##### Table of Contents



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




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##### 



TRIO-TECH INTERNATIONAL
INDEX TO CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE
 PagePart I.
    
    Financial InformationItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets as of March 31, 2007 (Unaudited) and June 30, 2006
    
    
    3Condensed Consolidated Statements of Operations and Comprehensive Income (loss) for the Three and Nine Months Ended March 31, 2007 (Unaudited) and March 31, 2006 (Unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2007 (Unaudited) and March 31, 2006 (Unaudited)
    
    
    6Notes to Consolidated Financial Statements (Unaudited)
    
    
    8Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    28Item 4T.
    
    Controls and Procedures
    
    
    30Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    31Item 1A.
    
    Risk Factors
    
    
    31Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3.
    
    Defaults upon Senior Securities
    
    
    31Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    31Item 5.
    
    Other Information
    
    
    31Item 6.
    
    Exhibits
    
    
    31Signatures
    
    
    
    
    32EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
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##### Table of Contents



TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT NUMBER OF SHARES)
 March 31,
    
    
    June 30,2007
    
    
    2006(Unaudited)ASSETSCURRENT ASSETS:Cash
    
    $
    3,480
    
    
    $
    2,551Short-term deposits
    
    
    7,503
    
    
    
    7,839Trade accounts receivable, less allowance for doubtful
    
    
    10,472
    
    
    
    8,518accounts of $38 and $225
Other receivables
    
    
    237
    
    
    
    306Inventories, less provision for obsolete inventory
of $599 and $448
    
    
    1,986
    
    
    
    2,447Prepaid expenses and other current assets
    
    
    166
    
    
    
    170Total current assets
    
    
    23,844
    
    
    
    21,831PROPERTY, PLANT AND EQUIPMENT, Net
    
    
    7,900
    
    
    
    7,073OTHER INTANGIBLE ASSETS, Net
    
    
    238
    
    
    
    311OTHER ASSETS
    
    
    271
    
    
    
    169TOTAL ASSETS
    
    $
    32,253
    
    
    $
    29,384LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Line of credit
    
    $
    432
    
    
    $
    116Accounts payable
    
    
    1,629
    
    
    
    3,809Accrued expenses
    
    
    4,496
    
    
    
    3,045Income taxes payable
    
    
    597
    
    
    
    311Current portion of notes payable
    
    
    660
    
    
    
    856Current portion of capital leases
    
    
    127
    
    
    
    107Current portion of deferred tax liabilities
    
    
    253
    
    
    
    319Total current liabilities
    
    
    8,194
    
    
    
    8,563NOTES PAYABLE, net of current portion
    
    
    224
    
    
    
    644CAPITAL LEASES, net of current portion
    
    
    186
    
    
    
    230DEFERRED TAX LIABILITIES
    
    
    450
    
    
    
    359TOTAL LIABILITIES
    
    
    9,054
    
    
    
    9,796MINORITY INTEREST
    
    
    2,391
    
    
    
    2,196SHAREHOLDERS EQUITY:Common stock; no par value, 15,000 shares authorized;
3,225,992 shares issued and outstanding as of March 31, 2007, and
3,219,407 shares issued and outstanding as of June 30, 2006, respectively
    
    
    10,361
    
    
    
    10,338Paid -in capital
    
    
    459
    
    
    
    337Accumulated retained earnings
    
    
    9,463
    
    
    
    7,150Accumulated other comprehensive gain (loss) translation adjustments
    
    
    525
    
    
    
    (433
    )Total shareholders equity
    
    
    20,808
    
    
    
    17,392TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    $
    32,253
    
    
    $
    29,384
 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 (LOSS) EARNINGS PER SHARE
 Nine Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,
    
    
    March 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)RevenueProducts
    
    $
    22,037
    
    
    $
    8,888
    
    
    $
    7,265
    
    
    $
    3,018Services
    
    
    15,519
    
    
    
    10,711
    
    
    
    6,348
    
    
    
    3,45137,556
    
    
    
    19,599
    
    
    
    13,613
    
    
    
    6,469Cost of SalesCost of products sold
    
    
    18,431
    
    
    
    7,214
    
    
    
    6,002
    
    
    
    2,299Cost of services rendered
    
    
    9,655
    
    
    
    6,923
    
    
    
    3,997
    
    
    
    2,39828,086
    
    
    
    14,137
    
    
    
    9,999
    
    
    
    4,697Gross Margin
    
    
    9,470
    
    
    
    5,462
    
    
    
    3,614
    
    
    
    1,772Operating ExpensesGeneral and administrative
    
    
    4,948
    
    
    
    4,542
    
    
    
    1,904
    
    
    
    1,261Selling
    
    
    882
    
    
    
    768
    
    
    
    346
    
    
    
    253Research and development
    
    
    52
    
    
    
    53
    
    
    
    18
    
    
    
    20Impairment loss
    
    
    174
    
    
    
    15
    
    
    
    2
    
    
    
    Loss on disposal of property, plant & equipment
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    22Total operating expenses
    
    
    6,056
    
    
    
    5,400
    
    
    
    2,270
    
    
    
    1,556Income from Operations
    
    
    3,414
    
    
    
    62
    
    
    
    1,344
    
    
    
    216Other Income (Expenses)Interest expense
    
    
    (119
    )
    
    
    (111
    )
    
    
    (53
    )
    
    
    (37
    )Other income
    
    
    155
    
    
    
    196
    
    
    
    45
    
    
    
    84Total Other income (Expenses)
    
    
    36
    
    
    
    85
    
    
    
    (8
    )
    
    
    47Income from Continuing Operations
before Income Taxes
    
    
    3,450
    
    
    
    147
    
    
    
    1,336
    
    
    
    263Income Tax Provision
    
    
    717
    
    
    
    290
    
    
    
    239
    
    
    
    106Income (Loss) from Continuing Operations before
Minority Interest
    
    
    2,733
    
    
    
    (143
    )
    
    
    1,097
    
    
    
