##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the Quarterly Period Ended March 31, 2006
 OR
 o
    
    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
  California
    
    95-2086631(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)14731 Califa StreetVan Nuys, California
    
    91411(Address of principal executive offices)
    
    (Zip Code)
 818-787-7000
 þ o
 o o þ
 o þ




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##### 



TRIO-TECH INTERNATIONAL  INDEX TO CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURES
 PagePart I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets as of March 31, 2006
(Unaudited) and June 30, 2005
    
    
    3Consolidated Statements of Operations and
Comprehensive Income (loss) for the Three and
Nine Months Ended March 31, 2006 (Unaudited) and
March 31, 2005 (Unaudited)
    
    
    4Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 2006 (Unaudited) and
March 31, 2005
(Unaudited)
    
    
    5Notes to Consolidated Financial Statements
(Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of
Financial Condition and Results of
Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures about
Market Risk
    
    
    35Item 4. Controls and
Procedures
    
    
    37Part II. Other InformationItem 1. Legal
Proceedings
    
    
    38Item 1A. Risk
Factors
    
    
    38Item 2. Unregistered Sales of Equity Securities and Use
of Proceeds
    
    
    38Item 3. Defaults upon Senior
Securities
    
    
    38Item 4. Submission of Matters to a Vote of Security
Holders
    
    
    38Item 5. Other
Information
    
    
    38Item 6. Exhibits
    
    
    38Signatures
    
    
    39Exhibit 31.1Exhibit 31.2Exhibit 32
  2




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##### Table of Contents



TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT NUMBER OF SHARES)
 Mar 31,
    
    
    June 30,2006
    
    
    2005(Unaudited)ASSETSCURRENT ASSETS:Cash
    
    $
    2,795
    
    
    $
    1,439Short-term deposits
    
    
    8,522
    
    
    
    3,211Trade accounts receivable, less allowance for doubtful accounts
of $175 and $147, respectively
    
    
    5,219
    
    
    
    4,178Other receivables
    
    
    333
    
    
    
    142Inventories, less provision for obsolete inventory
of $431 and $428, respectively
    
    
    1,566
    
    
    
    1,584Prepaid expenses and other current assets
    
    
    158
    
    
    
    76Total current assets
    
    
    18,593
    
    
    
    10,630PROPERTY, PLANT AND EQUIPMENT, Net
    
    
    7,228
    
    
    
    7,176OTHER INTANGIBLE ASSETS, Net
    
    
    340
    
    
    
    386OTHER ASSETS
    
    
    157
    
    
    
    138ADVANCES TO SELLER
    
    
    
    
    
    
    15TOTAL ASSETS
    
    $
    26,318
    
    
    $
    18,345LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Lines of credit
    
    $
    225
    
    
    $
    336Accounts payable
    
    
    1,818
    
    
    
    1,681Accrued expenses
    
    
    2,615
    
    
    
    2,598Income tax payable
    
    
    268
    
    
    
    168Current portion of notes payable
    
    
    900
    
    
    
    655Current portion of capital leases
    
    
    127
    
    
    
    123Current portion of deferred tax liabilities
    
    
    287
    
    
    
    275Total current liabilities
    
    
    6,240
    
    
    
    5,836NOTES PAYABLE, net of current portion
    
    
    817
    
    
    
    634CAPITAL LEASES, net of current portion
    
    
    254
    
    
    
    110DEFERRED TAX LIABILITIES
    
    
    453
    
    
    
    407TOTAL LIABILITIES
    
    
    7,764
    
    
    
    6,987MINORITY INTEREST
    
    
    2,063
    
    
    
    2,061SHAREHOLDERS EQUITY:Common stock; no par value, 15,000,000 shares authorized;3,219,407 shares issued and outstanding as at Mar.
31, 2006, and
    
    
    10,338
    
    
    
    9,5542,976,042 shares issued and outstanding as at Jun.
30, 2005, andPaid-in capital
    
    
    334
    
    
    
    284Accumulated retained earnings (deficit)
    
    
    6,446
    
    
    
    (298
    )Accumulated other comprehensive loss-translation adjustments
    
    
    (627
    )
    
    
    (243
    )Total shareholders equity
    
    
    16,491
    
    
    
    9,297TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    $
    26,318
    
    
    $
    18,345
 See notes to condensed consolidated financial statements.
 3




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##### Table of Contents



TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED, IN THOUSANDS, EXCEPT EARNINGS (LOSS) PER SHARE)
 Nine Months Ended
    
    
    Three Months EndedMar. 31,
    
    
    Mar. 31,
    
    
    Mar. 31,
    
    
    Mar. 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)NET SALES PRODUCT SALES
    
    $
    8,888
    
    
    $
    10,875
    
    
    $
    3,018
    
    
    $
    3,038 SERVICES
    
    
    10,711
    
    
    
    8,286
    
    
    
    3,451
    
    
    
    2,84619,599
    
    
    
    19,161
    
    
    
    6,469
    
    
    
    5,884COST OF SALES COST OF GOODS SOLD
    
    
    7,214
    
    
    
    8,914
    
    
    
    2,299
    
    
    
    2,510 COSTS OF SERVICES RENDERED
    
    
    6,923
    
    
    
    5,632
    
    
    
    2,398
    
    
    
    1,95314,137
    
    
    
    14,546
    
    
    
    4,697
    
    
    
    4,463GROSS PROFIT
    
    
    5,462
    
    
    
    4,615
    
    
    
    1,772
    
    
    
    1,421OPERATING EXPENSES:General and administrative
    
    
    3,837
    
    
    
    3,450
    
    
    
    1,261
    
    
    
    1,082Director and officer bonuses
    
    
    705
    
    
    
    0
    
    
    
    
    
    
    
    (9
    )Selling
    
    
    768
    
    
    
    889
    
    
    
    253
    
    
    
    339Research and development
    
    
    53
    
    
    
    77
    
    
    
    20
    
    
    
    20Impairment Loss
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    Gain on disposal of property, plant & equipment
    
    
    22
    
    
    
    
    
    
    
    22
    
    
    
    Total
    
    
    5,400
    
    
    
    4,416
    
    
    
    1,556
    
    
    
    1,432INCOME (LOSS) FROM OPERATIONS
    
    
    62
    
    
    
    199
    
    
    
    216
    
    
    
    (11
    )OTHER INCOME (EXPENSE)Interest expense
    
    
    (111
    )
    
    
    (129
    )
    
    
    (37
    )
    
    
    (42
    )Other income
    
    
    196
    
    
    
    81
    
    
    
    84
    
    
    
    39Total
    
    
    85
    
    
    
    (48
    )
    
    
    47
    
    
    
    (3
    )INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES
    
    
    147
    
    
    
    151
    
    
    
    263
    
    
    
    (14
    )INCOME TAXES
    
    
    290
    
    
    
    25
    
    
    
    106
    
    
    
    (26
    )(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE
MINORITY INTEREST
    
    
    (143
    )
    
    
    126
    
    
    
    157
    
    
    
    12MINORITY INTEREST
    
    
    36
    
    
    
    17
    
    
    
    17
    
    
    
    (4
    )(LOSS) INCOME FROM CONTINUING OPERATIONS
    
    
    (107
    )
    
    
    143
    
    
    
    174
    
    
    
