TRIO-TECH INTERNATIONAL 10-K

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. For purposes of this Management ’ s Discussion and Analysis within this Annual Report, all monetary amounts are stated in thousands except for par values and per share amounts, unless otherwise stated. Overview Our core business is and historically has been in the semiconductor industry, including manufacturing of test equipment, testing services, and distribution of test and other semiconductor equipment and electronic components. 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, and more. TTI provides comprehensive electrical, environmental, and burn-in testing services to semiconductor manufacturers in our testing laboratories. In addition to marketing our proprietary products, we distribute complementary products made by manufacturers around the world. We act as value-added resellers by enhancing the value of the distributed products by customizing them to the needs of our customers through our expert design, engineering and integration. We also support our customers as their extended research and development arm in product design, leveraging the expert skills of our component engineers and design engineers. During the years ended June 30, 2025 (“ Fiscal 2025 ”) and June 30, 2024 (“ Fiscal 2024 ”), Trio-Tech International revenue from Semiconductor Back-end Solutions and Industrial Electronics represented 67.7% and 32.2% of our revenue, respectively, as compared to 71.1% and 28.8% respectively, during Fiscal 2024. Revenue from the semiconductor industry, or our Semiconductor Back-end Solutions and Industrial Electronics segments, accounted for more than 99.9% of our total revenue for the years ended June 30, 2025 and 2024, respectively. 9 Table of Contents Fiscal 2025 Highlights ● Total revenue decreased by $5,839, or 14%, to $36,473 in Fiscal 2025, as compared to $42,312 in Fiscal 2024. ● SBS segment revenue decreased by $5,429, or 18%, to $24,682 in Fiscal 2025, as compared to $30,111 in Fiscal 2024. ● IE segment revenue decreased by $420 or 3% to $11,756 in Fiscal 2025, as compared to $12,176 in Fiscal 2024. ● Other segment revenue increased by $10 or 40% to $35 in Fiscal 2025, as compared to $25 in Fiscal 2024. ● Overall gross profit margin decreased by 0.3% to 25.1% in Fiscal 2025, as compared to 25.4% in Fiscal 2024. ● General and administrative expense decreased by $497 or 6% to $7,890 in Fiscal 2025 as compared to $8,387 in Fiscal 2024. ● Selling expense decreased by $126, or 15%, to $718 in Fiscal 2025, as compared to $844 in Fiscal 2024. ● Income from operations was $254 in Fiscal 2025, reflecting a decline of $839, as compared to income from operations of $1,093 in Fiscal 2024. ● Net other expense was $81 in Fiscal 2025, a shift of $617 as compared to net other income of $536 in Fiscal 2024. ● Income from continuing operations before income taxes was $173 in Fiscal 2025, reflecting a decline of $1,456 as compared to $1,629 in Fiscal 2024. ● Net loss attributable to TTI common shareholders for Fiscal 2025 was $41, as compared to net income of $1,050 in Fiscal 2024. ● Net income attributable to non-controlling interest for Fiscal 2025 was $41, as compared to net income of $92 in Fiscal 2024. ● Working capital increased by $2,537, or 11.1%, to $25,297 as of June 30, 2025, as compared to $22,760 as of June 30, 2024. The highlights above are intended to identify certain of the Company’s significant events and transactions during Fiscal 2025. These highlights are not intended to be a full discussion of our results for the year and should be read in conjunction with the discussion of these items in Item 7 and with our consolidated financial statements and footnotes accompanying this Annual Report. General Financial Information Total assets as of June 30, 2025 were $41,068, a decrease of $1,472, or 3.5%, compared to $42,540 as of June 30, 2024. The decrease was primarily due to an decrease in short term deposits, inventories and operating lease right-of-use assets. The decrease was partially offset by an increase in cash and cash equivalents, restricted term deposits, trade accounts receivables, other receivables and property, plant and equipment. Cash and cash equivalents totaled $10,890 as of June 30, 2025, an increase of $855, or 8.5%, compared to $10,035 as of June 30, 2024. The increase was due to favorable foreign exchange movements as SGD appreciated against USD, which resulted in higher USD equivalent value of Cash and cash equivalents as of June 30, 2025. The increase in cash and cash equivalents was offset by a decrease of $450, or 5.0% in short-term deposits and restricted term deposits, which as of June 30, 2025 were $8,568, as compared to $9,018 at June 30, 2024. The decrease in short-term deposits reflects strategic decision to retain a higher proportion of funds in one-month deposits for the purpose of maintaining sufficient liquidity. Trade account receivables as of June 30, 2025 was $10,804, an increase of $143 or 1.3%, compared to $10,661 as of June 30, 2024. The increase was due to higher sales in our Industrial Electronics segment's Singapore operations