UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q





RQUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the
Quarterly Period Ended September 30, 2008





OR





TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
Transition Period from ___ to ___





Commission
File Number 1-14523





TRIO-TECH   INTERNATIONAL


(Exact
name of Registrant as specified in its Charter)




California
                    95-2086631(State
      or other jurisdiction of incorporation
      or organization)
                    (I.R.S.
      Employer Identification
      Number)16139
      Wyandotte StreetVan
      Nuys, California
                    91406(Address
      of principle executive offices)
                    (Zip
      Code)





Registrant's
Telephone Number, Including Area Code:  818-787-7000





Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to
such filing requirements for the past 90 days. YesRNo£





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a
smaller reporting company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):


Large Accelerated Filer£                                                                                Accelerated Filer £




Non-Accelerated Filer£                                                              Smaller Reporting CompanyR




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £ No R





Number of
shares of common stock outstanding as of November 1, 2008 is
3,227,430










TRIO-TECH    INTERNATIONAL


INDEX
TO CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND
SIGNATURE








PagePart I.
            Financial InformationItem 1.
            Financial Statements(a) Condensed Consolidated Balance Sheets as of September
      30, 2008 (Unaudited) and June 30, 2008
            2(b) Condensed Consolidated Statements of Operations and
      Comprehensive Income for the Three Months Ended September 30, 2008
      (Unaudited) and September 30, 2007 (Unaudited)
            3(c) Condensed Consolidated Statements of Cash Flows for
      the Three Months Ended September 30, 2008 (Unaudited) and September 30,
      2007 (Unaudited)
            4(d) Notes to Consolidated Financial Statements
      (Unaudited)
            5Item 2.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            17Item 3.
            Quantitative and Qualitative Disclosures about Market
      Risk
            29Item 4T.
            Controls and Procedures
            30Part II.
            Other InformationItem 1.
            Legal Proceedings
            31Item 1A.
            Risk Factors
            31Item 2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            31Item 3.
            Defaults upon Senior Securities
            31Item 4.
            Submission of Matters to a Vote of Security
      Holders
            31Item 5.
            Other Information
            31Item 6.
            Exhibits
            31Signatures
            
            32





-i-
 Table of Contents




FORWARD-LOOKING
STATEMENTS





The
discussions of Trio-Tech International’s (the “Company”) business and activities
set forth in this Form 10-Q and in other past and future reports and
announcements by the Company may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, and assumptions
regarding future activities and results of operations of the
Company.  In light of the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995, the following factors, among others,
could cause actual results to differ materially from those reflected in any
forward-looking statements made by or on behalf of the Company: market
acceptance of Company products and services; changing business conditions or
technologies and volatility in the semiconductor industry, which could affect
demand for the Company’s products and services; the impact of competition;
problems with technology; product development schedules; delivery schedules;
changes in military or commercial testing specifications which could affect the
market for the Company’s products and services; difficulties in profitably
integrating acquired businesses, if any, into the Company; risks associated with
conducting business internationally and especially in Southeast Asia, including
currency fluctuations and devaluation, currency restrictions, local laws and
restrictions and possible social, political and economic instability; other
economic, financial and regulatory factors beyond the Company’s control;
and the sharp
correction in the housing market and the significant fluctuations of oil prices
which occurred in 2007 and2008. See the
discussions elsewhere in this Form 10-Q, for more information. In some cases,
you can identify forward-looking statements by the use of terminology such as
“may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,”
“believes,” “can impact,” “continue,” or the negative thereof or other
comparable terminology.





We
undertake no obligation to update forward-looking statements to reflect
subsequent events, changed circumstances, or the occurrence of unanticipated
events.





-1-
 Table of Contents


PART
I. FINANCIAL INFORMATION





ITEM
1. FINANCIAL STATEMENTS





TRIO-TECH
INTERNATIONAL AND SUBSIDIARIES




CONDENSED CONSOLIDATED BAL ANCE SHEETS (IN THOUSANDS, EXCEPT NUMBER OF
SHARES)





September
      30,
                          
                          
                          June
      30,2008
                          
                          
                          2008ASSETS
                          
                          
                          (Unaudited)CURRENT
      ASSETS:Cash
                          
                          $
                          4,664
                          
                          $
                          6,600Short-term
      deposits
                          
                          8,362
                          
                          
                          7,746Trade
      accounts receivable, less allowance for doubtful accounts
      of $47 and $51
                          
                          4,833
                          
                          
                          5,702Other
      receivables
                          
                          697
                          
                          
                          796Inventories,
      less provision for obsolete inventoryof $685 and
    $880
                          
                          1,879
                          
                          
                          2,449Prepaid
      expenses and other current assets
                          
                          195
                          
                          
                          138Total
      current assets
                          
                          20,630
                          
                          
                          23,431INVESTMENT
      IN CHINA (Note 9)
                          
                          2,291
                          
                          
                          2,267PROPERTY,
      PLANT AND EQUIPMENT, Net
                          
                          7,938
                          
                          
                          8,136OTHER
      INTANGIBLE ASSETS, Net
                          
                          80
                          
                          
                          112OTHER
      ASSETS
                          
                          735
                          
                          
                          813TOTAL
      ASSETS
                          $
                          31,674
                          
                          $
                          34,759LIABILITIES
      AND SHAREHOLDERS' EQUITYCURRENT
      LIABILITIES:Accounts
      payable
                          $
                          1,261
                          
                          $
                          2,586Accrued
      expenses
                          
                          2,796
                          
                          
                          3,036Income
      taxes payable
                          
                          450
                          
                          
                          397Current
      portion of bank loans payable
                          
                          2,516
                          
                          
                          1,403Current
      portion of capital leases
                          
                          75
                          
                          
                          106Total
      current liabilities
                          
                          7,098
                          
                          
                          7,528BANK
      LOANS PAYABLE, net of current portion
                          
                          -
                          
                          
                          1,620CAPITAL
      LEASES, net of current portion
                          
                          125
                          
                          
                          143DEFERRED
      TAX LIABILITIES
                          
                          550
                          
                          
                          510OTHER
      LIABILITIES
                          
                          9
                          
                          
                          9TOTAL
      LIABILITIES
                          $
                          7,782
                          
                          $
                          9,810MINORITY
      INTEREST
                          
                          2,899
                          
                          
                          2,808SHAREHOLDERS'
      EQUITY:Common
      stock; no par value, 15,000,000 shares authorized;3,227,430 and
      3,226,430 shares issued and outstanding as at September 30, 2008, and at
      June 30, 2008, respectively
                          
                          10,365
                          
                          
                          10,362Paid-in
      capital
                          
                          1,166
                          
                          
                          928Accumulated
      retained earnings
                          
                          8,106
                          
                          
                          8,825Accumulated
      other comprehensive loss-translation adjustments
                          
                          1,356
                          
                          
                          2,026Total
      shareholders' equity
                          
                          20,993
                          
                          
                          22,141TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
                          $
                          31,674
                          
                          $
                          34,759





See
notes to condensed consolidated financial statements.


-2-
 Table of Contents


TRIO-TECH
INTERNATIONAL AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME,
 UNAUDITED
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)


Three
      Months EndedSeptember
      30,
                        
                        
                        September
      30,,2008
                        
                        
                        2007(Unaudited)
                        
                        
                        (Unaudited)RevenuesProducts
                        
                        $
                        3,132
                        
                        
                        $
                        6,507Services
                        
                        
                        3,098
                        
                        
                        
                        5,5436,230
                        
                        
                        
                        12,050Costs
      of SalesCost
      of products sold
                        
                        
                        2,667
                        
                        
                        
                        5,529Cost
      of services rendered
                        
                        
                        2,261
                        
                        
                        
                        3,4794,928
                        
                        
                        
                        9,008Gross
      Margin
                        
                        
                        1,302
                        
                        
                        
                        3,042Operating
      Expenses / (Gains) :General
      and administrative
                        
                        
                        2,015
                        
                        
                        
                        1,645Selling
                        
                        
                        123
                        
                        
                        
                        124Research
      and development
                        
                        
                        10
                        
                        
                        
                        19Gain
      on disposal of property, plant and equipment
                        
                        
                        (159
                        )
                        
                        
                        -Total
      operating expenses
                        
                        
                        1,989
                        
                        
                        
                        1,788(Loss)
      Income  from Operations
                        
                        
                        (687
                        )
                        
                        
                        1,254Other
      Income (Expenses)Interest
      expense
                        
                        
                        (58
                        )
                        
                        
                        (85
                        )Other
      income (expenses)
                        
                        
                        215
                        
                        
                        
                        (50
                        )Total
      other income (expenses)
                        
                        
                        157
                        
                        
                        
                        (135
                        )(Loss)
      Income Before Income Taxes
                        
                        
                        (530
                        )
                        
                        
                        1,119Income
      Tax Provision
                        
                        
                        98
                        
                        
                        
                        172(Loss)
      Income Before Minority Interest
                        
                        
                        (628
                        )
                        
                        
                        947Minority
      interest
                        
                        
                        91
                        
                        
                        
                        196Net
      (Loss)Income Attributed to Common Shares
                        
                        $
                        (719
                        )
                        
                        $
                        751(LOSS)
      EARNINGS PER SHARE:Basic
      (loss) earnings per share
                        
                        $
                        (0.22
                        )
                        
                        $
                        0.23Diluted
      (loss) earnings per share
                        
                        $
                        (0.22
                        )
                        
                        $
                        0.23Weighted
      Average Shares OutstandingBasic
                        
                        
                        3,227
                        
                        
                        
                        3,226Diluted
                        
                        
                        3,227
                        
                        
                        
                        3,237Comprehensive
      Income (Loss):Net
      (loss) income
                        
                        $
                        (719
                        )
                        
                        $
                        751Foreign
      currency translation adjustment
                        
                        
                        (670
                        )
                        
                        
                        216Comprehensive
      (Loss) Income
                        
                        $
                        (1,389
                        )
                        
                        $
                        967




See
notes to condensed consolidated financial statements.


