UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended March 31,September 30, 2008

OR

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

For the Transition Period from ___ to ___

Commission File Number 1-14523

TRIO-TECH   INTERNATIONAL
(Exact name of Registrant as specified in its Charter)


California95-2086631
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
(I.R.S. Employer Identification Number)
  
16139 Wyandotte Street 
Van Nuys, California91406
(Address of principle executive offices)(Zip Code)

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

Not Applicable
(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.company.  See the definitions of “large accelerated filed,filer,” “accelerated filer”filer” and “smaller reporting company”company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer £                                                                                Accelerated Filer £
  Non-Accelerated Filer £                                                              Smaller Reporting Company R
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R

Number of shares of common stock outstanding as of April 28,November 1, 2008 was 3,226,430is 3,227,430


TRIO-TECH    INTERNATIONAL
INDEX TO CONSOLIDATED FINANCIALFINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURESSIGNATURE


  Page
Part I.
Financial Information
 
Item 1.
Financial Statements
 
 
(a) Condensed Consolidated Balance Sheets as of March 31,September 30, 2008 (Unaudited) and June 30, 20072008
42
 
(b) Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended March 31,September 30, 2008 (Unaudited) and March 31,September 30, 2007 (Unaudited)
 
53
 
(c) Condensed Consolidated Statements of Cash Flows for the NineThree Months Ended March 31,September 30, 2008 (Unaudited) and March 31,September 30, 2007 (Unaudited)
6
4
 
(d) Notes to Consolidated Financial Statements (Unaudited)
75
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
1817
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
3129
Item 4T.
Controls and Procedures
3130
   
Part II.
Other Information
 
Item 1.
Legal Proceedings
3231
Item 1A.
Risk Factors
32
31
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
32
31
Item 3.
Defaults upon Senior Securities
32
31
Item 4.
Submission of Matters to a Vote of Security Holders
32
31
Item 5.
Other Information
32
31
Item 6.
Exhibits
32
31
   
Signatures
 33
32
Exhibits 34
Certifications34


2-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; and other economic, financial and regulatory factors beyond the Company’s control. The increasecontrol; and the sharp correction in world-widethe housing market and the significant fluctuations of oil prices caused companies to incur higher costs. We believe customers have tightenedwhich occurred in 2007 and will continue to tighten their spending, resulting in a decline in the demand for electronic products and semiconductor equipment. We anticipate that this chain effect will hit the Company’s business gradually in the future.2008. See the discussions elsewhere in this Form 10-Q, including under the heading “Certain Risks That May Affect Our Future Results,” for more information. In some cases, you can identify forward-looking statements by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” “believes,” “can impact,” “continue,” or the negative thereof or other comparable terminology.

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


3-1-

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTSSTATEMENTS

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCEBALANCE SHEETSUNAUDITED (IN THOUSANDS, EXCEPT NUMBER OF SHARES)
 
  March 31, June 30,   September 30, June 30, 
  2008  2007   2008  2008 
ASSETS  (Unaudited)     (Unaudited)   
            
CURRENT ASSETS:CURRENT ASSETS:     CURRENT ASSETS:     
Cash $5,958 $7,135  $4,664 $6,600 
Short-term depositsShort-term deposits 8,342 7,815 Short-term deposits 8,362 7,746 
Trade accounts receivable, less allowance for doubtful accounts of $44 and $42
 7,083 7,410 
Trade accounts receivable, less allowance for doubtful accounts of $47 and $51
Trade accounts receivable, less allowance for doubtful accounts of $47 and $51
 4,833 5,702 
Other receivablesOther receivables 682 245 Other receivables 697 796 
Inventories, less provision for obsolete inventory of $817 and $781
 2,144 1,946 
Inventories, less provision for obsolete inventory of $685 and $880
Inventories, less provision for obsolete inventory of $685 and $880
 1,879 2,449 
Prepaid expenses and other current assetsPrepaid expenses and other current assets 222  122 Prepaid expenses and other current assets 195  138 
Assets held for sale 219  -- 
Total current assets 24,650 24,673 Total current assets 20,630 23,431 
            
INVESTMENT IN CHINA (Note 11) 2,931 -- 
INVESTMENT IN CHINA (Note 9)INVESTMENT IN CHINA (Note 9) 2,291 2,267 
PROPERTY, PLANT AND EQUIPMENT, NetPROPERTY, PLANT AND EQUIPMENT, Net 7,713 7,458 PROPERTY, PLANT AND EQUIPMENT, Net 7,938 8,136 
OTHER INTANGIBLE ASSETS, NetOTHER INTANGIBLE ASSETS, Net 143 212 OTHER INTANGIBLE ASSETS, Net 80 112 
OTHER ASSETSOTHER ASSETS 645  445 OTHER ASSETS 735  813 
TOTAL ASSETSTOTAL ASSETS$36,082 $32,788 TOTAL ASSETS$31,674 $34,759 
            
LIABILITIES AND SHAREHOLDERS' EQUITYLIABILITIES AND SHAREHOLDERS' EQUITY     LIABILITIES AND SHAREHOLDERS' EQUITY     
            
CURRENT LIABILITIES:CURRENT LIABILITIES:     CURRENT LIABILITIES:     
Accounts payableAccounts payable$2,413 $2,265 Accounts payable$1,261 $2,586 
Accrued expensesAccrued expenses 3,658 4,354 Accrued expenses                2,796 3,036 
Advances from buyer 22 -- 
Income taxes payableIncome taxes payable 544 948 Income taxes payable 450 397 
Current portion of notes payable 1,417 536 
Current portion of bank loans payableCurrent portion of bank loans payable 2,516 1,403 
Current portion of capital leasesCurrent portion of capital leases 93  125 Current portion of capital leases 75  106 
Total current liabilities 8,147  8,228 Total current liabilities 7,098 7,528 
           
NOTES PAYABLE, net of current portion 1,961 139 
BANK LOANS PAYABLE, net of current portionBANK LOANS PAYABLE, net of current portion - 1,620 
CAPITAL LEASES, net of current portionCAPITAL LEASES, net of current portion 95 155 CAPITAL LEASES, net of current portion 125 143 
DEFERRED TAX LIABILITIESDEFERRED TAX LIABILITIES 499  373 DEFERRED TAX LIABILITIES 550 510 
OTHER LIABILITIESOTHER LIABILITIES 9 9 
              
TOTAL LIABILITIESTOTAL LIABILITIES $10,702  $8,895 TOTAL LIABILITIES $7,782  $9,810 
      
     
             
MINORITY INTERESTMINORITY INTEREST 2,728 2,459 MINORITY INTEREST 2,899 2,808 
            
SHAREHOLDERS' EQUITY:SHAREHOLDERS' EQUITY:     SHAREHOLDERS' EQUITY:     
Common stock; no par value, 15,000,000 shares authorized; 3,226,430 and 3,225,930 shares issued and outstanding as of
March 31, 2008 and June 30, 2007, respectively
 10,362 10,361 
Common stock; no par value, 15,000,000 shares authorized; 3,227,430 and 3,226,430 shares issued and outstanding as at September 30, 2008, and at June 30, 2008, respectively
Common stock; no par value, 15,000,000 shares authorized; 3,227,430 and 3,226,430 shares issued and outstanding as at September 30, 2008, and at June 30, 2008, respectively
 10,365 10,362 
Paid-in capitalPaid-in capital 850 460 Paid-in capital 1,166 928 
Retained earnings 9,286 10,135 
Accumulated other comprehensive income 2,154  478 
Accumulated retained earningsAccumulated retained earnings 8,106 8,825 
Accumulated other comprehensive loss-translation adjustmentsAccumulated other comprehensive loss-translation adjustments 1,356  2,026 
Total shareholders' equity 22,652  21,434 Total shareholders' equity 20,993  22,141 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITYTOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$36,082 $32,788 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$31,674 $34,759 

See accompanying notes to condensed consolidated financial statements.
4-2-


TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME,
UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
  Three Months Ended 
  September 30,  September 30,, 
  2008  2007 
  (Unaudited)  (Unaudited) 
Revenues      
     Products $3,132  $6,507 
     Services  3,098   5,543 
   6,230   12,050 
Costs of Sales        
     Cost of products sold  2,667   5,529 
     Cost of services rendered  2,261   3,479 
   4,928   9,008 
         
Gross Margin  1,302   3,042 
         
Operating Expenses / (Gains) :        
     General and administrative  2,015   1,645 
     Selling  123   124 
     Research and development  10   19 
     Gain on disposal of property, plant and equipment  (159)  - 
              Total operating expenses  1,989   1,788 
         
(Loss) Income  from Operations  (687)  1,254 
         
Other Income (Expenses)        
     Interest expense  (58)  (85)
     Other income (expenses)  215   (50)
     Total other income (expenses)  157   (135)
         
(Loss) Income Before Income Taxes  (530)  1,119 
         
Income Tax Provision  98   172 
         
(Loss) Income Before Minority Interest  (628)  947 
         
Minority interest  91   196 
         
Net (Loss)Income Attributed to Common Shares $(719) $751 
         
(LOSS) EARNINGS PER SHARE:        
 Basic (loss) earnings per share $(0.22) $0.23 
 Diluted (loss) earnings per share $(0.22) $0.23 
         
Weighted Average Shares Outstanding        
 Basic  3,227   3,226 
 Diluted  3,227   3,237 
         
Comprehensive Income (Loss):        
     Net (loss) income $(719) $751 
     Foreign currency translation adjustment  (670)  216 
Comprehensive (Loss) Income $(1,389) $967 
 
             
  Nine Months Ended  Three Months Ended 
  March 31,  March 31,  March 31,  March 31, 
  2008  2007  2008  2007 
  (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited) 
Revenue            
  Products $18,190  $22,037  $4,482  $7,265 
  Services  15,186   15,519   3,973   6,348 
   33,376   37,556   8,455   13,613 
Cost of Sales                
   Cost of products sold  15,716   18,480   4,248   6,019 
   Cost of services rendered  10,014   9,655   2,798   3,997 
   25,730   28,135   7,046   10,016 
                 
Gross Margin  7,646   9,421   1,409   3,597 
                 
Operating Expenses                
General and administrative  6,144   5,121   2,075   1,971 
Selling  466   660   189   262 
Research and development  45   52   7   18 
Impairment loss  457   174   441   2 
Loss on disposal of property, plant & equipment  11   --   11   -- 
Total operating expenses  7,123   6,007   2,723   2,253 
                 
Income (Loss ) from Operations  523   3,414   (1,314)  1,344 
                 
Other Income (Expenses)                
Interest expense  (257)  (119)  (93)  (53)
Other income (expenses)
  (224)  155   (33)  45 
Total other (expenses) income  (481)  36   (126)  (8)
                 
                 
Income (Loss) Before Income Taxes  42   3,450   (1,440)  1,336 
                 
Income Tax Provision  268   717   (46)  239 
                 
                 
Income (Loss) Before Minority Interest  (226)  2,733   (1,394)  1,097 
Minority interest  (269)  (97)  (17)  (16)
Net Income (Loss) Attributable to Common Shares  (495)  2,636   (1,411)  1,081 
                 
EARNINGS PER SHARE:                
Basic earnings (loss) per share $(0.15) $0.82  $(0.44) $0.34 
Diluted earnings (loss) per share $(0.15) $0.82  $(0.44) $0.33 
                 
Weighted Average Shares Outstanding:                
Basic  3,226   3,225   3,226   3,226 
Diluted  3,226   3,235   3,226   3,236 
                 
Comprehensive Income (Loss):                
Net income (loss) $(495) $2,636  $(1,411) $1,081 
Foreign currency translation adjustment  1,676   957   758   449 
                 
Comprehensive Income (Loss) $1,181  $3,593  $(653) $1,530 
See accompanying notes to condensed consolidated financial statements.

