UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q




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




For the
Quarterly Period Ended March 31, 2008


OR





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





For the
Transition Period from ___ to ___





Commission
File Number 1-14523





TRIO-TECH   INTERNATIONAL


(Exact
name of Registrant as specified in its Charter)








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





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





Not
Applicable


(Former
Name, Former Address and Former Fiscal Year if Changed Since Last
Report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.Yes
R No £





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of  “large accelerated filed,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):  Large Accelerated Filer £  Accelerated
Filer £  Non-Accelerated
Filer £  Smaller
Reporting Company  R




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





Number of
shares of common stock outstanding as of April 28, 2008 was
3,226,430

















TRIO-TECH    INTERNATIONAL


INDEXTO CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND
SIGNATURES








PagePart
      I.
            Financial InformationItem
      1.
            Financial Statements(a)
      Condensed Consolidated Balance Sheets as of March 31, 2008
      (Unaudited) and June 30, 2007
            4(b)
      Condensed Consolidated Statements of Operations and
      Comprehensive Income for the Three and Nine Months Ended March 31, 2008
      (Unaudited) and March 31, 2007 (Unaudited)
            5(c)
      Condensed Consolidated Statements of Cash Flows for the Nine
      Months Ended March 31, 2008 (Unaudited) and March 31, 2007
      (Unaudited)
            6(d)
      Notes to Consolidated Financial Statements
      (Unaudited)
            7Item
      2.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            18Item
      3.
            Quantitative and Qualitative Disclosures about Market
      Risk
            31Item
      4T.
            Controls and Procedures
            31Part
      II.
            Other InformationItem
      1.
            Legal Proceedings
            32Item
      1A.
            Risk Factors
            32Item
      2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            32Item
      3.
            Defaults upon Senior Securities
            32Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            32Item
      5.
            Other Information
            32Item
      6.
            Exhibits
            32Signatures
            
            33Exhibits
            
            34Certifications
            
            34





2
 Table of
Contents








FORWARD-LOOKING
STATEMENTS





The
discussions of Trio-Tech International’s (the “Company”) business and activities
set forth in this Form 10-Q and in other past and future reports and
announcements by the Company may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, and assumptions
regarding future activities and results of operations of the
Company.  In light of the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995, the following factors, among others,
could cause actual results to differ materially from those reflected in any
forward-looking statements made by or on behalf of the Company: market
acceptance of Company products and services; changing business conditions or
technologies and volatility in the semiconductor industry, which could affect
demand for the Company’s products and services; the impact of competition;
problems with technology; product development schedules; delivery schedules;
changes in military or commercial testing specifications which could affect the
market for the Company’s products and services; difficulties in profitably
integrating acquired businesses, if any, into the Company; risks associated with
conducting business internationally and especially in Southeast Asia, including
currency fluctuations and devaluation, currency restrictions, local laws and
restrictions and possible social, political and economic instability; and other
economic, financial and regulatory factors beyond the Company’s control. The
increase in world-wide oil prices caused companies to incur higher costs. We
believe customers have tightened and will continue to tighten their spending,
resulting in a decline in the demand for electronic products and semiconductor
equipment. We anticipate that this chain effect will hit the Company’s business
gradually in the future. See the discussions elsewhere in this Form 10-Q,
including under the heading “Certain Risks That May Affect Our Future Results,”
for more information. In some cases, you can identify forward-looking statements
by the use of terminology such as “may,” “will,” “expects,” “plans,”
“anticipates,” “estimates,” “potential,” “believes,” “can impact,” “continue,”
or the negative thereof or other comparable terminology.





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





3
 Table of Contents


PART I.  FINANCIAL INFORMATION




ITEM 1. FINANCIAL
STATEMENTS


TRIO-TECH
INTERNATIONAL AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETSUNAUDITED (IN THOUSANDS, EXCEPT NUMBER OF
SHARES)





March
      31,
            
            
            June
      30,2008
            
            
            2007ASSETS
            
            
            (Unaudited)CURRENT
      ASSETS:Cash
            
            $
            5,958
            
            $
            7,135Short-term
      deposits
            
            8,342
            
            
            7,815Trade
      accounts receivable, less allowance for doubtfulaccounts of $44
      and $42
            
            7,083
            
            
            7,410Other
      receivables
            
            682
            
            
            245Inventories,
      less provision for obsolete inventoryof $817 and
    $781
            
            2,144
            
            
            1,946Prepaid
      expenses and other current assets
            
            222
            
            
            122Assets
      held for sale
            
            219
            
            
            --Total
      current assets
            
            24,650
            
            
            24,673INVESTMENT
      IN CHINA (Note 11)
            
            2,931
            
            
            --PROPERTY,
      PLANT AND EQUIPMENT, Net
            
            7,713
            
            
            7,458OTHER
      INTANGIBLE ASSETS, Net
            
            143
            
            
            212OTHER
      ASSETS
            
            645
            
            
            445TOTAL
      ASSETS
            $
            36,082
            
            $
            32,788LIABILITIES
      AND SHAREHOLDERS' EQUITYCURRENT
      LIABILITIES:Accounts
      payable
            $
            2,413
            
            $
            2,265Accrued
      expenses
            
            3,658
            
            
            4,354Advances
      from buyer
            
            22
            
            
            --Income
      taxes payable
            
            544
            
            
            948Current
      portion of notes payable
            
            1,417
            
            
            536Current
      portion of capital leases
            
            93
            
            
            125Total
      current liabilities
            
            8,147
            
            
            8,228NOTES
      PAYABLE, net of current portion
            
            1,961
            
            
            139CAPITAL
      LEASES, net of current portion
            
            95
            
            
            155DEFERRED
      TAX LIABILITIES
            
            499
            
            
            373TOTAL
      LIABILITIES
            $
            10,702
            
            $
            8,895MINORITY
      INTEREST
            
            2,728
            
            
            2,459SHAREHOLDERS'
      EQUITY:Common
      stock; no par value, 15,000,000 shares authorized;3,226,430 and
      3,225,930 shares issued and outstanding as of

                  March
      31, 2008 and June 30, 2007, respectively
            
            10,362
            
            
            10,361Paid-in
      capital
            
            850
            
            
            460Retained
      earnings
            
            9,286
            
            
            10,135Accumulated
      other comprehensive income
            
            2,154
            
            
            478Total
      shareholders' equity
            
            22,652
            
            
            21,434TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
            $
            36,082
            
            $
            32,788


See
accompanying notes to condensed consolidated financial statements.






4
 Table
of Contents


TRIO-TECH INTERNATIONAL AND SUBSIDIARIES





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


Nine
      Months Ended
            
            
            Three
      Months EndedMarch
      31,
            
            
            March
      31,
            
            
            March
      31,
            
            
            March
      31,2008
            
            
            2007
            
            
            2008
            
            
            2007(Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)RevenueProducts
            
            $
            18,190
            
            
            $
            22,037
            
            
            $
            4,482
            
            
            $
            7,265Services
            
            
            15,186
            
            
            
            15,519
            
            
            
            3,973
            
            
            
            6,34833,376
            
            
            
            37,556
            
            
            
            8,455
            
            
            
            13,613Cost
      of SalesCost
      of products sold
            
            
            15,716
            
            
            
            18,480
            
            
            
            4,248
            
            
            
            6,019Cost
      of services rendered
            
            
            10,014
            
            
            
            9,655
            
            
            
            2,798
            
            
            
            3,99725,730
            
            
            
            28,135
            
            
            
            7,046
            
            
            
            10,016Gross
      Margin
            
            
            7,646
            
            
            
            9,421
            
            
            
            1,409
            
            
            
            3,597Operating
      ExpensesGeneral
      and administrative
            
            
            6,144
            
            
            
            5,121
            
            
            
            2,075
            
            
            
            1,971Selling
            
            
            466
            
            
            
            660
            
            
            
            189
            
            
            
            262Research
      and development
            
            
            45
            
            
            
            52
            
            
            
            7
            
            
            
            18Impairment
      loss
            
            
            457
            
            
            
            174
            
            
            
            441
            
            
            
            2Loss
      on disposal of property, plant & equipment
            
            
            11
            
            
            
            --
            
            
            
            11
            
            
            
            --Total
      operating expenses
            
            
            7,123
            
            
            
            6,007
            
            
            
            2,723
            
            
            
            2,253Income
      (Loss ) from Operations
            
            
            523
            
            
            
            3,414
            
            
            
            (1,314
            )
            
            
            1,344Other
      Income (Expenses)Interest
      expense
            
            
            (257
            )
            
            
            (119
            )
            
            
            (93
            )
            
            
            (53
            )Other
      income (expenses)
            
            
            (224
            )
            
            
            155
            
            
            
            (33
            )
            
            
            45Total
      other (expenses) income
            
            
            (481
            )
            
            
            36
            
            
            
            (126
            )
            
            
            (8
            )Income
      (Loss) Before Income Taxes
            
            
            42
            
            
            
            3,450
            
            
            
            (1,440
            )
            
            
            1,336Income
      Tax Provision
            
            
            268
            
            
            
            717
            
            
            
            (46
            )
            
            
            239Income
      (Loss) Before Minority Interest
            
            
            (226
            )
            
            
            2,733
            
            
            
            (1,394
            )
            
            
            1,097Minority
      interest
            
            
            (269
            )
            
            
            (97
            )
            
            
            (17
            )
            
            
            (16
            )Net
      Income (Loss) Attributable to Common Shares
            
            
            (495
            )
            
            
            2,636
            
            
            
            (1,411
            )
            
            
            1,081EARNINGS
      PER SHARE:Basic
      earnings (loss) per share
            
            $
            (0.15
            )
            
            $
            0.82
            
            
            $
            (0.44
            )
            
            $
            0.34Diluted
      earnings (loss) per share
            
            $
            (0.15
            )
            
            $
            0.82
            
            
            $
            (0.44
            )
            
            $
            0.33Weighted
      Average Shares Outstanding:Basic
            
            
            3,226
            
            
            
            3,225
            
            
            
            3,226
            
            
            
            3,226Diluted
            
            
            3,226
            
            
            
            3,235
            
            
            
            3,226
            
            
            
            3,236Comprehensive
      Income (Loss):Net
      income (loss)
            
            $
            (495
            )
            
            $
            2,636
            
            
            $
            (1,411
            )
            
            $
            1,081Foreign
      currency translation adjustment
            
            
            1,676
            
            
            
            957
            
            
            
            758
            
            
            
            449Comprehensive
      Income (Loss)
            
            $
            1,181
            
            
            $
            3,593
            
            
            $
            (653
            )
            
            $
            1,530


See
accompanying notes to condensed consolidated financial
statements.


5
 Table of
Contents


TRIO-TECH
INTERNATIONAL AND SUBSIDIARIES





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


March
      31,
            
            
            March
      31,2008
            
            
            2007(Unaudited)
            
            
            (Unaudited)Cash
      Flow from Operating ActivitiesNet
      income (loss)
            
            $
            (495
            )
            
            $
            2,636Adjustments
      to reconcile net income to net cash flow provided by operating
      activitiesDepreciation
      and amortization
            
            
            2,262
            
            
            
            2,007Bad
      debts expense, net
            
            
            2
            
            
            
            145Inventory
      provision
            
            
            36
            
            
            
            151Interest
      income on short-term deposits
            
            
            (39
            )
            
            
            (66
            )Impairment
      loss
            
            
            457
            
            
            
            174Stock
      compensation
            
            
            390
            
            
            
            4Loss
      (gain) on sale of property
            
            
            11
            
            
            
            (41
            )Deferred
      tax provision
            
            
            126
            
            
            
            25Minority
      interest
            
            
            268
            
            
            
            98Changes
      in operating assets and liabilities, net
      of acquisition effectsAccounts
      receivables
            
            
            325
            
            
            
            (2,099
            )Other
      receivables
            
            
            (437
            )
            
            
            69Other
      assets
            
            
            (200
            )
            
            
            (102
            )Inventories
            
            
            (234
            )
            
            
            310Prepaid
      expenses and other current assets
            
            
            (100
            )
            
            
            4Accounts
      payable and accrued liabilities
            
            
            (548
            )
            
            
            (729
            )Income
      tax payable
            
            
            (404
            )
            
            
            286Net
      cash provided by operating activities
            
            
            1,421
            
            
            
            2,872Cash
      Flow from Investing ActivitiesProceeds
      from short-term deposits matured
            
            
            25,537
            
            
            
            10,238Investments
      in short-term deposits
            
            
            (25,946
            )
            
            
            (9,836
            )Additions
      to property, plant and equipment
            
            
            (2,507
            )
            
            
            (2,409
            )Investment
      in Chongqing, China
            
            
            (2,931
            )
            
            
            --Proceeds
      from sale of property
            
            
            15
            
            
            
            50Net
      cash used in investing activities
            
            
            (5,832
            )
            
            
            (1,957
            )Cash
      Flow from Financing ActivitiesNet
      borrowings on lines of credit
            
            
            22
            
            
            
            316Repayment
      of bank loans and capital leases
            
            
            (1,305
            )
            
            
            (698
            )Proceeds
      from long-terms bank loans and capital leases
            
            
            3,837
            
            
            
            6Proceeds
      from exercising stock options
            
            
            1
            
            
            
            23Proceeds
      from 10% shareholder on the short swing profit of the company
      stock
            
            
            --
            
            
            
            118Dividends
      paid to minority interest
            
            
            --
            
            
            
            (42
            )Paid
      dividends
            
            
            (354
            )
            
            
            (323
            )Net
      cash provided (used) in financing activities
            
            
            2,201
            
            
            
            (600
            )Effect
      of Changes in Exchange Rate
            
            
            1,033
            
            
            
            614NET
      INCREASE IN CASH
            
            
            (1,177
            )
            
            
            929CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            
            7,135
            
            
            
            2,551CASH
      AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            5,958
            
            
            $
            3,480Supplementary
      Information of Cash FlowsCash
      paid during the period for:Interest
            
            $
            186
            
            
            $
            119Income
      taxes
            
            $
            732
            
            
            $
            433Non-Cash
      TransactionsCapital
      lease of property, plant and equipment
            
            $
            --
            
            
            $
            52Declaration
      of cash dividends to be paid
            
            $
            354
            
            
            $
            --


See
accompanying notes to condensed consolidated financial
statements.


