##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the Transition Period from to
 Commission File Number 1-14523
 TRIO-TECH INTERNATIONAL
  California
(State or other jurisdiction of 
incorporation or organization)
    
    95-2086631
(I.R.S. Employer
Identification Number)14731 Califa Street 
Van Nuys, California
(Address of principle executive offices)
    
    91411
(Zip Code)
 818-787-7000
 þ o
  o o þ
 o þ




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##### 



TRIO-TECH INTERNATIONAL
INDEX TO CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND
SIGNATURE
  
 PagePart I.
    
    Financial InformationItem 1.
    
    Financial Statements(a) Condensed Consolidated Balance Sheets as of September 30, 2007 (Unaudited) and June 30, 2007
    
    4(b) Condensed Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended September 30, 2007 (Unaudited) and September 30, 2006 (Unaudited)
    
    5(c) Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2007 (Unaudited) and September 30, 2006 (Unaudited)
    
    6(d) Notes to Consolidated Financial Statements (Unaudited)
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    20Item 4T.
    
    Controls and Procedures
    
    22Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    23Item 1A.
    
    Risk Factors
    
    23Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    23Item 3.
    
    Defaults upon Senior Securities
    
    23Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    23Item 5.
    
    Other Information
    
    23Item 6.
    
    Exhibits
    
    23Signatures
    
    
    
    24EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
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FORWARD-LOOKING STATEMENTS
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1.
FINANCIAL STATEMENTS
 TRIO-TECH
INTERNATIONAL AND SUBSIDIARIES
 
 CONDENSED
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT NUMBER OF
SHARES)
 September 30,
    
    
    June 30,2007
    
    
    2007(Unaudited)ASSETSCURRENT ASSETS:Cash
    
    $
    7,339
    
    
    $
    7,135Short-term deposits
    
    
    8.931
    
    
    
    7,815Trade accounts receivable, less allowance for doubtful
accounts of $41 and $42
    
    
    9,993
    
    
    
    7,410Other receivables
    
    
    500
    
    
    
    245Inventories, less provision for obsolete inventory
of $796 and $781
    
    
    2,167
    
    
    
    1,946Prepaid expenses and other current assets
    
    
    206
    
    
    
    122Assets held for sale
    
    
    210
    
    
    
    Total current assets
    
    
    29,346
    
    
    
    24,673INVESTMENT IN CHINA (Note 9)
    
    
    1,331
    
    
    
    PROPERTY, PLANT AND EQUIPMENT, Net
    
    
    7,133
    
    
    
    7,458OTHER INTANGIBLE ASSETS, Net
    
    
    188
    
    
    
    212OTHER ASSETS
    
    
    427
    
    
    
    445TOTAL ASSETS
    
    $
    38,425
    
    
    $
    32,788LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Line of credit
    
    $
    209
    
    
    $
    Accounts payable
    
    
    3,299
    
    
    
    2,265Accrued expenses
    
    
    4,163
    
    
    
    4,354Income taxes payable
    
    
    1,137
    
    
    
    948Current portion of notes payable
    
    
    1,466
    
    
    
    536Current portion of capital leases
    
    
    126
    
    
    
    125Total current liabilities
    
    
    10,400
    
    
    
    8,228NOTES PAYABLE, net of current portion
    
    
    2,427
    
    
    
    139CAPITAL LEASES, net of current portion
    
    
    129
    
    
    
    155DEFERRED TAX LIABILITIES
    
    
    381
    
    
    
    373TOTAL LIABILITIES
    
    $
    13,337
    
    
    $
    8,895MINORITY INTEREST
    
    
    2,687
    
    
    
    2,459SHAREHOLDERS EQUITY:Common stock; no par value, 15,000,000 shares authorized;
3,225,930 shares issued and outstanding as at September 30, 2007, and
at June 30, 2007
    
    
    10,361
    
    
    
    10,361Paid-in capital
    
    
    460
    
    
    
    460Accumulated retained earnings
    
    
    10,886
    
    
    
    10,135Accumulated other comprehensive loss-translation adjustments
    
    
    694
    
    
    