5-3-

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS,, UNAUDITED (IN THOUSANDSTHOUSANDS))
      
       Three Months Ended
 March 31,  March 31,  September 30,  September 30,
 2008  2007  2008  2007
 (Unaudited)  (Unaudited)  (unaudited)  (unaudited)
Cash Flow from Operating Activities           
Net income (loss) $(495) $2,636  $(719) $751 
Adjustments to reconcile net income to net cash flow provided by operating activities        
Adjustments to reconcile net income to net cash flow provided by (used in) operating activities
        
Depreciation and amortization  2,262   2,007   546   805 
Bad debts expense, net  2   145 
Bad debt expense, net  8   1 
Inventory provision  36   151   195   15 
Interest income on short-term deposits  (39)  (66)  (51)  (53)
Impairment loss  457   174 
Gain on sale of equipment  (159)  - 
Stock compensation  390   4   238   - 
Loss (gain) on sale of property  11   (41)
Deferred tax provision  126   25   40   8 
Minority interest  268   98   91   200 
Changes in operating assets and liabilities, net of acquisition effects
                
Accounts receivables  325   (2,099)  861   (2,584)
Other receivables  (437)  69   99   (255)
Other assets  (200)  (102)  78   18 
Inventories  (234)  310   375   (236)
Prepaid expenses and other current assets  (100)  4   (57)  (84)
Accounts payable and accrued liabilities  (548)  (729)  (1,565)  843 
Income tax payable  (404)  286   53   189 
Net cash provided by operating activities  1,421   2,872 
Net cash provided by (used in) operating activities  33   (382)
                
                
Cash Flow from Investing Activities                
Proceeds from short-term deposits matured  25,537   10,238 
Proceeds from short-term deposit matured  464   10,369 
Investments in short-term deposits  (25,946)  (9,836)  (1,034)  (11,432)
Additions to property, plant and equipment  (2,507)  (2,409)  (659)  (545)
Proceeds from sale of equipment  161   - 
Investment in Chongqing, China  (2,931)  --   -   (1,331)
Proceeds from sale of property  15   50 
Net cash used in investing activities  (5,832)  (1,957)  (1,068)  (2,939)
                
Cash Flow from Financing Activities                
Net borrowings on lines of credit  22   316 
Net borrowings on lines of credits  -   209 
Repayment of bank loans and capital leases  (1,305)  (698)  (551)  (417)
Proceeds from long-terms bank loans and capital leases  3,837   6 
Proceeds from long-term bank loans and capital leases  -   3,610 
Proceeds from exercising stock options  1   23   3   - 
Proceeds from 10% shareholder on the short swing profit of the company stock  --   118 
Dividends paid to minority interest  --   (42)
Paid dividends  (354)  (323)
Net cash provided (used) in financing activities  2,201   (600)
Net cash (used in) provided by financing activities  (548)  3,402 
                
Effect of Changes in Exchange Rate  1,033   614   (353)  123 
                
NET INCREASE IN CASH  (1,177)  929 
NET (DECREASE) INCREASE IN CASH  (1,936)  204 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD  7,135   2,551   6,600   7,135 
CASH AND CASH EQUIVALENTS, END OF PERIOD $5,958  $3,480  $4,664  $7,339 
                
Supplementary Information of Cash Flows                
Cash paid during the period for:                
Interest $186  $119  $60  $34 
Income taxes $732  $433  $-  $3 
                
Non-Cash Transactions                
Capital lease of property, plant and equipment $--  $52 
Declaration of cash dividends to be paid $354  $-- 
Assets held for sale $-   (210)
Carrying value of property reclassified from property, plant and equipment $-   210 
        

See accompanying notes to condensed consolidated financial statements.

6-4-


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
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:

 OwnershipLocation
Express Test Corporation (dormant)100%Van Nuys, California
Trio-Tech Reliability Services (dormant)100%Van Nuys, California
KTS Incorporated, dba Universal Systems (dormant)100%Van Nuys, California
European Electronic Test Centre (Operation ceased on November 1, 2005)100%Dublin, Ireland
Trio-Tech International Pte. Ltd.100%Singapore
Universal (Far East) Pte. Ltd.100%Singapore
Trio-Tech Thailand100%Bangkok, Thailand
Trio-Tech Bangkok100%Bangkok, Thailand
Trio-Tech Malaysia55%Penang and Selangor, Malaysia
Trio-Tech Kuala Lumpur – 100% owned by Trio-Tech Malaysia55%Selangor, Malaysia
Trio-Tech Malaysia
Prestal Enterprise Sdn. Bhd.76%Selangor, Malaysia
Trio-Tech (SIP)(Suzhou) Co., Ltd.100%Suzhou, China
Trio-Tech (Shanghai) Co., Ltd.100%Shanghai, China
Trio-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 ninethree months ended March 31,September 30, 2008 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2008.2009.  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, 2007.2008.

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

Change in Estimate:

In the first quarter of fiscal year 2008, our Singapore operation reversed approximately $255 in employee bonuses payable that were accrued during the fiscal year ended June 30, 2007.  The provision for bonuses was based on the Company’s policy and guidelines related to bonuses, the financial results of the Singapore operation, group objectives and individual employee performance set up at the beginning of fiscal year 2007 and employee headcount on June 30, 2007.  According to the Company’s guidelines, the Singapore operation accrued $1,110 in bonuses payable, and 420 employees were covered under the bonus provision.
Prior to the time for payment of bonuses accrued, the Company determined (a) that in the first quarter of fiscal year 2008, 51 (12.4%) employees on the bonus list for fiscal year 2007 had left the Company and thus were not entitled to such bonuses, and
(b) based on the employee performance review conducted at the end of September 2007, management noted that among more than 350 employees who were still on the bonus list, a number of employees did not qualify for the bonus of the full three months of base salary.  As a result of combining the aforementioned factors, bonuses totaling $255 were over-accrued.  Accordingly, the over-provision of $255 was reversed in the first quarter of fiscal 2008 as a result of the change in estimate.  This change in estimate increased the net income for the nine months ended March 31, 2008 by $255, or $0.08 per diluted share.

7-5-

 
In addition, during the nine months ended March 31, 2008, the Singapore operation reversed commission expenses of $92. A portion of the commissions payable by the Company is based on the estimated profit margin of sales when sales are recorded.  Management reviews the commission liability periodically with the appropriate personnel.  When the actual profit margin is lower than the one expected, the accrued commission liability should be reduced and the commission expenses should be reversed accordingly.  Based on management review in the nine months ended March 31, 2008, it was determined that the actual profit margin for some sales was less than expected due to an increase in unexpected service expenses following the sales. Accordingly, the Company reversed $92 in commissions.  This change in estimate increased the net income for the nine months ended March 31, 2008 by $92, or $0.03 per diluted share.2.    NEW ACCOUNTING PRONOUNCEMENTS

In April 2008, the third quarterFinancial Accounting Standards Board (“FASB”)  issued FASB Staff Position (“FSP”) No. SFAS 142-3, “Determination of fiscal 2008, onethe Useful Life of our major customers sent an official noticeIntangible 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 Company that, starting from April 1, 2008, their advanced burn-in testing service contract with us would cease.  Management performed an impairment test onuseful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The intent of FSP SFAS 142-3 is to improve the advance burn-in testing assets after receivingconsistency between the noticeuseful life of a recognized intangible asset under SFAS 142 and decidedthe period of expected cash flows used to write downmeasure the bookfair value of thesethe asset under SFAS No. 141R (revised 2007), “Business Combinations” and other applicable accounting literature. 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 to zero.acquired after the effective date. The Company recorded an impairment loss of $221 on the advanced burn-in testing equipment, which will not be recoverable.  In order to match our expenses with the future cash flows from the lossadoption of this testing revenue, the Company terminated 65 employees instatement is not expected to have a material impact on our Singapore operation and recorded $57 in unemployment benefits during the third quarterconsolidated financial position or results of 2008. The employees were notified of this reduction in March.  The Company also decreased the salary of the chief executives by $93 per quarter effective April 1, 2008. In Singapore, the Company sent the landlord an early notice of termination for four leased plants This accounting for lease termination costs was less than $1 for the third quarter. The total rental cost of the plant spaces terminated in Singapore was $25 per quarter.  The Company is in the early stages of developing new customer relationships in China and Malaysia to replace the lost testing revenues from this contract.

2operations.
NEW ACCOUNTING PRONOUNCEMENTS

In March 2008, the FASB issued SFAS No. 162, The FinancialHierarchy of Generally Accepted Accounting StandardsPrinciples. 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 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (“FASB”)amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not expect the implementation of this statement to have an impact on its 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 hasdoes not completed its evaluationexpect the implementation of the potentialthis statement to have a material impact if any, of the adoption of SFAS No. 161 on its consolidated financial position, results of operations and cash flows.or financial position.

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

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

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

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, orThe Company adopted SFAS No. 157.  SFAS No. 157 clarifies the definition of fair value, establishes a framework for measuring fair value159 on July 1, 2008 and expands the disclosures on fair value measurements.  SFAS No. 157 is effective for fiscal years beginning after November 15, 2007.  There is partial delay in applying FAS 157 to non-financial assets and liabilities measured on a non-recurring basis. The Company is currently evaluating theit has no impact adoption may have on its financial condition or results of operations.

83.    INVENTORIES

3.
INVENTORIES
Inventories consisted of the following:

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

4.
STOCK OPTIONS
  Sept. 30, 2008  June 30, 2008 
  (Unaudited)    
       
Raw materials $1,122  $1,297 
Work in progress  1,257   1,797 
Finished goods  185   235 
Less: provision for obsolete inventory  (685)  (880)
  $1,879  $2,449 

4.    STOCK OPTIONS
As of March 31,September 30, 2008, the Company had 12,5502,750 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.Directors.

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

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

Assumptions

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

  Nine Months Ended Year Ended
  March 31, 2008 June 30, 2007
     
Expected volatility  115.07-110.91%  73.22-98.51%
Risk-free interest rate  1.62 %  4.5 %
Expected life (years)  2.00  2.00
  Three Months Ended  Year Ended 
  September 30, 2008  June 30, 2008 
       
Expected volatility  107.18%  110.91-117.70%
Risk-free interest rate  2.48%  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 options.  The expected life of stock options is based on the historical experience of similar stock options granted and observed.  The risk-free rate is consistent with the expected terms of the stock options and is based on the United States Treasury yield curve in effect at the time of grant.


           
9


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 the options granted should be exercisable within a maximum of ten years after the date of grant, or such lesser period of time as is set forth in the stock option agreements. They shall be exercisable (a) immediately as of the effective date of the stock option agreement granting the Option, or (b) in accordance with a schedule related to the date of the grant of the Option, the date of first employment, or such other date as may be set by the Compensation Committee.  Generally, options granted under the 2007 Employee Plan are exercisable within five years after the date of grant, and vest over the period as follows: 25% vesting on the grant date and the remaining balance vesting in equal installments on the next three succeeding anniversaries of the grant date.  The share-based compensation will be recognized in terms of the grade method over the vesting period. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the 2007 Employee Plan).

During the secondfirst quarter of fiscal 2008,2009, 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 $277$136 based on the fair value of $5.55$2.71 per share determined by using the Black Scholes option pricing model.  There were no options exercised during the nine months ended March 31, 2008.

The Company recognized stock-based compensation expense of approximately $113$75 in the nine months ended March 31, 2008first quarter of fiscal 2009 under the 2007 Employee Plan.  Unamortized stock-based compensation of $164$172 based on fair value on the grant date related to options granted under the 2007 Employee Plan is expected to be recognized over a period of three years.

