##### 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 September 30, 2005
 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
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)14731 Califa Street
Van Nuys, California
(Address of principle executive offices)
    
    91411
(Zip Code)
 818-787-7000
 þ o
 o þ
 o þ




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TRIO-TECH INTERNATIONAL
INDEX TO CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE
 PagePart I.
    
    Financial InformationItem 1.
    
    Financial StatementsConsolidated Balance Sheets as of September 30, 2005 (Unaudited) and June 30, 2005
    
    
    3Consolidated Statements of Operations and Comprehensive Income (loss) for the Three Months
Ended September 30, 2005 (Unaudited) and September 30, 2004 (Unaudited)
    
    
    4Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2005
(Unaudited) and September 30, 2004 (Unaudited)
    
    
    5Notes to Consolidated Financial Statements (Unaudited)
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    23Item 4.
    
    Controls and Procedures
    
    
    24Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    25Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3.
    
    Defaults upon Senior Securities
    
    
    25Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    25Item 5.
    
    Other Information
    
    
    25Item 6.
    
    Exhibits
    
    
    25Signatures
    
    
    26Exhibit 10.1Exhibit 10.2Exhibit 31.1Exhibit 31.2Exhibit 32
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##### Table of Contents



TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
 
 CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT NUMBER OF SHARES)
 Sep 30,
    
    
    June 30,ASSETS
    
    2005
    
    
    2005(Unaudited)CURRENT ASSETS:Cash
    
    $
    1,595
    
    
    $
    1,439Restricted cash held in escrow
    
    
    1,067
    
    
    
    Short-term deposits
    
    
    3,494
    
    
    
    3,211Trade accounts receivable, less allowance for doubtful accounts
of $160 and $147, respectively
    
    
    3,506
    
    
    
    4,178Other receivables
    
    
    232
    
    
    
    142Inventories, less provision for obsolete inventory
of $428 respectively
    
    
    2,215
    
    
    
    1,584Prepaid expenses and other current assets
    
    
    204
    
    
    
    91Assets held for sale
    
    
    261
    
    
    
    Total current assets
    
    
    12,574
    
    
    
    10,645PROPERTY, PLANT AND EQUIPMENT, Net
    
    
    6,681
    
    
    
    7,176OTHER INTANGIBLE ASSETS, Net
    
    
    364
    
    
    
    386OTHER ASSETS
    
    
    230
    
    
    
    138TOTAL ASSETS
    
    $
    19,849
    
    
    $
    18,345LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Lines of credit
    
    $
    285
    
    
    $
    336Accounts payable
    
    
    1,710
    
    
    
    1,681Accrued expenses
    
    
    2,950
    
    
    
    2,598Accrued restructuring costs
    
    
    223
    
    
    
    Advances from buyer
    
    
    1,067
    
    
    
    Income tax payable
    
    
    195
    
    
    
    168Current portion of notes payable
    
    
    728
    
    
    
    655Current portion of capital leases
    
    
    73
    
    
    
    123Current portion of deferred tax liabilities
    
    
    274
    
    
    
    275Total current liabilities
    
    
    7,505
    
    
    
    5,836NOTES PAYABLE, net of current portion
    
    
    590
    
    
    
    634CAPITAL LEASES, net of current portion
    
    
    94
    
    
    
    110DEFERRED TAX LIABILITIES
    
    
    406
    
    
    
    407TOTAL LIABILITIES
    
    
    8,595
    
    
    
    6,987MINORITY INTEREST
    
    
    2,052
    
    
    
    2,061SHAREHOLDERS EQUITY:Common stock; no par value, 15,000,000 shares authorized;2,996,992 shares issued and outstanding as at Sep. 30, 2005, and2,976,042 shares issued and outstanding as at Jun. 30, 2005, respectively
    
    
    9,618
    
    
    
    9,554Paid-in capital
    
    
    318
    
    
    
    284Accumulated deficit
    
    
    (512
    )
    
    
    (298
    )Accumulated other comprehensive loss-translation adjustments
    
    
    (222
    )
    
    
    (243
    )Total shareholders equity
    
    
    9,202
    
    
    
    9,297TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    19,849
    
    
    $
    18,345
 See notes to condensed consolidated financial statements.
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##### Table of Contents



TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004 (UNAUDITED, IN THOUSANDS, EXCEPT (LOSS) EARNINGS
PER SHARE)
 Three Months EndedSep. 30,
    
    
    Sep. 30,2005
    
    
    2004(Unaudited)
    
    
    (Unaudited)NET SALES- PRODUCT SALES
    
    $
    2,160
    
    
    $
    4,957- SERVICES
    
    
    3,545
    
    
    
    2,7865,705
    
    
    
    7,743COST OF SALES- COST OF GOODS SOLD
    
    
    1,695
    
    
    
    4,066- COSTS OF SERVICES RENDERED
    
    
    2,186
    
    
    
    1,7703,881
    
    
    
    5,836GROSS PROFIT
    
    
    1,824
    
    
    
    1,907OPERATING EXPENSES:General and administrative
    
    
    1,289
    
    
    
    1,257Selling
    
    
    285
    
    
    
    269Research and development
    
    
    17
    
    
    
    33Impairment Loss
    
    
    15
    
    
    
    1Total
    
    
    1,606
    
    
    
    1,560INCOME FROM OPERATIONS
    
    
    218
    
    
    
    347OTHER INCOME (EXPENSE)Interest expense
    
    
    (35
    )
    
    
    (32
    )Other income
    
    
    30
    
    
    
    55Total
    
    
    (5
    )
    
    
    23INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES
    
    
    213
    
    
    
    370INCOME TAXES
    
    
    73
    
    
    
    111INCOME FROM CONTINUING OPERATIONS
    
    
    140
    
    
    
    259DISCONTINUED OPERATION (NOTE 7)LOSS FROM DISCONTINUED OPERATION
    
    
    (378
    )
    
    
    (9
    )(LOSS) INCOME BEFORE MINORITY INTEREST
    
    
    (238
    )
    
    
    250MINORITY INTEREST
    
    
    24
    
    
    
    (13
    )NET (LOSS) INCOME
    
    $
    (214
    )
    
    $
    237BASIC (LOSS) EARNINGS PER SHAREBasic earnings per share from Continuing operations
    
    $
    0.05
    
    
    $
    0.08Basic loss per share from Discontinued operation
    
    
    (0.13
    )
    
    
    0.00Basic (loss) earnings per share from Net (loss) income
    
    $
    (0.08
    )
    
    $
    0.08DILUTED (LOSS) EARNINGS PER SHAREDiluted earnings per share from Continuing operations
    
    $
    0.05
    
    
    $
    0.08Diluted loss per share from Discontinued operation
    
    
    (0.13
    )
    
    
    0.00Diluted (loss) earnings per share from Net (loss) income
    
    $
    (0.08
    )
    
    $
    0.08WEIGHTED AVERAGE NUMBER OF COMMON AND
POTENTIAL COMMON SHARES OUTSTANDINGBasic
    
    
    2,994
    
    
    
    2,965Diluted
    
    
    3,043
    
    
    
    3,009COMPREHENSIVE (LOSS) INCOME :Net (loss) income
    
    $
    (214
    )
    
    $
    237Foreign currency translation adjustment
    
    
    21
    
    
    
    38COMPREHENSIVE (LOSS) INCOME
    
    $
    (193
    )
    
    
    275
 See notes to condensed consolidated financial statements.
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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004 (UNAUDITED, IN THOUSANDS)
 Three Months EndedSep 30,
    
    
    Sep 30,2005
    
    
    2004(unaudited)
    
    
    (unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (214
    )
    
    $
    237Adjustments to reconcile net (loss) income to
net cash provided by operating activities:Depreciation and amortization
    
    
    392
    
    
    
    337Bad debt expense, net
    
    
    18
    
    
    
    11Inventory provision
    
    
    
    
    
    
    1Interest income on short-term deposits
    
    
    (15
    )
    
    
    (13
    )Impairment loss
    
    
    15
    
    
    
    1Stock compensation
    
    
    34
    
    
    
    Restructuring costs
    
    
    223
    
    
    
    Deferred tax (benefit) provision
    
    
    (2
    )
    
    
    27Minority interest
    
    
    (24
    )
    
    
    13Changes in operating assets and liabilities:Accounts receivable, net
    
    
    654
    
    
    
    (785
    )Other receivables
    
    
    (90
    )
    
    
    (236
    )Other assets
    
    
    (92
    )
    
