##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the Transition Period fromto
 Commission File Number 1-14523
 TRIO-TECH INTERNATIONAL
  California
    
    95-2086631(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)14731 Califa StreetVan Nuys, California
    
    91411(Address of principal executive offices)
    
    (Zip Code)
 818-787-7000
 þ o
 o o þ
 o þ




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##### 



TRIO-TECH INTERNATIONAL
INDEX TO CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURES
 PagePart I. Financial InformationItem 1.
    
    Financial StatementsConsolidated Balance Sheets as of December 31, 2005 (Unaudited) and June 30, 2005
    
    
    3Consolidated Statements of Operations and Comprehensive Income (loss) for the Three and Six Months
Ended December 31, 2005 (Unaudited) and December 31, 2004 (Unaudited)
    
    
    4Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2005 (Unaudited) and
December 31, 2004 (Unaudited)
    
    
    5Notes to Consolidated Financial Statements (Unaudited)
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    34Item 4.
    
    Controls and Procedures
    
    
    35Part II. Other
InformationItem 1.
    
    Legal Proceedings
    
    
    36Item 1A.
    
    Risk Factors
    
    
    36Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 3.
    
    Defaults upon Senior Securities
    
    
    36Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    36Item 5.
    
    Other Information
    
    
    37Item 6.
    
    Exhibits
    
    
    37Signatures
    
    
    
    
    38EX-31.1EX-31.2EX-32




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##### Table of Contents



TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT NUMBER OF SHARES)
 Dec 31,
    
    
    June 30,2005
    
    
    2005(Unaudited)ASSETSCURRENT ASSETS:Cash
    
    $
    7,034
    
    
    $
    1,439Short-term deposits
    
    
    6,627
    
    
    
    3,211Trade accounts receivable, less allowance for doubtful accounts
of $190 and $147, respectively
    
    
    3,853
    
    
    
    4,178Other receivables
    
    
    327
    
    
    
    142Inventories, less provision for obsolete inventory
of $429 and $428, respectively
    
    
    1,253
    
    
    
    1,584Prepaid expenses and other current assets
    
    
    258
    
    
    
    76Total current assets
    
    
    19,352
    
    
    
    10,630PROPERTY, PLANT AND EQUIPMENT, Net
    
    
    6,912
    
    
    
    7,176OTHER INTANGIBLE ASSETS, Net
    
    
    339
    
    
    
    386OTHER ASSETS
    
    
    139
    
    
    
    138ADVANCES TO SELLER
    
    
    153
    
    
    
    15TOTAL ASSETS
    
    $
    26,895
    
    
    $
    18,345LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Lines of credit
    
    $
    259
    
    
    $
    336Accounts payable
    
    
    1,343
    
    
    
    1,681Dividends payable
    
    
    1,608
    
    
    
    Accrued expenses
    
    
    3,286
    
    
    
    2,598Income tax payable
    
    
    239
    
    
    
    168Current portion of notes payable
    
    
    882
    
    
    
    655Current portion of capital leases
    
    
    110
    
    
    
    123Current portion of deferred tax liabilities
    
    
    278
    
    
    
    275Total current liabilities
    
    
    8,005
    
    
    
    5,836NOTES PAYABLE, net of current portion
    
    
    899
    
    
    
    634CAPITAL LEASES, net of current portion
    
    
    155
    
    
    
    110DEFERRED TAX LIABILITIES
    
    
    413
    
    
    
    407TOTAL LIABILITIES
    
    
    9,472
    
    
    
    6,987MINORITY INTEREST
    
    
    2,027
    
    
    
    2,061SHAREHOLDERS EQUITY:Common stock; no par value, 15,000,000 shares authorized;
3,051,242 shares issued and outstanding as at Dec.
31, 2005, and 2,976,042 shares issued and outstanding as at Jun.
30, 2005, and
    
    
    9,786
    
    
    
    9,554Paid-in capital
    
    
    328
    
    
    
    284Accumulated retained earnings (deficit)
    
    
    6,271
    
    
    
    (298
    )Accumulated other comprehensive loss-translation adjustments
    
    
    (989
    )
    
    
    (243
    )Total shareholders equity
    
    
    15,396
    
    
    
    9,297TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    $
    26,895
    
    
    $
    18,345
 See notes to condensed consolidated financial statements.
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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 (UNAUDITED, IN THOUSANDS, EXCEPT EARNINGS (LOSS) PER SHARE)
 Six Months Ended
    
    
    Three Months EndedDec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)NET SALES- PRODUCT SALES
    
    $
    5,870
    
    
    $
    7,836
    
    
    $
    3,710
    
    
    $
    2,879- SERVICES
    
    
    7,260
    
    
    
    5,440
    
    
    
    3,715
    
    
    
    2,65413,130
    
    
    
    13,276
    
    
    
    7,425
    
    
    
    5,533COST OF SALES- COST OF GOODS SOLD
    
    
    4,915
    
    
    
    6,428
    
    
    
    3,220
    
    
    
    2,362- COSTS OF SERVICES RENDERED
    
    
    4,525
    
    
    
    3,655
    
    
    
    2,339
    
    
    
    1,8859,440
    
    
    
    10,083
    
    
    
    5,559
    
    
    
    4,247GROSS PROFIT
    
    
    3,690
    
    
    
    3,193
    
    
    
    1,866
    
    
    
    1,286OPERATING EXPENSESGeneral and administrative
    
    
    2,577
    
    
    
    2,368
    
    
    
    1,288
    
    
    
    1,130Director and officer bonuses
    
    
    705
    
    
    
    9
    
    
    
    705
    
    
    
    (10
    )Selling
    
    
    515
    
    
    
    550
    
    
    
    230
    
    
    
    281Research and development
    
    
    33
    
    
    
    56
    
    
    
    16
    
    
    
    23Impairment Loss
    
    
    15
    
    
    
    1
    
    
    
    
    
    
    
    Total
    
    
    3,845
    
    
    
    2,984
    
    
    
    2,239
    
    
    
    1,424(LOSS) INCOME FROM OPERATIONS
    
    
    (155
    )
    
    
    209
    
    
    
    (373
    )
    
    
    (138
    )OTHER INCOME (EXPENSE)Interest expense
    
    
    (74
    )
    
    
    (86
    )
    
    
    (38
    )
    
    
    (55
    )Other income
    
    
    112
    
    
    
