UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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





For the
Quarterly Period Ended December 31, 2008





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


(Exact
name of Registrant as specified in its Charter)








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





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





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





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




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





Number of
shares of common stock outstanding as of February 20, 2009 is
3,227,430







TRIO-TECH    INTERNATIONAL




INDEX
TO CONSOLIDATEDFINANCIAL INFORMATION, OTHER INFORMATION AND
SIGNATURE





PagePart I.
              Financial InformationItem 1.
              Financial Statements(a) Condensed Consolidated Balance Sheets as of December
      31, 2008 (Unaudited) and June 30, 2008
              2(b) Condensed Consolidated Statements of Operations and
      Comprehensive Income for the Three and Six Months Ended December 31, 2008
      (Unaudited) and December 31, 2007 (Unaudited)
              3(c) Condensed Consolidated Statements of Cash Flows for the
      Six Months Ended December 31, 2008 (Unaudited) and December 31, 2007
      (Unaudited)
              4(d) Notes to Consolidated Financial Statements
      (Unaudited)
              5Item 2.
              Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
              20Item 3.
              Quantitative and Qualitative Disclosures about Market
      Risk
              40Item 4T.
              Controls and Procedures
              41Part II.
              Other InformationItem 1.
              Legal Proceedings
              42Item 1A.
              Risk Factors
              42Item 2.
              Unregistered Sales of Equity Securities and Use of
      Proceeds
              42Item 3.
              Defaults upon Senior Securities
              42Item 4.
              Submission of Matters to a Vote of Security
      Holders
              43Item 5.
              Other Information
              43Item 6.
              Exhibits
              43Signatures
              
              43Exhibits
              
              43Certifications
              
              43




-i-




FORWARD-LOOKING
STATEMENTS





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





Unless otherwise required by law, we
undertake no obligation to update forward-looking statements to reflect
subsequent events, changed circumstances, or the occurrence of unanticipated
events. Important factors that could cause or contribute to such material
differences include those discussed in “Item 1A. Risk Factors” in our most
recent Annual Report on Form 10-K. You are cautioned not to place undue reliance
on such forward-looking statements.


-1-
 Table of Contents


PART I. FINANCIAL INFORMATION





ITEM 1. FINANCIAL STATEMENTS





TRIO-TECH
INTERNATIONAL AND SUBSIDIARIES





CONDENSEDCONSOLIDATED
BALANCE SHEETS (IN THOUSANDS, EXCEPT NUMBER OF SHARES)





December
      31,
                  
                  
                  June
      30,2008
                  
                  
                  2008ASSETS
                  
                  
                  (Unaudited)CURRENT
      ASSETS:Cash
                  
                  $
                  6,741
                  
                  $
                  6,600Short-term deposits, at fair value
                  
                  5,553
                  
                  
                  7,746Trade accounts receivable, less allowance for doubtful accounts of
      $39 and $51
                  
                  3,938
                  
                  
                  5,702Inventories, less provision for obsolete inventory of $670 and
      $880
                  
                  1,671
                  
                  
                  2,449Prepaid expenses and other current assets
                  
                  514
                  
                  
                  934Total
      current assets
                  
                  18,417
                  
                  
                  23,431INVESTMENTS
      IN CHINA (Note 9)
                  
                  3,020
                  
                  
                  2,267PROPERTY,
      PLANT AND EQUIPMENT, Net
                  
                  7,231
                  
                  
                  8,136OTHER
      INTANGIBLE ASSETS, Net
                  
                  53
                  
                  
                  112OTHER
      ASSETS
                  
                  758
                  
                  
                  813TOTAL
      ASSETS
                  $
                  29,479
                  
                  $
                  34,759LIABILITIES
      AND SHAREHOLDERS' EQUITYCURRENT
      LIABILITIES:Line of credit
                  $
                  5
                  
                  $
                  --Accounts payable
                  
                  572
                  
                  
                  2,586Accrued expenses
                  
                  1,989
                  
                  
                  3,036Income taxes payable
                  
                  346
                  
                  
                  397Current portion of bank loans payable
                  
                  2,175
                  
                  
                  1,403Current portion of capital leases
                  
                  116
                  
                  
                  106Total
      current liabilities
                  
                  5,203
                  
                  
                  7,528BANK
      LOANS PAYABLE, net of current portion, at fair value
                  
                  --
                  
                  
                  1,620CAPITAL
      LEASES, net of current portion
                  
                  57
                  
                  
                  143DEFERRED
      TAX LIABILITIES
                  
                  539
                  
                  
                  510OTHER
      LIABILITIES
                  
                  9
                  
                  
                  9TOTAL
      LIABILITIES
                  $
                  5,808
                  
                  $
                  9,810MINORITY
      INTEREST
                  
                  3,075
                  
                  
                  2,808SHAREHOLDERS'
      EQUITY:Common stock; no par value, 15,000,000 shares authorized; 3,227,430 and
      3,226,430 shares issued and outstanding as at December 31, 2008, and at
      June 30, 2008, respectively
                  
                  10,365
                  
                  
                  10,362Paid-in capital
                  
                  1,203
                  
                  
                  928Accumulated retained earnings
                  
                  7,680
                  
                  
                  8,825Accumulated other comprehensive loss-translation
    adjustments
                  
                  1,348
                  
                  
                  2,026Total
      shareholders' equity
                  
                  20,596
                  
                  
                  22,141TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
                  $
                  29,479
                  
                  $
                  34,759





See
accompanying notes to condensed consolidated financial statements.


-2-
 Table of Contents


TRIO-TECH
INTERNATIONAL AND SUBSIDIARIES





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


Six
      Months Ended
                                  
                                  
                                  Three
      Months EndedDec.
      31,
                                  
                                  
                                  Dec.
      31,
                                  
                                  
                                  Dec.
      31,
                                  
                                  
                                  Dec.
      31,2008
                                  
                                  
                                  2007
                                  
                                  
                                  2008
                                  
                                  
                                  2007(Unaudited)
                                  
                                  
                                  (Unaudited)
                                  
                                  
                                  (Unaudited)
                                  
                                  
                                  (Unaudited)RevenueProducts
                                  
                                  $
                                  5,966
                                  
                                  
                                  $
                                  13,708
                                  
                                  
                                  $
                                  2,834
                                  
                                  
                                  $
                                  7,201Services
                                  
                                  
                                  5,826
                                  
                                  
                                  
                                  11,213
                                  
                                  
                                  
                                  2,728
                                  
                                  
                                  
                                  5,67011,792
                                  
                                  
                                  
                                  24,921
                                  
                                  
                                  
                                  5,562
                                  
                                  
                                  
                                  12,871Cost
      of SalesCost
      of products sold
                                  
                                  
                                  4,897
                                  
                                  
                                  
                                  11,468
                                  
                                  
                                  
                                  2,230
                                  
                                  
                                  
                                  5,939Cost
      of services rendered
                                  
                                  
                                  4,272
                                  
                                  
                                  
                                  7,216
                                  
                                  
                                  
                                  2,011
                                  
                                  
                                  
                                  3,7379,169
                                  
                                  
                                  
                                  18,684
                                  
                                  
                                  
                                  4,241
                                  
                                  
                                  
                                  9,676Gross
      Margin
                                  
                                  
                                  2,623
                                  
                                  
                                  
                                  6,237
                                  
                                  
                                  
                                  1,321
                                  
                                  
                                  
                                  3,195Operating
      ExpensesGeneral
      and administrative
                                  
                                  
                                  3,339
                                  
                                  
                                  
                                  4,009
                                  
                                  
                                  
                                  1,324
                                  
                                  
                                  
                                  2,389Selling
                                  
                                  
                                  206
                                  
                                  
                                  
                                  277
                                  
                                  
                                  
                                  83
                                  
                                  
                                  
                                  153Research
      and development
                                  
                                  
                                  20
                                  
                                  
                                  
                                  38
                                  
                                  
                                  
                                  10
                                  
                                  
                                  
                                  19Impairment
      loss
                                  
                                  
                                  520
                                  
                                  
                                  
                                  16
                                  
                                  
                                  
                                  520
                                  
                                  
                                  
                                  16(Gain)/loss
      on sales of PP&E
                                  
                                  
                                  (154
                                  )
                                  
                                  
                                  --
                                  
                                  
                                  
                                  5
                                  
                                  
                                  
                                  --Total
      operating expenses
                                  
                                  
                                  3,931
                                  
                                  
                                  
                                  4,340
                                  
                                  
                                  
                                  1,942
                                  
                                  
                                  
                                  2,577Income(Loss)  from
      Operations
                                  
                                  
                                  (1,308
                                  )
                                  
                                  
                                  1,897
                                  
                                  
                                  
                                  (621
                                  )
                                  
                                  
                                  618Other
      Income (Expenses)Interest
      expense
                                  
                                  
                                  (104
                                  )
                                  
                                  
                                  (164
                                  )
                                  
                                  
                                  (46
                                  )
                                  
                                  
                                  (79
                                  )Other
      (expense) income
                                  
                                  
                                  570
                                  
                                  
                                  
                                  (251
                                  )
                                  
                                  
                                  355
                                  
                                  
                                  
                                  (176
                                  )Total
      other (expense) income
                                  
                                  
                                  466
                                  
                                  
                                  
                                  (415
                                  )
                                  
                                  
                                  309
                                  
                                  
                                  
                                  (255
                                  )Income
      (Loss) Before Income Taxes
                                  
                                  
                                  (842
                                  )
                                  
                                  
                                  1,482
                                  
                                  
                                  
                                  (312
                                  )
                                  
                                  
                                  363Income
      Tax Provision (Benefits)
                                  
                                  
                                  36
                                  
                                  
                                  
                                  314
                                  
                                  
                                  
                                  (62
                                  )
                                  
                                  
                                  142Income
      (Loss) Before Minority Interest
                                  
                                  
                                  (878
                                  )
                                  
                                  
                                  1,168
                                  
                                  
                                  
                                  (250
                                  )
                                  
                                  
                                  221Minority
      interest
                                  
                                  
                                  267
                                  
                                  
                                  
                                  252
                                  
                                  
                                  
                                  176
                                  
                                  
                                  
                                  56Net
      Income (Loss)Attributed to Common Shares
                                  
                                  
                                  (1,145
                                  )
                                  
                                  
                                  916
                                  
                                  
                                  
                                  (426
                                  )
                                  
                                  
                                  165EARNINGS
      (LOSS) PER SHARE:Basic
      earnings (loss) per share
                                  
                                  $
                                  (0.35
                                  )
                                  
                                  $
                                  0.28
                                  
                                  
                                  $
                                  (0.13
                                  )
                                  
                                  $
                                  0.05Diluted
      earnings (loss) per share
                                  
                                  $
                                  (0.35
                                  )
                                  
                                  $
                                  0.28
                                  
                                  
                                  $
                                  (0.13
                                  )
                                  
                                  $
                                  0.05Weighted
      Average Shares Outstanding:Basic
                                  
                                  
                                  3,227
                                  
                                  
                                  
                                  3,226
                                  
                                  
                                  
                                  3,227
                                  
                                  
                                  
                                  3,226Diluted
                                  
                                  
                                  3,227
                                  
                                  
                                  
                                  3,259
                                  
                                  
                                  
                                  3,227
                                  
                                  
                                  
                                  3,228Comprehensive
      Income (Loss):Net
      income (loss)
                                  
                                  $
                                  (1,145
                                  )
                                  
                                  $
                                  916
                                  
                                  
                                  $
                                  (426
                                  )
                                  
                                  $
                                  165Foreign
      currency translation adjustment
                                  
                                  
                                  (678
                                  )
                                  
                                  
                                  918
                                  
                                  
                                  
                                  (8
                                  )
                                  
                                  
                                  702Comprehensive
      Income (Loss)
                                  
                                  $
                                  (1,823
                                  )
                                  
                                  $
                                  1,834
                                  
                                  
                                  $
                                  (434
                                  )
                                  
                                  $
                                  867




See
accompanying notes to condensed consolidated financial statements.


-3-
 Table of Contents


TRIO-TECH
INTERNATIONAL AND SUBSIDIARIES





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




Dec.
      31,
                            
                            
                            Dec.
      31,2008
                            
                            
                            2007(Unaudited)
                            
                            
                            (Unaudited)Cash
      Flow from Operating ActivitiesNet
      income (loss)
                            
                            $
                            (1,145
                            )
                            
                            $
                            916Adjustments
      to reconcile net income to net cash flow (used in) provided by operating
      activitiesDepreciation
      and amortization
                            
                            
                            1,074
                            
                            
                            
                            1,528Bad
      debts expense, net
                            
                            
                            12
                            
                            
                            
                            --Inventory
      provision
                            
                            
                            71
                            
                            
                            
                            35Accrued
      interest expense net accrued interest income
                            
                            
                            (40
                            )
                            
                            
                            (53
                            )Impairment
      loss
                            
                            
                            520
                            
                            
                            
                            16Stock
      compensation
                            
                            
                            275
                            
                            
                            
                            358Gain
      on sale of property, plant and equipment
                            
                            
                            (154
                            )
                            
                            
                            --Investment
      income
                            
                            
                            (211
                            )
                            
                            
                            --Deferred
      tax provision
                            
                            
                            29
                            
                            
                            
                            23Minority
      interest
                            
                            
                            267
                            
                            
                            
                            265Changes
      in operating assets and liabilitiesAccounts
      receivables
                            
                            
                            1,752
                            
                            
                            
                            (3,223
                            )Other
      assets
                            
                            
                            7
                            
                            
                            
                            41Inventories
                            
                            
                            707
                            
                            
                            
                            (562
                            )Prepaid
      expenses and other current assets
                            
                            
                            420
                            
                            
                            
                            (280
                            )Accounts
      payable and accrued liabilities
                            
                            
                            (3,061
                            )
                            
                            
                            321Income
      tax payable
                            
                            
                            (51
                            )
                            
                            
                            (112
                            )Net
      cash (used in) provided by operating activities
                            
                            
                            472
                            
                            
                            
                            (727
                            )Cash
      Flow from Investing ActivitiesProceeds
      from short-term deposits matured
                            
                            
                            2,433
                            
                            
                            
                            21,443Investments
      in short-term deposits
                            
                            
                            (152
                            )
                            
                            
                            (22,416
                            )Additions
      to property, plant and equipment
                            
                            
                            (1,034
                            )
                            
                            
                            (1,493
                            )Proceeds
      from sale of equipment
                            
                            
                            178
                            
                            
                            
                            --Investment
      in Chongqing, China
                            
                            
                            (529
                            )
                            
                            
                            (2,057
                            )Net
      cash (used in) provided by investing activities
                            
                            
                            896
                            
                            
                            
                            (4,523
                            )Cash
      Flow from Financing ActivitiesNet
      borrowings on lines of credit
                            
                            
                            5Repayment
      of bank loans and capital leases
                            
                            
                            (972
                            )
                            
                            
                            (854
                            )Proceeds
      from long-term bank loans and capital leases
                            
                            
                            --
                            
                            
                            
                            3,687Proceeds
      from exercising stock options
                            
                            
                            3
                            
                            
                            
                            --Net
      cash (used in) provided by financing activities
                            
                            
                            (964
                            )
                            
                            
                            2,833Effect
      of Changes in Exchange Rate
                            
                            
                            (263
                            )
                            
                            
                            598NET
      (DECREASE) INCREASE IN CASH
                            
                            
                            141
                            
                            
                            
                            (1,819
                            )CASH
      BEGINNING OF PERIOD
                            
                            
                            6,600
                            
                            
                            
                            7,135CASH
      END OF PERIOD
                            
                            $
                            6,741
                            
                            
                            $
                            5,316Supplementary
      Information of Cash FlowsCash
      paid during the period for:Interest
                            
                            $
                            131
                            
                            
                            $
                            117Income
      taxes
                            
                            $
                            --
                            
                            
                            $
                            477Non-Cash
      TransactionsNon-cash
      investment for the investment in Chongqing (Note 9)
                            
                            $
                            502
                            
                            
                            $
                            --Assets
      held for sale
                            
                            $
                            --
                            
                            
                            $
                            (212
                            )Non-cash
      capital expenditure
                            
                            $
                            9
                            
                            
                            
                            --Carrying
      value of property reclassified from property, plant and
      equipment
                            
                            $
                            --
                            
                            
                            $
                            212




See
accompanying notes to condensed consolidated financial statements.