    
    (482
    )Inventories
    
    
    (631
    )
    
    
    (370
    )Prepaid expenses and other current assets
    
    
    (113
    )
    
    
    (61
    )Accounts payable and accrued expenses
    
    
    381
    
    
    
    1,085Income tax payable
    
    
    27
    
    
    
    38Net cash provided by (used in) operating activities
    
    
    563
    
    
    
    (197
    )CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from maturing short-term deposits
    
    
    382
    
    
    
    1,304Investments in short-term deposits
    
    
    (650
    )
    
    
    (79
    )Capital expenditures
    
    
    (131
    )
    
    
    (457
    )Acquisition of business in Malaysia
    
    
    
    
    
    
    (731
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    168Net cash (used in) provided by investing activities
    
    
    (399
    )
    
    
    205CASH FLOWS FROM FINANCING ACTIVITIES:Net payments and borrowings on lines of credit
    
    
    (51
    )
    
    
    Principal payments of debt and capital leases
    
    
    (236
    )
    
    
    (208
    )Proceeds from long-term debt
    
    
    199
    
    
    
    285Cash received from stock options exercised
    
    
    64
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (24
    )
    
    
    77EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    16
    
    
    
    (8
    )NET INCREASE IN CASH
    
    
    156
    
    
    
    77CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    1,439
    
    
    
    1,357CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    1,595
    
    
    $
    1,434SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid during the period for:Interest
    
    $
    37
    
    
    $
    35Income taxes
    
    $
    45
    
    
    $
    57NON-CASH OPERATING ACTIVITIES- Assets held for sale
    
    $
    (261
    )
    
    $
    - Carrying value of property reclassified from PPE
    
    $
    261
    
    
    $
    - Advances from buyer
    
    $
    1,067
    
    
    $
    - Restricted cash held in escrow
    
    $
    (1,067
    )
    
    $
    
 See notes to condensed consolidated financial statements.
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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AND NUMBER OF SHARES)
 1.
    
    ORGANIZATION AND BASIS OF 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 operating in the U.S., Singapore, Malaysia, Thailand and China as follows:
 Ownership
    
    LocationExpress Test Corporation
    
    
    100
    %
    
    Van Nuys, CaliforniaTrio-Tech Reliability Services
    
    
    100
    %
    
    Van Nuys, CaliforniaKTS Incorporated, dba Universal Systems
    
    
    100
    %
    
    Van Nuys, CaliforniaEuropean Electronic Test Centre
    
    
    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, 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. Accordingly, 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, 2005 are not necessarily indicative of the results that may
be expected for the fiscal year ending June 30, 2006. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Companys annual
report for the fiscal year ended June 30, 2005.2.
    
    INVENTORIESInventories consist of the following:
 Sep. 30,
    
    
    June 30,2005
    
    
    2005(Unaudited)Raw materials
    
    $
    850
    
    
    $
    842Work in progress
    
    
    1,277
    
    
    
    608Finished goods
    
    
    516
    
    
    
    562Less: provision for obsolete inventory
    
    
    (428
    )
    
    
    (428
    )$
    2,215
    
    
    $
    1,584
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##### Table of Contents



3.
    
    STOCK OPTIONSAs of September 30, 2005, the Company has two share-based compensation plans, which are
described below. The Company historically adopted the APB No. 25 approach  intrinsic
value method  and presented the pro forma information in line with the requirements of
SFAS No. 123. Historically, the stock based compensation cost has been charged against
income, which was $0, $0, and $14 (related to directors option plan) for the fiscal years
ended June 30, 2005, 2004 and 2003, respectively. There was no income tax benefit related
to share-based compensation for the fiscal years ended June 30, 2005, 2004, and 2003,
respectively, as the Company did not claim a deduction for corporate income tax
purpose.Effective July 1, 2005, the Company adopted the fair value recognition provisions of
Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 123R, Share-Based Payments, using the modified prospective application method.
Under this transition method, compensation cost recognized in the quarter ended September
30, 2005 includes the applicable amounts of: (a) compensation
cost of all share-based
payments granted prior to, but not yet vested as of, July 1, 2005 (based on the grant-date
fair value estimated in accordance with the original provisions of SFAS No. 123) and (b)
compensation cost for all share-based payments granted subsequent to July 1, 2005 (based on
the grant-date fair value estimated in accordance with the new provisions of SFAS No. 123R).
Amortization of unrecognized fair value of the non-vested options as of
July 1, 2005 was $1 for the three months ended September 30, 2005. The fair value of stock options granted to directors and one officer
during the three months was $33 based on the fair value of $1.08 per share.AssumptionsThe disclosure of the above fair value for these awards was estimated using the
Black-Scholes option pricing model with the assumptions listed below:
 Quarter Ended
    