during the fourth fiscal quarter, partially offset by lower sales in our China operations. The number of days’ sales outstanding in account receivables was 106 days and 90 days for the years ended June 30, 2025 and 2024 respectively. Other receivables as of June 30, 2025 were $608, an increase of $67, or 12.4%, compared to $541 as of June 30, 2024. Other receivables mainly comprise of advance payments to creditors, indirect taxes refundable in Singapore and China operations and interest receivable from short term deposits. Inventories as of June 30, 2025 were $2,262, a decrease of $900, or 28.5%, compared to $3,162 as of June 30, 2024. The decrease was driven by order fulfillment in our Singapore operations, along with a reduced backlog, which led to lower inventory levels. The number of days’ inventory held was 88 days at the end of Fiscal 2025, compared to 96 days at the end of Fiscal 2024. 10 Table of Contents Prepaid expense as of June 30, 2025 were $384 as of June 30, 2025, compared to $536 as of June 30, 2024. The decrease was due to the amortization of rental expenses of our China operations during Fiscal 2025 relating to advance rental payments made as of June 30, 2024. Investment properties as of June 30, 2025 were $345, a decrease of $62 or 15.2% from $407 as of June 30, 2024. The decrease was attributable to the depreciation charged for the year. Property, plant and equipment as of June 30, 2025 was $6,021, an increase of $84 or 1.4% compared to $5,937 as of June 30, 2024. The increase was primarily attributed to higher capital expenditures and additions to property, plant and equipment, which was partially offset by depreciation of existing property, plant and equipment recorded during Fiscal 2025 between June 30, 2024 and June 30, 2025. Other assets as of June 30, 2025 were $231, a decrease of $1, or 0.4%, compared to $232 as of June 30, 2024. Total liabilities as of June 30, 2025 were $7,077, a decrease of $3,885, or 35.4%, compared to $10,962 as of June 30, 2024. The decrease in liabilities was primarily due to a decrease in accounts payable, accrued expense, contract liabilities, income tax payable, bank loans payable, operating and finance lease. Lines of credit as of June 30, 2025 were $141, an increase of $141, compared to nil as of June 30, 2024. The increase in the line of credit reflects borrowings to support working capital needs of IE segment in our Singapore operations in Fiscal 2025. Accounts payable as of June 30, 2025 were $1,896, a decrease of $1,279, or 40.3% from $3,175 as of June 30, 2024. The decrease reflects efforts to scale down purchases when sales slowed and inventory needs decreased. Accrued expense as of June 30, 2025 were $3,036, a decrease of $598, or 16.5% from $3,634 as of June 30, 2024. The decrease was mainly due to reduction in performance linked bonus provisions in Fiscal 2025. Income tax payable as of June 30, 2025 were $122, a decrease of $398, or 76.5% from $520 as of June 30, 2024. The decrease was mainly due to lower taxable profit in Fiscal 2025. Bank loans payable as of June 30, 2025 were $684, a decrease of $190 or 21.7% from $874 as of June 30, 2024. The decrease was due to the repayments made and no new loan arrangements entered during Fiscal 2025. Finance leases as of June 30, 2025 were $43, a decrease of $48 or 52.7% as compared to $91 as of June 30, 2024. The decrease was due to the repayments made in our Singapore and Malaysia operations. Other non-current liabilities as of June 30, 2025 were $31, an increase of $4 or 14.8% as compared to $27 as of June 30, 2024. Operating lease right-of-use assets and the corresponding lease liabilities as of June 30, 2025 were $864, a decrease of $1,023 or 54.2% as compared to $1,887 as of June 30, 2024. This was due to operating lease expense recognized for the period and partially driven by business model restructuring in one of our China operations, which reduced the need for space, resulting in a decrease in operating lease right-of-use assets and the corresponding lease liabilities. The decrease is partially offset by lease renewals for our Singapore office. 11 Table of Contents 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, which has generally resulted as a result of current U.S. economic and trade policies, 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. The Company maintains monetary assets and liabilities denominated in currencies other than its functional currency. At each reporting date, these items are remeasured into the functional currency at the period-end spot rate. Resulting unrealized foreign currency gains or losses are included in net income and reported as reconciling items in the statement of cash flows under the indirect method. Our operations in Singapore hold certain monetary assets, including U.S. dollar-denominated accounts receivable and cash balances. The weakening of the U.S. dollar against the Singapore dollar resulted in an unrealized foreign currency loss when these U.S. dollar balances were remeasured into Singapore dollars, which is the functional currency of the subsidiary. While such impacts affect reported earnings in the period, they are unrealized in nature and may reverse in future periods depending on exchange rate movements and the timing of settlement of these balances. 