-4-
 Table of Contents


TRIO-TECH
INTERNATIONAL AND SUBSIDIARIES


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





1.
ORGANIZATION AND BASIS OF PRESENTATION





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


Ownership
                LocationExpress
      Test Corporation  (dormant)
                100%
                Van
      Nuys, CaliforniaTrio-Tech
      Reliability Services (dormant)
                100%
                Van
      Nuys, CaliforniaKTS
      Incorporated, dba Universal Systems (dormant)
                100%
                Van
      Nuys, 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 Trio-Tech Malaysia
                55%
                Selangor,
      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 six months ended December
31, 2008 are not necessarily indicative of the results that may be expected for
the fiscal year ending June 30, 2009.  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, 2008.





Reclassification — Certain
reclassifications have been made to the previous year’s financial statements to
conform to current year presentation, with no effect on previously reported net
income.




Change in Estimates: During the second
quarter of fiscal year 2009, our Singapore operations reversed approximately
$159 in accruals based on new and updated information.  This was
related to bonuses provision and annual leave provision that were included in
accrued expenses at September 30, 2008.  The provision for bonuses in
the amount of $118 was based on the Company’s policy and guidelines
 related  to  bonuses,  the  financial
 results  of  the  Singapore


-5-
 Table of Contents




operation,
group objectives and individual employee performance set up at the beginning of
fiscal year 2009 and employee headcount on June 30, 2008.  As our
Singapore operations suffered higher than expected operating losses during the
six months ended December 31, 2008, management believes that the Singapore
operations will not be able to meet the criteria of the initial financial
objectives created at the beginning of fiscal 2009.  The Company does
not have any legal or contractual obligation for the payment of bonuses.
Accordingly, the over-provision of $159 was reversed during the second quarter
of fiscal 2009.





These
changes in estimate decreased the cost of sales by $84 and decreased general and
administrative expenses by $75. The net impact on the net income for the six
months ended December 31, 2008 was $159, or $0.05 per diluted
share.





2. NEW
ACCOUNTING PRONOUNCEMENTS




We
adopted Financial Accounting Standards Board (“FASB”) Statement of Financial
Accounting Standard (“SFAS”) No. 157, Fair Value Measurements
(“SFAS 157”) on July 1, 2008 for financial assets and liabilities that are
recognized or disclosed at fair value in the financial statements on a recurring
basis. SFAS 157 defines fair value, establishes a framework for measuring fair
value as required by other accounting pronouncements and expands fair value
measurement disclosures. The provisions of SFAS 157 are applied prospectively
upon adoption and did not have a material impact on our consolidated financial
statements. The disclosures required by SFAS 157 are included in Note 11, Fair Value Measurement, to
these consolidated financial statements.





We
adopted SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities—Including an
Amendment of FASB Statement No. 115 (“SFAS 159”) as of July 1, 2008.
SFAS 159 permits entities to elect to measure many financial instruments and
certain other items at fair value. We did not elect the fair value option for
any assets or liabilities, which were not previously carried at fair value.
Accordingly, the adoption of SFAS 159 had no impact on our consolidated
financial statements.





In April
2008, the Financial Accounting Standards
Board (“FASB”) issued FASB Staff Position (“FSP”) No. SFAS
142-3, Determination of the
Useful Life of Intangible Assets (“FSP SFAS 142-3”). FSP SFAS 142-3
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS No. 142, Goodwill
and Other Intangible Assets (“SFAS 142”). FSP SFAS 142-3 is effective for
financial statements issued for fiscal years beginning after December 15, 2008
and must be applied prospectively to intangible assets acquired after the
effective date. The adoption of this statement is not expected to have a
material impact on our consolidated financial position or results of
operations.





In March
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. This statement identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with U.S. GAAP. This statement is effective from
November 2008 when the SEC’s approved the Public Company Accounting Oversight
Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.The
implementation of this statement did not have an impact on the Company’s results
of operations or financial position.





In March
2008, the FASB issued FASB Statement No.
161, Disclosures about
Derivative Instruments and Hedging Activities. The new standard is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged.The Company
does not expect the implementation of this statement to have a material impact
on its results of operations or financial position.


-6-
 Table of Contents




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





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





3.INVENTORIES





Inventories
consisted of the following:


Dec.
      31,
                  
                  
                  June
      30,2008
                  
                  
                  2008(Unaudited)Raw
      materials
                  
                  $
                  1,116
                  
                  
                  $
                  1.297Work
      in progress
                  
                  
                  1,091
                  
                  
                  
                  1,797Finished
      goods
                  
                  
                  134
                  
                  
                  
                  235Less:
      provision for obsolete inventory
                  
                  
                  (670
                  )
                  
                  
                  (880
                  )$
                  1,671
                  
                  
                  $
                  2,449





4.
STOCK OPTIONS





As of
December 31, 2008, the Company had 2,750 shares of stock options outstanding
under the 1998 Employee Option Plan, which was terminated on December 2, 2005 by
the Company’s Board of Directors.





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





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


-7-
 Table of Contents




Assumptions





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





Six
      Months Ended
                
                
                Year
      EndedDecember
      31, 2008
                
                
                June
      30, 2008Expected
      volatility
                
                
                107.18
                %
                
                
                110.91-117.70
                %Risk-free
      interest rate
                
                
                2.48
                %
                
                
                2.71%-2.90
                %Expected
      life (years)
                
                
                2.00
                
                
                
                2.00





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





2007 Employee Stock Option
Plan




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





During
the first quarter of fiscal 2009, pursuant to the 2007 Employee Plan, 50,000
shares of stock options were granted to certain officers and employees with an
exercise price equal to the fair market value of the Company’s Common Stock (as
defined under the 2007 Employee Plan in conformity with Regulation 409A of the
Internal Revenue Code of 1986, as amended) at the date of
grant.  These options vest over the period as follows: 25% vesting on
the grant date, and the balance vesting in equal installments on the next three
succeeding anniversaries of the grant date.  The fair market value of
50,000 shares of the Company’s Common Stock issuable upon exercise of stock
options granted was approximately $136 based on the fair value of $2.71 per
share determined by using the Black Scholes option pricing model.





The
Company recognized stock-based compensation expense of approximately $112 in the
six months ended December 31, 2008 under the 2007 Employee
Plan.  Unamortized stock-based compensation of $135 based on fair
value on the grant date related to options granted under the 2007 Employee Plan
is expected to be recognized over a period of three years.


-8-
 Table of Contents




As of
December 31, 2008, there were 33,750 shares of vested employees’ stock options.
The weighted-average exercise price was $7.84 and the weighted average remaining
contractual term was 4.24 years. The total intrinsic value of vested employees’
stock options during the three months ended December 31, 2008 was
zero.  A
summary of option activities under the2007 Employee
Planduring
the six months ended December 31, 2008 is presented as
follows:


Options
                        
                        
                        Weighted-
      Average ExercisePrice
                        
                        
                        Weighted
      - Average Remaining ContractualTerm
      (Years)
                        
                        
                        Aggregate
      IntrinsicValueOutstanding
      at July 1, 2008
                        
                        
                        44,000
                        
                        
                        $
                        9.57
                        
                        
                        
                        3.92
                        
                        
                        
                        -Granted
                        
                        
                        50,000
                        
                        
                        $
                        4.81
                        
                        
                        
                        4.53
                        
                        
                        
                        -Exercised
                        
                        
                        --
                        
                        
                        
                        --Forfeited
      or expired
                        
                        
                        (2,000
                        )
                        
                        $
                        7.19Outstanding
      at December 31, 2008
                        
                        
                        92,000
                        
                        
                        $
                        7.03
                        
                        
                        
                        4.24
                        
                        
                        
                        --Exercisable
      at December 31, 2008
                        
                        
                        33,750
                        
                        
                        $
                        7.84
                        
                        
                        
                        4.24
                        
                        
                        
                        --





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


Weighted-Average
      Grant-DateOptions
                    
                    
                    Fair ValueNon-vested
      at July 1, 2008
                    
                    
                    33,000
                    
                    
                    $
                    5.55Granted
                    
                    
                    50,000
                    
                    
                    $
                    2.71Vested
                    
                    
                    (22,750
                    )
                    
                    $
                    2.71Forfeited
                    
                    
                    (2,000
                    )
                    
                    $
                    4.13Non-vested
      at December 31, 2008
                    
                    
                    58,250
                    
                    
                    $
                    4.04





2007 Directors Equity
Incentive Plan





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





During
the first quarter of 2009, pursuant to the 2007 Directors Plan, 60,000 shares of
stock options were granted to our directors with an exercise price equal to the
fair market value of our Common Stock (as defined under the 2007 Directors Plan
in conformity with Regulation 409A or the Internal Revenue Code of 1986, as
amended) at the date of grant.  The fair market value of 60,000 shares
of the Company’s Common Stock issuable upon exercise of stock options granted
was approximately $163 based on the fair value of $2.71 per share determined by
the Black Scholes option pricing model.  There were no options
exercised during the six month period ended December 31, 2008.  The
Company recognized stock-based compensation expense of $163 in the six month
period ended December 31, 2008 under the 2007 Directors Plan.


-9-
 Table of Contents




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


Options
                              
                              
                              Weighted-
      Average ExercisePrice
                              
                              
                              Weighted
      - Average Remaining ContractualTerm
      (Years)
                              
                              
                              Aggregate
      IntrinsicValueOutstanding
      at July 1, 2008
                              
                              
                              60,000
                              
                              
                              $
                              9.57
                              
                              
                              
                              3.92Granted
                              
                              
                              60,000
                              
                              
                              $
                              4.81
                              
                              
                              
                              4.53Exercised
                              
                              
                              --
                              
                              
                              
                              --Forfeited
      or expired
                              
                              
                              --
                              
                              
                              
                              --Outstanding
      at December 31, 2008
                              
                              
                              120,000
                              
                              
                              $
                              7.19
                              
                              
                              
                              4.22
                              
                              
                              
                              --Exercisable atDecember 31, 2008
                              
                              
                              120,000
                              
                              
                              $
                              7.19
                              
                              
                              
                              4.22
                              
                              
                              
                              --





1998 Stock Option
Plan





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


Options
                                
                                
                                Weighted-
      Average ExercisePrice
                                
                                
                                Weighted
      - Average Remaining ContractualTerm
      (Years)
                                
                                
                                Aggregate
      IntrinsicValueOutstanding
      at July 1, 2008
                                
                                
                                12,550
                                
                                
                                $
                                3.03Granted
                                
                                
                                --
                                
                                
                                
                                --Exercised
                                
                                
                                (1,000
                                )
                                
                                $
                                2.66Forfeited
      or expired
                                
                                
                                (8,800
                                )
                                
                                $
                                2.66Outstanding
      at December 31, 2008
                                
                                
                                2,750
                                
                                
                                $
                                4.40
                                
                                
                                
                                0.50
                                
                                
                                
                                -Exercisable
      at December 31, 2008
                                
                                
                                2,750
                                
                                
                                $
                                4.40
                                
                                
                                
                                0.50
                                
                                
                                
                                -





The
intrinsic value of 2,750 options exercisable was zero. Cash received from
options exercised in the six month period ended December 31, 2008 was
approximately $3. There were no unvested
stock options under the 1998 Plan as of December 31, 2008.





5. EARNINGS
(LOSS) PER SHARE




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


-10-
 Table of Contents




Options
to purchase 214,750 shares of Common Stock at exercise prices ranging from $4.40
to $9.57 per share as of December 31, 2008 were excluded from the computation of
diluted earnings per share because their effect would have been
anti-dilutive.





