The decrease in general and administrative expense was mainly attributable to the implementation of the cost cutting initiative from Malaysia and China operation in view of lower testing demand, and lower remuneration related expense resulting from unfavorable financial performance in six months ended December 31, 2023.

Selling expense increased by $69, or 18.9%, for the six months ended December 31, 2023, from $366 to $435 compared to the same period of Fiscal 2023. The increase in selling expense was primarily attributable to an increase in commission because of an increase in commissionable revenue and increased business travel.

Income from Operations

Income from operations was $690 for the six months ended December 31, 2023, compared to $2,136 for the same period of Fiscal 2023. The decrease was mainly due to the decrease in revenue, coupled with a decrease in gross profit margin in the Testing segment, as discussed earlier.

Interest Expense

Interest expense for the six months ended December 31, 2023 and 2022 were as follows:

(Unaudited)

(Unaudited)

Interest expense decreased by $8 to $46 from $54 for the six months ended December 31, 2023, compared to the same period of Fiscal 2023.

Other Income / (Expenses)

Other income / (expense) for the six months ended December 31, 2023 and 2022 was as follows:

(Unaudited)

(Unaudited)

Other income for the six months ended December 31, 2023 was $114, a decrease of $220 compared to other expense of $106 for the same period of Fiscal 2023. The decrease was mainly contributed by lower negative foreign currency impact and an increase in interest income.

Government Grant

(Unaudited)

(Unaudited)

In the six months ended December 31, 2023, the Company received government grants amounting to $77, $16 of which was an incentive from the Singapore government for local resident recruitment, and the $57 from the U.S. government related to Employee Retention Credit (“ERC”). During the same period in 2022, the Company received government grants amounting to $42, with $10 from the Singapore government for Covid-19, $17 from the Singapore government for local resident recruitment and the remaining $15 related to capital expenditure subsidy received from the China government.

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Income Tax Expenses

Income tax expense for the six months ended December 31, 2023 was $132, a decrease of $334 compared to of $466 for the same period of Fiscal 2023. The decrease in income tax expense was primarily due to decrease in the taxable income across the Company in the six months ended December 31, 2023.

Non-controlling Interest

As of December 31, 2023, we held a 55% interest in Trio-Tech (Malaysia) Sdn. Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd., and 52% interest in PT. SHI Indonesia. We also held a 76% interest in Prestal Enterprise Sdn. Bhd and 51% interest in Trio-Tech JiangSu Co. Ltd. The net loss attributable to the non-controlling interest in these subsidiaries for the six months ended December 31, 2023, was $44, a change of $198, compared to a net income of $154 for the same period of Fiscal 2023. The decrease was attributable to the decrease in net income generated by the China operation.

Net Income Attributable to Trio-Tech International Common Shareholders

Net income was $751 for the six months ended December 31, 2023, a decrease of $638 compared to a net income of $1,389 for the same period of Fiscal 2023. The decrease was mainly due to the decrease in revenue and gross margin. However, the decrease was partially offset by a decrease in operating expense and other expense.

Earnings per Share

Basic earnings per share from continuing operations was $0.18 for the six months ended December 31, 2023, compared to $0.34 for the same period in Fiscal 2023. Basic earnings per share from discontinued operations were $nil for both the six months ended December 31, 2023 and 2022.

Diluted earnings per share from continuing operations was $0.17 for the six months ended December 31, 2023, compared to $0.33 for the same period of Fiscal 2023. Diluted earnings per share from discontinued operations were $nil for both the six months ended December 31, 2023 and 2022.

Segment Information

The revenue, gross profit margin, and income / (loss) from operations in each segment for the six months ended December 31, 2023 and 2022, respectively, are presented below. As the segment revenue and gross margin for each segment have been discussed in the previous section, only the comparison of income / (loss) from operations is discussed below.

Manufacturing Segment

The revenue, gross margin and income from operations for the Manufacturing segment for the six months ended December 31, 2023 and 2022 were as follows:

(Unaudited)

(Unaudited)

Income from operations from the Manufacturing segment was $149 for the six months ended December 31, 2023, a decrease of $328 as compared to $477 in the same period of Fiscal 2023 due to a decrease in gross profit resulting from lower revenue and an increase in operating expense. The Manufacturing segment's operating expense was $1,868 and $1,778 for the six months ended December 31, 2023 and 2022, respectively. The increase in operating expense of $92 was primarily attributable to an increase in commission expense because of an increase in commissionable revenue.

