##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the Quarterly Period Ended December 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the Transition Period from ___to ___
 Commission File Number 1-14523
 TRIO-TECH INTERNATIONAL
  California
    
    95-2086631(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)14731 Califa StreetVan Nuys, California
    
    91411(Address of principle executive offices)
    
    (Zip Code)
 818-787-7000
 þ o
  o o þ
 o þ




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##### 



TRIO-TECH            INTERNATIONAL
 INDEX TO CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE
 PagePart I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of
December 31, 2006 (Unaudited) and June 30, 2006
    
    
    3Condensed Consolidated Statements of Operations
and Comprehensive Income (loss) for the Three
and Six Months Ended December 31, 2006
(Unaudited) and December 31, 2005
(Unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows
for the Six Months Ended December 31, 2006
(Unaudited) and December 31, 2005
(Unaudited)
    
    
    6Notes
to Condensed Consolidated Financial Statements
(Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis of
Financial Condition and Results of
Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures about
Market Risk
    
    
    29Item 4. Controls and
Procedures
    
    
    31Part II. Other InformationItem 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use
of Proceeds
    
    
    32Item 3.
Defaults upon Senior Securities
    
    
    32Item 4. Submission of Matters to a Vote of Security
Holders
    
    
    32Item 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    33Signatures
    
    
    34EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  2




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##### Table of Contents



TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT NUMBER OF SHARES)
 December 31,
    
    
    June 30,2006
    
    
    2006(Unaudited)ASSETSCURRENT ASSETS:Cash
    
    $
    5,021
    
    
    $
    2,551Short-term deposits
    
    
    5,528
    
    
    
    7,839Trade accounts receivable, less allowance for doubtful
accounts of $63 and $225
    
    
    11,823
    
    
    
    8,518Other receivables
    
    
    207
    
    
    
    306Inventories, less provision for obsolete inventory
of $592 and $448
    
    
    4,637
    
    
    
    2,447Prepaid expenses and other current assets
    
    
    220
    
    
    
    170Total current assets
    
    
    27,436
    
    
    
    21,831PROPERTY, PLANT AND EQUIPMENT, Net
    
    
    8,161
    
    
    
    7,073OTHER INTANGIBLE ASSETS, Net
    
    
    260
    
    
    
    311OTHER ASSETS
    
    
    315
    
    
    
    169TOTAL ASSETS
    
    $
    36,172
    
    
    $
    29,384LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Line of credit
    
    $
    1,947
    
    
    $
    116Accounts payable
    
    
    6,308
    
    
    
    3,809Dividend payable
    
    
    323Accrued expenses
    
    
    3,356
    
    
    
    3,045Income taxes payable
    
    
    532
    
    
    
    311Current portion of notes payable
    
    
    726
    
    
    
    856Current portion of capital leases
    
    
    121
    
    
    
    107Current portion of deferred tax liabilities
    
    
    241
    
    
    
    319Total current liabilities
    
    
    13,554
    
    
    
    8,563NOTES PAYABLE, net of current portion
    
    
    364
    
    
    
    644CAPITAL LEASES, net of current portion
    
    
    200
    
    
    
    230DEFERRED TAX LIABILITIES
    
    
    458
    
    
    
    359TOTAL LIABILITIES
    
    
    14,576
    
    
    
    9,796MINORITY INTEREST
    
    
    2.327
    
    
    
    2,196SHAREHOLDERS EQUITY:Common stock; no par value, 15,000,000 shares authorized;
3,225,242 shares issued and outstanding as of December 31, 2006, and
3,219,407 shares issued and outstanding as of June 30, 2006, respectively
    
    
    10,354
    
    
    
    10,338Paid-in capital
    
    
    458
    
    
    
    337Accumulated retained earnings
    
    
    8,382
    
    
    
    7,150Accumulated other comprehensive gain (loss) translation adjustments
    
    
    75
    
    
    
    (433
    )Total shareholders equity
    
    
    19,269
    
    
    
    17,392TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    $
    36,172
    
    
    $
    29,384
 See notes to condensed consolidated financial statements.
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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
UNAUDITED, IN THOUSANDS, EXCEPT (LOSS) EARNINGS PER SHARE
 Six Months Ended
    
    
    Three Months EndedDec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)RevenueProducts
    
    $
    14,772
    
    
    $
    5,870
    
    
    $
    8,794
    
    
    $
    3,710Services
    
    
    9,171
    
    
    
    7,260
    
    
    
    5,273
    
    
    
    3,71523,943
    
    
    
    13,130
    
    
    
    14,067
    
    
    
    7,425Cost of SalesCost of products sold
    
    
    12,429
    
    
    
    4,915
    
    
    
    7,632
    
    
    
    3,220Cost of service rendered
    
    
    5,658
    
    
    
    4,525
    
    
    
    3,069
    
    
    
    2,33918,087
    
    
    
    9,440
    
    
    
    10,701
    
    
    
    5,559Gross Margin
    
    
    5,856
    
    
    
    3,690
    
    
    
    3,366
    
    
    
    1,866Operating ExpensesGeneral and administrative
    
    
    3,044
    
    
    
    3,282
    
    
    
    1,653
    
    
    
    1,993Selling
    
    
    536
    
    
    
    515
    
    
    
    274
    
    
    
    230Research and development
    
    
    34
    
    
    
    33
    
    
    
    17
    
    
    
    16Impairment Loss
    
    
    172
    
    
    
    15
    
    
    
    172
    
    
    
    Total operating expenses
    
    
    3,786
    
    
    
    3,845
    
    
    
    2,116
    
    
    
    2,239Income (Loss ) from Operations
    
    
    2,070
    
    
    
    (155
    )
    
    
    1,250
    
    
    
    (373
    )Other Income (Expenses)Interest expense
    
    
    (66
    )
    
    
    (74
    )
    
    
    (37
    )
    
    
    (38
    )Other income
    
    
    110
    
    
    
    112
    
    
    
    73
    
    
    
    82Total Other income
    
    
    44
    
    
    
    38
    
    
    
    36
    
    
    
    44Income (Loss) from Continuing Operations
before Income Taxes
    
    
    2,114
    
    
    
    (117
    )
    
    
    1,286
    
    
    
    (329
    )Income Tax Provision
    
    
    478
    
    
    
    184
    
    
    
    453
    
    
    
    112Income (Loss) from Continuing Operations before
Minority Interest
    
    
    1,636
    
    
    
    (301
    )
    
    
    833
    
    
    