    157Minority Interest
    
    
    (97
    )
    
    
    36
    
    
    
    (16
    )
    
    
    17Income (Loss) from Continuing Operations
    
    
    2,636
    
    
    
    (107
    )
    
    
    1,081
    
    
    
    174Discontinued Operations (NOTE 9)Income from Discontinued Operations
    
    
    
    
    
    
    8,459
    
    
    
    
    
    
    
    Net Income Attributed to Common Shares
    
    $
    2,636
    
    
    $
    8,352
    
    
    $
    1,081
    
    
    $
    174BASIC EARNINGS PER SHAREBasic earnings (loss) per share from Continuing operations
    
    $
    0.82
    
    
    $
    (0.03
    )
    
    $
    0.34
    
    
    $
    0.05Basic earnings per share from Discontinued operations
    
    
    0.00
    
    
    
    2.74
    
    
    
    0.00
    
    
    
    0.00Basic earnings per share
    
    $
    0.82
    
    
    $
    2.71
    
    
    $
    0.34
    
    
    $
    0.05
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Nine Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,
    
    
    March 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)DILUTED EARNINGS PER SHAREDiluted earnings (loss) per share from Continuing operations
    
    $
    0.82
    
    
    $
    (0.03
    )
    
    $
    0.33
    
    
    $
    0.05Diluted earnings per share from Discontinued operations
    
    
    0.00
    
    
    
    2.74
    
    
    
    0.00
    
    
    
    0.00Diluted earnings per share
    
    $
    0.82
    
    
    $
    2.71
    
    
    $
    0.33
    
    
    $
    0.05Weighted Average Shares OutstandingBasic
    
    
    3,223
    
    
    
    3,080
    
    
    
    3,224
    
    
    
    3,211Diluted
    
    
    3,233
    
    
    
    3,080
    
    
    
    3,234
    
    
    
    3,225COMPREHENSIVE INCOME:Net income
    
    $
    2,636
    
    
    $
    8,352
    
    
    $
    1,081
    
    
    $
    174Foreign currency translation adjustment
    
    
    957
    
    
    
    (384
    )
    
    
    449
    
    
    
    363COMPREHENSIVE INCOME
    
    $
    3,593
    
    
    $
    7,968
    
    
    $
    1,530
    
    
    $
    537
 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
 March 31,
    
    
    March 31,2007
    
    
    2006(unaudited)
    
    
    (unaudited)Cash Flow from Operating ActivitiesNet income
    
    $
    2,636
    
    
    $
    8,352Adjustments to reconcile net income to
net cash flow provided by (used in) operating activitiesDepreciation and amortization
    
    
    2,007
    
    
    
    1,229Bad debts expense, net
    
    
    145
    
    
    
    113Inventory provision
    
    
    151
    
    
    
    3Interest income on short-term deposits
    
    
    (66
    )
    
    
    (139
    )Impairment loss
    
    
    174
    
    
    
    15Stock compensation
    
    
    4
    
    
    
    50Gain on sale of property  discontinued operations
    
    
    
    
    
    
    (8,909
    )(Gain) Loss on sale of equipments
    
    
    (41
    )
    
    
    22Deferred tax provision
    
    
    25
    
    
    
    58Minority interest
    
    
    98
    
    
    
    (36
    )Changes in operating assets and liabilities,
net of acquisition effectsAccounts receivables
    
    
    (2,099
    )
    
    
    (1,154
    )Other receivables
    
    
    69
    
    
    
    (183
    )Other assets
    
    
    (102
    )
    
    
    (19
    )Inventories
    
    
    310
    
    
    
    15Prepaid expenses and other current assets
    
    
    4
    
    
    
    (82
    )Accounts payable and accrued liabilities
    
    
    (729
    )
    
    
    154Income tax payable
    
    
    286
    
    
    
    100Net cash provided (used) by operating activities
    
    
    2,872
    
    
    
    (411
    )Cash Flow from Investing ActivitiesProceeds from short-term deposits matured
    
    
    10,238
    
    
    
    9,815Investments in short-term deposits
    
    
    (9,836
    )
    
    
    (14,987
    )Additions to property, plant and equipment
    
    
    (2,409
    )
    
    
    (952
    )Acquisition of a company in China
    
    
    
    
    
    
    (138
    )Proceeds from sale of equipment-continuing operations
    
    
    50
    
    
    
    137Proceeds from sale of property-discontinued operations
    
    
    
    
    
    
    8,401Net cash (used) provided by investing activities
    
    
    (1,957
    )
    
    
    2,276Cash Flow from Financing ActivitiesNet borrowings (payments) on lines of credits
    
    
    316
    
    
    
    (111
    )Repayment of bank loans and capital leases
    
    
    (698
    )
    
    
    (756
    )Proceeds from long-terms bank loans and capital leases
    
    
    6
    
    
    
    1,045Proceeds from exercising stock options
    
    
    23
    
    
    
    784Proceeds from 10% shareholder on the short swing profit of the company stock
    
    
    118
    
    
    
    Dividends paid to minority interest
    
    
    (42
    )
    
    
    (28
    )Dividends paid to shareholders
    
    
    (323
    )
    
    
    (1,608
    )Net cash used by financing activities
    
    
    (600
    )
    
    
    (674
    )
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##### Table of Contents



March 31,
    
    
    March 31,2007
    
    
    2006(unaudited)
    
    
    (unaudited)Effect of Changes in Exchange Rate
    
    
    614
    
    
    
    165NET INCREASE IN CASH
    
    
    929
    
    
    
    1,356CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    2,551
    
    
    
    1,439CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    3,480
    
    
    $
    2,795Supplementary Information Of Cash FlowsCash paid during the period for:Interest
    
    $
    119
    
    
    $
    114Income taxes
    
    $
    433
    
    
    $
    2,121Non-Cash TransactionsCapital lease of property, plant and equipment
    
    $
    52
    
    
    $
    287
 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 thereafter) 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 test facilities in the United States. The Company also designs, develops,
manufactures and markets a broad range of equipment and systems used in the manufacturing
and testing of semiconductor devices and electronic components. TTI conducts business in
three business segments: Testing Services, Manufacturing and Distribution. TTI has
subsidiaries in the U.S., Singapore, Malaysia, Thailand, China and Ireland 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 byTrio-Tech Malaysia
    
    
    55
    %
    
    Selangor, MalaysiaPrestal Enterprise Sdn. Bhd.
    