    Years EndedSeptember 30, 2005
    
    June 30, 2005
    
    June 30, 2004
    
    June 30, 2003Expected Volatility
    
    
    49.50
    %
    
    
    33.5 - 36.8
    %
    
    
    41.9
    %
    
    
    37.2
    %Weighted average volatility
    
    
    49.50
    %
    
    
    33.9
    %
    
    
    41.9
    %
    
    
    37.2
    %Risk free interest rate
    
    
    3.71
    %
    
    
    2.89 - 3.27
    %
    
    
    2.76
    %
    
    
    2.27 - 2.93
    %Expected terms (years)
    
    
    2.00
    
    
    
    2.00
    
    
    
    2.00
    
    
    
    2.00
 The expected volatilities are based on the historical volatility of the Companys stock.
The observation is made on a weekly basis. The observation period covered is consistent
with the expected terms of options. The expected terms of stock options are based on the
average vesting period on a basis consistent with the historical experience of
the similar option grants. The risk-free rate is consistent with the
expected terms of stock option and based on the U.S. Treasury yield curve in effect at the
time of grant.1998 Stock Option PlanThe Companys 1998 Stock Option Plan (the 1998 Plan), which is shareholder-approved,
permits the grant of stock options to its employees of up to 300,000 shares of common stock.
The Company believes that such awards better align the interests of its employees with
those of its shareholders. Option awards are generally granted with an exercise price equal
to the market price of the Companys stock at the date of grant. These options should be
used to award the employees who have provided continuous service to the Company for five
years. These options have a five-year contractual life term. Options awards vest over four
periods; the first 25% should generally vest on the grant date, and the next three 25%,
respectively, should vest at each anniversary of the grant date. The share-based
compensation will be amortized based on accelerated method over the four periods. Certain
option awards provide for accelerated vesting if there is a change in control (as defined in
the Plan).
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A summary of option activities under the 1998 Plan during the three months of fiscal 2006
ended September 30, 2005 is presented as follows:
 Weighted - AverageWeighted- Average
    
    
    RemainingExercise
    
    
    Contractual
    
    
    Aggregate IntrinsicStock Options
    
    Shares
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at July 1, 2005
    
    
    165,000
    
    
    $
    3.44Granted
    
    
    
    
    
    
    Exercised
    
    
    (20,950
    )
    
    
    3.07Expired
    
    
    (22,000
    )
    
    
    5.40Outstanding at September 30, 2005
    
    
    122,050
    
    
    $
    3.15
    
    
    
    2.00
    
    
    $
    141,462Exercisable at September 30, 2005
    
    
    101,050
    
    
    $
    3.10
    
    
    
    2.00
    
    
    $
    121,042
 Cash received from options exercised under the three months ended September 30, 2005 was
approximately $64. There were no options granted during the three months ended September
30, 2005 under the 1998 Stock Option Plan.A summary of the status of the Companys non-vested stock options during the three months
ended September 30, 2005 is presented below:
 Weighted-AverageGrant-DateNon-vested Options
    
    Shares
    
    
    Fair ValueNon-vested at July 1, 2005
    
    
    34,750
    
    
    $
    0.86Granted
    
    
    
    
    
    
    Vested
    
    
    (13,750
    )
    
    
    0.74Forfeited or expired
    
    
    
    
    