As of March 31,September 30, 2008, there were 12,50023,000 shares of vested employees’ stock options. The weighted-average exercise price was $9.57,$7.03 and the weighted average remaining contractual term was 4.684.50 years. The total intrinsic value of vested employees’ stock options during the ninethree months ended March 31,September 30, 2008 was zero.  A summary of option activities under the 2007 Employee Plan during the ninethree months of fiscal 2008 ended March 31,September 30, 2008 is presented as follows:

     Weighted- Average Exercise  Weighted - Average Remaining Contractual  Aggregate Intrinsic 
  Options  Price  Term (Years)  Value 
            
Outstanding at July 1, 2007  --   --       
Granted  50,000  $9.57       
Exercised  --   --       
Forfeited or expired  --   --       
Outstanding at March 31, 2008  50,000  $9.57   4.68   -- 
Exercisable at March 31, 2008  12,500  $9.57   4.68   -- 
  Options  
Weighted- Average Exercise Price
  
Weighted - Average Remaining Contractual Term (Years)
  
Aggregate Intrinsic Value
 
         
             
Outstanding at July 1, 2008  44,000  $9.57   4.43   - 
Granted  50,000  $4.81   4.78   - 
Exercised  -   -         
Forfeited or expired  (2,000) $7.19         
Outstanding at September 30, 2008  92,000  $7.03   4.50   - 
Exercisable at September 30, 2008  23,000  $7.03   4.50   - 


A summary of the status of the Company’s non-vested employees’ stock options during the ninethree month period ended March 31,September 30, 2008 is presented below:

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


  Options  Weighted-Average Grant-Date Fair Value 
     
       
Non-vested at July 1, 2008  33,000  $5.55 
Granted  50,000  $2.71 
Vested  (12,500) $2.71 
Forfeited  (1,500) $4.13 
Non-vested at September 30, 2008  69,000  $4.04 
10-9-

           
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 secondfirst quarter of 2007,2009, pursuant to the 2007 Directors Plan, 50,00060,000 shares of stock options were granted to our directors with an exercise price equal to the fair market value of our Common Stock (as defined under the 2007 Directors Plan in conformity with Regulation 409A or the Internal Revenue Code of 1986, as amended) at the date of grant.  The fair market value of 50,00060,000 shares of the Company’s Common Stock issuable upon exercise of stock options granted was approximately $277$163 based on the fair value of $5.55$2.71 per share determined by the Black Scholes option pricing model.  There were no options exercised during the ninethree month period ended March 31, 2007.September 30, 2008.  The Company recognized stock-based compensation expense of $277$163 in the ninethree months ended March 31,September 30, 2008 under the 2007 Directors Plan.

A summary of option activities under the 2007 Directors Plan during the ninethree month period ended March 31,September 30, 2008 is presented as follow:

     Weighted- Average Exercise  Weighted - Average Remaining Contractual  Aggregate Intrinsic 
  Options  Price  Term (Years)  Value 
        
    
   
Outstanding at July 1, 2007  --          
Granted  50,000  $9.57       
Exercised  --   --       
Forfeited or expired  --   --       
Outstanding at March 31, 2008  50,000  $9.57   4.68   -- 
Exercisable at March 31, 2008
  50,000  $9.57   4.68   -- 
     Weighted- Average Exercise  Weighted - Average Remaining Contractual  Aggregate Intrinsic 
  Options  Price  Term (Years)  Value 
           
Outstanding at July 1, 2008  60,000  $9.57   4.43    
Granted  60,000  $4.81   4.78    
Exercised  -   -        
Forfeited or expired  -   -        
Outstanding at September 30, 2008  120,000  $7.19   4.48   - 
Exercisable at September 30, 2008
  120,000  $7.19   4.48   - 


-10-

1998 Stock Option Plan

A summary of option activities under the 1998 Plan during the ninethree month period ended March 31,September 30, 2008 is presented as follow:

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

     Weighted- Average Exercise  Weighted - Average Remaining Contractual  Aggregate Intrinsic 
  Options  Price  Term (Years)  Value 
           
Outstanding at July 1, 2008  12,550  $3.03       
Granted  -   -       
Exercised  (1,000) $2.66       
Forfeited or expired  (8,800) $2.66       
Outstanding at September 30, 2008  2,750  $4.40   0.75   - 
Exercisable at September 30, 2008  2,750  $4.40   0.75   - 
The intrinsic value of 5002,750 options exercised was $2.zero. Cash received from options exercised in the thirdfirst quarter of 20082009 was approximately $1.


11
$3. There were no Table of Contents
unvested
A summary of the status of the non-vested stock options under the 1998 Plan during the nine month period ended March 31, 2008 is presented below:as of September 30, 2008.

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

5.5.    EARNINGS PER SHARE
EARNINGS PER SHARE

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

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

Options to purchase 12,550214,750 shares of Common Stock at exercise prices ranging from $2.66$4.40 to $9.57 per share were outstanding as of March 31,September 30, 2008 and were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.

Options to purchase 15,80013,050 shares of Common Stockcommon stock at exercise prices ranging from $2.66 to $4.40 per share were outstanding as of March 31,September 30, 2007. No options were excluded in the determination of common shares equivalents, because the average market price of common shares was greater than the exercise price of the stock options. The resulting common shares equivalents were approximately ­­12,00011,000 shares and are presented in the following table for earnings per share calculation purposes.

-11-

The following table is a reconciliation of the weighted average shares used in the computation of basic and diluted EPS for the years presented herein:

  Nine Months Ended  Three Months Ended 
  March 31,  March 31,  March 31,  March 31, 
  2008  2007  2008  2007 
  (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited) 
             
Net income (loss) attributable to common shares $(495) $2,636  $(1,411) $1,081 
                 
Basic Earnings (loss) Per Share $(0.15) $0.82  $(0.44) $0.34 
                 
Diluted Earnings (loss) Per Share $(0.15) $0.82  $(0.44) $0.33 
                 
Weighted average number of common shares outstanding - basic  3,226   3,225   3,226   3,226 
                 
Dilutive effect of stock options  --   10   --   10 
                 
Number of shares used to compute Earnings Per Share - diluted  3,226   3,235   3,226   3,236 
  Three Months Ended 
  Sep. 30,  Sep. 30, 
  2008  2007 
  (Unaudited)  (Unaudited) 
       
Net (loss) income attributed to common shares $(719) $751 
         
Basic (loss) earnings per share $(0.22) $0.23 
         
Diluted (loss) earnings per share $(0.22) $0.23 
         
Weighted average number of common shares outstanding - basic  3,227   3,226 
         
Dilutive effect of stock options  -   11 
Number of shares used to compute earnings per share - diluted  3,227   3,237 


12

6.
6.            ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

Senior management of the Company reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible.  The Company includesWe 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 the Company believes that itsto us, we believe our allowance for doubtful accounts for the ninethree months ended March 31,September 30, 2008 and the twelve months ended June 30, 20072008 was adequate.

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

  Sept. 30, 2008    
  (Unaudited)  
June 30, 2008
 
       
Beginning $51  $42 
Additions charged to expenses  8   24 
  Recovered  (12)  (15)
Actual write-offs  -   - 
Ending $47  $51 


  March 31,  June 30, 
  2008  2007 
  (Unaudited)    
       
Beginning $42  $225 
Additions charged to expense  17   18 
Recovered  (15)  (159)
Actual write-offs  -   (42)
Ending $44  $42 
-12-

7.
DIVIDEND PAID TO SHAREHOLDERS

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

8.
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.

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

9.LONG TERM DEBT
  
Sept. 30, 2008
    
  (Unaudited)   June 30, 2008 
       
Beginning $113  $211 
 Additions charged to cost and expenses  1   - 
Reversal  (23)  (80)
Actual usage  (7)  (18)
Ending $84  $113 

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


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

10.ADOPTION OF FIN8.           ADOPTION OF 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.  As of June 30, 2007, and the adoption date, the Company had $267 of income tax liability related to the allocation of corporate management expenses to its Singapore operations.  The Company has not recognized any income tax benefit for this position during the current quarter in accordance with the provisions of FIN 48.

11.
9.            INVESTMENT IN CHONGQING CHINA

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

 Investment Date Investment Amount  Investment Amount 
   (RMB)  (U.S. Dollars) 
Investment in property with Jiasheng8/28/07  10,000   1,426 
Investment in property with Jiasheng12/17/07  5,000   713 
Purchase an investment property1/04/08  5,554   792 
Total investment in China  RMB20,554  $2,931 

In June 2007, Trio-Tech International Pte., Ltd. established a subsidiary in Chongqing, China.  This newly established subsidiary, Trio-Tech (Chongqing) Co., Ltd., has a registered capital of RMB20,000RMB 20,000 (Chinese yuan), or equivalent to approximately U.S. $2,600, and is wholly owned by Trio-Tech International Pte., Ltd. In June 2007, Trio-Tech International Pte., Ltd. infused $2,600 to Trio-Tech (Chongqing) Co., Ltd. to fulfill its capital injection obligation.  The source of the funds was from the proceeds from the disposition of disposing short-term deposits by Trio-Tech International Pte., Ltd.

On August 27, 2007, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement with JiashengJiaSheng Property Development Co., Ltd. (Jiasheng(JiaSheng hereafter) to jointly develop a piece of property with 24.91 acres owned by JiashengJiaSheng located in Chongqing City, China, which is intended for sale after the completion of development.  Pursuant to the signed agreement, the capital to be invested by Trio-Tech (Chongqing) Co., Ltd. was RMB10,000,RMB 10,000, equivalent to approximately U.S. $1,426$1,473 based on the exchange rate on March 31,September 30, 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.JiaSheng.  The investment was accounted under the cost method as the Company accounted for less than 20% equity of this joint venture.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.JiaSheng.  The purpose of this Supplement Agreement was to document another agreement reached by both parties regarding the additional capital infusion to be committed by the respective parties in order to finance the increase in construction costs. The Supplement Agreement does not modify the terms and obligations of both parties specified in the original Memorandum Agreement.  Under the terms of the Supplement Agreement, the Company agreed to invest an additional RMB9,000,RMB 9,000, or approximately U.S. $1,284$1,326 based on the exchange rate as of March 31,September 30, 2008 published by the Federal Reserve Statistical Release.  By infusing the additional capital of RMB9,000, the Company increased its equity ratio from 16% to 24% of the total capital infused by both parties.  However, the profit sharing percentage remains at 20% as specified in the original Memorandum Agreement because management of the Company believes that the return on the total investment is still reasonable.System.   On December 17, 2007, Trio-Tech (Chongqing) Co., Ltd. received a list of additional costs incurred for this project, which were RMB4,000RMB 4,000 less than the estimated costscost of RMB9,000.RMB 9,000.  Accordingly, the Company only transferred RMB5,000,RMB 5,000, approximately U.S. $713,$737, from its bank account into the special bank account jointly monitored by both Trio-Tech (Chongqing) Co., Ltd. and Jiasheng.JiaSheng.  After that extra infusion, the equity ratio owned by the Company in that joint venture was 20%.

In the fourth quarter of 2008, the investment of RMB 5,000, approximately U.S. $737 based on the exchange rate as of September 30, 2008 published by the Federal Reserve System was returned to the Company, which reduced the investment in this project to $1,473.  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 $103 based on the exchange rate as of September 30, 2008 published by the Federal Reserve System, in investment income in the fourth quarter of 2008.
In accordance with APB 18, the Equity Method of Accounting for Investments in Common Stock, management believes that the cost method of accounting is appropriate.
On January 4, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement with MaoYe Property Ltd. to purchase an office space of 827.2 square meters on the 35th floor of a 40 story high office building located in Chongqing, China.  The total cash purchase price was RMB5,554RMB 5,554 (Chinese yuan), equivalent to approximately U.S. $792$818 based on the exchange rate as of March 31,September 30, 2008 published by the Federal Reserve System.  Under the terms of the agreement, the Company paid the purchase price in full on January 4, 2008.