    8DISCONTINUED OPERATION (NOTE 9)INCOME FROM DISCONTINUED OPERATION
    
    
    8,459
    
    
    
    16
    
    
    
    
    
    
    
    14NET INCOME
    
    $
    8,352
    
    
    $
    159
    
    
    $
    174
    
    
    $
    22BASIC EARNINGS (LOSS) PER SHAREBasic (loss) earnings per share from Continuing operations
    
    $
    (0.03
    )
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.01Basic earnings per share from Discontinued operation
    
    
    2.74
    
    
    
    
    
    
    
    
    
    
    
    Basic earnings per share from Net income
    
    $
    2.71
    
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.01DILUTED EARNINGS (LOSS) PER SHAREDiluted (loss) earnings per share from Continuing operations
    
    $
    (0.03
    )
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.01Diluted earnings per share from Discontinued operation
    
    
    2.74
    
    
    
    
    
    
    
    
    
    
    
    Diluted earnings per share from Net income
    
    $
    2.71
    
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.01WEIGHTED AVERAGE NUMBER OF COMMON AND
POTENTIAL COMMON SHARES OUTSTANDINGBasic
    
    
    3,080
    
    
    
    2,966
    
    
    
    3,211
    
    
    
    2,966Diluted
    
    
    3,080
    
    
    
    3,035
    
    
    
    3,225
    
    
    
    3,031COMPREHENSIVE INCOME (LOSS):Net income
    
    $
    8,352
    
    
    $
    159
    
    
    $
    174
    
    
    $
    22Foreign currency translation adjustment
    
    
    (384
    )
    
    
    214
    
    
    
    363
    
    
    
    (64
    )COMPREHENSIVE INCOME (LOSS)
    
    $
    7,968
    
    
    
    373
    
    
    $
    537
    
    
    
    (42
    )
 See notes to condensed consolidated financial statements.
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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)
 Nine Months EndedMar 31,
    
    
    Mar 31,2006
    
    
    2005(unaudited)
    
    
    (unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    8,352
    
    
    $
    159Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation and amortization
    
    
    1,229
    
    
    
    1,095Bad debt expense, net
    
    
    113
    
    
    
    23Inventory provision
    
    
    3
    
    
    
    Interest income on short-term deposits
    
    
    (139
    )
    
    
    (37
    )Impairment loss
    
    
    15
    
    
    
    Stock compensation
    
    
    50
    
    
    
    Gain on sale of property  discontinued operation
    
    
    (8,909
    )
    
    
    Loss on sale of equipment
    
    
    22
    
    
    
    Deferred tax provision
    
    
    58
    
    
    
    40Minority interest
    
    
    (36
    )
    
    
    (17
    )Changes in operating assets and liabilities, net of effects of acquisition:Accounts receivable, net
    
    
    (1,154
    )
    
    
    (199
    )Other receivables
    
    
    (183
    )
    
    
    (26
    )Other assets
    
    
    (19
    )
    
    
    (414
    )Inventories
    
    
    15
    
    
    
    29Prepaid expenses and other current assets
    
    
    (82
    )
    
    
    (52
    )Accounts payable and accrued expenses
    
    
    154
    
    
    
    (290
    )Income tax payable
    
    
    100
    
    
    
    25Net cash (used in) provided by operating activities
    
    
    (411
    )
    
    
    336CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from maturing short-term deposits
    
    
    9,815
    
    
    
    4,896Investments in short-term deposits
    
    
    (14,987
    )
    
    
    (2,553
    )Capital expenditures
    
    
    (952
    )
    
    
    (1,691
    )Acquisition of a company in China
    
    
    (138
    )
    
    
    Acquisition of business in Malaysia
    
    
    
    
    
    
    (1,126
    )Proceeds from sale of property  discontinued operation
    
    
    8,401
    
    
    
    Proceeds from sale of equipment
    
    
    137
    
    
    
    Advances to seller
    
    
    
    
    
    
    Net cash provided by (used in) investing activities
    
    
    2,276
    
    
    
    (474
    )
 5




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##### Table of Contents



TRIO-TECH INTERNATIONAL AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)
 Nine Months EndedMar 31,
    
    
    Mar 31,2006
    
    
    2005(unaudited)
    
    
    (unaudited)CASH FLOWS FROM FINANCING ACTIVITIES:Net payments and borrowings on lines of credit
    
    
    (111
    )
    
    
    Principal payments of debt and capital leases
    
    
    (756
    )
    
    
    (637
    )Proceeds from long-term debt
    
    
    1,045
    
    
    
    683Dividends paid to minority interest
    
    
    (28
    )
    
    
    (54
    )Dividends paid to shareholders
    
    
    (1,608
    )
    
    
    Cash received from stock options exercised
    
    
    784
    
    
    
    5Net cash used by financing activities
    
    
    (674
    )
    
    
    (3
    )EFFECT OF CHANGES IN EXCHANGE RATES
    
    
    165
    
    
    
    33NET INCREASE (DECREASE) IN CASH
    
    
    1,356
    
    
    
    (108
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    1,439
    
    
    
    1,357CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    2,795
    
    
    $
    1,249SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid during the period for:Interest
    
    $
    114
    
    
    $
    138Income taxes
    
    $
    2,121
    
    
    $
    (14
    )NON-CASH INVESTING AND FINANCING ACTIVITIESCapitalization of property, plant and equipment paid in advance
    
    $
    
    
    
    $
    365Deposit for the acquisition of business in Malaysia paid in advance
    
    $
    
    
    
    $
    92Bank guarantee note for acquisition of business in Malaysia
    
    $
    
    
    
    $
    395Capital lease of property, plant and equipment
    
    $
    287
    
    
    $
    
 See notes to condensed consolidated financial statements.
 6




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##### 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 PRESENTATIONTrio-Tech International (the Company or TTI hereafter) was incorporated in 1958 under the
laws of the State of California. TTI provides third-party semiconductor testing and burn-in
services primarily through its laboratories in Southeast Asia; in addition, TTI operates test
facilities in the United States. The Company also designs, develops, manufactures and
markets a broad range of equipment and systems used in the manufacturing and testing of
semiconductor devices and electronic components. TTI conducts business in three industry
segments: Testing Services, Manufacturing and Distribution. TTI has subsidiaries located in
the U.S., Ireland, Singapore, Malaysia, Thailand and China as follows:
 Ownership
    
    LocationExpress Test Corporation (Dormant)
    
    
    100
    %
    
    Van Nuys, CaliforniaTrio-Tech Reliability Services (Dormant)
    
    
    100
    %
    
    Van Nuys, CaliforniaKTS Incorporated, dba Universal Systems (Dormant)
    
    
    100
    %
    
    Van Nuys, CaliforniaEuropean Electronic Test Centre
(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
    
    
    55
    %
    
    Selangor, MalaysiaTrio-Tech MalaysiaPrestal Enterprise Sdn. Bhd.
    
    
    76
    %
    
    Selangor, MalaysiaTrio-Tech (Suzhou) Co. Ltd.
    
    
    100
    %
    
    Suzhou, ChinaTrio-Tech (Shanghai) Co. Ltd
    
    
    100
    %
    
    Shanghai, 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 nine months ended March 31, 2006 are not
necessarily indicative of the results that may be expected for the fiscal year ending June
30, 2006. For further information, refer to the consolidated financial statements and
footnotes thereto included in the Companys annual report for the fiscal year ended June 30,
2005.2.
    