    478Total shareholders equity
    
    
    22,401
    
    
    
    21,434TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    38,425
    
    
    $
    32,788
 See notes to condensed consolidated financial statements.
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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME
 UNAUDITED, (IN
THOUSANDS, EXCEPT EARNINGS PER SHARE)
 Three Months EndedSep. 30,
    
    
    Sep. 30,2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)RevenuesProducts
    
    $
    6,507
    
    
    $
    5,978Services
    
    
    5,543
    
    
    
    3,89812,050
    
    
    
    9,876Costs of SalesCost of products sold
    
    
    5,529
    
    
    
    4,813Cost of services rendered
    
    
    3,479
    
    
    
    2,5899,008
    
    
    
    7,402Gross Margin
    
    
    3,042
    
    
    
    2,474Operating Expenses:General and administrative
    
    
    1,645
    
    
    
    1,445Selling
    
    
    124
    
    
    
    191Research and development
    
    
    19
    
    
    
    17Total operating expenses
    
    
    1,788
    
    
    
    1,653Income from Operations
    
    
    1,254
    
    
    
    821Other Income (Expenses)Interest expense
    
    
    (85
    )
    
    
    (29
    )Other (expenses) income
    
    
    (50
    )
    
    
    37Total other (expenses) income
    
    
    (135
    )
    
    
    8Income Before Income Taxes
    
    
    1,119
    
    
    
    829Income Tax Provision
    
    
    172
    
    
    
    26Income Before Minority Interest
    
    
    947
    
    
    
    803Minority interest
    
    
    (196
    )
    
    
    (47
    )Net Income Attributed to Common Shares
    
    $
    751
    
    
    $
    756EARNINGS PER SHARE:Basic earnings per share
    
    $
    0.23
    
    
    $
    0.23Diluted earnings per share
    
    $
    0.23
    
    
    $
    0.23Weighted Average Shares OutstandingBasic
    
    
    3,226
    
    
    
    3,218Diluted
    
    
    3,237
    
    
    
    3,237Comprehensive Income:Net income
    
    $
    751
    
    
    $
    756Foreign currency translation adjustment
    
    
    216
    
    
    
    27Comprehensive Income
    
    $
    967
    
    
    $
    783
 See notes to condensed consolidated financial statements.
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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED, (IN THOUSANDS)
 Three Months EndedSep 30,
    
    
    Sep 30,2007
    
    
    2006(unaudited)
    
    
    (unaudited)Cash Flow from Operating ActivitiesNet income
    
    $
    751
    
    
    $
    756Adjustments to reconcile net income to
net cash flow provided by (used in) operating activitiesDepreciation and amortization
    
    
    805
    
    
    
    458Bad debt expense, net
    
    
    1
    
    
    
    (97
    )Inventory provision
    
    
    15
    
    
    
    1Interest income on short-term deposits
    
    
    (53
    )
    
    
    (34
    )Stock compensation
    
    
    
    
    
    
    1Deferred tax provision
    
    
    8
    
    
    
    (114
    )Minority interest
    
    
    200
    
    
    
    47Changes in operating assets and liabilities,
net of acquisition effectsAccounts receivables
    
    
    (2,584
    )
    
    
    679Other receivables
    
    
    (255
    )
    
    
    90Other assets
    
    
    18
    
    
    
    (519
    )Inventories
    
    
    (236
    )
    
    
    (995
    )Prepaid expenses and other current assets
    
    
    (84
    )
    
    
    (74
    )Accounts payable and accrued liabilities
    
    
    843
    
    
    
    458Income tax payable
    
    
    189
    
    
    
    133Net cash (used in) provided by operating activities
    
    
    (382
    )
    
    
    790Cash Flow from Investing ActivitiesProceeds from short-term deposit matured
    
    
    10,369
    
    
    
    6,657Investments in short-term deposits
    
    
    (11,432
    )
    
    
    (4,077
    )Additions to property, plant and equipment
    
    
    (545
    )
    
    
    (274
    )Investment in Chongqing, China
    
    
    (1,331
    )
    