6
 Table of Contents


TRIO-TECH
INTERNATIONAL AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE
AND NUMBER OF SHARES)





1.
            ORGANIZATION
      AND BASIS OF PRESENTATION




Trio-Tech
International (“the Company” or “TTI” hereafter) was incorporated in fiscal 1958
under the laws of the State of California.  TTI provides third-party
semiconductor testing and burn-in services primarily through its laboratories in
Southeast Asia. In addition, TTI operates testing facilities in the United
States.  The Company also designs, develops, manufactures and markets
a broad range of equipment and systems used in the manufacturing and testing of
semiconductor devices and electronic components. TTI conducts business in three
business segments: Testing Services, Manufacturing and
Distribution.  TTI has subsidiaries in the U.S., Singapore, Malaysia,
Thailand, and China as follows:





Ownership
            LocationExpress
      Test Corporation (dormant)
            100%
            Van
      Nuys, CaliforniaTrio-Tech
      Reliability Services (dormant)
            100%
            Van
      Nuys, CaliforniaKTS
      Incorporated, dba Universal Systems (dormant)
            100%
            Van
      Nuys, CaliforniaTrio-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
      (SIP) Co. Ltd.
            100%
            Suzhou,
      ChinaTrio-Tech
      (Shanghai) Co. Ltd.
            100%
            Shanghai,
      ChinaTrio-Tech
      (Chongqing) Co. Ltd.
            100%
            Chongqing,
      China





The
accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X.  All significant inter-company accounts and
transactions have been eliminated in consolidation. The unaudited consolidated
financial statements are presented in U.S. dollars.  The accompanying
financial statements do not include all the information and footnotes required
by generally accepted accounting principles for complete financial
statements.  In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for fair presentation have
been included.  Operating results for the nine months ended March 31,
2008 are not necessarily indicative of the results that may be expected for the
fiscal year ending June 30, 2008.  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, 2007.





Certain
prior year balances on the Statement of Operations and Comprehensive Income have
been reclassified to conform to the current presentation. The reclassification
had no impact on net income for the nine months ended March 31,
2007.





Change in
Estimate:





In the
first quarter of fiscal year 2008, our Singapore operation reversed
approximately $255 in employee bonuses payable that were accrued during the
fiscal year ended June 30, 2007.  The provision for bonuses was based
on the Company’s policy and guidelines related to bonuses, the financial results
of the Singapore operation, group objectives and individual employee performance
set up at the beginning of fiscal year 2007 and employee headcount on June 30,
2007.  According to the Company’s guidelines, the Singapore operation
accrued $1,110 in bonuses payable, and 420 employees were covered under the
bonus provision.




Prior to
the time for payment of bonuses accrued, the Company determined (a) that in the
first quarter of fiscal year 2008, 51 (12.4%) employees on the bonus list for
fiscal year 2007 had left the Company and thus were not entitled to such
bonuses, and


(b) based
on the employee performance review conducted at the end of September 2007,
management noted that among more than 350 employees who were still on the bonus
list, a number of employees did not qualify for the bonus of the full three
months of base salary.  As a result of combining the aforementioned
factors, bonuses totaling $255 were over-accrued.  Accordingly, the
over-provision of $255 was reversed in the first quarter of fiscal 2008 as a
result of the change in estimate.  This change in estimate increased
the net income for the nine months ended March 31, 2008 by $255, or $0.08 per
diluted share.


7
 Table of
Contents




In
addition, during the nine months ended March 31, 2008, the Singapore operation
reversed commission expenses of $92. A portion of the commissions payable by the
Company is based on the estimated profit margin of sales when sales are
recorded.  Management reviews the commission liability periodically
with the appropriate personnel.  When the actual profit margin is
lower than the one expected, the accrued commission liability should be reduced
and the commission expenses should be reversed accordingly.  Based on
management review in the nine months ended March 31, 2008, it was determined
that the actual profit margin for some sales was less than expected due to an
increase in unexpected service expenses following the sales. Accordingly, the
Company reversed $92 in commissions.  This change in estimate
increased the net income for the nine months ended March 31, 2008 by $92, or
$0.03 per diluted share.





In the
third quarter of fiscal 2008, one of our major customers sent an official notice
to the Company that, starting from April 1, 2008, their advanced burn-in testing
service contract with us would cease.  Management performed an
impairment test on the advance burn-in testing assets after receiving the notice
and decided to write down the book value of these assets to zero.  The
Company recorded an impairment loss of $221 on the advanced burn-in testing
equipment, which will not be recoverable.  In order to match our
expenses with the future cash flows from the loss of this testing revenue, the
Company terminated 65 employees in our Singapore operation and recorded $57 in
unemployment benefits during the third quarter of 2008. The employees were
notified of this reduction in March.  The Company also decreased the
salary of the chief executives by $93 per quarter effective April 1, 2008. In
Singapore, the Company sent the landlord an early notice of termination for four
leased plants This accounting for lease termination costs was less than $1 for
the third quarter. The total rental cost of the plant spaces terminated in
Singapore was $25 per quarter.  The Company is in the early stages of
developing new customer relationships in China and Malaysia to replace the lost
testing revenues from this contract.





2.
            NEW
      ACCOUNTING PRONOUNCEMENTS





In March
2008, The Financial Accounting Standards Board (“FASB”) issued FASB Statement
No. 161, Disclosures about
Derivative Instruments and Hedging Activities. The new standard is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged.The Company has not
completed its evaluation of the potential impact, if any, of the adoption of
SFAS No. 161 on its consolidated financial position, results of operations and
cash flows.




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




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





In
February 2007, the FASB issued Statement of Financial Accounting StandardsNo.159, The Fair Value Option for Financial
Assets and Financial Liabilities, or SFAS No. 159.   SFAS
No. 159 permits, but
does not require,entities to choose to measure eligible itemsat
fair value.  The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions.  SFAS No. 159 is
effective for fiscal
years beginning after November 15, 2007. Early adoption is permitted as
of the beginning of a fiscal year that begins on or before November 15, 2007,
provided that a company also elects to apply the provisions of SFAS No. 157,
“Fair Value
Measurements.”Management is in the process of assessing if
this statement will have a material impact on the Company’s financial statements
once adopted.





In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Value
Measurements, or SFAS No. 157.  SFAS No. 157 clarifies the
definition of fair value, establishes a framework for measuring fair value and
expands the disclosures on fair value measurements.  SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007.  There
is partial delay in applying FAS 157 to non-financial assets and liabilities
measured on a non-recurring basis. The Company is currently evaluating the
impact adoption may have on its financial condition or results of
operations.


8
 Table of
Contents





3.
            INVENTORIES




Inventories
consisted of the following:





March
      31,
            
            
            June
      30,2008
            
            
            2007(Unaudited)Raw
      materials
            
            $
            1,650
            
            
            $
            1,295Work
      in progress
            
            
            1,087
            
            
            
            1,210Finished
      goods
            
            
            224
            
            
            
            222Less:
      provision for obsolete inventory
            
            
            (817
            )
            
            
            (781
            )$
            2,144
            
            
            $
            1,946





4.
            STOCK
      OPTIONS





As of
March 31, 2008, the Company had 12,550 shares of stock options outstanding under
the 1998 Employee Option Plan, which was terminated on December 2, 2005 by the
Company’s Board of Directors.





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





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





Assumptions





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





Nine
      Months Ended
            
            Year
      EndedMarch
      31, 2008
            
            June
      30, 2007Expected
      volatility
            
            
            115.07-110.91%
            
            
            73.22-98.51%Risk-free
      interest rate
            
            
            1.62
      %
            
            
            4.5
      %Expected
      life (years)
            
            
            2.00
            
            
            2.00





The
expected volatilities are based on the historical volatility of the Company’s
stock.  The observation is made on a weekly basis.  The
observation period covered is consistent with the expected life of
options.  The expected life of stock options is based on the
historical experience of similar stock options granted and
observed.  The risk-free rate is consistent with the expected terms of
the stock options and is based on the United States Treasury yield curve in
effect at the time of grant.





9
 Table of Contents


2007 Employee Stock Option
Plan





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





During
the second quarter of fiscal 2008, pursuant to the 2007 Employee Plan, 50,000
shares of stock options were granted to certain officers and employees with an
exercise price equal to the fair market value of the Company’s Common Stock (as
defined under the 2007 Employee Plan in conformity with Regulation 409A of the
Internal Revenue Code of 1986, as amended) at the date of
grant.  These options vest over the period as follows: 25% vesting on
the grant date, and the balance vesting in equal installments on the next three
succeeding anniversaries of the grant date.  The fair market value of
50,000 shares of the Company’s Common Stock issuable upon exercise of stock
options granted was approximately $277 based on the fair value of $5.55 per
share determined by using the Black Scholes option pricing
model.  There were no options exercised during the nine months ended
March 31, 2008.





The
Company recognized stock-based compensation expense of approximately $113 in the
nine months ended March 31, 2008 under the 2007 Employee
Plan.  Unamortized stock-based compensation of $164 based on fair
value on the grant date related to options granted under the 2007 Employee Plan
is expected to be recognized over a period of three years.





As of
March 31, 2008, there were 12,500 shares of vested employees’ stock options. The
weighted-average exercise price was $9.57, and the weighted average remaining
contractual term was 4.68 years. The total intrinsic value of vested employees’
stock options during the nine months ended March 31, 2008 was
zero.  A
summary of option activities under the2007 Employee
Planduring
the nine months of fiscal 2008 endedMarch 31, 2008is presented as
follows:





Weighted-
      Average Exercise
            
            
            Weighted
      - Average Remaining Contractual
            
            
            Aggregate
      IntrinsicOptions
            
            
            Price
            
            
            Term
      (Years)
            
            
            ValueOutstanding
      at July 1, 2007
            
            
            --
            
            
            
            --Granted
            
            
            50,000
            
            
            $
            9.57Exercised
            
            
            --
            
            
            
            --Forfeited
      or expired
            
            
            --
            
            
            
            --Outstanding
      at March 31, 2008
            
            
            50,000
            
            
            $
            9.57
            
            
            
            4.68
            
            
            
            --Exercisable
      at March 31, 2008
            
            
            12,500
            
            
            $
            9.57
            
            
            
            4.68
            
            
            
            --





A summary
of the status of the Company’s non-vested employees’ stock options during the
nine month period ended March 31, 2008 is presented below:





Weighted-Average
      Grant-DateOptions
            
            
            Fair
      ValueNon-vested
      at July 1, 2007
            
            
            --
            
            
            
            --Granted
            
            
            50,000
            
            
            $
            5.55Vested
            
            
            (12,500
            )
            
            $
            5.55Forfeited
            
            
            --
            
            
            
            --Non-vested
      at March 31, 2008
            
            
            37,500
            
            
            $
            5.55





10
 Table of Contents




2007 Directors Equity
Incentive Plan





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





During
the second quarter of 2007, pursuant to the 2007 Directors Plan, 50,000 shares
of stock options were granted to our directors with an exercise price equal to
the fair market value of our Common Stock (as defined under the 2007 Directors
Plan in conformity with Regulation 409A or the Internal Revenue Code of 1986, as
amended) at the date of grant.  The fair market value of 50,000 shares
of the Company’s Common Stock issuable upon exercise of stock options granted
was approximately $277 based on the fair value of $5.55 per share determined by
the Black Scholes option pricing model.  There were no options
exercised during the nine month period ended March 31, 2007.  The
Company recognized stock-based compensation expense of $277 in the nine months
ended March 31, 2008 under the 2007 Directors Plan.