    
    Non-vested at September 30,
2005
    
    
    21,000
    
    
    $
    0.94
 As of September 30, 2005, there was approximately $20 of accumulated unrecognized stock
compensation based on fair value on the grant date related to non-vested options granted
under the 1998 Plan. That cost was expected to be recognized during the weighted average
period of 2.5 yearsDirectors Stock Option PlanThe Directors Stock Option Plan (the Directors Plan), which was shareholder-approved in
1998, permits the grant of stock options to its duly elected non-employee Directors and one
of the corporate officers of the Company (if he or she is also a director of the Company) of
up to 300,000 shares of common stock. The Company believes that such awards better align
the interests of its directors with those of its shareholders. Option awards are originally
granted with an exercise price equal to 85% of the fair market price of the Companys stock
at the grant date. Subsequent to July 1, 2003, the Board approved and granted options to
purchase the Companys common stock at a price equal to 100% of the fair market value of the
underlying shares on the grant date. These options will award the directors with continuous
service over five years and have five-year contractual terms. Options awards are
exercisable immediately as of the grant date.A summary of the activities under the Directors Plan during the three months ended September
30, 2005 is presented below:
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##### Table of Contents



Weighted - AverageWeighted- Average
    
    
    RemainingExercise
    
    
    Contractual
    
    
    Aggregate IntrinsicStock Options
    
    Shares
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at July 1, 2005
    
    
    137,000
    
    
    $
    3.63Granted
    
    
    30,000
    
    
    
    3.75Exercised
    
    
    
    
    
    
    Expired
    
    
    (32,000
    )
    
    
    5.37Outstanding at September 30, 2005
    
    
    135,000
    
    
    $
    3.24
    
    
    
    2.00
    
    
    $
    146,200Exercisable at September 30, 2005
    
    
    135,000
    
    
    $
    3.24
    
    
    
    2.00
    
    
    $
    146,200
  Three Months EndedSep. 30,2004(Unaudited)Net income : as reported
    
    $
    237Add: stock based employee compensation
included in reported income
    
    
    Deduct: total stock based employee compensation
expense determined under fair value method for
all awards
    
    
    (8
    )Pro forma net income
    
    $
    229Earnings per share  basic
As reported
    
    $
    0.08Pro forma
    
    $
    0.08Earnings per share  diluted
As reported
    
    $
    0.08Pro forma
    
    $
    0.08
 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 257,050 shares at exercise prices ranging from $2.25 to $4.50 per
share were outstanding as of September 30, 2005. The following options were excluded from
the computation of diluted EPS because their effect would have been anti-dilutive.
 Type
    
    Shares
    
    
    Exercise Price
    
    
    ExpirationOptions
    
    
    4,500
    
    
    $
    4.50
    
    
    December 6, 2009Options
    
    
    35,500
    
    
    $
    4.40
    
    
    July 1, 2009
 Stock options to purchase 391,000 shares at prices ranging from $2.25 to $6.00 per share
were outstanding as of September 30, 2004. 150,500 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.
 9




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##### 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. 30,2005
    
    
    2004(Unaudited)
    
    
    (Unaudited)Income from continuing operations
    
    $
    140
    
    
    $
    259Minority interest
    
    
    24
    
    
    
    (13
    )Net income from continuing operationsused tocompute basic and diluted (loss) earnings per share
    
    $
    164
    
    
    $
    246Loss from discontinued operation
    
    $
    (378
    )
    
    $
    (9
    )Net income (loss) attribute to common shares
    
    $
    (214
    )
    
    $
    237Basic (Loss) Earnings Per ShareBasic earnings per share from Continuing operations
    
    $
    0.05
    
    
    $
    0.08Basic loss per share from Discontinued operation
    
    
    (0.13
    )
    
    
    Basic (loss) earnings per share from Net loss (income)
    
    $
    (0.08
    )
    
    $
    0.08Diluted (Loss) Earnings Per ShareDiluted earnings per share from Continuing operations
    
    $
    0.05
    
    
    $
    0.08Diluted loss per share from Discontinued operation
    
    
    (0.13
    )
    
    
    Diluted (loss) earnings per share from Net loss (income)
    
    $
    (0.08
    )
    
    $
    0.08Weighted average number of common shares outstanding  basic
    
    
    2,994,045
    
    
    
    2,964,542Dilutive effect of stock options
    
    
    48,670
    
    
    
    44,013Number of shares used to compute earnings per share  diluted
    
    
    3,042,715
    
    
    
    3,008,555
 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 condition, 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, 2005 and the twelve months ended June 30,
2005 was adequate. However, actual write-offs might be more or less than the recorded
allowance.
 Sep.
30,2005(Unaudited)
    
    

June
30,2005Beginning
    
    $
    147
    
    
    $
    165Additions charged to expenses
    
    
    33
    
    
    
    44Recovered
    
    
    (15
    )
    
    
    (62
    )Actual write-offs
    
    
    (5
    )
    
    
    Ending
    
    $
    160
    
    
    $
    147
 6.
    