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Testing Segment

The revenue, gross margin and (loss) / income from operations for the Testing segment for the six months ended December 31, 2023 and 2022 were as follows:

(Unaudited)

(Unaudited)

Loss from operations in the Testing segment for the six months ended December 31, 2023, was $280, a decrease of $1,409 compared to an income from operations of $1,129 in the same period of Fiscal 2023 mainly due to lower gross profit resulting from lower revenue. The decrease in gross profit of $1,577 was partially offset by a decrease in operating expense of $169. Operating expense was $2,842 and $3,011 for the six months ended December 31, 2023 and 2022, respectively.

Distribution Segment

The revenue, gross margin and income from operations for the Distribution segment for the six months ended December 31, 2023 and 2022 were as follows:

(Unaudited)

(Unaudited)

Income from operations in the Distribution segment for the six months ended December 31, 2023 was $646, an increase of $164 compared to $482 in the same period of Fiscal 2023. The increase in operating income was primarily due to an increase in gross margin by $231, which was partially offset with an increase in operating expense of $66. Operating expense was $172 and $106 for the six months ended December 31, 2023 and 2022, respectively. The increase in operating expense was mainly contributed by increase in general and administrative expense by $48.

Real Estate Segment

The revenue, gross margin and loss from operations for the Real Estate segment for the six months ended December 31, 2023 and 2022 were as follows:

(Unaudited)

(Unaudited)

Loss from operations in the Real Estate segment for the six months ended December 31, 2023 was $53, an increase of $11 compared to $42 for the same period of Fiscal 2023. The increase in operating loss was mainly due to an increase in operating expense. Operating expense was $30 and $18 for the six months ended December 31, 2023 and 2022, respectively.

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Corporate

The income from operations for corporate for the six months ended December 31, 2023 and 2022 were as follows:

(Unaudited)

(Unaudited)

The improvement of $124 was mainly due to allocation of corporate expense to the individual segments was based on budgeted expense for the quarter as mentioned earlier. Any excess/under allocation to each segment is reviewed and adjusted over the last two quarters of the fiscal year. .

Financial Condition

During the six months ended December 31, 2023, total assets increased by $4,412 to $46,598 compared to $42,186 as of June 30, 2023. The increase was primarily due to an increase in inventories, cash and cash equivalents, other receivables, other assets, trade account receivable, deferred tax assets and restricted term deposits partially offset by a decrease in short term deposits, prepaid expense, assets held for sale and operating right-of-use assets.

Cash and cash equivalents were $10,966 at December 31, 2023, reflecting an increase of $3,383 from $7,583 as at June 30, 2023. This increase is attributed primarily due to cash generated from operations, and the collection of customer deposits in Singapore and China operations during the six months ended December 31, 2023.

Short-term deposits were $5,791 at December 31, 2023, reflecting a decrease of $836 from $6,627 as at June 30, 2023. The decrease was mainly attributed to the maturity of short-term deposits in the Singapore operation during the six months ended December 31, 2023 which is reflected in the cash and cash equivalents.

The trade accounts receivable balance as of December 31, 2023 increased by $2,584 to $12,388, from $9,804 as at June 30, 2023, primarily due to an increase in revenue from customers that have longer credit term in Singapore, Malaysia and China operations. The number of days’ sales outstanding in accounts receivables for the group was 116 days and 82 days at the end of the second quarter of Fiscal 2024 and the end of Fiscal 2023, respectively.

Other receivables at December 31, 2023, were $1,029, an increase of $90, compared to $939 as at June 30, 2023. The increase was mainly due to higher advance payments made to suppliers and refundable services taxes in the Singapore operation.

Inventories at December 31, 2023, were $3,546, an increase of $1,395, compared to $2,151 as at June 30, 2023. The increase in inventories mainly attributed to the increased backlog in the Manufacturing segment attributable to our Singapore operations which are expected to be delivered over the next quarter.