In accordance  The Company rented this property to a third party on July 13, 2008. The term of the rent agreement is five years with APB 18, a monthly rental income of RMB 39, or approximately $5 for the Equity Methodfirst three years, with an increase of Accounting for Investments in Common Stock, with the 20% equity interest8% in the joint venture project, the Company considered several factors including primary beneficiary, decision making powerfourth year and representation on the Board of Directors. As Jiasheng is responsible for the daily business operations and development of that project and the Company dose not have decision making power and has played a passive investor role since the inception of this joint venture, management believes that the cost method of accounting is appropriate.  There was no operating activity in Trio-Tech (Chongqing) Co., Ltd.another 8% in the nine months ended March 31, 2008, and there was no income generated from the entity during this period.

12.
ASSETS HELD FOR SALE

Infifth year. It the first quarter of fiscal 2009, this property generated a rental income of $15.
The following table presents the Company’s investment in China in fiscal 2008. The exchange rate is based on the exchange rate on September 30, 2008 published by the Company initiated a plan to sellFederal Reserve System.

 Investment Date  Investment Amount  Investment Amount 
  (RMB)  (US Dollars) 
Investment in property with JiaSheng
08/28/07  10,000   1,473 
Investment in property with JiaSheng
12/17/07  5,000   737 
Purchase on investment property01/04/08  5,554   818 
Return on investment in property with JiaSheng
06/26/08  (5,000)  (737)
Total investment in China  RMB 15,554  $2,291 

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 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 $11 and $59 for the three months ended September 30, 2008 and 2007, respectively. Corporate assets mainly consisted of cash and prepaid expenses. Corporate expenses mainly consisted of salaries, insurance, professional expenses and directors' fees.
The following segment information is unaudited:

Business Segment Information:             
                 
 Quarter    Operating     Depr.    
 Ended Net  (Loss)  Total  and  Capital 
 Sept. 30, Sales  Income  Assets  Amort.  Expenditures 
Manufacturing2008 $3,046  $(444) $1,987  $60  $84 
 2007  6,396   326   3,949   40   33 
                      
Testing Services2008  3,098   (222)  29,593   485   575 
 2007  5,543   1,018   33,147   748   510 
                      
Distribution2008  86   31   44   1   - 
 2007  111   (22)  798   17   - 
                      
Corporate and2008  -   (52)  50   -   - 
Unallocated2007  -   (68)  531   -   2 
                      
Total Company2008 $6,230  $(687) $31,674  $546  $659 
 2007 $12,050  $1,254  $38,425  $805  $545 

Geographic Area Information:                      
                     Elimin-    
 Quarter                   ations    
 Ended United     Other           and  Total 
 Sept. 30, States  China  Countries  Singapore  Thailand  Malaysia  Other  Company 
Net Sales to2008 $2,332  $290  $379  $1,301  $129  $1,810  $(11) $6,230 
Customers2007  1,460   219   388   5,572   514   3,956   (59)  12,050 
                                  
Operating2008  (242)  (29)  (41)  (130)  (13)  (179)  (53)  (687)
Income (loss)2007  123   26   41   592   62   478   (68)  1,254 
                                  
Long-lived2008  6   842   -   1,540   666   5,004   (40)  8,018 
Assets2007  7   845   -   2,618   831   3,060   (40)  7,321 

11.     MINORITY INTEREST

Minority interest represents the property located inminority stockholders’ proportionate share of 45% of the equity of Trio-Tech Malaysia and ceased the depreciation of that property in accordance with SFAS No. 144,.

Accounting for the Impairment or Disposal of Long-Lived Assets.12.    SUBSEQUENT EVENTS The book value of this asset was $224 at March 31, 2008.  In late December 2007, the Company

On October 23, 2008, Trio-Tech Chongqing Co., Ltd. entered into a definite saleMemorandum Agreement with JiaSheng Property Development Co., Ltd. (“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 cash purchase agreement with a buyer with a selling price of RM700 (Malaysia ringgit), equivalent to be paid by the Company under the Memorandum Agreement is RMB 7,043 (Chinese yuan) or approximately U.S. $219, and received a deposit of RM70, equivalent to approximately U.S. $22,$1,030 (U.S. dollars) based on the exchange rate as of March 31,October 23, 2008 published by the Federal Reserve Statistical Release. It is anticipated thatUnder the sale will be consummatedterms of the Memorandum Agreement, the Company made a down payment of 10% in cash in the fourthamount of RMB 704 or U.S. $103 based on the exchange rate as of October 23, 2008 published by the Federal Reserve Statistical Release in October 2008 and the balance of 90% was paid on November 4, 2008, using internally generated funds of the Company.

Additionally, 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 (Chinese yuan) or approximately $204 (U.S. dollars). The lease commenced November 1, 2008.

13.    LOAN COVENANT VIOLATION

As the Company suffered a loss in the first quarter of fiscal 2008.  Accordingly,2009, the Singapore operations did not fulfill one of their loan  covenants which requires the Company believes thatto maintain  the assets held for sale should be presented as partdebt to EBITDA ratio of current assets.  In accordance with SFAS No 144,no more than 2.5 times at all times during the asset held for sale was recorded at the lower of fair value less cost to sell of $219.  Impairment loss of $5 was recorded for the nine months ended March 31, 2008.

13.
IMPAIRMENT LOSS

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

In the nine months ended March 31, 2008,loan.  As a result the Company recorded an impairment losshas reclassified the related long term portion of $457, or $0.14 per diluted share, based on its examinationthe bank loan of future undiscounted cash flows.  An impairment loss$1,215 to the current portion of $16 was recordedthe liabilities.  The 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 second quarterprocess of fiscal year 2008, which consisted of a loss of $11 related toreviewing the disposal of certain fixed assets in our Suzhou operation in China and $5 related to the asset held for sale in Malaysia.  In the third quarter of fiscal 2008, the Company recorded an impairment loss of $441.  Of this amount, an impairment loss of $221 was for certain advanced burn-in testing equipment located in Singapore as a result of the termination of a testing service contract with one of our major customers. An impairment loss of $75 was for the burn-in board testing service in our Shanghai operation in China due to the change in demand for certain burn-in testing services, which in turn made certain of our existing burn-in facilities obsolete.  An impairment loss of $57 was for building renovations for certain testing projects due to a decrease in the customer’s order in our Shanghai operation in China.  The remaining impairment loss of $88 was for certain machinery and equipment in our Singapore operation due to a decrease in our backlog and projected future sales.Company’s request.


14.
BUSINESS SEGMENTS

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

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

All inter-segment sales were sales from the manufacturing segment to the testing and distribution segments.  Total inter-segment sales were $108 and $122 for the nine months ended March 31, 2008 and 2007, respectively.  Corporate assets mainly consisted of cash and prepaid expenses.  Corporate expenses mainly consisted of salaries, insurance, professional expenses and directors’ fees.
The following segment information is unaudited:
Business Segment Information:             
  Quarter    Operating     Depr.    
  Ended Net  Income  Total  and  Capital 
    March 31, Sales  (loss)  Assets  Amort.  Expenditures 
Manufacturing2008  $4,367  $(884) $3,747  $67  $43 
 2007  $6,923  $350  $3,511  $53  $98 
                      
Testing services2008   3,973   (553)  31,814   662   966 
 2007   6,348   1,077   27,978   826   313 
                      
Distribution2008   115   (69)  424   5   5 
 2007   342   (91)  556   4   - 
                      
Corporate and2008   -   192   97   -   - 
unallocated2007   -   8   208   -   - 
                      
Total Company2008  $8,455  $(1,314) $36,082  $734  $1,014 
 2007  $13,613  $1,344  $32,253  $883  $411 

Business Segment Information:             
  Nine               
  Months    Operating     Depr.    
  Ended Net  Income  Total  and  Capital 
  March 31, Sales  (loss)  Assets  Amort.  Expenditures 
Manufacturing2008  $17,848  $(92) $3,747  $174  $258 
 2007  $20,602  $1,041  $3,511  $147  $246 
                      
Testing services2008   15,186   1,110   31,814   2,074   2,233 
 2007   15,519   2,421   27,978   1,848   2,214 
                      
Distribution2008   342   (152)  424   14   14 
 2007   1,435   (101)  556   12   1 
                      
Corporate and unallocated
2008   -   (343)  97   -   2 
 2007   -   53   208   -   - 
                      
Total Company2008  $33,376  $523  $36,082  $2,262  $2,507 
 2007  $37,556  $3,414  $32,253  $2,007  $2,461 



Geographic Area Information:                      
                     Elimin-    
 Quarter                   ations    
 Ended United     Other           and  Total 
 March 31, States  China  Countries  Singapore  Thailand  Malaysia  Other  Company 
Net sales to2008 $1,052  $467  $551  $2,312  $471  $3,618  $(16) $8,455 
customers2007 $1,301  $1,102  $293  $8,493  $617  $1,868  $(61) $13,613 
                                  
Operating2008  (183)  (83)  (96)  (413)  (84)  (647)  192   (1,314)
income (loss)2007  104   112   14   854   63   189   8   1,344 
                                  
Long-lived2008  5   995   -   1,850   774   4,272   (40)  7,856 
assets2007  10   848   -   3,695   877   2,748   (40)  8,138 

Geographic Area Information:                      
 Nine                   Elimin-    
 Months                   ations    
 Ended United     Other           and  Total 
 March 31, States  China  Countries  Singapore  Thailand  Malaysia  Other  Company 
Net sales to2008 $4,096  $1,239  $1,468  $15,024  $1,544  $10,113  $(108) $33,376 
customers2007 $5,152  $4,493  $518  $21,030  $1,763  $4,722  $(122) $37,556 
                                  
Operating2008  42   (12)  (18)  758   23   73   (343)  523 
income (loss)2007  351   413   24   1,966   165   442   53   3,414 
                                  
Long-lived2008  5   995   -   1,850   774   4,272   (40)  7,856 
assets2007  10   848   -   3,695   877   2,748   (40)  8,138 



TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
IITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONSCONDITION AND RESULTS OF OPERATIONS
(IN (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”factors” and “Management’s Discussiondiscussion and Analysisanalysis of Financial Conditionfinancial condition and Resultsresults of Operations”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 sixfour testing facilities, one in the United States, three in Southeast Asia and two in China.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 and China with facilities in Singapore, Malaysia, Thailand and China.  Our facilities require substantial investment to construct and are largely fixed-costs assets once in operation. Because we own most of the testing capacity, a significant portion of our operating costs is fixed. In general, these costs do not decline with reductions in customer demand or the utilization of our testing capacity, and can adversely affect profit margins as a result. Conversely, as product demand rises and factory utilization increases, the fixed costs are spread over the increased output, which should improve profit margins.

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 $2,445 to $3,098 for the three months ended September 30, 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.  

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.

Recent EventsIn 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 U.S. $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 U.S. $2,210 based on the exchange rate on September 30, 2008 published by the Federal Reserve System on this project. In the fourth quarter of 2008, the investment of RMB 5,000, or approximately $737 was returned to the Company, which reduced the investment in this project to $1,473.  The Company also recorded a profit of RMB 750, approximately $103 in investment income in the fourth quarter of 2008.  In accordance with APB 18, The Equity Method of Accounting for Investments in Common Stock, management believes that the cost method of accounting is appropriate.
 