-3-
 Table of Contents


TRIO-TECH
INTERNATIONAL AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS,
UNAUDITED (IN THOUSANDS)


Three
      Months EndedSeptember
      30,
                                
                                
                                September
      30,2008
                                
                                
                                2007(unaudited)
                                
                                
                                (unaudited)Cash
      Flow from Operating ActivitiesNet
      income (loss)
                                
                                $
                                (719
                                )
                                
                                $
                                751Adjustments
      to reconcile net income to net cash flow provided by (used in) operating
      activitiesDepreciation
      and amortization
                                
                                
                                546
                                
                                
                                
                                805Bad
      debt expense, net
                                
                                
                                8
                                
                                
                                
                                1Inventory
      provision
                                
                                
                                195
                                
                                
                                
                                15Interest
      income on short-term deposits
                                
                                
                                (51
                                )
                                
                                
                                (53
                                )Gain
      on sale of equipment
                                
                                
                                (159
                                )
                                
                                
                                -Stock
      compensation
                                
                                
                                238
                                
                                
                                
                                -Deferred
      tax provision
                                
                                
                                40
                                
                                
                                
                                8Minority
      interest
                                
                                
                                91
                                
                                
                                
                                200Changes
      in operating assets and liabilities, net of acquisition
      effectsAccounts
      receivables
                                
                                
                                861
                                
                                
                                
                                (2,584
                                )Other
      receivables
                                
                                
                                99
                                
                                
                                
                                (255
                                )Other
      assets
                                
                                
                                78
                                
                                
                                
                                18Inventories
                                
                                
                                375
                                
                                
                                
                                (236
                                )Prepaid
      expenses and other current assets
                                
                                
                                (57
                                )
                                
                                
                                (84
                                )Accounts
      payable and accrued liabilities
                                
                                
                                (1,565
                                )
                                
                                
                                843Income
      tax payable
                                
                                
                                53
                                
                                
                                
                                189Net
      cash provided by (used in) operating activities
                                
                                
                                33
                                
                                
                                
                                (382
                                )Cash
      Flow from Investing ActivitiesProceeds
      from short-term deposit matured
                                
                                
                                464
                                
                                
                                
                                10,369Investments
      in short-term deposits
                                
                                
                                (1,034
                                )
                                
                                
                                (11,432
                                )Additions
      to property, plant and equipment
                                
                                
                                (659
                                )
                                
                                
                                (545
                                )Proceeds
      from sale of equipment
                                
                                
                                161
                                
                                
                                
                                -Investment
      in Chongqing, China
                                
                                
                                -
                                
                                
                                
                                (1,331
                                )Net
      cash used in investing activities
                                
                                
                                (1,068
                                )
                                
                                
                                (2,939
                                )Cash
      Flow from Financing ActivitiesNet
      borrowings on lines of credits
                                
                                
                                -
                                
                                
                                
                                209Repayment
      of bank loans and capital leases
                                
                                
                                (551
                                )
                                
                                
                                (417
                                )Proceeds
      from long-term bank loans and capital leases
                                
                                
                                -
                                
                                
                                
                                3,610Proceeds
      from exercising stock options
                                
                                
                                3
                                
                                
                                
                                -Net
      cash (used in) provided by financing activities
                                
                                
                                (548
                                )
                                
                                
                                3,402Effect
      of Changes in Exchange Rate
                                
                                
                                (353
                                )
                                
                                
                                123NET
      (DECREASE) INCREASE IN CASH
                                
                                
                                (1,936
                                )
                                
                                
                                204CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                                
                                
                                6,600
                                
                                
                                
                                7,135CASH
      AND CASH EQUIVALENTS, END OF PERIOD
                                
                                $
                                4,664
                                
                                
                                $
                                7,339Supplementary
      Information of Cash FlowsCash
      paid during the period for:Interest
                                
                                $
                                60
                                
                                
                                $
                                34Income
      taxes
                                
                                $
                                -
                                
                                
                                $
                                3Non-Cash
      TransactionsAssets
      held for sale
                                
                                $
                                -
                                
                                
                                
                                (210
                                )Carrying
      value of property reclassified from property, plant and
      equipment
                                
                                $
                                -
                                
                                
                                
                                210





See
notes to condensed consolidated financial statements.


-4-
 Table of Contents


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 fiscal 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 testing 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
business segments: Testing Services, Manufacturing and
Distribution.  TTI has subsidiaries in the U.S., 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
                      100%
                      Van
      Nuys, CaliforniaEuropean
      Electronic Test Centre (Operation ceased on November 1,
      2005)
                      100%
                      Dublin,
      IrelandTrio-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 Trio-Tech Malaysia
                      55%
                      Selangor,
      MalaysiaPrestal
      Enterprise Sdn. Bhd.
                      76%
                      Selangor,
      MalaysiaTrio-Tech
      (Suzhou) Co., Ltd.
                      100%
                      Suzhou,
      ChinaTrio-Tech
      (Shanghai) Co., Ltd.
                      100%
                      Shanghai,
      ChinaTrio-Tech
      (Chongqing) Co., Ltd.
                      100%
                      Chongqing,
      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 three months ended September
30, 2008 are not necessarily indicative of the results that may be expected for
the fiscal year ending June 30, 2009.  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, 2008.





Certain
prior year balances may have been reclassified to conform to the current
presentation.


-5-
 Table of Contents




2. NEW ACCOUNTING
PRONOUNCEMENTS





In April
2008, the Financial Accounting Standards
Board (“FASB”)  issued FASB Staff Position (“FSP”) No. SFAS 142-3,
“Determination of the Useful Life of Intangible Assets” (“FSP SFAS 142-3”). FSP
SFAS 142-3 amends the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”
(“SFAS 142”). The intent of FSP SFAS 142-3 is to improve the consistency between
the useful life of a recognized intangible asset under SFAS 142 and the period
of expected cash flows used to measure the fair value of the asset under SFAS
No. 141R (revised 2007), “Business Combinations” and other applicable accounting
literature. FSP SFAS 142-3 is effective for financial statements issued for
fiscal years beginning after December 15, 2008 and must be applied prospectively
to intangible assets acquired after the effective date. The adoption of this
statement is not expected to have a material impact on our consolidated
financial position or results of operations.





In March
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. This statement identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with U.S. GAAP. This statement is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.The Company
does not expect the implementation of this statement to have an impact on its
results of operations or financial position.





In March
2008, the FASB issued FASB Statement No.
161, Disclosures about
Derivative Instruments and Hedging Activities. The new standard is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged.The Company
does not expect the implementation of this statement to have a material impact
on its results of operations or financial position.





In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141 (Revised 2007), Business
Combinations, or SFAS No. 141R.  SFAS No. 141R will change the
accounting for business combinations in a number of areas including the
treatment of contingent considerations, pre-acquisition contingencies,
transaction costs, in-process research and development, and restructuring
costs.  Under SFAS No. 141R, an acquiring entity will be required to
recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions.  SFAS No.
141R applies prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008.  The Company believes the adoption of
SFAS 141R will have an impact on the accounting for future
acquisitions.





In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
160, Noncontrolling Interests
in Consolidated Financial Statements — An Amendment of ARB No. 51, or
SFAS No. 160.  SFAS No. 160 establishes new accounting and reporting
standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary.  SFAS No. 160 is effective for fiscal
years beginning on or after December 15, 2008.  The Company is
currently evaluating the impact adoption may have on its financial condition or
results of operations.


-6-
 Table of Contents




In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, The Fair Value Option for
Financial Assets and Financial Liabilities, or SFAS No.
159.   SFAS No. 159 permits, but does not require, entities to
choose to measure eligible items at fair value.  The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions.  SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007. Early adoption is permitted as of the beginning of a
fiscal year that begins on or before November 15, 2007, provided that a company
also elects to apply the provisions of SFAS No. 157, Fair Value
Measurements.The Company adopted SFAS No. 159 on July 1, 2008
and it has no impact on its financial condition or results of
operations.





3. INVENTORIES





Inventories
consisted of the following:


Sept.
      30, 2008
                    
                    
                    June
      30, 2008(Unaudited)Raw
      materials
                    
                    $
                    1,122
                    
                    
                    $
                    1,297Work
      in progress
                    
                    
                    1,257
                    
                    
                    
                    1,797Finished
      goods
                    
                    
                    185
                    
                    
                    
                    235Less:
      provision for obsolete inventory
                    
                    
                    (685
                    )
                    
                    
                    (880
                    )$
                    1,879
                    
                    
                    $
                    2,449





4. STOCK
OPTIONS




As of
September 30, 2008, the Company had 2,750 shares of stock options outstanding
under the 1998 Employee Option Plan, which was terminated on December 2, 2005 by
the Company’s Board of Directors.





On
September 24, 2007, the Company’s Board of Directors unanimously adopted the
2007 Employee Stock Option Plan and the 2007 Directors Equity Incentive Plan,
which were approved by the shareholders on December 3, 2007.  The 2007
Employee Stock Option Plan provides for awards of up to 300,000 shares of the
Company’s Common Stock to employees, consultants and advisors.  The
2007 Directors Equity Incentive Plan provides for awards of up to 200,000 shares
of the Company’s Common Stock to the members of the Board of Directors in the
form of non-qualified options and restricted stock. These two plans are
administered by the Board, which also establishes the terms of the
awards.





Effective
July 1, 2005, the Company adopted the fair value recognition provisions of
Statement of Financial Accounting Standard No. 123R, “Share-Based Payment” (SFAS
No 123R), which requires the measurement and recognition of compensation expense
for all stock-based payment awards made to the Company’s employees and directors
including stock options and employee stock purchases.  Stock-based
compensation expense for stock options and employee stock purchases granted
subsequent to July 1, 2005 was based on the grant-date fair value estimated in
accordance with the provisions of SFAS No. 123R.  During the process
of estimating the fair value of the stock options granted and recognizing
share-based compensation, the following assumptions were
adopted.


-7-
 Table of Contents




Assumptions





The fair
value for these awards was estimated using the Black-Scholes option pricing
model with the following weighted average assumptions, assuming no expected
dividends:





Three
      Months Ended
                
                
                Year
      EndedSeptember
      30, 2008
                
                
                June
      30, 2008Expected
      volatility
                
                
                107.18
                %
                
                
                110.91-117.70
                %Risk-free
      interest rate
                
                
                2.48
                %
                
                
                2.90
                %Expected
      life (years)
                
                
                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 life of
options.  The expected life of stock options is based on the
historical experience of similar stock options granted and
observed.  The risk-free rate is consistent with the expected terms of
the stock options and is based on the United States Treasury yield curve in
effect at the time of grant.