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. The U.S. tariff regime announced in April 2025 could potentially influence downstream demand variability among our customers. The policy's implementation remains uncertain—while the administration initially paused the tariffs, certain measures are now set to take effect in August 2025, with revised rates for some countries lower than originally proposed. While we have no direct significant exposure to these tariffs, secondary effects may arise if customers adjust their procurement strategies in response to trade policy changes. Based on our preliminary observations, demand appears to shift from China to other countries in the region. However, potential effects on macro demand in the future are far from clear, although we recognize the risk of revenue volatility should global demand continue to weaken due to the continued trade tensions between China and the U.S. and the potential that such continued trade tensions result in declining economic conditions. We continue to evaluate capacity adjustments in alignment with observable demand signals while maintaining operational flexibility to adapt to changing market conditions. As of June 30, 2025, 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, uncertainty regarding tariffs, 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. 12 Table of Contents 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 expense, 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 impairments. Due to the events listed above, 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 statements depend. 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 Credit Losses 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 accounts for allowance for credit losses under the current expected credit loss (“ CECL ”) impairment model for its financial assets, including accounts receivable, and presents the net amount of the financial instrument expected to be collected. The CECL impairment model requires an estimate of expected credit losses, measured over the contractual life of an instrument, which considers forecasts of future economic conditions in addition to information about past events and current conditions. Based on this model, the Company estimates the amount of uncollectible accounts receivable at the end of each reporting period based on the aging of the receivable balance, current and historical customer trends, communications with its customers, and macro-economic conditions. Amounts are written off after considerable collection efforts have been made and the amounts are determined to be uncollectible. Inventory Valuation Inventories of our SBS and IE segments, consisting principally of raw materials, works in progress, and finished goods, are stated at the lower of cost and net realizable value, using the first-in, first-out (“ FIFO ”) method. 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 sale ability and obsolescence. 13 Table of Contents 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, plant 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 follows Accounting Standards Update (“ ASU ”) No. 2014-09, Accounting Standards Codification (“ 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 in SBS and IE segment is recognized when services are rendered. Revenue generated from sale of products for both SBS and IE segments are recognized when persuasive evidence of an arrangement exists, delivery of the products has occurred, customer acceptance has been obtained (which means the control has 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 equipment sold in SBS and IE 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 obligations. 14 Table of Contents 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 a Variable Interest Entity (“ 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. 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 sheets 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 undiscounted cash flow analysis, if there is significant adverse change. We have not identified any changes in circumstances requiring further impairment test in Fiscal 2025. Our assessments established that the fair value of our primary assets continued to exceed their carrying amounts, resulting in no impairment charges for Fiscal 2025. 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 will perform impairment testing and recognize impairment charges accordingly. 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. 15 Table of Contents 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 expense 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. Accordin gly, a valuation allowance was provided as of June 30, 2025 and 2024. 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 judgment. 