    (441
    )Minority Interest
    
    
    (81
    )
    
    
    19
    
    
    
    (34
    )
    
    
    (5
    )Income (Loss) from Continuing Operations
    
    
    1,555
    
    
    
    (282
    )
    
    
    799
    
    
    
    (446
    )Discontinued Operations (NOTE 10)Income from discontinued operations
    
    
    
    
    
    
    8,459
    
    
    
    
    
    
    
    8,837Net Income Attributed to Common Shares
    
    $
    1,555
    
    
    $
    8,177
    
    
    $
    799
    
    
    $
    8,391BASIC EARNINGS PER SHAREBasic (loss) earnings per share from Continuing operations
    
    $
    0.48
    
    
    $
    (0.09
    )
    
    $
    0.25
    
    
    $
    (0.15
    )Basic earnings per share from Discontinued operation
    
    
    0.00
    
    
    
    2.80
    
    
    
    0.00
    
    
    
    2.91Basic earnings per share
    
    $
    0.48
    
    
    $
    2.71
    
    
    $
    0.25
    
    
    $
    2.76
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##### Table of Contents



Six Months Ended
    
    
    Three Months EndedDec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)DILUTED EARNINGS PER SHAREDiluted earnings (loss) per share from Continuing
operations
    
    $
    0.48
    
    
    $
    (0.09
    )
    
    $
    0.25
    
    
    $
    (0.15
    )Diluted earnings per share from Discontinued operation
    
    
    0.00
    
    
    
    2.80
    
    
    
    0.00
    
    
    
    2.91Diluted earnings per share
    
    $
    0.48
    
    
    $
    2.71
    
    
    $
    0.25
    
    
    $
    2.76Weighted Average Shares OutstandingBasic
    
    $
    3,222
    
    
    $
    3,016
    
    
    $
    3,223
    
    
    $
    3,038Diluted
    
    
    3,234
    
    
    
    3,016
    
    
    
    3,235
    
    
    
    3,038COMPREHENSIVE INCOMENet income
    
    $
    1,555
    
    
    $
    8,177
    
    
    $
    799
    
    
    $
    8,391Foreign currency translation adjustment
    
    
    508
    
    
    
    (746
    )
    
    
    482
    
    
    
    (766
    )COMPREHENSIVE INCOME
    
    $
    2,063
    
    
    $
    7,431
    
    
    $
    1,281
    
    
    $
    7,625
 See notes to condensed consolidated financial statements.
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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED, IN THOUSAND
 Dec. 31
    
    
    Dec. 312006
    
    
    2005(unaudited)
    
    (unaudited)Cash Flow from Operating ActivitiesNet income
    
    $
    1,555
    
    
    $
    8,177Adjustments to reconcile net income to
net cash flow provided by (used in) operating activitiesDepreciation and amortization
    
    
    1,124
    
    
    
    792Bad debts expense, net
    
    
    119
    
    
    
    48Inventory provision
    
    
    144
    
    
    
    1Interest income on short-term deposits
    
    
    (45
    )
    
    
    (79
    )Impairment Loss
    
    
    172
    
    
    
    15Stock compensation
    
    
    3
    
    
    
    44Gain on sale of property  continued operations
    
    
    (40
    )
    
    
    Gain on sale of property  discontinued operations
    
    
    
    
    
    
    (8,909
    )Deferred tax provision
    
    
    21
    
    
    
    8Minority interest
    
    
    81
    
    
    
    (19
    )Changes in operating assets and liabilities,
net of acquisition effectsAccounts receivables
    
    
    (3,424
    )
    
    
    277Other receivables
    
    
    99
    
    
    
    (185
    )Other assets
    
    
    (146
    )
    
    
    Inventories
    
    
    (2,334
    )
    
    
    330Prepaid expenses and other liabilities
    
    
    (50
    )
    
    
    (182
    )Accounts payable and accrued liabilities
    
    
    2,810
    
    
    
    350Income tax payable
    
    
    221
    
    
    
    71Net cash provided by operating activities
    
    
    310
    
    
    
    739Cash Flow from Investing ActivitiesProceeds from short-term deposit matured
    
    
    7,063
    
    
    
    6,576Investments in short-term deposits
    
    
    (4,707
    )
    
    
    (9,913
    )Additions to property, plant and equipment
    
    
    (2,020
    )
    
    
    (704
    )Proceeds from sale of equipment-continuing operation
    
    
    49
    
    
    
    Proceeds from sale of property-discontinued operation
    
    
    
    
    
    
    8,401Advances to seller
    
    
    
    
    
    
    (138
    )Net cash provided by investing activities
    
    
    385
    
    
    
    4,222Cash Flow from Financing ActivitiesNet borrowings (payments) on lines of credits
    
    
    1,831
    
    
    
    (77
    )Repayment of bank loans and capital leases
    
    
    (463
    )
    
    
    (501
    )Proceeds from long-terms bank loans and capital leases
    
    
    6
    
    
    
    1,025Proceeds from exercising stock options
    
    
    16
    
    
    
    232Proceeds from 10% shareholder on the short swing profit of the company stock
    
    
    118
    
    
    
    Dividends paid to minority interest
    
    
    (42
    )
    
    
    (27
    )Net cash provided by financing activities
    
    
    1,466
    
    
    
    652Effect of Changes in Exchange Rate
    
    
    309
    
    
    
    (18
    )
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##### Table of Contents



Dec. 31
    
    
    Dec. 312006
    
    
    2005(unaudited)
    
    (unaudited)NET INCREASE IN CASH
    
    
    2,470
    
    
    
    5,595CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    2,551
    
    
    
    1,439CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    5,021
    
    
    $
    7,034Supplementary Information Of Cash FlowsCash paid during the period for:Interest
    
    $
    66
    
    
    $
    77Income taxes
    
    $
    254
    
    
    $
    2,071NON-CASH TransactionsCapital lease of property, plant and equipment
    
    $
    30
    
    
    $
    Declaration of cash dividends to be paid
    
    $
    323
    
    
    $
    1,608
 See notes to condensed consolidated financial statements.
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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AND NUMBER OF
SHARES)
 1.
    