    
    Net cash (used in) provided by investing activities
    
    
    (2,939
    )
    
    
    2,306Cash Flow from Financing ActivitiesNet borrowings on lines of credits
    
    
    209
    
    
    
    247Repayment of bank loans and capital leases
    
    
    (417
    )
    
    
    (287
    )Proceeds from long-term bank loans and capital leases
    
    
    3,610
    
    
    
    6Proceeds from exercising stock options
    
    
    
    
    
    
    5Net cash provided by (used in) financing activities
    
    
    3,402
    
    
    
    (29
    )Effect of Changes in Exchange Rate
    
    
    123
    
    
    
    21NET INCREASE IN CASH
    
    
    204
    
    
    
    3,088CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    7,135
    
    
    
    2,551CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    7,339
    
    
    $
    5,639Supplementary Information Of Cash FlowsCash paid during the period for:Interest
    
    $
    34
    
    
    $
    29Income taxes
    
    $
    3
    
    
    $
    1Non-Cash TransactionsCapital lease of property, plant and equipment
    
    $
    
    
    
    $
    31Assets held for sale
    
    $
    (210
    )
    
    
    Carrying value of property reclassified from property, plant and equipment
    
    $
    210
    
    
    
    
 See notes to condensed consolidated financial statements.
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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AND NUMBER OF SHARES)
 1.
    
    ORGANIZATION AND BASIS OF PRESENTATIONTrio-Tech International (the Company or TTI hereafter) was incorporated in 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, CaliforniaEuropean Electronic Test Centre(Operation ceased on November 1, 2005)
    
    100%
    
    Dublin, IrelandTrio-Tech International Pte. Ltd.
    
    100%
    
    SingaporeUniversal (Far East) Pte. Ltd.
    
    100%
    
    SingaporeTrio-Tech Thailand
    
    100%
    
    Bangkok, ThailandTrio-Tech Bangkok
    
    100%
    
    Bangkok, ThailandTrio-Tech Malaysia
    
    55%
    
    Penang and Selangor, MalaysiaTrio-Tech Kuala Lumpur - 100% owned by
    
    55%
    
    Selangor, MalaysiaTrio-Tech MalaysiaPrestal Enterprise Sdn. Bhd.
    
    76%
    
    Selangor, MalaysiaTrio-Tech (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 three months ended September 30, 2007 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 may have been reclassified to conform to the current
presentation.Change in Estimate: During the third quarter of fiscal 2007 ended March 30, 2007,
management determined that the
useful life of fixed assets for smart burn-in projects was shorter than originally expected.
Revised useful life of these
assets resulted in an additional depreciation expense of $114, or $0.04 per diluted share in
the first quarter of fiscal year 2008 ended September 30, 2007.In the first quarter of fiscal year 2008, our Singapore operation reversed approximately $255
in employee bonuses payable that was 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 bonus
payable, and 420 employees were covered under the bonus provision.
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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 factors aforementioned, 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 of the
first quarter of fiscal year 2008 by $255, or $0.08 per diluted share.In addition, during the first quarter of fiscal 2008, the Singapore operation reversed
commission expenses of $43. A portion of the commission payable by the Company is based on
the estimated profit margin of sales when sales are recorded. Management reviews the
commission liability periodically with 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 first
quarter of fiscal year 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 $43 in commissions. This change in estimate increased the
net income of the first quarter of fiscal 2008 by $43, or $0.01 per diluted shares.Change in presentation: During the first quarter of fiscal 2008, we reclassified
payroll expenses of $88 from selling expenses to general and administrative expenses and cost
of sales to reflect a better picture of our operation. The selling expenses of $71 were
reclassified to general and administrative expenses and cost of sales in the first quarter of
fiscal 2007 accordingly for the purpose of comparison. This reclassification had no impact on
total benefits and expenses or on net income for the first quarter of fiscal 2007.
 2.
    