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: ● 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. ● 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. ● Expected Volatility . We base expected volatility on our historical information over a similar expected term. Non-controlling Interests in Consolidated Financial Statements ASC Topic 810, Consolidation (“ ASC Topic 810 ”) establishes accounting and reporting standards for the non-controlling interest in a subsidiary. This guidance requires that non-controlling interests in subsidiaries be reported in the equity section of the controlling company’s balance sheet. It also changes the way 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 require an excessive collection cost are written off to the allowance for losses. Interest Income Interest income on bank deposits and 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. 16 Table of Contents Recent Accounting Pronouncements In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) , Improvements to Income Tax Disclosures . The new guidance requires enhanced disclosures about income tax expense. This standard update is effective for the Company beginning in the fiscal year ending June 30, 2026. Early adoption is permitted on a prospective basis. The Company is currently evaluating the impact of this ASU on annual income tax disclosures. In November 2024, the FASB issued ASU 2024-03, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The new guidance requires improved disclosures about Company’s expenses. This standard update is effective for the Company for annual periods beginning in the fiscal year ending June 30, 2027 and interim period reports beginning in the first quarter of the fiscal year ending June 30, 2027. Early adoption is permitted on a retrospective basis. The Company is currently evaluating the impact of this ASU on expense disclosures. Other new pronouncements issued but not yet effective until after June 30, 2025 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 operations and comprehensive income as a percentage of net sales for Fiscal 2025 and 2024: For the Year Ended June 30, 2025 2024 Revenue 100.0 % 100.0 % Cost of sales 74.9 % 74.6 % Gross Margin 25.1 % 25.4 % Operating expense: General and administrative 21.6 % 19.9 % Selling 2.0 % 2.0 % Research and development 1.1 % 0.9 % (Gain) / Loss on disposal of property, plant and equipment (0.3 )% 0.1 % Total operating expense 24.4 % 22.9 % Income from Operations 0.7 % 2.5 % 17 Table of Contents Revenue Revenue comprises of mainly revenue from the SBS and IE segments. The components of revenue for Fiscal 2025 and 2024 were as follows: For the Year Ended June 30, 2025 2024 Semiconductor Back-end Solutions (SBS) 67.7 % 71.1 % Industrial Electronics (IE) 32.2 % 28.8 % Others 0.1 % 0.1 % Total 100 % 100 % Revenue during Fiscal 2025 was $36,473, a decrease of $5,839, or 14%, compared to $42,312 during Fiscal 2024. The decrease in revenue was primarily due to the decrease in sales from Testing services in the SBS segment amidst a challenging semiconductor market environment. Semiconductor Back-end Solutions (SBS) SBS segment accounted for 67.7% of revenue during Fiscal 2025, a decrease of 3.4% compared to 71.1% during Fiscal 2024. Revenue generated by the SBS segment during Fiscal 2025 was $24,682, reflecting a decrease of $5,429, or 18%, compared to $30,111 during Fiscal 2024. Persistent challenges in China operations, where revenue declines reflect both cyclical industry headwinds and lasting trade tension effects, continue to weigh on our SBS segment performance. Although the recovering demand in Malaysia and Thailand operations provided partial mitigation through Fiscal 2025, this has not yet fully offset China's shortfall. Notably, Singapore operations provided additional mitigation, with stronger fourth-quarter performance relative to earlier quarters of Fiscal 2025, to reduce the year-on-year revenue decline. While these are encouraging signs of recoveries from an industry cyclical downturn, we will continue to assess conditions with prudent optimism, balancing the sector's strong growth drivers with prudent risk management to navigate potential volatility. As of June 30, 2025 , the backlog in the SBS segment was $6,695, reflecting a decrease of $3,170 from $9,865 a s of June 30, 2024. The decline in the SBS segment backlog was driven by cyclical industry headwinds and prolonged trade tensions. Industrial Electronics (IE) Revenue generated by the IE segment accounted for 32.2% of total revenue during Fiscal 2025, an increase of 3.4% compared to 28.8% during Fiscal 2024. The Industrial Equipment (IE) segment experienced a rebound in revenue during the fourth quarter of Fiscal 2025, mitigating the year-over-year revenue decline. On a year-on-year basis, IE segment revenue for Fiscal 2025 was $11,756, reflecting a decrease of $420, or 3%, compared to $12,176 for Fiscal 2024, which was a meaningful improvement from the earlier quarters. This improvement was partly driven by the fulfilment of deferred orders from prior quarters, which had been delayed due to supply chain disruptions from principal suppliers and timing-related shifts in customer demand. In Fiscal 2025, the Company mitigated revenue volatility through service portfolio diversification and expanded into a new