Options
to purchase 113,050 shares of Common Stock at exercise prices ranging from $2.66
to $9.57 per share were outstanding as of December 31, 2007. No options were
excluded in the determination of common shares equivalents, because the average
market price of common shares was greater than the exercise price of the stock
options.  The
resulting common shares equivalents were approximately ­­33,000 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:





Six
      Months Ended
                  
                  
                  Three
      Months EndedDec.
      31,
                  
                  
                  Dec.
      31,
                  
                  
                  Dec.
      31,
                  
                  
                  Dec.
      31,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)Net
      income (loss) attributable to common shares
                  
                  $
                  (1,145
                  )
                  
                  $
                  916
                  
                  
                  $
                  (426
                  )
                  
                  $
                  165Basic
      Earnings (loss) Per Share
                  
                  $
                  (0.35
                  )
                  
                  $
                  0.28
                  
                  
                  $
                  (0.13
                  )
                  
                  $
                  0.05Diluted
      Earnings (loss) Per Share
                  
                  $
                  (0.35
                  )
                  
                  $
                  0.28
                  
                  
                  $
                  (0.13
                  )
                  
                  $
                  0.05Weighted
      average number of common shares outstanding - basic
                  
                  
                  3,227
                  
                  
                  
                  3,226
                  
                  
                  
                  3,227
                  
                  
                  
                  3,226Dilutive
      effect of stock options
                  
                  
                  --
                  
                  
                  
                  33
                  
                  
                  
                  --
                  
                  
                  
                  2Number
      of shares used to compute earnings (loss) per share -
    diluted
                  
                  
                  3,227
                  
                  
                  
                  3,259
                  
                  
                  
                  3,227
                  
                  
                  
                  3,228





6. ACCOUNTS
RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS





Accounts
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 the Company generally does 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
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, we believe that our
allowance for doubtful accounts for the six months ended December 31, 2008 and
the twelve months ended June 30, 2008 was adequate.


-11-
 Table of Contents




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





Dec.
      31,
                        
                        
                        June
      30,2008
                        
                        
                        2008(Unaudited)Beginning
                        $
                        51
                        
                        $
                        42Additions
      charged to expenses
                        
                        5
                        
                        
                        24Recovered
                        
                        (17)
                        
                        
                        (15)Actual
      write-offs
                        
                        --
                        
                        
                        --Ending
                        $
                        39
                        
                        $
                        51





7. WARRANTY
ACCRUAL





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





Dec.
      31,
                        
                        
                        June
      30,2008
                        
                        
                        2008(Unaudited)Beginning
                        $
                        113
                        
                        $
                        211Additional
      accruals
                        
                        1
                        
                        
                        --Reversal
                        
                        --
                        
                        
                        (80)Actual
      usage
                        
                        (2)
                        
                        
                        (18)Ending
                        $
                        112
                        
                        $
                        113





8.  FASB
INTERPRETATION NO. 48





The
Company adopted the provisions of FIN 48 on July 1, 2007 and has had no material
adjustments to its liabilities for unrecognized income tax benefits since its
adoption.  The Company has not included any uncertain tax positions as
defined by FIN 48 in its currently filed federal or state income tax
returns. The Company had no change in the beginning balance of retained
earnings as a result of implementing FIN 48.  A reconciliation of the
beginning and the ending amount of unrecognized tax benefits is as
follows:





(in
      thousands)Balance
      at July 1, 2008
                        
                        (362)Additions
      based on current year tax positions
                        
                        (29)Additions
      for prior year(s) tax positions
                        
                        --Reductions
      for prior year(s) tax positions
                        
                        127Settlements
                        
                        
                        --Expiration
      of statute of limitations
                        
                        --Balance
      at December 31, 2008
                        
                        (264)


-12-
 Table of Contents





The
Company accrues penalties and interest on unrecognized tax benefits when
necessary as a component of penalties and interest expenses,
respectively.  The Company had not accrued any penalties or interest
expenses relating to unrecognized benefits at July 1, 2008 and December 31,
2008.





The major
tax jurisdictions in which the Company files income tax returns are the United
States, Singapore and Malaysia.  The statute of limitations, in
general, is open for year 2002 to 2008 for tax authorities in those
jurisdictions to audit or examine income tax returns.  The Company is
under annual review by the government of Singapore.  However, the
Company is not currently under tax examination in any other
jurisdiction.




The
Company has not recognized any income tax benefit for this position during the
current quarter in accordance with the provisions of FIN 48.





9. INVESTMENTS
IN CHONGQING, CHINA





In June
2007, Trio-Tech International Pte., Ltd. established  a
subsidiary  in Chongqing, China.  This 
newly established


subsidiary,
Trio-Tech (Chongqing) Co., Ltd., has a registered capital of RMB 20,000 (Chinese
yuan), or 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 proceeds
from the disposition of short-term deposits by Trio-Tech International Pte.,
Ltd.





On August
27, 2007, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement
with JiaSheng Property Development Co.,
Ltd. (JiaSheng hereafter) to jointly
develop a piece of property with 24.91 acres owned by JiaSheng located in No. B48 lot BeiPei district
of Chongqing City, China, which is intended for sale after the completion of
development.  Pursuant to the signed agreement, the capital to be
invested by Trio-Tech (Chongqing) Co., Ltd. was RMB 10,000, equivalent to
approximately $1,466 based on the exchange rate on December 31, 2008 published
by the Federal Reserve System.  On August 28, 2007, Trio-Tech
(Chongqing) Co., Ltd. transferred the required amount from its bank account into
a special bank account jointly monitored by both Trio-Tech (Chongqing) Co., Ltd.
and JiaSheng.  The investment was
accounted under the cost method.





On
October 22, 2007, the parties received approval from the Chinese District Zoning
Regulation Bureau to increase the square meters of the buildings specified in
the original Memorandum Agreement dated August 27, 2007 by 9,885 square
meters.  As a result, the construction costs of the proposed building
project also increased.  On November 15, 2007, Trio-Tech (Chongqing)
Co., Ltd. entered into a Supplement Agreement to the Memorandum Agreement dated
August 27, 2007 with JiaSheng.  The purpose of this
Supplement Agreement was to document another agreement reached by both parties
regarding the additional capital infusion to be committed by the respective
parties in order to finance the increase in construction costs. The Supplement
Agreement did not modify the terms and obligations of both parties specified in
the original Memorandum Agreement.  Under the terms of the Supplement
Agreement, the Company agreed to invest an additional RMB 9,000, or
approximately $1,319 based on the exchange rate as of December 31, 2008
published by the Federal Reserve System.   On December 17, 2007,
Trio-Tech (Chongqing) Co., Ltd. received a list of additional costs incurred for
this project, which were RMB 4,000 less than the estimated cost of RMB
9,000.  Accordingly, the Company only transferred RMB 5,000,
approximately $733, from its bank account into the special bank account jointly
monitored by both Trio-Tech (Chongqing) Co., Ltd. and JiaSheng.  After that extra infusion,
the equity ratio owned by the Company in that joint venture was
20%.





In the
fourth quarter of fiscal 2008 ending June 30, 2008, the investment of RMB 5,000,
approximately $733 based on theexchange
rate as of December 31, 2008 published by the Federal Reserve System,was returned to the
Company, which reduced the investment in this project to
$1,466.  After that return of investment, the equity ratio owned by
the Company in that joint venture was 15%. The Company also recorded a profit of
RMB 750, approximately $110in investment
income in the fourth quarter of fiscal 2008.


-13-
 Table of Contents




In
October 2008, the Company received a second return on investment principal of
RMB 1,988, or $291 and investment income of RMB 1,312, or $192 from
Jiasheng.  The investment income was part of the return on investment
based on the total investment amount of RMB 15,000 or $2,213.  After the second return of
investment, the equity ratio owned by the Company in that joint venture was
13%.  This investment return was used to offset the purchase of new
commercial and residential investment property from JiaSheng as discussed
below.





In
accordance with APB 18, The
Equity Method of Accounting for Investments in Common Stock, management
recorded the transaction using the cost method of accounting.





On
January 4, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum
Agreement with MaoYe Property Ltd. to purchase an office space of 827.2 square
meters on the 35th floor of a 40 story high office building located in
Chongqing, China.  The total cash purchase price was RMB 5,554,
equivalent to approximately $814 based on the exchange rate as of December 31, 2008
published by the Federal Reserve System.  Under the terms of the
agreement, the Company paid the purchase price in full on January 4,
2008.  The Company rented this property to a third party on July 13,
2008. The term of the rental agreement is five years with a monthly rental
income of RMB 39, or approximately $6, for the first three years, with an
increase of 8% in the fourth year and another 8% in the fifth year. In the six
months ended December 31, 2008, this property generated rental income of
$36.





On
October 23, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum
Agreement with JiaSheng to purchase four units of commercial property and two
units of residential property, totaling 1,391.70 square meters, at JiaSheng
Jingyun Huafu Project located at No. 17 Puyun Avenue in Chongqing, China. The
total purchase price is RMB 7,042, approximately $1,031 based on the exchange
rate as of December 31, 2008 published by the Federal Reserve
System.  In October 2008, the Company made a cash down payment of 10%
in the amount of RMB 704 or $103. In November 2008, the Company paid an
additional RMB 2,908 in cash, or $426, from internally generated funds of the
Company.  The Company and JiaSheng agreed to offset the remaining
purchase price for this commercial and residential property with the investment
returns from the No. B48 property in the BeiPei district of Chongqing City. In
addition, the Company charged Jiasheng RMB 130, or $19, in penalties for the
delay in the payment of investment principal and investment income. The penalty
was also used to offset the purchase price of the commercial and residential
property.  As of December 31, 2008, the Company paid cash in the
amount of $529, and offset amounts of $291 as the return of investment
principal, $192 as investment income and $19 as the penalties charged for this
new commercial and residential property totaling $1,031. The Company has not
received the title for this property as of the filing date of this 10Q
report, as the seller is in the process of making the payments of all taxes due
so that the documents can be received and the transfer could take
place.





On
October 23, 2008 the Company entered into a lease agreement with JiaSheng for
the six units purchased from JiaSheng pursuant to the Memorandum
Agreement.  The lease provides for a two year term with an annual
rental income of RMB 1,392, or approximately $204. The lease started on November
1, 2008.





The
following table presents the Company’s investments in China in fiscal 2008 and
2009, which includes depreciable investment property in the amount of
$1,845.  The exchange rate is based on the exchange rate on December
31, 2008 published by the Federal Reserve System.


-14-
 Table of Contents


Investment
      Date
                          
                          Investment
      Amount
                          
                          
                          Investment
      Amount(RMB)
                          
                          
                          (U.S.
      Dollars)Investment
      in property with JiaSheng
                          08/28/07
                          
                          
                          10,000
                          
                          
                          
                          1,466Investment
      in property with JiaSheng
                          12/17/07
                          
                          
                          5,000
                          
                          
                          
                          733Purchase
      of investment property
                          01/04/08
                          
                          
                          5,554
                          
                          
                          
                          814Return
      on investment in property with JiaSheng
                          06/26/08
                          
                          
                          (5,000
                          )
                          
                          
                          (733
                          )Return
      on investment in property with JiaSheng
                          10/23/08
                          
                          
                          (1,988
                          )
                          
                          
                          (291
                          )Purchase
      of investment property
                          10/23/08
                          
                          
                          7,042
                          
                          
                          
                          1,031Total
      investments in China
                          
                          
                          RMB
      20,608
                          
                          
                          $
                          3,020





10.
            BUSINESS
      SEGMENTS





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





The
      allocation of the cost of equipment, the current year investment in new
      equipment and depreciation expense were made based on the primary purpose
      for which the equipment was
acquired.





All
      inter-segment sales were sales between the manufacturing segments at
      different geographic locations, or to the distribution
      segment.  Total inter-segment sales were $143 and $92 for the
      six months ended December 31, 2008 and 2007,
      respectively.  Corporate assets mainly consisted of cash and
      prepaid expenses.  Corporate expenses mainly consisted of
      salaries, insurance, professional expenses and directors’
      fees.





The
      following segment information is
unaudited:





Business
      Segment Information:SixMonths
                  
                  
                  
                  
                  Operating
                  
                  
                  
                  
                  
                  Depr.Ended
                  
                  Net
                  
                  
                  Income
                  
                  
                  Total
                  
                  
                  and
                  
                  
                  CapitalDec.
      31,
                  
                  Sales
                  
                  
                  (loss)
                  
                  
                  Assets
                  
                  
                  Amort.
                  
                  
                  ExpendituresManufacturing
                  2008
                  
                  $
                  5,800
                  
                  
                  $
                  (586
                  )
                  
                  $
                  1,400
                  
                  
                  $
                  117
                  
                  
                  $
                  952007
                  
                  $
                  13,481
                  
                  
                  $
                  773
                  
                  
                  $
                  4,086
                  
                  
                  $
                  107
                  
                  
                  $
                  215Testing
      Services
                  2008
                  
                  
                  5,826
                  
                  
                  
                  (811
                  )
                  
                  
                  24,949
                  
                  
                  
                  949
                  
                  
                  
                  9462007
                  
                  
                  11,213
                  
                  
                  
                  1,742
                  
                  
                  
                  31,388
                  
                  
                  
                  1,411
                  
                  
                  
                  1,267Distribution
                  2008
                  
                  
                  166
                  
                  
                  
                  37
                  
                  
                  
                  49
                  
                  
                  
                  2
                  
                  
                  
                  22007
                  
                  
                  227
                  
                  
                  
                  (83
                  )
                  
                  
                  566
                  
                  
                  
                  9
                  
                  
                  
                  9Corporate
      and
                  2008
                  
                  
                  --
                  
                  
                  
                  52
                  
                  
                  
                  61
                  
                  
                  
                  --
                  
                  
                  
                  --Unallocated
                  2007
                  
                  
                  --
                  
                  
                  
                  (535
                  )
                  
                  
                  368
                  
                  
                  
                  --
                  
                  
                  
                  2Investments
      in
                  2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  3,020
                  
                  
                  
                  6
                  
                  
                  
                  1,031Chongqing,
      China
                  2007
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  2,057
                  *
                  
                  
                  1
                  
                  
                  
                  --Total
      Company
                  2008
                  
                  $
                  11,792
                  
                  
                  $
                  (1,308
                  )
                  
                  $
                  29,479
                  
                  
                  $
                  1,074
                  
                  
                  $
                  2,0742007
                  
                  $
                  24,921
                  
                  
                  $
                  1,897
                  
                  
                  $
                  38,465
                  
                  
                  $
                  1,528
                  
                  
                  $
                  1,493


-15-
 Table of Contents




Business
      Segment Information:Quarter
                
                
                
                
                Operating
                
                
                
                
                
                Depr.Ended
                
                Net
                
                
                Income
                
                
                Total
                
                
                and
                
                
                CapitalDec.
      31,
                
                Sales
                
                
                (loss)
                
                
                Assets
                
                
                Amort.
                