    NEW ACCOUNTING PRONOUNCEMENTSIn September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair
Value Measurements. 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. The Company is
currently evaluating the impact adoption may have on its financial condition or results of
operations.In June 2007, In June 2007, the FASB ratified Emerging Issues Task Force (EITF) Issue No.
06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards (EITF
06-11). EITF 06-11 requires that tax benefits generated by dividends paid during the vesting
period on certain equity-classified share-based compensation awards be classified as
additional paid-in capital and included in a pool of excess tax benefits available to absorb
tax deficiencies from share-based payment awards. EITF 06-11 is effective on July 1, 2008 and
is to be applied on a prospective basis. The Company does not expect that the adoption of
this EITF will not have a material impact on its consolidated results of operations or
financial position.In February 2007, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment
of FASB Statement No. 115, (SFAS No. 159). SFAS No. 159 provides a company with the option
to measure selected financial instruments and certain other items at fair value at specified
election dates. The election may be applied on an item-by-item basis, with disclosure
regarding reasons for the partial election and additional information about items selected
for fair value option. The fair value measurement election is irrevocable and subsequent
changes in fair value must be recorded in earnings. SAFA No. 159 is effective for fiscal
years beginning after November 15, 2007 and interim periods with those fiscal years. The
Company has not yet determined whether it will elect the option provided in this standard, or
what impact the adoption of such election would have on its consolidated financial position,
operating results or cash flows.
 3.
    
    INVENTORIESInventories consisted of the following:
 Sep. 30,
    
    
    June 30,2007
    
    
    2007(Unaudited)Raw materials
    
    $
    1,391
    
    
    $
    1,295Work in progress
    
    
    1,384
    
    
    
    1,210Finished goods
    
    
    188
    
    
    
    222Less: provision for obsolete inventory
    
    
    (796
    )
    
    
    (781
    )$
    2,167
    
    
    $
    1,946
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4.
    
    STOCK OPTIONSHistorically, the Company had two share-based compensation plans, 1998 Stock Option Plan and
the Directors Stock Option plan, that are described in the Companys Annual Report on Form
10-K for the fiscal year ended June 30, 2007. The Company grants stock options for shares of
common stock to employees and directors under these two plans. The Plans provide that the
options shall be exercisable over a period not to exceed five years. The options granted
under both of the two plans vest over a period of four years.On December 2, 2005, the Board of Directors terminated these two share-based compensation
plans due to the cost of such compensation exceeding the benefits. There were no stock
options granted during the three months ended September 30, 2007.1998 Stock Option PlanA summary of option activities under the 1998 Plan during the first quarter of fiscal 2008
ended September 30, 2007 is presented as follows:
 Weighted-AverageWeighted-Average
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at July 1, 2007
    
    
    13,050
    
    
    $
    3.03Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    
    
    
    
    Outstanding at September 30, 2007
    
    
    13,050
    
    
    $
    3.03
    
    
    
    1.00
    
    
    $
    93,459Exercisable at September 30, 2007
    
    
    13,050
    
    
    $
    3.03
    
    
    
    1.00
    
    
    $
    93,459
 As of September 30, 2007, there was less than $1 of accumulated unrecognized stock
compensation based on fair value on the grant date related to non-vested options granted
under the 1998 Plan. That cost was expected to be recognized during the weighted average
period of 1 year.Directors Stock Option PlanAs of July 1, 2007, there were no stock options outstanding and no options exercisable under
the Directors plan. Because the Directors plan was terminated in December 2005, there were
no options granted during the three months ended September 30, 2007.5.
    
    EARNINGS PER SHAREThe Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per
Share (EPS). Basic EPS are computed by dividing net income available to common
shareholders (numerator) by the weighted average number of common shares outstanding
(denominator) during the period. Diluted EPS 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
the year 1998. The overstatement was because the Company had incorrectly issued shares in
that amount to an employee. This employee returned the mis-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 reabsorbed.Options to purchase 13,050 shares of common stock at exercise prices ranging from $2.66 to
$4.40 per share were outstanding as of September 30, 2007. No options were excluded in the
determination of common shares equivalents, because the average market price of common shares
was greater than the exercise price of the stock options. The resulted
common shares equivalents were approximately 11,000 shares and are presented in the following
table for earnings per share calculation purposes.
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Options to purchase 26,885 shares of common stock at exercise prices ranging from $2.66 to
$4.40 per share were outstanding as of September 30, 2006. No options were excluded in the
determination of common shares equivalents, because the average market price of common shares
was greater than the exercise price of the stock options. The
resulted common shares equivalents were approximately 19,000 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:
 Three Months EndedSep. 30,
    