    INVENTORIESInventories consist of the following:
 Mar. 31,2006
    
    
    June 30,(Unaudited)
    
    
    
    2005Raw materials
    
    $
    828
    
    
    $
    842Work in progress
    
    
    978
    
    
    
    608Finished goods
    
    
    191
    
    
    
    562Less: provision for obsolete inventory
    
    
    (431
    )
    
    
    (428
    )$
    1,566
    
    
    $
    1,584
 7




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##### Table of Contents



3.
    
    STOCK OPTIONSAs of March 31, 2006, the Company had two share-based compensation plans, which are described
below. The Company historically adopted the APB No. 25 approach  intrinsic value method 
and presented the pro forma information in line with the requirements of SFAS No. 123.
Historically, the stock based compensation cost has been charged against income, which was
$0, $0, and $14 (related to the Directors Option Plan) for the fiscal years ended June 30,
2005, 2004 and 2003, respectively. There was no income tax benefit related to share-based
compensation for the fiscal years ended June 30, 2005, 2004, and 2003, respectively, as the
Company did not claim a deduction for corporate income tax purposes.Effective July 1, 2005, the Company adopted the fair value recognition provisions of
Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 123R, Share-Based Payments, using the modified prospective application method.
Under this transition method, compensation cost recognized during the nine months ended March
31, 2006 included the applicable amounts of: (a) compensation cost of all share-based
payments granted prior to, but not yet vested as of, July 1, 2005 (based on the grant-date
fair value estimated in accordance with the original provisions of SFAS No. 123) and (b)
compensation cost for all share-based payments granted subsequent to July 1, 2005 (based on
the grant-date fair value estimated in accordance with the new provisions of SFAS No. 123R).
Amortization of unrecognized fair value of the non-vested options as of July 1, 2005 was $14
and $7 for the nine months and three months ended March 31, 2006, respectively. Options to
purchase 30,000 shares of the Companys common stock were issued on July 7, 2005 under the
Directors Plan. The fair value of 30,000 shares of the Companys common stock issuable upon
exercise of stock options granted under the Directors Plan was $34 disclosed in Form 10-Q
for the quarter ended September 30, 2005, a fair value of $1.13 per share. No options were
granted under the 1998 Stock Option Plan during the nine months ended March 31, 2006. On
November 14, 2005, an option to purchase 750 shares of the Companys common stock was issued
to a consultant in connection with his services rendered to the Company and the stock options
were not issued pursuant to the 1998 Stock Option Plan or the Directors Stock Option Plan.
The exercise price under the option was $2.66, which was lower than the fair market value of
the stock on the grant date of the option. The option was exercisable immediately upon
grant. The fair value of the 750 shares of the Companys common stock issuable upon exercise
of such option was approximately $2 based on the fair value at $2.92 per share determined by
the Black Scholes option pricing model.AssumptionsThe disclosure of the above fair value for these awards was estimated using the Black-Scholes
option pricing model with the assumptions listed below:
 Nine monthsEnded
    
    Years EndedMarch 31,
    
    June 30,
    
    June 30,
    
    June 30,2006
    
    2005
    
    2004
    
    2003Expected Volatility
    
    
    49.50-51.12
    %
    
    
    33.5 - 36.8
    %
    
    
    41.9
    %
    
    
    37.2
    %Weighted average volatility
    
    
    49.54
    %
    
    
    33.9
    %
    
    
    41.9
    %
    
    
    37.2
    %Risk free interest rate
    
    
    3.71-4.50
    %
    
    
    2.89 - 3.27
    %
    
    
    2.76
    %
    
    
    2.27 - 2.93
    %Expected life (years)
    
    
    2.00
    
    
    
    2.00
    
    
    
    2.00
    
    
    
    2.00
  1998 Stock Option Plan
  8




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##### Table of Contents



Weighted -AverageRemainingWeighted- Average
    
    
    Contractual
    
    
    AggregateStock Options
    
    Shares
    
    
    Exercise Price
    
    
    Term
    
    
    Intrinsic ValueOutstanding at July 1, 2005
    
    
    165,000
    
    
    $
    3.44Granted
    
    
    
    
    
    
    Exercised
    
    
    (107,615
    )
    
    $
    3.20Forfeited or expired
    
    
    (28,000
    )
    
    $
    4.87Outstanding at March 31, 2006
    
    
    29,385
    
    
    $
    2.97
    
    
    
    2.00
    
    
    $
    100,884Exercisable at March 31, 2006
    
    
    14,885
    
    
    $
    2.94
    
    
    
    2.00
    
    
    $
    51,439
   Weighted-AverageGrant-DateNon-vested Options
    
    Shares
    
    Fair ValueNon-vested at July 1, 2005
    
    
    34,750
    
    
    $
    0.86Granted
    
    
    
    
    
    
    Vested
    
    
    (19,500
    )
    
    
    0.92Forfeited
    
    
    (750
    )
    
    
    0.68Non-vested at March 31, 2006
    
    
    14,500
    
    
    $
    0.80
 9




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##### Table of Contents



Directors Stock Option Plan
   Weighted-Weighted-
    
    AverageAverage
    
    Remaining
    
    AggregateExercise
    
    Contractual
    
    IntrinsicStock Options
    
    Shares
    
    Price
    
    Term
    
    ValueOutstanding at July 1, 2005
    
    
    137,000
    
    
    $
    3.63Granted
    
    
    30,000
    
    
    
    3.75Exercised
    
    
    (135,000
    )
    
    
    3.24Forfeited or expired
    
    
    (32,000
    )
    
    
    5.37Outstanding at March 31,
2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Exercisable at March 31,
2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
  Stock Option issued not pursuant to the 1998 Plan or the Directors Plan
   10




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##### Table of Contents



Weighted-AverageExerciseStock Options
    
    Shares
    
    
    PriceOutstanding at July 1, 2005
    
    
    
    
    
    $
    Granted
    
    
    750
    
    
    
    2.66Exercised
    
    
    (750
    )
    
    
    2.66Expired
    
    
    
    
    
    
    0.00Outstanding at March 31, 2006
    
    
    
    
    
    $
    Exercisable at March 31, 2006
    
    
    
    
    
    $
    
   Nine Months
    
    
    Three MonthsEnded
    
    
    EndedMar 31,
    
    
    Mar 31,2005
    
    
    2005(Unaudited)
    
    
    (Unaudited)Net income: as reported
    
    $
    159
    
    
    $
    22Add: stock based employee compensation
included in reported income
    
    
    
    
    
    
    Deduct: total stock based employee
compensation
expense determined under fair value
method for all awards
    
    
    (27
    )
    
    
    (9
    )Pro forma net income
    
    $
    132
    
    
    $
    13Earnings per share  basicAs reported
    
    $
    0.05
    
    
    $
    0.01Pro forma
    
    $
    0.04
    
    
    $
    Earnings per share  dilutedAs reported
    
    $
    0.05
    
    
    $
    0.01Pro forma
    
    $
    0.04
    
    
    $
    
 11




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##### Table of Contents



4.
    