    42
    
    
    
    82
    
    
    
    (12
    )Total
    
    
    38
    
    
    
    (44
    )
    
    
    44
    
    
    
    (67
    )(LOSS) INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES
    
    
    (117
    )
    
    
    165
    
    
    
    (329
    )
    
    
    (205
    )INCOME TAXES
    
    
    184
    
    
    
    51
    
    
    
    112
    
    
    
    (60
    )(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST
    
    
    (301
    )
    
    
    114
    
    
    
    (441
    )
    
    
    (145
    )MINORITY INTEREST
    
    
    19
    
    
    
    21
    
    
    
    (5
    )
    
    
    34(LOSS) INCOME FROM CONTINUING OPERATIONS
    
    
    (282
    )
    
    
    135
    
    
    
    (446
    )
    
    
    (111
    )DISCONTINUED OPERATION (NOTE 9)INCOME FROM DISCONTINUED OPERATION
    
    
    8,459
    
    
    
    2
    
    
    
    8,837
    
    
    
    11NET INCOME (LOSS)
    
    $
    8,177
    
    
    $
    137
    
    
    $
    8,391
    
    
    $
    (100
    )BASIC EARNINGS (LOSS) PER SHAREBasic (loss) earnings per share from Continuing operations
    
    $
    (0.09
    )
    
    $
    0.05
    
    
    $
    (0.15
    )
    
    $
    (0.03
    )Basic earnings per share from Discontinued operation
    
    
    2.80
    
    
    
    0.00
    
    
    
    2.91
    
    
    
    0.00Basic earnings (loss) per share from Net income (loss)
    
    $
    2.71
    
    
    $
    0.05
    
    
    $
    2.76
    
    
    $
    (0.03
    )DILUTED EARNINGS (LOSS) PER SHAREDiluted (loss) earnings per share from Continuing operations
    
    $
    (0.09
    )
    
    $
    0.04
    
    
    $
    (0.15
    )
    
    $
    (0.03
    )Diluted earnings per share from Discontinued operation
    
    
    2.80
    
    
    
    0.00
    
    
    
    2.91
    
    
    
    0.00Diluted earnings (loss) per share from Net income (loss)
    
    $
    2.71
    
    
    $
    0.04
    
    
    $
    2.76
    
    
    $
    (0.03
    )WEIGHTED AVERAGE NUMBER OF COMMON AND
POTENTIAL COMMON SHARES OUTSTANDINGBasic
    
    
    3,016
    
    
    
    2,965
    
    
    
    3,038
    
    
    
    2,966Diluted
    
    
    3,016
    
    
    
    3,065
    
    
    
    3,038
    
    
    
    2,966COMPREHENSIVE INCOME (LOSS):Net income (loss)
    
    $
    8,177
    
    
    $
    137
    
    
    $
    8,391
    
    
    $
    (100
    )Foreign currency translation adjustment
    
    
    (746
    )
    
    
    278
    
    
    
    (766
    )
    
    
    240COMPREHENSIVE INCOME
    
    $
    7,431
    
    
    $
    415
    
    
    $
    7,625
    
    
    $
    140
 See notes to condensed consolidated financial statements.
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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)
 Six Months EndedDec 31,
    
    
    Dec 31,2005
    
    
    2004(unaudited)
    
    
    (unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    8,177
    
    
    $
    137Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation and amortization
    
    
    792
    
    
    
    707Bad debt expense, net
    
    
    48
    
    
    
    34Inventory provision
    
    
    1
    
    
    
    Interest income on short-term deposits
    
    
    (79
    )
    
    
    (24
    )Impairment loss
    
    
    15
    
    
    
    1Stock compensation
    
    
    44
    
    
    
    Gain from sales of property  discontinued operation
    
    
    (8,909
    )
    
    
    Deferred tax provision
    
    
    8
    
    
    
    45Minority interest
    
    
    (19
    )
    
    
    (21
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    277
    
    
    
    183Other receivables
    
    
    (185
    )
    
    
    (269
    )Other assets
    
    
    
    
    
    
    (81
    )Inventories
    
    
    330
    
    
    
    (410
    )Prepaid expenses and other current assets
    
    
    (182
    )
    
    
    (48
    )Accounts payable and accrued expenses
    
    
    350
    
    
    
    (554
    )Income tax payable
    
    
    71
    
    
    
    9Net cash provided by (used in) operating activities
    
    
    739
    
    
    
    (291
    )CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from maturing short-term deposits
    
    
    6,576
    
    
    
    3,354Investments in short-term deposits
    
    
    (9,913
    )
    
    
    (1,408
    )Capital expenditures
    
    
    (704
    )
    
    
    (1,197
    )Acquisition of business in Malaysia
    
    
    
    
    
    
    (1,126
    )Proceeds from sale of property  discontinued operation
    
    
    8,401
    
    
    
    Proceeds from sale of equipment
    
    
    
    
    
    
    201Advances to seller
    
    
    (138
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    4,222
    
    
    
    (176
    )
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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)
 Six Months EndedDec 31,
    
    
    Dec 31,2005
    
    
    2004(unaudited)
    
    
    (unaudited)CASH FLOWS FROM FINANCING ACTIVITIES:Net payments and borrowings on lines of credit
    
    
    (77
    )
    
    
    178Principal payments of debt and capital leases
    
    
    (501
    )
    
    
    (385
    )Proceeds from long-term debt
    
    
    1,025
    
    
    
    430Dividends paid to minority interest
    
    
    (27
    )
    
    
    (53
    )Cash received from stock options exercised
    
    
    232
    
    
    
    5Net cash provided by financing activities
    
    
    652
    
    
    
    175EFFECT OF CHANGES IN EXCHANGE RATES
    
    
    (18
    )
    
    
    61NET INCREASE (DECREASE) IN CASH
    
    
    5,595
    
    
    
    (231
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    1,439
    
    
    
    1,357CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    7,034
    
    
    $
    1,126SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid during the period for:Interest
    
    $
    77
    
    
    $
    93Income taxes
    
    $
    2,071
    
    
    $
    97NON-CASH INVESTING AND FINANCING ACTIVITIESCapitalization of property, plant and equipment paid in advance
    
    $
    
    
    
    $
    368Deposit for the acquisition of business in Malaysia paid in advance
    
    $
    
    
    
    $
    92Declaration of cash dividends to be paid
    
    $
    1,608
    
    
    $
    
 See notes to condensed consolidated financial statements.
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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AND NUMBER OF
SHARES)
 1.
    