    
    76
    %
    
    Selangor, MalaysiaTrio-Tech (Suzhou) Co. Ltd.
    
    
    100
    %
    
    Suzhou, ChinaTrio-Tech (Shanghai) Co. Ltd.
    
    
    100
    %
    
    Shanghai, China
 The accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All significant
inter-company accounts and transactions have been eliminated in consolidation. The unaudited
consolidated financial statements are presented in U.S. dollars. The accompanying financial
statements do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary for fair
presentation have been included. Operating results for the nine months ended March 31, 2007
are not necessarily indicative of the results that may be expected for the fiscal year
ending June 30, 2007. 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, 2006.Certain prior year balances may have been reclassified to conform to the current
presentation.Change in Estimate: During the third quarter of fiscal 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
$113K, or $0.03 per diluted share in the third quarter ended March 31, 2007.2.
    
    NEW ACCOUNTING PRONOUNCEMENTSIn June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, an Interpretation of FASB Statement No. 109, (thereafter FIN 48). FIN 48
prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken in a tax return. A company must
determine whether it is more-likely-than-not that a tax position will be sustained upon
examination, including resolution of any related appeals or litigation processes, based on
the technical merits of the position. Once it is determined that a position meets the
more-likely-than-not recognition threshold, the position is measured to determine the amount
of benefit to recognize in the financial statements. FIN 48 is effective for fiscal years
beginning after December 15, 2006. We expect that the adoption of FIN 48 will not have a
material impact on our consolidated results of operations or financial position.
 8




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In September 2006, the 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 September 2006, the FASB issued FASB Staff Position: Accounting for Planned Major
Maintenance Activities, (thereafter FSP AUG AIR-1). FSP AUG AIR-1 addresses the accounting
for planned major maintenance activities. FSP AUG AIR-1 prohibits the use of the
accrue-in-advance method of accounting in annual and interim financial reporting periods for
planned major maintenance activities, which had previously allowed companies the right to
recognize planned major maintenance costs by accruing a liability over several reporting
periods before the maintenance was performed. FSP AUG AIR-1 still allows the direct
expense, built-in-overhaul and deferral methods of accounting as acceptable, however it does
mandate that companies apply the same method of accounting in both interim and annual
financial reporting periods and that the method be retrospectively applied if applicable.
FSP AUG AIR-1 is effective for fiscal years beginning after December 15, 2006. The Company
does not expect that the adoption of FSP AUG AIR-1 will have a material effect on its
consolidated financial statements.In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No. 108, Considering the Effects of Prior Year Misstatement when Quantifying
Misstatements in Current Year Financial Statements (SAB 108), which is effective for fiscal
years ending after November 15, 2006. The objective of SAB 108 is to eliminate diversity
in practice surrounding how public companies quantify financial statement misstatements.
SAB 108 requires quantification of financial statement misstatements based on the effects of
the misstatements on the consolidated statement of income, the consolidated balance sheet
and related financial statement disclosures.According to SAB 108, both rollover and iron curtain approaches must be considered when
evaluating a misstatement for materiality. This is referred to as the dual approach. For
companies that have previously evaluated misstatements under one, but not both, of these
methods, SAB 108 provides companies with a one-time option to record the cumulative effect
of their prior unadjusted misstatements in a manner similar to a change in accounting
principle in their annual financial statements during the effective time period if (i) the
cumulative amount of the unadjusted misstatements at the beginning of the adopting year
would have been material under the dual approach to their annual financial statements for
the prior year or (ii) the effect of correcting the unadjusted misstatements during the
adopting year would cause these annual financial statements to be materially misstated under
the dual approach. In accordance with SAB 108, companies are allowed, upon adoption, to
record the effects as a cumulativeeffect adjustment to the retained earnings. The Company
does not believe that the adoption of SAB 108 will have significant impact on its financial
position and results of operations.In February 2007, the Financial Accounting Standards Board (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, which will
become effective in 2008. SFAS No. 159 permits entities to choose to measure eligible
financial assets, financial liabilities and firm commitments at fair value, on an
instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair
value under other generally accepted accounting principles. The fair value measurement
election is irrevocable and subsequent changes in fair value must be recorded in earnings.
The Company has not yet determined whether it will elect the option provided in this
standard, or the impact that the elective adoption may have on our consolidated financial
position, operating results or cash flows.3.
    
    INVENTORIESInventories consisted of the following:
 March 31,2007
    
    
    June 30,(Unaudited)
    
    
    2006Raw materials
    
    $
    1,342
    
    
    $
    827Works in progress
    
    
    1,022
    
    
    
    1,803Finished goods
    
    
    221
    
    
    
    265Less: provision for obsolete inventory
    
    
    (599
    )
    
    
    (448
    )$
    1,986
    
    
    $
    2,447
 9




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##### Table of Contents



4.
    