    EARNINGS PER SHAREThe 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 gives 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.Stock options to purchase 29,385 shares at exercise prices ranging from $2.66 to $4.40 per
share were outstanding as of March 31, 2006. 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 resulted common shares equivalents were
approximately 14,000 shares and were presented in the following table for earnings per share
calculation purposes. However, 12,257 options were excluded in the computation of diluted EPS
for the nine months ended March 31, 2006 since they were anti-dilutive.Stock options to purchase 334,000 shares at prices ranging from $2.25 to $5.63 per share were
outstanding as of March 31, 2005. 97,000 options were excluded in the computation of diluted
EPS because the exercise price was greater than the average market price of the common shares
and therefore were anti-dilutive.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:
 Nine Months Ended
    
    
    Three Months EndedMar. 31,
    
    
    Mar. 31,
    
    
    Mar. 31,
    
    
    Mar. 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)(Loss) income from continuing operations
    
    $
    (107
    )
    
    $
    143
    
    
    $
    174
    
    
    $
    8Income from discontinued operation
    
    $
    8,459
    
    
    $
    16
    
    
    $
    
    
    
    $
    14Net income attribute to common shares
    
    $
    8,352
    
    
    $
    159
    
    
    $
    174
    
    
    $
    22Basic Earnings (Loss) Per ShareBasic (loss) earnings per share from Continuing operations
    
    $
    (0.03
    )
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.01Basic earnings per share from Discontinued operation
    
    
    2.74
    
    
    
    
    
    
    
    
    
    
    
    Basic earnings per share from Net Income
    
    $
    2.71
    
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.01Diluted (Loss) Earnings Per ShareDiluted (loss) earnings per share from Continuing operations
    
    $
    (0.03
    )
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.01Diluted earnings per share from Discontinued operation
    
    
    2.74
    
    
    
    
    
    
    
    
    
    
    
    Diluted earnings per share from Net Income
    
    $
    2.71
    
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.01Weighted average number of common shares outstanding  basic
    
    
    3,080
    
    
    
    2,966
    
    
    
    3,211
    
    
    
    2,966Dilutive effect of stock options
    
    
    
    
    
    
    69
    
    
    
    14
    
    
    
    65Number of shares used to compute earnings per share  diluted
    
    
    3,080
    
    
    
    3,035
    
    
    
    3,225
    
    
    
    3,031
 12




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##### Table of Contents



5.
    
    ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTSAccounts 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 nine months ended March 31, 2006 and the twelve months ended June 30, 2005
was adequate. However, actual write-offs might be more or less than the recorded allowance.
 Mar. 31,2006
    
    
    June 30,(Unaudited)
    
    
    
    2005Beginning
    
    $
    147
    
    
    $
    165Additions charged to expenses
    
    
    141
    
    
    
    44Recovered
    
    
    (28
    )
    
    
    (62
    )Actual write-offs
    
    
    (85
    )
    
    
    Ending
    
    $
    175
    
    
    $
    147
 6.
    
    ACQUISITION OF A SUBSIDIARYOn January 3, 2006, the Company closed the transaction of acquiring 100% interest in
Globetronics (Shanghai) Co., Ltd. pursuant to the Definitive Agreement dated November 18,
2005. Globetronics (Shanghai) Co., Ltd. (thereafter Globetronics) was a China-based wholly
owned foreign investment enterprise (WOFIE) conducting business in the burn-in testing service
segment. The name of Globetronics (Shanghai) Co. Ltd. was changed to Trio-Tech (Shanghai)
Co., Ltd. upon closing. Our objectives for acquiring the burn-in testing business were to
enhance the Companys future growth opportunities, expand the Companys present operations,
and develop the China market. Beginning on January 3, 2006, the operating results of this
subsidiary were included in the consolidated financial statements of the Company for the
three-months ended March 31, 2006. This acquisition transaction was not considered
significant to the Company.Pursuant to the Definitive Agreement, the purchase price was $153, which covers certain fixed
assets and testing services provided to the existing customers and does not cover any other
assets or liabilities of the acquired entity. In addition, the Company is not responsible
for any disclosed or undisclosed liabilities incurred prior to the acquisition completion
date. The Definitive Agreement also includes a management service agreement, in which the
Company appointed the Seller to provide accounting services to the acquired entity for $37
during a three-month transitional period commencing on the acquisition completion date.In accordance with the Statement of Financial Accounting Standard (SFAS) No. 141, Business
Combinations, the Company allocated the purchase price to the tangible assets and
identifiable intangible assets acquired based on their estimated fair values. The Company
estimated that the book value of the fixed assets acquired approximated the fair value of
similar assets available on the market based on the information management received. The
Company attributed $133 to various items of fixed assets acquired, $8 to other receivables
and $12 to an identifiable intangible customer relationship. The excess purchase price over
the fair value of tangible assets acquired was $12, which was attributed to the customer
relationship obtained along with the acquisition transaction based on estimates and
assumptions determined by the management. The economic life of this identified intangible
asset was estimated to be about one year based on management assumptions. Therefore, the
value of $12 will be amortized over one year on the straight-line method. No goodwill was
recognized. The following total presents the allocation of purchase price (in thousands):
 13




---



##### Table of Contents



Purchase price (paid in cash)
    
    $
    153Property, plant and equipmentPlant and equipment
    
    $
    121Office equipment
    
    
    6Motor vehicle
    
    
    6Subtotal
    
    
    133Other receivables
    
    
    8Total fair value of tangible assets acquired
    
    $
    141Identifiable intangible asset-customer
relationship
    
    
    12Purchase price
    
    $
    153
 Pro Forma Financial Information
   PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005
 HistoricalInformation of
    
    
    Historicalthe Company
    
    
    Information of the
    
    
    Pro Forma(1)
    
    
    Acquired Entity (2)
    
    
    Adjustments (3)
    
    
    Pro Forma(Unaudited)
    
    
    (Unaudited)
    
    
    
    
    
    
    (Unaudited)Net sales
    
    $
    5,884
    
    
    $
    52
    
    
    $
    
    
    
    $
    5,936Net income (expense)
    
    $
    22
    
    
    $
    
    
    
    $
    (3
    )
    
    $
    19Basic earnings per
share
    
    $
    0.01
    
    
    
    
    
    
    
    
    
    
    $
    0.01Diluted earnings
per share
    
    $
    0.01
    
    
    
    
    
    
    
    
    
    
    $
    0.01Basic weighted
average common
shares outstanding
    
    
    2,966
    
    
    
    
    
    
    
    
    
    
    
    2,966Diluted weighted
average common
shares outstanding
    
    
    3,031
    
    
    
    
    
    
    
    
    
    
    
    3,031
  
 1.
    
    The historical operating results of the Company were based on the Companys unaudited
financial statements in its Form 10-Q filed with the SEC for the three-month period ended
March 31, 2005.2.
    
    The three-month historical information of the acquired entity was derived from the
books and the records of Globetronics for the period ended March 31, 2005.3.
    