                
                ExpendituresManufacturing
                2008
                
                $
                2,754
                
                
                $
                (142
                )
                
                $
                1,400
                
                
                $
                57
                
                
                $
                112007
                
                $
                7,085
                
                
                $
                466
                
                
                $
                4,086
                
                
                $
                67
                
                
                $
                182Testing
      Services
                2008
                
                
                2,728
                
                
                
                (589
                )
                
                
                24,949
                
                
                
                467
                
                
                
                3712007
                
                
                5,670
                
                
                
                680
                
                
                
                31,388
                
                
                
                663
                
                
                
                757Distribution
                2008
                
                
                80
                
                
                
                6
                
                
                
                49
                
                
                
                1
                
                
                
                22007
                
                
                116
                
                
                
                (61
                )
                
                
                566
                
                
                
                (8
                )
                
                
                9Corporate
      and
                2008
                
                
                --
                
                
                
                104
                
                
                
                61
                
                
                
                --
                
                
                
                --Unallocated
                2007
                
                
                --
                
                
                
                (467
                )
                
                
                368
                
                
                
                --
                
                
                
                --Investments
      in
                2008
                
                
                --
                
                
                
                --
                
                
                
                3,020
                
                
                
                3
                
                
                
                1,031Chongqing,
      China
                2007
                
                
                --
                
                
                
                --
                
                
                
                2,057
                *
                
                
                1
                
                
                
                --Total
      Company
                2008
                
                $
                5,562
                
                
                $
                (621
                )
                
                $
                29,479
                
                
                $
                528
                
                
                $
                1,4152007
                
                $
                12,871
                
                
                $
                618
                
                
                $
                38,465
                
                
                $
                723
                
                
                $
                948




* This
amount relates to the investment in property with JiaSheng





Geographic
      Area Information:Elimin-Quarter
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                ationsEnded
                
                United
                
                
                
                
                
                Other
                
                
                
                
                
                
                
                
                
                
                
                and
                
                
                TotalDec.
      31
                
                States
                
                
                China
                
                
                Countries
                
                
                Singapore
                
                
                Thailand
                
                
                Malaysia
                
                
                Other
                
                
                CompanyNet
      Sales to
                2008
                
                $
                1,071
                
                
                $
                79
                
                
                $
                88
                
                
                $
                1,451
                
                
                $
                113
                
                
                $
                2,892
                
                
                $
                (132
                )
                
                $
                5,562Customers
                2007
                
                $
                1,584
                
                
                $
                553
                
                
                $
                529
                
                
                $
                7,140
                
                
                $
                559
                
                
                $
                2,539
                
                
                $
                (33
                )
                
                $
                12,871Operating
                2008
                
                
                (23
                )
                
                
                (12
                )
                
                
                (6
                )
                
                
                (223
                )
                
                
                (17
                )
                
                
                (444
                )
                
                
                104
                
                
                
                (621
                )Income
                2007
                
                
                102
                
                
                
                45
                
                
                
                37
                
                
                
                614
                
                
                
                45
                
                
                
                242
                
                
                
                (467
                )
                
                
                618Long-lived
                2008
                
                
                7
                
                
                
                231
                
                
                
                --
                
                
                
                1,468
                
                
                
                621
                
                
                
                4,997
                
                
                
                (40
                )
                
                
                7,284Assets
                2007
                
                
                4
                
                
                
                1,019
                
                
                
                --
                
                
                
                2,456
                
                
                
                858
                
                
                
                3,536
                
                
                
                (40
                )
                
                
                7,833





-16-
 Table of Contents


Geographic
      Area Information:Six
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                Elimin-Months
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                ationsEnded
                
                United
                
                
                
                
                
                Other
                
                
                
                
                
                
                
                
                
                
                
                and
                
                
                TotalDec.
      31
                
                States
                
                
                China
                
                
                Countries
                
                
                Singapore
                
                
                Thailand
                
                
                Malaysia
                
                
                Other
                
                
                CompanyNet
      Sales to
                2008
                
                $
                3,403
                
                
                $
                369
                
                
                $
                467
                
                
                $
                2,752
                
                
                $
                242
                
                
                $
                4,702
                
                
                $
                (143
                )
                
                $
                11,792Customers
                2007
                
                $
                3,044
                
                
                $
                772
                
                
                $
                917
                
                
                $
                12,712
                
                
                $
                1,073
                
                
                $
                6,495
                
                
                $
                (92
                )
                
                $
                24,921Operating
                2008
                
                
                (265
                )
                
                
                (41
                )
                
                
                (47
                )
                
                
                (353
                )
                
                
                (30
                )
                
                
                (623
                )
                
                
                51
                
                
                
                (1,308
                )Income
                2007
                
                
                225
                
                
                
                71
                
                
                
                78
                
                
                
                1,231
                
                
                
                107
                
                
                
                720
                
                
                
                (535
                )
                
                
                1,897Long-lived
                2008
                
                
                7
                
                
                
                231
                
                
                
                --
                
                
                
                1,468
                
                
                
                621
                
                
                
                4,997
                
                
                
                (40
                )
                
                
                7,284Assets
                2007
                
                
                4
                
                
                
                1,019
                
                
                
                --
                
                
                
                2,456
                
                
                
                858
                
                
                
                3,536
                
                
                
                (40
                )
                
                
                7,833




11.          FAIR VALUE
MEASUREMENTS





In
September 2006, the Financial Accounting Standards Board issued SFAS 157,Fair Value Measurements.SFAS
157 provides enhanced guidance for using fair value to measure assets and
liabilities.  Under the standard, fair value refers to the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants in the market in which the reporting
entity transacts its business.  SFAS 157 clarifies the principle that
fair value should be based on the assumptions market participants would use when
pricing the asset or liability.  In support of this principle,
SFAS 157 establishes a fair value hierarchy that prioritizes the information
used to develop those assumptions.  Under the standard, fair value
measurements would be separately disclosed by level within the fair value
hierarchy.  Effective July 1, 2008, the Company adopted the provisions
of SFAS 157 as it relates to financial assets and financial liabilities. The
adoption of SFAS 157 did not have a material effect on our results of
operations, financial position or liquidity.





The
following table provides a summary of the assets and liabilities that are
measured at fair value on a recurring basis as of December 31,
2008:


Basis of Fair Value MeasurementsAs of
      December 31,
                                  
                                  Quoted Prices
      in Active Markets for Identical Assets
                                  
                                  Significant
      Other Observable Inputs
                                  
                                  Significant
      Unobservable Inputs2008
                                  
                                  Level 1
                                  
                                  Level 2
                                  
                                  Level 3AssetsShort-term
      deposits
                                  
                                  $
                                  5,553
                                  
                                  
                                  $
                                  5,553
                                  
                                  
                                  $
                                  --
                                  
                                  
                                  $
                                  --Total
      assets measured at fair value
                                  
                                  $
                                  5,553
                                  
                                  
                                  $
                                  5,553
                                  
                                  
                                  $
                                  --
                                  
                                  
                                  $
                                  --Percentage
      of total assets
                                  
                                  
                                  19
                                  %
                                  
                                  
                                  19
                                  %
                                  
                                  
                                  --
                                  
                                  
                                  
                                  --
  -17-
 Table of Contents


As noted
above, the fair value of the Company’s short-term deposits is determined using
quoted market prices in active markets. Since the Company’s short-term deposits
are fixed rate deposits, there is an active, readily tradable market value based
on quoted prices. We based our estimates on such prices (Level 1 pricing) as of
December 31, 2008, or the measurement date. Active markets are those in which
transactions occur in significant frequency and volume to provide pricing
information on an on-going basis. Since valuations are based on quoted
prices that are readily and regularly available in an active market, the
valuation of these short-term deposits does not entail a significant degree of
judgment.





12. MINORITY
INTEREST




Minority interest represents the
minority stockholders’ proportionate share of 45% of the equity of Trio-Tech
Malaysia.




13.
LOAN COVENANT
VIOLATION





As the
Company suffered a loss in the first two quarters of fiscal 2009, the Singapore
operations did not fulfill one of their loan  covenants which requires
the Company to maintain  the debt to EBITDA ratio of no more than 2.5
times at all times during the term of the loan.  As a result, the
Company has classified all long-term debt as current
liabilities.  Management has communicated to the bank and requested a
waiver of this particular loan covenant.  As of the filing date of
this 10Q report, the bank is still in the process of reviewing the Company’s
request.





14.
IMPAIRMENT LOSS





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





For the
six months ended December 31, 2008, the Company recorded an impairment loss of
$520, or $0.16 per diluted share, based on its examination of future
undiscounted cash flows. Of this amount, an impairment loss of $296 was related
to the fixed assets located in our Shanghai operation and the remaining $224 was
for certain testing equipment located in our Suzhou operation in China. We
believe that due to the change in demand for certain burn-in testing services,
the negative impact of the international economic financial crisis and the
semiconductor industry recession, our existing burn-in testing facilities in the
Shanghai operation became obsolete. There was little business activity in the
Shanghai operations during the six months ended December 31, 2008, and there
were also no secured orders or backlogs for subsequent periods. Therefore, as we
expect no future cash flows from those assets based on our best estimate, the
carrying value of these assets was written down to zero and the impairment loss
was recorded. Business in the Suzhou operation began to slow down in the fourth
quarter of fiscal 2008, and suffered losses in the last three quarters. The
operation is currently only providing line support, maintenance and training
service for one customer.  Based on our best estimate, there will be
no future cash flows from certain identified testing equipment. Therefore, the
carrying value of these assets was written down to zero and an impairment loss
was recorded.


-18-
 Table of Contents




15. SUBSEQUENT
EVENTS





On
January 8, 2009, Trio-Tech (Malaysia) Sdn. Bhd. entered into a Sales and
Purchase Agreement with TS Matrix Properties Sdn. Bhd. (“TSM”) whereby the
Company agreed to purchase from TSM real property totaling 7,312 square meters
inSelangor
Darul Ehsan, Malaysia. This property is currently leased by the Company for its
testing operations.





The total
cash purchase price to be paid by the Company under the Sales and Purchase
Agreement is RM 12,450 (Malaysian ringgit), or approximately $3,608 based on the
exchange rate as December 31, 2008 published by the Federal Reserve System.
Pursuant to the Sales and Purchase Agreement, the Company paid TSM a 10%
refundable down payment of RM 1,245, or approximately $361 through internally
generated funds.  The consummation of the transaction contemplated by
the Sale and Purchase Agreement is subject to the satisfaction of certain
conditions.  The balance of the purchase price is expected to be paid
upon completion of certain conditions through internally generated funds and a
bank loan of RM 9,625, or approximately $2,790. The Company is still in the
process of securing a bank loan from a local bank in Malaysia.





16. RELATED
PARTY TRANSACTIONS





During
the second quarter of fiscal 2009, the Company purchased four units of
commercial property and two units of residential property in Chongqing China
from JiaSheng.  JiaSheng and the Company are parties to the Agreement
entered into on August 27, 2007 and the Supplement Agreement entered into on
November 15, 2007 relating to an investment in the No.B48 lot in the BeiPei
district of Chongqing, China as discussed in Note9to the
unaudited financial statements included in thisForm 10-Q.The purchase
price was approximately $1,031.  This purchase was made on terms no
less favorable to the Company than it could obtain in arms length
transactions.


-19-
 Table of Contents





TRIO-TECH
INTERNATIONAL AND SUBSIDIARIES


ITEM2. 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





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





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





In the
third quarter of fiscal 2008, one of our major customers ceased their advanced
burn-in testing service contract with us due to one of their product lines
reaching the end of its life cycle earlier than expected.The net sales in the
testing segment decreased by $5,387 to $5,826 for the six months ended December
31, 2008 as the result of the loss of
revenue from this major customer.  Management took immediate
action to reduce expenses in an effort to match future cash flows and is in the
process of developing new customer relationships in China and Malaysia and
exploring new business opportunities to offset the lost testing revenue from
this contract.





Recently, there has been
widespread concern over the instability of the financial markets and their
influence on the global economy. We believe that, as a result of the credit
market crisis and other macro-economic challenges currently affecting the global
economy, the orders from our customers in our testing operations in China was
seriously reduced.During the six months ended December 31,
2008, there was minimal business activity in our Shanghai testing operations,
and there was also no secured orders or backlogs for subsequent
periods.  Therefore, we expect no future cash flows from
the assets in the Shanghai operation.The Company recorded an
impairment loss of $296 on these assets based on its examination of future
undiscounted cash flows in the second quarter of fiscal 2009. In addition,
business in the Suzhou operation also began to slow down in the fourth quarter
of fiscal 2008 and has suffered losses in the last three quarters. The operation
is currently only providing line support, maintenance and training service for
one customer.  Based on our estimated future undiscounted cash flows,
an impairment loss of $224 was recorded for some of the testing equipment during
the second quarter of fiscal 2009.


-20-
 Table of Contents




In the
second quarter of fiscal year 2009, we also recorded lease termination expenses
of $164 related to the future minimum rent of two idle plants in the
Singapore operation. The noncancelable lease term for these two plants expires
in March 2011 and April 2011. As both of these plants do not have any economic
benefit to the Company, management does not currently have further plans for
these units, and the ability for the Company to sublease these units does not
seem likely, according to SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities,the entire future minimum rent up to the end
of the lease period was accrued in the second quarter of fiscal 2009.  This
provision for future rental expense increased our cost of goods sold by
$164.





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





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





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





Our
distribution segment operates primarily in Southeast Asia.  This
segment markets and supports distribution of our own manufactured equipment in
addition to distributing complementary products supplied by other manufacturers
that are used by our customers and other semiconductor and electronics
manufacturers.  We expanded the distribution business to include a
strategic business unit mainly to serve as a distributor of electronic
components to customers.  It is the strategy of
management to focus on the sales of our own manufactured products. We believe
this will help us to reduce our exposure to multiple risks
arising from being a mere distributor of manufactured products from
others.





In June
2007, Trio-Tech International Pte., Ltd. established a subsidiary in Chongqing,
China.  This subsidiary, Trio-Tech (Chongqing) Co., Ltd., has
registered capital of RMB 20,000 (Chinese yuan), or approximately $2,600, and is
wholly owned 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) to jointly develop a piece of
property with 24.91 acres owned by JiaSheng
located in Chongqing City, China, which is intended for sale after the
completion of development.  In fiscal 2008, the Company invested an
aggregate of RMB 15,000, equivalent to approximately $2,199 based on the
exchange rate on December 31, 2008 published by the Federal Reserve System on
this project.  In the fourth quarter of 2008, the investment of RMB
5,000, or approximately $733 was returned to the Company, which reduced the
investment in this project to $1,466.  The Company also recorded a
profit of RMB 750, approximately $110 in investment income in the fourth quarter
of 2008.  In October 2008, the Company received a second return on
investment principal of RMB 1,988, or $291 and investment income of RMB 1,312,
or $192 from JiaSheng.   In accordance with APB 18, The Equity Method of Accounting for
Investments in Common Stock, management recorded the transaction using
the cost method of accounting.