    STOCK OPTIONSThe Company had two share-based compensation plans, which are described below. The Company
historically adopted the APB No. 25 approach  intrinsic value method  and presented the
pro forma information in line with the requirements of SFAS No. 123. Historically, there
was no stock based compensation cost charged against income for the fiscal years ended June
30, 2005 and 2004. There was no income tax benefit related to share-based compensation for
the fiscal years ended June 30, 2005 and 2004, as the Company did not claim a deduction for
corporate income tax purposes.Effective July 1, 2005, the Company adopted the fair value recognition provisions of
Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 123R, Share-Based Payments, using the modified prospective application method.
Under this transition method, compensation cost recognized during the nine months ended
March 31, 2007 included the applicable amounts of: (a) compensation cost of all share-based
payments granted prior to, but not yet vested as of, July 1, 2005 (based on the grant-date
fair value estimated in accordance with the original provisions of SFAS No. 123) and (b)
compensation cost for all share-based payments granted subsequent to July 1, 2005 (based on
the grant-date fair value estimated in accordance with the new provisions of SFAS No. 123R).
Amortization of unrecognized fair value of the non-vested options was $4 and $1 for the
nine months ended and three months ended March 31, 2007, respectively.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 nine months ended March 31, 2007.AssumptionsThe disclosure of the above fair value for these awards was estimated using the
Black-Scholes option pricing model with the assumptions listed below:
 Nine MonthsEnded
    
    Years EndedMarch 31, 2007
    
    June 30, 2006
    
    June 30, 2005
    
    June 30, 2004Expected volatility
    
    
    73.22-89.71
    %
    
    
    49.5-51.53
    %
    
    
    33.5 - 36.8
    %
    
    
    41.9
    %Weighted average volatility
    
    
    89.71
    %
    
    
    49.5
    %
    
    
    33.9
    %
    
    
    41.9
    %Risk free interest rate
    
    
    4.57-5.12
    %
    
    
    3.71-4.50
    %
    
    
    2.89 - 3.27
    %
    
    
    2.76
    %Expected life (years)
    
    
    2.00
    
    
    
    2.00
    
    
    
    2.00
    
    
    
    2.00
 The expected volatilities are based on the historical volatility of the Companys stock.
The observation is made on a weekly basis. The observation period covered is consistent
with the expected terms of options. The expected terms of stock options are based on the
average vesting period on a basis consistent with the historical experience of the similar
option grants. The risk-free rate is consistent with the expected terms of the stock option
and based on the United States Treasury yield curve in effect at the time of grant.1998 Stock Option PlanThe Companys 1998 Stock Option Plan (the 1998 Plan), which is shareholder-approved,
permits the grant of stock options to its employees of up to 300,000 shares of common stock.
Option awards are generally granted with an exercise price equal to the market price of the
Companys stock at the date of grant. These options have a five-year contractual life term.
Awards generally vest over four years; with 25% vesting on the grant date, and the balance
vesting in equal installments on the next three succeeding anniversaries of the grant date.
The share-based compensation will be amortized based on an accelerated method over the four
periods. Certain option awards provide for accelerated vesting if there is a change in
control (as defined in the 1998 Plan).
 10




---



##### Table of Contents



A summary of option activities under the 1998 Plan during the nine months of fiscal 2007
ended March 31, 2007 is presented as follows:
 Weighted Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at July 1, 2006
    
    
    28,885
    
    
    $
    2.97Granted
    
    
    
    
    
    
    Exercised
    
    
    (8,585
    )
    
    
    2.71Forfeited or expired
    
    
    (7,250
    )
    
    
    3.18Outstanding at March 31, 2007
    
    
    13,050
    
    
    $
    3.03
    
    
    
    2.00
    
    
    $
    141,897Exercisable at March 31, 2007
    
    
    11,675
    
    
    $
    2.86
    
    
    
    2.00
    
    
    $
    128,835
 The intrinsic value of the 8,585 options exercised was $78. Cash received from options
exercised during the nine months ended March 31, 2007 was approximately $23. There were no
options granted during the nine months ended March 31, 2007 under the 1998 Stock Option
Plan.A summary of the status of the Companys non-vested stock options during the nine months of
fiscal 2007 ended March 31, 2007 is presented below:
 Weighted-Average Grant-DateOptions
    
    
    Fair ValueNon-vested at July 1, 2006
    
    
    13,250
    
    
    $
    0.81Granted
    
    
    
    
    
    
    Vested
    
    
    (11,625
    )
    
    
    0.76Forfeited
    
    
    (250
    )
    
    
    0.68Non-vested at March 31, 2007
    
    
    1,375
    
    
    $
    1.31
 As of March 31, 2007, there was approximately $2 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 1.5 years.Directors Stock Option PlanThe Directors Stock Option Plan (the Directors Plan), which is shareholder-approved,
permits the grant of stock options to its duly elected non-employee Directors and one of the
corporate officers of the Company (if he or she is also a director of the Company) and
covers 300,000 shares of common stock. Prior to July 1, 2003, option awards were granted
with an exercise price equal to 85% of the fair market price of the Companys stock at the
grant date. Subsequent to July 1, 2003, the Board approved an amendment to the Directors
Plan requiring options to purchase the Companys common stock to be exercisable at a price
equal to 100% of the fair market value of the underlying shares on the grant date. These
options have five-year contractual terms. Options awards are exercisable immediately as of
the grant date.As of July 1, 2006, there were no stock options outstanding under the Directors plan, and
there were no options exercisable. Because the Directors plan was terminated in December
2005, there were no options granted during the nine months ended March 31, 2007.
 11




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##### Table of Contents



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 gives effect to all dilutive potential common
shares outstanding during a period. In computing diluted EPS, the average price for the
period is used in determining the number of shares assumed to be purchased from the exercise
of stock options and warrants.Stock options to purchase 13,050 shares 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 resulted common shares equivalents were
approximately 10,000 shares and are presented in the following table for earnings per share
calculation purposes.Stock options to purchase 29,385 shares at exercise prices ranging from $2.66 to $4.40 per
share were outstanding as of March 31, 2006. No options were excluded in the determination
of common shares equivalents because the average market price of common shares was greater
than the exercise price of the stock options. The resulted common shares equivalents were
approximately 14,000 shares and were presented in the following table for earnings per share
calculation purposes. However, 12,257 options were excluded in the computation of diluted
EPS for the nine months ended March 31, 2006 since they were anti-dilutive.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 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Net (loss) income from continuing operations
    
    $
    2,636
    
    
    $
    (107
    )
    
    $
    1,081
    
    
    $
    174Net income from discontinued operations
    
    $
    
    
    