Purchase of an office space in Chongqing

On January 4, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement with MaoYe Property Ltd., a Chinese company, to purchase an office space of 827.2 square meters on the 35th floor of a 40 story high office building located in Chongqing, China.  The total cash purchase price was RMB5,554RMB 5,554 (Chinese yuan), equivalent to approximately U.S. $792$818 based on the exchange rate on March 31,as of September 30, 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 rent agreement is five years with a monthly rental income of RMB 39, or approximately $5 for the first three years, with an increase of 8% in the fourth year and another 8% in the fifth year. It the first quarter of fiscal 2009, this property generated a rental income of $15.

The investment income generated by Trio-Tech (Chongqing) Co., Ltd. in the first quarter of fiscal year 2009 was classified as investment income, which was included in other income in the Consolidated Statements of Operations and Comprehensive Income for the three months ended September 30, 2008. There was no investment income in the same period of fiscal 2008.

First Quarter Fiscal 2009 Highlights

●Total revenue decreased 48.3% to $6,230 for the first quarter of fiscal 2009, compared with revenue of $12,050 for the first quarter of fiscal 2008.
●Manufacturing segment revenue decreased by $3,350, or 52.4%, to $3,046, compared to $6,396 for the first quarter of fiscal 2008.
 ●
Testing segment revenue decreased by $2,445, or 44.1%, to $3,098, compared to $5,543 for the first quarter of fiscal 2008.
 ●
Distribution segment revenue decreased by $25, or 22.5% to $86, compared to $111 for the first quarter of fiscal 2008.
 ●
Loss from operations increased by $1,941, or 154.8%, to $687 compared with an income of $1,254 for the first quarter of fiscal 2008.
 ●
Gross profit margins decreased by 4.3% to 20.9% from 25.2% for the first quarter of fiscal 2008.
 ●
Selling expenses as a percentage of revenue increased by 1.0% from 1.0% of revenue for the first quarter of fiscal 2008 to 2.0% of revenue for the first quarter of fiscal 2009.
 ●
General and administrative expenses as a percentage of revenue increased by 18.6% from 13.7% of revenue for the first quarter of fiscal 2008 to 32.3% or revenue for the first quarter of fiscal 2009.
 ●
Net loss increased by $1,470, or 195.7% to $719, compared to a net income of $751 for the first quarter of fiscal 2008.
●
Net cash flow provided by operating activities increased by $415, or 108.6% to $33, compared to a cash outflow of $382 for the first quarter of fiscal 2008.

Subsequent Events

On October 23, 2008, Trio-Tech Chongqing Co., Ltd. entered into a Memorandum Agreement with JiaSheng Property Development Co., Ltd. (“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 cash purchase price to be paid by the Company under the Memorandum Agreement is RMB 7,043 (Chinese yuan) or approximately $1,030 (U.S. dollars) based on the exchange rate as of October 23, 2008 published by the Federal Reserve Statistical Release. Under the terms of the agreement,Memorandum Agreement, the Company made a down payment of 10% in cash in the amount of RMB 704 or U.S. $103 based on the exchange rate as of October 23, 2008 published by the Federal Reserve Statistical Release in October 2008 and the balance of 90% was paid the purchase price in full on JanuaryNovember 4, 2008, using internally generated funds of the Company.

Declaration of dividend

On February 12,Additionally, on October 23, 2008, the Board of Directors of Registrant declaredCompany entered into a cash dividend of eleven cents (U.S. 11¢) per share payablelease agreement with JiaSheng for the six units purchased from JiaSheng pursuant to the shareholdersMemorandum Agreement.  The lease provides for a two year term with an annual rental income of record on February 25, 2008.RMB 1,392 (Chinese yuan) or approximately $204 (U.S. dollars). The total number of shares issued and outstanding as of February 25, 2008 was 3,226,430 and the total cash dividends paid on March 25, 2008 were $354.

18
lease Table of Contentscommenced


Termination of advanced burn-in testing service contract

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

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

Third Quarter Fiscal 2008 Highlights

·  In the third quarter of fiscal year 2008, we recorded $441, or $0.14 per diluted share, in impairment loss due primarily to the phase-out of an advanced burn-in testing service provided by our facilities in Singapore and China.
·  Total revenue decreased 37.89% to $8,455 for the third quarter of fiscal 2008, compared with revenue of $13,613 for the third quarter of fiscal 2007, as the result of the phase-out of the advanced burn-in testing service that we provided to one of our major customers.
·  Testing segment revenue decreased by $2,375, or 37.41%, to $3,973 compared with $6,348 for the third quarter of fiscal 2007.
·  Manufacturing segment revenue decreased by $2,556, or 36.92%, to $4,367 compared with $6,923 for the third quarter of fiscal 2007.
·  Distribution segment revenue decreased by $227, or 66.37%, to $115 compared with $342 for the second quarter of fiscal 2007.
·  Loss from operations increased by $2,658, or 197.77%, to $1,314 compared with an income of $1,344 for the third quarter of fiscal 2007.
·  Gross profit margins decreased by 9.76% to 16.66% from 26.42% for the third quarter of fiscal 2007.
·  Selling expenses increased by 0.32% from 1.92% of revenue for the third quarter of fiscal 2007.
·  General and administrative expenses increased by 10.06% from 14.48% of revenue for the third quarter of fiscal 2007.

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

Results of Operations and Business Outlook

The following table sets forth our revenue components for the nine and three months ended March 31,September 30, 2008 and 2007, respectively.

Revenue Components              
 Nine Months Ended March 31, Three Months Ended March 31,
 2008   2007   2008   2007 
Net Sales:              
Manufacturing53.48%  54.86%  51.65%  50.86%
Testing45.50   41.32   46.99   46.63 
Distribution1.02   3.82   1.36   2.51 
Total100.00%  100.00%  100.00%  100.00%
 Three Months Ended September 30, 
 2008   2007 
Net Sales:      
Manufacturing48.9%  53.1%
Testing49.7   46.0 
Distribution1.4   0.9 
Total100.0%  100.0%

Net sales for the nine and three months ended March 31,September 30, 2008 were $33,376 and $8,455, respectively,$6,230, a decrease of $4,180 and $5,158, respectively, when$5,820, or 48.3%, compared to the same sales periods of the prior year.  As a percentage, total net sales decreased by 11.1% and 37.9% for the nine and three months ended March 31, 2008, respectively, when compared to total net sales$12,050 for the same periods of the priorquarter last fiscal year.

 
Net sales into and within China and the Southeast Asia regions and other countries (except sales into and within the United Sates)States) decreased by $3,124$6,692, or 63.2% to $29,280 and by $4,909 to $7,403$3,898 for the nine months and three months ended March 31,September 30, 2008, respectively, compared towith $10,590 for the same periodsperiod of the priorlast fiscal year. ThisThe decrease was primarily due to a drop in sales in the testing segment in our Singapore and China operations. Net sales into and within the United States were $4,096 and $1,052 for the nine and three months ended March 31, 2008, respectively, a decrease$2,332, an increase of $1,056 and $249, respectively, when$872, or 59.7% compared to the same periods of the prior year.quarter last fiscal year 2008, due to an increase in market demand for our refurbished equipment.

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

Manufacturing Segment

Net sales in the manufacturing segment as a percentage of total net sales were 53.48% and 51.65% for the nine and three months ended March 31, 2008, respectively, a decrease of 1.38% and an increase of 0.79%decreased by 4.2% to 48.9% of total net sales respectively, whenfor the three months ended September 30, 2008, compared to 53.1% of total net sales in the same periodsfirst quarter of the prior year.fiscal 2008.  The absolute amount of net sales was $17,848 and $4,367decreased by $3,350 for the nine and three months ended March 31,September 30, 2008, respectively, a decrease of $2,754 and $2,556, respectively, whenfrom $6,396 to $3,046, compared to the same periodsperiod of the prior year.fiscal 2008. 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 inslower movement of 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.


Testing Segment

Net sales inAs a percentage of the total revenue, the revenue generated by the testing segment as a percentage in the first quarter of fiscal 2009 accounted for 49.7% of total net sales, were 45.50% and 46.99%an increase of 3.7%, compared to 46.0% in the same period of fiscal 2008.  In terms of dollar amount, the revenue of the testing segment for the nine and three months ended March 31, 2008, respectively,first quarter of fiscal 2009 was $3,098, reflecting a decrease of 4.18% and 0.36%$2,445, or 44.1%, respectively, of total net sales when compared to the same periods of the prior year.  The absolute amount of net sales in the testing segment decreased by $333 to $15,186 and by $2,375 to $3,973$5,543 for the nine and three months ended March 31, 2008, respectively, compared to the same periodsfirst quarter of fiscal 2007.

2008. This considerable decrease in salesrevenue was due to ta significant drop in orders from onehe loss of our main customerscustomer due to one of theirits product lines reaching the end of its life cycle earlier than expected, rendering our testing serviceservices in the Singapore, Thailand and China operations for that product no longer necessary. Demand for testing services varies from time to time depending on changes taking place in the market and our customers’ forecasts.

Distribution Segment

Net sales in theThe distribution segment accounted for 1.02% and 1.36%1.4% of total net sales forin the nine and three months ended March 31, 2008, respectively, a decreasefirst quarter of 2.80% and 1.15%, respectively,fiscal 2009, an increase of 0.5% compared to 0.9% in the same periods infirst quarter of fiscal 2007.  2008. The absolute amount of net sales decreased by $1,093 to $342 and by $227 to $115$25 for the nine and three months ended March 31,September 30, 2008, respectively, comparedfrom $111 in the first quarter of fiscal 2008 to $86 in the same periods infirst quarter of fiscal 2007.2009. 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, declinesdecline in demand for certain types of burn-in devices or equipment, and other similar factors.  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, and, in particular, in the United States, will likely to have a negative impact on our growth and results of operations. One of these factors is the highly competitive nature of the semiconductor industry.   Another is that some customers are unable to provide a forecast of the products required in the upcoming weeks; hence it is difficult to plan for the resources needed to meet these customers’ requirements due to short lead time and last minute order confirmation. This will normally result in a lower margin for these products, as it is more expensive to purchase materials in a short time frame.  However, we havethe 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 maintainthe Company maintains higher inventories, but continuecontinues to work closely with ourits 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 from staff by keeping our staff updated with regard up to date on 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 inFinally, the demand for electronic products and semiconductor equipment. We anticipate that this chain effect will hit the Company’s business gradually in the future. We areCompany 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.



Comparison of the ThirdFirst Quarters Ended March 31,September 30, 2008 (“Q1 2009”) and September 30, 2007 (“Q1 2008”)

The following table sets forth certain consolidated statements of income data as a percentage of net sales for the thirdfirst quarters of fiscal 20082009 and 2007,2008, respectively:

  Three Months Ended March 31, 
  2008  2007 
Net Sales  100%  100.0%
Cost of sales  83.3%  73.6%
Gross Margin  16.7%  26.4%
         
Operating Expenses        
General and administrative  24.6%  14.5%
Selling  2.2%  1.9%
Research and development  0.1%  0.1%
Impairment loss  5.2%  0.0%
Loss on disposal of property, plant and equipment  0.1%  0.0%
Total operating expenses  32.2%  16.5%
         
Income (Loss) from Operations  (15.5)%  9.9%
  Three Months Ended September 30, 
  2008  2007 
Net Sales  100.0%  100.0%
Cost of sales  79.1%  74.8%
Gross Margin  20.9%  25.2%
         
Operating Expenses        
General and administrative  32.3%  13.7%
Selling  2.0%  1.0%
Research and development  0.2%  0.1%
Gain on disposal of PP&E  (2.6)%  - 
Total operating expenses  31.9%  14.8%
         
Income / (Loss) from Operations  (11.0)%  10.4%

Overall Gross Margin

Overall gross margin as a percentage of revenue decreased by 9.7%4.3% to 20.9%, for the three months ended March 31,September 30, 2008 from 26.4%25.2% in the thirdfirst quarter of fiscal 2007 to 16.7%,last year primarily due primarily to the decrease in the gross margin in the testing and manufacturing segments.  In terms of dollar value, the overall gross margin decreased by $2,188 for the three months ended March 31, 2008, from $3,597 to $1,409, compared to the same quarter of fiscal 2007, resulting from the decrease in revenue and an increase in cost of goods sold.segment.