-21-
 Table of Contents




On
January 4, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum
Agreement with MaoYe Property Ltd. to purchase office space of 827.2 square
meters on the 35th floor of a 40 story high office building located in
Chongqing, China.  The total cash purchase price was RMB 5,554
(Chinese yuan), equivalent to approximately $814 based on the exchange rate as
of December 31, 2008 published by the Federal Reserve System.  The
Company rented this property out to a third party on July 13,
2008.  The term of the rental agreement is five years with a monthly
rental income of RMB 39, or approximately $6 for the first three years, with an
increase of 8% in the fourth year and another 8% in the fifth year. During the
six months ended December 31, 2008, this property generated a rental income of
$36.





On
October 23, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum
Agreement with JiaSheng to purchase four units of commercial property and two
units of residential property, totaling 1,391.70 square meters located in
Chongqing, China. The total purchase price was RMB 7,042, equivalent to
approximately $1,031 based on the exchange rate as of December 31, 2008
published by the Federal Reserve System.  In October 2008, the Company made
a cash down payment of 10% in the amount of RMB 704, or $103.  In
November 2008, the Company paid an additional RMB 2,908 in cash, or $426, from
internally generated funds of the Company.  The remaining balance was
offset by the investment return the Company earned related to the No.
B48 property.  The Company and JiaSheng agreed to offset the
investment return from the No. B48 property in the BeiPei district of Chongqing
City against the purchase price of this commercial and residential
property.  In addition, the Company charged JiaSheng RMB130, or $19,
as penalties for the delay in the payment of investment principal and investment
income. The penalty was also used to also offset the purchase price of the
commercial and residential property.  As of December 31, 2008, the
Company paid cash in the amount of $529, and offset amounts of $291 as the
return of investment principal, $192 as investment income and $19 as the
penalties charged for this new commercial and residential property totaling
$1,031.





On
October 23, 2008, the Company entered into a lease agreement with JiaSheng for
the six units purchased from JiaSheng pursuant to the Memorandum
Agreement.  The lease provides for a two year term with an annual
rental income of RMB 1,392, or approximately $204. The lease started on November
1, 2008.





The
investment income generated by Trio-Tech (Chongqing) Co., Ltd. during the six
months ended December 31, 2008 was included in other income in the Consolidated
Statements of Operations and Comprehensive Income.  There was no
investment income during the six months ended December 31, 2007.





In the
context of a challenging economic environment, in order to achieve our goal of
attaining a lower breakeven point, we undertook several cost reduction measures.
Since the first quarter of fiscal 2009 ending September 30, 2008, we reduced our
headcount by approximately 48 employees.  Also, on February 27, 2008,
our Chief Executive Office, Chief Financial Officer and directors voluntarily
decreased their base salary to 50% of the base salary agreed to in July
2007.  In the second quarter of 2009 ending December 31, 2008, we
implemented four-day work weeks for all the employees in the Singapore
operation, which reduced our employee compensation by approximately 20%. These
cost cutting actions reduced our general and administrative expenses in the
first six months ended December 31, 2008.


-22-
 Table of Contents




Second Quarter Fiscal 2009
Highlights





·
            Total
      revenue decreased 56.8% to $5,562 for the second quarter of fiscal
      2009, compared with revenue of $12,871 for the second quarter of fiscal
      2008.


·
            Testing
      segment revenue decreased by $2,942, or 51.9%, to $2,728 compared with
      $5,670 for the second quarter of fiscal
2008.


·
            Manufacturing
      segment revenue decreased by $4,331, or 61.1%, to $2,754 compared with
      $7,085 for the second quarter of fiscal
2008.


·
            Distribution
      segment revenue decreased by $36, or 31.0%, to $80 compared with $116 for
      the second quarter of fiscal 2008.


·
            Loss
      from operations increased by $1,239, to $621 compared with an income from
      operations of $618 for the second quarter of fiscal
  2008.


·
            Gross
      margins decreased by 1.0% to 23.8% from 24.8% for the second quarter of
      fiscal 2008.


·
            Selling
      expenses decreased by $70, or 45.8%, to $83 compared with
      $153  for the second quarter of fiscal
  2008.


·
            General
      and administrative expenses decreased by $1,065, or 44.6%, to $1,324
      compared with $2,389 for the second quarter of fiscal
  2008.


·
            Impairment
      loss increased by $504 to $520, compared with $16 for the second quarter
      of fiscal 2008.


·
            Net
      loss increased by $591, or 358.2%, to $426, compared to a net income of
      $165 for the second quarter of fiscal
2008.


·
            Net
      cash flow provided by operating activities increased by $1,199, or 164.9%,
      to $472, compared to a cash outflow of $727 in the six months ended
      December 31, 2008.





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





Subsequent
Events





On
January 8, 2009, Trio-Tech (Malaysia) Sdn. Bhd. entered into a Sales and
Purchase Agreement with TS Matrix Properties Sdn. Bhd. (“TSM”) whereby the
Company agreed to purchase from TSM real property totaling 7,312 square meters
inSelangor
Darul Ehsan, Malaysia. This property is currently leased by the Company for its
testing operations.





The total
cash purchase price to be paid by the Company under the Sales and Purchase
Agreement is RM 12,450 (Malaysian ringgit), or approximately $3,608 based on the
exchange rate as December 31, 2008 published by the Federal Reserve System.
Pursuant to the Sales and Purchase Agreement, the Company paid TSM a 10%
refundable cash down payment of RM 1,245, or approximately $361 through
internally generated funds.  The consummation of the transaction
contemplated by the Sale and Purchase Agreement is subject to the satisfaction
of certain conditions.  The balance of the purchase price is expected
to be paid upon completion of certain conditions through internally generated
funds and a bank loan of RM 9,625, or approximately $2,790. The Company is still
in the process of securing a bank loan from a local bank in
Malaysia.


-23-
 Table of Contents




Related
Party Transaction





During
the second quarter of fiscal 2009, the Company purchased four units of
commercial property and two units of residential property in Chongqing China
from JiaSheng.  JiaSheng and the Company are parties to the Agreement
entered into on August 27, 2007 and the Supplement Agreement entered into on
November 15, 2007 relating to an investment in the NO.B48 lot in the BeiPei
district of Chongqing, China.The purchase
price was approximately $1,031.  This purchase was made on terms no less
favorable to the Company than it could obtain in arms length transactions.(See Note 9to the unaudited financial
statements included in this Form
10-Q)




Results of Operations and
Business Outlook





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





Revenue
      ComponentsSix
      Months Ended
                        December
      31,
                      
                      Three
      Months Ended December 31,2008
                      
                      
                      
                      2007
                      
                      
                      
                      2008
                      
                      
                      
                      2007Net
      Sales:Manufacturing
                      49.2
                      %
                      
                      
                      54.1
                      %
                      
                      
                      49.5
                      %
                      
                      
                      55.0
                      %Testing
                      49.4
                      %
                      
                      
                      45.0
                      %
                      
                      
                      49.1
                      %
                      
                      
                      44.1
                      %Distribution
                      1.4
                      %
                      
                      
                      0.9
                      %
                      
                      
                      1.4
                      %
                      
                      
                      0.9
                      %Total
                      100.0
                      %
                      
                      
                      100.0
                      %
                      
                      
                      100.0
                      %
                      
                      
                      100.0
                      %





Net sales
for the six months and three months ended December 31, 2008 were $11,792 and
$5,562, respectively, a decrease of $13,129 and $7,309, respectively, when
compared to net sales for the same periods of the prior year.  As a
percentage, net sales decreased by 52.7% for the six months and decreased by
56.8% for the three months ended December 31, 2008, respectively, when compared
to total net sales for the same periods of the prior year.





Net sales
into and within China and the Southeast Asia regions and other countries (except
sales into and within United States) decreased by $13,488 to $8,389 and by
$6,796 to $4,491 for the six months and three months ended December 31, 2008,
respectively, compared to the same period of the prior year.  This
decrease was primarily due to a drop in sales in our Singapore and China
operations as the result of the loss of a significant contract with
one of our major customers and instability of the financial markets
and their influence on the global economy. Net sales into and within the United
States were $3,403 and $1,071 for the six months and three months ended December
31, 2008, respectively, an increase of $359 and a decrease of $513,
respectively, when compared to the same periods of the prior year.





The
decrease in net sales in the six months ended December 31, 2008 and in the
second quarter of fiscal 2009 can be discussed within three segments as
follows:





Manufacturing
Segment





Net sales in the manufacturing segment
as a percentage of total net sales were 49.2% and 49.5% for the six months and
three months ended December 31, 2008, respectively, a decrease of 4.9% and 5.5%
of total net sales, respectively, when compared to the same periods of the prior
year.  The absolute amount of net sales were $5,800 and $2,754 for the
six months and three months ended December 31, 2008, respectively, a decrease of
$7,681 and $4,331, respectively, when compared to the same periods of the prior
year.  The decrease in revenue generated by the manufacturing segment
was due to the fact that fewer orders were placed by one of our major customers,
which was the result of slowing in that customer’s product line and equipment
capacity.We
believe that the loss of
orders from our major customer will continue to have a negative impact on our
revenue in the future if we are unable to compensate for the loss of this source
of revenue.


-24-
 Table of Contents




Testing
Segment





Net sales
in the testing segment as a percentage of total net sales were 49.4% and 49.1%
for the six months and three months ended December 31, 2008, respectively, an
increase of 4.4% and 5.0%, respectively, of total net sales when compared to the
same periods of the prior year.  The absolute amount of net sales in
the testing segment decreased by $5,387 to $5,826 and by $2,942 to $2,728 for
the six months and three months ended December 31, 2008, respectively, compared
to the same periods of fiscal 2008.  This decrease in revenue was due
to the loss of a significant contract with
one of our major customers due to one of
its product lines reaching the end of its
life cycle earlier than expected, rendering our testing services in the
Singapore, Thailand and China operations for that product no longer necessary.
Furthermore, we saw a slowdown in the electronics manufacturing industries in
China, which in turn reduced our customers’ demand in the testing services in
China and Southeast Asia.





Distribution
Segment





Net sales
in the distribution segment accounted for 1.4% of total net sales for the six
months and three months ended December 31, 2008, respectively, an increase of
0.5%  compared to the same periods in fiscal 2008.  The
absolute amount of net sales decreased by $61 to $166 and by $36 to $80 for the
six months and three months ended December 31, 2008, respectively, compared to
the same periods in fiscal 2008.  The drop in revenue was due to lower
demand in the current market for back-end products such as Vibration equipment
and chambers and, we believe, a saturation of equipment and electronic
components in the current market.  Product volume for the distribution
segment depends on sales activities such as placing orders, queries on products
and backlog.  Equipment and electronic component sales are very
competitive, as the products are prevalent in the market.





Uncertainties
and Remedies





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


-25-
 Table of Contents




Comparison
of the Second Quarters Ended December 31, 2008 and 2007





The
following table sets forth certain consolidated statements of income data as a
percentage of net sales for the second quarters of fiscal 2009 and 2008,
respectively:


Three
      Months Ended December 31,2008
                      
                      
                      2007Net
      Sales
                      
                      
                      100
                      %
                      
                      
                      100
                      %Cost
      of sales
                      
                      
                      76.2
                      %
                      
                      
                      75.2
                      %Gross
      Margin
                      
                      
                      23.8
                      %
                      
                      
                      24.8
                      %Operating ExpensesGeneral
      and administrative
                      
                      
                      23.8
                      %
                      
                      
                      18.6
                      %Selling
                      
                      
                      1.5
                      %
                      
                      
                      1.2
                      %Research
      and development
                      
                      
                      0.2
                      %
                      
                      
                      0.1
                      %Impairment
      loss
                      
                      
                      9.3
                      %
                      
                      
                      0.1
                      %Gain
      on disposal of PP&E
                      
                      
                      0.1
                      %
                      
                      
                      --Total
      operating expenses
                      
                      
                      34.9
                      %
                      
                      
                      20.0
                      %Income
      (loss) from Operations
                      
                      
                      (11.1
                      %)
                      
                      
                      4.8
                      %





Overall
Gross Margin





Overall
gross margin as a percentage of revenue decreased by 1.0% for the three months
ended December 31, 2008, from 24.8% in the second quarter of fiscal 2008 to
23.8%, due primarily to a decrease in gross margin in the testing segment, which
was offset by  the improvement in gross margin in the manufacturing
segment and distribution segments.  In terms of dollar value, the
overall gross margin decreased by $1,874 for the three months ended December 31,
2008, from $3,195 to $1,321, compared to the same quarter of fiscal 2008
resulting from the loss of a significant contract with one of our major
customers, as noted above.





Gross
margin as a percentage of revenue in the manufacturing segment increased by 3.6%
for the three months ended December 31, 2008, from 17.4% in the second quarter
of fiscal 2008 to 21.0% in the second quarter of fiscal 2009.  The
increase in gross margin was due to a decrease in sales of lower margin burn-in
systems and pass-through products in the second quarter of fiscal 2009 compared
with the same period of fiscal 2008. In absolute amounts, gross profits
decreased by $654 to $579 for the three months ended December 31, 2008, from
$1,233 for the three months ended December 31, 2007.





Gross
margin as a percentage of revenue in the testing segment decreased by 7.8% for
the three months ended December 31, 2008, from 34.1% to 26.3%, compared to the
same quarter of fiscal 2008.  In terms of dollar amount, gross margin
in the testing segment in the second quarter of fiscal 2009 was $717, a decrease of $1,216, or 62.9%, compared to
$1,933 in the same period of fiscal 2008.  The decrease in the gross
margin was primarily due to a decrease in testing volume coupled with a decrease
in sales prices in the second quarter of fiscal year 2009. Additionally, because significant portions of our
operating costs are fixed in the testing segment, as service demands and factory
utilization decrease, the fixed costs are
spread over the decreased output, which deteriorates profit margin. In addition,
our customers changed their demands and specifications for burn-in hours, which
resulted in a lower average unit selling price for burn-in services.