A summary
of option activities under the 2007 Directors Plan during the nine month period
ended March 31, 2008 is presented as follow:





Weighted-
      Average Exercise
            
            
            Weighted
      - Average Remaining Contractual
            
            
            Aggregate
      IntrinsicOptions
            
            
            Price
            
            
            Term
      (Years)
            
            
            ValueOutstanding
      at July 1, 2007
            
            
            --Granted
            
            
            50,000
            
            
            $
            9.57Exercised
            
            
            --
            
            
            
            --Forfeited
      or expired
            
            
            --
            
            
            
            --Outstanding
      at March 31, 2008
            
            
            50,000
            
            
            $
            9.57
            
            
            
            4.68
            
            
            
            --Exercisable
      at March 31,
      2008
            
            
            50,000
            
            
            $
            9.57
            
            
            
            4.68
            
            
            
            --





1998 Stock Option
Plan





A summary
of option activities under the 1998 Plan during the nine month period ended
March 31, 2008 is presented as follow:





Weighted-
      Average Exercise
            
            
            Weighted
      - Average Remaining Contractual
            
            
            Aggregate
      IntrinsicOptions
            
            
            Price
            
            
            Term
      (Years)
            
            
            ValueOutstanding
      at July 1, 2007
            
            
            13,050
            
            
            $
            3.03Granted
            
            
            --
            
            
            
            --Exercised
            
            
            500
            
            
            
            --Forfeited
      or expired
            
            
            --
            
            
            
            --Outstanding
      at March 31, 2008
            
            
            12,550
            
            
            $
            3.03
            
            
            
            0.49
            
            
            $
            41,525Exercisable
      at March 31, 2008
            
            
            12,550
            
            
            $
            3.03
            
            
            
            0.49
            
            
            $
            41,525





The
intrinsic value of 500 options exercised was $2. Cash received from options
exercised in the third quarter of 2008 was approximately $1.





11
 Table of
Contents




A summary
of the status of the non-vested stock options under the 1998 Plan during the
nine month period ended March 31, 2008 is presented below:





Non-vested
      Options
            
            Shares
            
            
            Weighted
      Average Grant Date
              Fair
      ValueNon-vested
      at July 1, 2007
            
            
            1,375
            
            
            $
            1.31Granted
            
            
            --
            
            
            
            --Vested
            
            
            (1,375
            )
            
            $
            1.31Forfeited
            
            
            --
            
            
            
            --Non-vested
      at March 31, 2008
            
            
            --
            
            
            
            --





5.
            EARNINGS
      PER SHARE





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





In August
2007, the American Stock Exchange notified the Company that there had been an
overstatement of the Company’s Common Stock outstanding in the amount of 2,062
shares since fiscal year 1998.  The overstatement resulted from an
error when the Company had incorrectly issued shares in that amount to an
employee.  This employee returned the wrongly issued share certificate
and the matter remained pending until it was finally cleared in the first
quarter of fiscal 2008.  At that time the shares were canceled, and
the number of outstanding shares was corrected.





Options
to purchase 12,550 shares of Common Stock at exercise prices ranging from $2.66
to $9.57 per share were outstanding as of March 31, 2008 and were excluded from
the computation of diluted earnings per share because their effect would have
been anti-dilutive.





Options
to purchase 15,800 shares of Common Stock at exercise prices ranging from $2.66
to $4.40 per share were outstanding as of March 31, 2007.  No options
were excluded in the determination of common shares equivalents, because the
average market price of common shares was greater than the exercise price of the
stock options.  The resulting common shares equivalents were
approximately ­­12,000 shares and are presented in the following table
for earnings per share calculation purposes.





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 EndedMarch
      31,
            
            
            March
      31,
            
            
            March
      31,
            
            
            March
      31,2008
            
            
            2007
            
            
            2008
            
            
            2007(Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)Net
      income (loss) attributable to common shares
            
            $
            (495
            )
            
            $
            2,636
            
            
            $
            (1,411
            )
            
            $
            1,081Basic
      Earnings (loss) Per Share
            
            $
            (0.15
            )
            
            $
            0.82
            
            
            $
            (0.44
            )
            
            $
            0.34Diluted
      Earnings (loss) Per Share
            
            $
            (0.15
            )
            
            $
            0.82
            
            
            $
            (0.44
            )
            
            $
            0.33Weighted
      average number of common shares outstanding - basic
            
            
            3,226
            
            
            
            3,225
            
            
            
            3,226
            
            
            
            3,226Dilutive
      effect of stock options
            
            
            --
            
            
            
            10
            
            
            
            --
            
            
            
            10Number
      of shares used to compute Earnings Per Share - diluted
            
            
            3,226
            
            
            
            3,235
            
            
            
            3,226
            
            
            
            3,236





12
 Table of Contents







6.
            ACCOUNTS
      RECEIVABLE AND ALLOWANCE FOR DOUBTFUL
ACCOUNTS





Accounts
receivable are customer obligations due under normal trade terms.  The
Company sells products and services to manufacturers in the semiconductor
industry.  The Company performs continuing credit evaluations of our
customers’ financial conditions. Although the Company generally does not require
collateral, letters of credit may be required from our customers in certain
circumstances.





Senior
management of the Company reviews accounts receivable on a monthly basis to
determine if any receivables will potentially be uncollectible.  The
Company includes any accounts receivable balances that are determined to be
uncollectible in 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, the Company believes
that its allowance for doubtful accounts for the nine months ended March 31,
2008 and the twelve months ended June 30, 2007 was adequate.





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






March
      31,
              
              
              June
      30,2008
              
              
              2007(Unaudited)Beginning
              
              $
              42
              
              
              $
              225Additions
      charged to expense
              
              
              17
              
              
              
              18Recovered
              
              
              (15
              )
              
              
              (159
              )Actual
      write-offs
              
              
              -
              
              
              
              (42
              )Ending
              
              $
              44
              
              
              $
              42





7.
            DIVIDEND
      PAID TO SHAREHOLDERS





On
February 12, 2008, the Board of Directors of Registrant declared a cash dividend
of eleven cents (U.S. 11¢) per share payable to the shareholders of record on
February 25, 2008.  The total number of shares issued and outstanding
as of February 25, 2008 was 3,226,430 and the total cash dividends paid on March
25, 2008 were $354.





8.
            WARRANTY
      ACCRUAL





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






March
      31,
              
              
              June
      30,2008
              
              
              2007(Unaudited)Beginning
              
              $
              211
              
              
              $
              142Additional
      accruals
              
              
              -
              
              
              
              74Warranty
      expenses incurred
              
              
              (12
              )
              
              
              (3
              )Reverse
              
              
              (64
              )
              
              
              (2
              )Ending
              
              $
              135
              
              
              $
              211









13
 
 Table of
Contents




9.
            LONG
      TERM DEBT





In April
2007, Trio-Tech
International Pte., Ltd inSingaporeentered a new
loan agreement with a local bank in Singapore. The term loan facility was
SGD5,500, or approximately U.S. $3,837 with a fixed interest rate of 3% plus the
Market Reference Rate based on the inter-bank offered rate.  The loan
has a term of three years from the date of draw down. On August 1, 2007, the
Company began to draw down the money on this loan. The loan is due with 35
monthly principal payments of SGD153 (U.S. $107) with a final principal payment
due on August 1, 2010 of SGD145 (U.S. $101).  The payment schedule of
this loan for the next three years is presented in the following
table:








As
      of March 31, 2008
            
            Calendar
      Year 2008
            
            
            Calendar
      Year 2009
            
            
            Calendar Year
      2010
            
            
            Thereafter
            
            
            Total
            
            
            Fair
      ValueLoan:Denominated
      in Singapore dollars; interest is at the bank's prime rate (2.51% at March
      31, 2008) plus 3.0% per annum
            
            $
            999
            
            
            $
            1,332
            
            
            $
            962
            
            
            $
            -
            
            
            $
            3,293
            
            
            $
            3,293





10.
            ADOPTION
      OF FIN 48





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





11.
            INVESTMENT
      IN CHONGQING, CHINA





The
following table presents our investment in China during the nine months ended
March 31, 2008. The exchange rate is based on the exchange rate on March 31,
2008 published by the Federal Reserve System.





Investment
      Date
            
            Investment
      Amount
            
            
            Investment
      Amount(RMB)
            
            
            (U.S.
      Dollars)Investment
      in property with Jiasheng
            8/28/07
            
            
            10,000
            
            
            
            1,426Investment
      in property with Jiasheng
            12/17/07
            
            
            5,000
            
            
            
            713Purchase
      an investment property
            1/04/08
            
            
            5,554
            
            
            
            792Total
      investment in China
            
            
            RMB20,554
            
            
            $
            2,931





In June
2007, Trio-Tech International Pte., Ltd. established a subsidiary in Chongqing,
China.  This newly established subsidiary, Trio-Tech (Chongqing) Co.,
Ltd., has a registered capital of RMB20,000 (Chinese yuan), or equivalent to
approximately U.S. $2,600, and is wholly owned by Trio-Tech International Pte.,
Ltd. In June 2007, Trio-Tech International Pte., Ltd. infused $2,600 to
Trio-Tech (Chongqing) Co., Ltd. to fulfill its capital injection
obligation.  The source of the funds was from the proceeds of
disposing short-term deposits by Trio-Tech International Pte., Ltd.





On August
27, 2007, Trio-Tech
(Chongqing) Co., Ltd.entered into a Memorandum Agreement with Jiasheng
Property Development Co., Ltd. (Jiasheng hereafter) to jointly develop a piece
of property with 24.91 acres owned by Jiasheng located in Chongqing City, China,
which is intended for sale after the completion of
development.  Pursuant to the signed agreement, the capital to be
invested by Trio-Tech (Chongqing) Co., Ltd. was RMB10,000, equivalent to
approximately U.S. $1,426 based on the exchange rate on March 31, 2008 published
by the Federal Reserve System.  On August 28, 2007, Trio-Tech
(Chongqing) Co., Ltd. transferred the required amount from its bank account into
a special bank account jointly monitored by both Trio-Tech (Chongqing) Co., Ltd.
and Jiasheng.  The investment was accounted under the cost method as
the Company accounted for less than 20% equity of this joint
venture.


14
 Table of
Contents




On
October 22, 2007, the parties received approval from the Chinese District Zoning
Regulation Bureau to increase the square meters of the buildings specified in
the original Memorandum Agreement dated August 27, 2007 by 9,885 square
meters.  As a result, the construction costs of the proposed building
project also increased.  On November 15, 2007, Trio-Tech (Chongqing)
Co., Ltd. entered into a Supplement Agreement to the Memorandum Agreement dated
August 27, 2007 with Jiasheng.  The purpose of this Supplement
Agreement was to document another agreement reached by both parties regarding
the additional capital infusion to be committed by the respective parties in
order to finance the increase in construction costs. The Supplement Agreement
does not modify the terms and obligations of both parties specified in the
original Memorandum Agreement.  Under the terms of the Supplement
Agreement, the Company agreed to invest an additional RMB9,000, or approximately
U.S. $1,284 based on the exchange rate as of March 31, 2008 published by the
Federal Reserve Statistical Release.  By infusing the additional
capital of RMB9,000, the Company increased its equity ratio from 16% to 24% of
the total capital infused by both parties.  However, the profit
sharing percentage remains at 20% as specified in the original Memorandum
Agreement because management of the Company believes that the return on the
total investment is still reasonable.  On December 17, 2007, Trio-Tech
(Chongqing) Co., Ltd. received a list of additional costs incurred for this
project, which were RMB4,000 less than the estimated costs of
RMB9,000.  Accordingly, the Company only transferred RMB5,000,
approximately U.S. $713, from its bank account into the special bank account
jointly monitored by both Trio-Tech (Chongqing) Co., Ltd. and
Jiasheng.  After that extra infusion, the equity ratio owned by the
Company in that joint venture was 20%.