    WARRANTY ACCRUAL
 Sep.
30,2005(Unaudited)
    
    

June
30,2005Beginning
    
    $
    155
    
    
    $
    162Additions charged to cost and expenses
    
    
    10
    
    
    
    43Recovered
    
    
    
    
    
    
    Actual write-offs
    
    
    
    
    
    
    (50
    )Ending
    
    $
    165
    
    
    $
    155
 10




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##### Table of Contents



7.
    
    ASSETS HELD FOR SALE 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. The revenue for the three months ended
September 30, 2005, and 2004 were approximately $77 and $108, and the pre-tax loss was
approximately $11 and $9, respectively. In August 2005, the Company established a
restructuring plan to close the Testing operation in Dublin, Ireland. This fact was
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 believes that no continued
cash flow will 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 in August 2005 and ceased the depreciation of the property in accordance
with SFAS No. 144 and decided to ship the relevant machinery and equipment to Singapore.
Therefore, the machinery and equipment located in Dublin, Ireland was not included in the
assets held for sale. Management of the Company believes that the property should be
disclosed as assets held for sale as this property was available for immediate sale in its
then present condition subject only to terms that are usual and customary for sales of such
property; the sale of the property was probable; and transfer of the property was expected
to qualify for recognition as a completed sale within one year.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
$10,670) and received a deposit of 885 (equivalent to $1,067) based on the exchange rate as
of September 30, 2005 published by the Federal Reserve Statistical Release. The sale was
consummated on November 1, 2005. Accordingly, the Company believes that the assets held for
sale should be presented as part of current assets. In accordance with SFAS No. 144, the
asset held for sale was recorded at historical carrying value of the
property
($261), which was lower than its fair value, less the cost to sell. The tax on capital gain in Ireland from disposing this sale property has not yet been
determined. However, the payment for capital gain tax will be deducted from the gross
proceeds from selling the property when the gain is determined. The disposal gain realized
in November 2005 will be presented in the gain from disposal of discontinued operation
section in the statement of operations for the second quarter of fiscal 2006.During the process of establishing a restructuring plan, management of the Company estimated
that the accrued liability for the restructuring would be one-time termination benefits of
approximately $330, of which $107 were paid before September 30,
2005. In addition, the Company estimated to incur an additional $95
in closing costs in the future. The restructuring
costs were included in the loss from discontinued operations in the statement of operations.Consequently, management of the Company believed that the accrued liability for
restructuring cost was adequate at September 30, 2005. Management also did not believe that
the discontinued Ireland operation would generate any income tax benefit because of the
consecutive operating losses in the past three fiscal years in accordance with Ireland tax
laws. Management expects to exit Ireland by the end of December 2005.8.
    
    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 $30 and $29 for the three months ended
September 30, 2005 and 2004, respectively. Corporate assets mainly consisted of cash and
prepaid expenses. Corporate expenses mainly consisted of salaries, insurance, professional
expenses and directors fees.
 11




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##### Table of Contents



The following segment information is unaudited:
 Business Segment Information:
 Quarter
    
    
    
    
    
    
    Operating
    
    
    
    
    
    
    Depr.Ended
    
    
    Net
    
    
    (Loss)
    
    
    Total
    
    
    and
    
    
    CapitalSep. 30,
    
    
    Sales
    
    
    income
    
    
    Assets
    
    
    Amort.
    
    
    ExpendituresManufacturing
    
    
    2005
    
    
    $
    1,355
    
    
    $
    (175
    )
    
    $
    2,040
    
    
    $
    23
    
    
    $
    112004
    
    
    
    3,978
    
    
    
    147
    
    
    
    2,349
    
    
    
    18
    
    
    
    21Testing Services
    
    
    2005
    
    
    
    3,545
    
    
    
    458
    
    
    
    16,455
    
    
    
    366
    
    
    
    1202004
    
    
    
    2,786
    
    
    
    181
    
    
    
    15,739
    
    
    
    281
    
    
    
    269Distribution
    
    
    2005
    
    
    
    805
    
    
    