    ORGANIZATION AND BASIS OF PRESENTATION
 Trio-Tech International (the Company or TTI hereafter) was incorporated in 1958 under the
laws of the State of California. TTI provides third-party semiconductor testing and burn-in
services primarily through its laboratories in Southeast Asia; in addition, TTI operates test
facilities in the United States. The Company also designs, develops, manufactures and
markets a broad range of equipment and systems used in the manufacturing and testing of
semiconductor devices and electronic components. TTI conducts business in three industry
segments: Testing Services, Manufacturing and Distribution. TTI has subsidiaries located in
the U.S., Ireland, Singapore, Malaysia, Thailand and China as follows:
 Ownership
    
    LocationExpress Test Corporation (Dormant)
    
    100%
    
    Van Nuys, CaliforniaTrio-Tech Reliability Services (Dormant)
    
    100%
    
    Van Nuys, CaliforniaKTS Incorporated, dba Universal Systems (Dormant)
    
    100%
    
    Van Nuys, CaliforniaEuropean Electronic Test Centre
    
    100%
    
    Dublin, Ireland(Operation ceased on November 1, 2005)Trio-Tech International Pte. Ltd.
    
    100%
    
    SingaporeUniversal (Far East) Pte. Ltd.
    
    100%
    
    SingaporeTrio-Tech Thailand
    
    100%
    
    Bangkok, ThailandTrio-Tech Bangkok
    
    100%
    
    Bangkok, ThailandTrio-Tech Malaysia
    
    55%
    
    Penang and Selangor,MalaysiaTrio-Tech Kuala Lumpur  100% owned by
    
    55%
    
    Selangor, MalaysiaTrio-Tech MalaysiaPrestal Enterprise Sdn. Bhd.
    
    76%
    
    Selangor, MalaysiaTrio-Tech (Suzhou) Co. Ltd.
    
    100%
    
    Suzhou, China
 The accompanying unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. All significant inter-company
accounts and transactions have been eliminated in consolidation. The unaudited consolidated
financial statements are presented in U.S. dollars. The accompanying financial statements do
not include all the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for fair presentation have
been included. Operating results for the six months ended December 31, 2005 are not
necessarily indicative of the results that may be expected for the fiscal year ending June
30, 2006. For further information, refer to the consolidated financial statements and
footnotes thereto included in the Companys annual report for the fiscal year ended June 30,
2005.
 2.
    
    INVENTORIES
 Inventories consist of the following:
 Dec. 31,
    
    
    June 30,2005
    
    
    2005(Unaudited)Raw materials
    
    $
    837
    
    
    $
    842Work in progress
    
    
    636
    
    
    
    608Finished goods
    
    
    209
    
    
    
    562Less: provision for obsolete inventory
    
    
    (429
    )
    
    
    (428
    )$
    1,253
    
    
    $
    1,584
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3.
    
    STOCK OPTIONS
 As of December 31, 2005, the Company has two share-based compensation plans, which are
described below. The Company historically adopted the APB No. 25 approach  intrinsic value
method  and presented the pro forma information in line with the requirements of SFAS No.
123. Historically, the stock based compensation cost has been charged against income, which
was $0, $0, and $14 (related to directors option plan) for the fiscal years ended June 30,
2005, 2004 and 2003, respectively. There was no income tax benefit related to share-based
compensation for the fiscal years ended June 30, 2005, 2004, and 2003, respectively, as the
Company did not claim a deduction for corporate income tax purpose.
 Effective July 1, 2005, the Company adopted the fair value recognition provisions of
Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 123R, Share-Based Payments, using the modified prospective application method.
Under this transition method, compensation cost recognized during the six months ended
December 31, 2005 includes the applicable amounts of: (a) compensation cost of all
share-based payments granted prior to, but not yet vested as of, July 1, 2005 (based on the
grant-date fair value estimated in accordance with the original provisions of SFAS No. 123)
and (b) compensation cost for all share-based payments granted subsequent to July 1, 2005
(based on the grant-date fair value estimated in accordance with the new provisions of SFAS
No. 123R). Amortization of unrecognized fair value of the non-vested options as of July 1,
2005 was $7 and $3 for the six months and three months ended December 31, 2005, respectively.
Options to purchase 30,000 shares of the Companys common stock were issued on July 7, 2005
under the Directors Plan. The fair value of 30,000 shares of the Companys common stock
issuable upon exercise of stock options granted under the Directors Plan was $34 disclosed in
Form 10-Q for the quarter ended September 30, 2005. No shares were issued under 1998 Stock
Option Plan for the six months ended December 31, 2005. On November 14, 2005, an option to
purchase 750 shares of the Companys common stock was issued to a consultant in connection
with his services rendered to the Company and the stock options were not issued pursuant to
the 1998 Stock Option Plan of the Company or the Directors Stock Option Plan. The exercise
price under the option was $2.66, which was lower than the fair market value of the stock on
the grant date of the option. The option was exercisable immediately upon grant. The fair
value of the 750 shares of the Companys common stock issuable upon exercise of such option
was approximately $2 based on the value at $2.92 per share determined by the Black Scholes
option pricing model.
 Assumptions
 The disclosure of the above fair value for these awards was estimated using the Black-Scholes
option pricing model with the assumptions listed below:
 Six monthsEnded
    
    Years EndedDecember 31,
    
    June 30,
    
    June 30,
    
    June 30,2005
    
    2005
    
    2004
    
    2003Expected Volatility
    
    
    49.50  51.12
    %
    
    
    33.5 - 36.8
    %
    
    
    41.9
    %
    
    
    37.2
    %Weighted average volatility
    
    
    49.54
    %
    
    
    33.9
    %
    
    
    41.9
    %
    
    
    37.2
    %Risk free interest rate
    
    
    3.71  4.50
    %
    
    
    2.89  3.27
    %
    
    
    2.76
    %
    
    
    2.27 - 2.93
    %Expected terms (years)
    
    
    2.00
    
    
    
    2.00
    
    
    
    2.00
    
    
    