2007 Employee Stock Option
Plan




The Company’s 2007
Employee Stock Option Plan (the “2007 Employee Plan”), which is
shareholder-approved, permits the grant of stock options to its employees of up
to 300,000 shares of Common Stock.  Under the 2007 Employee Plan, all
options must be granted with an exercise price of not less than “fair market
value” as of the grant date and theoptions granted should be exercisable
within a maximum of ten years after the date of grant, or such lesser period of
time as is set forth in the stock option agreements. They shall be exercisable
(a) immediately as of the effective date of the stock option agreement granting
the Option, or (b) in accordance with a schedule related to the date of the
grant of the Option, the date of first employment, or such other date as may be
set by the Compensation Committee.  Generally, options granted under
the 2007 Employee Plan are exercisable within five years after the date of
grant, and vest over the period as follows: 25% vesting on the grant date and
the remaining balance vesting in equal installments on the next three succeeding
anniversaries of the grant date.  The share-based compensation will be
recognized in terms of the grade method over the vesting period. Certain option
awards provide for accelerated vesting if there is a change in control (as
defined in the 2007 Employee Plan).





During
the first quarter of fiscal 2009, pursuant to the 2007 Employee Plan, 50,000
shares of stock options were granted to certain officers and employees with an
exercise price equal to the fair market value of the Company’s Common Stock (as
defined under the 2007 Employee Plan in conformity with Regulation 409A of the
Internal Revenue Code of 1986, as amended) at the date of
grant.  These options vest over the period as follows: 25% vesting on
the grant date, and the balance vesting in equal installments on the next three
succeeding anniversaries of the grant date.  The fair market value of
50,000 shares of the Company’s Common Stock issuable upon exercise of stock
options granted was approximately $136 based on the fair value of $2.71 per
share determined by using the Black Scholes option pricing
model.


-8-
 Table of Contents




The
Company recognized stock-based compensation expense of approximately $75 in the
first quarter of fiscal 2009 under the 2007 Employee
Plan.  Unamortized stock-based compensation of $172 based on fair
value on the grant date related to options granted under the 2007 Employee Plan
is expected to be recognized over a period of three years.





As of
September 30, 2008, there were 23,000 shares of vested employees’ stock options.
The weighted-average exercise price was $7.03 and the weighted average remaining
contractual term was 4.50 years. The total intrinsic value of vested employees’
stock options during the three months ended September 30, 2008 was
zero.  A
summary of option activities under the2007 Employee
Planduring
the three months ended September 30, 2008 is presented as
follows:





Options
                            
                            
                            Weighted-
      Average Exercise Price
                            
                            
                            Weighted
      - Average Remaining Contractual Term (Years)
                            
                            
                            Aggregate
      IntrinsicValueOutstanding
      at July 1, 2008
                            
                            
                            44,000
                            
                            
                            $
                            9.57
                            
                            
                            
                            4.43
                            
                            
                            
                            -Granted
                            
                            
                            50,000
                            
                            
                            $
                            4.81
                            
                            
                            
                            4.78
                            
                            
                            
                            -Exercised
                            
                            
                            -
                            
                            
                            
                            -Forfeited
      or expired
                            
                            
                            (2,000
                            )
                            
                            $
                            7.19Outstanding
      at September 30, 2008
                            
                            
                            92,000
                            
                            
                            $
                            7.03
                            
                            
                            
                            4.50
                            
                            
                            
                            -Exercisable
      at September 30, 2008
                            
                            
                            23,000
                            
                            
                            $
                            7.03
                            
                            
                            
                            4.50
                            
                            
                            
                            -








A summary
of the status of the Company’s non-vested employees’ stock options during the
three month period ended September 30, 2008 is presented below:





Options
                      
                      
                      Weighted-Average
      Grant-DateFair ValueNon-vested
      at July 1, 2008
                      
                      
                      33,000
                      
                      
                      $
                      5.55Granted
                      
                      
                      50,000
                      
                      
                      $
                      2.71Vested
                      
                      
                      (12,500
                      )
                      
                      $
                      2.71Forfeited
                      
                      
                      (1,500
                      )
                      
                      $
                      4.13Non-vested
      at September 30, 2008
                      
                      
                      69,000
                      
                      
                      $
                      4.04




-9-
 Table of Contents





2007 Directors Equity
Incentive Plan





The 2007
Directors Equity Incentive Plan (the “2007 Directors Plan”), which is
shareholder-approved, permits the grant of 200,000 shares of Common Stock to its
duly elected non-employee directors in the form of non-qualified options and
restricted stock. The exercise price of the non-qualified options is 100% of the
fair market value of the underlying shares on the grant date.  The
options have five-year contractual terms and are generally exercisable
immediately as of the grant date.





During
the first quarter of 2009, pursuant to the 2007 Directors Plan, 60,000 shares of
stock options were granted to our directors with an exercise price equal to the
fair market value of our Common Stock (as defined under the 2007 Directors Plan
in conformity with Regulation 409A or the Internal Revenue Code of 1986, as
amended) at the date of grant.  The fair market value of 60,000 shares
of the Company’s Common Stock issuable upon exercise of stock options granted
was approximately $163 based on the fair value of $2.71 per share determined by
the Black Scholes option pricing model.  There were no options
exercised during the three month period ended September 30, 2008.  The
Company recognized stock-based compensation expense of $163 in the three months
ended September 30, 2008 under the 2007 Directors Plan.





A summary
of option activities under the 2007 Directors Plan during the three month period
ended September 30, 2008 is presented as follow:





Weighted-
      Average Exercise
                  
                  
                  Weighted
      - Average Remaining Contractual
                  
                  
                  Aggregate
      IntrinsicOptions
                  
                  
                  Price
                  
                  
                  Term (Years)
                  
                  
                  ValueOutstanding
      at July 1, 2008
                  
                  
                  60,000
                  
                  
                  $
                  9.57
                  
                  
                  
                  4.43Granted
                  
                  
                  60,000
                  
                  
                  $
                  4.81
                  
                  
                  
                  4.78Exercised
                  
                  
                  -
                  
                  
                  
                  -Forfeited
      or expired
                  
                  
                  -
                  
                  
                  
                  -Outstanding
      at September 30, 2008
                  
                  
                  120,000
                  
                  
                  $
                  7.19
                  
                  
                  
                  4.48
                  
                  
                  
                  -Exercisable atSeptember 30, 2008
                  
                  
                  120,000
                  
                  
                  $
                  7.19
                  
                  
                  
                  4.48
                  
                  
                  
                  -





-10-
 Table of Contents





1998 Stock Option
Plan





A summary
of option activities under the 1998 Plan during the three month period ended
September 30, 2008 is presented as follow:





Weighted-
      Average Exercise
                  
                  
                  Weighted
      - Average Remaining Contractual
                  
                  
                  Aggregate
      IntrinsicOptions
                  
                  
                  Price
                  
                  
                  Term (Years)
                  
                  
                  ValueOutstanding
      at July 1, 2008
                  
                  
                  12,550
                  
                  
                  $
                  3.03Granted
                  
                  
                  -
                  
                  
                  
                  -Exercised
                  
                  
                  (1,000
                  )
                  
                  $
                  2.66Forfeited
      or expired
                  
                  
                  (8,800
                  )
                  
                  $
                  2.66Outstanding
      at September 30, 2008
                  
                  
                  2,750
                  
                  
                  $
                  4.40
                  
                  
                  
                  0.75
                  
                  
                  
                  -Exercisable
      at September 30, 2008
                  
                  
                  2,750
                  
                  
                  $
                  4.40
                  
                  
                  
                  0.75
                  
                  
                  
                  -




The
intrinsic value of 2,750 options exercised was zero. Cash received from options
exercised in the first quarter of 2009 was approximately $3. There were no unvested stock options under the 1998 Plan as of
September 30, 2008.





5. EARNINGS PER
SHARE





The
Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings per Share(“EPS”).  Basic EPS are computed by dividing net income
available to common shareholders (numerator) by the weighted average number of
common shares outstanding (denominator) during the period.  Diluted
EPS give effect to all dilutive potential common shares outstanding during a
period.  In computing diluted EPS, the average price for the period is
used in determining the number of shares assumed to be purchased from the
exercise of stock options and warrants.





Options
to purchase 214,750 shares of Common Stock at exercise prices ranging from $4.40
to $9.57 per share as of September 30, 2008 were excluded from the computation
of diluted earnings per share because their effect would have been
anti-dilutive.





Options
to purchase 13,050 shares of common stock at exercise prices ranging from $2.66
to $4.40 per share were outstanding as of September 30, 2007. No options were
excluded in the determination of common shares equivalents, because the average
market price of common shares was greater than the exercise price of the stock
options. The resulting common shares
equivalents were approximately 11,000 shares and are presented in the following
table for earnings per share calculation purposes.


-11-
 Table of Contents


The
following table is a reconciliation of the weighted average shares used in the
computation of basic and diluted EPS for the years presented
herein:





Three
      Months EndedSep.
      30,
                  
                  
                  Sep.
      30,2008
                  
                  
                  2007(Unaudited)
                  
                  
                  (Unaudited)Net
      (loss) income attributed to common shares
                  
                  $
                  (719
                  )
                  
                  $
                  751Basic
      (loss) earnings per share
                  
                  $
                  (0.22
                  )
                  
                  $
                  0.23Diluted
      (loss) earnings per share
                  
                  $
                  (0.22
                  )
                  
                  $
                  0.23Weighted
      average number of common shares outstanding - basic
                  
                  
                  3,227
                  
                  
                  
                  3,226Dilutive
      effect of stock options
                  
                  
                  -
                  
                  
                  
                  11Number
      of shares used to compute earnings per share - diluted
                  
                  
                  3,227
                  
                  
                  
                  3,237





6.           
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS





Accounts
receivable are customer obligations due under normal trade terms.  We
sell our products and services to manufacturers in the semiconductor
industry.  We perform continuing credit evaluations of our customers’
financial conditions, and although we generally do not require collateral,
letters of credit may be required from our customers in certain
circumstances.





Senior
management reviews accounts receivable on a monthly basis to determine if any
receivables will potentially be uncollectible.  We include any
accounts receivable balances that are determined to be uncollectible in our
allowance for doubtful accounts.  After all attempts to collect a
receivable have failed, the receivable is written off against the
allowance.  Based on the information available to us, we believe our
allowance for doubtful accounts for the three months ended September 30, 2008
and the twelve months ended June 30, 2008 was adequate.





The
following table represents the changes in the allowance for doubtful
accounts:





Sept.
      30, 2008(Unaudited)
                      
                      
                      June
      30, 2008Beginning
                      
                      $
                      51
                      
                      
                      $
                      42Additions
      charged to expenses
                      
                      
                      8
                      
                      
                      
                      24Recovered
                      
                      
                      (12
                      )
                      
                      
                      (15
                      )Actual
      write-offs
                      
                      
                      -
                      
                      
                      
                      -Ending
                      
                      $
                      47
                      
                      
                      $
                      51





-12-
 Table of Contents





7.         
WARRANTY ACCRUAL





The
Company provides for the estimated costs that may be incurred under its warranty
program at the time the sale is recorded.  The Company provides
warranty for products manufactured in the term of one year.  The
Company estimates the warranty costs based on the historical rates of warranty
returns.  The Company periodically assesses the adequacy of its
recorded warranty liability and adjusts the amounts as necessary.