-26-
 Table of Contents




Gross
margin as a percentage of revenue in the distribution segment improved by 6.3%
to 31.3% for the three months ended December 31, 2008, from 25.0% for the three
months ended December 31, 2007.  The improvement in the gross profit
as a percentage of sales was due to an increase in average sales prices in the
second quarter of fiscal 2009 compared to the same quarter of fiscal 2008. In
terms of dollar amount, gross margin in the distribution segment in the second
quarter of fiscal 2009 was $25, a decrease
of $4, or 13.7%, compared to $29 in the same period of fiscal
2008.  The gross margin of the distribution segment is not only
affected by the market price of our products, but also our product mix, which
changes frequently as a result of changes in market demand.





Operating
Expenses





Operating
expenses for the second quarters of fiscal 2009 and 2008 were as
follows:





Three
      Months Ended December 31,(In
      Thousands, unaudited)
                  
                  2008
                  
                  
                  2007General
      and administrative
                  
                  $
                  1,324
                  
                  
                  $
                  2,389Selling
                  
                  $
                  83
                  
                  
                  $
                  153Research
      and development
                  
                  $
                  10
                  
                  
                  $
                  19Impairment
      loss
                  
                  $
                  520
                  
                  
                  $
                  16(Gain)/Loss
      on disposal of PP&E
                  
                  $
                  5
                  
                  
                  $
                  --Total
                  
                  $
                  1,942
                  
                  
                  $
                  2,577





General
and administrative expenses decreased by $1,065, or 44.6%, from $2,389 to $1,324
for the three months ended December 31, 2008 compared to the same period of last
fiscal year.  The decrease was primarily attributable to a decrease in
payroll expenses, a decrease in officer and executive compensation in the second
quarter of fiscal 2009, and the reversal of employee bonuses payableas discussed in Note 1 to the unaudited
financial statements included in this Form 10-Q.  Since
the third quarter of fiscal 2008 ending March 31, 2008, we undertook several
cost reduction actions. We reduced our headcount by approximately 48 employees
since September 30, 2008.  In the second quarter of 2009, we
implemented four-day work weeks for all the employees in the Singapore
operation, which reduced our employee compensation by approximately 25%. On
February 27, 2008, in view of anticipated reductions in service revenue for
fiscal 2008, our Chief Executive Officer, Chief Financial Officer and directors
voluntarily decreased their base salary to 50% of the base salary agreed to in
July 2007. As a result, our compensation for the officers and executives
decreased by $99 in the second quarter of fiscal 2009.





Selling
expenses decreased by $70, or 45.8%, for the three months ended December 31,
2008, from $153 to $83 compared to the same quarter of fiscal 2008, mainly due
to a decrease in employee headcount and a decrease in commission expenses as a
result of fewer commissionable sales in the distribution segment.





In the
second quarter of fiscal 2009, research and development expenses were $10
compared to $19 for the second quarter of fiscal 2008. The decrease was
primarily due to a decrease in full time employee headcount in the U.S.
operation.





The impairment loss
increased by $504 for the three months ended December 31, 2008, from $16 to $520
compared to the three months ended December 31, 2007.  The impairment
loss of $520 consisted of a loss of$224 for certain testing equipment
located in our Suzhou operation and $296 related to the fixed assets located in
our Shanghai operation in China.We
believe that due to the change in demand for certain burn-in testing services
and the negative impact of international economic financial crisis and the
semiconductor industry recession, our existing burn-in testing facilities in the
Suzhou and Shanghai operations became obsolete. There was little business
activity in these operations during the six months ended December 31, 2008, and
there was also no secured orders or backlogs for subsequent
periods.  Based on management’s estimate, there will be little future cash flows from
those assets, the carrying value of these assets was written down to zero and
the impairment loss was recorded.The impairment loss of $16
during the second quarter of fiscal 2008 consisted of a loss of $11
related to
the disposal of certain fixed assets in our China operation in Suzhou, while $5
was related to the asset held for sale in Malaysia.


-27-
 Table of Contents




Loss on
disposal of property, plant and equipment was $5 for the second quarter of
fiscal year 2009, which mainly resulted from the disposal of certain idle fixed
assets at a loss in theSingapore
operation.We had
no such loss for the same period of fiscal year 2008.





(Loss)
Income from Operations





Loss from
operations increased by $1,239, or 200.5%, from an income of $618 for the three
months ended December 31, 2007 to a loss of $621 for the three months ended
December 31, 2008, mainly due to a decrease in revenue, which was offset by a
decrease in operating expenses, as previously discussed.





Interest
Expense





Interest
expense for the second quarters of fiscal 2009 and 2008 was as
follows:


Three
      Months Ended December 31,(In
      Thousands, unaudited)
                  
                  2008
                  
                  
                  2007Interest
      expense
                  
                  $
                  46
                  
                  
                  $
                  79





Interest
expenses decreased by $33 for the three months ended December 31, 2008, from $79
to $46, primarily due to a decrease in the loan payable and capital lease
obligation. We are trying to keep our debt at a minimum in order to save
financing costs. Our credit rating provides us with ready and adequate access to
funds in global markets.  As of December 31, 2008, the Company had an
unused line of credit of $15,089.





Other
(Expenses) / Income





Other
(expenses)/ income for the second quarters of fiscal 2009 and 2008 was as
follows:


Three
      Months Ended December 31,(In
      Thousands, unaudited)
                  
                  2008
                  
                  
                  2007Other
      (expenses) income
                  
                  $
                  355
                  
                  
                  $
                  (176
                  )





Other
income increased by $531 to $355 for the three months ended December 31, 2008
from an expense of $176 in the same quarter of fiscal 2008, primarily due to an
increase in rental income, currency transaction gain and investment
income.  Currency transaction gain increased by $307 for the three
months ended December 31, 2008, from an exchange loss of $212 to an exchange
gain of $95, compared to the same quarter of fiscal 2008.  This was
attributable to the strengthening of the U.S. dollar against foreign currency
with regard to the transactions denominated in U.S. dollars.  Rental
income, which consisted mainly of space in our Malaysia operation and
investments in property in our Chongqing operation rented to outside vendors,
increased by $19 to $22 for the three months ended December 31, 2008 compared to
$3 in the same period of fiscal 2008. In the second quarter of fiscal 2009, we
also recorded investment income of $192 relating to the investment
in the No. B48 lot in the BeiPei District in Chongqing, China, and a penalty
income of $19for the delay in the
payment of investment principle and investment income from
JiaSheng.  The investment income and penalty income offset the
purchase amount of the commercial property and residential property that the
Company purchased from JiaSheng on October 23, 2008.


-28-
 Table of Contents




Income
Tax





The
Company recorded an income tax benefit for the three months ended December 31,
2008 of $62, an increase of $204 compared to the income tax provision of $142
for the three months ended December 31, 2007.  The income tax benefit was
mainly due to a reversal of income tax payable in the amount of $124 from the
Singapore operation, which was provided for the potential non-deductible
corporate management fee.  The Company re-evaluated its potential tax
exposure from prior years and noted that a certain provision was not
required.  The Singapore operations generated a loss of $1,880 for the
three months ended December 31, 2008, an increase of $2,402 compared to the
profit of $522 for the three months ended December 31, 2007.





We
assessed our income tax liability of $261 as of December 31, 2008 in accordance
with FIN 48, which was related to the allocation of corporate management
expenses to our Singapore operation in terms of Singapore tax law.  We
did not see any potential benefits arising from this tax
position.  Accordingly, no impact of this tax position was recognized
in the statement of operations for this quarter of fiscal 2009.  We
did not include any potential income tax position in federal and state income
tax returns currently filed.





Minority
Interest





As of
December 31, 2008, we held a 55% interest in Trio-Tech Malaysia.  In
the second quarter of fiscal 2008, minority interest in the net income of
subsidiaries was $176, an increase of $120, compared to a minority interest in
the net income of $56 for the same quarter of fiscal 2008.  The
increase in the minority interest was attributable to the improvement in the net
income generated from the Malaysia testing operation due to stronger market
demands from our customers in that area.





Net
Income/Loss





Net loss
was $426 in the second quarter of fiscal 2009, an increase of $591, from a net
income of $165 during the same period of fiscal 2008.  The loss was
mainly due to a decrease in revenue, which was offset by a decrease in operating
expense, an increase in other income and a decrease in interest expenses and
income tax provision, as previously discussed.





Earning/Loss
per Share





Basic and
diluted loss per share for the three months ended December 31, 2008 increased by
$0.18 to $0.13, from earnings of $0.05 per basic and diluted per share in the
same quarter of the prior fiscal year.





Segment
Information





The
revenue, gross margin and income (loss) from each segment for the second quarter
of fiscal 2009 and the second quarter of fiscal 2008, respectively, are
presented below.  As the segment revenue and gross margin for each
segment have been discussed in the previous section, only the comparison of
income from operations is discussed below.


-29-
 Table of Contents




Manufacturing
Segment





The
revenue, gross margin and income (loss) from operations for the manufacturing
segment for the second quarters of fiscal 2009 and 2008 were as
follows:





Three
      Months Ended December 31,(In
      Thousands, unaudited)
                  
                  2008
                  
                  
                  2007Revenue
                  
                  $
                  2,754
                  
                  
                  $
                  7,085Gross
      margin
                  
                  
                  21.0
                  %
                  
                  
                  17.4
                  %Income(Loss)
      from operations
                  
                  $
                  (142
                  )
                  
                  $
                  466





Loss from
the manufacturing segment increased by $608, or 130.5%, to $142 for the three
months ended December 31, 2008 from an income of $466 in the same quarter of
last fiscal year due to the loss of a significant contract with one of our major
customers. The increase in operating loss was attributable to a decrease in
gross profit of $654 and offset by a small decrease in operating expenses of
$46.  Operating expenses for the manufacturing segment were $721 and
$767 for the three months ended December 31, 2008 and 2007,
respectively.  The decrease in operating expenses was mainly from the
decrease in payroll related expenses as a result of a decrease in employee
headcount and our cost cutting actions, as previously discussed. In the second
quarter of fiscal 2008, we reversed $23 in warranty liability during our
periodic assessment of the adequacy of recorded warranty liability based on the
historical rate of warranty expense incurred.





Testing
Segment





The
revenue, gross margin and income (loss) from operations for the testing segment
for the second quarters of fiscal 2009 and 2008 were as follows:





Three
      Months Ended December 31,(In
      Thousands, unaudited)
                  
                  2008
                  
                  
                  2007Revenue
                  
                  $
                  2,728
                  
                  
                  $
                  5,670Gross
      margin
                  
                  
                  26.3
                  %
                  
                  
                  34.1
                  %Income
      (Loss) from operations
                  
                  
                  (589
                  )
                  
                  $
                  680





Loss from
operations in the testing segment in the second quarter of fiscal 2009 was $589,
an increase of $1,269, or 186.6%, compared to an income of  $680 in
the same period of fiscal 2008 primarily due to the loss of a significant
contract with one of our major customers as their product line reached the end
of its life cycle earlier than expected.  The loss from operations was
attributable to a decrease in gross profit of $1,216 due to a drop in testing
volume coupled with reducing unit sales price as a result of changes in
customers’ demands, and an increase of $53 in operating
expenses.  Operating expenses were $1,306 and $1,253 for the three
months ended December 31, 2008 and 2007, respectively.  This increase
in operating expenses was due to an increase in sales expenses and payroll
related expenses in our Malaysia operations to handle the rise in testing sales
volume there, but was offset by a decrease in payroll related expenses in our
Singapore operations and China operations including the reversal of the bonuses payable as
discussed in Note 1to the unaudited financial statements included in this
Form 10-Q.


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 Table of Contents




Distribution
Segment





The
revenue, gross margin and income (loss) from operations for the distribution
segment for the second quarters of fiscal 2009 and 2008 were as
follows:





Three
      Months Ended December 31,(In
      Thousands, unaudited)
                  
                  2008
                  
                  
                  2007Revenue
                  
                  $
                  80
                  
                  
                  $
                  116Gross
      margin
                  
                  
                  31.3
                  %
                  
                  
                  25.0
                  %Income(Loss)
      from operations
                  
                  $
                  6
                  
                  
                  $
                  (61
                  )





Income
from operations in the distribution segment increased by $67 to $6 for the three
months ended December 31, 2008, from an operating loss of $61 in the second
quarter of fiscal 2008.  The increase in operating income was mainly
due to a decrease in operating expense of $71, but offset by a decrease in gross
margin of $67 as the result of a decrease in revenue.  Operating
expenses were $19 and $90 for the three months ended December 31, 2008 and 2007,
respectively.  The decrease in operating expenses was mainly due to a
decrease in commission expenses incurred in the second quarter of fiscal 2009 as
the result of a decrease in commissionable sales.





Corporate





The
income (loss) from operations for corporate for the second quarters of fiscal
2009 and 2008 was as follows:





Three
      Months Ended December 31,(In
      Thousands, unaudited)
                  
                  2008
                  
                  
                  2007Income
      (loss) from operations
                  
                  $
                  104
                  
                  
                  $
                  (467
                  )




Corporate
operating income increased by $571 to $104 for the three months ended December
31, 2008, from an operating loss of $467 in the same period of the prior
year.  The increase was mainly due a decrease in stock option
compensation expenses, an increase in corporate management fee and a decrease in
officers and executive compensation. Stock compensation expenses decreased by
$320 to $38 for the second quarter of fiscal 2009, compared to $358 in the same
period of last fiscal year. In the second quarter of fiscal 2008, we granted
50,000 shares of stock options pursuant to the 2007 Employee Plan and 60,000
shares of stocks options pursuant to the 2007 Director Plan. We did not grant
any options in the second quarter of fiscal 2009. In March 2008, we increased
the corporate management fee, which is based on the percentage of revenue
imposed on all the subsidiaries due to a decrease in the revenue fromour subsidiaries.  The revenue
percentage charged on subsidiaries is a reimbursement to the corporate office to
cover its operating expenses. Management reviews this percentage periodically to
make sure the amount charged is sufficient to cover its corporate expenses. In
terms of dollar amount, there was an increase of $68 in the fees we imposed on
all the subsidiaries in the second quarter of fiscal 2009 as compared to the
same period of fiscal 2008.