distribution channel for aviation products and projects, offsetting softer demand in existing markets. Our ability to deliver customized, value-added solutions has enabled us to capitalize on new partnership opportunities while strengthening market penetration for our proprietary product lines, including Highly Accelerated Stress Test (HAST) systems, bubble testers, centrifuges, and Artic systems. These strategic initiatives underscore our commitment to long-term growth and adaptability amid evolving market conditions. Backlog in the IE segment as of June 30, 2025 was $4,335, a decrease of $154, compared to $4,489 at June 30, 2024. The decline of backlog mainly attributable in equipment sales, driven by adverse macroeconomic conditions, was partially offset by an increase in backlog of component sales. The equipment and electronic components market is highly competitive, with commoditized products widely available. Our differentiation lies in our value-added distribution model, with enhancement of standard products through customized design, engineering, integration, and sub-assembly services tailored to customer specifications, securing a competitive advantage for the long term. 18 Table of Contents Gross Margin Gross margin as a percentage of revenue was 25.1% in Fiscal 2025, a decrease of 0.3% compared to 25.4% in Fiscal 2024. Overall gross profit for Fiscal 2025 was $9,144, a decrease of $1,618, or 15%, compared to $10,762 for Fiscal 2024. Gross margin as a percentage of revenue in the SBS segment was 27.4% in Fiscal 2025, a decrease of 0.5%, compared to 27.9% in Fiscal 2024. Despite the revenue contraction, gross profit margin demonstrated relative stability, primarily attributable to reduced cost of sales following the completion of asset depreciation cycles in our China operations during the first half of Fiscal 2025. Moving forward, the Company will maintain its focus on cost control initiatives to navigate the ongoing challenging demand environment. Gross profit for the SBS segment in Fiscal 2025 was $6,764, a decrease of $1,623 or 19.4%, compared to $8,387 in Fiscal 2024. The decrease in absolute dollar of gross profit is attributed to the decline in revenue. Gross margin as a percentage of revenue in the IE segment was 20.5% in Fiscal 2025, an increase of 0.5%, compared to 20.0% in Fiscal 2024. The IE segment's gross margin improvement resulted from a strategic shift toward higher-margin equipment sales, where a more favorable sales composition led to lower direct material costs and thereby reducing cost of sales during Fiscal 2025 as compared to Fiscal 2024 . Gross profit in the IE segment in Fiscal 2025 was $2,413 , a decrease of $18 , or 1% , compared to $2,431 in Fiscal 2024 . Operating Expense Operating expense for the years ended June 30, 2025 and 2024 was as follows: For the Year Ended June 30, 2025 2024 General and administrative $ 7,890 $ 8,387 Selling 718 844 Research and development 384 392 (Gain) / Loss on disposal of property, plant and equipment (102 ) 46 Total $ 8,890 $ 9,669 General and administrative expense was $7,890 in Fiscal 2025, a decrease of $497 or 6% from $8,387 in Fiscal 2024. The decrease in general and administrative expense was primarily driven by lower performance-related manpower costs across the Company, complemented by the continued execution of cost control initiatives in our China operations to enhance operational efficiency and optimize resource utilization. Selling expense was $718 in Fiscal 2025, a decrease of $126 or 15% compared to $844 in Fiscal 2024. The decrease in selling expense was primarily attributable to lower commission payments because of a decrease in commissionable revenue in Fiscal 2025 as compared to Fiscal 2024. 19 Table of Contents Income from Operations Income from operations was $254 in Fiscal 2025, a decrease of $839, compared to income from operations of $1,093 in Fiscal 2024. The decline was mainly due to the decrease in revenue in absolute dollar amounts. Interest Expense Interest expense for the years ended June 30, 2025 and 2024 was as follows: For the Year Ended June 30, 2025 2024 Interest expense $ 45 $ 77 Interest expense was $45 in Fiscal 2025, a decrease of $32 compared to $77 in Fiscal 2024 due to lower utilization of credit facilities and a reduction in outstanding loans over the period. The bank loans payable decreased by $190 to $684 in Fiscal 2025, as compared to $874 in Fiscal 2024 due to payments made. Other (Expense) / Income Other (expense) / income for the years ended June 30, 2025 and 2024 was as follows: For the Year Ended June 30, 2025 2024 Interest income $ 314 $ 370 Other rental income 138 127 Exchange loss (671 ) (74 ) Other miscellaneous income 38 77 Total $ (181 ) $ 500 During Fiscal 2025, the Company recorded other expense of $181, representing an unfavorable shift of $681 compared to other income of $500 in Fiscal 2024. This variance was primarily driven by foreign exchange losses, both realized and unrealized. During the second half of Fiscal 2025, the U.S. dollar weakened significantly against the Singapore dollar with the exchange rate fluctuating between approximately 