On
January 4, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum
Agreement with MaoYe Property Ltd. to purchase an office space of 827.2 square
meters on the 35th floor of a 40 story high office building located in
Chongqing, China.  The total cash purchase price was RMB5,554 (Chinese
yuan), equivalent to approximately U.S. $792 based on the exchange rate as of
March 31, 2008 published by the Federal Reserve System.  Under the
terms of the agreement, the Company paid the purchase price in full on January
4, 2008.





In
accordance with APB 18, the
Equity Method of Accounting for Investments in Common Stock, with the 20%
equity interest in the joint venture project, the Company considered several
factors including primary beneficiary, decision making power and representation
on the Board of Directors. As Jiasheng is responsible for the daily business
operations and development of that project and the Company dose not have
decision making power and has played a passive investor role since the inception
of this joint venture, management believes that the cost method of accounting is
appropriate.  There was no operating activity in Trio-Tech (Chongqing)
Co., Ltd. in the nine months ended March 31, 2008, and there was no income
generated from the entity during this period.





12.
            ASSETS
      HELD FOR SALE





In the
first quarter of fiscal 2008, the Company initiated a plan to sell the property
located in Malaysia and ceased the depreciation of that property in accordance
with SFAS No. 144,Accounting
for the Impairment or Disposal of Long-Lived Assets. The book value of
this asset was $224 at March 31, 2008.  In late December 2007, the
Company entered into a definite sale and purchase agreement with a buyer with a
selling price of RM700 (Malaysia ringgit), equivalent to approximately U.S.
$219, and received a deposit of RM70, equivalent to approximately U.S. $22,
based on the exchange rate as of March 31, 2008 published by the Federal Reserve
Statistical Release.  It is anticipated that the sale will be
consummated in the fourth quarter of fiscal 2008.  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 the lower of fair value less cost to sell of
$219.  Impairment loss of $5 was recorded for the nine months ended
March 31, 2008.





13.
            IMPAIRMENT
      LOSS





The
Company applies the provisions of Statement of Financial Accounting Standard No.
144, Accounting for the
Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”) to property,
plant and equipment, and other intangible assets. SFAS No. 144 requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable through the estimated undiscounted cash flows expected to result
from the use and eventual disposition of the asset.  Whenever any such
impairment exists, an impairment loss will be recognized for the amount by which
the carrying value exceeds the fair value.





In the
nine months ended March 31, 2008, the Company recorded an impairment loss of
$457, or $0.14 per diluted share, based on its examination of future
undiscounted cash flows.  An impairment loss of $16 was recorded in
the second quarter of fiscal year 2008, which consisted of a loss of $11 related
to the disposal of certain fixed assets in our Suzhou operation in China and $5
related to the asset held for sale in Malaysia.  In the third quarter
of fiscal 2008, the Company recorded an impairment loss of $441.  Of
this amount, an impairment loss of $221 was for certain advanced burn-in testing
equipment located in Singapore as a result of the termination of a testing
service contract with one of our major customers. An impairment loss of $75 was
for the burn-in board testing service in our Shanghai operation in China due to
the change in demand for certain burn-in testing services, which in turn made
certain of our existing burn-in facilities obsolete.  An impairment
loss of $57 was for building renovations for certain testing projects due to a
decrease in the customer’s order in our Shanghai operation in
China.  The remaining impairment loss of $88 was for certain machinery
and equipment in our Singapore operation due to a decrease in our backlog and
projected future sales.


15
 Table of
Contents







14.
            BUSINESS
      SEGMENTS





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





The
allocation of the cost of equipment, the current year investment in new
equipment and depreciation expenses have been made based on 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 $108 and $122
for the nine months ended March 31, 2008 and 2007,
respectively.  Corporate assets mainly consisted of cash and prepaid
expenses.  Corporate expenses mainly consisted of salaries, insurance,
professional expenses and directors’ fees.




The
following segment information is unaudited:




Business
      Segment Information:Quarter
            
            
            
            
            Operating
            
            
            
            
            
            Depr.Ended
            
            Net
            
            
            Income
            
            
            Total
            
            
            and
            
            
            CapitalMarch 31,
            
            Sales
            
            
            (loss)
            
            
            Assets
            
            
            Amort.
            
            
            ExpendituresManufacturing
            2008
            
            $
            4,367
            
            
            $
            (884
            )
            
            $
            3,747
            
            
            $
            67
            
            
            $
            432007
            
            $
            6,923
            
            
            $
            350
            
            
            $
            3,511
            
            
            $
            53
            
            
            $
            98Testing
      services
            2008
            
            
            3,973
            
            
            
            (553
            )
            
            
            31,814
            
            
            
            662
            
            
            
            9662007
            
            
            6,348
            
            
            
            1,077
            
            
            
            27,978
            
            
            
            826
            
            
            
            313Distribution
            2008
            
            
            115
            
            
            
            (69
            )
            
            
            424
            
            
            
            5
            
            
            
            52007
            
            
            342
            
            
            
            (91
            )
            
            
            556
            
            
            
            4
            
            
            
            -Corporate
      and
            2008
            
            
            -
            
            
            
            192
            
            
            
            97
            
            
            
            -
            
            
            
            -unallocated
            2007
            
            
            -
            
            
            
            8
            
            
            
            208
            
            
            
            -
            
            
            
            -Total
      Company
            2008
            
            $
            8,455
            
            
            $
            (1,314
            )
            
            $
            36,082
            
            
            $
            734
            
            
            $
            1,0142007
            
            $
            13,613
            
            
            $
            1,344
            
            
            $
            32,253
            
            
            $
            883
            
            
            $
            411







Business
      Segment Information:NineMonths
            
            
            
            
            Operating
            
            
            
            
            
            Depr.Ended
            
            Net
            
            
            Income
            
            
            Total
            
            
            and
            
            
            CapitalMarch
      31,
            
            Sales
            
            
            (loss)
            
            
            Assets
            
            
            Amort.
            
            
            ExpendituresManufacturing
            2008
            
            $
            17,848
            
            
            $
            (92
            )
            
            $
            3,747
            
            
            $
            174
            
            
            $
            2582007
            
            $
            20,602
            
            
            $
            1,041
            
            
            $
            3,511
            
            
            $
            147
            
            
            $
            246Testing
      services
            2008
            
            
            15,186
            
            
            
            1,110
            
            
            
            31,814
            
            
            
            2,074
            
            
            
            2,2332007
            
            
            15,519
            
            
            
            2,421
            
            
            
            27,978
            
            
            
            1,848
            
            
            
            2,214Distribution
            2008
            
            
            342
            
            
            
            (152
            )
            
            
            424
            
            
            
            14
            
            
            
            142007
            
            
            1,435
            
            
            
            (101
            )
            
            
            556
            
            
            
            12
            
            
            
            1Corporate
      and unallocated
            2008
            
            
            -
            
            
            
            (343
            )
            
            
            97
            
            
            
            -
            
            
            
            22007
            
            
            -
            
            
            
            53
            
            
            
            208
            
            
            
            -
            
            
            
            -Total
      Company
            2008
            
            $
            33,376
            
            
            $
            523
            
            
            $
            36,082
            
            
            $
            2,262
            
            
            $
            2,5072007
            
            $
            37,556
            
            
            $
            3,414
            
            
            $
            32,253
            
            
            $
            2,007
            
            
            $
            2,461





16
 Table of
Contents







Geographic
      Area Information:Elimin-Quarter
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            ationsEnded
            
            United
            
            
            
            
            
            Other
            
            
            
            
            
            
            
            
            
            
            
            and
            
            
            TotalMarch
      31,
            
            States
            
            
            China
            
            
            Countries
            
            
            Singapore
            
            
            Thailand
            
            
            Malaysia
            
            
            Other
            
            
            CompanyNet
      sales to
            2008
            
            $
            1,052
            
            
            $
            467
            
            
            $
            551
            
            
            $
            2,312
            
            
            $
            471
            
            
            $
            3,618
            
            
            $
            (16
            )
            
            $
            8,455customers
            2007
            
            $
            1,301
            
            
            $
            1,102
            
            
            $
            293
            
            
            $
            8,493
            
            
            $
            617
            
            
            $
            1,868
            
            
            $
            (61
            )
            
            $
            13,613Operating
            2008
            
            
            (183
            )
            
            
            (83
            )
            
            
            (96
            )
            
            
            (413
            )
            
            
            (84
            )
            
            
            (647
            )
            
            
            192
            
            
            
            (1,314
            )income
      (loss)
            2007
            
            
            104
            
            
            
            112
            
            
            
            14
            
            
            
            854
            
            
            
            63
            
            
            
            189
            
            
            
            8
            
            
            
            1,344Long-lived
            2008
            
            
            5
            
            
            
            995
            
            
            
            -
            
            
            
            1,850
            
            
            
            774
            
            
            
            4,272
            
            
            
            (40
            )
            
            
            7,856assets
            2007
            
            
            10
            
            
            
            848
            
            
            
            -
            
            
            
            3,695
            
            
            
            877
            
            
            
            2,748
            
            
            
            (40
            )
            
            
            8,138





Geographic
      Area Information:Nine
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Elimin-Months
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            ationsEnded
            
            United
            
            
            
            
            
            Other
            
            
            
            
            
            
            
            
            
            
            
            and
            
            
            TotalMarch
      31,
            
            States
            
            
            China
            
            
            Countries
            
            
            Singapore
            
            
            Thailand
            
            
            Malaysia
            
            
            Other
            
            
            CompanyNet
      sales to
            2008
            
            $
            4,096
            
            
            $
            1,239
            
            
            $
            1,468
            
            
            $
            15,024
            
            
            $
            1,544
            
            
            $
            10,113
            
            
            $
            (108
            )
            
            $
            33,376customers
            2007
            
            $
            5,152
            
            
            $
            4,493
            
            
            $
            518
            
            
            $
            21,030
            
            
            $
            1,763
            
            
            $
            4,722
            
            
            $
            (122
            )
            
            $
            37,556Operating
            2008
            
            
            42
            
            
            
            (12
            )
            
            
            (18
            )
            
            
            758
            
            
            
            23
            
            
            
            73
            
            
            
            (343
            )
            
            
            523income
      (loss)
            2007
            
            
            351
            
            
            
            413
            
            
            
            24
            
            
            
            1,966
            
            
            
            165
            
            
            
            442
            
            
            
            53
            
            
            
            3,414Long-lived
            2008
            
            
            5
            
            
            
            995
            
            
            
            -
            
            
            
            1,850
            
            
            
            774
            
            
            
            4,272
            
            
            
            (40
            )
            
            
            7,856assets
            2007
            
            
            10
            
            
            
            848
            
            
            
            -
            
            
            
            3,695
            
            
            
            877
            
            
            
            2,748
            
            
            
            (40
            )
            
            
            8,138


17
 Table of Contents





TRIO-TECH
INTERNATIONAL AND SUBSIDIARIES




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





The
following should be read in conjunction with the condensed consolidated
financial statements and notes in Item I above and with the audited consolidated
financial statements and notes, and with the information under the headings
“Risk Factors” and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” in the most recent Annual Report on Form
10-K.





Overview





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





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





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





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





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





Our
distribution segment operates primarily in Southeast Asia.  This
segment markets and supports distribution of our own manufactured equipment in
addition to distributing complementary products supplied by other manufacturers
that are used by our customers and other semiconductor and electronics
manufacturers.  We expanded the distribution business to include a
strategic business unit mainly to serve as a distributor of electronic
components to customers.





Recent
Events




Purchase
of an office space in Chongqing





On
January 4, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum
Agreement with MaoYe Property Ltd., a Chinese company, to purchase an office
space of 827.2 square meters on the 35th floor of a 40 story office building
located in Chongqing, China.  The total cash purchase price was
RMB5,554 (Chinese yuan), equivalent to approximately U.S. $792 based on the
exchange rate on March 31, 2008 published by the Federal Reserve
System.  Under the terms of the agreement, the Company paid the
purchase price in full on January 4, 2008 using internally generated funds of
the Company.





Declaration
of dividend





On
February 12, 2008, the Board of Directors of Registrant declared a cash dividend
of eleven cents (U.S. 11¢) per share payable to the shareholders of record on
February 25, 2008.  The total number of shares issued and outstanding
as of February 25, 2008 was 3,226,430 and the total cash dividends paid on March
25, 2008 were $354.