Prepaid expense was $589 at December 31, 2023 compared to $105 at June 30, 2023. This was mainly due to the prepayment for insurance, rental and software license fee.

Investment properties’ net in China was $461 at December 31, 2023 and $474 as at June 30, 2023. The decrease was primarily due to the foreign currency exchange movement between June 30, 2023 and December 31, 2023.

Property, plant and equipment decreased by $1,743 from $8,344 at June 30, 2023, to $6,601 as at December 31, 2023, mainly due to the depreciation charged for the period and the foreign currency exchange movement between June 30, 2023 and December 31, 2023.

Other assets increased by $53 to $169 as at December 31, 2023 compared to $116 at June 30, 2023. This was primarily due to an increase in utilities deposits in our Singapore operation.

Lines of credit increased to $384 at December 31, 2023 as compared to $Nil as at June 30, 2023. The increase in lines of credit was due to a drawdown of the lines of credit in our Singapore operation for working capital purposes.

Accounts payable increased by $685 to $2,345 at December 31, 2023, compared to $1,660 at June 30, 2023 which was in line with the increase in inventories.

Accrued expense increased by $215 to $4,506 at December 31, 2023, as compared to $4,291 at June 30, 2023. The increase in accrued expense was mainly due to an increase in the accrued purchases.

Contract liabilities increased by $2,531 to $3,808 at December 31, 2023 as compared to $1,277 at June 30, 2023 due to the increase in customers’ deposits received in the Singapore and China operations.

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Bank loans payable decreased by $215 to $1,137 at December 31, 2023, as compared to $1,352 as of June 30, 2023. The decrease in bank loans payable was mainly due to the repayment of bank loans in our Malaysia operations.

Finance leases decreased by $53 to $96 at December 31, 2023, as compared to $149 at June 30, 2023. This was due to the repayments of leases in our Singapore and Malaysia operations.

Operating lease right-of-use assets and the corresponding lease liability decreased by $250 to $2,359 at December 31, 2023, as compared to $2,609 at June 30, 2023. This was due to the repayment made and the operating lease expense charged for the period partially offset by a new lease arrangement entered by Malaysia operation.

Other non-current liabilities decreased by $564 to $30 as at December 31, 2022, as compared to $594 as at June 30, 2022. The decrease was mainly due to a decrease in accruals relating to acquisition of property, plant and equipment in the China operations. The remaining accrual has a term of less than 12 months as at December 31, 2022, thereby being reclassified to current liabilities.

Liquidity Comparison

Net cash used in operating activities decreased by $2,503 to an inflow of $1,276 for the six months ended December 31, 2023, from an inflow of $3,779 for the same period in Fiscal 2023. The decrease in net cash flow provided by operating activities was primarily due to lower net income generated of $693 compared to the same period of Fiscal 2023 and lower receipts from trade receivables and other receivables by $1,205, higher cash outflow for inventories by $521, lower prepaid expense by $459, and higher cash outflow from other non-current liabilities by $1,708. These are partially offset by lower cash outflow for accounts payables, accrued expense and contract liabilities of $1,809.

Net cash provided by investing activities increased by $4,564 to $1,136 for the six months ended December 31, 2023 compared with the same period in Fiscal 2023. The increase in cash inflow was primarily due to cash inflow of $634 from maturity of unrestricted term deposits coupled with lower capital expenditure of $3,836 for six months ended December 31, 2023.

Net cash provided by financing activities for the six months ended December 31, 2023, was $280, representing an increase of $1,312, compared to cash outflow of $1,032 during the six months ended December 31, 2022. The increase was mainly attributable to increase in utilization of lines of credit by $476 during the six months ended December 31, 2022. Furthermore, the Company also incurred higher cash outflow for settling lines of credit in the same period of Fiscal 2023.

The Company filed a shelf registration statement with the Securities and Exchange Commission, pursuant to which we may raise capital of $10,000,000 of any combination of securities (common stock, warrants, debt securities or units) for expansion of the Company’s testing capacity and working capital purposes if necessary.

An evaluation was carried out by the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2023, the end of the period covered by this Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective at a reasonable level.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the fiscal quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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TRIO-TECH INTERNATIONAL