Sept.
      30, 2008(Unaudited)
                    
                    
                    June
      30, 2008Beginning
                    
                    $
                    113
                    
                    
                    $
                    211Additions
      charged to cost and expenses
                    
                    
                    1
                    
                    
                    
                    -Reversal
                    
                    
                    (23
                    )
                    
                    
                    (80
                    )Actual
      usage
                    
                    
                    (7
                    )
                    
                    
                    (18
                    )Ending
                    
                    $
                    84
                    
                    
                    $
                    113





8.          
ADOPTION OF FASB INTERPRETATION NO. 48





The
Company adopted the provisions of FIN 48 on July 1, 2007 and has had no material
adjustments to its liabilities for unrecognized income tax benefits since its
adoption.  The Company has not included any uncertain tax positions as
defined by FIN 48 in its currently filed federal or state income tax
returns.  As of June 30, 2007, and the adoption date, the Company had
$267 of income tax liability related to the allocation of corporate management
expenses to its Singapore operations.  The Company has not recognized
any income tax benefit for this position during the current quarter in
accordance with the provisions of FIN 48.





9.            INVESTMENT
IN CHONGQING




In June
2007, Trio-Tech International Pte., Ltd. established a subsidiary in Chongqing,
China.  This newly established subsidiary,
Trio-Tech (Chongqing) Co., Ltd., has a registered capital of RMB 20,000 (Chinese
yuan), or equivalent to approximately U.S. $2,600, and is wholly owned by
Trio-Tech International Pte., Ltd. In June 2007, Trio-Tech International Pte.,
Ltd. infused $2,600 to Trio-Tech (Chongqing) Co., Ltd. to fulfill its capital
injection obligation.  The source of the funds was from the proceeds
from the disposition of short-term deposits by Trio-Tech International Pte.,
Ltd.




On August
27, 2007, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement
with JiaSheng Property Development Co.,
Ltd. (JiaSheng hereafter) to jointly
develop a piece of property with 24.91 acres owned by JiaSheng located in Chongqing City, China, which
is intended for sale after the completion of development.  Pursuant to
the signed agreement, the capital to be invested by Trio-Tech (Chongqing) Co.,
Ltd. was RMB 10,000, equivalent to approximately U.S. $1,473 based on the
exchange rate on September 30, 2008 published by the Federal Reserve
System.  On August 28, 2007, Trio-Tech (Chongqing) Co., Ltd.
transferred the required amount from its bank account into a special bank
account jointly monitored by both Trio-Tech (Chongqing) Co., Ltd. and JiaSheng.  The investment was accounted
under the cost method.


-13-
 Table of Contents





On
October 22, 2007, the parties received approval from the Chinese District Zoning
Regulation Bureau to increase the square meters of the buildings specified in
the original Memorandum Agreement dated August 27, 2007 by 9,885 square
meters.  As a result, the construction costs of the proposed building
project also increased.  On November 15, 2007, Trio-Tech (Chongqing)
Co., Ltd. entered into a Supplement Agreement to the Memorandum Agreement dated
August 27, 2007 with JiaSheng.  The purpose of this
Supplement Agreement was to document another agreement reached by both parties
regarding the additional capital infusion to be committed by the respective
parties in order to finance the increase in construction costs. The Supplement
Agreement does not modify the terms and obligations of both parties specified in
the original Memorandum Agreement.  Under the terms of the Supplement
Agreement, the Company agreed to invest an additional RMB 9,000, or
approximately U.S. $1,326 based on the exchange rate as of September 30, 2008
published by the Federal Reserve System.   On December 17, 2007,
Trio-Tech (Chongqing) Co., Ltd. received a list of additional costs incurred for
this project, which were RMB 4,000 less than the estimated cost of RMB
9,000.  Accordingly, the Company only transferred RMB 5,000,
approximately U.S. $737, from its bank account into the special bank account
jointly monitored by both Trio-Tech (Chongqing) Co., Ltd. and JiaSheng.  After that extra infusion,
the equity ratio owned by the Company in that joint venture was
20%.




In the
fourth quarter of 2008, the investment of RMB 5,000, approximately U.S. $737 based on theexchange rate as of September
30, 2008 published by the Federal Reserve Systemwas returned to the
Company, which reduced the investment in this project to
$1,473.  After that return of investment, the equity ratio owned by
the Company in that joint venture was 15%. The Company also recorded a profit of
RMB 750, approximately $103 based on theexchange rate as of September 30, 2008 published by the Federal Reserve
System, in investment income in the fourth quarter of 2008.




In
accordance with APB 18, the
Equity Method of Accounting for Investments in Common Stock, management
believes that the cost method of accounting is appropriate.




On
January 4, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum
Agreement with MaoYe Property Ltd. to purchase an office space of 827.2 square
meters on the 35th floor of a 40 story high office building located in
Chongqing, China.  The total cash purchase price was RMB 5,554
(Chinese yuan), equivalent to approximately U.S. $818 based on the exchange rate
as of September 30, 2008 published by the Federal Reserve
System.  Under the terms of the agreement, the Company paid the
purchase price in full on January 4, 2008.  The Company rented this
property to a third party on July 13, 2008. The term of the rent agreement is
five years with a monthly rental income of RMB 39, or approximately $5 for the
first three years, with an increase of 8% in the fourth year and another 8% in
the fifth year. It the first quarter of fiscal 2009, this property generated a
rental income of $15.




The
following table presents the Company’s investment in China in fiscal 2008. The
exchange rate is based on the exchange rate on September 30, 2008 published by
the Federal Reserve System.





Investment
      Date
                                        
                                        Investment
      Amount
                                        
                                        
                                        Investment
      Amount(RMB)
                                        
                                        
                                        (US
      Dollars)Investment
      in property with JiaSheng
                                        08/28/07
                                        
                                        
                                        10,000
                                        
                                        
                                        
                                        1,473Investment
      in property with JiaSheng
                                        12/17/07
                                        
                                        
                                        5,000
                                        
                                        
                                        
                                        737Purchase
      on investment property
                                        01/04/08
                                        
                                        
                                        5,554
                                        
                                        
                                        
                                        818Return
      on investment in property with JiaSheng
                                        06/26/08
                                        
                                        
                                        (5,000
                                        )
                                        
                                        
                                        (737
                                        )Total
      investment in China
                                        
                                        
                                        RMB
      15,554
                                        
                                        
                                        $
                                        2,291




-14-
 Table of Contents





10.
            BUSINESS
      SEGMENTS





The
      Company operates principally in three industry segments; the testing
      service industry (which performs structural and electronic tests of
      semiconductor devices), the designing and manufacturing of equipment
      (which equipment tests the structural integrity of integrated circuits and
      other products) and the distribution of various products from other
      manufacturers in Singapore and Southeast Asia.  The following
      net sales were based on customer location rather than subsidiary
      location.





The
      allocation of the cost of equipment, the current year investment in new
      equipment and depreciation expense have been made on the basis of the
      primary purpose for which the equipment was
  acquired.





All
      inter-segment sales were sales from the manufacturing segment to the
      testing and distribution segments. Total inter-segment sales were $11 and
      $59 for the three months ended September 30, 2008 and 2007, respectively.
      Corporate assets mainly consisted of cash and prepaid expenses. Corporate
      expenses mainly consisted of salaries, insurance, professional expenses
      and directors' fees.





The
      following segment information is unaudited:





Business
      Segment Information:Quarter
                
                
                
                
                Operating
                
                
                
                
                
                Depr.Ended
                
                Net
                
                
                (Loss)
                
                
                Total
                
                
                and
                
                
                CapitalSept.
      30,
                
                Sales
                
                
                Income
                
                
                Assets
                
                
                Amort.
                
                
                ExpendituresManufacturing
                2008
                
                $
                3,046
                
                
                $
                (444
                )
                
                $
                1,987
                
                
                $
                60
                
                
                $
                842007
                
                
                6,396
                
                
                
                326
                
                
                
                3,949
                
                
                
                40
                
                
                
                33Testing
      Services
                2008
                
                
                3,098
                
                
                
                (222
                )
                
                
                29,593
                
                
                
                485
                
                
                
                5752007
                
                
                5,543
                
                
                
                1,018
                
                
                
                33,147
                
                
                
                748
                
                
                
                510Distribution
                2008
                
                
                86
                
                
                
                31
                
                
                
                44
                
                
                
                1
                
                
                
                -2007
                
                
                111
                
                
                
                (22
                )
                
                
                798
                
                
                
                17
                
                
                
                -Corporate
      and
                2008
                
                
                -
                
                
                
                (52
                )
                
                
                50
                
                
                
                -
                
                
                
                -Unallocated
                2007
                
                
                -
                
                
                
                (68
                )
                
                
                531
                
                
                
                -
                
                
                
                2Total
      Company
                2008
                
                $
                6,230
                
                
                $
                (687
                )
                
                $
                31,674
                
                
                $
                546
                
                
                $
                6592007
                
                $
                12,050
                
                
                $
                1,254
                
                
                $
                38,425
                
                
                $
                805
                
                
                $
                545




-15-
 Table of Contents





Geographic
      Area Information:Elimin-Quarter
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                ationsEnded
                
                United
                
                
                
                
                
                Other
                
                
                
                
                
                
                
                
                
                
                
                and
                
                
                TotalSept.
      30,
                
                States
                
                
                China
                
                
                Countries
                
                
                Singapore
                
                
                Thailand
                
                
                Malaysia
                
                
                Other
                
                
                CompanyNet
      Sales to
                2008
                
                $
                2,332
                
                
                $
                290
                
                
                $
                379
                
                
                $
                1,301
                
                
                $
                129
                
                
                $
                1,810
                
                
                $
                (11
                )
                
                $
                6,230Customers
                2007
                
                
                1,460
                
                
                
                219
                
                
                
                388
                
                
                
                5,572
                
                
                
                514
                
                
                
                3,956
                
                
                
                (59
                )
                
                
                12,050Operating
                2008
                
                
                (242
                )
                
                
                (29
                )
                
                
                (41
                )
                
                
                (130
                )
                
                
                (13
                )
                
                
                (179
                )
                
                
                (53
                )
                
                
                (687
                )Income
      (loss)
                2007
                
                
                123
                
                
                
                26
                
                
                
                41
                
                
                
                592
                
                
                
                62
                
                
                
                478
                
                
                
                (68
                )
                
                
                1,254Long-lived
                2008
                
                
                6
                
                
                
                842
                
                
                
                -
                
                
                
                1,540
                
                
                
                666
                
                
                
                5,004
                
                
                
                (40
                )
                
                
                8,018Assets
                2007
                
                
                7
                
                
                
                845
                
                
                
                -
                
                
                
                2,618
                
                
                
                831
                
                
                
                3,060
                
                
                
                (40
                )
                
                
                7,321





11.  MINORITY
INTEREST





Minority interest represents the
minority stockholders’ proportionate share of 45% of the equity of Trio-Tech
Malaysia.