    ORGANIZATION AND BASIS OF PRESENTATIONTrio-Tech International (the Company or TTI thereafter) was incorporated in fiscal 1958
under the laws of the State of California. TTI provides third-party semiconductor testing
and burn-in services primarily through its laboratories in Southeast Asia. In addition, TTI
operates test facilities in the United States. The Company also designs, develops,
manufactures and markets a broad range of equipment and systems used in the manufacturing and
testing of semiconductor devices and electronic components. TTI conducts business in three
business segments: Testing Services, Manufacturing and Distribution. TTI has subsidiaries in
the U.S., Singapore, Malaysia, Thailand, China and Ireland as follows:
 Ownership
    
    LocationExpress Test
Corporation (Dormant)
    
    100%
    
    Van Nuys, CaliforniaTrio-Tech Reliability Services (Dormant)
    
    100%
    
    Van Nuys, CaliforniaKTS Incorporated, dba Universal Systems (Dormant)
    
    100%
    
    Van Nuys, CaliforniaEuropean Electronic Test Centre
(Operation ceased on November 1, 2005)
    
    100%
    
    Dublin, IrelandTrio-Tech International Pte. Ltd.
    
    100%
    
    SingaporeUniversal (Far East) Pte. Ltd.
    
    100%
    
    SingaporeTrio-Tech Thailand
    
    100%
    
    Bangkok, ThailandTrio-Tech Bangkok
    
    100%
    
    Bangkok, ThailandTrio-Tech Malaysia
    
    55%
    
    Penang and Selangor, MalaysiaTrio-Tech Kuala Lumpur  100% owned by
    
    55%
    
    Selangor, MalaysiaTrio-Tech MalaysiaPrestal Enterprise Sdn. Bhd.
    
    76%
    
    Selangor, MalaysiaTrio-Tech (Suzhou) Co. Ltd.
    
    100%
    
    Suzhou, ChinaTrio-Tech (Shanghai) Co. Ltd.
    
    100%
    
    Shanghai, China
 The accompanying unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. All significant inter-company
accounts and transactions have been eliminated in consolidation. The unaudited consolidated
financial statements are presented in U.S. dollars. The accompanying financial statements do
not include all the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for fair presentation have
been included. Operating results for the six months ended December 31, 2006 are not
necessarily indicative of the results that may be expected for the fiscal year ending June
30, 2007. For further information, refer to the consolidated financial statements and
footnotes thereto included in the Companys annual report for the fiscal year ended June 30,
2006.Reclassification: Certain prior year balances may have been reclassified to conform to the current
presentation.2.
    
    NEW ACCOUNTING PRONOUNCEMENTSIn June 2006, the Financial Accounting Standard Board FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109
(FIN 48), which prescribes a recognition threshold and measurement attribute, as well as
criteria for subsequently recognizing, derecognizing and measuring uncertain tax positions
for financial statement purposes. FIN 48 also requires expanded disclosure with respect to
the uncertainty in income tax assets and liabilities. FIN 48 will be effective as of the
beginning of our fiscal year 2008, with the cumulative effect of the change in accounting
principle recorded as an adjustment to opening retained earnings. We expect that the
adoption of FIN 48 will not have a material impact on our consolidated results of operations
or financial position.In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements (SAB 108), which will be effective for
the fiscal year ending after November 15, 2006. The objective of SAB 108 is to eliminate
diversity in practice surrounding how public companies quantify financial statement
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misstatements. SAB requires quantification of financial statement misstatements based on the
effects of the misstatements on the consolidated statement of income, the consolidated
balance sheet and related financial statement disclosures.According to SAB 108, both rollover and iron curtain approaches must be considered when
evaluating a misstatement for materiality. This is referred to as the dual approach. For
the companies that have previously evaluated misstatements under one, but not both, of these
methods, SAB 108 provides companies with a one-time option to record the cumulative effect of
their prior unadjusted misstatements in a manner similar to a change in accounting principle
in their annual financial statements during the effective time period if (i) the cumulative
amount of the unadjusted misstatements at the beginning of the adopting year would have been
material under the dual approach to their annual financial statements for the prior year or
(ii) the effect of correcting the unadjusted misstatements during the adopting year would
cause these annual financial statements to be materially misstated under the dual approach.
In accordance with SAB 108, companies are allowed, upon adoption, to record the effects as a
cumulativeeffect adjustment to the retained earnings. We are currently assessing what
impact, if any, that adoption of SAB 108 will have on our financial position and results of
operations.In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No.
157, Fair Value Measurements (SFAS157), which defines fair value, established a framework
for measuring fair value and requires enhanced disclosures about fair value measurements.
SFAS 157 will be effective for fiscal years beginning after November 15, 2007
and interim periods within those fiscal years. The Company is currently evaluating the
impact adoption may have on its financial condition or results of operations.In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No.
158, Employers accounting for Defined Benefit Pension and Other Postretirement Plans,
which require an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan as an asset or
liability in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income of a business entity. We expect that the adoption of SFAS No. 158 will not have a material impact on our consolidated results of operations or financial position.3.
    
    INVENTORIESInventories consisted of the following:
 Dec. 31,
    
    
    June 30,2006
    
    
    2006(Unaudited)Raw materials
    
    $
    1,272
    
    
    $
    827Works in progress
    
    
    3,723
    
    
    
    1,803Finished goods
    
    
    234
    
    
    
    265Less: provision for obsolete inventory
    
    
    (592
    )
    
    
    (448
    )$
    4,637
    
    
    $
    2,447
 4.
    
    STOCK OPTIONSThe Company had two share-based compensation plans, which are described below. The Company
historically adopted the APB No. 25 approach  intrinsic value method  and presented the pro
forma information in line with the requirements of SFAS No. 123. Historically, there was no
stock based compensation cost charged against income for the fiscal years ended June 30, 2005
and 2004. There was no income tax benefit related to share-based compensation for the fiscal
years ended June 30, 2005 and 2004, as the Company did not claim a deduction for corporate
income tax purposes.Effective July 1, 2005, the Company adopted the fair value recognition provisions of
Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 123R, Share-Based Payments, using the modified prospective application method.
Under this transition method, compensation cost recognized during the six months ended
December 31, 2006 included the applicable amounts of: (a) compensation cost of all
share-based payments granted prior to, but not yet vested as of, July 1, 2005 (based on the
grant-date fair value estimated in accordance with the original provisions of SFAS No. 123)
and (b) compensation cost for all share-based payments
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granted subsequent to July 1, 2005 (based on the grant-date fair value estimated in
accordance with the new provisions of SFAS No. 123R). Amortization of unrecognized fair
value of the non-vested options was $2 and $1 for the six months ended and three months ended
December 31, 2006, respectively.On December 2, 2005, the Board of Directors terminated these two share-based compensation
plans due to the cost of such compensation exceeding the benefits. There were no stock
options granted during the six months ended December 31, 2006.AssumptionsThe disclosure of the above fair value for these awards was estimated using the Black-Scholes
option pricing model with the assumptions listed below:
 Six MonthsEnded
    