    (1
    )
    
    
    1,192
    
    
    
    3
    
    
    
    2004
    
    
    
    979
    
    
    
    12
    
    
    
    1,366
    
    
    
    37
    
    
    
    167Corporate and
    
    
    2005
    
    
    
    
    
    
    
    (64
    )
    
    
    162
    
    
    
    
    
    
    
    unallocated
    
    
    2004
    
    
    
    
    
    
    
    7
    
    
    
    64
    
    
    
    1
    
    
    
    Total Company
    
    
    2005
    
    
    $
    5,705
    
    
    $
    218
    
    
    $
    19,849
    
    
    $
    392
    
    
    $
    1312004
    
    
    $
    7,743
    
    
    $
    347
    
    
    $
    19,518
    
    
    $
    337
    
    
    $
    457
 Geographic Area Information:
 Europe,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Elimin-Quarter
    
    
    
    
    
    
    China
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ationsEnded
    
    
    United
    
    
    and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    and
    
    
    TotalSep. 30,
    
    
    States
    
    
    countries
    
    
    Singapore
    
    
    Thailand
    
    
    Malaysia
    
    
    Other
    
    
    CompanyNet sales to
    
    
    2005
    
    
    $
    434
    
    
    $
    328
    
    
    $
    3,791
    
    
    $
    461
    
    
    $
    721
    
    
    $
    (30
    )
    
    $
    5,705customers
    
    
    2004
    
    
    
    669
    
    
    
    346
    
    
    
    3,082
    
    
    
    653
    
    
    
    3,022
    
    
    
    (29
    )
    
    
    7,743Operating
    
    
    2005
    
    
    
    (18
    )
    
    
    (2
    )
    
    
    230
    
    
    
    28
    
    
    
    44
    
    
    
    (64
    )
    
    
    218(Loss) income
    
    
    2004
    
    
    
    (28
    )
    
    
    12
    
    
    
    162
    
    
    
    34
    
    
    
    160
    
    
    
    7
    
    
    
    347Long-lived
    
    
    2005
    
    
    
    17
    
    
    
    40
    
    
    
    3,346
    
    
    
    852
    
    
    
    2,830
    
    
    
    (40
    )
    
    
    7,045Assets
    
    
    2004
    
    
    
    3
    
    
    
    365
    
    
    
    3,744
    
    
    
    860
    
    
    
    1,842
    
    
    
    (40
    )
    
    
    6,774
 9.
    
    IMPAIRMENT LOSSDuring the three months ended September 30, 2005, 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.
 12




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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
    13




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##### Table of Contents



 
   
 Results of operations and business outlook
  Three Months Ended (unaudited)Sept. 30,
    
    Sept. 30,2005
    
    2004Net Sales:Manufacturing
    
    
    23.76
    %
    
    
    51.38
    %Testing
    
    
    62.14
    
    
    
    35.98Distribution
    
    
    14.10
    
    
    
    12.64Total
    
    
    100.00
    %
    
    
    100.00
    %
 Testing Segment
   14




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##### Table of Contents



Manufacturing Segment
    Distribution Segment
    Uncertainties and Remedies
  15




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##### Table of Contents



Comparison of First Quarter Ended September 30, 2005 (Q1 2006) and September 30, 2004 (Q1 2005)
  Q1 2006
    
    Q1 2005Net Sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of Sales
    
    
    68.0
    %
    
    
    75.4
    %Gross Margin
    
    
    32.0
    %
    
    
    24.6
    %Operating
ExpensesGeneral and administrative
    
    
    22.6
    %
    
    
    16.2
    %Selling
    
    
    5.0
    %
    
    
    3.5
    %Research and development
    
    
    0.3
    %
    
    
    0.4
    %Impairment Loss
    
    
    0.3
    %
    
    
    0.0
    %Total Operating Expenses
    
    
    28.2
    %
    
    
    20.1
    %Income from operations
    
    
    3.8
    %
    
    
    4.5
    %
 Overall Net Sales
   Overall Gross Margin
  16




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##### Table of Contents



Income from operations
  Operating Expenses
  (In Thousands, unaudited)
    