    2.00
 The expected volatilities are based on the historical volatility of the Companys stock. The
observation is made on a weekly basis. The observation period covered is consistent with the
expected terms of options. The expected terms of stock options are based on the average
vesting period on a basis consistent with the historical experience of the similar option
grants. The risk-free rate is consistent with the expected terms of stock option and based on
the U.S. Treasury yield curve in effect at the time of grant.
 1998 Stock Option Plan
 The Companys 1998 Stock Option Plan (the 1998 Plan), which is shareholder-approved,
permits the grant of stock options to its employees of up to 300,000 shares of common stock.
The Company believes that such awards better align the interests of its employees with those
of its shareholders. Option awards are generally granted with an exercise price equal to the
market price of the Companys stock at the date of grant. These options have a five-year
contractual life term. Awards vest over four years; with 25% generally vesting on the grant
date, and the balance vesting in equal installments on the next three succeeding
anniversaries of the grant date. The share-based compensation will be
 8




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amortized based on accelerated method over the four periods. Certain option awards provide
for accelerated vesting if there is a change in control (as defined in the Plan).
 A summary of option activities under the 1998 Plan during the six months of fiscal 2006 ended
December 31, 2005 is presented as follows:
 Weighted Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicStock Options
    
    Shares
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at July 1, 2005
    
    
    165,000
    
    
    $
    3.44Granted
    
    
    
    
    
    
    Exercised
    
    
    (59,450
    )
    
    
    3.07Expired
    
    
    (22,000
    )
    
    
    5.40Outstanding at December 31, 2005
    
    
    83,550
    
    
    $
    2.95
    
    
    
    2.00
    
    
    $
    199,536Exercisable at December 31, 2005
    
    
    63,925
    
    
    $
    2.99
    
    
    
    2.00
    
    
    $
    158,456
 Cash received from options exercised by employees during the six months ended December 31,
2005 was approximately $183.
 A summary of the status of the Companys non-vested stock options during the six months ended
December 31, 2005 is presented below:
 Weighted-AverageGrant-DateNon-vested Options
    
    Shares
    
    
    Fair ValueNon-vested at July 1, 2005
    
    
    34,750
    
    
    $
    0.86Granted
    
    
    
    
    
    
    Vested
    
    
    (14,875
    )
    
    
    0.80Forfeited or expired
    
    
    
    
    
    
    Non-vested at December 31, 2005
    
    
    19,875
    
    
    $
    0.91
 As of December 31, 2005, there was approximately $15 of accumulated unrecognized stock
compensation based on fair value on the grant date related to non-vested options granted
under the 1998 Plan. Such amount is expected to be recognized during the weighted average
period of 2.5 years.
 Directors Stock Option Plan
 The Directors Stock Option Plan (the Directors Plan), which is shareholder-approved,
permits the grant of stock options to its duly elected non-employee Directors and one of the
corporate officers of the Company (if he or she is also a director of the Company) and covers
300,000 shares of common stock. The Company believes that such awards better align the
interests of its directors with those of its shareholders. Prior to July 1, 2003, option
awards were granted with an exercise price equal to 85% of the fair market price of the
Companys stock at the grant date. Subsequent to July 1, 2003, the Board approved an
amendment to the Directors Plan requiring options to purchase the Companys common stock to
be exercisable at a price equal to 100% of the fair market value of the underlying shares on
the grant date. These options have five-year contractual terms. Options awards are
exercisable immediately as of the grant date.
 9




---



##### Table of Contents



Weighted -Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicStock Options
    
    Shares
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at July 1, 2005
    
    
    137,000
    
    
    $
    3.63Granted
    
    
    30,000
    
    
    
    3.75Exercised
    
    
    (15,000
    )
    
    
    3.10Expired
    
    
    (32,000
    )
    
    
    5.37Outstanding at December 31, 2005
    
    
    120,000
    
    
    $
    2.80
    
    
    
    2.00
    
    
    $
    245,009Exercisable at December 31, 2005
    
    
    120,000
    
    
    $
    3.26
    
    
    
    2.00
    
    
    $
    245,009
  Stock Option issued not pursuant to the 1998 Stock Option Plan or the Directors Stock Option
Plan
   Weighted-AverageExerciseStock Options
    
Shares

    
    
    PriceOutstanding at July 1, 2005
    
    
    
    
    
    $
    Granted
    
    
    750
    
    
    
    2.66Exercised
    
    
    (750
    )
    
    
    2.66Expired
    
    
    
    
    
    
    Outstanding at December 31, 2005
    
    
    
    
    
    $
    Exercisable at December 31, 2005
    
    
    
    
    
    $
    
  10




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##### Table of Contents



Six Months Ended
    
    
    Three Months EndedDec. 31,
    
    
    Dec. 31,2004
    
    
    2004(Unaudited)
    
    
    (Unaudited)Net income (loss)
    
    $
    137
    
    
    $
    (100
    )Add: stock based employee compensation
included in reported income
    
    
    
    
    
    
    Deduct: total stock based employee compensation
expense determined under fair value method for all
awards
    
    
    (18
    )
    
    
    (9
    )Pro forma net income (loss)
    
    $
    119
    
    
    $
    (109
    )Earnings (loss) per share -basicAs reported
    
    $
    0.05
    
    
    $
    (0.03
    )Pro forma
    
    $
    0.04
    
    
    $
    (0.04
    )Earnings (loss) per share -dilutedAs reported
    
    $
    0.05
    
    
    $
    (0.03
    )Pro forma
    
    $
    0.04
    
    
    $
    (0.04
    )
 11




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##### Table of Contents



4.
    