    
    Sep. 30,2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)Net income attributed to common shares
    
    $
    751
    
    
    $
    756Basic earnings per share
    
    $
    0.23
    
    
    $
    0.23Diluted earnings per share
    
    $
    0.23
    
    
    $
    0.23Weighted average number of common shares outstanding  basic
    
    
    3,226
    
    
    
    3,218Dilutive effect of stock options
    
    
    11
    
    
    
    19Number of shares used to compute earnings per share  diluted
    
    
    3,237
    
    
    
    3,237
 6.
    
    ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTSAccounts receivable are customer obligations due under normal trade terms. We sell our
products and services to manufacturers in the semiconductor industry. We perform continuing
credit evaluations of our customers financial conditions, and although we generally do not
require collateral, letters of credit may be required from our customers in certain
circumstances.Senior management reviews accounts receivable on a monthly basis to determine if any
receivables will potentially be uncollectible. We include any accounts receivable balances
that are determined to be uncollectible in our allowance for doubtful accounts. After all
attempts to collect a receivable have failed, the receivable is written off against the
allowance. Based on the information available to us, we believe our allowance for doubtful
accounts for the three months ended September 30, 2007 and the twelve months ended June 30,
2007 was adequate.The following table represents the changes in the allowance for doubtful accounts:
 Sep. 30,
    
    
    June 30,2007
    
    
    2007(Unaudited)Beginning
    
    $
    42
    
    
    $
    225Additions charged to expenses
    
    
    4
    
    
    
    18Recovered
    
    
    (5
    )
    
    
    (159
    )Actual write-offs
    
    
    
    
    
    
    (42
    )Ending
    
    $
    41
    
    
    $
    42
 10




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7.
    
    WARRANTY ACCRUALThe 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.
 Sep. 30,
    
    
    June 30,2007
    
    
    2007(Unaudited)Beginning
    
    $
    211
    
    
    $
    142Additions charged to cost and expenses
    
    
    
    
    
    
    74Recovered
    
    
    
    
    
    
    (3
    )Actual write-offs
    
    
    (2
    )
    
    
    (2
    )Ending
    
    $
    209
    
    
    $
    211
 8.
    
    ADOPTION OF FASB INTERPRETATION NO. 48Effective July 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48). In accordance with FIN 48, the Company assessed its
current tax payable of $256, which is a tax position taken by out Singapore operations and
related to the allocation of corporate management expenses to the Singapore operations under
the Singapore tax law. The Company did not see any potential benefit arising from this
position in this quarter in accordance with the threshold specified by FIN 48. Accordingly,
no any impact of this tax position was included in the statement of operation for this
quarter of fiscal 2008. In addition, the Company did not include any uncertain tax positions
in its federal income tax return or state income tax returns currently filed.9.
    
    INVESTMENT IN CHONGQING, CHINAIn June 2007, Trio-Tech International Pt. Ltd. established a subsidiary in Chongqing, China.
The new subsidiary, Trio-Tech (Chongqing) Co. Ltd. has a registered capital of RMB20 million
(equivalent to approximately $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
maturity of short-term deposits held 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, China. Pursuant to the
signed agreement, the investment from Trio-Tech (Chongqing) Co. Ltd. was RMB10 million
(equivalent to approximately $1,331 based on the exchange rate on September 30, 2007
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. As Jiasheng is responsible
for the business management and operation of the development of this project, and the Company
has no major control and decision making authority, this joint project is accounted for as an
investment. There was no operation activity in Trio-Tech (Chongqing) Co. Ltd in the first
quarter of fiscal year 2008, and there was no income generated in this period.10.
    