12. SUBSEQUENT
EVENTS





On
October 23, 2008, Trio-Tech Chongqing Co., Ltd. entered into a Memorandum
Agreement with JiaSheng Property Development Co., Ltd. (“JiaSheng”) to purchase
four units of commercial property and two units of residential property,
totaling 1,391.70 square meters, at JiaSheng Jingyun Huafu Project located at
No. 17 Puyun Avenue in Chongqing, China.





The total
cash purchase price to be paid by the Company under the Memorandum Agreement is
RMB 7,043 (Chinese yuan) or approximately $1,030 (U.S. dollars) based on the
exchange rate as of October 23, 2008 published by the Federal Reserve
Statistical Release. Under the terms of the Memorandum Agreement, the Company
made a down payment of 10% in cash in the amount of RMB 704 or U.S. $103 based
on the exchange rate as of October 23, 2008 published by the Federal Reserve
Statistical Release in October 2008 and the balance of 90% was paid on November
4, 2008, using internally generated funds of the Company.





Additionally,
on October 23, 2008, the Company entered into a lease agreement with JiaSheng
for the six units purchased from JiaSheng pursuant to the Memorandum
Agreement.  The lease provides for a two year term with an annual
rental income of RMB 1,392 (Chinese yuan) or approximately $204 (U.S. dollars).
The lease commenced November 1, 2008.





13. LOAN COVENANT
VIOLATION





As the
Company suffered a loss in the first quarter of fiscal 2009, the Singapore
operations did not fulfill one of their loan  covenants which requires
the Company to maintain  the debt to EBITDA ratio of no more than 2.5
times at all times during the terms of the loan.  As a result the
Company has reclassified the related long term portion of the bank loan of
$1,215 to the current portion of the liabilities.  The management has
communicated to the bank and requested a waiver of this particular loan
covenant.  As of the filing date of this 10Q report, the bank is still
in the process of reviewing the Company’s request.


-16-
 Table of Contents


TRIO-TECH
INTERNATIONAL AND SUBSIDIARIES


IITEM 2.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)





The
following should be read in conjunction with the condensed consolidated
financial statements and notes in Item I above and with the audited consolidated
financial statements and notes, and with the information under the headings
“Risk factors” and “Management’s discussion and analysis of financial condition
and results of operations” in the most recent Annual Report on Form
10-K.





Overview





Founded
in 1958, Trio-Tech International provides third-party semiconductor testing and
burn-in services primarily through its laboratories in Southeast
Asia.  The Company also designs, manufactures and markets equipment
and systems, and distributes semiconductor processing and testing equipment
manufactured by others. The Company operates in three business segments: Testing
Services, Manufacturing and Distribution.





We own
and operate facilities that provide testing services for semiconductor devices
and other electronic components to meet the requirements of military, aerospace,
industrial and commercial applications.  We currently operate four
testing facilities, one in the United States, three in Southeast Asia. The
Company uses its own proprietary equipment for certain burn-in, centrifugal and
leak tests, and commercially available equipment for various other environmental
tests.  The Company conducts the majority of its testing operations in
Southeast Asia and China with facilities in Singapore, Malaysia, Thailand and
China.  Our facilities require substantial investment to construct and
are largely fixed-costs assets once in operation. Because we own most of the
testing capacity, a significant portion of our operating costs is fixed. In
general, these costs do not decline with reductions in customer demand or the
utilization of our testing capacity, and can adversely affect profit margins as
a result. Conversely, as product demand rises and factory utilization increases,
the fixed costs are spread over the increased output, which should improve
profit margins.





In the
third quarter of fiscal 2008, one of our major customers ceased their advanced
burn-in testing service contract with us due to one of their product lines
reaching the end of its life cycle earlier than expected.The net sales in the
testing segment decreased by $2,445 to $3,098 for the three months ended
September 30, 2008 as the result of the loss of
revenue from this major customer.  Management took immediate
action to reduce expenses in an effort to match future cash flows and is in the
process of developing new customer relationships in China and Malaysia and
exploring new business opportunities to offset the lost testing revenue from
this contract.





Our
manufacturing segment manufactures Artic Temperature Controlled Wafer Chucks,
which are used for test, characterization and failure analysis of semiconductor
wafers, Wet Process Stations, which wash and dry wafers at a series of 100 to
300 additional processing steps after the etching or deposition of integrated
circuits, and other microelectronic substrates in what is commonly called the
“front-end,” or creation, of semiconductor circuits.  Additionally, we
also manufacture centrifuges, leak detectors, HAST (Highly Accelerated Stress
Test) systems and “burn-in" systems that are used primarily in the “back-end” of
the semiconductor manufacturing process to test finished semiconductor devices
and electronic components.





In the
United States, our manufacturing segment focused on marketing used and
refurbished equipment, which some of our customers are more willing to purchase
since it is less expensive than new equipment.





Due to
the competitive environment in the manufacturing segment, we anticipate that we
will continue to implement our cost reduction plan by outsourcing a portion of
our manufacturing process to outside suppliers, such as electrical and
mechanical fabrication houses, and seek competitively priced
materials.


-17-
 Table of Contents


Our
distribution segment operates primarily in Southeast Asia.  This
segment markets and supports distribution of our own manufactured equipment in
addition to distributing complementary products supplied by other manufacturers
that are used by our customers and other semiconductor and electronics
manufacturers.  We expanded the distribution business to include a
strategic business unit mainly to serve as a distributor of electronic
components to customers.  It is the strategy of management to focus on
the sales of our own manufactured products. We believe this will help us to
reduce our exposure to multiple risks arising from being a mere distributor of
manufactured products from others.





In June
2007, Trio-Tech International Pte., Ltd. established a subsidiary in Chongqing,
China.  This subsidiary, Trio-Tech (Chongqing) Co., Ltd., has
registered capital of RMB 20,000 (Chinese yuan), or approximately U.S. $2,600,
and is wholly owned by Trio-Tech International Pte., Ltd.  On August
27, 2007, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement
with JiaSheng Property Development Co.,
Ltd. (JiaSheng) to jointly develop a piece
of property with 24.91 acres owned by JiaSheng located in Chongqing City, China, which
is intended for sale after the completion of development.  In fiscal
2008, the Company invested an aggregate of RMB 15,000, equivalent to
approximately U.S. $2,210 based on the exchange rate on September 30, 2008
published by the Federal Reserve System on this project. In the fourth quarter
of 2008, the investment of RMB 5,000, or approximately $737 was returned to the
Company, which reduced the investment in this project to $1,473.  The
Company also recorded a profit of RMB 750, approximately $103 in investment
income in the fourth quarter of 2008.  In accordance with APB 18,
The Equity Method of
Accounting for Investments in Common Stock, management believes that the
cost method of accounting is appropriate.




On
January 4, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum
Agreement with MaoYe Property Ltd. to purchase an office space of 827.2 square
meters on the 35th floor of a 40 story high office building located in
Chongqing, China.  The total cash purchase price was RMB 5,554
(Chinese yuan), equivalent to approximately $818 based on the exchange rate as
of September 30, 2008 published by the Federal Reserve System.  The
Company rented this property out to a third party on July 13,
2008.  The term of the rent agreement is five years with a monthly
rental income of RMB 39, or approximately $5 for the first three years, with an
increase of 8% in the fourth year and another 8% in the fifth year. It the first
quarter of fiscal 2009, this property generated a rental income of
$15.





The
investment income generated by Trio-Tech (Chongqing) Co., Ltd. in the first
quarter of fiscal year 2009 was classified as investment income, which was
included in other income in the Consolidated Statements of Operations and
Comprehensive Income for the three months ended September 30, 2008. There was no
investment income in the same period of fiscal 2008.





First Quarter Fiscal 2009
Highlights





●
            Total
      revenue decreased 48.3% to $6,230 for the first quarter of fiscal 2009,
      compared with revenue of $12,050 for the first quarter of fiscal
      2008.


●
            Manufacturing
      segment revenue decreased by $3,350, or 52.4%, to $3,046, compared to
      $6,396 for the first quarter of fiscal
2008.


●
            Testing
      segment revenue decreased by $2,445, or 44.1%, to $3,098, compared to
      $5,543 for the first quarter of fiscal
2008.


●
            Distribution
      segment revenue decreased by $25, or 22.5% to $86, compared to $111 for
      the first quarter of fiscal 2008.


●
            Loss
      from operations increased by $1,941, or 154.8%, to $687 compared with an
      income of $1,254 for the first quarter of fiscal
  2008.


●
            Gross
      profit margins decreased by 4.3% to 20.9% from 25.2% for the first quarter
      of fiscal 2008.


●
            Selling
      expenses as a percentage of revenue increased by 1.0% from 1.0% of revenue
      for the first quarter of fiscal 2008 to 2.0% of revenue for the first
      quarter of fiscal 2009.


●
            General
      and administrative expenses as a percentage of revenue increased by 18.6%
      from 13.7% of revenue for the first quarter of fiscal 2008 to 32.3% or
      revenue for the first quarter of fiscal
2009.


●
            Net
      loss increased by $1,470, or 195.7% to $719, compared to a net income of
      $751 for the first quarter of fiscal
2008.


●
            Net
      cash flow provided by operating activities increased by $415, or 108.6% to
      $33, compared to a cash outflow of $382 for the first quarter of fiscal
      2008.


-18-
 Table of Contents


Subsequent
Events





On
October 23, 2008, Trio-Tech Chongqing Co., Ltd. entered into a Memorandum
Agreement with JiaSheng Property Development Co., Ltd. (“JiaSheng”) to purchase
four units of commercial property and two units of residential property,
totaling 1,391.70 square meters, at JiaSheng Jingyun Huafu Project located at
No. 17 Puyun Avenue in Chongqing, China.