    EARNINGS PER SHARE
 Earnings per
Share
    Six Months Ended
    
    
    Three Months EndedDec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)(Loss) income from continuing operations
    
    $
    (282
    )
    
    $
    135
    
    
    $
    (446
    )
    
    $
    (111
    )Income from discontinued operation
    
    $
    8,459
    
    
    $
    2
    
    
    $
    8,837
    
    
    $
    11Income (loss) attribute to common shares
    
    $
    8,177
    
    
    $
    137
    
    
    $
    8,391
    
    
    $
    (100
    )Basic Earnings (Loss) Per ShareBasic (loss) earnings per share from Continuing operations
    
    $
    (0.09
    )
    
    $
    0.05
    
    
    $
    (0.15
    )
    
    $
    (0.03
    )Basic earnings per share from Discontinued operation
    
    
    2.80
    
    
    
    
    
    
    
    2.91
    
    
    
    Basic earnings (loss) per share from Net Income
    
    $
    2.71
    
    
    $
    0.05
    
    
    $
    2.76
    
    
    $
    (0.03
    )Diluted (Loss) Earnings Per ShareDiluted (loss) earnings per share from Continuing operations
    
    $
    (0.09
    )
    
    $
    0.04
    
    
    $
    (0.15
    )
    
    $
    (0.03
    )Diluted earnings per share from Discontinued operation
    
    
    2.80
    
    
    
    
    
    
    
    2.91
    
    
    
    Diluted earnings (loss) per share from Net Income
    
    $
    2.71
    
    
    $
    0.04
    
    
    $
    2.76
    
    
    $
    (0.03
    )Weighted average number of common shares outstanding  basic
    
    
    3,016
    
    
    
    2,965
    
    
    
    3,038
    
    
    
    2,966Dilutive effect of stock options
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    Number of shares used to compute earnings per share  diluted
    
    
    3,016
    
    
    
    3,065
    
    
    
    3,038
    
    
    
    2,966
 12




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##### Table of Contents



5.
    
    ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
   Dec. 31,
    
    
    June 30,2005
    
    
    2005(Unaudited)Beginning
    
    $
    147
    
    
    $
    165Additions charged to expenses
    
    
    72
    
    
    
    44Recovered
    
    
    (24
    )
    
    
    (62
    )Actual write-offs
    
    
    (5
    )
    
    
    Ending
    
    $
    190
    
    
    $
    147
 6.
    
    DIVIDENDS PAYABLE
  7.
    
    ADVANCES TO SELLER
   13




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##### Table of Contents



8.
    
    WARRANTY ACCRUAL
 Dec. 31,
    
    
    June 30,2005
    
    
    2005(Unaudited)Beginning
    
    $
    155
    
    
    $
    162Additions charged to cost and expenses
    
    
    29
    
    
    
    43Recovered
    
    
    
    
    
    
    Actual write-offs
    
    
    
    
    
    
    (50
    )Ending
    
    $
    184
    
    
    $
    155
 9
    
    DISCONTINUED OPERATION AND CORRESPONDING RESTRUCTURING PLAN
   
   14




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##### Table of Contents



Six Months Ended
    
    
    Three Months EndedDec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(Unaudited)
    
    (Unaudited)
    
    (Unaudited)
    
    (Unaudited)NET SALES
    
    $
    78
    
    
    
    257
    
    
    
    
    
    
    
    149COST OF SALES
    
    
    63
    
    
    
    227
    
    
    
    
    
    
    
    121GROSS PROFIT
    
    
    15
    
    
    
    30
    
    
    
    
    
    
    
    28OPERATING EXPENSES:General and administrative
    
    
    120
    
    
    
    87
    
    
    
    38
    
    
    
    48Employment termination benefits
    
    
    330
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    450
    
    
    
    87
    
    
    
    38
    
    
    
    48(435
    )
    
    
    (57
    )
    
    
    (38
    )
    
    
    (20
    )OTHER INCOME (EXPENSE)Interest expense
    
    
    (3
    )
    
    
    (6
    )
    
    
    (1
    )
    
    
    (2
    )Other (expense) income
    
    
    (12
    )
    
    
    65
    
    
    
    (33
    )
    
    
    33Total
    
    
    (15
    )
    
    
    59
    
    
    
    (34
    )
    
    
    31(Loss) Income from discontinued operation
    
    
    (450
    )
    
    
    2
    
    
    
    (72
    )
    
    
    11Gain on sale of property
    
    
    8,909
    
    
    
    
    
    
    
    8,909
    
    
    
    INCOME FROM DISCONTINUED OPERATION
    
    $
    8,459
    
    
    $
    2
    
    
    $
    8,837
    
    
    $
    11Breakdown of gain on sale of propertyGross proceeds
    
    $
    10,574
    
    
    
    
    
    
    $
    10,574
    
    
    
    Net book value of the property
    
    
    (261
    )
    
    
    
    
    
    
    (261
    )
    
    
    Grant payable to Ireland government
    
    
    (86
    )
    
    
    
    
    
    
    (86
    )
    
    
    Professional fees
    
    
    (92
    )
    
    
    
    
    
    
    (92
    )
    
    
    Commissions and related selling expenses
    
    
    (40
    )
    
    
    
    
    
    
    (40
    )
    
    
    10,095
    
    
    
    
    
    
    
    10,095
    
    
    
    Capital gain tax
    
    
    (1,955
    )
    
    
    
    
    
    
    (1,955
    )
    
    
    8,140
    
    
    
    
    
    
    
    8,140
    
    
    
    Foreign currency translation adjustments
    
    
    769
    
    
    
    
    
    
    
    769
    
    
    
    Gain on sale of property
    
    $
    8,909
    
    
    $
    
    
    
    $
    8,909
    
    
    $
    
 15




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##### Table of Contents



10.
    
    BUSINESS SEGMENTS
     Business Segment Information:
 Quarter
    
    
    
    
    
    Operating
    
    
    
    
    
    Depr.Ended
    
    Net
    
    Income
    
    Total
    
    and
    
    CapitalDec. 31,
    
    Sales
    
    (loss)
    
    Assets
    
    Amort.
    
    ExpendituresManufacturing
    
    
    2005
    
    
    $
    3,111
    
    
    $
    (117
    )
    
    $
    2,842
    
    
    $
    27
    
    
    $
    1872004
    
    
    
    2,425
    
    
    
    5
    
    
    
    2,138
    
    
    
    17
    
    
    
    32Testing Services
    
    
    2005
    
    
    
    3,715
    
    
    
    561
    
    
    
    21,160
    
    
    
    369
    
    
    
    3852004
    
    
    
    2,654
    
    
    
    (58
    )
    
    
    14,427
    
    
    
    315
    
    
    
    241Distribution
    
    
    2005
    
    
    
    599
    
    
    
    (1
    )
    
    
    748
    
    
    
    4
    
    
    
    12004
    
    
    
    454
    
    
    
    (94
    )
    
    
    1,293
    
    
    
    38
    
    
    
    21Corporate and
    
    
    2005
    
    
    
    
    
    
    
    (817
    )
    
    
    2,145
    
    
    
    
    
    
    
    unallocated
    
    
    2004
    
    
    
    
    
    
    
    8
    
    
    
    228
    
    
    
    
    
    
    
    Total Company
    
    
    2005
    
    
    $
    7,425
    
    
    $
    (373
    )
    
    $
    26,895
    
    
    $
    400
    
    
    $
    5732004
    
    
    $
    5,533
    
    
    $
    (138
    )
    
    $
    18,086
    
    
    $
    370
    
    
    $
    294
 16




---



##### Table of Contents



Business Segment Information:
 SixMonths
    
    
    
    
    
    Operating
    
    
    
    
    
    DeprEnded
    
    Net
    
    Income
    
    Total
    
    and
    
    CapitalDec. 31,
    
    Sales
    
    (loss)
    
    Assets
    
    Amort.
    