1.35 to 1.28 Singapore dollar between January and June 2025. Given that our Singapore operations represent the Company's largest revenue contributor, this currency movement resulted in substantial foreign exchange losses, both from U.S. dollar denominated sales where customers payments were converted into Singapore dollar at lower rates (realized exchange losses) and outstanding U.S. dollar denominated monetary items in our balance sheet (unrealized exchange losses). Government Grant During Fiscal 2025, the Company received government grants amounting to $145, $82 of which was an incentive from the Singapore government for local resident recruitment, $48 from the U.S. government related to Employee Retention Credit (“ ERC ”) and the remaining $15 related to capital expenditure subsidy received from the government in China. During Fiscal 2024, the Company received government grants amounting to $113, $23 of which was financial assistance received from the Singapore government for local resident recruitment, $57 from the U.S. government related to ERC and the remaining related to capital expenditure subsidy received from the government in China. 20 Table of Contents Income Tax Expense Income tax expense for Fiscal 2025 was $168, representing a decrease of $318, as compared to income tax expense of $486 for Fiscal 2024. The decrease was primarily due to lower taxable income in Fiscal 2025 compared to Fiscal 2024. At June 30, 2025, the Company had no federal net operating loss carry-forwards, and a state net operating loss carry-forward of $2,384 , which expires in 2034. These carryovers may be subject to limitations under I.R.C. Section 382. In assessing the ability to realize the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on these criteria, management believes it is more likely than not the Company will not realize the benefits of the federal, state, and foreign deductible differences. Accordingly, a valuation allowance has been established against deferred tax assets recorded in the US and various foreign jurisdictions. Loss from Discontinued Operations Loss from discontinued operations was $5 in Fiscal 2025, compared to loss from discontinued operations of $4 in Fiscal 2024. The Company discontinued its fabrication segment in Fiscal 2013. Non-controlling Interest As of June 30, 2025, the Company held a 55% interest in each of Trio-Tech (Malaysia) Sdn. Bhd., SHI International Pte Ltd, and 52% interest in PT SHI Indonesia. We also held a 76% interest in Prestal Enterprise Sdn. Bhd. The share of non-controlling interest for Fiscal 2025, in the net income of subsidiaries, was $41, a decrease of $51 compared to a non-controlling interest in the net income of $92 for the previous fiscal year, due to the decrease in net income generated by the Company's China operations during Fiscal 2025 before the Company's acquisition of the remaining 49% of the equity interest in Trio-Tech (Jiangsu) Co. Ltd, resulting in the acquisition of all the equity interest in Trio-Tech (Jiangsu) Co. Ltd as of June 30, 2025. Net (Loss) / Income Attributable to Trio-Tech International Common Shareholders Net loss attributable to Trio-Tech International common shareholders for Fiscal 2025 was $41 compared to the net income attributable to Trio-Tech International common shareholders of $1,050 for Fiscal 2024 . The decline was mainly due to the decrease in revenue and gross margin in absolute dollar amounts, which was further exacerbated by exchange losses due to unfavorable foreign currency movements. (Loss) / Earnings per Share Basic loss per share from continuing operations was $0.01 in Fiscal 2025 , as compared to basic earnings per share of $0.25 in Fiscal 2024 . Basic earnings per share from discontinued operations was $nil for Fiscal 2025 and Fiscal 2024 . Diluted loss per share from continuing operations was $0.01 in Fiscal 2025 , as compared to diluted earnings per share $0.24 in Fiscal 2024 . Diluted earnings per share from discontinued operations was $nil for Fiscal 2025 and Fiscal 2024 . 21 Table of Contents Segment Information The revenue, gross margin and income/(loss) from each segment for the years ended June 30, 2025 and 2024 are presented below. As the segment revenue and gross margin for each segment has been discussed in previous sections, only the comparison of income/(loss) from operations is discussed below. Semiconductor Back-end Solutions (SBS) The revenue, gross margin and income from operations for the SBS segment for the years ended June 30, 2025 and 2024 were as follows: For the Year Ended June 30, 2025 2024 Revenue $ 24,682 $ 30,111 Gross margin 27.4 % 27.9 % Income from operations $ 411 $ 1,095 Income from operations in the SBS segment was $411 in Fiscal 2025, a decrease of $684, as compared to an income from operations of $1,095 in Fiscal 2024. The decrease in income from operations was mainly due to a decrease in revenue in absolute dollar amounts. Operating expense was $6,353 and $7,292 for Fiscal 2025 and 2024, respectively. The decrease in operating expense was mainly due t o lower performance based remunerations for Fiscal 2025 as compared to Fiscal 