The total
cash purchase price to be paid by the Company under the Memorandum Agreement is
RMB 7,043 (Chinese yuan) or approximately $1,030 (U.S. dollars) based on the
exchange rate as of October 23, 2008 published by the Federal Reserve
Statistical Release. Under the terms of the Memorandum Agreement, the Company
made a down payment of 10% in cash in the amount of RMB 704 or U.S. $103 based
on the exchange rate as of October 23, 2008 published by the Federal Reserve
Statistical Releasein
October 2008 and the balance of 90% was paid on November 4, 2008, using
internally generated funds of the Company.





Additionally,
on October 23, 2008, the Company entered into a lease agreement with JiaSheng
for the six units purchased from JiaSheng pursuant to the Memorandum
Agreement.  The lease provides for a two year term with an annual
rental income of RMB 1,392 (Chinese yuan) or approximately $204 (U.S. dollars).
The lease commenced November 1,
2008.





Results
of Operations and Business Outlook





The
following table sets forth our revenue components for the three months ended
September 30, 2008 and 2007, respectively.





Three
      Months Ended September 30,2008
                    
                    
                    
                    2007Net
      Sales:Manufacturing
                    48.9
                    %
                    
                    
                    53.1
                    %Testing
                    49.7
                    
                    
                    
                    46.0Distribution
                    1.4
                    
                    
                    
                    0.9Total
                    100.0
                    %
                    
                    
                    100.0
                    %





Net sales
for the three months ended September 30, 2008 were $6,230, a decrease of $5,820,
or 48.3%, compared to $12,050 for the same quarter last fiscal
year.





Net sales
into and within China and the Southeast Asia regions and other countries (except
sales into and within the United States) decreased by $6,692, or 63.2% to $3,898
for the three months ended September 30, 2008, compared with $10,590 for the
same period of last fiscal year. The decrease was primarily due to a drop in
sales in the testing segment in our Singapore and China operations. Net sales
into and within the United States were $2,332, an increase of $872, or 59.7%
compared to the same quarter last fiscal year 2008, due to an increase in market
demand for our refurbished equipment.





The
decrease in net sales can be discussed within three segments as
follows:





Manufacturing
Segment





Net sales in the manufacturing segment
as a percentage of total net sales decreased by 4.2% to 48.9% of total net sales
for the three months ended September 30, 2008, compared to 53.1% of total net
sales in the first quarter of fiscal 2008.  The absolute amount of net
sales decreased by $3,350 for the three months ended September 30, 2008, from
$6,396 to $3,046, compared to the same period of fiscal 2008. The decrease in
revenue generated by the manufacturing segment was due to the fact that fewer
orders were placed by one of our major customers, which was the result of slowermovement of that
customer’s product line and equipment capacity.  We believe that the
loss of orders from our major customer will continue to have a negative impact
on our revenue in the future if we are unable to compensate for the loss of this
source of revenue.


-19-
 Table of Contents


Testing
Segment





As a
percentage of the total revenue, the revenue generated by the testing segment in
the first quarter of fiscal 2009 accounted for 49.7% of total sales, an increase of 3.7%,compared to
46.0% in the same period of fiscal 2008.  In terms of dollar amount,
the revenue of the testing segment for the first quarter of fiscal 2009 was
$3,098, reflecting a decrease of $2,445,or
44.1%, compared to $5,543 for the first quarter of fiscal 2008. This decrease in
revenue was due to the loss of our main
customer due to one of its product lines reaching the end of its life
cycle earlier than expected, rendering our testing services in the Singapore,
Thailand and China operations for that product no longer necessary.





Distribution
Segment





The
distribution segment accounted for 1.4% of total net sales in the first quarter
of fiscal 2009, an increase of 0.5% compared to 0.9% in the first quarter of
fiscal 2008.The absolute
amount of net sales decreased by $25 for the three months ended September 30,
2008, from $111 in the first quarter of fiscal 2008 to $86 in the first quarter
of fiscal 2009. The drop in revenue was due to lower demand in the current
market for back-end products such as Vibration equipment and chambers and, we
believe, a saturation of equipment and electronic components in the current
market.





Uncertainties
and Remedies





There are
several influencing factors which create uncertainties when forecasting
performance, such as the ever-changing nature of technology, specific
requirements from the customer, decline in demand for certain types of burn-in
devices or equipment, and other similar factors.  Based on a number of
economic indicators, it appears that growth in global economic activity has
slowed substantially. At the present time, the rate at which the global economy
will slow has become increasingly uncertain. A continued slowing of global
economic growth, and, in particular, in the United States, will likely to have a
negative impact on ourgrowth
and results of operations. One of these factors is the highly competitive nature
of the semiconductor industry.   Another is that some customers
are unable to provide a forecast of the products required in the upcoming weeks;
hence it is difficult to plan for the resources needed to meet these customers’
requirements due to short lead time and last minute order confirmation. This
will normally result in a lower margin for these products, as it is 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, in order
to meet customers’ demands upon short notice, the Company maintains higher
inventories, but continues to work closely with its customers to avoid stock
piling.  We continue to cut costs by upgrading some of our existing
facilities to cater to the changing requirements of customers and by maintaining
a lean headcount, while still keeping quality high so as to sell new products at
a competitive price. We have also been improving customer service from staff by
keeping 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 of higher technology chips.


-20-
 Table of Contents


Comparison
of the First Quarters Ended September 30, 2008 (“Q1 2009”) and September 30,
2007 (“Q1 2008”)





The
following table sets forth certain consolidated statements of income data as a
percentage of net sales for the first quarters of fiscal 2009 and 2008,
respectively:





Three
      Months Ended September 30,2008
                    
                    
                    2007Net
      Sales
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %Cost
      of sales
                    
                    
                    79.1
                    %
                    
                    
                    74.8
                    %Gross
      Margin
                    
                    
                    20.9
                    %
                    
                    
                    25.2
                    %Operating
      ExpensesGeneral
      and administrative
                    
                    
                    32.3
                    %
                    
                    
                    13.7
                    %Selling
                    
                    
                    2.0
                    %
                    
                    
                    1.0
                    %Research
      and development
                    
                    
                    0.2
                    %
                    
                    
                    0.1
                    %Gain
      on disposal of PP&E
                    
                    
                    (2.6)
                    %
                    
                    
                    -Total
      operating expenses
                    
                    
                    31.9
                    %
                    
                    
                    14.8
                    %Income
      / (Loss) from Operations
                    
                    
                    (11.0)
                    %
                    
                    
                    10.4
                    %





Overall
Gross Margin





Overall
gross margin as a percentage of revenue decreased by 4.3% to 20.9%, for the
three months ended September 30, 2008 from 25.2% in the first quarter of last
year primarily due to the decrease in the gross margin in the testing segment.





Gross
profit margin as a percentage of revenue in the manufacturing segment decreased
from 14.9% in the first quarter of fiscal 2008 to 14.4% in the first quarter of
fiscal 2009.  The decrease in gross margin was due to an increase in
sales of lower margin burn-in systems pass-through products vis-à-vis higher margin systemsin the first
quarter of fiscal 2009 compared withthe mix of
systems in the same period of fiscal 2008. In addition, there was a
decrease in the average sales price of burn-in boards and burn-in systems as a
result of strong competition in the market place.  However, the
Company currently intends to continue manufacturing low-margin burn-in systems
and boards in order to maintain market share of these products with its current
customers. In absolute amounts, gross profits deceased by $512 to $438 for the
three months ended September 30, 2008, from $950 for the three months ended
September 30, 2007.





Gross
profit margin as a percentage of revenue in the testing segment decreased by
10.2% for the three months ended September 30, 2008, from 37.2% to 27.0%,
compared to the same quarter last fiscal year.  In terms of dollar
amount, gross margin in the testing segment in the first quarter of fiscal 2009
was $837, a decrease of $1,226, or 59.4%,
compared to $2,063 in the same period of fiscal 2008.  The decrease in
the gross margin was primarily due to a decrease in testing volume coupled with
a decrease in sales prices in the first quarter of fiscal year 2009. Additionally, because significant portions of our
operating costs are fixed in the testing segment, as service demands and factory
utilization decrease, the fixed costs are
spread over the decreased output, which deteriorates profit margin. In addition,
our customers changed their demands and specifications for burn-in hours, which
resulted in a lower average unit selling price for burn-in services.


-21-
 Table of Contents




Gross
profit margin as a percentage of revenue in the distribution segment improved by
5.3% for the first quarter of fiscal 2009, from 26.1% in the first quarter of
fiscal 2008 to 31.4%, compared to the same quarter last fiscal year. The
improvement in the gross profit as a percentage of sales was due to an increase
in average sales prices in the first quarter of fiscal 2009 compared to the same
quarter of fiscal 2008. In terms of dollar amount, gross margin in the
distribution segment in the first quarter of fiscal 2009 was $27, a decrease of $2, or 6.9%, compared to $29 in the
same period of fiscal 2008.  .The gross margin
of the distribution segment is not only affected by the market price of our
products, but also our product mix, which changes frequently as a result of
changes in market demand.




Operating
Expenses





Operating
expenses for the first quarters of 2009 and 2008 were as follows:


Three
      Months Ended September 30,(In
      Thousands, unaudited)
                  
                  2008
                  
                  
                  2007General
      and administrative
                  
                  $
                  2,015
                  
                  
                  $
                  1,645Selling
                  
                  $
                  123
                  
                  
                  $
                  124Research
      and development
                  
                  $
                  10
                  
                  
                  $
                  19Gain
      on disposal of PP&E
                  
                  $
                  (159
                  )
                  
                  $
                  -Total
                  
                  $
                  1,989
                  
                  
                  $
                  1,788





General
and administrative expenses increased by $370, or 22.5%, from $1,645 to $2,015
for the three months ended September 30, 2008, compared to the same period of
last fiscal year.  The increase wasprimarily attributable to an increase of noncash stock option expenses of
$238 in the first quarter of fiscal 2009 and a reversal of bonus provision of
$154 in the first quarter of fiscal year 2008 as discussed in our annual report
for the year-ended June 30, 2008. We did
not have any bonus reversal in the first
quarter of fiscal 2009. The increase was offset by a decrease in the officer and
executive compensation in the first quarter of fiscal 2009. On February 27,
2008, in view of anticipated reductions in service revenue for fiscal 2008, our
Chief Executive Officer, Chief Financial Officer and directors voluntarily
decreased their base salary to 50% of the base salary agreed to in July 2007. As
a result, our compensation for the officers and executives decreased by $99 in
the first quarter of fiscal 2009.





Selling
expenses decreased slightly by $1, or 0.8%, from the three months ended
September 30, 2008, from $124 to $123 compared to the same quarter of fiscal
2008.