    Q1 2006
    
    
    Q1 2005General and administrative
    
    $
    1,289
    
    
    $
    1,257Selling
    
    $
    285
    
    
    $
    269Research and development
    
    $
    17
    
    
    $
    33Impairment Loss
    
    $
    15
    
    
    $
    1Total
    
    $
    1,606
    
    
    $
    1,560
 Share-Based Payments
    Other Income
  (In Thousands, unaudited)
    
    Q1 2006
    
    
    Q1 2005Other income
    
    $
    30
    
    
    $
    55
  Income Tax
  17




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##### Table of Contents



Loss from Discontinued Operation
  Net (Loss) Income
  Manufacturing Segment
  (In Thousands, unaudited)
    
    Q1 2006
    
    
    Q1 2005Revenue
    
    $
    1,355
    
    
    $
    3,978Gross margin
    
    
    18.4
    %
    
    
    16.0
    %(Loss) income from operations
    
    $
    (175
    )
    
    $
    147
    Testing Segment
  (In Thousands, unaudited)
    
    Q1 2006
    
    
    Q1 2005Revenue
    
    $
    3,545
    
    
    $
    2,786Gross margin
    
    
    38.3
    %
    
    
    36.5
    %Income from operations
    
    $
    458
    
    
    $
    181
  18




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##### Table of Contents



Distribution Segment
  (In Thousands, unaudited)
    
    Q1 2006
    
    
    Q1 2005Revenue
    
    $
    805
    
    
    $
    979Gross margin
    
    
    26.9
    %
    
    
    26.0
    %(Loss) income from operations
    
    $
    (1
    )
    
    $
    12
    Corporate
  (In Thousands, unaudited)
    
    Q1 2006
    
    
    Q1 2005(Loss) income from operations
    
    $
    (64
    )
    
    $
    7
  Financial Condition
   19




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##### Table of Contents




       .
 Liquidity and Capital Resources
    20




---



##### Table of Contents



Corporate Guarantee Arrangement
  Recently Issued Accounting Pronouncements
 Accounting Changes and Error Corrections" Reporting Accounting
Changes in Interim Financial Statements
 Critical Accounting Estimates & Policies
   Use of Estimates
  21




---



##### Table of Contents



Accounts Receivable and Allowance for Doubtful Accounts
   Inventory Valuation
  Revenue Recognition
   Income Tax
     22




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##### Table of Contents



Impairment of Long-Lived Assets
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  Sep. 30,
    
    
    June 30,2005
    
    
    2005(unaudited)Loans:denominated by Singapore dollars
with variable interest at prime rates ranging from 2.95% to
5.75% plus 1% to 6.25% per annum
    
    $
    1,098
    
    
    $
    1,045denominated by Irish pound
with variable interest at prime rates ranging from 2.09% to
2.11% plus 5.11% to 5.59% per annum
    
    
    88
    
    
    
    98denominated by Thailand baht
with fixed interest rate at 4.50% per annum
    
    
    132
    
    
    
    146Subtotal
    
    $
    1,318
    
    
    $
    1,289Capital leases:denominated by Singapore dollars
with fixed interest rates ranging from 4.19% to 6.60% per annum
    
    $
    147
    
    
    $
    199denominated by Malaysia ringgit
with fixed interest rate at 4.30% per annum
    
    
    20
    
    
    
    22denominated by Irish pound
with variable interests at prime rate of 2.09% plus 7.10% per
annum
    
    
    
    
    
    
    12Subtotal
    
    $
    167
    
    
    $
    233Line of credit:denominated by Singapore dollars
with variable interest rate at 5.75% plus 6.00% per annum
    
    $
    285
    
    
    $
    336Total
    
    $
    1,770
    
    
    $
    1,858
 23




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##### Table of Contents



Foreign Currency Exchange Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
  24




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##### Table of Contents



TRIO-TECH INTERNATIONAL   PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 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
 10.1
    
    
    Memorandum of Agreement, dated September 30, 2005 between
European Electronic Test Centre Ltd.
and Dorville Homes Ltd.10.2
    
    
    Deed of Assignment, dated October 27, 2005 between European
Electronic Test Centre Ltd. and Dorville Homes Ltd.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.
 25




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##### Table of Contents



SIGNATURES
  TRIO-TECH INTERNATIONALBy:
    /s/ Victor H.M. TingVICTOR H.M. TINGDated: November 21, 2005
    
    Vice President and
Chief Financial Officer
(Principal Financial Officer) 26