    $
    8,459
    
    
    $
    
    
    
    $
    Net income attributable to common shares
    
    $
    2,636
    
    
    $
    8,352
    
    
    $
    1,081
    
    
    $
    174Basic Earnings (Loss) Per ShareBasic earnings (loss) per share from Continuing operations
    
    $
    0.82
    
    
    $
    (0.03
    )
    
    $
    0.34
    
    
    $
    0.05Basic earnings per share from Discontinued operations
    
    
    
    
    
    
    2.74
    
    
    
    
    
    
    
    Basic earnings per share from Net Income
    
    $
    0.82
    
    
    $
    2.71
    
    
    $
    0.34
    
    
    $
    0.05Diluted (Loss) Earnings Per ShareDiluted (loss) earnings per share from Continuing
operations
    
    $
    0.82
    
    
    $
    (0.03
    )
    
    $
    0.33
    
    
    $
    0.05Diluted earnings per share from Discontinued operations
    
    
    
    
    
    
    2.74
    
    
    
    
    
    
    
    Diluted earnings per share from Net Income
    
    $
    0.82
    
    
    $
    2.71
    
    
    $
    0.33
    
    
    $
    0.05Weighted average number of common shares outstanding  basic
    
    
    3,223
    
    
    
    3,080
    
    
    
    3,224
    
    
    
    3,211Dilutive effect of stock options
    
    
    10
    
    
    
    
    
    
    
    10
    
    
    
    14Number of shares used to compute earnings per share  diluted
    
    
    3,233
    
    
    
    3,080
    
    
    
    3,234
    
    
    
    3,225
 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 condition, and although we generally do not
require collateral, letters of credit may be required from our customers in certain
circumstances.
 12




---



##### Table of Contents



Senior management reviews accounts receivable on a monthly basis to determine if any
receivables will potentially be uncollectible. We include any accounts receivable balances
that are determined to be uncollectible in our allowance for doubtful accounts. After all
attempts to collect a receivable have failed, the receivable is written off against the
allowance. Based on the information available to us, we believe our allowance for doubtful
accounts for the nine months ended March 31, 2007 and the twelve months ended June 30, 2006
was adequate.The following table represents the changes in the allowance for doubtful accounts:
 March 31,2007
    
    
    June 30,(Unaudited)
    
    
    2006Beginning
    
    $
    225
    
    
    $
    147Additions charged to expenses
    
    
    17
    
    
    
    260Recovered
    
    
    (162
    )
    
    
    (85
    )Actual write-offs
    
    
    (42
    )
    
    
    (97
    )Ending
    
    $
    38
    
    
    $
    225
 7.
    
    DIVIDEND PAID TO SHAREHOLDERSOn December 5, 2006, the Board of Directors of Registrant declared a cash dividend of ten
cents (U.S. 10¢) per share payable to the shareholders of record on December 15, 2006. The
total number of shares issued and outstanding as of December 15, 2006 was 3,225,242 and the
total cash dividends paid on January 15, 2007 were $323.8.
    
    WARRANTY ACCRUAL
 March 312007
    
    
    June 30,(Unaudited)
    
    
    2006Beginning
    
    $
    142
    
    
    $
    155Additions charged to cost and expenses
    
    
    92
    
    
    
    Recovered
    
    
    (2
    )
    
    
    (1
    )Actual write-offs
    
    
    (1
    )
    
    
    (12
    )Ending
    
    $
    231
    
    
    $
    142
 9.
    
    DISCONTINUED OPERATIONSThe Companys Ireland operation, as a component of the testing segment, suffered continued
operating losses for three consecutive fiscal years and the cash flow was minimal for three
consecutive years. In August 2005, the Company established a restructuring plan to close the
testing operation in Dublin, Ireland. In November 2005, the Company completed the sale of
said property. In accordance with EITF 03-13, we presented the operation results from
Ireland as a discontinued operation. The income from discontinued operations of $8,459 for
the nine months ended March 31, 2006 represented gain from the sale of property located in
Dublin, Ireland of $8,909, which was completed in November 2005, offset by a loss from
discontinued operations of $450.10.
    
    BUSINESS SEGMENTSThe Company operates principally in three industry segments; the testing service industry
(which performs structural and electronic tests of semiconductor devices), the designing and
manufacturing of equipment (which equipment tests the structural integrity of integrated
circuits and other products) and the distribution of various products from other
manufacturers in Singapore and Southeast Asia. The following net sales were based on
customer location rather than subsidiary location.
 13




---



##### Table of Contents



The allocation of the cost of equipment, the current year investment in new equipment and
depreciation expenses 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 $122 and $61 for the nine months ended
March 31, 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
    
    
    
    
    
    Operating
    
    
    
    
    
    Depr.Ended
    
    Net
    
    Income
    
    Total
    
    and
    
    CapitalMarch 31,
    
    Sales
    
    (loss)
    
    Assets
    
    Amort.
    
    ExpendituresManufacturing
    
    
    2007
    
    
    $
    6,923
    
    
    $
    350
    
    
    $
    3,511
    
    
    $
    53
    
    
    $
    982006
    
    
    
    2,685
    
    
    
    192
    
    
    
    3,503
    
    
    
    31
    
    
    
    101Testing Services
    
    
    2007
    
    
    
    6,348
    
    
    
    1,077
    
    
    
    27,978
    
    
    
    826
    
    
    
    3132006
    
    
    
    3,451
    
    
    
    178
    
    
    
    21,346
    
    
    
    402
    
    
    
    567Distribution
    
    
    2007
    
    
    
    342
    
    
    
    (91
    )
    
    
    556
    
    
    
    4
    
    
    
    2006
    
    
    
    333
    
    
    
    (131
    )
    
    
    849
    
    
    
    4
    
    
    
    Corporate and unallocated
    
    
    2007
    
    
    
    
    
    
    
    8
    
    
    
    208
    
    
    
    
    
    
    
    2006
    
    
    
    
    
    
    
    (23
    )
    
    
    620
    
    
    
    
    
    
    
    Total Company
    
    
    2007
    
    
    $
    13,613
    
    
    $
    1,344
    
    
    $
    32,253
    
    
    $
    883
    
    
    $
    4112006
    
    
    $
    6,469
    
    
    $
    216
    
    
    $
    26,318
    
    
    $
    437
    
    
    $
    668
 14




---



##### Table of Contents



Business Segment Information:
 NineMonths
    
    
    
    
    
    Operating
    
    
    
    
    
    Depr.Ended
    
    Net
    
    Income
    
    Total
    
    and
    
    CapitalMarch 31,
    
    Sales
    
    (loss)
    
    Assets
    
    Amort.
    