On
February 27, 2008, in view of anticipated reductions in service revenue for
fiscal 2008, our Chief Executive Officer, Chief Financial Officer and directors
voluntarily decreased their base salary to 50% of the base salary agreed to in
July 2007. As a result, our compensation for the officers and executives
decreased by $99 in the second quarter of fiscal 2009.


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 Table of Contents




Comparison
of the Six Months Ended December 31, 2008 and 2007





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


Six
      Months Ended December 31,2008
                      
                      
                      2007Net
      Sales
                      
                      
                      100
                      %
                      
                      
                      100
                      %Cost
      of sales
                      
                      
                      77.8
                      %
                      
                      
                      75.0
                      %Gross
      Margin
                      
                      
                      22.2
                      %
                      
                      
                      25.0
                      %Operating expensesGeneral
      and administrative
                      
                      
                      28.3
                      %
                      
                      
                      16.1
                      %Selling
                      
                      
                      1.7
                      %
                      
                      
                      1.1
                      %Research
      and development
                      
                      
                      0.2
                      %
                      
                      
                      0.2
                      %Impairment
      loss
                      
                      
                      4.4
                      %
                      
                      
                      0.1
                      %Gain
      on disposal of PP&E
                      
                      
                      (1.3
                      )%Total
      operating expenses
                      
                      
                      33.3
                      %
                      
                      
                      17.5
                      %Income(loss)
      from Operations
                      
                      
                      (11.1
                      %)
                      
                      
                      7.5
                      %





Overall
Gross Margin





Overall
gross margin as a percentage of revenue decrease by 2.8% to 22.2% for the six
months ended December 31, 2008, from 25.0% for the same period of fiscal 2008.
The decrease in the overall gross margin was primarily due to the decrease in
the gross margin in the testing segment.  In terms of dollar value,
the overall gross margin decreased by $3,614, or 57.9%, for the six months ended
December 31, 2008, from $6,237 to $2,623 compared to the same period of fiscal
2008, as a result of the loss of a significant contract with one of our major
customers.





Gross
margin as a percentage of revenue in the manufacturing segment increased by 1.3%
for the six months ended December 31, 2008 compared to the same period of fiscal
2008, from 16.2% to 17.5%.  In absolute amounts, gross margin was
$1,017, a decrease of $1,166, or 53.4%, for the six months ended December 31,
2008, from $2,183 in the same period of fiscal 2008. The increase in gross
margin was mainly due to a decrease in sales of lower margin burn-in
systems and pass-through products in the six months ended December 31, 2008
compared with the same period of fiscal 2008.





Gross
margin in the testing segment decreased by 8.9% for the six months ended
December 31, 2008 compared to the same period of the prior year, from 35.6% to
26.7%, due primarily to a decrease in testing volume coupled with a decrease in
sales prices in the six months ended December 31, 2008. Additionally, because significant portions of our
operating costs are fixed in the testing segment, as service demands and factory
utilization decrease, the fixed costs are
spread over the decreased output, which deteriorates profit margin. In addition,
our customers changed their demands and specifications for burn-in hours, which
resulted in a lower average unit selling price for burn-in services. In absolute
amount, gross margin in the testing segment was $1,554, a decrease of $2,442, or
61.1%, for the six months ended December 31, 2008, from $3,996 in the same
period of fiscal 2008 due to a decrease in revenue in the six months ended
December 31, 2008, as previously discussed.


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 Table of Contents




Gross
margin as a percentage of revenue in the distribution segment improved by 5.8%,
from 25.6% for the six months ended December 31, 2007 to 31.3% in the same
period of fiscal year 2009. The improvement in the gross profit as a percentage
of sales was due to an increase in average sale price compared to the related
expenses in the first two quarters of fiscal 2009 compared to the same period of
fiscal 2008. In terms of dollar amount, gross margin in the distribution segment
decreased by $6, or 10.3%, to $52 for the six months ended December 31, 2008
from $58 for the six months ended December 31, 2007, due to a drop in sales
volume and revenue, as previously discussed.





Operating
Expenses





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





Six
      Months Ended December 31,(In
      Thousands, unaudited)
                  
                  2008
                  
                  
                  2007General
      and administrative
                  
                  $
                  3,339
                  
                  
                  $
                  4,009Selling
                  
                  
                  206
                  
                  
                  
                  277Research
      and development
                  
                  
                  20
                  
                  
                  
                  38Impairment
      loss
                  
                  
                  520
                  
                  
                  
                  16Gain
      on disposal of PP&E
                  
                  
                  (154
                  )
                  
                  
                  --Total
                  
                  $
                  3,931
                  
                  
                  $
                  4,340





General and administrative
expenses decreased by $670, or 16.7%, from $4,009 to $3,339 for the six months
ended December 31, 2008, compared to the same period of fiscal 2008.The
decrease was primarily attributable to a decrease in payroll expenses and a
decrease in officer and executive compensation in the six months ended December
31, 2008. Since the third quarter of fiscal 2008 ending March 31, 2008, we
undertook several cost reduction actions. We reduced our headcount by
approximately 48 employees since September 30, 2008. In the second quarter of
fiscal 2009, we implemented four-day work weeks for all the employees in the
Singapore operation, which reduced our employee compensation by approximately
25%. On February 27, 2008, in view of anticipated reductions in service revenue
for fiscal 2008, our Chief Executive Officer, Chief Financial Officer and
directors voluntarily decreased their base salary to 50% of the base salary
agreed to in July 2007. As a result, our compensation for the officers and
executives decreased by $198 during the six months ended December 31, 2008. In
addition, in the second quarter of fiscal 2009, we reversed a portion of our
bonus payable in the Singapore operations as a result of a change in our
estimate, as discussed in Note 1 to the unaudited
financial statements included in this Form 10-Q.





Selling
expenses decreased by $71, or 25.6%, for the six months ended December 31, 2008,
from $277 to $206, compared to the same period of fiscal year
2008.  This was mainly due to a decrease in commission expenses as a
result of fewer commissionable sales in the distribution segment and a decrease
in payroll related expenses as a result of our cost cutting actions, as
previously discussed.





Research
and development costs decreased from $38 in the six months ended December 31,
2007 to $20 in the six months ended December 31, 2008. The decrease was
primarily due to a decrease in full time employee headcount in the U.S.
operation.


-33-
 Table of Contents




The impairment loss
increased by $504 for the six months ended December 31, 2008, from $16 to $520
compared to the same period of fiscal 2008.  The impairment loss of
$520 consisted of a loss of$224 for certain testing equipment located in
our Suzhou operation and the remaining $296 was for all the fixed assets located
in our Shanghai operation in China.We believe
that due to the change in demand for certain burn-in testing services and the
negative impact of the international economic financial crisis and the
semiconductor industry recession, our existing burn-in testing facilities in
Shanghai operation became obsolete. There was little business activity in
Shanghai operation during the six months ended December 31, 2008, and there were
also no secured orders or backlogs for subsequent periods.  Therefore,
as we expect no
future cash flows from these assets based on our best estimate, the carrying
value of these assets was written down to zero and the impairment loss was
recorded.Business in the Suzhou operation began to slow down
in the fourth quarter of fiscal 2008 and suffered losses in the last three
quarters. The operation is currently only providing line support, maintenance
and training service for one customer.  Based on our best estimate,
there will be no future cash flows from certain identified testing equipment.
Therefore, the carrying value of these assets was written down to zero and an
impairment loss was recorded. The impairment loss of $16
in the six months ended December 31, 2007 consisted of a loss of
$11 related to the disposal of certain fixed assets in our China operation in
Suzhou, while $5 was related to the asset held for sale in
Malaysia.





Gain on
disposal of property, plant and equipment was $154 for the six months ended
December 31, 2008, which mainly resulted from the disposal of certain idle fixed
assets at a gain in theSingapore
operation.We had
no such gain for the same period of fiscal year 2008.





(Loss)/
Income from Operations





Loss from
operations increased by $3,205 to $1,308 for the six months ended December 31,
2008, from an operating income of $1,897 for the same period of fiscal year
2008. The increase in loss from operations was due to a decrease in revenue, but
offset by a decrease in operating expenses as previously discussed.





Interest
Expense





The
following table presents the interest expense for the six months ended December
31, 2008 and 2007, respectively:





Six
      Months Ended December 31,(In
      Thousands, unaudited)
                  
                  2008
                  
                  
                  2007Interest
      expense
                  
                  $
                  104
                  
                  
                  $
                  164





Interest
expense decreased by $60 for the six months ended December 31, 2008 from $164 to
$104, primarily due to a decrease in the loan payable and capital lease
obligation. We are trying to keep our debt at a minimum in order to save
financing costs. Our credit rating provides us with ready and adequate access to
funds in global markets.  As of December 31, 2008, the Company had an
unused line of credit of $15,089.


-34-
 Table of Contents




Other
Income





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





Six
      Months Ended December 31,(In
      Thousands, unaudited)
                  
                  2008
                  
                  
                  2007Other
      (expenses) income
                  
                  $
                  570
                  
                  
                  $
                  (251
                  )





Other
income increased by $821 to $570 for the six months ended December 31, 2008 from
an expense of $251 in the same period of last fiscal year, primarily due to an
increase in rental income, currency transaction gain and investment
income.  Currency transaction gain increased by $582 for the six
months ended December 31, 2008, from an exchange loss of $331 to an exchange
gain of $251, compared to the same period of fiscal 2008.  This was
attributable to the strengthening of the U.S. dollar against foreign currency
with regard to the transactions denominated in U.S. dollars.  Rental
income, which consisted mainly of space in the Malaysia operation and investment
property purchased in the Chongqing operation rented to outside vendors,
increased by $71 to $86 for the six months ended December 31, 2008 compared to
$15 in the same period of fiscal 2008. In the second quarter of fiscal 2009, we
also recorded investment income of $192 relating to the investment
in the No. B48 lot in the BeiPei District in Chongqing, China and penalty income
of $19for
the delay in the payment of the return of investment from JiaSheng. This
investment income and penalty income was used to offset the purchase amount of
the commercial property and residential property that the Company purchased from
JiaSheng on October 23, 2008.





Income
Tax





Income tax provision for
the six months ended December 31, 2008 was $36, a decrease of $278 compared to
an income tax provision of $314 for the same period of fiscal 2008.The
decrease in income tax provision was mainly due to a lower tax provision for the
decreased income generated from the Singapore operations in the six months ended
December 31, 2008 and also a reversal of income tax payable from the Singapore
operation, which was provided for the potential non-deductible corporate
management fee.  The Company re-evaluated its potential tax exposure from
the prior years and noted that a certain provision was not
required.





We
assessed our income tax liability of $264 as of December 31, 2008 in accordance
with FIN48, which is related to the allocation of corporate management expenses
to our Singapore operation in terms of Singapore tax law.  We did not
see any potential benefits arising from this tax
position.  Accordingly, no impact of this tax position was recognized
in the statement of operations for the six months ended December 31,
2008.  We did not include any potential income tax position in federal
and state income tax returns currently filed.





Minority
Interest





As of
December 31, 2008, we held a 55% interest in Trio-Tech Malaysia.  The
minority interest for the six months ended December 31, 2008 in the net income
of subsidiaries was $267, an increase of $15 compared to a minority interest in
the net income of $252 for the same period of the prior year. The increase in
the minority interest was attributable to the improvement in the net income
generated from the Malaysia testing operation due to stronger market demands
from our customers in that area.





Net
Income/Loss





Net loss
for the six months ended December 31, 2008 was $1,145, an increase of $2,061, or
225.0%, compared to a net income of $916 in the same period of fiscal 2008.
Such increase was primarily due to a decrease in revenues, which was offset by a
decrease in operating expenses, an increase in other income and a decrease in
interest expenses and income tax provision, as previously
discussed.


-35-
 Table of Contents




Earnings/Loss
per Share





Basic and
diluted loss per share for the six months ended December 31, 2008 were $0.35, an
increase of $0.63 from earnings of $0.28 per basic and diluted per share in the
same period of the prior fiscal year.





Segment
Information





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





Manufacturing
Segment





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


Six
      Months Ended December 31,(In
      Thousands, unaudited)
                  
                  2008
                  
                  
                  2007Revenue
                  
                  $
                  5,800
                  
                  
                  $
                  13,481Gross
      margin
                  
                  
                  17.5
                  %
                  
                  
                  16.2
                  %Income
      (Loss) from operations
                  
                  $
                  (586
                  )
                  
                  $
                  773





Loss from
operations in the manufacturing segment increased by $1,359, or 175.8%, to $586
for the six months ended December 31, 2008 from an operating income of $773 in
the same period of fiscal 2008 primarily due to the loss of orders from one of
our major customers.  The increase in operating loss was attributable
to a decrease in gross profit of $1,166 and an increase in operating expense of
$193. Operating expenses for the manufacturing segment were $1,603 and $1,410
for the six months ended December 31, 2008 and 2007, respectively. The increase in operating
expenses was mainly attributable to the increase in headcount in the
manufacturing segment of our Singapore operation, as we transferred employees
from the distribution segment tothemanufacturingsegment. This increase was offset
by the reversal of thebonuses payable as
discussed in Note 1to the unaudited
financial statements included in this Form 10-Q. It is the strategy of
management to focus on the sales of our own manufacturedproducts. We believe this
will help us to reduce our exposure to multiple risks arising from being a mere
distributor of manufactured products from others. During the six months ended
December 31, 2007, wereversed $43 in bonus provision related to fiscal
year 2007 as a result of a change in estimate and reversed $23 in warranty
liability during our periodic assessment of the adequacy of recorded warranty
liability based on the historical rate of warranty expenses
incurred.





Testing
Segment





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


Six
      Months Ended December 31,(In
      Thousands, unaudited)
                  
                  2008
                  
                  
                  2007Revenue
                  
                  $
                  5,826
                  
                  
                  $
                  11,213Gross
      margin
                  
                  
                  26.7
                  %
                  
                  
                  35.6
                  %Income
      (Loss)from operations
                  
                  $
                  (811
                  )
                  
                  $
                  1,742




-36-
 Table of Contents


Loss from
operations in the testing segment increased by $2,553, or 146.6%, to $811 for
the six months ended December 31, 2008 from an operating income of $1,742 in the
same period of fiscal 2008 primarily due to the loss of a significant contract
with one of our major customers as their product line reached the end of its
life cycle earlier than expected.  The loss from operations was
attributable to a decrease of $2,442 in gross profit due to a drop in testing
volume coupled with reducing unit sales price as a result of changes in
customers’ demands, and an increase of $111 in operating expenses. Operating
expenses were $2,365 and $2,254 for the six months ended December 31, 2008 and
2007, respectively. Operating expenses relating to the testing segment did not
decrease in line with revenues mainly because the Company recorded an impairment
loss of $520 related to the testing assets in our Suzhou and Shanghai operations
during the six months ended December 31, 2008.