In first
quarter of fiscal 2009, research and development expenses were $10 compared to
$19 for the first quarter of fiscal 2008. The decrease was primarily due to a
decrease in full time employee headcount in the U.S. operation.





Gain on
disposal of property, plant and equipment was $159 for the first quarter of
fiscal year 2009, which mainly resulted from the disposal of certain idle fixed
assets at a gain in theSingapore
operation.We had
no such gain for the same period of fiscal year 2008.





(Loss)
Income from Operations





Loss from
operations increased by $1,941, or 154.8%, from an income from operations of
$1,254 for the three months ended September 30, 2007 to a loss of $687 for the
three months ended September 30, 2008, mainly due to the decrease in revenue and
an increase in operating expenses, as previously discussed.


-22-
 Table of Contents




Interest
Expense





Interest
expense for the first quarters of 2009 and 2008 was as follows:





Three
      Months Ended September 30,(In
      Thousands, unaudited)
                
                2008
                
                
                2007Interest
      expense
                
                $
                (58
                )
                
                $
                (85
                )





Interest
expense decreased by $27 for the three months ended September 30, 2008 from $85
to $58, primarily due to a decrease in the loan payable and capital lease
obligation. We are trying to keep our debt at minimum in order to save financing
costs. Our credit rating provides us with ready and adequate access to funds in
global markets.  As of September 30, 2008, the Company has an unused
line of credit of $15,657.





Other
(Expenses) Income





Other
(expenses) income for the first quarters of 2009 and 2008 were as
follows:





Three
      Months Ended September 30,(In
      Thousands, unaudited)
                
                2008
                
                
                2007Other
      (expenses) income
                
                $
                215
                
                
                $
                (50
                )





Other
income increased by $265 to $215 for the three months ended September 30, 2008
from an expense of $50 in the same quarter of last fiscal year, primarily due to
an increase in rental income and currency transaction gain. Currency transaction gain
increased by $275 for the three months ended September 30, 2008, from a
transaction loss of $118 to a transaction gain of $157, compared to the same
quarter of fiscal 2008. This was attributable to the strengthening of U.S.
dollar against foreign currency with regard to transactions denominated in U.S.
dollars. Rental income, which consisted
mainly of space inthe Malaysia operation
and investment property in Chongqing operation rented to outside vendors,
increased by $27 to $64 for the three months ended September 30, 2008 compared to $37 in the same period of fiscal
2008.





Income
Tax





Income
tax provision for the three months ended September 30, 2008 was $98, a decrease
of $74 compared to the income tax provision of $172 for the same quarter last
fiscal year. The decrease in income tax provision was mainly due to a lower tax
provision for the decreased income generated from the Singapore operations in
the first quarter of fiscal 2009.





We
assessed our income tax liability of $382 as of September 30, 2008 in accordance
with FIN48, which is related to the allocation of corporate management expenses
to our Singapore operation in terms of Singapore tax law.  We did not
see any potential benefits arising from this tax
position.  Accordingly, no impact of this tax position was recognized
in the statement of operations for this quarter of fiscal 2009.  We
did not include any potential income tax position in federal and state income
tax returns currently filed.


-23-
 Table of Contents




Minority
Interest





As of
September 30, 2008, we held a 55% interest in Trio-Tech Malaysia. In the first
quarter of fiscal 2009, minority interest in the net income of subsidiaries was
$91, a decrease of $105, or 53.6%, compared to a minority interest in the net
income of $196 for the same quarter of fiscal 2008.  The decrease in
the minorityinterest was due to the
decrease in the net income generated from the Malaysia testing operation due to
a decrease in revenue as the result of lesser market demands from our customers.





Net
Income/Loss





Net loss
was $719 in the first quarter of fiscal 2009, an increase of $1,470 from a net
income of $751 for the three months ended September 30, 2008. The loss was mainly due to a decrease in revenue and
an increase in operating expenses, which was offset by an increase in other
income and a decrease in interest expenses and income tax provision, as
previously discussed.





Earnings/Loss
per Share





Basic and
diluted loss per share for the three months ended September 30, 2008 increased
by $0.45 to $0.22, from earnings of $0.23 per basic and diluted per share in the same quarter of the priorfiscal year.





Segment
Information





The
revenue, gross margin and income from each segment for the first quarter of
fiscal 2009 and the first quarter of fiscal 2008, respectively, are presented
below. As the segment revenue and gross margin for each segment have been
discussed in the previous section, only the comparison of income from operations
is discussed below.





Manufacturing
Segment





The
revenue, gross margin and income from operations for the manufacturing segment
for the first quarters of 2009 and 2008 were as follows:





Three
      Months Ended September 30,(In
      Thousands, unaudited)
                
                2008
                
                
                2007Revenue
                
                $
                3,046
                
                
                $
                6,396Gross
      margin
                
                
                14.4
                %
                
                
                14.9
                %Income
      (Loss) from operations
                
                $
                (444
                )
                
                $
                326





Loss from the
manufacturing segmentincreasedby $770 to $444 for the
three months ended September 30, 2008 from an income of $326 in the same quarter
last fiscal year primarily due to the loss of orders from one of our major
customers.  The increase in operating loss was attributable
toadecrease in
gross profit of $512 and an increase in operating expensesof $258.
Operating expenses for the manufacturing segment were $882 and $624 for the
three month ended September 30, 2008 and
2007, respectively. The increase in operating expenses was mainly attributable
to the increase in headcount in the manufacturing segment of our Singapore
operation, as we transferred employees from the distribution segment to themanufacturing segment. It is the strategy of management to
focus on the sales of our own manufactured products. We believe this will help
us to reduce our exposure to multiple risks arising from being a mere
distributor of manufactured products from others.


-24-
 Table of Contents




Testing
Segment





The
revenue, gross margin and income from operations for the testing segment for the
first quarters of 2009 and 2008 were as follows:





Three
      Months Ended September 30,(In
      Thousands, unaudited)
                
                2008
                
                
                2007Revenue
                
                $
                3,098
                
                
                $
                5,543Gross
      margin
                
                
                27.0
                %
                
                
                37.2
                %Income
      from operations
                
                $
                (222
                )
                
                $
                1,018





Loss from
operations in the testing segment in the first quarter of fiscal 2009 was $222,
an increase of $1,240, or 121.8%, compared
to an income of $1,018 in the same period of fiscal 2008 primarily due to the
loss of  one of our major customer as their product lines reaching the end
of its life cycle earlier than expected.  The loss from operations was
attributable to a decrease of $1,226 in gross profit due to a drop in testing
volume coupled with reducing unit sales price as a result of changes in
customers’ demands, and an increase of $14 in operating expenses. Operating
expenses were $1,059 and $1,045 for the three months ended September 30, 2008
and 2007, respectively. The increase in operating expenses was mainly due to a
reversal of $111 in bonus provision for the first quarter of fiscal 2008, there being no such reversal in the first quarter
of fiscal 2009.





Distribution
Segment





The
revenue, gross margin and loss from operations for the distribution segment for
the first quarters of 2009 and 2008 were as follows:





Three
      Months Ended September 30,(In
      Thousands, unaudited)
                
                2008
                
                
                2007Revenue
                
                $
                86
                
                
                $
                111Gross
      margin
                
                
                31.4
                %
                
                
                26.1
                %Income
      (Loss) from operations
                
                $
                31
                
                
                $
                (22
                )





Income
from operations in the distribution segment increased by $53 to $31 for the
three months ended September 30, 2008, from an operating loss of $22 in the
first quarter of fiscal 2008. The increase in operating income was mainly due to
a decrease of operating expenses of $55, but offset by a decrease in gross
profit of $2 as the result of a decrease in revenue. Operating expenses were
negative $4 and $51 for the three months ended September 30, 2008 and 2007,
respectively. The decrease in operating expenses was mainly due to a decrease in
commission expenses incurred in the first quarter of fiscal 2009 as the result
of a decrease in commissionable sales and also a gain of $24 in the selling of
property, plant and equipment.


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Corporate





The
income (loss) from operations for corporate for the first quarters of 2009 and
2008 were as follow:





Three
      Months Ended September 30,(In
      Thousands, unaudited)
                
                2008
                
                
                2007Income
      (Loss) from operations
                
                $
                (52
                )
                
                $
                (68
                )




Corporate
operating loss decreased by $16 to $52 for the three months ended September 30,
2008, from $68 in the same period last fiscal year. The decrease is mainly due
to an increase in corporate management fee and a decrease in officers and
executive compensation. In March 2008, we increased the corporate management fee
which is based on the percentage of revenue imposed on all the subsidiaries due
to a decrease in the revenue fromour
subsidiaries.  The revenue percentage charged on subsidiaries is a
reimbursement to the corporate office to cover its operating expenses.
Management reviews this percentage periodically to make sure the amount charged
is sufficient to cover its corporate expenses. In terms of dollar amount, there
was an increase of $143 in the fees we imposed on all the subsidiaries in the
first quarter of fiscal 2009 as compared to the same period of fiscal 2008.





On
February 27, 2008, in view of anticipated reductions in service revenue for
fiscal 2008, our Chief Executive Officer, Chief Financial Officer and directors
voluntarily decreased their base salary to 50% of the base salary agreed to in
July 2007. As a result, our compensation for the officers and executives
decreased by $99 in the first quarter of fiscal 2009. However, such decrease in
corporate expenses was offset by a $238
stock options expense in the first quarter
of fiscal 2009, there being no such expense
in the same period ofthe last
fiscal year.





Financial
      Condition





During
the three months ended September 30, 2008, total assets decreased $3,085 from
$34,759 at June 30, 2008 to $31,674 at September 30, 2008. The majority of the
decrease was in cash, accounts receivables and inventory.




At the
end of the first quarter of fiscal 2009, total cash and short-term deposits were
$13,026, reflectinga decrease of $1,320
from fiscal year-end 2008. The decrease was primarily due to a net loss of $719,
a repayment of bank loans and capital lease of $551 and capital expenditures of $659 in the first quarter of
fiscal 2009 to acquire machinery equipment as
discussed below.





At
September 30, 2008, the accounts receivable balance decreased by $869 from the
balance at June 30, 2008 due primarily to a decrease in sales in the first
quarter of fiscal 2009. The rate ofturnover of accounts receivables was 78 days at the end of the first
quarter of fiscal 2009 compared with 66 days at fiscal year-end 2008. The
increase in such rate was due to a
high employeeturnover in our Singapore
operation’s accounts receivable staff
during the first quarter of fiscal 2009. We have taken actions to improve
the rate of turnover ofour accounts
receivables, such as providing electronic payment method to our customers and
sending periodical customer account statements.