18
 Table of Contents





Termination
of advanced burn-in testing service contract





In the
third quarter of fiscal 2008, one of our major customers sent an official notice
to the Company that, starting from April 1, 2008, their advanced burn-in testing
service contract with us would cease.  Management performed an
impairment test on the related testing assets and recorded a write down of these
assets to zero. We recorded an impairment loss of $221 on the advanced burn-in
testing equipment, which will not be recoverable.  In order to match
our expenses with the future cash flows from the loss of this testing revenue,
we laid off 65 employees in our Singapore operation in March and recorded $57 in
unemployment benefits in the third quarter of 2008.  We also reduced
the salary of our chief executives by $93 per quarter effective April 1, 2008.
In Singapore, we sent a notice to the landlord to terminate our rental contracts
for four plants before the lease expiration. The rental cost of these four
plants was $25 per quarter. All these cost saving actions benefited the Company
starting from April 1, 2008. The Company is in the early stages of developing
new customer relationships in China and Malaysia to replace the lost testing
revenues from this contract.





Meanwhile,
management is exploring opportunities for business expansion.  Besides
the investment in Chongqing, we invested $1,956 in our Malaysian operation for
testing machinery and equipment in the third quarter of fiscal
2008.  We also plan to purchase a factory in Malaysia, where we’ve
deposited $390, or 10% of the purchase price.  The Company and the seller
are still negotiating the final details of the agreement. We have no future
obligations to the seller at this time. The testing revenue generated in our
Malaysia operation increased by 37.26% to $1,275 in the third quarter of fiscal
2008.  We believe that the demand for our testing services is still
strong in Malaysia, and that further development in that operation will help to
offset part of the decrease in revenue in other areas of business.





Third Quarter Fiscal 2008
Highlights





·
            In
      the third quarter of fiscal year 2008, we recorded $441, or $0.14 per
      diluted share, in impairment loss due primarily to the phase-out of an
      advanced burn-in testing service provided by our facilities in Singapore
      and China.


·
            Total
      revenue decreased 37.89% to $8,455 for the third quarter of fiscal 2008,
      compared with revenue of $13,613 for the third quarter of fiscal 2007, as
      the result of the phase-out of the advanced burn-in testing service that
      we provided to one of our major
customers.


·
            Testing
      segment revenue decreased by $2,375, or 37.41%, to $3,973 compared with
      $6,348 for the third quarter of fiscal
2007.


·
            Manufacturing
      segment revenue decreased by $2,556, or 36.92%, to $4,367 compared with
      $6,923 for the third quarter of fiscal
2007.


·
            Distribution
      segment revenue decreased by $227, or 66.37%, to $115 compared with $342
      for the second quarter of fiscal
2007.


·
            Loss
      from operations increased by $2,658, or 197.77%, to $1,314 compared with
      an income of $1,344 for the third quarter of fiscal
  2007.


·
            Gross
      profit margins decreased by 9.76% to 16.66% from 26.42% for the third
      quarter of fiscal 2007.


·
            Selling
      expenses increased by 0.32% from 1.92% of revenue for the third quarter of
      fiscal 2007.


·
            General
      and administrative expenses increased by 10.06% from 14.48% of revenue for
      the third quarter of fiscal 2007.





The
highlights above are intended to identify some of our more significant events
and transactions during the quarter ended March 31, 2008.  These
highlights are not intended to be a full discussion of our operating results for
this quarter.  These highlights should be read in conjunction with the
following discussion and with our unaudited consolidated financial statements
and notes thereto accompanying this Quarterly Report.





Results of Operations and
Business Outlook





The
following table sets forth our revenue components for the nine and three months
ended March 31, 2008 and 2007, respectively.





Revenue
      ComponentsNine
      Months Ended March 31,
            
            Three
      Months Ended March 31,2008
            
            
            
            2007
            
            
            
            2008
            
            
            
            2007Net
      Sales:Manufacturing
            53.48
            %
            
            
            54.86
            %
            
            
            51.65
            %
            
            
            50.86
            %Testing
            45.50
            
            
            
            41.32
            
            
            
            46.99
            
            
            
            46.63Distribution
            1.02
            
            
            
            3.82
            
            
            
            1.36
            
            
            
            2.51Total
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %





Net sales
for the nine and three months ended March 31, 2008 were $33,376 and $8,455,
respectively, a decrease of $4,180 and $5,158, respectively, when compared to
the same sales periods of the prior year.  As a percentage, total net
sales decreased by 11.1% and 37.9% for the nine and three months ended March 31,
2008, respectively, when compared to total net sales for the same periods of the
prior year.





19
 Table
of Contents





Net sales
into and within China and the Southeast Asia regions and other countries (except
sales into and within the United Sates) decreased by $3,124 to $29,280 and by
$4,909 to $7,403 for the nine months and three months ended March 31, 2008,
respectively, compared to the same periods of the prior year.  This
decrease was primarily due to a drop in sales in the testing segment in our
Singapore and China operations.  Net sales into and within the United
States were $4,096 and $1,052 for the nine and three months ended March 31,
2008, respectively, a decrease of $1,056 and $249, respectively, when compared
to the same periods of the prior year.





The
decrease in net sales in the nine and three months ended March 31, 2008 can be
discussed within three segments as follows:





Manufacturing
Segment





Net sales
in the manufacturing segment as a percentage of total net sales were 53.48% and
51.65% for the nine and three months ended March 31, 2008, respectively, a
decrease of 1.38% and an increase of 0.79% of total net sales, respectively,
when compared to the same periods of the prior year.  The absolute
amount of net sales was $17,848 and $4,367 for the nine and three months ended
March 31, 2008 respectively, a decrease of $2,754 and $2,556, respectively, when
compared to the same periods of the prior year.  The decrease in
revenue generated by the manufacturing segment was due to the fact that fewer
orders were placed by one of our major customers, which was the result of
slowing in that customer’s product line and equipment capacity.





Testing
Segment





Net sales
in the testing segment as a percentage of total net sales were 45.50% and 46.99%
for the nine and three months ended March 31, 2008, respectively, a decrease of
4.18% and 0.36%, respectively, of total net sales when compared to the same
periods of the prior year.  The absolute amount of net sales in the
testing segment decreased by $333 to $15,186 and by $2,375 to $3,973 for the
nine and three months ended March 31, 2008, respectively, compared to the same
periods of fiscal 2007.





This
considerable decrease in sales was due to a significant drop in
orders from one of our main customers due toone of their product lines
reaching the end of its life cycle earlier than expected, rendering our testing
service for that product no longer necessary. Demand for testing services varies
from time to time depending on changes taking place in the market and our
customers’ forecasts.





Distribution
Segment





Net sales
in the distribution segment accounted for 1.02% and 1.36% of total net sales for
the nine and three months ended March 31, 2008, respectively, a decrease of
2.80% and 1.15%, respectively, compared to the same periods in fiscal
2007.  The absolute amount of net sales decreased by $1,093 to $342
and by $227 to $115 for the nine and three months ended March 31, 2008,
respectively, compared to the same periods in fiscal 2007.  The drop
in revenue was due to lower demand in the current market for back-end products
such as Vibration equipment and chambers and, we believe, a saturation of
equipment and electronic components in the current market.  Product
volume for the distribution segment depends on sales activities such as placing
orders, queries on products and backlog.  Equipment and electronic
component sales are very competitive, as the products are prevalent in the
market.





Uncertainties
and Remedies





There are
several influencing factors which create uncertainties when forecasting
performance, such as the ever-changing nature of technology, specific
requirements from the customer, declines in demand for certain types of burn-in
devices or equipment, and other similar factors.  One of these factors
is the highly competitive nature of the semiconductor
industry.  Another is that some customers are unable to provide a
forecast of the products required in the upcoming weeks; hence it is difficult
to plan for the resources needed to meet these customers’ requirements due to
short lead time and last minute order confirmation.  This will
normally result in a lower margin for these products, as it is more expensive to
purchase materials in a short time frame.  However, we have taken
certain actions and formulated certain plans to deal with and to help mitigate
these unpredictable factors.  For example, in order to meet customers’
demands upon short notice, we maintain higher inventories, but continue to work
closely with our customers to avoid stock piling.  We continue to cut
costs by upgrading some of our existing facilities to cater to the changing
requirements of customers and by maintaining a lean headcount, while still
keeping quality high so as to sell new products at a competitive
price.  We have also been improving our customer service by keeping
our staff updated with regard to the newest technology and stressing the
importance of understanding and meeting the stringent requirements of our
customers.  We believe customers have tightened and will continue to
tighten their spending, resulting in a decline in the demand for electronic
products and semiconductor equipment. We anticipate that this chain effect will
hit the Company’s business gradually in the future. We are exploring new markets
and products, looking for new customers, and upgrading and improving burn-in
technology, while at the same time searching for improved testing methods of
higher technology chips.





20
 Table of Contents




Comparison
of the Third Quarters Ended March 31, 2008 and 2007





The
following table sets forth certain consolidated statements of income data as a
percentage of net sales for the third quarters of fiscal 2008 and 2007,
respectively:





Three
      Months Ended March 31,2008
            
            
            2007Net
      Sales
            
            
            100
            %
            
            
            100.0
            %Cost
      of sales
            
            
            83.3
            %
            
            
            73.6
            %Gross
      Margin
            
            
            16.7
            %
            
            
            26.4
            %Operating
      ExpensesGeneral
      and administrative
            
            
            24.6
            %
            
            
            14.5
            %Selling
            
            
            2.2
            %
            
            
            1.9
            %Research
      and development
            
            
            0.1
            %
            
            
            0.1
            %Impairment
      loss
            
            
            5.2
            %
            
            
            0.0
            %Loss
      on disposal of property, plant and equipment
            
            
            0.1
            %
            
            
            0.0
            %Total
      operating expenses
            
            
            32.2
            %
            
            
            16.5
            %Income
      (Loss) from Operations
            
            
            (15.5
            )%
            
            
            9.9
            %





Overall
Gross Margin





Overall
gross margin as a percentage of revenue decreased by 9.7% for the three months
ended March 31, 2008, from 26.4% in the third quarter of fiscal 2007 to 16.7%,
due primarily to the decrease in the gross margin in the testing and
manufacturing segments.  In terms of dollar value, the overall gross
margin decreased by $2,188 for the three months ended March 31, 2008, from
$3,597 to $1,409, compared to the same quarter of fiscal 2007, resulting from
the decrease in revenue and an increase in cost of goods sold.





Gross
profit margin as a percentage of revenue in the manufacturing segment decreased
by 13.3% for the three months ended March 31, 2008, from 17.7% in the third
quarter of fiscal 2007 to 4.4% in the third quarter of fiscal
2008.  The decrease in gross margin was due to a decrease in the
average selling prices of burn-in boards and burn-in systems as a result of
strong competition in the market place.  In absolute amounts, gross
profits decreased by $1,034 to $191 for the three months ended March 31, 2008,
from $1,225 for the three months ended March 31, 2007.





Gross
profit margin as a percentage of revenue in the testing segment decreased by
7.4% for the three months ended March 31, 2008, from 37.0% to 29.6%, compared to
the same quarter of fiscal 2007.  In terms of dollar amount, gross
margin in the testing segment in the third quarter of fiscal 2008 was $1,175,
a decrease of $1,176 compared to $2,351 in
the same period of fiscal 2007.  The decrease in the gross margin was
due primarily to a drop in the average selling price of services in the
Singapore testing operations. Our customers changed their demands and
specifications for burn-in hours, which resulted in a lower average unit selling
price for burn-in services.  Another factor contributing to the
decline in gross margin was the fact that significant portions of our operating
costs are fixed in the testing segment; thus as product demands decrease and
factory utilization decreases, the fixed costs are spread over the decreased
output, resulting in a drop in profit margin.





Gross
profit margin as a percentage of revenue in the distribution segment was 37.4%
for the third quarter of fiscal 2008, from 6.1% in the third quarter of fiscal
2007.  The improvement in the gross profit as a percentage of sales
was due to an increase in average sales prices compared to related expenses in
the third quarter of fiscal 2008 compared to the same period of fiscal 2007. In
absolute amounts, gross margin was $43, an increase of $22 compared to $21 in
the same period of fiscal 2007.