    ExpendituresManufacturing
    
    
    2005
    
    
    $
    4,466
    
    
    $
    (292
    )
    
    $
    2,842
    
    
    $
    50
    
    
    $
    1982004
    
    
    
    6,403
    
    
    
    152
    
    
    
    2,138
    
    
    
    35
    
    
    
    53Testing Services
    
    
    2005
    
    
    
    7,260
    
    
    
    1,020
    
    
    
    21,160
    
    
    
    735
    
    
    
    5052004
    
    
    
    5,440
    
    
    
    124
    
    
    
    14,427
    
    
    
    596
    
    
    
    956Distribution
    
    
    2005
    
    
    
    1,404
    
    
    
    (2
    )
    
    
    748
    
    
    
    7
    
    
    
    12004
    
    
    
    1,433
    
    
    
    (82
    )
    
    
    1,293
    
    
    
    75
    
    
    
    188Corporate and
    
    
    2005
    
    
    
    
    
    
    
    (881
    )
    
    
    2,145
    
    
    
    
    
    
    
    unallocated
    
    
    2004
    
    
    
    
    
    
    
    15
    
    
    
    228
    
    
    
    1
    
    
    
    Total Company
    
    
    2005
    
    
    $
    13,130
    
    
    $
    (155
    )
    
    $
    26,895
    
    
    $
    792
    
    
    $
    7042004
    
    
    $
    13,276
    
    
    $
    209
    
    
    $
    18,086
    
    
    $
    707
    
    
    $
    1,197
 Geographic Area Information:
 China
    
    
    
    
    
    
    
    
    
    
    
    
    
    Elimin-Quarter
    
    
    
    
    
    and
    
    
    
    
    
    
    
    
    
    
    
    
    
    ationsEnded
    
    United
    
    other
    
    
    
    
    
    
    
    
    
    
    
    
    
    and
    
    TotalDec. 31,
    
    States
    
    countries
    
    Singapore
    
    Thailand
    
    Malaysia
    
    Other
    
    CompanyNet sales to
    
    
    2005
    
    
    $
    1,093
    
    
    
    363
    
    
    
    4,589
    
    
    
    488
    
    
    
    892
    
    
    
    
    
    
    
    7,425customers
    
    
    2004
    
    
    $
    538
    
    
    
    351
    
    
    
    3,001
    
    
    
    492
    
    
    
    1,159
    
    
    
    (8
    )
    
    
    5,533Operating
    
    
    2005
    
    
    $
    12
    
    
    
    (2
    )
    
    
    343
    
    
    
    37
    
    
    
    67
    
    
    
    (830
    )
    
    
    (373
    )Income (loss)
    
    
    2004
    
    
    $
    (58
    )
    
    
    (32
    )
    
    
    (36
    )
    
    
    (6
    )
    
    
    (14
    )
    
    
    8
    
    
    
    (138
    )Long-lived
    
    
    2005
    
    
    $
    23
    
    
    
    20
    
    
    
    3,683
    
    
    
    822
    
    
    
    2,743
    
    
    
    (40
    )
    
    
    7,251Assets
    
    
    2004
    
    
    $
    7
    
    
    
    394
    
    
    
    3,538
    
    
    
    886
    
    
    
    2,065
    
    
    
    (40
    )
    
    
    6,850
 17




---



##### Table of Contents



Geographic Area Information:
 Six
    
    
    
    
    
    China
    
    
    
    
    
    
    
    
    
    
    
    
    
    Elimin-Months
    
    
    
    
    
    and
    
    
    
    
    
    
    
    
    
    
    
    
    
    ationsEnded
    
    United
    
    other
    
    
    
    
    
    
    
    
    
    
    
    
    
    and
    
    TotalDec. 31,
    
    States
    
    countries
    
    Singapore
    
    Thailand
    
    Malaysia
    
    Other
    
    CompanyNet sales to
    
    
    2005
    
    
    $
    1,527
    
    
    
    691
    
    
    
    8,380
    
    
    
    949
    
    
    
    1,613
    
    
    
    (30
    )
    
    
    13,130customers
    
    
    2004
    
    
    $
    1,207
    
    
    
    697
    
    
    
    6,083
    
    
    
    1,145
    
    
    
    4,181
    
    
    
    (37
    )
    
    
    13,276Operating
    
    
    2005
    
    
    $
    (8
    )
    
    
    (2
    )
    
    
    584
    
    
    
    66
    
    
    
    113
    
    
    
    (908
    )
    
    
    (155
    )Income (loss)
    
    
    2004
    
    
    $
    (86
    )
    
    
    (20
    )
    
    
    126
    
    
    
    28
    
    
    
    146
    
    
    
    15
    
    
    
    209Long-lived
    
    
    2005
    
    
    $
    23
    
    
    
    20
    
    
    
    3,683
    
    
    
    822
    
    
    
    2,743
    
    
    
    (40
    )
    
    
    7,251Assets
    
    
    2004
    
    
    $
    7
    
    
    
    394
    
    
    
    3,538
    
    
    
    886
    
    
    
    2,065
    
    
    
    (40
    )
    
    
    6,850
 11. IMPAIRMENT LOSS
  18




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##### Table of Contents



TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
   Overview
    19




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##### Table of Contents



Results of operations and business outlook
  Revenue Components
 Six Months Ended
    
    Three Months EndedDec. 31,
    
    Dec. 31,
    
    Dec. 31,
    
    Dec. 31,2005
    
    2004
    
    2005
    
    2004Net Sales:Testing
    
    
    55.29
    %
    
    
    40.96
    %
    
    
    50.03
    %
    
    
    47.94
    %Manufacturing
    
    
    34.02
    
    
    
    48.24
    
    
    