    ExpendituresManufacturing
    
    
    2007
    
    
    $
    20,602
    
    
    $
    1,041
    
    
    $
    3,511
    
    
    $
    147
    
    
    $
    2462006
    
    
    
    7,151
    
    
    
    (100
    )
    
    
    3,503
    
    
    
    81
    
    
    
    299Testing Services
    
    
    2007
    
    
    
    15,519
    
    
    
    2,421
    
    
    
    27,978
    
    
    
    1,848
    
    
    
    2,2142006
    
    
    
    10,711
    
    
    
    1,197
    
    
    
    21,346
    
    
    
    1,137
    
    
    
    1,072Distribution
    
    
    2007
    
    
    
    1,435
    
    
    
    (101
    )
    
    
    556
    
    
    
    12
    
    
    
    12006
    
    
    
    1,737
    
    
    
    (133
    )
    
    
    849
    
    
    
    11
    
    
    
    1Corporate and unallocated
    
    
    2007
    
    
    
    
    
    
    
    53
    
    
    
    208
    
    
    
    
    
    
    
    2006
    
    
    
    
    
    
    
    (902
    )
    
    
    620
    
    
    
    
    
    
    
    Total Company
    
    
    2007
    
    
    $
    37,556
    
    
    $
    3,414
    
    
    $
    32,253
    
    
    $
    2,007
    
    
    $
    2,4612006
    
    
    $
    19,599
    
    
    $
    62
    
    
    $
    26,318
    
    
    $
    1,229
    
    
    $
    1,372
 Geographic Area Information:
 Elimin-Quarter
    
    
    
    
    
    China
    
    
    
    
    
    
    
    
    
    
    
    
    
    ationsEnded
    
    United
    
    and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    and
    
    TotalMarch 31,
    
    States
    
    countries
    
    Singapore
    
    Thailand
    
    Malaysia
    
    Other
    
    CompanyNet sales to
    
    
    2007
    
    
    $
    1,301
    
    
    $
    1,395
    
    
    $
    8,493
    
    
    $
    617
    
    
    $
    1,868
    
    
    $
    (61
    )
    
    $
    13,613customers
    
    
    2006
    
    
    
    458
    
    
    
    387
    
    
    
    3,335
    
    
    
    445
    
    
    
    1,875
    
    
    
    (31
    )
    
    
    6,469Operating
    
    
    2007
    
    
    
    104
    
    
    
    126
    
    
    
    854
    
    
    
    63
    
    
    
    189
    
    
    
    8
    
    
    
    1,344Income (loss)
    
    
    2006
    
    
    
    (18
    )
    
    
    (4
    )
    
    
    153
    
    
    
    21
    
    
    
    87
    
    
    
    (23
    )
    
    
    216Long-lived
    
    
    2007
    
    
    $
    10
    
    
    $
    848
    
    
    $
    3,695
    
    
    $
    877
    
    
    $
    2,748
    
    
    $
    (40
    )
    
    $
    8,138Assets
    
    
    2006
    
    
    $
    23
    
    
    $
    165
    
    
    $
    3,689
    
    
    $
    831
    
    
    $
    2,900
    
    
    $
    (40
    )
    
    $
    7,568
 Geographic Area Information:
 Nine
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Elimin-Months
    
    
    
    
    
    China
    
    
    
    
    
    
    
    
    
    
    
    
    
    ationsEnded
    
    United
    
    and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    and
    
    TotalMarch 31,
    
    States
    
    countries
    
    Singapore
    
    Thailand
    
    Malaysia
    
    Other
    
    CompanyNet sales to
    
    
    2007
    
    
    $
    5,152
    
    
    $
    5,011
    
    
    $
    21,030
    
    
    $
    1,763
    
    
    $
    4,722
    
    
    $
    (122
    )
    
    $
    37,556customers
    
    
    2006
    
    
    
    1,985
    
    
    
    1,078
    
    
    
    11,714
    
    
    
    1,395
    
    
    
    3,488
    
    
    
    (61
    )
    
    
    19,599Operating
    
    
    2007
    
    
    
    362
    
    
    
    438
    
    
    
    1,955
    
    
    
    165
    
    
    
    441
    
    
    
    53
    
    
    
    3,414Income (loss)
    
    
    2006
    
    
    
    (32
    )
    
    
    (7
    )
    
    
    707
    
    
    
    85
    
    
    
    211
    
    
    
    (902
    )
    
    
    62Long-lived
    
    
    2007
    
    
    $
    10
    
    
    $
    848
    
    
    $
    3,695
    
    
    $
    877
    
    
    $
    2,748
    
    
    $
    (40
    )
    
    $
    8,138Assets
    
    
    2006
    
    
    $
    23
    
    
    $
    165
    
    
    $
    3,689
    
    
    $
    831
    
    
    $
    2,900
    
    
    $
    (40
    )
    
    $
    7,568
 15




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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.
 Forward-Looking Statements
   Overview
     16




---



##### Table of Contents



Third Quarter Fiscal 2007 Highlights
 
    
    Revenue increased 110.4% to $13,613 for the third quarter of fiscal 2007, compared
with revenue of $6,469 for the third quarter of fiscal 2006.
    
    Manufacturing segment revenues increased by $4,238, or 157.8%, to $6,923, compared
to $2,685 for the third quarter of fiscal 2006.
    