Gross profit margin as a percentage of revenue in the manufacturing segment decreased by 13.3% for the three months ended March 31, 2008, from 17.7%14.9% in the thirdfirst quarter of fiscal 20072008 to 4.4%14.4% in the thirdfirst quarter of fiscal 2008.2009.  The decrease in gross margin was due to an increase in sales of lower margin burn-in systems pass-through products vis-à-vis higher margin systems in the first quarter of fiscal 2009 compared with the mix of systems in the same period of fiscal 2008. In addition, there was a decrease in the average selling pricessales price of burn-in boards and burn-in systems as a result of strong competition in the market place.  However, the Company currently intends to continue manufacturing low-margin burn-in systems and boards in order to maintain market share of these products with its current customers. In absolute amounts, gross profits decreaseddeceased by $1,034$512 to $191$438 for the three months ended March 31,September 30, 2008, from $1,225$950 for the three months ended March 31,September 30, 2007.

Gross profit margin as a percentage of revenue in the testing segment decreased by 7.4%10.2% for the three months ended March 31,September 30, 2008, from 37.0%37.2% to 29.6%27.0%, compared to the same quarter oflast fiscal 2007.year.  In terms of dollar amount, gross margin in the testing segment in the thirdfirst quarter of fiscal 20082009 was $1,175,$837, a decrease of $1,176$1,226, or 59.4%, compared to $2,351$2,063 in the same period of fiscal 2007.2008.  The decrease in the gross margin was primarily due primarily to a dropdecrease in testing volume coupled with a decrease in sales prices in the average selling pricefirst quarter of servicesfiscal year 2009. Additionally, because significant portions of our operating costs are fixed in the Singapore testing operations. Oursegment, 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.  Another factor contributing to the decline in gross margin was the fact that significant portionsservices.
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Gross profit margin as a percentage of revenue in the distribution segment was 37.4%improved by 5.3% for the thirdfirst quarter of fiscal 2009, from 26.1% in the first quarter of fiscal 2008 from 6.1% into 31.4%, compared to the thirdsame quarter oflast fiscal 2007.year. The improvement in the gross profit as a percentage of sales was due to an increase in average sales prices compared to related expenses in the thirdfirst quarter of fiscal 20082009 compared to the same periodquarter of fiscal 2007.2008. In absolute amounts,terms of dollar amount, gross margin in the distribution segment in the first quarter of fiscal 2009 was $43, an increase$27, a decrease of $22 $2, or 6.9%, compared to $21$29 in the same period of fiscal 2007.


21
2008.  Table. The gross margin of Contents
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 thirdfirst quarters of fiscal2009 and 2008 and 2007 were as follow:follows:
  Three Months Ended September 30, 
(In Thousands, unaudited) 2008  2007 
General and administrative $2,015  $1,645 
Selling $123  $124 
Research and development $10  $19 
Gain on disposal of PP&E $(159) $- 
      Total $1,989  $1,788 

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

During the third quarter of fiscal year 2008, we reclassified $84 of selling expenses into general and administrative expenses and cost of sales to reflect a better presentation of our operations. Accordingly, $84 of selling expense was reclassified to general and administrative expenses and cost of sales in the third quarter of fiscal 2007 for the purpose of comparison. General and administrative expenses increased by $104,$370, or 5.28%22.5%, from $1,645 to $2,015 for the three months ended September 30, 2008, compared to the same period of last fiscal 2007,year.  The increase was primarily attributable to an increase of noncash stock option expenses of $238 in the first quarter of fiscal 2009 and a reversal of bonus provision of $154 in the first quarter of fiscal year 2008 as discussed in our annual report for the year-ended June 30, 2008. We did not have any bonus reversal in the first quarter of fiscal 2009. The increase was offset by a decrease in the officer and executive compensation in the first quarter of fiscal 2009. 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 first quarter of fiscal 2009.

Selling expenses decreased slightly by $1, or 0.8%, from $1,971 to $2,075 for the three months ended March 31, 2008.   The increase was attributableSeptember 30, 2008, from $124 to an increase in payroll and related expenses in the Malaysia operation to handle a rise in sales volume and an increase of  $57 in unemployment benefits in the Singapore operations.  In order to lower our costs to match with production activity, we laid off 65 employees in our Singapore operation in March.  In addition, share based compensation expenses, as a result of the stock options granted in the second quarter of fiscal 2008, increased by $32 when$123 compared to the same quarter of fiscal 2007.2008.

Selling expenses decreased by $73, or 27.86%, for the three months ended March 31, 2008, from $262 to $189 compared to the sameIn first quarter of fiscal 2007. This2009, research and development expenses were $10 compared to $19 for the first quarter of fiscal 2008. The decrease was mainlyprimarily due to a decrease in commission expenses as a result of fewer commissionable sales in the distribution segment.  In addition, we incurred some selling expenses in demo sets, which were given to customers free of charge for promotional purposes in the same quarter of last fiscal year.

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

The impairment loss increased by $439Gain on disposal of property, plant and equipment was $159 for the three months ended March 31, 2008, from $2 to $441 compared to the same quarter of fiscal 2007.  The impairment loss of $441 in the thirdfirst quarter of fiscal year 2008 consisted2009, which mainly resulted from the disposal of $221 from certain advanced burn-in testing equipmentidle fixed assets at a gain in the Singapore operation as a result of the termination of the advanced burn-in testing service contract with one of our major customers.  An impairment of $75 related to the burn-in board testing system in our Shanghai operation in China due to change in demand for certain burn-in services, which in turn made certain of our existing burn-in facilities obsolete.  An impairment of $57 related to the building renovations for certain testing projects due to a decrease in a customer’s order in our Shanghai operation in China. The remaining impairment of $88 related to certain testing machinery and equipment in our Singapore operation due to a decrease in our testing backlog and projected future sales.

The impairment lossoperation. We had no such gain for the three months ended March 31, 2007 consistedsame period of building renovations with a cost of $4 and related accumulated depreciation of $2. The carrying value of these assets was written down to zero as a result of relocating to a new office unit to accommodate the needs of the testing segment in the Suzhou operation in China.fiscal year 2008.

(Loss) Income from Operations

Loss from operations increased by $2,658$1,941, or 154.8%, from an income from operations of $1,344$1,254 for the three months ended March 31,September 30, 2007 to a loss of $1,314$687 for the three months ended March 31,September 30, 2008, mainly due to athe decrease in sales in the manufacturing and testing segmentsrevenue and an increase in operating expenses, as previously discussed.

Interest Expense

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

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


 
 
Interest expenses increasedExpense

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

  Three Months Ended September 30, 
(In Thousands, unaudited) 2008  2007 
Interest expense $(58) $(85)

Interest expense decreased by $40$27 for the three months ended March 31,September 30, 2008 from $53$85 to $93,$58, primarily due to a new termdecrease in the loan facilitypayable and capital lease obligation. We are trying to keep our debt at minimum in order to save financing costs. Our credit rating provides us with ready and adequate access to funds in global markets.  As of $3,837 entered into duringSeptember 30, 2008, the first quarterCompany has an unused line of fiscal 2008 to support the expansion plans and potential business opportunitiescredit of the Singapore and China operations.$15,657.

Other (Expenses) Income

Other (expenses) income for the thirdfirst quarters of fiscal2009 and 2008 and 2007 were as follow:follows:

  Three Months Ended March 31, 
(In Thousands, unaudited) 2008  2007 
Other (expenses) income $(33) $45 
  Three Months Ended September 30, 
(In Thousands, unaudited) 2008  2007 
Other (expenses) income $215  $(50)

Other expensesincome increased by $78$265 to $33$215 for the three months ended March 31,September 30, 2008 from an incomeexpense of $45$50 in the same quarter of last fiscal 2007,year, primarily due to an increase in therental income and currency transaction loss and an increase in provision for the value added tax in our China operation, but offset by an increase in investment income generated from short-term deposits and rental income.transaction gain. Currency transaction lossgain increased by $148$275 for the three months ended March 31,September 30, 2008, from $27a transaction loss of $118 to $175,a transaction gain of $157, compared to the same quarter of fiscal 2007.2008. This was attributable to the weakeningstrengthening of the U.S. dollar against foreign currency with regard to transactions denominated in U.S. dollars.  The provision for the value added tax was $25, which was the result of a change in the local tax policy in our Suzhou operation in China.  Investment income was $57 for the three months ended March 31, 2008 and was $18 higher than the interest income generated in the same quarter of fiscal 2007 due to an increase in short-term deposits by placing the idle cash into income generating investments.dollars. Rental income, which consisted mainly of space in the Malaysia operation and investment property in Chongqing operation rented to outside vendors, increased by $12$27 to $41$64 for the three months ended March 31,September 30, 2008 from $29compared to $37 in the same period of fiscal 2007.2008.

Income Tax

The net incomeIncome tax benefitprovision for the three months ended March 31,September 30, 2008 was $46, an increase$98, a decrease of $285$74 compared to the income tax provision of $239 for the three months ended March 31, 2007.  Our Singapore operations suffered a loss of $938 for the three months ended March 31, 2008, a decrease of $2,452 compared to a profit of $1,514$172 for the same period of 2007.  This loss resultedquarter last fiscal year. The decrease in an income tax benefit of $133provision was mainly due to a lower tax provision for the thirddecreased income generated from the Singapore operations in the first quarter of fiscal 2008. In addition, we reversed a deferred tax liability of $119 in the Singapore operation in the third quarter of fiscal 2008 due to a decrease in the book value of fixed assets as a result of provision from impairment loss.  However, the income tax benefit was offset by a provision for deferred tax liability of $206 as a result of the timing differences related to the recording of depreciation expenses for book and tax purposes in the Malaysia operation.2009.

We assessed our income tax liability of $364$382 as of March 31,September 30, 2008 in accordance with FIN 48,FIN48, which wasis related to the allocation of corporate management expenses to our Singapore operation in terms of Singapore tax law.  We did not see any potential benefits arising from this tax position.  Accordingly, no impact of this tax position was recognized in the statement of operations for this quarter of fiscal 2008.2009.  We did not include any potential income tax position in federal and state income tax returns currently filed.
Minority Interest

As of March 31,September 30, 2008, we held a 55% interest in Trio-Tech Malaysia. In the thirdfirst quarter of fiscal 2008,2009, minority interest in the net income of subsidiaries was $17, an increase$91, a decrease of $1,$105, or 53.6%, compared to a minority interest in the net income of $16$196 for the same quarter of fiscal 2007.2008.  The increasedecrease in the minority interest was attributabledue to an improvementthe decrease in the net income generated from the Malaysia testing operation due to strongera decrease in revenue as the result of lesser market demands from our customers there.customers.

Net (loss) IncomeIncome/Loss

Net loss was $1,411$719 in the thirdfirst quarter of fiscal 2008, representing a decrease2009, an increase of $2,492,$1,470 from a net income of $1,081 during$751 for the same period of fiscal 2007.three months ended September 30, 2008. The decrease in net incomeloss was mainly due to a decrease in revenue and an increase in operating expenses, interest expensewhich was offset by an increase in other income and a decrease in otherinterest expenses and income tax provision, as previously discussed.

