Item 1. Business
ITEM 1 – BUSINESS
Cautionary Statement Regarding Forward-Looking Statements
The business and activities of Trio-Tech International, a California corporation (the “ Company ”) discussed in this Annual Report on Form 10-K (the “ Annual Report ”) 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 (the “ Exchange Act ”), 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 or 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 particularly in Asia, including currency fluctuations and devaluation, currency restrictions, local laws and restrictions and possible social, political and economic instability;
●
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,” “TTI,” the “Company,” “we,” “us” or the “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 Exchange Act, as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (the “ SEC ”). The SEC also maintains an internet site at www.sec.gov that contains such reports and statements that have been 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, 2024 (“ Fiscal 2024 ”), 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. Management periodically evaluates the ongoing contributions of each of its business segments to its current and future revenue and prospects. As a result, it may divest one or more business segments in the future to enable management to concentrate on segments where it anticipates opportunities for future revenue growth, thereby maximizing shareholder value.
1
Table of Contents
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 the U.S. and Asia. For information relating to revenue, 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 Annual Report.
Company History – Certain Highlights for the Five Fiscal Years Ended June 30, 2024
2020
Trio-Tech International recertified for BizSafe re-certification (March 2020)
2021
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. (Jul 2021)
Trio-Tech International Pte. Ltd. (Singapore) recertified to ISO 14001:2015 standards. (Jul 2021)
Trio-Tech (Malaysia) Sdn. Bhd. recertified to ISO 9001:2015 standards. (Jul 2021)
Trio-Tech (Malaysia) Sdn. Bhd. recertified to ISO 14001:2015 standards. (Jul 2021)
Trio-Tech (Bangkok) Co. Ltd. recertified to ISO 9001:2015 standards. (Jul 2021)
2022
Trio-Tech (Jiangsu) Co. Ltd was established. (Jan 2022)
2023
Trio-Tech (Jiangsu) Co. Ltd certified to ISO 9001:2015 standards. (Jun 2023)
2024
Trio-Tech (Tianjin) Co. Ltd. recertified to ISO 9001:2015 standards. (Mar 2024)
Trio-Tech (Tianjin) Co. Ltd. recertified to ISO 14001:2015 standards. (Mar 2024)
Trio-Tech (Tianjin) Co. Ltd. recertified to ISO 45001:2018 standards. (Mar 2024)
Overall Business Strategies
Our core business is, and historically has been, in the semiconductor industry, including our manufacturing of equipment segment (“ Manufacturing ”), our testing services segment (“ Testing ”) and our distribution of test and other semiconductor equipment and electronic components segment (“ Distribution ”). Revenue from the Manufacturing, Testing and Distribution segments accounted for 99.9% of our total revenue for the years ended June 30, 2024 and 2023, 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 decline in general economic conditions. To reduce our risks associated with sole industry focus and customer concentration, we continue to put effort into expanding our line of businesses. Management periodically evaluates the ongoing contributions of each of its business segments to its current and future revenue and prospects. As a result, it may divest one or more business segments in the future to enable management to concentrate on segments where it anticipates opportunities for future revenue growth, thereby maximizing shareholder value.
To achieve our strategic plan for our semiconductor business, we believe that we must pursue and win new business in the following areas:
• Primary markets – Capturing additional market share within our primary markets by offering superior products and services to address the needs of our major customers.
• Growing markets – Expanding our geographic reach in areas of the world with significant growth potential.
• New markets – Developing new products and technologies that serve wholly new markets.
• 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.
2
Table of Contents
Business Segments
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. Our customers include both manufacturers and end users of semiconductors 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 (“ Real Estate ”) segment generates rental income and investment income from real estate investments made 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 the U.S. and Singapore. Research and development expense was $392 and $397 for the years ended June 30, 2024 and 2023, 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 eighteen in foreign countries. All sales representatives represented the Testing and Manufacturing segments for products and services produced and provided from our facilities in different locations.
Customer Concentration
During the years ended June 30, 2024 and 2023, combined sales of equipment and services to our three largest customers accounted for approximately 49.5% and 59.4%, respectively, of our total net revenue. Of those sales, $8,700 (20.6%) and $14,595 (33.7%) of our total net revenue were from one major customer for the years ended June 30, 2024 and 2023, respectively. The majority of our sales and services in the years ended June 30, 2024 and 2023 were made or provided to customers outside of the U.S.
3
Table of Contents
Backlog
The following table sets forth the Company’s backlog as of June 30, 2024 and 2023:
For the Year Ended June 30,
2024
2023
Manufacturing backlog
$
5,944
$
8,056
Testing services backlog
5,342
5,402
Distribution backlog
3,068
3,882
Real estate backlog*
68
97
14,422
17,437
* Real estate backlog represents 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, purchase orders are provided only during the process of delivery. Hence, the backlog is based on estimates provided by our customers and not based on a customer’s purchase order.
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 is dependent 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.
Manufacturing
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. 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 which has helped us to establish and nurture long-term relationships with customers.
Testing
There are numerous testing laboratories located in the areas where we operate that perform testing similar to the testing that we offer. However, due to such competition in the industry, there has been a reduction in the total number of competitors in Asia. 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 competitors may challenge us at any time, we believe that other factors, including reputation, a long service history and strong customer relationships are instrumental in both maintaining and strengthening our position in the market.
Distribution
Our distribution segment sells a wide range of components and semiconductor equipment. While the semiconductor equipment industry is highly competitive, we offer the advantage of a one-stop service alternative for customers by complementing our products with design consultancy and other value-added services.
Patents
During the years ended June 30, 2024 and 2023, 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.
4
Table of Contents
Employees
As of June 30, 2024, we had approximately 673 full-time employees and three part-time employees. Geographically, approximately six full-time employees were located in the U.S. and approximately 667 full-time employees in Asia. None of our employees are represented by a labor union.
There were approximately 59 employees in the manufacturing segment, 582 employees in the testing services segment, three employees in the distribution segment, three employees in the real estate segment and 26 employees in general administration, logistics and others as of June 30, 2024.
As of June 30, 2023, we had approximately 573 full-time employees and no part-time employees. Geographically, approximately eight full-time employees were located in the U.S. and approximately 565 full-time employees in Asia. None of our employees are represented by a labor union.
There were approximately 56 employees in the manufacturing segment, 481 employees in the testing services segment, three employees in the distribution segment, three employees in the real estate segment and 30 employees in general administration, logistics and others as of June 30, 2023.
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.