    Testing segment revenue increased by $2,897, or 83.9%, to $6,348, compared to $3,451
for the third quarter of fiscal 2006.
    
    Income from continuing operations increased by $907 to $1,081 for the third quarter
of fiscal 2007, compared to $174 for the third quarter of fiscal 2006.
    
    Gross profit margins decreased slightly by 0.9% to 26.5% for the third quarter of
fiscal 2007, compared with gross profit margins of 27.4% for the same period last
fiscal year.
    
    General and administrative expenses were 14.0% of revenue, representing a decrease
from 19.5% of revenue for the third quarter of fiscal 2006.
    
    Selling expenses were 2.5% of revenue, decreased from 3.9% of revenue for the third
quarter of fiscal 2006.
 Results of Operations and Business Outlook
   17




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##### Table of Contents



Revenue Components
 Nine Months Ended
    
    Three Months EndedMarch 31,
    
    March 31,
    
    March 31,
    
    March 31,2007
    
    2006
    
    2007
    
    2006Net Sales:Manufacturing
    
    
    54.86
    %
    
    
    36.49
    %
    
    
    50.86
    %
    
    
    41.50
    %Testing
    
    
    41.32
    
    
    
    54.65
    
    
    
    46.63
    
    
    
    53.35Distribution
    
    
    3.82
    
    
    
    8.86
    
    
    
    2.51
    
    
    
    5.15Total
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
  Manufacturing Segment
  Testing Segment
  Distribution Segment
  Uncertainties and Remedies
  18




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##### Table of Contents



Comparison of the Third Quarter Ended March 31, 2007 and March 31, 2006
  Three Months Ended March 312007
    
    2006Net Sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of Sales
    
    
    73.5
    %
    
    
    72.6
    %Gross Margin
    
    
    26.5
    %
    
    
    27.4
    %Operating ExpensesGeneral and administrative
    
    
    14.0
    %
    
    
    19.5
    %Selling
    
    
    2.5
    %
    
    
    3.9
    %Research and development
    
    
    0.1
    %
    
    
    0.3
    %Impairment loss
    
    
    0.0
    %
    
    
    0.0
    %Loss on disposal of PP&E
    
    
    0.0
    %
    
    
    0.3
    %Total Operating Expenses
    
    
    16.6
    %
    
    
    24.0
    %Income from operations
    
    
    9.9
    %
    
    
    3.4
    %
 Overall Gross Margin
    19




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##### Table of Contents



Operating Expenses
  Three Months Ended March 31(In Thousands, unaudited)
    
    2007
    
    
    2006General and administrative
    
    $
    1,904
    
    
    $
    1,261Selling
    
    
    346
    
    
    
    253Research and development
    
    
    18
    
    
    
    20Impairment loss
    
    
    2
    
    
    
    Loss on disposal of PP&E
    
    
    
    
    
    
    22Total
    
    $
    2,270
    
    
    $
    1,556
      Income from operations
  Interest Expense
  Three Months Ended March 31(In Thousands, unaudited)
    
    2007
    
    2006Interest expense
    
    $
    53
    
    
    $
    37
 20




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##### Table of Contents



Other Income
  Three Months Ended March 31(In Thousands, unaudited)
    
    2007
    
    2006Other income
    
    $
    45
    
    
    $
    84
  Income Tax
  Minority Interest
  Income from continuing operations before Minority Interest and Net Income
  Earnings per Share
  Segment information
  Manufacturing Segment
  21




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##### Table of Contents



Three Months Ended March 31(In Thousands, unaudited)
    
    2007
    
    2006Revenue
    
    $
    6,923
    
    
    $
    2,685Gross margin
    
    
    17.9
    %
    
    
    26.2
    %Income from operations
    
    $
    350
    
    
    $
    192
  Testing Segment
  Three Months Ended March 31(In Thousands, unaudited)
    
    2007
    
    2006Revenue
    
    $
    6,348
    
    
    $
    3,451Gross margin
    
    
    37.0
    %
    
    
    30.5
    %Income from operations
    
    $
    1,077
    
    
    $
    178
  Distribution Segment
  Three Months Ended March 31(In Thousands, unaudited)
    
    2007
    
    2006Revenue
    
    $
    342
    
    
    $
    333Gross margin
    
    
    5.7
    %
    
    
    4.4
    %Loss from operations
    
    $
    (91
    )
    
    $
    (131
    )
  Corporate
  Three Months Ended March 31(In Thousands, unaudited)
    
    2007
    
    2006Income (loss) from operations
    
    $
    8
    
    
    $
    (23
    )
 22




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##### Table of Contents



Comparison of the Nine Months Ended March 31, 2007 and 2006
  Nine Months Ended March 312007
    
    2006Net Sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of Sales
    
    
    74.8
    %
    
    
    72.1
    %Gross Margin
    
    
    25.2
    %
    
    
    27.9
    %Operating ExpensesGeneral and administrative
    
    
    13.2
    %
    
    
    23.2
    %Selling
    
    
    2.3
    %
    
    
    3.9
    %Research and development
    
    
    0.1
    %
    
    
    0.3
    %Impairment loss
    
    
    0.5
    %
    
    
    0.1
    %Loss on disposal of PP&E
    
    
    0.0
    %
    
    
    0.2
    %Total Operating Expenses
    
    
    16.1
    %
    
    
    27.6
    %Income from operations
    
    
    9.1
    %
    
    
    0.3
    %
 Overall Gross Margin
     23




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##### Table of Contents



Operating Expenses
  Nine Months Ended March 31(In Thousands, unaudited)
    
    2007
    
    
    2006General and administrative
    
    $
    4,948
    
    
    $
    4,542Selling
    
    
    882
    
    
    
    768Research and development
    
    
    52
    
    
    
    53Impairment loss
    
    
    174
    
    
    
    15Loss on disposal of PP&E
    
    
    
    
    