EarningsEarnings/Loss per Share

The basicBasic and diluted loss per share for the three months ended March 31,September 30, 2008 increased by $0.78$0.45 to $0.44$0.22, from an earningearnings of $0.34$0.23 per basic and diluted per share and the diluted loss per share increased by $0.77 to $0.44 from an earning of $0.33 per diluted share as compared toin the same quarter of the prior fiscal year.




Segment Information

The revenue, gross margin and income from each segment for the thirdfirst quarter of fiscal 20082009 and the thirdfirst quarter of fiscal 2007,2008, 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.

Manufacturing Segment

The revenue, gross margin and income from operations for the manufacturing segment for the thirdfirst quarters of fiscal2009 and 2008 and 2007 were as follows:

  Three Months Ended March 31, 
(In Thousands, unaudited) 2008  2007 
Revenue $4,367  $6,923 
Gross margin  4.4%  17.7%
(Loss) Income from operations $(884) $350 
  Three Months Ended September 30, 
(In Thousands, unaudited) 2008  2007 
Revenue $3,046  $6,396 
Gross margin  14.4%  14.9%
Income (Loss) from operations $(444) $326 

Loss from the manufacturing segment was $884, an increase of $1,234increased by $770 to $444 for the three months ended March 31,September 30, 2008 from an income of $350$326 in the same quarter last fiscal year primarily due to the loss of fiscal 2007.orders from one of our major customers.  The increase in operating loss was attributable to a decrease in gross profit of $1,034$512 and an increase in operating expenses of $200.$258. Operating expenses for the manufacturing segment were $1,075$882 and $875$624 for the three monthsmonth ended March 31, September 30, 2008 and 2007, respectively. The increase in operating expenses was mainly attributable to the impairment lossincrease in headcount in the manufacturing segment of $88 related to certain machinery and equipment in our Singapore operation, dueas we transferred employees from the distribution segment to the manufacturing segment. 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 decrease in our backlog and projected future sales.mere distributor of manufactured products from others.

Testing Segment

The revenue, gross margin and income from operations for the testing segment for the thirdfirst quarters of fiscal2009 and 2008 and 2007 were as follows:

  Three Months Ended March 31, 
(In Thousands, unaudited) 2008  2007 
Revenue $3,973  $6,348 
Gross margin  29.6%  37.0%
(Loss) Income from operations $(553) $1,077 
  Three Months Ended September 30, 
(In Thousands, unaudited) 2008  2007 
Revenue $3,098  $5,543 
Gross margin  27.0%  37.2%
Income from operations $(222) $1,018 

Loss from operations in the testing segment in the thirdfirst quarter of fiscal 20082009 was $553, $222, an increase of $1,630, $1,240, or 121.8%, compared to an income of $1,077$1,018 in the same period of fiscal 2007.2008 primarily due to the loss of  one of our major customer as their product lines reaching the end of its life cycle earlier than expected.  The increase in operating loss from operations was attributable to a decrease of $1,226 in gross profit of $1,176 due to a drop in testing volume coupled with reducing unit sales price as a result of changes in the Singapore testing operationcustomers’ demands, and an increase of $14 in operating expenses of $454.  One of our significant customer’s product lines reached the end of its product cycle earlier than expected, causing sales orders to drop significantly in the third quarter of fiscal 2008.expenses. Operating expenses were $1,728$1,059 and $1,274$1,045 for the three months ended March 31,September 30, 2008 and 2007, respectively. The increase in operating expenses was mainly due to an impairment lossa reversal of $353 that we recognized$111 in bonus provision for the thirdfirst quarter of fiscal 2008. Of this amount, an impairment loss of $221 was for certain advanced burn-in testing equipment as a result of the termination of the advanced burn-in testing service contract with one of our major customers. An impairment loss of $75 was for the burn-in board testing system in our Shanghai operation in China due to change in demand for certain burn-in testing services, which in turn made certain of our existing burn-in facilities obsolete. An impairment loss of $57 was for the building renovations for certain testing projects due to a decrease2008, there being no such reversal in the customer’s order in our Shanghai operation in China. The other contributing factor for the increase in operation expenses was an increase in payroll and related expenses in the testing segment in the Malaysia operation in order to handle the rise in sales volume there.first quarter of fiscal 2009.

Distribution Segment

The revenue, gross margin and loss from operations for the distribution segment for the thirdfirst quarters of fiscal2009 and 2008 and 2007 were as follows:

  Three Months Ended March 31, 
(In Thousands, unaudited) 2008  2007 
Revenue $115  $342 
Gross margin  37.4%  6.1%
Loss from operations $(69) $(91)
  Three Months Ended September 30, 
(In Thousands, unaudited) 2008  2007 
Revenue $86  $111 
Gross margin  31.4%  26.1%
Income (Loss) from operations $31  $(22)

Income from operations in the distribution segment increased by $53 to $31 for the three months ended September 30, 2008, from an operating loss of $22 in the first quarter of fiscal 2008. The increase in operating income was mainly due to a decrease of operating expenses of $55, but offset by a decrease in gross profit of $2 as the result of a decrease in revenue. Operating expenses were negative $4 and $51 for the three months ended September 30, 2008 and 2007, respectively. The decrease in operating expenses was mainly due to a decrease in commission expenses incurred in the first quarter of fiscal 2009 as the result of a decrease in commissionable sales and also a gain of $24 in the selling of property, plant and equipment.
 
LossCorporate

The income (loss) from operations infor corporate for the distribution segmentfirst quarters of 2009 and 2008 were as follow:

  Three Months Ended September 30, 
(In Thousands, unaudited) 2008  2007 
Income (Loss) from operations $(52) $(68)
Corporate operating loss decreased by $22$16 to $69$52 for the three months ended March 31,September 30, 2008, compared to $91from $68 in the same period oflast fiscal 2007.year. The decrease in operating loss wasis mainly due to an increase in gross margin of $22, as previously discussed. Operating expenses remainedcorporate management fee and a decrease in officers and executive compensation. In March 2008, we increased the same at $112 for the three months ended March 31, 2008 and 2007.

Corporate

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

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

Corporate operating income increased by $184 to $192 for the three months ended March 31, 2008, compared to $8 in the same period of fiscal 2007. The improvement in corporate income was mainly attributable to an increase inmanagement fee which is based on the percentage of revenue imposed on all the subsidiaries in the third quarter of fiscal 2008 due to a decrease in the revenue from our 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. This improvement was primarily offset by an increase of $32 in stock option compensation expenses.

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

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

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

Overall Gross Margin

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

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

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

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

Operating Expenses

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

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

During the nine months ended March 31, 2008, we reclassified payroll expenses of $301 from selling expenses to general and administrative expenses and cost of sales to reflect a better presentation of our operations.  Accordingly, $222 of selling expenses was reclassified to general and administrative expenses and cost of sales in the nine months ended March 31, 2007 for the purpose of comparison. General and administrative expenses increased by $1,023, or 20.0%, from $5,121 to $6,144 for the nine months ended March 31, 2008, compared to the same period of fiscal 2007. The increase was primarily attributable to a hike in payroll and related expenses in the Malaysia operation in order to handle the rise in sales volume there, an increase of $57 in unemployment benefits$143 in the third quarter of 2008 resulting fromfees we imposed on all the layoff of 65 employees in our Singapore operation in order to lower our costs to match with production activity, and an increase of $386 was related to stock option compensation expenses for the 100,000 options granted on December 4, 2007.

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

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

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

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

Income from Operations

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

Interest Expense

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

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

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

Other Income

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

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

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

Income Tax

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



Minority Interest

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

Net (Loss) Income

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

Earnings per Share

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

Segment Information

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

Manufacturing Segment

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

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

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

Testing Segment

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

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



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

Distribution Segment

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

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

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

Corporate

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

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

Corporate operating loss increased by $396 for the nine months ended March 31, 2008, from an operating income of $53 in the same period of fiscal 2007 to an operating loss of $343 this fiscal year.  The increase in operating loss from corporate was mainly due to an increase of $214 in the remuneration for executive officers and an increase of $386 in stock option compensation expenses for the options we granted on December 4, 2007,2009 as compared to the same period of fiscal 2007.2008.

In July 2007, we decided to terminate the potential cash incentive awardsOn February 27, 2008, in view of anticipated reductions in service revenue for the chief executivesfiscal 2008, our Chief Executive Officer, Chief Financial Officer and increasedirectors voluntarily decreased their base salary starting fromto 50% of the fiscal year 2008.base salary agreed to in July 2007. As a result, our compensation for the Company suffered a lossofficers and executives decreased by $99 in the thirdfirst quarter of fiscal 2008, we reduced2009. However, such decrease in corporate expenses was offset by a $238 stock options expense in the salaryfirst quarter of our chief executives by $93 per quarter, effective April 1, 2008.fiscal 2009, there being no such expense in the same period of the last fiscal year.

Financial Condition

During the ninethree months ended March 31,September 30, 2008, total assets increased $3,294, or 10.0%,decreased $3,085 from $32,788$34,759 at June 30, 20072008 to $36,082$31,674 at March 31, 3008.September 30, 2008. The majority of the increasedecrease was in othercash, accounts receivables inventory, prepaid expenses, investment and other assets, but offset by a decrease in cash, other intangible assets and accounts receivable.inventory.
 
At March 31, 2008,the end of the first quarter of fiscal 2009, total cash and short-term deposits were $14,300, $13,026, reflecting a decrease of $650$1,320 from the sum of those two balances at June 30, 2007.fiscal year-end 2008. The decrease in cash was mainlyprimarily due to a decrease in net cash provided by operating activities asloss of $719, a resultrepayment of a decrease in net income, an investment in Chongqing, China of $2,931bank loans and capital expenditurelease of $2,507 during the nine months ended March 31, 2008.  This decrease was offset by$551 and capital an increaseexpenditures of $659 in proceeds from long-term loans.  In the first quarter of fiscal 2008, we obtained a new term loan of $3,837 (based on the exchange rate of March 31, 2008)2009 to support our long-term investment and potential business expansion opportunities.   acquire machinery equipment as discussed below.


At March 31,September 30, 2008, the accounts receivablesreceivable balance decreased by $327$869 from the balance at June 30, 20072008 due primarily to a decrease in sales in the thirdfirst quarter of fiscal 2008.2009. Therate of turnover of accounts receivables turnover was 5978 days forat the thirdend of the first quarter of fiscal 20082009 compared with 7866 days forat fiscal year-end 2008. The increase in such rate was due to a high employee turnover in our Singapore operation’s accounts receivable staff during the first quarter of fiscal 2009. We have taken actions to improve the rate of turnover of our accounts receivables, such as providing electronic payment method to our customers and sending periodical customer account statements.

Inventories at September 30, 2008 was $1,879, a decrease of $570, or 23.3%, compared to $2,449 at June 30, 2008, The decrease in inventory was mainly from the work in progress inventory items  Our manufacturing segment built up additional inventory in the fourth quarter of fiscal 2007.  The decrease in the accounts receivable turnover rate was primarily due to improvements in collections at the Singapore operation.