    41.90
    
    
    
    43.85Distribution
    
    
    10.69
    
    
    
    10.80
    
    
    
    8.07
    
    
    
    8.21Total
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
 Testing Segment
  20




---



##### Table of Contents



Manufacturing Segment
    Distribution Segment
    Uncertainties and Remedies
  21




---



##### Table of Contents



Comparison of Second Quarter Ended December 31, 2005 (Q2 2006) and December 31, 2004 (Q2 2005)
  Q2 2006
    
    Q2 2005Net Sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of Sales
    
    
    74.9
    %
    
    
    76.8
    %Gross Margin
    
    
    25.1
    %
    
    
    23.2
    %Operating ExpensesGeneral and administrative
    
    
    17.3
    %
    
    
    20.4
    %Director and officer bonuses
    
    
    9.5
    %
    
    
    (0.2
    %)Selling
    
    
    3.1
    %
    
    
    5.1
    %Research and development
    
    
    0.2
    %
    
    
    0.4
    %Total Operating Expenses
    
    
    30.1
    %
    
    
    25.7
    %(Loss) from operations
    
    
    -5.0
    %
    
    
    -2.5
    %
 Overall Net Sales
   Overall Gross Margin
   22




---



##### Table of Contents



Loss from operations
  Operating Expenses
  (In Thousands, unaudited)
    
    Q2 2006
    
    
    Q2 2005General and administrative
    
    $
    1,288
    
    
    $
    1,130Director and officer bonuses
    
    $
    705
    
    
    $
    (10
    )Selling
    
    $
    230
    
    
    $
    281Research and development
    
    $
    16
    
    
    $
    23Total
    
    $
    2,239
    
    
    $
    1,424
     Interest Expense
  (In Thousands, unaudited)
    
    Q2 2006
    
    Q2 2005Interest expense
    
    $
    38
    
    
    $
    55
  Other Income (Loss)
  23




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##### Table of Contents



(In Thousands, unaudited)
    
    Q2 2006
    
    Q2 2005Other income (loss)
    
    $
    82
    
    
    $
    (12
    )
  Income Tax
  Income from Discontinued Operations
  Net Income (loss)
  Testing Segment
  (In Thousands, unaudited)
    
    Q2 2006
    
    Q2 2005Revenue
    
    $
    3,715
    
    
    $
    2,654Gross margin
    
    
    37.0
    %
    
    
    28.9
    %Income (loss) from operations
    
    $
    561
    
    
    $
    (58
    )
   24




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##### Table of Contents



Manufacturing Segment
  (In Thousands, unaudited)
    
    Q2 2006
    
    Q2 2005Revenue
    
    $
    3,111
    
    
    $
    2,425Gross margin
    
    
    12.8
    %
    
    
    18.3
    %(Loss) income from operations
    
    $
    (117
    )
    
    $
    5
   Distribution Segment
  (In Thousands, unaudited)
    
    Q2 2006
    
    Q2 2005Revenue
    
    $
    599
    
    
    $
    454Gross margin
    
    
    15.4
    %
    
    
    16.5
    %Loss from operations
    
    $
    (1
    )
    
    $
    (94
    )
   Corporate
  (In Thousands, unaudited)
    
    Q2 2006
    
    Q2 2005(Loss) income from operations
    
    $
    (817
    )
    
    $
    8
 25




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##### Table of Contents



Year to Date Comparison of the Six Months Ended December 31, 2005 (2006) and to the Six Months
Ended December 31, 2004 (2005)
  YTD 2006
    
    YTD 2005Net Sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of Sales
    
    
    71.9
    %
    
    
    75.9
    %Gross Margin
    
    
    28.1
    %
    
    
    24.1
    %Operating ExpensesGeneral and administrative
    
    
    19.6
    %
    
    
    17.9
    %Director and officer bonuses
    
    
    5.4
    %
    
    
    0.1
    %Selling
    
    
    3.9
    %
    
    
    4.1
    %Research and development
    
    
    0.3
    %
    
    
    0.4
    %Impairment Loss
    
    
    0.1
    %
    
    
    0.0
    %Total Operating Expenses
    
    
    29.3
    %
    
    
    22.5
    %(Loss) Income from operations
    
    
    -1.2
    %
    
    
    1.6
    %
 Overall Net Sales
   Overall Gross Margin
   26




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##### Table of Contents



Loss from operations
  Operating Expenses
  Operating Expenses
 (In Thousands, unaudited)
    
    YTD 2006
    
    
    YTD 2005General and administrative
    
    $
    2,577
    
    
    $
    2,368Director and officer bonuses
    
    $
    705
    
    
    $
    9Selling
    
    $
    515
    
    
    $
    550Research and development
    
    $
    33
    
    
    $
    56Impairment loss
    
    $
    15
    
    
    $
    1Total
    
    $
    3,845
    
    
    $
    2,984
        27




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##### Table of Contents



(In Thousands, unaudited)
    
    YTD 2006
    
    YTD 2005Interest expense
    
    $
    74
    
    
    $
    86
  Other Income
  (In Thousands, unaudited)
    
    YTD 2006
    
    YTD 2005Other income
    
    $
    112
    
    
    $
    42
  Income Tax
  Income from Discontinued Operations
  Net Income
  Testing Segment
  (In Thousands, unaudited)
    
    YTD 2006
    
    YTD 2005Revenue
    
    $
    7,260
    
    
    $
    5,440Gross margin
    
    
    37.7
    %
    
    
    32.8
    %Income from operations
    
    $
    1,020
    
    
    $
    124
 28




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##### Table of Contents



Manufacturing Segment
  (In Thousands, unaudited)
    
    YTD 2006
    
    YTD 2005Revenue
    
    $
    4,466
    
    
    $
    6,403Gross margin
    
    
    14.5
    %
    
    
    16.8
    %(Loss) income from operations
    
    $
    (292
    )
    
    $
    152
    Distribution Segment
  (In Thousands, unaudited)
    
    YTD 2006
    
    YTD 2005Revenue
    
    $
    1,404
    
    
    $
    1,433Gross margin
    
    
    22.0
    %
    
    
    23.4
    %Loss from operations
    
    $
    (2
    )
    
    $
    (82
    )
  29




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##### Table of Contents



Corporate
  (In Thousands, unaudited)
    
    YTD 2006
    
    YTD 2005(Loss) income from operations
    
    $
    (881
    )
    