    
    22Total
    
    $
    6,056
    
    
    $
    5,400
     Income from operations
  Interest Expense
  Nine Months Ended March 31(In Thousands, unaudited)
    
    2007
    
    2006Interest expense
    
    $
    119
    
    
    $
    111
  Other Income
  Nine Months Ended March 31(In Thousands, unaudited)
    
    2007
    
    2006Other income
    
    $
    155
    
    
    $
    196
 24




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##### Table of Contents



Income Tax
  Minority Interest
  Income from Discontinued Operations
  Net Income
  Earnings per Share
  Segment Information
  Manufacturing Segment
  Nine Months Ended March 31(In Thousands, unaudited)
    
    2007
    
    2006Revenue
    
    $
    20,602
    
    
    $
    7,151Gross margin
    
    
    16.2
    %
    
    
    19.3
    %Income (loss) from operations
    
    $
    1,041
    
    
    $
    (100
    )
 25




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##### Table of Contents



Testing Segment
  Nine Months Ended March 31(In Thousands, unaudited)
    
    2007
    
    2006Revenue
    
    $
    15,519
    
    
    $
    10,711Gross margin
    
    
    37.8
    %
    
    
    35.4
    %Income from operations
    
    $
    2,421
    
    
    $
    1,197
  Distribution Segment
  Nine Months Ended March 31(In Thousands, unaudited)
    
    2007
    
    2006Revenue
    
    $
    1,435
    
    
    $
    1,737Gross margin
    
    
    18.7
    %
    
    
    16.9
    %Loss from operations
    
    $
    (101
    )
    
    $
    (133
    )
  Corporate
  Nine Months Ended March 31(In Thousands, unaudited)
    
    2007
    
    2006Income (loss) from operations
    
    $
    53
    
    
    $
    (902
    )
  26




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##### Table of Contents



Financial Condition
       Liquidity and Capital Resources
    27




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##### Table of Contents



Corporate Guarantee Arrangement
  Critical Accounting Estimates & Policies
    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
 28




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##### Table of Contents



March 31,
    
    June 30,2007
    
    2006(unaudited)Loans:Denominated by Singapore dollars; interest is at the banks
prime rate (5.75% at March 31, 2007
and June 30, 2006) plus 0.5% per annum
    
    $
    
    
    
    $
    70Denominated by Singapore dollars; interest rate fixed at 5.91%
    
    
    
    
    
    
    23Denominated by Singapore dollars; interest is at the banks
prime rate (4.25% at March 31, 2007
and June 30, 2006) plus 1% per annum
    
    
    65
    
    
    
    198Denominated by Singapore dollars; interest is at the banks
prime rate (4.25% at March 31, 2007
and June 30, 2006) plus 1% per annum
    
    
    206
    
    
    
    346Denominated by Thailand baht;
interest is at the banks prime rate (7.50% at March 31, 2007
and June 30, 2006)
    
    
    57
    
    
    
    95Denominated by Singapore dollars; interest is at the banks
prime rate (2.954% at March 31, 2007
and 3.41% at June 30, 2006) plus 3.5% per annum
    
    
    366
    
    
    
    508Denominated by Singapore dollars; interest is at the banks
prime rate (4.25% at March 31, 2007
and June 30, 2006) plus 1% per annum
    
    
    190
    
    
    
    260Subtotal
    
    $
    884
    
    
    $
    1,500Capital leases:Denominated by Singapore dollars
with a fixed interest rate ranging from 4.19% to 6.02% per
annum
    
    $
    299
    
    
    $
    315Denominated by Malaysia ringgit
with a fixed interest rate at 4.30% per annum
    
    
    9
    
    
    
    14Denominated by U.S. dollars
with a fixed interest rate at 0.81% per annum
    
    
    5
    
    
    
    7Subtotal
    
    $
    313
    
    
    $
    336Line of credit:Denominated by Singapore dollars; interest is at the banks
prime rate (2.954% at March 31, 2007,
and 5.75% at June 30, 2006) plus 0.20% per annum at March 31, 2007 and 0.25% per annum at June 30, 2006
    
    $
    432
    
    
    $
    116Subtotal
    
    $
    432
    
    
    $
    116Total
    
    $
    1,629
    
    
    $
    1,952
 29




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##### Table of Contents



Foreign Currency Exchange Rate Risk
  
 ITEM 4T. CONTROLS AND PROCEDURES
  30




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##### Table of Contents



TRIO-TECH INTERNATIONAL
 
 PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal ProceedingsNot applicable
 
 Item 1A.
    
    Risk FactorsCERTAIN RISKS THAT MAY AFFECT OUR FUTURE RESULTSIn addition to the other information set forth in this report, shareholders should carefully
consider the factors discussed in Item 1A Risk Factors in our Annual Report on Form 10-K for
the year ended June 30, 2006, which factors could materially affect our business, financial
condition and/or future results. The risks described in our Annual Report on Form 10-K are
not the only risks facing the Company. Additional risks and uncertainties not currently
known to us or that we currently deem to be immaterial also may materially adversely affect
our business, financial condition and/or operating results. In addition to the risks so
noted, we also note as follows:Possible dilutive effect of outstanding optionsAs of March 31, 2007, there were 13,050 shares of common stock reserved for issuance upon
exercise of outstanding stock options. The outstanding options are currently exercisable at
exercise prices ranging from $2.66 to $4.40 per share. We anticipate that the trading price
of our common stock at the time of exercise of any such outstanding options will exceed the
exercise price under those options. Thus, such exercise will have a dilutive effect on our
shareholders.
 
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of ProceedsMalaysian 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 SecuritiesNot applicable
 
 Item 4.
    
    Submission of Matters to Vote of Security HoldersNot applicable
 
 Item 5.
    
    Other InformationNot applicable
 
 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.
 31




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##### Table of Contents



SIGNATURES
  TRIO-TECH INTERNATIONALBy:
    /s/ Victor H.M. TingVICTOR H.M. TINGVice President and
Chief Financial Officer
(Principal Financial Officer)Dated: May 10, 2007 32