21
 Table of
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Operating
Expenses





Operating
expenses for the third quarters of fiscal 2008 and 2007 were as
follow:





Three
      Months Ended March 31,(In
      Thousands, unaudited)
            
            2008
            
            
            2007General
      and administrative
            
            $
            2,075
            
            
            $
            1,971Selling
            
            
            189
            
            
            
            262Research
      and development
            
            
            7
            
            
            
            18Impairment
      loss
            
            
            441
            
            
            
            2Loss
      on disposal of property, plant and equipment
            
            
            11
            
            
            
            -Total
            
            $
            2,723
            
            
            $
            2,253





During
the third quarter of fiscal year 2008, we reclassified $84 of selling expenses
into general and administrative expenses and cost of sales to reflect a better
presentation of our operations. Accordingly, $84 of selling expense was
reclassified to general and administrative expenses and cost of sales in the
third quarter of fiscal 2007 for the purpose of comparison. General and
administrative expenses increased by $104, or 5.28%, compared to the same period
of fiscal 2007, from $1,971 to $2,075 for the three months ended March 31,
2008.   The increase was attributable to an increase in payroll
and related expenses in the Malaysia operation to handle a rise in sales volume
and an increase of  $57 in unemployment benefits in the Singapore
operations.  In order to lower our costs to match with production
activity, we laid off 65 employees in our Singapore operation in
March.  In addition, share based compensation expenses, as a result of
the stock options granted in the second quarter of fiscal 2008, increased by $32
when compared to the same quarter of fiscal 2007.





Selling
expenses decreased by $73, or 27.86%, for the three months ended March 31, 2008,
from $262 to $189 compared to the same quarter of fiscal 2007. This was mainly
due to a decrease in commission expenses as a result of fewer commissionable
sales in the distribution segment.  In addition, we incurred some
selling expenses in demo sets, which were given to customers free of charge for
promotional purposes in the same quarter of last fiscal year.





Research
and development expenses were $7 compared to $18 for the third quarter of fiscal
2007 due to a decrease in payroll expenses in the U.S. operation.





The
impairment loss increased by $439 for the three months ended March 31, 2008,
from $2 to $441 compared to the same quarter of fiscal 2007.  The
impairment loss of $441 in the third quarter of fiscal year 2008 consisted of
$221 from certain advanced burn-in testing equipment in the Singapore operation
as a result of the termination of the advanced burn-in testing service contract
with one of our major customers.  An impairment of $75 related to the
burn-in board testing system in our Shanghai operation in China due to change in
demand for certain burn-in services, which in turn made certain of our existing
burn-in facilities obsolete.  An impairment of $57 related to the
building renovations for certain testing projects due to a decrease in a
customer’s order in our Shanghai operation in China. The remaining impairment of
$88 related to certain testing machinery and equipment in our Singapore
operation due to a decrease in our testing backlog and projected future
sales.





The
impairment loss for the three months ended March 31, 2007 consisted of building
renovations with a cost of $4 and related accumulated depreciation of $2. The
carrying value of these assets was written down to zero as a result of
relocating to a new office unit to accommodate the needs of
the testing segment in the Suzhou operation in China.





(Loss)
Income from Operations





Loss from
operations increased by $2,658 from an income from operations of $1,344 for the
three months ended March 31, 2007 to a loss of $1,314 for the three months ended
March 31, 2008, mainly due to a decrease in sales in the manufacturing and
testing segments and an increase in operating expenses, as previously
discussed.





Interest
Expense





Interest
expense for the third quarters of fiscal 2008 and 2007 were as
follow:





Three
      Months Ended March 31,(In
      Thousands, unaudited)
            
            2008
            
            
            2007Interest
      expense
            
            $
            93
            
            
            $
            53





22
 Table of
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Interest
expenses increased by $40 for the three months ended March 31, 2008, from $53 to
$93, primarily due to a new term loan facility of $3,837 entered into during the
first quarter of fiscal 2008 to support the expansion plans and potential
business opportunities of the Singapore and China operations.





Other
(Expenses) Income





Other
(expenses) income for the third quarters of fiscal 2008 and 2007 were as
follow:





Three
      Months Ended March 31,(In
      Thousands, unaudited)
            
            2008
            
            
            2007Other
      (expenses) income
            
            $
            (33
            )
            
            $
            45





Other
expenses increased by $78 to $33 for the three months ended March 31, 2008 from
an income of $45 in the same quarter of fiscal 2007, primarily due to an
increase in the currency transaction loss and an increase in provision for the
value added tax in our China operation, but offset by an increase in investment
income generated from short-term deposits and rental income.  Currency
transaction loss increased by $148 for the three months ended March 31, 2008,
from $27 to $175, compared to the same quarter of fiscal 2007.  This
was attributable to the weakening of the U.S. dollar against foreign currency
with regard to transactions denominated in U.S. dollars.  The
provision for the value added tax was $25, which was the result of a change in
the local tax policy in our Suzhou operation in China.  Investment income was $57
for the three months ended March 31, 2008 and was $18 higher than the interest
income generated in the same quarter of fiscal 2007 due to an increase in
short-term deposits by placing the idle cash into income generating investments.
Rental income, which consisted mainly of space in the Malaysia operation rented
to    outside vendors, increased by $12 to $41 for the three
months ended March 31, 2008 from $29 in the same period of fiscal
2007.





Income
Tax





The net
income tax benefit for the three months ended March 31, 2008 was $46, an
increase of $285 compared to the income tax provision of $239 for the three
months ended March 31, 2007.  Our Singapore operations suffered a loss
of $938 for the three months ended March 31, 2008, a decrease of $2,452 compared
to a profit of $1,514 for the same period of 2007.  This loss resulted
in an income tax benefit of $133 for the third quarter of fiscal 2008. In
addition, we reversed a deferred tax liability
of $119 in the Singapore operation in the third quarter of fiscal 2008 due to a
decrease in the book value of fixed assets as a result of provision from
impairment loss.However, the income tax benefit was offset by a provision for
deferred tax liability of $206 as a result of the timing differences related to
the recording of depreciation expenses for book and tax purposes in the Malaysia
operation.





We
assessed our income tax liability of $364 as of March 31, 2008 in accordance
with FIN 48, which was related to the allocation of corporate management
expenses to our Singapore operation in terms of Singapore tax law.  We
did not see any potential benefits arising from this tax
position.  Accordingly, no impact of this tax position was recognized
in the statement of operations for this quarter of fiscal 2008.  We
did not include any potential income tax position in federal and state income
tax returns currently filed.





Minority
Interest





As of
March 31, 2008, we held a 55% interest in Trio-Tech Malaysia.  In the
third quarter of fiscal 2008, minority interest in the net income of
subsidiaries was $17, an increase of $1, compared to a minority interest in the
net income of $16 for the same quarter of fiscal 2007.  The increase
in the minority interest was attributable to an improvement in the net income
generated from the Malaysia testing operation due to stronger market demands
from our customers there.





Net
(loss) Income





Net loss
was $1,411 in the third quarter of fiscal 2008, representing a decrease of
$2,492, from a net income of $1,081 during the same period of fiscal
2007.  The decrease in net income was mainly due to a decrease in
revenue, an increase in operating expenses, interest expense and a decrease in
other income, as previously discussed.





Earnings
per Share





The basic
loss per share for the three months ended March 31, 2008 increased by $0.78 to
$0.44 from an earning of $0.34 per share, and the diluted loss per share
increased by $0.77 to $0.44 from an earning of $0.33 per diluted share as
compared to the same quarter of the prior year.





23
 Table of Contents





Segment
Information





The
revenue, gross margin and income from each segment for the third quarter of
fiscal 2008 and the third quarter of fiscal 2007, respectively, are presented
below.  As the segment revenue and gross margin for each segment have
been discussed in the previous section, only the comparison of income from
operations is discussed below.





Manufacturing
Segment





The
revenue, gross margin and income from operations for the manufacturing segment
for the third quarters of fiscal 2008 and 2007 were as follows:





Three
      Months Ended March 31,(In
      Thousands, unaudited)
            
            2008
            
            
            2007Revenue
            
            $
            4,367
            
            
            $
            6,923Gross
      margin
            
            
            4.4
            %
            
            
            17.7
            %(Loss)
      Income from operations
            
            $
            (884
            )
            
            $
            350





Loss from
the manufacturing segment was $884, an increase of $1,234 for the three months
ended March 31, 2008 from an income of $350 in the same quarter of fiscal
2007.  The increase in operating loss was attributable to a decrease
in gross profit of $1,034 and an increase in operating expenses of
$200.  Operating expenses for the manufacturing segment were $1,075
and $875 for the three months ended March 31, 2008 and 2007,
respectively.  The increase in operating expenses was mainly
attributable to the impairment loss of $88 related to certain machinery and
equipment in our Singapore operation due to a decrease in our backlog and
projected future sales.








Testing
Segment





The
revenue, gross margin and income from operations for the testing segment for the
third quarters of fiscal 2008 and 2007 were as follows:





Three
      Months Ended March 31,(In
      Thousands, unaudited)
            
            2008
            
            
            2007Revenue
            
            $
            3,973
            
            
            $
            6,348Gross
      margin
            
            
            29.6
            %
            
            
            37.0
            %(Loss)
      Income from operations
            
            $
            (553
            )
            
            $
            1,077





Loss from
operations in the testing segment in the third quarter of fiscal 2008 was $553,
an increase of $1,630, compared to an income of $1,077 in the same period of
fiscal 2007.  The increase in operating loss was attributable to a
decrease in gross profit of $1,176 due to a drop in sales in the Singapore
testing operation and an increase in operating expenses of $454.  One
of our significant customer’s product lines reached the end of its product cycle
earlier than expected, causing sales orders to drop significantly in the third
quarter of fiscal 2008.   Operating expenses were $1,728 and
$1,274 for the three months ended March 31, 2008 and 2007,
respectively.  The increase in operating expenses was mainly due to an
impairment loss of $353 that we recognized in the third quarter of fiscal 2008.
Of this amount, an impairment loss of $221 was for certain advanced burn-in
testing equipment as a result of the termination of the advanced burn-in testing
service contract with one of our major customers. An impairment loss of $75 was
for the burn-in board testing system in our Shanghai operation in China due to
change in demand for certain burn-in testing services, which in turn made
certain of our existing burn-in facilities obsolete. An impairment loss of $57
was for the building renovations for certain testing projects due to a decrease
in the customer’s order in our Shanghai operation in China. The other
contributing factor for the increase in operation expenses was an increase in
payroll and related expenses in the testing segment in the Malaysia operation in
order to handle the rise in sales volume there.





Distribution
Segment





The
revenue, gross margin and loss from operations for the distribution segment for
the third quarters of fiscal 2008 and 2007 were as follows:





Three
      Months Ended March 31,(In
      Thousands, unaudited)
            
            2008
            
            
            2007Revenue
            
            $
            115
            
            
            $
            342Gross
      margin
            
            
            37.4
            %
            
            
            6.1
            %Loss
      from operations
            
            $
            (69
            )
            
            $
            (91
            )




24
 Table of
Contents





Loss from
operations in the distribution segment decreased by $22 to $69 for the three
months ended March 31, 2008, compared to $91 in the same period of fiscal 2007.
The decrease in operating loss was mainly due to an increase in gross margin of
$22, as previously discussed. Operating expenses remained the same at $112 for
the three months ended March 31, 2008 and 2007.





Corporate





The
income from operations for corporate for the third quarters of fiscal 2008 and
2007 were as follow:





Three
      Months Ended March 31,(In
      Thousands, unaudited)
            
            2007
            
            
            2006Income
      from operations
            
            $
            192
            
            
            $
            8





Corporate operating income
increased by $184 to $192for the three months ended March 31, 2008,
compared to $8 in the same period of fiscal 2007.The
improvement in corporate income was mainly attributable to an increase in the
percentage of revenue imposed on all the subsidiaries in the third quarter of
fiscal 2008 due to a decrease in the revenue from subsidiaries. The revenue
percentage charged on subsidiaries is a reimbursement to the corporate office to
cover its operating expenses. Management reviews this percentage periodically to
make sure the amount charged is sufficient to cover corporate expenses. This
improvement was primarily offset by an increase of $32 in stock option
compensation expenses.





Comparison
of the Nine Months Ended March 31, 2008 and 2007





The
following table sets forth certain consolidated statements of (loss) income data
as a percentage of net sales for the nine months ended March 31, 2008 and 2007,
respectively:





Nine
      Months Ended March 31,2008
            
            
            2007Net
      Sales
            
            
            100
            %
            
            
            100.0
            %Cost
      of sales
            
            
            77.1
            %
            
            
            74.9
            %Gross
      Margin
            
            
            22.9
            %
            
            
            25.1
            %Operating
      ExpensesGeneral
      and administrative
            
            
            18.4
            %
            
            
            13.6
            %Selling
            
            
            1.4
            %
            
            
            1.8
            %Research
      and development
            
            
            0.1
            %
            
            
            0.1
            %Impairment
      loss
            
            
            1.3
            %
            
            
            0.5
            %Loss
      on disposal of property, plant and equipment
            
            
            0.1
            %
            
            
            0.0
            %Total
      operating expenses
            
            
            21.3
            %
            
            
            16.0
            %Income
      from Operations
            
            
            1.6
            %
            
            
            9.1
            %





Overall
Gross Margin





Overall
gross margin as a percentage of revenue decreased by 2.2% to 22.9% for the nine
months ended March 31, 2008, from 25.1% for the same period of fiscal 2007. The
decrease in the overall gross margin was due primarily to the decrease in the
gross margin in the manufacturing and testing segments. However, this was offset
by an increase in gross margin in the distribution segment. In terms of dollar
value, the overall gross margin decreased by $1,775, or 18.8%, for the nine
months ended March 31, 2008, from $9,421 to $7,646 compared to the same period
of fiscal 2007, as a result of a decrease in revenue and an increase in cost of
goods sold.