    ASSETS HELD FOR SALEIn the first quarter of fiscal 2008, the Company initiated a plan to sell the property
located in Malaysia and decided to cease the depreciation of the property in accordance with
SFAS No. 144. The Company believes that the property should be disclosed as assets held for
sale, as this property was available for immediate sale in its then current condition subject
only to terms that are usual and customary for sales of such property; the sale of the
property was probable; and transfer of the property was expected to qualify for recognition
as a completed sale within one year.In late September 2007, a potential buyer contacted the Company and made an offer on the
property. The purchase price offered by this potential buyer was reasonable relative to the
propertys current fair value in market and approximated carrying value of the property. The
Company has not entered into a definite sale and purchase agreement with this buyer as of the
date of filing of this Form 10-Q. However, the Company believes that the transfer of the
property will be
completed within one year. In accordance with SFAS No. 144, the asset held for sale was
recorded at historical carrying value of the property ($210), which approximated its fair
value, less the cost to sell.
 11




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##### Table of Contents



11.
    
    BUSINESS SEGMENTSThe Company operates principally in three industry segments; the testing service industry
(which performs structural and electronic tests of semiconductor devices), the designing and
manufacturing of equipment (which equipment tests the structural integrity of integrated
circuits and other products) and the distribution of various products from other
manufacturers in Singapore and Southeast Asia. The following net sales were based on
customer location rather than subsidiary location.The allocation of the cost of equipment, the current year investment in new equipment and
depreciation expense have been made on the basis of the primary purpose for which the
equipment was acquired.All inter-segment sales were sales from the manufacturing segment to the testing and
distribution segments. Total inter-segment sales were $59 and $8 for the three months ended
September 30, 2007 and 2006, 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depr.Ended
    
    Net
    
    Operating
    
    Total
    
    and
    
    CapitalSep. 30,
    
    Sales
    
    Income
    
    Assets
    
    Amort.
    
    ExpendituresManufacturing
    
    
    2007
    
    
    $
    6,396
    
    
    $
    326
    
    
    $
    3,949
    
    
    $
    40
    
    
    $
    332006
    
    
    
    5,484
    
    
    
    441
    
    
    
    4,718
    
    
    
    42
    
    
    
    114Testing Services
    
    
    2007
    
    
    
    5,543
    
    
    
    1,018
    
    
    
    33,147
    
    
    
    748
    
    
    
    5102006
    
    
    
    3,898
    
    
    
    402
    
    
    
    24,695
    
    
    
    412
    
    
    
    191Distribution
    
    
    2007
    
    
    
    111
    
    
    
    (22
    )
    
    
    798
    
    
    
    17
    
    
    
    2006
    
    
    
    494
    
    
    
    (37
    )
    
    
    1,012
    
    
    
    4
    
    
    
    Corporate and
    
    
    2007
    
    
    
    
    
    
    
    (68
    )
    
    
    531
    
    
    
    
    
    
    
    2Unallocated
    
    
    2006
    
    
    
    
    
    
    
    15
    
    
    
    262
    
    
    
    
    
    
    
    Total Company
    
    
    2007
    
    
    $
    12,050
    
    
    $
    1,254
    
    
    $
    38,425
    
    
    $
    805
    
    
    $
    5452006
    
    
    $
    9,876
    
    
    $
    821
    
    
    $
    30,687
    
    
    $
    458
    
    
    $
    305
 Geographic Area Information:
 Elimin-Quarter
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ationsEnded
    
    United
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    and
    
    TotalSep. 30,
    
    States
    
    China
    
    Countries
    
    Singapore
    
    Thailand
    
    Malaysia
    
    Other
    
    CompanyNet Sales to
    
    
    2007
    
    
    $
    1,460
    
    
    $
    219
    
    
    
    388
    
    
    $
    5,572
    
    
    $
    514
    
    
    $
    3,956
    
    
    $
    (59
    )
    
    $
    12,050Customers
    
    
    2006
    
    
    
    365
    
    
    
    1,383
    
    
    
    181
    
    
    
    6,225
    
    
    
    512
    
    
    