    Pro forma adjustment was based on the assumption that the fair value of the identified
customer relationship needs to be amortized over a one-year period of time, assuming the
acquisition took place on July 1, 2004. 14




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##### Table of Contents



PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 2006
 HistoricalCurrent
    
    
    Information of theInformation of the
    
    
    Acquired Entity
    
    
    Pro FormaCompany (1)
    
    
    (2)
    
    
    Adjustments (3)
    
    
    Pro Forma(Unaudited)
    
    
    (Unaudited)
    
    
    
    
    
    
    (Unaudited)Net sales
    
    $
    19,599
    
    
    $
    107
    
    
    $
    
    
    
    $
    19,706Net income
    
    $
    8,352
    
    
    $
    1
    
    
    $
    (6
    )
    
    $
    8,347Basic earnings per
share
    
    $
    2.71
    
    
    
    
    
    
    
    
    
    
    $
    2.71Diluted earnings
per share
    
    $
    2.71
    
    
    
    
    
    
    
    
    
    
    $
    2.71Basic weighted
average common
shares outstanding
    
    
    3,080
    
    
    
    
    
    
    
    
    
    
    
    3,080Diluted weighted
average common
shares outstanding
    
    
    3,080
    
    
    
    
    
    
    
    
    
    
    
    3,080
 
 1.
    
    The information of the Company for the nine months ended March 31, 2006 is presented in
the current Form 10-Q for the nine months ended March 31, 2006, which already includes the
three-month operating results of Trio-Tech (Shanghai) Co., Ltd (formerly, Globetronics) for
the period from January 1, 2006 to March 31, 2006.2.
    
    The six-month historical information of the acquired entity was derived from the books
and records of Globetronics for the period from July 1, 2005 to December 31, 2005.3.
    
    Pro forma adjustment was based on the assumption that the fair value of the identified
customer relationship needs to be amortized over a one-year period of time, assuming the
acquisition took place on July 1, 2005. PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 2005
 Historical
    
    
    HistoricalInformation of
    
    
    information of the
    
    
    Pro Formathe Company
    
    
    Acquired Entity
    
    
    Adjustments(1)
    
    
    (2)
    
    
    (3)
    
    
    Pro Forma(Unaudited)
    
    
    (Unaudited)
    
    
    
    
    
    
    (Unaudited)Net sales
    
    $
    19,161
    
    
    $
    141
    
    
    $
    
    
    
    $
    19,302Net income
    
    $
    159
    
    
    $
    (18
    )
    
    $
    (9
    )
    
    $
    132Basic earnings per
share
    
    $
    0.05
    
    
    
    
    
    
    
    
    
    
    $
    0.04Diluted earnings
per share
    
    $
    0.05
    
    
    
    
    
    
    
    
    
    
    $
    0.04Basic weighted
average common
shares outstanding
    
    
    2,966
    
    
    
    
    
    
    
    
    
    
    
    2,966Diluted weighted
average common
shares outstanding
    
    
    3,035
    
    
    
    
    
    
    
    
    
    
    
    3,035
 
 1.
    
    The historical information of the Company was based on the Form 10-Q filed with the SEC
for the nine months ended March 31, 2005.2.
    
    The historical information of the acquired entity covers the three-month operating
results from the books and records of Globetronics for the period from July 1, 2004 to
March 31, 2005. 15




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##### Table of Contents



3.
    
    Pro forma adjustment was based on the assumption that the fair value of the identified
customer relationship needs to be amortized over a one-year period of time, assuming the
acquisition took place on July 1, 2004. 7.
    
    DIVIDEND PAID TO SHAREHOLDERSOn December 2, 2005, the Board of Directors of Registrant declared a cash dividend of fifty
cents (U.S. 50¢) per share payable to the shareholders of record on January 10, 2006. The total
number of shares issued and outstanding as of January 10, 2006 was 3,215,532 and the total
cash dividends paid on January 25, 2006 were $1,608. The source of cash was from the proceeds
from disposition of the property located in Dublin, Ireland.8.
    
    WARRANTY ACCRUAL
 Mar. 31,2006
    
    
    June 30,(Unaudited)
    
        
    2005Beginning
    
    $
    155
    
    
    $
    162Additions charged to cost and expenses
    
    
    57
    
    
    
    43Recovered
    
    
    
    
    
    
    Actual write-offs
    
    
    (11
    )
    
    
    (50
    )Ending
    
    $
    201
    
    
    $
    155
 16




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##### Table of Contents



9.
    
    DISCONTINUED OPERATION AND CORRESPONDING RESTRUCTURING PLANThe Companys Ireland operation, as a component of the Testing segment, suffered continued
operating losses in the past three fiscal years and the cash flow was minimal for the past
three years. In August 2005, the Company established a restructuring plan to close the
Testing operation in Dublin, Ireland. This fact was initially disclosed in the Form 10-K for
the fiscal year ended June 30, 2005. Based on the restructuring plan and in accordance with
EITF 03-13, the Company presented the operation results from Ireland as a discontinued
operation as the Company believed that no continued cash flow would be generated by the
disposed component (Ireland subsidiary) and that the Company would have no significant
continuing involvement in the operation of the discontinued component. Management of the
Company initiated a plan to sell the property located in Dublin, Ireland in August 2005 and
ceased the depreciation of the property in accordance with SFAS No. 144. In accordance with
the restructuring plan, the Company would transfer the relevant machinery and equipment to
Singapore and pay off the outstanding balance on the equipment loans, collect accounts
receivable and pay off accounts payable as much as it could before moving out of Ireland. If
the accounts receivable and accounts payable were not wound down before moving out of
Ireland, the Company planned to have the Singapore office take over the responsibility for
the collection and repayment matters. As a result, the machinery and equipment located in
Dublin, Ireland was not included in the assets held for sale on the balance sheet as of
September 30, 2005.In late September 2005, the Company entered into a Definite Sale and Purchase Agreement with
a buyer through an auction process with a selling price of 8.85 million (equivalent to
$10,574 U.S.) and received a deposit of 885 (equivalent to $1,057 U.S.). The sale was
consummated on November 1, 2005. In accordance with SFAS No. 144, the asset held for sale
was recorded at a historical carrying value of the property of $261, as of September 30, 2005,
which was lower than its fair value, less the cost to sell.During the process of winding down the Companys operation in Dublin, Ireland, the Company
incurred general and administrative expenses of approximately $126 and one-time employment
termination benefits of approximately $330 (of which $107 was paid in the quarter ended
September 30, 2005) for the nine months ended March 31, 2006. In connection with the sale of
the property located in Dublin, Ireland, the Company also incurred the following direct
expenses including professional fees of approximately $92, commissions and other selling
related expenses of approximately $40 and incurred a liability estimated at $86 to refund the
industrial development agency grant by the Irish government agency. The estimated amount of
$86 was subject to the clearance of the Irish government agency. These expenses were directly
offset against the proceeds from selling property as these expenses were deemed as cost to
sell. The tax on capital gain in Ireland from the sale of property was approximately $1,955,
which was deducted from the gross proceeds from selling the property after the taxable gain
was determined. The Company considered the inter-period tax allocation noting the impact of
allocation was minimal as there was a loss of $450 in the Ireland entity before considering
the gain from selling property and there were significant net operating losses carry-forward
which cannot be used to offset the taxable capital gain. The gain realized through disposing
the property in November 2005 was presented as part of income from discontinued operations in
the statement of operations for the nine months ended March 31, 2006. The Company
anticipates that it may incur additional costs and expenses in winding up the business of the
subsidiary through which the Ireland facility was operated.Under the provision of SFAS No. 52, translation adjustments that result when a foreign
entitys financial statements are translated into a parent companys or an investors
reporting currency are separately reported in the parent companys other comprehensive
income. Foreign currency translation adjustments that are accumulated in other comprehensive
income are reclassified to income only when they are realized, if the investment in the
foreign entity is sold or is substantially or completely liquidated. Accordingly, the
foreign currency translation adjustments on the balance sheet of the Dublin, Ireland
subsidiary as of November 1, 2005 in the amount of approximately $769 were reclassified into
the process of disposing of the property presented below.
 17