Gross
profit margin as a percentage of revenue in the manufacturing segment decreased
by 2.9% for the nine months ended March 31, 2008 compared to the same period of
fiscal 2007, from 16.2% to 13.3%.  In absolute amounts, gross profit
was $2,374, a decrease of $969, or 29.0%, for the nine months ended March 31,
2008, from $3,343 in the same period of fiscal 2007. The decrease in gross
margin was due to a decrease in average selling prices of burn-in boards and
burn-in systems as a result of strong competition in the market
place.


25
 
 Table of
Contents





Gross
profit margin in the testing segment decreased by 3.7% for the nine months ended
March 31, 2008 compared to the same period of the prior year, from 37.8% to
34.1%. In absolute amount, gross profits in the testing segment were $5,171, a
decrease of $693, or 11.8%, for the nine months ended March 31, 2008, from
$5,864 in the same period of fiscal 2007. The decrease in the gross margin was
attributable to a considerable decrease in sales volume due to the fact that one
of our significant customer’s product lines reached the end of its life cycle in
the third quarter of fiscal 2008, as previously discussed. Significant portions
of our operating costs are fixed in the testing segment; thus as product demands
decrease and factory utilization decreases, the fixed costs are spread over the
decreased output, which in turn decreases profit margin.





Gross
profit margin as a percentage of revenue in the distribution segment improved by
14.6%, from 14.9% for the nine months ended March 31, 2007 to 29.5% in the same
period this fiscal year. The improvement in the gross profit as a percentage of
sales was due to an increase in average sales prices compared to related
expenses in the nine months of fiscal 2008 compared to the same period of fiscal
2007. In absolute amount, gross profits decreased by $113, or 52.8%, to $101 for
the nine months ended March 31, 2008 from $214 for the nine months ended March
31, 2007, due to a drop in sales volume as previously discussed.





Operating
Expenses





The
following table presents the operating expenses for the nine months ended March
31, 2008 and 2007, respectively:





Nine
      Months Ended March 31,(In
      Thousands, unaudited)
            
            2008
            
            
            2007General
      and administrative
            
            $
            6,144
            
            
            $
            5,121Selling
            
            
            466
            
            
            
            660Research
      and development
            
            
            45
            
            
            
            52Impairment
      loss
            
            
            457
            
            
            
            174Loss
      on disposal of property, plant and equipment
            
            
            11
            
            
            
            --Total
            
            $
            7,123
            
            
            $
            6,007





During
the nine months ended March 31, 2008, we reclassified payroll expenses of $301
from selling expenses to general and administrative expenses and cost of sales
to reflect a better presentation of our operations.  Accordingly, $222
of selling expenses was reclassified to general and administrative expenses and
cost of sales in the nine months ended March 31, 2007 for the purpose of
comparison. General and administrative expenses increased by $1,023, or 20.0%,
from $5,121 to $6,144 for the nine months ended March 31, 2008, compared to the
same period of fiscal 2007. The increase was primarily attributable to a hike in
payroll and related expenses in the Malaysia operation in order to handle the
rise in sales volume there, an increase of $57 in unemployment benefits in the
third quarter of 2008 resulting from the layoff of 65 employees in our Singapore
operation in order to lower our costs to match with production activity, and an
increase of $386 was related to stock option compensation expenses for the 100,000 options
granted on December 4, 2007.





Selling
expenses decreased by $194, or 29.4 %, for the nine months ended March 31, 2008,
from $660 to $466, compared to the same period of fiscal year 2007. This was
mainly due to a decrease in commission expenses as a result of fewer
commissionable sales in the distribution segment, and a reversal of $92 in
overprovided commission expenses in the manufacturing segment and distribution
segment. Part of our commission payable was based on the estimated profit margin
of sales when the sales were recorded, and it was reduced when the actual profit
margin decreased as the result of an increase in unexpected service expenses
following the sales.  In addition, in the nine months ended March 31,
2007 there were expenses incurred for free demo sets which were given to
customers for promotional purposes, while there were no such expenses in the
same period of fiscal 2008.





Research
and development costs decreased by $7 from $52 in the nine months ended March
31, 2007 to $45 in same period of 2008 due primarily to a decrease in payroll
expenses in the U.S. operation.





The impairment loss
increased by $283 for the nine months ended March 31, 2008, from $174 to $457,
compared to the same period of fiscal 2007. Of this loss,$11 was related
to the disposal of certain fixed asset in our Suzhou operation in China in the
second quarter of fiscal 2007. $5 was related to the asset held for sale in
Malaysia.  $221 was related to certain advanced burn-in testing
equipment as a result of the termination of the advance burn-in testing service
contract with one of our major customers.  $75 was related to the
burn-in board testing system in our Shanghai operation in China due to change in
demand for certain burn-in testing services, which in turn made certain of our
existing burn-in facilities obsolete. Additionally, $57 of the impairment loss was
related to the building renovations for certain testing projects due to a
decrease in a customer’s order in our Shanghai operation in China, and the
remaining impairment loss of $88 was related to certain machinery and equipment
in our Singapore operation due to a decrease in backlog and projected future
sales.


26
 
 Table
of Contents




The
impairment loss in the nine months ended March 31, 2007 consisted of $423 in
machinery and equipment net of accumulated depreciation of $251, as well as $4
in building renovations and related accumulated depreciation of $2. Due to the
decrease in demand for the slower speed microprocessor chips, those of our
existing burn-in facility assets in the Singapore operation used for testing
such chips became obsolete, and the carrying amount was written down to zero in
the second quarter of fiscal 2007. The building renovation was impaired as we
moved to a new office unit in order to accommodate the needs of the testing
operation in the Suzhou operation in China. Since there will be no future cash
flows from those assets, the carrying value of these assets was written down to
zero, and the impairment cost was recorded.





Income
from Operations





Income
from operations decreased by $2,891 to $523 for the nine months ended March 31,
2008, from $3,414 for the same period of fiscal year 2007. The decrease in
income from operations was due to a decrease in gross margin of $1,775 and an
increase in operating expense of $1,116.





Interest
Expense





The
following table presents the interest expenses for the nine months ended March
31, 2008 and 2007, respectively:





Nine
      Months Ended March 31,(In
      Thousands, unaudited)
            
            2008
            
            
            2007Interest
      expense
            
            $
            257
            
            
            $
            119





Interest
expenses increased by $138 during the nine months ended March 31, 2008, from
$119 to $257 compared to the same period of fiscal 2007, primarily due to a new
term loan facility of $3,837 entered into during the first quarter of fiscal
2008 to support the expansion plans and potential business opportunities of the
Singapore and China operations. The other contributing factor was an interest
loss of $80 in the nine months ended March 31, 2008 due to an interest swap
agreement on one of our loans that we entered into during the first quarter of
fiscal 2008.





Other
Income





The
following table presents the other income for the nine months ended March 31,
2008 and 2007, respectively:





Nine
      Months Ended March 31,(In
      Thousands, unaudited)
            
            2008
            
            
            2007Other
      (expenses) income
            
            $
            (224
            )
            
            $
            155





Other
expenses increased by $379 to $224 for the nine months ended March 31, 2008,
from an income of $155 in the same period of the prior year, primarily due to an
increase in the currency transaction loss and an increase in provision for the
value added tax in our China operation, but offset by an increase in investment
income generated from short-term deposits and rental income. Currency
transaction loss increased by $500 for the nine months ended March 31, 2008,
from $5 to $505, compared to the same period fiscal 2007. This was attributable
to the weakening of the U.S. dollar against foreign currency with regard to
transactions denominated in U.S. dollars. The provision for the value added tax
was $121, which was the result of a change in the local tax policy in our Suzhou
operation in China.  Investment income was $199 for the nine months
ended March 31, 2008 and was $108 higher than the investment income generated in
the same period of the prior year due to an increase in the placement of
short-term deposits by placing idle cash into income generating investments.
Rental income, which consisted mainly of space in the Malaysia operation rented
to outside vendors, increased by $34 to $117 for the nine months ended March 31,
2008 from $83 in the same period of fiscal 2007.





Income
Tax





Income tax provision for
the nine months ended March 31, 2008 was $268, a decrease of $449 compared to an
income tax provision of $717 for the same period of fiscal 2007.The
decrease in income tax provision was mainly due to a lower tax provision for the
decreased income generated from the Singapore operations during the nine months
ended March 31, 2008 and a reversal of deferred tax liability of $119 in the
Singapore operations. This benefit was offset by a provision for deferred tax
liability of $206 as the result of the timing differences related to the
recording of depreciation expenses for book and tax purposes in the Malaysia
operation.


27
 Table of Contents


Minority
Interest





As of
March 31, 2008, we held a 55% interest in Trio-Tech Malaysia.  The
minority interest for the nine months ended March 31, 2008 in the net income of
subsidiaries was $269, an increase of $172 compared to a minority interest in
the net income of $97 for the same period of the prior year. The increase in the
minority interest was attributable to the improvement in the net income
generated from the Malaysia testing operation due to stronger market demands
from our customers there.





Net
(Loss) Income





Net loss
for the nine months ended March 31, 2008 was $495, an increase of $3,131,
compared to a net income of $2,636 in the same period of fiscal 2007. The
decrease in net income was mainly due to a decrease in revenue, an increase in
operating expenses, interest expense and a decrease in other income, as
previously discussed.





Earnings
per Share





Basic and
diluted loss per share for the nine months ended March 31, 2008 increased by
$0.97 to $0.15 from basic and diluted earnings of $0.82 per share in the same
period of the prior year.





Segment
Information





The
revenue, gross margin and income from each segment for the nine months ended
March 31, 2008 and 2007 are presented below. As the segment revenue and gross
margin for each segment have been discussed in the previous section, only the
comparison of income from operations is discussed below.





Manufacturing
Segment





The
following table presents the revenue, gross margin and (loss) income from
operations for the manufacturing segment for the nine months ended March 31,
2008 and 2007, respectively:





Nine
      Months Ended March 31,(In
      Thousands, unaudited)
            
            2008
            
            
            2007Revenue
            
            $
            17,848
            
            
            $
            20,602Gross
      margin
            
            
            13.3
            %
            
            
            16.2
            %(Loss)
      Income from operations
            
            $
            (92
            )
            
            $
            1,041





Loss from
operations in the manufacturing segment increased by $1,133 to $92 for the nine
months ended March 31, 2008 from an income of $1,041 in the same period of
fiscal 2007.  The decrease in operating profit was attributable to a
decrease of $969 in gross profit, and an increase of $164 in operating expenses.
Operating expenses for the manufacturing segment were $2,466 and $2,302 for the
nine months ended March 31, 2008 and 2007, respectively. The increase in
operating expenses was mainly attributable to the impairment loss of $88 related tocertain machinery and
equipment in our Singapore operation due to a decrease in our backlog and
projected future sales. However, this was offset by a reversal of $43 in
bonus provision for fiscal year 2007 as a result of a change in estimate in the
first quarter of fiscal 2008, as discussed in Note 1.