    1,218
    
    
    
    (8
    )
    
    
    9,876Operating
    
    
    2007
    
    
    
    123
    
    
    
    26
    
    
    
    41
    
    
    
    592
    
    
    
    62
    
    
    
    478
    
    
    
    (68
    )
    
    
    1,254Income (loss)
    
    
    2006
    
    
    
    (27
    )
    
    
    123
    
    
    
    23
    
    
    
    533
    
    
    
    46
    
    
    
    108
    
    
    
    15
    
    
    
    821Long-lived
    
    
    2007
    
    
    
    7
    
    
    
    845
    
    
    
    
    
    
    
    2,618
    
    
    
    831
    
    
    
    3,060
    
    
    
    (40
    )
    
    
    7,321Assets
    
    
    2006
    
    
    
    21
    
    
    
    187
    
    
    
    
    
    
    
    3,594
    
    
    
    782
    
    
    
    2,686
    
    
    
    (40
    )
    
    
    7,230
 12




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##### Table of Contents



TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN
THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 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
       First Quarter Fiscal 2008 Highlights
 
    
    Total revenue increased 22.0% to $12,050 for the first quarter of fiscal 2008,
compared with revenue of $9,876 for the first quarter of fiscal 2007.
    
    Manufacturing segment revenue increased by $912, or 16.6%, to $6,396, compared to
$5,484 for the first quarter of fiscal 2007.
    
    Testing segment revenue increased by $1,645, or 42.2%, to $5,543, compared to $3,898
for the first quarter of fiscal 2007.
    
    Income from operations increased by $433, or 52.7%, to $1,254 compared with $821 for
the first quarter of fiscal 2007.
    
    Gross profit margins increased slightly by 0.2% to 25.2% from 25.0% for the first
quarter of fiscal 2007.
    
    Selling expenses decreased by 0.9% from 1.9% of revenue for the first quarter of
fiscal 2007.
    
    General and administrative expenses decreased by 1.0% from 14.7% of revenue for the
first quarter of fiscal 2007.
 13




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##### Table of Contents



Results of Operations and Business Outlook
  Three Months Ended September 302007
    
    2006Net Sales:Manufacturing
    
    
    53.08
    %
    
    
    55.52
    %Testing
    
    
    46.00
    
    
    
    39.47Distribution
    
    
    0.92
    
    
    
    5.01Total
    
    
    100.00
    %
    
    
    100.00
    %
    Manufacturing Segment
  Testing Segment
  Distribution Segment
  14




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##### Table of Contents



Uncertainties and Remedies
  Comparison of the First Quarters Ended September 30, 2007 (Q1 2008) and September 30, 2006 (Q1
2007)
  Three Months Ended September 302007
    
    2006Net Sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    74.8
    %
    
    
    75.0
    %Gross Margin
    
    
    25.2
    %
    
    
    25.0
    %Operating ExpensesGeneral and administrative
    
    
    13.7
    %
    
    
    14.7
    %Selling
    
    
    1.0
    %
    
    
    1.9
    %Research and development
    
    
    0.1
    %
    
    
    0.2
    %Total operating expenses
    
    
    14.8
    %
    
    
    16.8
    %Income from Operations
    
    
    10.4
    %
    
    
    8.2
    %
 Overall Gross Margin
    15




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##### Table of Contents



Operating Expenses
  Three Months Ended September 30(In Thousands, unaudited)
    
    2007
    
    
    2006General and administrative
    
    $
    1,645
    
    
    $
    1,445Selling
    
    $
    124
    
    
    $
    191Research and development
    
    $
    19
    
    
    $
    17Total
    
    $
    1,788
    
    
    $
    1,653
   Income from operations
  Interest Expense
  Three Months Ended September 30(In Thousands, unaudited)
    
    2007
    
    2006Interest expense
    
    $
    85
    
    
    $
    29
  16




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##### Table of Contents



Other (Expenses) Income
  Three Months Ended September 30(In Thousands, unaudited)
    
    2007
    
    2006Other (expenses) income
    
    $
    (50
    )
    