---



##### Table of Contents



Income from discontinued operations for the nine months and three months ended March 31, 2006
was as follows:
 Nine Months Ended
    
    
    Three Months EndedMar. 31,
    
    
    Mar. 31,
    
    
    Mar. 31,
    
    
    Mar. 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)NET SALES
    
    $
    78
    
    
    
    490
    
    
    
    
    
    
    
    233COST OF SALES
    
    
    63
    
    
    
    412
    
    
    
    
    
    
    
    185GROSS PROFIT
    
    
    15
    
    
    
    78
    
    
    
    
    
    
    
    48OPERATING EXPENSES:General and administrative
    
    
    120
    
    
    
    139
    
    
    
    
    
    
    
    53Employment termination benefits
    
    
    330
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    450
    
    
    
    139
    
    
    
    
    
    
    
    53(435
    )
    
    
    (61
    )
    
    
    
    
    
    
    (5
    )OTHER INCOME (EXPENSE)Interest expense
    
    
    (3
    )
    
    
    (9
    )
    
    
    
    
    
    
    (3
    )Other (expense) income
    
    
    (12
    )
    
    
    86
    
    
    
    
    
    
    
    22Total
    
    
    (15
    )
    
    
    77
    
    
    
    
    
    
    
    19(Loss) Income from discontinued operation
    
    
    (450
    )
    
    
    16
    
    
    
    
    
    
    
    14Gain on sale of property
    
    
    8,909
    
    
    
    
    
    
    
    
    
    
    
    INCOME FROM DISCONTINUED OPERATION
    
    $
    8,459
    
    
    $
    16
    
    
    $
    
    
    
    $
    14Breakdown of gain on sale of propertyGross proceeds
    
    $
    10,574
    
    
    
    
    
    
    
    
    
    
    
    Net book value of the property
    
    
    (261
    )
    
    
    
    
    
    
    
    
    
    
    Grant payable to Ireland government
    
    
    (86
    )
    
    
    
    
    
    
    
    
    
    
    Professional fees
    
    
    (92
    )
    
    
    
    
    
    
    
    
    
    
    Commissions and related selling expenses
    
    
    (40
    )
    
    
    
    
    
    
    
    
    
    
    10,095
    
    
    
    
    
    
    
    
    
    
    
    Capital gain tax
    
    
    (1,955
    )
    
    
    
    
    
    
    
    
    
    
    8,140
    
    
    
    
    
    
    
    
    
    
    
    Foreign currency translation adjustments
    
    
    769
    
    
    
    
    
    
    
    
    
    
    
    Gain on sale of property
    
    $
    8,909
    
    
    $
    
    
    
    $
    
    
    
    $
    
 As the Company does not provide a separate cash flow statement for the discontinued
operation, the details of cash flow from the discontinued operation in Ireland is summarized
as follows: the gross proceeds were approximately $10,574, cost to sell was $218, and
disbursement for capital gain tax was $1,955, resulting in net proceeds of $8,401. The loss
from discontinued operations of $450 was deemed as cash outflow from the operating activities of
the discontinued operation; the net proceeds provided by investing activities were $8,401 from
the sale of the property; the cash used in financing activities was the disbursement to pay
off the outstanding equipment loan of $88. The impact of this discontinued operation was
immaterial because the total revenues for fiscal years June 30, 2005 and 2004 were
approximately $600 and $500, respectively. The Company believes there will not be any future
significant cash flows from the discontinued operation as the outstanding accounts receivable
and accounts payable are immaterial to the Companys financial position and liquidity.Before moving out of Ireland, the Company wired approximately $7,800 to its Singapore
subsidiary where the main operations are located. Subsequently, approximately $1,608 out of
the $7,800 was wired to the U.S. corporate office for distribution of dividends to
shareholders, which were paid on January 25, 2006. In addition, $705 of the $7,800 was used
for bonuses to the directors and corporate officers paid in December 2005 and January 2006,
respectively.
 18




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##### Table of Contents



10.
    
    BUSINESS SEGMENTSThe 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 $61 and $257 for the nine months ended
March 31, 2006 and 2005, respectively, and $31 and $220 for the three months ended March 31,
2006 and 2005. 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
    
    Income
    
    Total
    
    and
    
    CapitalMar. 31,
    
    Sales
    
    (loss)
    
    Assets
    
    Amort.
    
    ExpendituresManufacturing
    
    
    2006
    
    
    $
    2,685
    
    
    $
    192
    
    
    $
    3,503
    
    
    $
    31
    
    
    $
    1012005
    
    
    
    2,245
    
    
    
    (178
    )
    
    
    2,092
    
    
    
    16
    
    
    
    22Testing Services
    
    
    2006
    
    
    
    3,451
    
    
    
    178
    
    
    
    21,346
    
    
    
    402
    
    
    
    5672005
    
    
    
    2,846
    
    
    
    89
    
    
    
    14,309
    
    
    
    338
    
    
    
    883Distribution
    
    
    2006
    
    
    
    333
    
    
    
    (131
    )
    
    
    849
    
    
    
    4
    
    
    
    2005
    
    
    
    793
    
    
    
    69
    
    
    
    1,526
    
    
    
    34
    
    
    
    47Corporate and unallocated
    
    
    2006
    
    
    
    
    
    
    
    (23
    )
    
    
    620
    
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    
    9
    
    
    
    209
    
    
    
    
    
    
    
    Total Company
    
    
    2006
    
    
    $
    6,469
    
    
    $
    216
    
    
    $
    26,318
    
    
    $
    437
    
    
    $
    6682005
    
    
    $
    5,884
    
    
    $
    (11
    )
    
    $
    18,136
    
    
    $
    388
    
    
    $
    952
 19




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##### Table of Contents



Business Segment Information:
 Nine Months
    
    
    
    
    
    Operating
    
    
    
    
    
    Depr.Ended
    
    Net
    
    Income
    
    Total
    
    and
    
    CapitalMar. 31,
    
    Sales
    
    (loss)
    
    Assets
    
    Amort.
    