    Years EndedDecember 31, 2006
    
    June 30, 2006
    
    June 30, 2005
    
    June 30, 2004Expected volatility
    
    
    73.22-81.96
    %
    
    
    49.5-51.53
    %
    
    
    33.5 - 36.8
    %
    
    
    41.9
    %Weighted average volatility
    
    
    81.96
    %
    
    
    49.5
    %
    
    
    33.9
    %
    
    
    41.9
    %Risk free interest rate
    
    
    4.67-5.12
    %
    
    
    3.71-4.50
    %
    
    
    2.89 - 3.27
    %
    
    
    2.76
    %Expected life (years)
    
    
    2.00
    
    
    
    2.00
    
    
    
    2.00
    
    
    
    2.00
  1998 Stock Option Plan
   Weighted Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at July 1, 2006
    
    
    28,885
    
    
    $
    2.97Granted
    
    
    
    
    
    
    Exercised
    
    
    (5,835
    )
    
    
    2.74Forfeited or expired
    
    
    (7,250
    )
    
    
    3.18Outstanding at December 31, 2006
    
    
    15,800
    
    
    $
    2.96
    
    
    
    2.00
    
    
    $
    130,937Exercisable at December 31, 2006
    
    
    14,425
    
    
    $
    2.83
    
    
    
    2.00
    
    
    $
    121,518
 The intrinsic value of the 5,835 options exercised was $48. Cash received from options
exercised during the six months ended December 31, 2006 was approximately $16. There were no
options granted during the six months ended December 31, 2006 under the 1998 Stock Option
Plan.
 10




---



##### Table of Contents



A summary of the status of the Companys non-vested stock options during the six months of
fiscal 2007 ended December 31, 2006 is presented below:
 Weighted-Average Grant-DateOptions
    
    
    Fair ValueNon-vested at July 1, 2006
    
    
    13,250
    
    
    $
    0.81Granted
    
    
    
    
    
    
    Vested
    
    
    (11,625
    )
    
    
    0.76Forfeited
    
    
    (250
    )
    
    
    0.68Non-vested at September 30, 2006
    
    
    1,375
    
    
    $
    1.31
 As of December 31, 2006, there was approximately $3 of accumulated unrecognized stock
compensation based on fair value on the grant date related to non-vested options granted
under the 1998 Plan. That cost was expected to be recognized during the weighted average
period of 1.5 years.Directors Stock Option PlanThe Directors Stock Option Plan (the Directors Plan), which is shareholder-approved,
permits the grant of stock options to its duly elected non-employee Directors and one of the
corporate officers of the Company (if he or she is also a director of the Company) and covers
300,000 shares of common stock. Prior to July 1, 2003, option awards were granted with an
exercise price equal to 85% of the fair market price of the Companys stock at the grant
date. Subsequent to July 1, 2003, the Board approved an amendment to the Directors Plan
requiring options to purchase the Companys common stock to be exercisable at a price equal
to 100% of the fair market value of the underlying shares on the grant date. These options
have five-year contractual terms. Options awards are exercisable immediately as of the grant
date.As of July 1, 2006, there were no stock options outstanding under the Directors plan, and
there were no options exercisable. Because the Directors plan was terminated in December
2005, there were no options granted during the six months ended December 31, 2006.5.
    
    EARNINGS PER SHAREThe Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per
Share(EPS). Basic EPS are computed by dividing net income available to common
shareholders (numerator) by the weighted average number of common shares outstanding
(denominator) during the period. Diluted EPS gives effect to all dilutive potential common
shares outstanding during a period. In computing diluted EPS, the average price for the
period is used in determining the number of shares assumed to be purchased from the exercise
of stock options and warrants.Stock options to purchase 15,800 shares at exercise prices ranging from $2.66 to $4.40 per
share were outstanding as of December 31, 2006. No options were excluded in the determination
of common shares equivalents, because the average market price of common shares was greater
than the exercise price of the stock options. The resulted common shares equivalents were
approximately 12,000 shares and are presented in the following table for earnings per share
calculation purposes.Stock options to purchase 203,550 shares at exercise prices ranging from $2.25 to $4.50 per
share were outstanding as of December 31, 2005. No options were excluded in the
determination of common shares equivalents because the average market price of common shares
was greater than the exercise price of the stock options. The resulted common shares
equivalents were approximately 76,000 shares. However, since there was a loss from continued
operations, the common share equivalents were not presented in the following table for
earning per share calculation purposes.
 11




---



##### Table of Contents



The following table is a reconciliation of the weighted average shares used in the
computation of basic and diluted EPS for the years presented herein:
 Six Months Ended
    
    
    Three Months EndedDec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Net (loss) income from continuing operations
    
    $
    1,555
    
    
    $
    (282
    )
    
    $
    799
    
    
    $
    (446
    )Net income from discontinued operation
    
    $
    
    
    
    $
    8,459
    
    
    $
    
    
    
    $
    8,837Net income attribute to common shares
    
    $
    1,555
    
    
    $
    8,177
    
    
    $
    799
    
    
    $
    8,391Basic Earnings (Loss) Per ShareBasic (loss) earnings per share from Continuing operations
    
    $
    0.48
    
    
    $
    (0.09
    )
    
    $
    0.25
    
    
    $
    (0.15
    )Basic earnings per share from Discontinued operation
    
    
    0.00
    
    
    
    2.80
    
    
    
    0.00
    
    
    
    2.91Basic earnings per share from Net Income
    
    $
    0.48
    
    
    $
    2.71
    
    
    $
    0.25
    
    
    $
    2.76Diluted (Loss) Earnings Per ShareDiluted (loss) earnings per share from Continuing operations
    
    $
    0.48
    
    
    $
    (0.09
    )
    
    $
    0.25
    
    
    $
    (0.15
    )Diluted earnings per share from Discontinued operation
    
    
    0.00
    
    
    
    2.80
    
    
    
    0.00
    
    
    
    2.91Diluted earnings per share from Net Income
    
    $
    0.48
    
    
    $
    2.71
    
    
    $
    0.25
    
    
    $
    2.76Weighted average number of common shares outstanding  basic
    
    
    3,222
    
    
    
    3,016
    
    
    
    3,223
    
    
    
    3,038Dilutive effect of stock options
    
    
    12
    
    
    
    
    
    
    
    12
    
    
    
    Number of shares used to compute earnings per share  diluted
    
    
    3,234
    
    
    
    3,016
    
    
    
    3,235
    
    
    
    3,038
 6.
    
    ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTSAccounts receivable are customer obligations due under normal trade terms. We sell our
products and services to manufacturers in the semiconductor industry. We perform continuing
credit evaluations of our customers financial condition, and although we generally do not
require collateral, letters of credit may be required from our customers in certain
circumstances.Senior management reviews accounts receivable on a monthly basis to determine if any
receivables will potentially be uncollectible. We include any accounts receivable balances
that are determined to be uncollectible in our allowance for doubtful accounts. After all
attempts to collect a receivable have failed, the receivable is written off against the
allowance. Based on the information available to us, we believe our allowance for doubtful
accounts for the six months ended December 31, 2006 and the twelve months ended June 30, 2006
was adequate.The following table represents the changes in the allowance for doubtful accounts:
 Dec. 31,
    
    
    June 30,2006
    
    
    2006(Unaudited)Beginning
    
    $
    225
    
    
    $
    147Additions charged to expenses
    
    
    8
    
    
    
    260Recovered
    
    
    (127
    )
    
    
    (85
    )Actual write-offs
    
    
    (43
    )
    
    
    (97
    )Ending
    
    $
    63
    
    
    $
    225
 12




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##### Table of Contents



7.
    
    DIVIDEND PAID TO SHAREHOLDERSOn December 5, 2006, the Board of Directors of Registrant declared a cash dividend of ten
cents (U.S. 10¢) per share payable to the shareholders of record on December 15, 2006. The
total number of shares issued and outstanding as of December 15, 2006 was 3,225,242 and the
total cash dividends paid on January 15, 2007 were $323.8.
    
    WARRANTY ACCRUAL
 Dec. 31
    
    
    June 30,2006
    
    
    2006(Unaudited)Beginning
    
    $
    142
    
    
    $
    155Additions charged to cost and expenses
    
    
    63
    
    
    
    Recovered
    
    
    4
    
    
    
    (1
    )Actual write-offs
    
    
    (1
    )
    
    
    (12
    )Ending
    
    $
    208
    
    
    $
    142
 9.
    
    ACQUISITION OF A SUBSIDIARYOn January 3, 2006, the Company acquired a 100% interest in Globetronics (Shanghai) Co., Ltd.
The results of operations of Globetronics, which were not material, have been included in the
Condensed Consolidated Statements of Earnings (Loss) of the Company since January 3, 2006.Pro Forma Financial InformationThe unaudited pro forma financial information presented below summarizes the combined
operating results of the Company and the acquired entity for the three months ended December
31, 2005 and six months ended December 31, 2005 as if the acquisition had occurred on July 1,
2005.The pro forma financial information is presented for informational purposes only and is not
necessarily indicative of the results of operations that would have been achieved had the
acquisition taken place on July 1, 2005. The unaudited pro forma combined statements of
operations combine the historical results of the Company and the historical results of the
acquired entity for the periods described above.
 13




---



##### Table of Contents



PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2005
  Historicalinformation of
    
    
    Pro formaHistorical information of the
    
    
    the acquired
    
    
    AdjustmentsCompany (1)
    
    
    business (2)
    
    
    (3)
    
    
    Pro formaNet sales
    
    $
    7,425
    
    
    $
    115
    
    
    $
    
    
    
    $
    7,540Net income
    
    $
    8,391
    
    
    $
    1
    
    
    $
    (3
    )
    
    $
    8,389Basic earnings per share
    
    $
    2.76
    
    
    
    
    
    
    
    
    
    
    $
    2.76Diluted earnings per share
    
    $
    2.76
    
    
    
    
    
    
    
    
    
    
    $
    2.76Basic weighted average
common shares outstanding
    
    
    3,038
    
    
    
    
    
    
    
    
    
    
    
    3,038Diluted weighted average
common shares outstanding
    
    
    3,038
    
    
    
    
    
    
    
    
    
    
    
    3,038
 1.
    
    The historical information of the Company was based on the Form 10-Q filed with the SEC
for the three months ended December 31, 2005.2.
    
    The historical information of the acquired entity covers the three-month operating
results from the books and records of Globetronics for the period from September 30, 2005
to December 31, 2005.3.
    
    Pro forma adjustment was based on the assumption that the fair value of the identified
customer relationship needs to be amortized over a one-year period of time, assuming the
acquisition took place on July 1, 2005.
 PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2005
  Historicalinformation of
    
    
    Pro formaHistorical information of the
    
    
    the acquired
    
    
    AdjustmentsCompany (1)
    
    
    business (2)
    
    
    (3)
    
    
    Pro formaNet sales
    
    $
    13,130
    
    
    $
    230
    
    
    $
    
    
    
    $
    13,360Net (loss) income
    
    $
    8,177
    
    
    $
    2
    
    
    $
    (6
    )
    
    $
    8,173Basic loss per share
    
    $
    2.71
    
    
    
    
    
    
    
    
    
    
    $
    2.71Diluted loss per share
    
    $
    2.71
    
    
    
    
    
    
    
    
    
    
    $
    2.71Basic weighted
average common shares
outstanding
    
    
    3,016
    
    
    
    
    
    
    
    
    
    
    
    3,016Diluted weighted
average common shares
outstanding
    
    
    3,016
    
    
    
    
    
    
    
    
    
    
    
    3,016
 1.
    
    The historical information of the Company was based on the Form 10-Q filed with the SEC
for the six months ended December 31, 2005.2.
    
    The historical information of the acquired entity covers the six-month operating
results from the books and records of Globetronics for the period from July 31, 2005 to
December 31, 2005.
 14




---



##### Table of Contents



3.
    
    Pro forma adjustment was based on the assumption that the fair value of the identified
customer relationship needs to be amortized over a one-year period of time, assuming the
acquisition took place on July 1, 2005.
 10.
    
    DISCONTINUED OPERATIONSThe Companys Ireland operation, as a component of the testing segment, suffered continued
operating losses for three consecutive fiscal years and the cash flow was minimal for three
consecutive years. In August 2005, the Company established a restructuring plan to close the
testing operation in Dublin, Ireland. In November 2005, the Company completed the sale of
said property. In accordance with EITF 03-13, we presented the operation results from Ireland
as a discontinued operation.11.
    