2024 . Industrial Electronics (IE) The revenue, gross margin and income from operations for the IE segment for the years ended June 30, 2025 and 2024 were as follows: For the Year Ended June 30, 2025 2024 Revenue $ 11,756 $ 12,176 Gross margin 20.5 % 20.0 % Income from operations $ 236 $ 509 Income from operations in the IE segment in Fiscal 2025 was $236, as compared to income from operations of $509 in Fiscal 2024. The decrease in income from operations was mainly due to a decrease in revenue in absolute dollar amounts. Operating expense was $2,177 and $1,922 for Fiscal 2025 and 2024, respectively. The increase of $255 in operating expense was drive n by higher travel costs from the pursuit of new business opportunities to expand into new markets, along with higher selling and distribution expenses from more agency commission payments, tied to higher proportion of commissionable revenue in the IE segment . 22 Table of Contents Corporate The loss from operations for corporate for the years ended June 30, 2025 and 2024, respectively: For the Year Ended June 30, 2025 2024 Loss from operations $ (393 ) $ (511 ) In Fiscal 2025, corporate operating loss was $393, as compared to $511 in Fiscal 2024. During Fiscal 2024, there was a one-off $307 incurred for professional fees associated with advisory services aimed at optimizing our portfolio and aligning our strategic focus. Liquidity Net cash provided by operating activities was $371 for the year ended June 30, 2025, a decrease of $2,346 as compared to $2,717 provided by operating activities for the prior year. The decrease in net cash provided by operating activities was primary due to lower net income of $1,142 in Fiscal 2025 compared to Fiscal 2024, partially offset by decrease in inventory. Higher payments to trade creditors by $2,661 further contributed to the decrease in net cash provided by operating activities. Net cash provided by investing activities was $167 for the year ended June 30, 2025, an increase of $280 as compared to $113 net cash used in investing activities for the prior year. The increase was primarily due to higher withdrawals from unrestricted deposits which was held for working capital purposes and also higher cash outflow for addition to property, plant and equipment amounting to $425. The decrease in cash usage in financing activities was mainly because the net cash outflow for lines of credit and bank loans amounted to $146 in Fiscal 2025, which was lower by $338 compared to $484 in Fiscal 2024. Cash generated from the proceeds from the exercise of stock options in Fiscal 2024 was $341 higher than Fiscal 2025. 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. 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. Working capital was $25,297 as of June 30, 2025, representing an increase of $2,537, or 11.1%, compared to working capital of $22,760 as of June 30, 2024. Th e increase i n working capital was mainly due to decreases in current liabilities, including accounts payable, accrued expense, contract liabilities, income taxes payable and operating leases. Such fluctuations were partially offset by decreases in current assets, including short-term deposits and prepaid expenses and increases in current liabilities, including lines of credit. 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 $967 an d $542 for the years ended June 30, 2025 and 2024, respectively. The capital expenditures in Fiscal 2025 were primarily for machinery & equipment in Singapore, Malaysia and Thailand operations and leasehold improvement in China and Singapore operations . We financed our capital expenditures and other operating expense through operating cash flows. Our credit rating provides us with ready and adequate access to funds in the global market. 23 Table of Contents As of June 30, 2025, the Company had certain lines of credit that are collateralized by restricted deposits. Entity with Type of Interest Credit Unused Facility Facility Rate Limitation Credit Trio-Tech International Pte. Ltd., Lines of Credit Cost of Funds Rate +1.25% $ 4,155 $ 3,856 Singapore Universal (Far East) Pte. Ltd. Lines of Credit Cost of Funds Rate +1.25% $ 1,960 $ 1,864 Trio-Tech Malaysia Sdn. Bhd. Revolving credit Cost of Funds Rate +2% $ 354 $ 354 As of June 30, 2024, the Company had certain lines of credit that are collateralized by restricted deposits. Entity with Type of Interest Credit Unused Facility Facility Rate Limitation Credit Trio-Tech International Pte. Ltd., Lines of Credit Cost of Funds Rate +1.25% $ 3,907 $ 3,626 Singapore Universal (Far East) Pte. Ltd. Lines of Credit Cost of Funds Rate +1.25% $ 1,843 $ 1,818 Trio-Tech Malaysia Sdn. Bhd. Revolving credit Cost of Funds Rate +2% $ 318 $ 318 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, revenue or expense, results of operations, liquidity, capital expenditures or capital resources. 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, as amended, we are not required to provide the information required by this item. 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 F-2 of this Annual Report. ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.