    ExpendituresManufacturing
    
    
    2006
    
    
    $
    7,151
    
    
    $
    (100
    )
    
    $
    3,503
    
    
    $
    81
    
    
    $
    2992005
    
    
    
    8,648
    
    
    
    (25
    )
    
    
    2,092
    
    
    
    50
    
    
    
    75Testing Services
    
    
    2006
    
    
    
    10,711
    
    
    
    1,197
    
    
    
    21,346
    
    
    
    1,137
    
    
    
    1,0722005
    
    
    
    8,286
    
    
    
    213
    
    
    
    14,309
    
    
    
    935
    
    
    
    2,964Distribution
    
    
    2006
    
    
    
    1,737
    
    
    
    (133
    )
    
    
    849
    
    
    
    11
    
    
    
    12005
    
    
    
    2,227
    
    
    
    (13
    )
    
    
    1,526
    
    
    
    109
    
    
    
    235Corporate and unallocated
    
    
    2006
    
    
    
    
    
    
    
    (902
    )
    
    
    620
    
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    
    24
    
    
    
    209
    
    
    
    1
    
    
    
    Total Company
    
    
    2006
    
    
    $
    19,599
    
    
    $
    62
    
    
    $
    26,318
    
    
    $
    1,229
    
    
    $
    1,3722005
    
    
    $
    19,161
    
    
    $
    199
    
    
    $
    18,136
    
    
    $
    1,095
    
    
    $
    3,274
 Geographic Area Information:
 Europe,
    
    
    
    
    
    
    
    
    
    
    
    
    
    Elimin-Quarter
    
    
    
    
    
    China
    
    
    
    
    
    
    
    
    
    
    
    
    
    ationsEnded
    
    United
    
    and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    and
    
    TotalMar. 31,
    
    States
    
    countries
    
    Singapore
    
    Thailand
    
    Malaysia
    
    Other
    
    CompanyNet sales to customers
    
    
    2006
    
    
    $
    458
    
    
    $
    387
    
    
    $
    3,335
    
    
    $
    445
    
    
    $
    1,875
    
    
    $
    (31
    )
    
    $
    6,4692005
    
    
    $
    609
    
    
    
    486
    
    
    
    3,114
    
    
    
    474
    
    
    
    1,421
    
    
    
    (220
    )
    
    
    5,884Operating Income (loss)
    
    
    2006
    
    
    $
    (18
    )
    
    
    (4
    )
    
    
    153
    
    
    
    21
    
    
    
    87
    
    
    
    (23
    )
    
    
    2162005
    
    
    $
    (118
    )
    
    
    65
    
    
    
    20
    
    
    
    3
    
    
    
    10
    
    
    
    9
    
    
    
    (11
    )Long-lived Assets
    
    
    2006
    
    
    $
    23
    
    
    
    165
    
    
    
    3,689
    
    
    
    831
    
    
    
    2,900
    
    
    
    (40
    )
    
    
    7,5682005
    
    
    $
    21
    
    
    
    353
    
    
    
    3,686
    
    
    
    977
    
    
    
    2,572
    
    
    
    (40
    )
    
    
    7,569
 Geographic Area Information:
 Europe,
    
    
    
    
    
    
    
    
    
    
    
    
    
    Elimin-Nine Months
    
    
    
    
    
    China
    
    
    
    
    
    
    
    
    
    
    
    
    
    ationsEnded
    
    United
    
    and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    and
    
    TotalMar. 31,
    
    States
    
    countries
    
    Singapore
    
    Thailand
    
    Malaysia
    
    Other
    
    CompanyNet sales to customers
    
    
    2006
    
    
    $
    1,985
    
    
    $
    1,078
    
    
    $
    11,714
    
    
    $
    1,395
    
    
    $
    3,488
    
    
    $
    (61
    )
    
    $
    19,5992005
    
    
    $
    1,815
    
    
    
    1,185
    
    
    
    9,197
    
    
    
    1,619
    
    
    
    5,602
    
    
    
    (257
    )
    
    
    19,161Operating Income (loss)
    
    
    2006
    
    
    $
    (32
    )
    
    
    (7
    )
    
    
    707
    
    
    
    85
    
    
    
    211
    
    
    
    (902
    )
    
    
    622005
    
    
    $
    (192
    )
    
    
    40
    
    
    
    181
    
    
    
    33
    
    
    
    113
    
    
    
    24
    
    
    
    199Long-lived Assets
    
    
    2006
    
    
    $
    23
    
    
    
    165
    
    
    
    3,689
    
    
    
    831
    
    
    
    2,900
    
    
    
    (40
    )
    
    
    7,5682005
    
    
    $
    21
    
    
    
    353
    
    
    
    3,686
    
    
    
    977
    
    
    
    2,572
    
    
    
    (40
    )
    
    
    7,569
 11.
    
    IMPAIRMENT LOSSDuring the nine months ended March 31, 2006, an impairment loss of approximately $15 was
incurred in the Testing segment located in Singapore. The relevant machinery and equipment
was not suitable to perform testing services for the high speed microprocessor chips.
Consequently, this machinery and equipment was deemed obsolete.
 20




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##### Table of Contents



TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
   Overview
    21




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##### Table of Contents



Purchase price (paid in cash)
    
    $
    153Property, plant and equipmentPlant and equipment
    
    $
    121Office equipment
    
    
    6Motor vehicle
    
    
    6Subtotal
    
    
    133Other receivables
    
    
    8Total fair value of tangible assets acquired
    
    $
    141Identifiable intangible asset  customer relationship
    
    
    12Purchase price
    
    $
    153
   Results of operations and business outlook
  Revenue Components
 Nine Months Ended
    
    
    Three Months EndedMar. 31,
    
    
    Mar. 31,
    
    
    Mar. 31,
    
    
    Mar. 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net Sales:Testing
    
    
    54.65
    %
    
    
    43.24
    %
    
    
    53.35
    %
    
    
    48.38
    %Manufacturing
    
    
    36.49
    
    
    
    45.14
    
    
    
    41.50
    
    
    
    38.14Distribution
    
    
    8.86
    
    
    
    11.62
    
    
    
    5.15
    
    
    
    13.48Total
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
 Testing Segment
    22




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##### Table of Contents



Manufacturing Segment
    Distribution Segment
     Uncertainties and Remedies
  23




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##### Table of Contents



Comparison of Third Quarter Ended March 31, 2006 (Q3 2006) and March 31, 2005 (Q3 2005)
  Q3 2006
    
    Q3 2005Net Sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of Sales
    
    
    72.6
    %
    
    
    75.9
    %Gross Margin
    
    
    27.4
    %
    
    
    24.1
    %Operating ExpensesGeneral and administrative
    
    
    19.5
    %
    
    
    18.4
    %Directors & Officers bonus
    
    
    0.0
    %
    
    
    -0.2
    %Selling
    
    
    3.9
    %
    
    
    5.8
    %Research and development
    
    
    0.3
    %
    
    
    0.3
    %Impairment Loss
    
    
    0.0
    %
    
    
    0.0
    %(Gain) Loss on disposal of PP&E
    
    
    0.3
    %
    
    
    0.0
    %Total Operating Expenses
    
    
    24.0
    %
    
    
    24.3
    %Income from operations
    
    
    3.4
    %
    
    
    -0.2
    %
 Overall Net Sales
   Overall Gross Margin
  Income from operations
  24




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##### Table of Contents



Operating Expenses
  (In Thousands, unaudited)
    
    Q3 2006
    
    
    Q3 2005General and administrative
    
    $
    1,261
    
    
    $
    1,082Director and officer bonuses
    
    $
    
    
    
    $
    (9
    )Selling
    
    $
    253
    
    
    $
    339Research and development
    
    $
    20
    
    
    $
    20Loss on disposal of property, plant and equipment
    
    $
    22
    
    
    $
    Total
    
    $
    1,556
    
    
    $
    1,432
     Interest Expense
  (In Thousands, unaudited)
    