    BUSINESS SEGMENTSThe Company operates principally in three industry segments; the testing service industry
(which performs structural and electronic tests of semiconductor devices), the designing and
manufacturing of equipment (which equipment tests the structural integrity of integrated
circuits and other products) and the distribution of various products from other
manufacturers in Singapore and Southeast Asia. The following net sales were based on
customer location rather than subsidiary location.The allocation of the cost of equipment, the current year investment in new equipment and
depreciation expenses have been made on the basis of the primary purpose for which the
equipment was acquired.All inter-segment sales were sales from the manufacturing segment to the testing and
distribution segments. Total inter-segment sales were $61 and $30 for the six months ended
December 31, 2006 and 2005, respectively. Corporate assets mainly consisted of cash and
prepaid expenses. Corporate expenses mainly consisted of salaries, insurance, professional
expenses and directors fees.The following segment information is unaudited:
 Business Segment Information:
 Quarter
    
    
    
    
    
    Operating
    
    
    
    
    
    Depr.Ended
    
    Net
    
    Income
    
    Total
    
    and
    
    CapitalDec. 31
    
    Sales
    
    (loss)
    
    Assets
    
    Amort.
    
    ExpendituresManufacturing
    
    
    2006
    
    
    $
    8,196
    
    
    $
    250
    
    
    $
    3,698
    
    
    $
    52
    
    
    $
    342005
    
    
    
    3,111
    
    
    $
    (117
    )
    
    $
    2,842
    
    
    $
    27
    
    
    $
    187Testing Services
    
    
    2006
    
    
    
    5,273
    
    
    
    942
    
    
    
    31,101
    
    
    
    610
    
    
    
    1,7102005
    
    
    
    3,715
    
    
    
    561
    
    
    
    21,160
    
    
    
    369
    
    
    
    385Distribution
    
    
    2006
    
    
    
    598
    
    
    
    28
    
    
    
    811
    
    
    
    4
    
    
    
    12005
    
    
    
    599
    
    
    
    (1
    )
    
    
    748
    
    
    
    4
    
    
    
    1Corporate and
    
    
    2006
    
    
    
    
    
    
    
    30
    
    
    
    562
    
    
    
    
    
    
    
    unallocated
    
    
    2005
    
    
    
    
    
    
    
    (817
    )
    
    
    2,145
    
    
    
    
    
    
    
    Total Company
    
    
    2006
    
    
    $
    14,067
    
    
    $
    1,250
    
    
    $
    36,172
    
    
    $
    666
    
    
    $
    1,7452005
    
    
    $
    7,425
    
    
    $
    (374
    )
    
    $
    26,895
    
    
    $
    400
    
    
    $
    573
 15




---



##### Table of Contents



Business Segment Information:
 SixMonths
    
    
    
    
    
    Operating
    
    
    
    
    
    Depr.Ended
    
    Net
    
    Income
    
    Total
    
    and
    
    CapitalDec. 31
    
    Sales
    
    (loss)
    
    Assets
    
    Amort.
    
    ExpendituresManufacturing
    
    
    2006
    
    
    $
    13,679
    
    
    $
    690
    
    
    $
    3,698
    
    
    $
    94
    
    
    $
    1482005
    
    
    
    4,466
    
    
    $
    (292
    )
    
    $
    2,842
    
    
    $
    50
    
    
    $
    198Testing Services
    
    
    2006
    
    
    
    9,171
    
    
    
    1,344
    
    
    
    31,101
    
    
    
    1,022
    
    
    
    1,9012005
    
    
    
    7,260
    
    
    
    1,020
    
    
    
    21,160
    
    
    
    735
    
    
    
    505Distribution
    
    
    2006
    
    
    
    1,093
    
    
    
    (9
    )
    
    
    811
    
    
    
    8
    
    
    
    12005
    
    
    
    1,404
    
    
    
    (2
    )
    
    
    748
    
    
    
    7
    
    
    
    1Corporate and
    
    
    2006
    
    
    
    
    
    
    
    45
    
    
    
    562
    
    
    
    
    
    
    
    unallocated
    
    
    2005
    
    
    
    
    
    
    
    (881
    )
    
    
    2,145
    
    
    
    
    
    
    
    Total Company
    
    
    2006
    
    
    $
    23,943
    
    
    $
    2,070
    
    
    $
    36,172
    
    
    $
    1,124
    
    
    $
    2,0502005
    
    
    $
    13,130
    
    
    $
    (155
    )
    
    $
    26,895
    
    
    $
    792
    
    
    $
    704
 Geographic Area Information:
 Elimin-Quarter
    
    
    
    
    
    China
    
    
    
    
    
    
    
    
    
    
    
    
    
    ationsEnded
    
    United
    
    and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    and
    
    TotalDec. 31
    
    States
    
    countries
    
    Singapore
    
    Thailand
    
    Malaysia
    
    Other
    
    CompanyNet sales to
    
    
    2006
    
    
    $
    3,486
    
    
    $
    2,051
    
    
    $
    6,313
    
    
    $
    634
    
    
    $
    1,636
    
    
    $
    (53
    )
    
    $
    14,067customers
    
    
    2005
    
    
    
    1,093
    
    
    
    363
    
    
    
    4,589
    
    
    
    488
    
    
    
    892
    
    
    
    
    
    
    
    7,425Operating
    
    
    2006
    
    
    
    277
    
    
    
    182
    
    
    
    560
    
    
    
    56
    
    
    
    145
    
    
    
    30
    
    
    
    1,250Income (loss)
    
    
    2005
    
    
    
    12
    
    
    
    (2
    )
    
    
    343
    
    
    
    37
    
    
    
    67
    
    
    
    (830
    )
    
    
    (373
    )Long-lived
    
    
    2006
    
    
    
    14
    
    
    
    903
    
    
    
    4,082
    
    
    
    774
    
    
    
    2,688
    
    
    
    (40
    )
    
    
    8,421Assets
    
    
    2005
    
    
    
    23
    
    
    
    20
    
    
    
    3,683
    
    
    
    822
    
    
    
    2,743
    
    
    
    (40
    )
    
    
    7,251
 Geographic Area Information:
 Six
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Elimin-Months
    
    
    
    
    
    China
    
    
    
    
    
    
    
    
    
    
    
    
    
    ationsEnded
    
    United
    
    and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    and
    
    TotalDec. 31
    
    States
    
    countries
    
    Singapore
    
    Thailand
    
    Malaysia
    
    Other
    
    CompanyNet sales to
    
    
    2006
    
    
    $
    3,851
    
    
    $
    3,616
    
    
    $
    12,537
    
    
    $
    1,146
    
    
    $
    2,854
    
    
    $
    (61
    )
    