Testing
Segment





The
following table presents the revenue, gross margin and income from operations
for the testing segment for the nine months ended March 31, 2008 and 2007,
respectively:





Nine
      Months Ended March 31,(In
      Thousands, unaudited)
            
            2008
            
            
            2007Revenue
            
            $
            15,186
            
            
            $
            15,519Gross
      margin
            
            
            34.1
            %
            
            
            37.8
            %Income
      from operations
            
            $
            1,110
            
            
            $
            2,421





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Contents


Income
from the testing segment decreased by $1,311, or 54.2%, to $1,110 for the nine
months ended March 31, 2008 from $2,421 in the same period fiscal
2007.  The decrease in operating income was attributable to a decrease
in gross profits of $693 and an increase in operating expenses of $618.
Operating expenses were $4,061 and $3,443 for the nine months ended March 31,
2008 and 2007, respectively. The increase in operating
expenses was mainly due to an increase in impairment loss of $353. Of this
amount, an impairment loss of $221 was for certain advanced burn-in testing
equipment as a result of the termination of the advanced testing service
contract with one of our major customers. An impairment loss of$75 was for theburn-in board
testing system in our Shanghai operation in China due to change in demand for
certain burn-in testing services, which in turn made certain of our existing
burn-in facilities obsolete. An impairment loss of $57 was for building
renovations for certain testing projects due to a decrease in the customer’s
order in our Shanghai operation in China.The other contributing factor
was the hike in payroll and related expenses in the testing segment in the
Malaysia operation in order to handle the rise in sales volume there. This was
offset by a reversal of $111 in bonus provision for fiscal 2007 as a result of a
change in estimate, as discussed in Note 1, in the first quarter of fiscal
2008.





Distribution
Segment





The
following table presents the revenue, gross margin and loss from operations for
the distribution segment for the nine months ended March 31, 2008 and 2007,
respectively:





Nine
      Months Ended March 31,(In
      Thousands, unaudited)
            
            2008
            
            
            2007Revenue
            
            $
            342
            
            
            $
            1,435Gross
      margin
            
            
            29.5
            %
            
            
            14.9
            %Loss
      from operations
            
            $
            (152
            )
            
            $
            (101
            )





Loss from
the distribution segment increased by $51 to $152 for the nine months ended
March 31, 2008 from an operating loss of $101 in the same period of fiscal 2007.
The operating loss was attributable to a decrease in gross profit of $113, but
offset by a decrease in operating expenses of $62. This decrease in operating
expenses was mainly due to lower commission expenses due to a drop in
commissionable sales. Operating expenses were $252 and $314 for the nine months
ended March 31, 2008 and 2007, respectively.





Corporate





The
following table presents the (loss) income from operations for Corporate for the
nine months ended March 31, 2008 and 2007, respectively:





Nine
      Months Ended March 31,(In
      Thousands, unaudited)
            
            2008
            
            
            2007(Loss)
      Income from operations
            
            $
            (343
            )
            
            $
            53





Corporate
operating loss increased by $396 for the nine months ended March 31, 2008, from
an operating income of $53 in the same period of fiscal 2007 to an operating
loss of $343 this fiscal year.  The increase in operating loss from
corporate was mainly due to an increase of $214 in the remuneration for
executive officers and an increase of $386 in stock option compensation expenses
for the options we granted on December 4, 2007, as compared to the same period
of fiscal 2007.





In July
2007, we decided to terminate the potential cash incentive awards for the chief
executives and increase their base salary starting from the fiscal year 2008. As
the Company suffered a loss in the third quarter of fiscal 2008, we reduced the
salary of our chief executives by $93 per quarter, effective April 1,
2008.




Financial
Condition




During
the nine months ended March 31, 2008, total assets increased $3,294, or 10.0%,
from $32,788 at June 30, 2007 to $36,082 at March 31, 3008.  The
majority of the increase was in other receivables, inventory, prepaid expenses,
investment and other assets, but offset by a decrease in cash, other intangible
assets and accounts receivable.




At March
31, 2008, total cash and short-term deposits were $14,300, a decrease of $650
from the sum of those two balances at June 30, 2007.  The decrease in
cash was mainly due to a decrease in net cash provided by operating activities
as a result of a decrease in net income, an investment in Chongqing, China of
$2,931 and capital expenditure of $2,507 during the nine months ended March 31,
2008.  This decrease was offset by an increase in proceeds
from long-term loans.  In the first quarter of fiscal 2008, we
obtained a new term loan of $3,837 (based on the exchange rate of March 31,
2008) to support our long-term investment and potential business expansion
opportunities.


29
 Table of Contents




At March
31, 2008, the accounts receivables balance decreased by $327 from the balance at
June 30, 2007 due primarily to a decrease in sales in the third quarter of
fiscal 2008.  The accounts receivables turnover was 59 days for the
third quarter of fiscal 2008 compared with 78 days for the fourth quarter of
fiscal 2007.  The decrease in the accounts receivable turnover rate
was primarily due to improvements in collections at the Singapore
operation.





Other
receivables at March 31, 2008 increased by $437 from that balance at June 30,
2007, due mainly to an increase of $130 inadvanced payments to our
vendors by the Singapore operation.





Inventory
at March 31, 2008 was $2,144, reflecting an increase of $198, or 10.2%, compared
to June 30, 2007.  The increase in inventory was mainly from an
increase in raw materials.  Most of the increased inventory was bought
in the first two quarters of fiscal year 2008, which was for the expected
product shipments in the third and fourth quarter that we forecasted. The
inventory was reduced by $329 as compared to the inventory of $2,473 as of
December 31, 2007 due to a decrease in projected sales. The turnover of
inventory was 22 days for the third quarter of fiscal 2008 compared with 23 days
for the fourth quarter of fiscal 2007.





Prepaid
expenses and other current assets at March 31, 2008 were $222, an increase of
$100 from that balance at June 30, 2007, due primarily to an increase in prepaid
insurance for the calendar year 2008 in the Singapore operations.





Asset
held for sale of $219 at March 31, 2008 was comprised of the market value of the
property located in Malaysia, which is subject to the terms under a definitive
sales agreement dated December 31, 2007, less the cost to sell, in accordance
with SFAS No. 144.





On August
27, 2007 and November 15, 2007, Trio-Tech (Chongqing) Co., Ltd. entered into a
Memorandum Agreement and a Supplement Agreement, respectively, with Jiasheng
Property Development Co. Ltd. to jointly develop a piece of property with 24.91
acres ownedby
Jiasheng located in Chongqing, China.  Pursuant to the signed
agreement, an investment of $1,426 was transferred into a special bank account
jointly monitored by both Trio-Tech (Chongqing) Co., Ltd. and
Jiasheng.





On
December 17, 2007, Trio-Tech (Chongqing) Co., Ltd. received a list of additional
costs incurred for this project. Accordingly, the Company only transferred
RMB5,000, approximately $713, from its bank account into the special bank
account jointly monitored by both Trio-Tech (Chongqing) Co., Ltd. and
Jiasheng





On
January 4, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum
Agreement with MaoYe Property Ltd. to purchase an office space of 827.2 square
meters on the 35th floor of a 40 story high office building located in
Chongqing, China.  The total cash purchase price was RMB5,554 (Chinese
yuan), equivalent to approximately U.S. $792 based on the exchange rate as of
March 31, 2008 published by the Federal Reserve System.  Under the
terms of the agreement, the Company paid the purchase price in full on January
4, 2008.  As of March 31, 2008, the total of all the Company’s
investments in China was $2,931.





Property,
plant and equipment increased by $255 from $7,458 at June 30, 2007 to $7,713 at
March 31, 2008. Capital expenditures were $2,507 in the first nine months of
fiscal 2008, compared with $2,409 for the first nine months of fiscal
2007.  The increase in capital expenditures was mainly from our
operation in Malaysia in order to meet customers’ requirements.





Depreciation
and amortization was $2,262 for the nine months ended March 31, 2008, compared
with $2,007 for the same period of fiscal 2007.  The increase in
depreciation expenses was due mainly to an increase in property, plant and
equipment acquired after June 30, 2007.





Other
assets were $645 at March 31, 2008, an increase of $200 from that balance at
June 30, 2007.  The increase in other assets was primarily due to a
decrease of $110 for a down payment on certain fixed assets in the Singapore
operation, and a decrease of $50 for the down payment for certain fixed assets,
rent and utilities in the China operation, but was offset by an increase of $360
in down payment for the Malaysia operation.





Liquidity
Comparison





Net cash
provided by operating activities decreased by $1,451 to $1,421 for the nine
months ended March 31, 2008 from $2,872 in the same period of fiscal
2007.  The decrease in net cash provided by operating activities was
primarily due to a decrease of $3,131 in net income from $2,636 to a loss of
$495 during the nine months ended March 31, 2008 as compared to the same period
of the prior year.  This decrease was offset by an increase of $1,017
in net impact from non-cash items and an increase of $663 from change in balance
sheet items. In the nine months ended March 31, 2008, the non-cash impairment
expenses increased by $283, primarily due to the termination of the advance
burn-in testing service contract, depreciation and amortization increased by
$255 due to an increase in fixed assets and stock option compensation expenses
increased by $386 for the 100,000 options granted on December 4,
2007.


30
 
 Table
of Contents




Net cash
used in investing activities increased by $3,875 to $5,832 for the nine months
ended March 31, 2008 from $1,957 for the same period of fiscal
2007.  The proceeds from maturing short-term deposits of $25,537 were
not adequate to cover the higher investment in short-term deposits of $25,946 in
the nine months ended March 31, 2008, thereby incurring a negative investing
cash flow. As we anticipated that funds would be required in the next quarter of
fiscal 2008 for working capital purposes, we invested in short-term deposits to
generate investment income.  We invested $2,931 in Chongqing, China in
the nine months ended March 31, 2008 to jointly develop a piece of property with
24.91 acres with Jiasheng Property Development Co., Ltd and purchase an office space
of 827.2 square meters in Chongqing. The capital expenditure also
increased by $98, as previously discussed.





Net cash
provided by financing activities in the nine months ended March 31, 2008 was
$2,201, representing an increase of $2,801 compared to the net cash used in
financing activities of $600 during the same period of fiscal
2007.  The increase was mainly due to proceeds from the long-term bank
loans of $3,837 entered into during the nine months ended March 31, 2008 as
compared to bank loans of $6 in the same period of fiscal 2007. However, this
was offset by a decrease of $294 from net borrowing on lines of credit and an
increase of $607 in prepayment of bank loans and capital leases.





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





Corporate
Guarantee Arrangement





The Company provides a corporate
guarantee of approximately $1,813 to one of its subsidiaries in Southeast Asia
to secure line-of-credit and term loans from a bank to finance the operations of
such subsidiary. With the strong financial position of the subsidiary company,
the Company believes this corporate guarantee arrangement will have no material
impact on its liquidity or capital resources.





Critical Accounting
Estimates and Policies





There
have been no significant changes in the critical accounting polices disclosed in
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” included in the most recent Annual Report on Form 10-K.





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





ITEM
3.   QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not applicable





ITEM
4T.  CONTROLS AND PROCEDURES




An
evaluation was carried out by the Company’s Chief Executive Officer and Chief
Financial Officer of the effectiveness of the Company’s disclosure controls and
procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of March 31, 2008, the end of the period
covered by this Form 10-Q. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that these disclosure controls and
procedures were effective at a reasonable level.




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




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





31
 Table of Contents





TRIO-TECH
INTERNATIONAL




PART
II.OTHER INFORMATION







ITEM 1.
            Legal
      Proceedings





The Company is involved in
a legal proceeding with four of its former employees in connection with the
termination of four employment contracts in the third quarter of fiscal year
2008 in the Singapore operation. The Company refuted the claims and proposed to
dismiss the case.The Company is reviewing the employees’
allegations, but believes they are without merit and intend to vigorously defend
itself in the lawsuit. As of March 31, 2008, no amounts have been recorded
in the consolidated financial statements for this matter as management believes
an unfavorable outcome is not probable.





ITEM 1A.
            Risk
      Factors







Not
applicable




ITEM 2.
            Unregistered
      Sales of Equity Securities and Use of
Proceeds





Malaysian
and Singapore regulations prohibit the payment of dividends if the Company does
not have sufficient retained earnings and tax credit. In addition, the payment
of dividends can only be made after making deductions for income tax pursuant to
the regulations. Furthermore, cash movements from the Company’s 55% owned
Malaysian subsidiary to overseas are restricted and must be authorized by the
Central Bank of Malaysia. California law also prohibits the payment of dividends
if the Company does not have sufficient retained earnings or cannot meet certain
asset to liability ratios.





ITEM 3.
            Defaults
      upon Senior Securities





Not applicable




ITEM 4.
            Submission
      of Matters to Vote of Security
Holders





Not
applicable








ITEM 5.
            Other
      Information





Not applicable




ITEM 6.
            Exhibits





10.1
            Sales
      and purchase agreement on office units at Jiang Bei No. 21 Road,
      Chongqing10.2
            Tenant
      lease of U.S. office31.1
            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.








32
 Table of Contents





SIGNATURES





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







TRIO-TECH
      INTERNATIONALBy:
              /s/ Victor
      H.M. TingVICTOR
      H.M. TINGChief
      Financial Officer(Principal
      Financial Officer)Dated: 
      May 15, 2008

























33