Inventories
at September 30, 2008 was $1,879, a decrease of $570, or 23.3%, compared to
$2,449 at June 30, 2008, The decrease in inventory was mainly from the work in
progress inventory items  Our manufacturing segment built up
additional inventory in the fourth quarter of fiscal 2008 for an expected product shipment in the first quarter of fiscal
2009.  After the shipment was completed in the first quarter of fiscal
2009, work in progress inventory decreased. The turnover of inventory was 40
days at the end of the first quarter of fiscal 2009 compared with 21 days at
fiscal year-end 2008.  The slower rate
was due to a decrease in sales as a result of fewer orders being placed by one of our major customers,because of the slower movement of that
customer’s product line and equipment capacity.


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Prepaid
expenses and other current assets at September 30, 2008 were $195, an increase
of $57 from the balance at June 30, 2008, primarily due to increased prepayments to suppliers and an increase in
prepaid Singapore Goods and Services Tax related to material purchases according
to the related Singapore tax regulations.





In the
first quarter of fiscal year 2008,Trio-Tech Chongqing Co., Ltd. entered
into a Memorandum Agreement with JiaSheng
Property Development Co., Ltd. to jointly develop a piece of property with 24.91
acres owned by JiaSheng
located in Chongqing, China.  Pursuant to the signed agreement, an
investment of $1,473,
based on the exchange rate on September 30, 2008 published by the Federal
Reserve System,
was transferred in the first quarter of fiscal 2008 into a special bank account
jointly monitored by both Trio-Tech (Chongqing) Co., Ltd. and JiaSheng.  Pursuant
to the Supplement Agreement, an investment of RMB 5,000, approximately
U.S. $737based on
the exchange rate on September 30, 2008 published by the Federal Reserve
System. was transferred from its bank account into the special bank
account on December 17, 2007. In the fourth quarter of fiscal 2008, the
investment of RMB 5,000, approximately
U.S. $737based on
the exchange rate on September 30, 2008 published by the Federal Reserve
System, was returned to the Company, which reduced the investment in this
project to $1,473. On January 4, 2008, Trio-Tech (Chongqing) Co., Ltd. entered
into a Memorandum of Agreement with MaoYe Property Ltd. to purchase
an office space of 827.2 square meters on the 35th floor of a 40 story high
office building located in Chongqing, China. The total cash purchase price was
RMB 5,554 (Chinese Yuan), equivalent to approximately $818 based on the exchange
rate as of September 30, 2008 published by the Federal Reserve System. The
Company rented this property out to a third party on July 13, 2008. The term of
the lease agreement is five years (starting from July 13, 2008) with a monthly
rental income of RMB 39 (approximately $5) for the first three years, with an
increase of 8% in the fourth year and another 8% in the fifth year. As of June
30, 2008 the total of all the Company’s investments in Chongqing, China was
$2,267. The rental income generated from this investment property in first
quarter of fiscal 2009 was $15. There was
no such investment income in the first quarter of fiscal year 2008.




Property,
plant and equipment decreased by $198, from $8,136 at June 30, 2008 to $7,938 at
September 30, 2008, due to the depreciation of the Company’s fixed assets in the
ordinary course of business. Capital expenditures were $659 for the first
quarter of fiscal 2009, compared with $545 for the first quarter of fiscal
2008.  The increase in capital expenditure was mainly due to purchases
of machinery and equipment in the first quarter of fiscal 2009 by the Singapore
operations in order to meet product specifications from our
customers.





Depreciation
was $518 for the first quarter of fiscal 2009, compared with $778 for the first
quarter of fiscal 2008. The decrease in depreciation expenses was mainly due to
the write-off of certain fixed assets in the Singapore and China operations in
the third and fourth quarters of fiscal year 2008, as a result of the
termination of a testing service contract with one of our major customers and .change in
customers’ demand for certain burn-in testing services.





Other
assets were $735 at September 30, 2008, a decrease of $78 from the balance at
June 30, 2008. The decrease in other assets was primarily due to a decrease of
$4 in the deposit for rental and utilities and a decrease of $74 in the down
payment of fixed assets in the Malaysia operation.


-27-
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Liquidity
Comparison





Net cash
provided by operating activities increased by $415 to $33 for the three months
ended September 30, 2008 from a net cash outflow of $382 in the same period of
last fiscal year. The increase in net cash provided by operating activities was
primarily due to the collection of accounts receivable and usage of inventory
during this first quarter of fiscal 2009 compared to an increase of accounts
receivable and inventory build up for the same period in the prior
year.  This was offset by a net loss of $719 and decrease in accounts
payable of $1,565 during the first quarter of fiscal 2009.





Net cash
used in investing activities decreased by $1,871 to $1,068 for the three months
ended September 30, 2008 from $2,939 for the same period of fiscal 2008. In the
first quarter of fiscal 2008, we invested RMB 10,000, equivalent to
approximately U.S. $1,331 based on the average exchange rate for the three month
ended September 30, 2007, in Chongqing, China to jointly develop a piece of
property with 24.91 acres with JiaSheng
Property Development Co. Ltd. We did
not make a similar investment in the first
quarter of fiscal 2009. In the first quarter of 2009, there was an increase of
$493 in the investment in short term deposits and an increase of $161 in the
proceeds from the sale of property, plant and equipment. We did not sale any
property, plant and equipment in the same period of fiscal 2008.These decreases
in the net cash used in investing activities were offset by an increase in
capital expenditure of $114 in the first quarter of fiscal 2009 compared with
the same period of fiscal 2008.  The increase in capital expenditure
was primarily for the purchase of machinery and equipment in the Singapore
operations in order to meet customers’ demands.





Net cash
used in financing activities in the first quarter of fiscal 2009 was $548,
representing an increase of $3,950 compared to net cash inflow of $3,402 during
the first quarter of fiscal 2008.  The increase was due mainly to an
increase of $134 in the repayment of bank loans and capital leases, a decrease
of $209 in the net borrowings on line of credit and a decrease of $3,610 from
the proceeds from long-term bank loans
compared with the same period of last fiscal year. We are trying to keep our
debt at minimum in order to save financing costs. Our credit rating provides us
with ready and adequate access to funds in global markets.  As of
September 30, 2008, the Company has an unused line of credit of $15,657. In the
first quarter of fiscal 2008, we increased our borrowing from bank loans to meet
our daily operation needs and to support future potential expansion
opportunities at that time.





We
believe we have the necessary financial resources to meet our projected cash
requirements for at least the next twelve months.





As the
Company suffered a loss in the first quarter of fiscal 2009, the Singapore
operations did not fulfill one of the loan covenants conditions, which requires
the company to maintain the debt to EBITDA ratio of no more than 2.5 times at
all times during the terms of the loan.  As a result, the Company has
reclassified the related long term portion of the bank loan of $1,215 to the
current portion of the liabilities.  The management has communicated
to the bank and requested a waiver of this particular covenant.  As of
the filing date of this 10Q report, the bank is still in the process of
reviewing the Company’s request.


-28-
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Corporate
Guarantee Arrangement





The
Company provides a corporate guarantee of approximately $1,745 to one of its
subsidiaries in Southeast Asia to secure line-of-credit and term loans from a
bank to finance the operations of such subsidiary. With the strong financial
position of the subsidiary company, the Company believes this corporate
guarantee arrangement will have no material impact on its liquidity or capital
resources.





On
October 23, 2008, Trio-Tech Chongqing Co., Ltd. entered into a Memorandum
Agreement with JiaSheng Property Development Co., Ltd. (“JiaSheng”) to purchase
four units of commercial property and two units of residential property,
totaling 1,391.70 square meters, at JiaSheng Jingyun Huafu Project located at
No. 17 Puyun Avenue in Chongqing, China.  The total cash purchase
price to be paid by the Company under the Memorandum Agreement is RMB 7,043
(Chinese yuan) or approximately $1,030 (U.S. dollars) based on the exchange rate
as of October 23, 2008 published by the Federal Reserve Statistical Release.
Under the terms of the Memorandum Agreement, the Company made a down payment of
10% in cash in the amount of RMB 704 or U.S. $103 in October 2008 and the
balance of 90% was paid on November 4, 2008, using internally generated funds of
the Company.





Critical Accounting
Estimates & Policies





There
have been no significant changes in the critical accounting polices disclosed in
“Management’s discussion and analysis of financial condition and results of
operations” included in the most recent Annual Report on Form 10-K.





We
prepare the consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America.  The
preparation of these financial statements requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period.  Management periodically evaluates the estimates and judgments
made.  Management bases its estimates and judgments on historical
experience and on various factors that are believed to be reasonable under the
circumstances.  Actual results may differ from these estimates as a
result of different assumptions or conditions.





ITEM
3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK


Not
applicable


-29-
 Table of Contents




ITEM 4T.  CONTROLS AND
PROCEDURES




An
evaluation was carried out by the Company’s Chief Executive Officer and Chief
Financial Officer of the effectiveness of the Company’s disclosure controls and
procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of September 30, 2008, the end of the
period covered by this Form 10-Q. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that these disclosure
controls and procedures were effective at a reasonable
level.




Our
internal control system is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles in the United States.  There is no assurance
that our disclosure controls or our internal controls over financial reporting
can prevent all errors.  An internal control system, no matter how
well designed and operated, has inherent limitations, including the possibility
of human error.  Because of the inherent limitations in a
cost-effective control system, misstatements due to error may occur and not be
detected.  We monitor our disclosure controls and internal controls
and make modifications as necessary.  Our intent in this regard is
that our disclosure controls and our internal controls will improve as systems
change and conditions warrant.




During
the period covered by this report, there have been no changes in the Company’s
internal control over financial reporting that have materially affected or are
reasonably likely to materially affect the Company’s internal control overall
financial reporting.


-30-
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TRIO-TECH
INTERNATIONAL





PART II. OTHERINFORMATION





Item
1.    Legal Proceedings




Not
applicable





Item
1A.  Risk Factors




Not
applicable





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 a Vote of Security
Holders





Not
applicable





Item
5.    Other Information





Not applicable





Item
6.     Exhibits





10.1
            Sales and purchase agreement on office and commercial  units in
      Chongqing


10.2
              Tenant lease agreement for the office and commercial  units in
      Chongqing31.1
              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.


-31-
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SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.








TRIO-TECH
INTERNATIONAL





By:/s/ Victor H.M.
Ting


VICTOR H.M. TING


Vice President and Chief
Financial Officer


(Principal Financial Officer)


Dated: November 14, 2008