    $
    23,943customers
    
    
    2005
    
    
    
    1,527
    
    
    
    691
    
    
    
    8,380
    
    
    
    949
    
    
    
    1,613
    
    
    
    (30
    )
    
    
    13,130Operating
    
    
    2006
    
    
    
    247
    
    
    
    311
    
    
    
    1,112
    
    
    
    102
    
    
    
    253
    
    
    
    45
    
    
    
    2,070Income (loss)
    
    
    2005
    
    
    
    (8
    )
    
    
    (2
    )
    
    
    584
    
    
    
    66
    
    
    
    113
    
    
    
    (908
    )
    
    
    (155
    )Long-lived
    
    
    2006
    
    
    
    14
    
    
    
    903
    
    
    
    4,082
    
    
    
    774
    
    
    
    2,688
    
    
    
    (40
    )
    
    
    8,421Assets
    
    
    2005
    
    
    
    23
    
    
    
    20
    
    
    
    3,683
    
    
    
    822
    
    
    
    2,743
    
    
    
    (40
    )
    
    
    7,251
 16




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##### Table of Contents



TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
 ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 The following should be read in conjunction with the condensed consolidated financial
statements and notes in Item I above and with the audited consolidated financial statements and
notes, and with the information under the headings Risk factors and  Managements discussion and
analysis of financial condition and results of operations in the most recent Annual Report on Form
10-K.
 Forward-Looking Statements
   Overview
     17




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##### Table of Contents



Second Quarter Fiscal 2007 Highlights
 
    
    Revenue increased 89.5% to $14,067 for the second quarter of fiscal 2007, compared
with revenue of $7,425 for the second quarter of fiscal 2006.
    
    Manufacturing segment revenues grew to $8,196, compared to $3,111 for the second
quarter of fiscal 2006.
    
    Income from continuing operations increased by $1,245 to $799 for the second quarter
of fiscal 2007, compared with a net loss of $446 for the second quarter of fiscal 2006.
    
    Gross profit margins decreased slightly by 1.2% to 23.9% for the second quarter of
fiscal 2007, compared with gross profit margins of 25.1% for the same period last fiscal
year.
    
    General and administrative expenses were 11.8% of revenue, decreased from 26.8% of
revenue for the second quarter of fiscal 2006.
    
    Selling expenses were 2.0% of revenue, decreased from 3.1% of revenue for the second
quarter of fiscal 2006.
    
    On December 5, 2006, we declared a dividend of $0.10 per
share, paid on January
15, 2007, to shareholders of record on December 15, 2006.
 Results of Operations and Business Outlook
  Revenue Components
 Six Months Ended
    
    Three Months EndedDec. 31,
    
    Dec. 31,
    
    Dec. 31,
    
    Dec. 31,2006
    
    2005
    
    2006
    
    2005Net Sales:Manufacturing
    
    
    57.13
    %
    
    
    34.02
    %
    
    
    58.26
    %
    
    
    41.90
    %Testing
    
    
    38.30
    
    
    
    55.29
    
    
    
    37.49
    
    
    
    50.03Distribution
    
    
    4.57
    
    
    
    10.69
    
    
    
    4.25
    
    
    
    8.07Total
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
   18




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##### Table of Contents



Manufacturing Segment
  Testing Segment
  Distribution Segment
  Uncertainties and Remedies
  19




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##### Table of Contents



Comparison of the Second Quarter Ended December 31, 2006 and December 31, 2005
  Three Months Ended December 312006
    
    2005Net Sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of Sales
    
    
    76.1
    %
    
    
    74.9
    %Gross Margin
    
    
    23.9
    %
    
    
    25.1
    %Operating ExpensesGeneral and administrative
    
    
    11.8
    %
    
    
    26.8
    %Selling
    
    
    2.0
    %
    
    
    3.1
    %Research and development
    
    
    0.1
    %
    
    
    0.2
    %Impairment Loss
    
    
    1.2
    %
    
    
    0.0
    %Total Operating Expenses
    
    
    15.1
    %
    
    
    30.1
    %Income (loss) from operations
    
    
    8.8
    %
    
    
    -5.0
    %
 Overall Gross Margin
     20




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##### Table of Contents



Operating Expenses
  Three Months Ended December 31(In Thousands, unaudited)
    
    2006
    
    
    2005General and administrative
    
    $
    1,653
    
    
    $
    1,993Selling
    
    $
    274
    
    
    $
    230Research and development
    
    $
    17
    
    
    $
    16Impairment Loss
    
    $
    172
    
    
    $
    Total
    
    $
    2,116
    
    
    $
    2,239
    Income from operations
  Interest Expense
  Three Months Ended December 31(In Thousands, unaudited)
    
    2006
    
    2005Interest expense
    
    $
    37
    
    
    $
    38
  Other Income
  Three Months Ended December 31(In Thousands, unaudited)
    
    2006
    
    2005Other income
    
    $
    73
    
    
    $
    82
  21




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##### Table of Contents



Income Tax
  Minority Interest
  Income from Discontinued Operations
  Net Income
  Earnings per Share
  Segment
Information
  Manufacturing Segment
  Three Months Ended December 31(In Thousands, unaudited)
    
    2006
    
    2005Revenue
    
    $
    8,196
    
    
    $
    3,111Gross margin
    
    
    12.1
    %
    
    
    12.8
    %Income (loss) from operations
    
    $
    250
    
    
    $
    (117
    )
  22




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##### Table of Contents



Testing Segment
  Three Months Ended December 31(In Thousands, unaudited)
    
    2006
    
    2005Revenue
    
    $
    5,273
    
    
    $
    3,715Gross margin
    
    
    41.8
    %
    
    
    37.0
    %Income from operations
    
    $
    942
    
    
    $
    561
  Distribution Segment
  Three Months Ended December 31(In Thousands, unaudited)
    
    2006
    
    2005Revenue
    
    $
    598
    
    
    $
    599Gross margin
    
    
    27.9
    %
    
    
    15.4
    %Income (loss) from operations
    
    $
    28
    
    
    $
    (1
    )
  Corporate
  Three Months Ended December 31(In Thousands, unaudited)
    
    2006
    

2005Income (loss) from operations
    
    $
    30
    
    
    $
    (817
    )
  23




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##### Table of Contents



Comparison of the Six Months Ended December 31, 2006 and 2005
  Six Months Ended December 312006
    