Distribution
Segment





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


Six
      Months Ended December 31,(In
      Thousands, unaudited)
                  
                  2008
                  
                  
                  2007Revenue
                  
                  $
                  166
                  
                  
                  $
                  227Gross
      margin
                  
                  
                  31.3
                  %
                  
                  
                  25.6
                  %Income
      (Loss) from operations
                  
                  $
                  37
                  
                  
                  $
                  (83
                  )





Income
from the distribution segment increased by $120 to $37 for the six months ended
December 31, 2008 from an operating loss of $83 in the same period of fiscal
2008. The increase in operating income was attributable to a decrease in
operating expense of $126, but offset by a decrease in gross profit of $120 as a
result of a decrease in revenue.  Operating expenses were $15 and $141
for the six months ended December 31, 2008 and 2007, respectively. The decrease
in operating expenses was mainly due to a decrease in commission expenses
incurred in the six months ended December 31, 2008 as the result of a decrease
in commissionable sales and also a gain of $24 in the selling of property, plant
and equipment.





Corporate





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


Six
      Months Ended December 31,(In
      Thousands, unaudited)
                  
                  2008
                  
                  
                  2007Income
      (loss) from operations
                  
                  $
                  52
                  
                  
                  $
                  (535
                  )




Corporate
operating income increased by $587 for the six months ended December 31, 2008,
from an operating loss of $535 in the same period of fiscal 2008 to an operating
income of $52 this fiscal year.  The increase was mainly due to a
decrease of $83 in stock options expenses, an increase in corporate management
fee and a decrease in officers and executive compensation. In March 2008, we
increased the corporate management fee, which is based on the percentage of
revenue imposed on all the subsidiaries, due to a decrease in the
revenue fromour
subsidiaries.  The revenue percentage charged on subsidiaries is a
reimbursement to the corporate office to cover its operating expenses.
Management reviews this percentage periodically to make sure the amount charged
is sufficient to cover its corporate expenses. In terms of dollar amount, there
was an increase of $211 in the fees we imposed on all the subsidiaries in the
six months ended December 31, 2008 as compared to the same period of fiscal
2008.





On
February 27, 2008, in view of anticipated reductions in service revenue for
fiscal 2008, our Chief Executive Officer, Chief Financial Officer and directors
voluntarily decreased their base salary to 50% of the base salary agreed to in
July 2007. As a result, our compensation for officers and executives decreased
by $198 during the six months ended December 31, 2008.


-37-
 Table of Contents




Financial
Condition





During
the six months ended December 31, 2008, total assets decreased $5,280, or 15.2%,
from $34,759 at June 30, 2008 to $29,479 at December 31, 2008.  The
majority of the decrease was in short-term deposits, accounts receivables,
inventory and property plant and equipment, but offset by an increase in the
investments in China.




At
December 31, 2008, total cash and short-term deposits were $12,294, reflecting a
decrease of $2,052 from fiscal year-end 2008.  The decrease was mainly
due to a net loss of $1,145 in the six months ended December 31, 2008 and a
decrease in the net borrowings from bank loans.





At December 31, 2008, the
accounts receivables balance decreased by $1,764 from the balance at June 30,
2008 due primarily from a decrease in sales during the six months ended December
31, 2008. The rate of turnover of accounts receivables was 75 days at the end of
the second quarter of fiscal 2009, compared with 66 days at fiscal year-end
2008.  We believe that the increase in such rate was due to the impact of the difficult
global economic condition.  If customers are not successful in generating
sufficient revenue or are precluded from securing financing, they may delay
payment of accounts receivable that are owed to us. We have taken actions to
improve the rate of turnover ofour
accounts receivables, such as providing electronic payment method to our
customers and sending periodic customer account statements.





Inventory
at December 31, 2008 was $1,671, a decrease of $778, or 31.8%, compared to
$2,449 at June 30, 2008.  The decrease in inventory was mainly due to
a decrease in the purchases of inventory as a result of a slowdown in the
manufacturing segment.  The turnover of inventory was 42 days at the
end of the second quarter of fiscal 2009 compared with 21 days at fiscal
year-end 2008. The slower rate was due to a
decrease in sales as a result of fewer orders being placed by one of our major customers,because of the slower movement of that
customer’s product line and equipment capacity.





Prepaid
expenses and other current assets at December 31, 2008 were $514, a decrease of
$420 from the balances at June 30, 2008, primarily due to decreased prepayments
to suppliers in the Singapore and Malaysia operations during the ordinary course
of business.





Investments in China
increased by $753 from $2,267 at June 30, 2008 to $3,020 at December 31,
2008.  This is due tothe purchase of four units of commercial
property and two units of residential property from JiaSheng as previously
discussed.  The total purchase price was RMB 7,042, approximately
$1,031 based on the exchange rate as of December 31, 2008 published by the
Federal Reserve System.  The Company paid RMB 3,612 in cash, or $529, from
internally generated funds of the Company and the remaining balance due for the
purchase price was offset from investment returns from JiaSheng as noted in Note
9 to the unaudited financial statements included in this Form 10-Q.





Property,
plant and equipment decreased by $905 from $8,136 at June 30, 2008 to $7,231 at
December 31, 2008, due to the write down of certain fixed assets in the China
operations in the second quarter of fiscal 2009 and depreciation of the
Company’s fixed assets in the ordinary course of business. Capital expenditures
were $1,043 in the first six months of fiscal 2009, compared with $1,493 for the
first six months of fiscal 2008, which was mainly due to a decreasein our
investment activityduringthe difficult economic
climate.





Depreciation
and amortization was $1,074 for the six months ended December 31, 2008, compared
with $1,528 for the six months ended December 31, 2007.  The decrease
in depreciation expenses was mainly due to the write-off of certain fixed assets
in the Singapore and China operations in the third and fourth quarters of fiscal
year 2008as a
resultof the
termination of a testing service contract with one of our major customers andchange in
customers’demand for certain
burn-in testing services, thus reducing our depreciation related to those
assets.




Other assets were $758 at
December 31, 2008, a decrease of $55 from that balance at June 30, 2008. The
decrease in other assets was due primarily to a decrease for a down payment of
certain fixed assets in the Malaysia operation that was included in other assets
at year-end.


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As of
December 31, 2008, the outstanding loans payable was $2,175, with interest rates
ranging from 5.25% to 5.51% per annum. These loans mature from April 2009 to
August 2010. These loans are collateralized by fixed
deposits or by Corporate Guarantee.





Liquidity
Comparison





Net cash
provided by operating activities increased by $1,199 to $472 for the six months
ended December 31, 2008 from a net cash outflow of $727 in the same period of
fiscal 2008.  The increase in net cash provided by operating
activities was primarily due to the collection of accounts receivable and usage
of inventory during the six months ended December 31, 2008 compared to an
increase of accounts receivable and inventory build up for the same period in
the prior year.  The Company offset this cash inflow by paying down
accounts payable and accrued liabilities of $3,061, but this was offset by other
positive cash flow positions from prepaid expenses and other current assets and
noncash impairment loss and stock compensation add backs during the six months
ended December 31, 2008.





Net cash provided by
investing activities increased by $5,419 to $896 for the six months ended
December 31, 2008 from a cash outflow of $4,523 for the same period of fiscal
2008.During the six months
ended December 31, 2007,we invested $2,057 in
Chongqing, China to jointly develop a piece of property with 24.91 acres with
JiaSheng Property Development
Co. Ltd. In the same period of fiscal 2009, wepurchased four units of
commercial property and two units of residential property from JiaSheng at the
purchase price of $1,031.  The Company made a cash down payment of 10% in
the amount of $103 in October 2008 and paid $426 in cash in November 2008, using
internally generated funds of the Company. The remaining balance was offset by
the return of investment from JiaSheng on another property in which we were
invested in as discussed in Note 9 to the unaudited financial statements
included in this Form 10-Q.  As of December 31, 2008, the Company paid
cash in the amount of $529, and offset amounts of $291 as the return of
investment principal, $192 as investment income and $19 as the penalties charged
for this new commercial and residential property totaling $1,031. During the six months
ended December 31, 2008, there was an increase in net proceeds of $3,254
from short term depositsand an increase of $178 in
the proceeds from the sale of property, plant and equipment. We did not sell any
property, plant orequipment in the same period of fiscal
2008. Capital expenditures in cash also decreased by $459 in the six
months ended December 31, 2008 compared with the six months ended December 31,
2007 due to a decrease in capital expenditures caused from less customer
demand.





Net cash
used in financing activities in the six months ended December 31, 2008 was $964,
representing an increase of $3,797 compared to net cash inflow of $2,833 during
the six months ended
December 31, 2007.  The net cash outflow was due mainly to an
increase of $118 in the repayments of bank loans and capital leases and a
decrease of $3,687 from the proceeds from long-term bank loans compared with the same period of
last fiscal year. During the six months ended December 31, 2007, we increased
our borrowing from bank loans to meet our daily operation needs and to support
future potential expansion opportunities at that time.  In fiscal
2009, we are trying to keep our debt at a minimum in order to save financing
costs. Our credit rating provides us with ready and adequate access to funds in
global markets.  As of December 31, 2008, the Company had an unused
line of credit of $15,089.





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





As the
Company suffered a loss in the first and second quarter of fiscal 2009, the
Singapore operations did not fulfill one of their loan covenants, which requires
the Company to maintain debt to EBITDA ratio of no more than 2.5 times at all
times during the term of the loan.  As a result, the Company has
reclassified all long term debt as current portion in the
liabilities.  The management has communicated to the bank and
requested a waiver of this particular covenant.  As of the filing date
of this 10Q report, the bank is still in the process of reviewing the Company’s
request.






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Corporate Guarantee
Arrangement




The
Company provides a corporate guarantee of approximately $1,739 to one of its
subsidiaries in Southeast Asia to secure line-of-credit and term loans from a
bank to finance the operations of such subsidiary. With the strong financial
position of the subsidiary company, the Company believes this corporate
guarantee arrangement will have no material impact on its liquidity or capital
resources.





On
January 8, 2009, Trio-Tech (Malaysia) Sdn. Bhd. entered into a Sales and
Purchase Agreement with TS Matrix Properties Sdn. Bhd. (“TSM”) whereby the
Company agreed to purchase from TSM real property totaling 7,312 square meters
inSelangor
Darul Ehsan, Malaysia. The total cash purchase price to be paid by the Company
under the Sales and Purchase Agreement is RM 12,450 (Malaysian ringgit), or
approximately $3,608. Pursuant to the Sales and Purchase Agreement, the Company
paid TSM a 10% down payment of RM 1,245, or approximately $361 through
internally generated funds.  The consummation of the transaction
contemplated by the Sale and Purchase Agreement is subject to the satisfaction
of certain conditions.  The balance of the purchase price is expected
to be paid upon completion of certain conditions through internally generated
funds and a bank loan of RM 9,625, or approximately $2,790. The Company is still
in the process of securing a bank loan from a local bank in
Malaysia.





Critical Accounting
Estimates and Policies





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





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





ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK





Not
applicable





-40-


ITEM 4T.  CONTROLS AND
PROCEDURES




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




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




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


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TRIO-TECH
INTERNATIONAL




PARTII.
OTHER INFORMATION





Item1.   Legal Proceedings





Not applicable





Item1A.  Risk Factors





This
description of our business risk factors previously disclosed in Part I,
Item 1A of our Annual Report on Form 10-K for the fiscal year ended June
30, 2008 is supplemented by the following risk factors:




The
recent instability of the financial markets may adversely impact our business
and operating results.




Widespread
national and international concern over instability in the credit and capital
markets increased significantly during recent months with unprecedented market
volatility and disruption in the U.S. and world economies. As a result of the
credit market crisis and other macro-economic challenges currently affecting the
global economy, our current or potential future customers may experience serious
cash flow problems and, as a result, may tighten their spending which in turn
may result in a  decline in the demand for electronic products and
semiconductor equipment. Such a decline could have a material and adverse effect
on our testing, manufacturing and/or distribution business. Moreover, the
uncertainty in the capital and credit markets may hinder our ability to generate
additional financing in the type or amount necessary to pursue our objectives.
If global economic conditions deteriorate further or do not show improvement, we
may experience material adverse impacts to our business and operating
results.





Item2.  Unregistered Sales of Equity Securities and Use of
Proceeds





Malaysian
and Singapore regulations prohibit the payment of dividends if the Company does
not have sufficient retained earnings and tax credit. In addition, the payment
of dividends can only be made after making deductions for income tax pursuant to
the regulations. Furthermore, the 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.





Item3.  Defaults upon Senior Securities





Not applicable


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Item4.  Submission of Matters to Vote of Security
Holders





An annual
meeting of shareholders was held on December 9, 2008.  The only matter
voted on at the annual meeting was the election of directors. Proxies for the
annual meeting were solicited pursuant to Regulation 14A under the Securities
Exchange Act of 1934.  There was no solicitation in opposition to
management’s nominees for Directors as listed in the Proxy
Statement.  All of such nominees were elected.  The number
of votes for each of such nominees was as follows:





Directors
                Votes
      For
                Votes
      Withheld
                No
      Vote
                TotalJason
      Adelman
                2,795,590
                31,854
                399,986
                3,227,430Richard
      Horowitz
                2,796,158
                31,286
                399,986
                3,227,430A.
      Charles Wilson
                2,578,628
                248,816
                399,986
                3,227,430S.
      W. Yong
                2,624,542
                202,902
                399,986
                3,227,430


Item5.  Other Information





Not applicable





Item6.  Exhibits




10.1
            Sales and Purchase
      Agreement with TS Matrix Properties Sdn. Bhd.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




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SIGNATURES





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





TRIO-TECH
      INTERNATIONALBy:
              /s/ Victor H.M. TingVICTOR
      H.M. TINGVice
      President and Chief Financial Officer(Principal
      Financial Officer)Dated:
      February 23,
2009