    $
    15
  Financial Condition
      
  30




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Liquidity and Capital Resources
       31




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##### Table of Contents



Corporate Guarantee Arrangement
  Recently Issued Accounting Pronouncements
 Accounting Changes and Error Corrections Reporting Accounting
Changes in Interim Financial Statements
 Critical Accounting Estimates & Policies
   Use of Estimates
  Accounts Receivable and Allowance for Doubtful Accounts
   32




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##### Table of Contents



Inventory Valuation
  Revenue Recognition
   Income Tax
     Impairment of Long-Lived Assets
  33




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  Dec. 30,
    
    
    June 30,2005
    
    
    2005(unaudited)Loans:denominated by Singapore dollars
with variable interest rate at prime rates
ranging from 2.95% to
5.75% plus 1% to 6.25% per annum
    
    $
    1,665
    
    
    $
    1,045denominated by Irish pound
with variable interest rate at prime rates
ranging from 2.09% to
2.11% plus 5.11% to 5.59% per annum
    
    
    
    
    
    
    98denominated by Thailand baht
with fixed interest rate at 4.50% per annum
    
    
    116
    
    
    
    146Subtotal
    
    $
    1,781
    
    
    $
    1,289Capital leases:denominated by Singapore dollars
with fixed interest rate ranging from
4.19% to 6.60% per annum
    
    $
    247
    
    
    $
    199denominated by Malaysia ringgit
with fixed interest rate at 4.30% per annum
    
    
    18
    
    
    
    22denominated by US dollars
with fixed interest rate at 0.81% per annum
    
    
    8
    
    
    
    denominated by Irish pound
with variable interest rate at a prime
rate of 2.09% plus 7.10%
    
    
    
    
    
    
    12Subtotal
    
    $
    265
    
    
    $
    233Line of credit:denominated by Singapore dollars
with variable interest rate at 5.75% plus
6.00% per annum
    
    $
    259
    
    
    $
    336Total
    
    $
    2,305
    
    
    $
    1,858
 34




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##### Table of Contents



Foreign Currency Exchange Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
  35




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##### Table of Contents



TRIO-TECH INTERNATIONAL
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Not applicable
 
 Item 1A. Risk Factors
 CERTAIN RISKS THAT MAY AFFECT OUR FUTURE RESULTSWe hereby caution stockholders, prospective investors in Trio-Tech International and other
readers that there is no change to the risk factors disclosed in the Form 10-K for the fiscal
year ending June 30, 2005 except for the material change in the following important factors.
Such factors in some cases have affected, and in the future could affect, our stock price or
cause our actual results for the six months ending December 31, 2005 and future quarters and
fiscal years to differ materially from those expressed in any forward-looking statements,
oral or written, made by or on behalf of us.We have paid cash dividends. On December 2, 2005, the Board of Directors of Registrant
declared a cash dividend of fifty cents (US 50¢) per share based on the shareholders of
records on January 10, 2006. The total number of shares issued and outstanding as of January
10, 2006 was 3,215,532 and the total cash dividends paid on January 25, 2006 were
approximately $1,608,000. The dividend was declared from the Companys retained earnings and
the cash for payment of the dividends was from the net proceeds of disposing the property
located in Dublin, Ireland.Possible dilutive effect of outstanding optionsAs of December 31, 2005, there were 203,550 shares of common stock reserved for issuance upon
exercise of outstanding stock options. The outstanding options are currently exercisable at
exercise prices ranging from $2.25 to $4.50 per share. We anticipate that the trading price
of our common stock at the time of exercise of any such outstanding options will exceed the
exercise price under those options. Thus such exercise will have a dilutive effect on our
shareholders.
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Malaysian and Singapore regulations prohibit the payment of dividends if the Company does not
have sufficient retained earnings and tax credit. In addition, the payment of dividends can
only be made after making deductions for income tax pursuant to the regulations. Furthermore,
the cash movements from the Companys 55% owned Malaysian subsidiary to overseas are
restricted and must be authorized by the Central Bank of Malaysia. California law also
prohibits the payment of dividends if the Company does not have sufficient retained earnings
or cannot meet certain asset to liability ratios.
 
 Item 3. Defaults Upon Senior Securities
 Not applicable
 
 Item 4. Submission of Matters to Vote of Security Holders
 An annual meeting of shareholders was held December 2, 2005. The only matter voted on at the
annual meeting was the election of Directors. Proxies for the annual meeting were solicited
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. There was
no solicitation in opposition to managements nominees for Directors as listed in the Proxy
Statement. All of such nominees were elected. The number of votes for each of such nominees
was as follows (there being no abstentions or votes withheld):
 Director
    
    For
    
    Against
    
    Abstain
    
    No Vote
    
    TotalJason Adelman
    
    
    2,129,874
    
    
    
    3,840
    
    
    
    
    
    
    
    916,028
    
    
    
    3,049,742Richard Horowitz
    
    
    2,127,474
    
    
    
    6,240
    
    
    
    
    
    
    
    916,028
    
    
    
    3,049,742Yong Siew Wai
    
    
    2,130,949
    
    
    
    2,765
    
    
    
    
    
    
    
    916,028
    
    
    
    3,049,742A. Charles Wilson
    
    
    2,130,964
    
    
    
    2,750
    
    
    
    
    
    
    
    916,028
    
    
    
    3,049,742
 36




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##### Table of Contents



Item 5. Other Information
 Not applicable
 
 Item 6. Exhibits
 10.1
    
    Memorandum of Agreement, dated September 30, 2005 between European
Electronic Test Centre Ltd.
and Dorville Homes Ltd. [Incorporated by reference to Exhibit 10.1 to the
quarterly report on Form 10-Q for September 30, 2005]10.2
    
    Deed of Assignment, dated October 27, 2005 between European
Electronic Test Centre Ltd.
and Dorville Homes Ltd. [Incorporated by reference to Exhibit 10.2 to the
quarterly report on Form 10-Q for September 30, 2005]31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer of Registrant31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer of Registrant32
    
    Section 1350 Certification.
 37




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##### Table of Contents



SIGNATURES
  TRIO-TECH INTERNATIONALBy:
    
    /s/ Victor H.M. TingVICTOR H.M. TINGVice President andChief Financial Officer(Principal Financial Officer)Dated: February 17, 2006
 38