    2005Net Sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of Sales
    
    
    75.5
    %
    
    
    71.9
    %Gross Margin
    
    
    24.5
    %
    
    
    28.1
    %Operating ExpensesGeneral and administrative
    
    
    12.7
    %
    
    
    25.0
    %Selling
    
    
    2.2
    %
    
    
    3.9
    %Research and development
    
    
    0.2
    %
    
    
    0.3
    %Impairment Loss
    
    
    0.7
    %
    
    
    0.1
    %Total Operating Expenses
    
    
    15.8
    %
    
    
    29.3
    %Income (loss) from operations
    
    
    8.7
    %
    
    
    -1.2
    %
 Overall Gross Margin
     Operating Expenses
  Six Months Ended December 31(In Thousands, unaudited)
    
    2006
    
    
    2005General and administrative
    
    $
    3,044
    
    
    $
    3,282Selling
    
    $
    536
    
    
    $
    515Research and development
    
    $
    34
    
    
    $
    33Impairment Loss
    
    $
    172
    
    
    $
    15Total
    
    $
    3,786
    
    
    $
    3,845
 24




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##### Table of Contents



Income from operations
  Interest Expense
  Six Months Ended December 31(In Thousands, unaudited)
    
    2006
    
    2005Interest expense
    
    $
    66
    
    
    $
    74
  Other Income
  Six Months Ended December 31(In Thousands, unaudited)
    
    2006
    
    2005Other income
    
    $
    110
    
    
    $
    112
  25




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##### Table of Contents



Income Tax
  Minority Interest
  Income from Discontinued Operations
  Net Income
  Earnings per Share
  Segment Information
  Manufacturing Segment
  Six Months Ended December 31(In Thousands, unaudited)
    
    2006
    
    2005Revenue
    
    $
    13,679
    
    
    $
    4,466Gross margin
    
    
    15.3
    %
    
    
    14.5
    %Income (loss) from operations
    
    $
    690
    
    
    $
    (292
    )
  26




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##### Table of Contents



Testing Segment
  Six Months Ended December 31(In Thousands, unaudited)
    
    2006
    
    2005Revenue
    
    $
    9,171
    
    
    $
    7,260Gross margin
    
    
    38.3
    %
    
    
    37.7
    %Income from operations
    
    $
    1,344
    
    
    $
    1,020
  Distribution Segment
  Six Months Ended December 31(In Thousands, unaudited)
    
    2006
    
    2005Revenue
    
    $
    1,093
    
    
    $
    1,404Gross margin
    
    
    22.6
    %
    
    
    22.0
    %Loss from operations
    
    $
    (9
    )
    
    $
    (2
    )
  Corporate
  Six Months Ended December 31(In Thousands, unaudited)
    
    2006
    
    2005Income (loss) from operations
    
    $
    45
    
    
    $
    (881
    )
  Financial Condition
   27




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##### Table of Contents



Liquidity and Capital Resources
     28




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##### Table of Contents



Corporate Guarantee Arrangement
  Critical Accounting Estimates & Policies
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
 29




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##### Table of Contents



Dec. 30,
    
    June 30,2006
    
    2006(unaudited)Loans:Denominated by Singapore dollars; interest is at the banks
prime rate (5.75% at December 31, 2006
and June 30, 2006) plus 0.5% per annum
    
    $
    
    
    
    $
    70Denominated by Singapore dollars; interest rate fixed at 5.91%
    
    
    
    
    
    
    23Denominated by Singapore dollars; interest is at the banks
prime rate (4.25% at December 31, 2006
and June 30, 2006) plus 1% per annum
    
    
    111
    
    
    
    198Denominated by Singapore dollars; interest is at the banks
prime rate (4.25% at December 31, 2006
and June 30, 2006) plus 1% per annum
    
    
    258
    
    
    
    345Denominated by Thailand baht;
interest is at the banks prime rate (7.50% at December 31,
2006 and June 30, 2006)
    
    
    68
    
    
    
    95Denominated by Singapore dollars; interest is at the banks
prime rate (3.346% at December 31, 2006
and 3.41% at June 30, 2006) plus 3.5% per annum
    
    
    435
    
    
    
    509Denominated by Singapore dollars; interest is at the banks
prime rate (4.25% at December 31, 2006
and June 30, 2006) plus 1% per annum
    
    
    218
    
    
    
    260Subtotal
    
    $
    1,090
    
    
    $
    1,500Capital leases:denominated by Singapore dollars
with an interest rate ranging from 4.19% to 6.02% per annum
    
    $
    305
    
    
    $
    316denominated by Malaysia ringgit
with a fixed interest rate at 4.30% per annum
    
    
    11
    
    
    
    14denominated by U.S. dollars
with a fixed interest rate at 0.81% per annum
    
    
    5
    
    
    
    7Subtotal
    
    $
    321
    
    
    $
    337Line of credit:Denominated by Singapore dollars; interest is at the banks
prime rate (3.346% at December 31, 2006,
and 5.75% at June 30, 2006) plus 0.20% per annum at December
31, 2006 and 0.25% per annum at June 30, 2006.
    
    $
    1,947
    
    
    $
    116Subtotal
    
    $
    1,947
    
    
    $
    116Total
    
    $
    3,358
    
    
    $
    1,953
 30




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##### Table of Contents



Foreign Currency Exchange Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
  31




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##### Table of Contents



TRIO-TECH INTERNATIONAL
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 CERTAIN RISKS THAT MAY AFFECT OUR FUTURE RESULTS
  Possible
Dilutive Effect of Outstanding Options
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to Vote of Security Holders
  Director
    
    Votes For
    
    Votes Withheld
    
    No Vote
    
    TotalJason Adelman
    
    
    2,586,920
    
    
    
    346
    
    
    
    635,226
    
    
    
    3,222,492Richard Horowitz
    
    
    2,586,883
    
    
    
    383
    
    
    
    635,226
    
    
    
    3,222,492A. Charles Wilson
    
    
    2,507,303
    
    
    
    79,963
    
    
    
    635,226
    
    
    
    3,222,492Yong Siew Wai
    
    
    2,525,703
    
    
    
    61,563
    
    
    
    635,226
    
    
    
    3,222,492
 
 Item 5. Other Information
  32




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##### Table of Contents



Item 6. Exhibits
 31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer of Registrant31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer of Registrant32
    
    Section 1350 Certification.
 33




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##### Table of Contents



SIGNATURES
  TRIO-TECH INTERNATIONALBy:
    
    /s/ Victor H.M. TingVICTOR H.M. TINGVice President andChief Financial Officer(Principal Financial Officer)Dated: February 09, 2007
 34