    $
    37
  Income Tax
   Minority Interest
  Net Income
  Earnings per Share
  Segment Information
  17




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##### Table of Contents



Manufacturing Segment
  Three Months Ended September 30(In Thousands, unaudited)
    
    2007
    
    2006Revenue
    
    $
    6,396
    
    
    $
    5,484Gross margin
    
    
    14.9
    %
    
    
    19.8
    %Income from operations
    
    $
    326
    
    
    $
    441
  Testing Segment
  Three Months Ended September 30(In Thousands, unaudited)
    
    2007
    
    2006Revenue
    
    $
    5,543
    
    
    $
    3,898Gross margin
    
    
    37.2
    %
    
    
    33.6
    %Income from operations
    
    $
    1,018
    
    
    $
    402
  Distribution Segment
  Three Months Ended September 30(In Thousands, unaudited)
    
    2007
    
    2006Revenue
    
    $
    111
    
    
    $
    494Gross margin
    
    
    26.1
    %
    
    
    16.3
    %Loss from operations
    
    $
    (22
    )
    
    $
    (37
    )
  18




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##### Table of Contents



Corporate
  Three Months Ended September 30(In Thousands, unaudited)
    
    2007
    
    2006Income (Loss) from operations
    
    $
    (68
    )
    
    $
    15
  Financial Condition
             19




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##### Table of Contents



Liquidity Comparison
     Corporate Guarantee Arrangement
  Critical Accounting Estimates & Policies
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest
Rate Risk
  20




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##### Table of Contents



Sep. 30,
    
    June 30,2007
    
    2007(unaudited)Loans:Denominated in Singapore dollars; interest is at the banks
prime rate (4.25% at September 30, 2007
and June 30, 2007) plus 1% per annum
    
    $
    
    
    
    $
    16Denominated in Singapore dollars; interest rate interest is at
the banks prime rate (4.25% at September 30, 2007 and June 30,
2007) plus 1% per annum
    
    
    97
    
    
    
    150Denominated in Thailand baht; interest is at the banks prime
rate (7.00% at September 30, 2007 and June 30, 2007)
    
    
    20
    
    
    
    39Denominated in Singapore dollars; interest is at the banks
prime rate (2.48% at September 30, 2007 and June 30, 2007) plus
3.5% per annum
    
    
    
    
    
    
    309Denominated in Singapore dollars; interest is at the banks
prime rate (4.25% at September 30, 2007 and June 30, 2007) plus
1% per annum
    
    
    140
    
    
    
    161Denominated in Singapore dollars; interest is at the banks
prime rate (3.7% at September 30, 2007) plus 3.0% per annum
    
    
    3,636
    
    
    
    Subtotal
    
    $
    3,893
    
    
    $
    675Capital leases:Denominated in Singapore dollars
with a fixed interest rate ranging from 4.19% to 6.02% per annum
    
    $
    247
    
    
    $
    269Denominated in Malaysia ringgit
with a fixed interest rate at 4.30% per annum
    
    
    5
    
    
    
    7Denominated in U.S. dollars
with a fixed interest rate at 0.81% per annum
    
    
    3
    
    
    
    4Subtotal
    
    $
    255
    
    
    $
    280Line of credit:Denominated in Singapore dollars; interest is at the banks
prime rate (5.75% at September 30, 2007) plus 0.25% per annum
    
    $
    209
    
    
    
    Subtotal
    
    $
    209
    
    
    $
    Total
    
    $
    4,357
    
    
    $
    955
   21




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
    22




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##### Table of Contents



TRIO-TECH
INTERNATIONAL
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 CERTAIN RISKS THAT MAY AFFECT OUR FUTURE RESULTS
  Possible dilutive effect of outstanding options
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer of Registrant31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer of Registrant32
    
    Section 1350 Certification.
 23




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##### Table of Contents



SIGNATURES
  TRIO-TECH INTERNATIONALBy:
    

/s/ Victor H.M. TingVICTOR H.M. TINGVice President andChief Financial Officer(Principal Financial Officer)Dated: November 14, 2007
 24