    Q3 2006
    
    Q3 2005Interest expense
    
    $
    37
    
    
    $
    42
  Other Income
  (In Thousands, unaudited)
    
    Q3 2006
    
    Q3 2005Other income
    
    $
    84
    
    
    $
    39
  25




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##### Table of Contents



Income Tax
  Income from Discontinued Operations
  Net Income
  Testing Segment
  (In Thousands, unaudited)
    
    Q3 2006
    
    Q3 2005Revenue
    
    $
    3,451
    
    
    $
    2,846Gross margin
    
    
    30.5
    %
    
    
    29.2
    %Income from operations
    
    $
    177
    
    
    $
    89
    26




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##### Table of Contents



Manufacturing Segment
  (In Thousands, unaudited)
    
    Q3 2006
    
    Q3 2005Revenue
    
    $
    2,685
    
    
    $
    2,245Gross margin
    
    
    26.2
    %
    
    
    13.2
    %Income (loss) from operations
    
    $
    192
    
    
    $
    (178
    )
   Distribution Segment
  (In Thousands, unaudited)
    
    Q3 2006
    
    Q3 2005Revenue
    
    $
    333
    
    
    $
    793Gross margin
    
    
    4.4
    %
    
    
    37.0
    %(Loss) income from operations
    
    $
    (131
    )
    
    $
    69
   Corporate
  (In Thousands, unaudited)
    
    Q3 2006
    
    Q3 2005(Loss) income from operations
    
    $
    (23
    )
    
    $
    9
  27




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##### Table of Contents



Year to Date Comparison of the Nine Months Ended March 31, 2006 (2006) and the Nine Months Ended
March 31, 2005 (2005)
  YTD 2006
    
    YTD 2005Net Sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of Sales
    
    
    72.1
    %
    
    
    75.9
    %Gross Margin
    
    
    27.9
    %
    
    
    24.1
    %Operating ExpensesGeneral and administrative
    
    
    19.6
    %
    
    
    18.0
    %Director and officer bonuses
    
    
    3.6
    %
    
    
    0.0
    %Selling
    
    
    3.9
    %
    
    
    4.6
    %Research and development
    
    
    0.3
    %
    
    
    0.4
    %Impairment Loss
    
    
    0.1
    %
    
    
    0.0
    %Loss on disposal of property, plant and equipment
    
    
    0.1
    %
    
    
    0.0
    %Total Operating Expenses
    
    
    27.6
    %
    
    
    23.0
    %Income from operations
    
    
    0.3
    %
    
    
    1.1
    %
  Overall Net Sales
   Overall Gross Margin
  Income from operations
  28




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##### Table of Contents



Operating Expenses
  Operating Expenses(In Thousands, unaudited)
    
    YTD 2006
    
    
    YTD 2005General and administrative
    
    $
    3,837
    
    
    $
    3,450Director and officer bonuses
    
    $
    705
    
    
    $
    Selling
    
    $
    768
    
    
    $
    889Research and development
    
    $
    53
    
    
    $
    77Impairment loss
    
    $
    15
    
    
    $
    Loss on disposal of property, plant and equipment
    
    $
    22
    
    
    $
    Total
    
    $
    5,400
    
    
    $
    4,416
         (In Thousands, unaudited)
    
    YTD 2006
    
    YTD 2005Interest expense
    
    $
    111
    
    
    $
    129
  29




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##### Table of Contents



Other Income
  (In Thousands, unaudited)
    
    YTD 2006
    
    YTD 2005Other income
    
    $
    196
    
    
    $
    81
  Income Tax
  Income from Discontinued Operations
  Net Income
  Testing Segment
  (In Thousands, unaudited)
    
    YTD 2006
    
    YTD 2005Revenue
    
    $
    10,711
    
    
    $
    8,286Gross margin
    
    
    35.4
    %
    
    
    31.6
    %Income from operations
    
    $
    1,197
    
    
    $
    213
   30




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##### Table of Contents



Manufacturing Segment
  (In Thousands, unaudited)
    
    YTD 2006
    
    YTD 2005Revenue
    
    $
    7,151
    
    
    $
    8,648Gross margin
    
    
    19.3
    %
    
    
    15.8
    %Loss from operations
    
    $
    (100
    )
    
    $
    (25
    )
   Distribution Segment
  (In Thousands, unaudited)
    
    YTD 2006
    
    YTD 2005Revenue
    
    $
    1,737
    
    
    $
    2,227Gross margin
    
    
    16.9
    %
    
    
    28.3
    %Loss from operations
    
    $
    (133
    )
    
    $
    (13
    )
    31




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##### Table of Contents



Corporate
  (In Thousands, unaudited)
    
    YTD 2006
    
    YTD 2005(Loss) income from operations
    
    $
    (902
    )
    
    $
    24
  Financial Condition
         Liquidity and Capital Resources
   32




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##### Table of Contents



Corporate Guarantee Arrangement
  Recently Issued Accounting Pronouncements
 Accounting Changes and Error Corrections Reporting Accounting
Changes in Interim Financial Statements
 Critical Accounting Policies
  33




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##### Table of Contents



Use of Estimates
  Accounts Receivable and Allowance for Doubtful Accounts
   Inventory Valuation
  Revenue Recognition
   Income Tax
  34




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##### Table of Contents



Impairment of Long-Lived Assets
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  35




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##### Table of Contents



Mar. 31,2006
    
    
    June 30,(unaudited)
    
    
    
    2005Loans:denominated by Singapore dollars
with variable interest rate at prime rates ranging from 2.95% to
5.75% plus 1% to 6.10% per annum
    
    $
    1,608
    
    
    $
    1,045denominated by Irish pounds
with variable interest rate at prime rates ranging from 2.09% to
2.11% plus 5.11% to 5.59% per annum
    
    
    
    
    
    
    98denominated by Thailand baht
with fixed interest rate at 4.50% per annum
    
    
    109
    
    
    
    146Subtotal
    
    $
    1,717
    
    
    $
    1,289Capital leases:denominated by Singapore dollars
with fixed interest rate ranging from 4.19% to 6.60% per annum
    
    $
    358
    
    
    $
    199denominated by Malaysia ringgit
with fixed interest rate at 4.30% per annum
    
    
    16
    
    
    
    22denominated by U.S. dollars
with fixed interest rate at 0.81% per annum
    
    
    7
    
    
    
    denominated by Irish pounds
with variable interest rate at a prime rate of 2.09% plus 7.10%
    
    
    
    
    
    
    12Subtotal
    
    $
    381
    
    
    $
    233Line of credit:denominated by Singapore dollars
with variable interest rate at 6% plus 8.50% per annum
    
    $
    225
    
    
    $
    336Total
    
    $
    2,323
    
    
    $
    1,858
 36




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##### Table of Contents



Foreign Currency Exchange Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
  37




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##### Table of Contents



TRIO-TECH INTERNATIONAL
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 CERTAIN RISKS THAT MAY AFFECT OUR FUTURE RESULTS
  Possible dilutive effect of outstanding options
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer of Registrant31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer of Registrant32
    
    Section 1350 Certification
 38




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##### Table of Contents



SIGNATURES
  TRIO-TECH INTERNATIONALBy:
    /s/ Victor H.M. TingVICTOR H.M. TINGVice President and
Chief Financial Officer
(Principal Financial Officer)Dated: May 11, 2006 39