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

Inventory at March 31, 2008 was $2,144, reflecting an increase of $198, or 10.2%, compared to June 30, 2007.  The increase in inventory was mainly from an increase in raw materials.  Most of the increased inventory was bought in the first two quartersquarter of fiscal year 2008, which2009.  After the shipment was for the expected product shipmentscompleted in the third and fourthfirst quarter that we forecasted.of fiscal 2009, work in progress inventory decreased. The turnover of inventory was reduced by $329 as40 days at the end of the first quarter of fiscal 2009 compared to the inventory of $2,473 as of December 31, 2007with 21 days at fiscal year-end 2008.  The slower rate was due to a decrease in projected sales. The turnoversales as a result of inventory was 22 days forfewer orders being placed by one of our major customers, because of the third quarterslower movement of fiscal 2008 compared with 23 days for the fourth quarterthat customer’s product line and equipment capacity.

Prepaid expenses and other current assets at March 31,September 30, 2008 were $222,$195, an increase of $100$57 from thatthe balance at June 30, 2007,2008, primarily due primarily to increased prepayments to suppliers and an increase in prepaid insurance for the calendar year 2008 in the Singapore operations.

Asset held for sale of $219 at March 31, 2008 was comprised of the market value of the property located in Malaysia, which is subjectGoods and Services Tax related to material purchases according to the terms under a definitive sales agreement dated December 31, 2007, less the cost to sell, in accordance with SFAS No. 144.related Singapore tax regulations.

On August 27, 2007 and November 15, 2007, In the first quarter of fiscal year 2008, Trio-Tech (Chongqing)Chongqing Co., Ltd. entered into a Memorandum Agreement and a Supplement Agreement, respectively, with JiashengJiaSheng Property Development Co., Ltd. to jointly develop a piece of property with 24.91 acres owned by JiashengJiaSheng located in Chongqing, China.  Pursuant to the signed agreement, an investment of $1,426$1,473, based on the exchange rate on September 30, 2008 published by the Federal Reserve System, was transferred in the first quarter of fiscal 2008 into a special bank account jointly monitored by both Trio-Tech (Chongqing) Co., Ltd. and Jiasheng.JiaSheng

On December 17, 2007, Trio-Tech (Chongqing) Co., Ltd. received a list.  Pursuant to the Supplement Agreement, an investment of additional costs incurred for this project. Accordingly,RMB 5,000, approximately U.S. $737 based on the Company onlyexchange rate on September 30, 2008 published by the Federal Reserve System. was transferred RMB5,000, approximately $713, from its bank account into the special bank account jointly monitoredon December 17, 2007. In the fourth quarter of fiscal 2008, the investment of RMB 5,000, approximately U.S. $737 based on the exchange rate on September 30, 2008 published by both Trio-Tech (Chongqing) Co.the Federal Reserve System, Ltd. and Jiasheng

was returned to the Company, which reduced the investment in this project to $1,473. On January 4, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum of Agreement with MaoYe Property Ltd. to purchase an office space of 827.2 square meters on the 35th floor of a 40 story high office building located in Chongqing, China. The total cash purchase price was RMB5,554RMB 5,554 (Chinese yuan)Yuan), equivalent to approximately U.S. $792$818 based on the exchange rate as of March 31,September 30, 2008 published by the Federal Reserve System. Under the termsThe Company rented this property out to a third party on July 13, 2008. The term of the lease agreement is five years (starting from July 13, 2008) with a monthly rental income of RMB 39 (approximately $5) for the Company paidfirst three years, with an increase of 8% in the purchase pricefourth year and another 8% in full on January 4, 2008.the fifth year. As of March 31,June 30, 2008 the total of all the Company’s investments in Chongqing, China was $2,931.$2,267. The rental income generated from this investment property in first quarter of fiscal 2009 was $15. There was no such investment income in the first quarter of fiscal year 2008.

Property, plant and equipment increaseddecreased by $255$198, from $7,458$8,136 at June 30, 20072008 to $7,713$7,938 at March 31, 2008.September 30, 2008, due to the depreciation of the Company’s fixed assets in the ordinary course of business. Capital expenditures were $2,507 in the first nine months of fiscal 2008, compared with $2,409$659 for the first nine monthsquarter of fiscal 2007.2009, compared with $545 for the first quarter of fiscal 2008.  The increase in capital expendituresexpenditure was mainly from our operationdue to purchases of machinery and equipment in Malaysiathe first quarter of fiscal 2009 by the Singapore operations in order to meet customers’ requirements.product specifications from our customers.

Depreciation and amortization was $2,262$518 for the nine months ended March 31, 2008,first quarter of fiscal 2009, compared with $2,007$778 for the same periodfirst quarter of fiscal 2007.2008. The increasedecrease in depreciation expenses was mainly due mainly to an increasethe write-off of certain fixed assets in property, plantthe Singapore and equipment acquired after June 30, 2007.China operations in the third and fourth quarters of fiscal year 2008, as a result of the termination of a testing service contract with one of our major customers and . change in customers’ demand for certain burn-in testing services.

Other assets were $645$735 at March 31,September 30, 2008, an increasea decrease of $200$78 from thatthe balance at June 30, 2007.2008. The increasedecrease in other assets was primarily due to a decrease of $110$4 in the deposit for rental and utilities and a decrease of $74 in the down payment on certainof fixed assets in the Singapore operation, and a decrease of $50 for the down payment for certain fixed assets, rent and utilities in the China operation, but was offset by an increase of $360 in down payment for the Malaysia operation.
Liquidity Comparison

Net cash provided by operating activities decreasedincreased by $1,451$415 to $1,421$33 for the ninethree months ended March 31,September 30, 2008 from $2,872a net cash outflow of $382 in the same period of last fiscal 2007.year. The decreaseincrease in net cash provided by operating activities was primarily due to a decreasethe collection of $3,131 in net income from $2,636accounts receivable and usage of inventory during this first quarter of fiscal 2009 compared to a lossan increase of $495 during the nine months ended March 31, 2008 as compared toaccounts receivable and inventory build up for the same period ofin the prior year.  This decrease was offset by an increasea net loss of $1,017$719 and decrease in net impact from non-cash items and an increaseaccounts payable of $663 from change in balance sheet items. In$1,565 during the nine months ended March 31, 2008, the non-cash impairment expenses increased by $283, primarily due to the terminationfirst quarter of the advance burn-in testing service contract, depreciation and amortization increased by $255 due to an increase in fixed assets and stock option compensation expenses increased by $386 for the 100,000 options granted on December 4, 2007.

fiscal 2009.
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Table of Contents

Net cash used in investing activities increaseddecreased by $3,875$1,871 to $5,832$1,068 for the ninethree months ended March 31,September 30, 2008 from $1,957$2,939 for the same period of fiscal 2007.  The proceeds from maturing short-term deposits of $25,537 were not adequate to cover2008. In the higher investment in short-term deposits of $25,946 in the nine months ended March 31, 2008, thereby incurring a negative investing cash flow. As we anticipated that funds would be required in the nextfirst quarter of fiscal 2008, for working capital purposes, we invested in short-term depositsRMB 10,000, equivalent to generate investment income.  We invested $2,931approximately U.S. $1,331 based on the average exchange rate for the three month ended September 30, 2007, in Chongqing, China in the nine months ended March 31, 2008 to jointly develop a piece of property with 24.91 acres with JiashengJiaSheng Property Development Co., Ltd and Ltd. We purchase an office space of 827.2 square meters in Chongqingdid. The capital expenditure also increased by $98, as previously discussed. not make a similar

Net cash provided by financing activities investment in the nine months ended March 31, 2008first quarter of fiscal 2009. In the first quarter of 2009, there was $2,201, representing an increase of $2,801 compared to$493 in the net cash usedinvestment in financing activitiesshort term deposits and an increase of $600 during$161 in the same period of fiscal 2007.  The increase was mainly due to proceeds from the long-term bank loanssale of $3,837 entered into during the nine months ended March 31, 2008 as compared to bank loans of $6property, plant and equipment. We did not sale any property, plant and equipment in the same period of fiscal 2007. However, this was2008.These decreases in the net cash used in investing activities were offset by a decreasean increase in capital expenditure of $294 from net borrowing on lines$114 in the first quarter of creditfiscal 2009 compared with the same period of fiscal 2008.  The increase in capital expenditure was primarily for the purchase of machinery and equipment in the Singapore operations in order to meet customers’ demands.  

Net cash used in financing activities in the first quarter of fiscal 2009 was $548, representing an increase of $607$3,950 compared to net cash inflow of $3,402 during the first quarter of fiscal 2008.  The increase was due mainly to an increase of $134 in prepaymentthe repayment of bank loans and capital leases.leases, a decrease of $209 in the net borrowings on line of credit and a decrease of $3,610 from the proceeds from long-term bank loans compared with the same period of last fiscal year. We are trying to keep our debt at minimum in order to save financing costs. Our credit rating provides us with ready and adequate access to funds in global markets.  As of September 30, 2008, the Company has an unused line of credit of $15,657. In the first quarter of fiscal 2008, we increased our borrowing from bank loans to meet our daily operation needs and to support future potential expansion opportunities at that time.

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 quarter of fiscal 2009, the Singapore operations did not fulfill one of the loan covenants conditions, which requires the company to maintain the debt to EBITDA ratio of no more than 2.5 times at all times during the terms of the loan.  As a result, the Company has reclassified the related long term portion of the bank loan of $1,215 to the current portion of 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.
Corporate Guarantee Arrangement

The Company provides a corporate guarantee of approximately $1,813$1,745 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.resources.

On October 23, 2008, Trio-Tech Chongqing Co., Ltd. entered into a Memorandum Agreement with JiaSheng Property Development Co., Ltd. (“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 cash purchase price to be paid by the Company under the Memorandum Agreement is RMB 7,043 (Chinese yuan) or approximately $1,030 (U.S. dollars) based on the exchange rate as of October 23, 2008 published by the Federal Reserve Statistical Release. Under the terms of the Memorandum Agreement, the Company made a down payment of 10% in cash in the amount of RMB 704 or U.S. $103 in October 2008 and the balance of 90% was paid on November 4, 2008, using internally generated funds of the Company.

Critical Accounting Estimates and& Policies

There have been no significant changes in the critical accounting polices disclosed in “Management’s Discussiondiscussion and Analysisanalysis of Financial Conditionfinancial condition and Resultsresults of Operations”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

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ITEM 4T.  CON     CONTROLSTROLS AND PROCEDURES
 
An evaluation was carried out by the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31,September 30, 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.



 
TRIO-TECH INTERNATIONAL
PART II. OTHER INFORMATION
ITEM 1.
Legal Proceedings

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

ITEM 1A.Item 1.    Legal Proceedings
          Not applicable
Risk Factors

Not applicableItem 1A.  Risk Factors
 
ITEM 2.
          Not applicable

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

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

ITEM 3.
Defaults uponItem 3.    Defaults Upon Senior Securities

Not applicable

ITEM 4.
Item 4.    Submission of Matters to a Vote of Security Holders

Not applicable


ITEM 5.
Other Information

Not applicable

Item 5.    Other Information

                  Not applicable

Item 6.     Exhibits
ITEM 6.
Exhibits

10.1Sales and purchase agreement on office and commercial  units at Jiang Bei No. 21 Road,in Chongqing
10.2Tenant lease of U.S.agreement for the office
and commercial  units in Chongqing
31.1Rule 13a-14(a) Certification of Principal Executive Officer of Registrant
31.2    
31.2Rule 13a-14(a) Certification of Principal Financial Officer of Registrant
32    
32Section 1350 Certification.




SIGNASIGNATURESTURES

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 INTERNATIONAL
By:/s/ Victor H.M. Ting
VICTOR H.M. TING
Chief Financial Officer
(Principal Financial Officer)
 Dated:  May 15, 2008

                                                                TRIO-TECH INTERNATIONAL

By: /s/ Victor H.M. Ting
      VICTOR H.M. TING
      Vice President and Chief Financial Officer
      (Principal Financial Officer)
      Dated: November 14, 2008
33