TRIO-TECH INTERNATIONAL - Quarter Report: 2005 December (Form 10-Q)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended December 31, 2005


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

For the Transition Period from to

Commission File Number 1-14523

TRIO-TECH INTERNATIONAL

(Exact name of Registrant as specified in its Charter)


California		95-2086631
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

14731 Califa Street
Van Nuys, California		91411
(Address of principal executive offices)		(Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed with the Commission 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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer þ

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

Number of shares of common stock outstanding as of February 10, 2006 is 3,219,157.

TRIO-TECH INTERNATIONAL
INDEX TO CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURES


		Page
Part I. Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets as of December 31, 2005 (Unaudited) and June 30, 2005		3
	Consolidated Statements of Operations and Comprehensive Income (loss) for the Three and Six Months Ended December 31, 2005 (Unaudited) and December 31, 2004 (Unaudited)		4
	Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2005 (Unaudited) and December 31, 2004 (Unaudited)		5
	Notes to Consolidated Financial Statements (Unaudited)		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		34
Item 4.	Controls and Procedures		35

Part II. Other Information
Item 1.	Legal Proceedings		36
Item 1A.	Risk Factors		36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 3.	Defaults upon Senior Securities		36
Item 4.	Submission of Matters to a Vote of Security Holders		36
Item 5.	Other Information		37
Item 6.	Exhibits		37

Signatures			38
EX-31.1
EX-31.2
EX-32

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT NUMBER OF SHARES)


	Dec 31,			June 30,
	2005			2005
	(Unaudited)
ASSETS

CURRENT ASSETS:
Cash	$	7,034		$	1,439
Short-term deposits		6,627			3,211
Trade accounts receivable, less allowance for doubtful accounts of $190 and $147, respectively		3,853			4,178
Other receivables		327			142
Inventories, less provision for obsolete inventory of $429 and $428, respectively		1,253			1,584
Prepaid expenses and other current assets		258			76

Total current assets		19,352			10,630
PROPERTY, PLANT AND EQUIPMENT, Net		6,912			7,176
OTHER INTANGIBLE ASSETS, Net		339			386
OTHER ASSETS		139			138
ADVANCES TO SELLER		153			15

TOTAL ASSETS	$	26,895		$	18,345


LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:
Lines of credit	$	259		$	336
Accounts payable		1,343			1,681
Dividends payable		1,608			—
Accrued expenses		3,286			2,598
Income tax payable		239			168
Current portion of notes payable		882			655
Current portion of capital leases		110			123
Current portion of deferred tax liabilities		278			275

Total current liabilities		8,005			5,836

NOTES PAYABLE, net of current portion		899			634
CAPITAL LEASES, net of current portion		155			110
DEFERRED TAX LIABILITIES		413			407


TOTAL LIABILITIES		9,472			6,987


MINORITY INTEREST		2,027			2,061

SHAREHOLDERS’ EQUITY:
Common stock; no par value, 15,000,000 shares authorized; 3,051,242 shares issued and outstanding as at Dec. 31, 2005, and 2,976,042 shares issued and outstanding as at Jun. 30, 2005, and		9,786			9,554
Paid-in capital		328			284
Accumulated retained earnings (deficit)		6,271			(298	)
Accumulated other comprehensive loss-translation adjustments		(989	)		(243	)

Total shareholders’ equity		15,396			9,297

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	26,895		$	18,345

See notes to condensed consolidated financial statements.

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED, IN THOUSANDS, EXCEPT EARNINGS (LOSS) PER SHARE)


	Six Months Ended						Three Months Ended
	Dec. 31,			Dec. 31,			Dec. 31,			Dec. 31,
	2005			2004			2005			2004
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
NET SALES
- PRODUCT SALES	$	5,870		$	7,836		$	3,710		$	2,879
- SERVICES		7,260			5,440			3,715			2,654

		13,130			13,276			7,425			5,533

COST OF SALES
- COST OF GOODS SOLD		4,915			6,428			3,220			2,362
- COSTS OF SERVICES RENDERED		4,525			3,655			2,339			1,885

		9,440			10,083			5,559			4,247


GROSS PROFIT		3,690			3,193			1,866			1,286
OPERATING EXPENSES
General and administrative		2,577			2,368			1,288			1,130
Director and officer bonuses		705			9			705			(10	)
Selling		515			550			230			281
Research and development		33			56			16			23
Impairment Loss		15			1			—			—

Total		3,845			2,984			2,239			1,424


(LOSS) INCOME FROM OPERATIONS		(155	)		209			(373	)		(138	)

OTHER INCOME (EXPENSE)
Interest expense		(74	)		(86	)		(38	)		(55	)
Other income		112			42			82			(12	)

Total		38			(44	)		44			(67	)


(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(117	)		165			(329	)		(205	)

INCOME TAXES		184			51			112			(60	)


(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST		(301	)		114			(441	)		(145	)

MINORITY INTEREST		19			21			(5	)		34


(LOSS) INCOME FROM CONTINUING OPERATIONS		(282	)		135			(446	)		(111	)

DISCONTINUED OPERATION (NOTE 9)

INCOME FROM DISCONTINUED OPERATION		8,459			2			8,837			11


NET INCOME (LOSS)	$	8,177		$	137		$	8,391		$	(100	)


BASIC EARNINGS (LOSS) PER SHARE

Basic (loss) earnings per share from Continuing operations	$	(0.09	)	$	0.05		$	(0.15	)	$	(0.03	)

Basic earnings per share from Discontinued operation		2.80			0.00			2.91			0.00


Basic earnings (loss) per share from Net income (loss)	$	2.71		$	0.05		$	2.76		$	(0.03	)


DILUTED EARNINGS (LOSS) PER SHARE

Diluted (loss) earnings per share from Continuing operations	$	(0.09	)	$	0.04		$	(0.15	)	$	(0.03	)

Diluted earnings per share from Discontinued operation		2.80			0.00			2.91			0.00


Diluted earnings (loss) per share from Net income (loss)	$	2.71		$	0.04		$	2.76		$	(0.03	)


WEIGHTED AVERAGE NUMBER OF COMMON AND POTENTIAL COMMON SHARES OUTSTANDING
Basic		3,016			2,965			3,038			2,966
Diluted		3,016			3,065			3,038			2,966

COMPREHENSIVE INCOME (LOSS):
Net income (loss)	$	8,177		$	137		$	8,391		$	(100	)
Foreign currency translation adjustment		(746	)		278			(766	)		240

COMPREHENSIVE INCOME	$	7,431		$	415		$	7,625		$	140

See notes to condensed consolidated financial statements.

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)


	Six Months Ended
	Dec 31,			Dec 31,
	2005			2004
	(unaudited)			(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	8,177		$	137
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		792			707
Bad debt expense, net		48			34
Inventory provision		1			—
Interest income on short-term deposits		(79	)		(24	)
Impairment loss		15			1
Stock compensation		44			—
Gain from sales of property – discontinued operation		(8,909	)		—
Deferred tax provision		8			45
Minority interest		(19	)		(21	)
Changes in operating assets and liabilities:
Accounts receivable, net		277			183
Other receivables		(185	)		(269	)
Other assets		—			(81	)
Inventories		330			(410	)
Prepaid expenses and other current assets		(182	)		(48	)
Accounts payable and accrued expenses		350			(554	)
Income tax payable		71			9

Net cash provided by (used in) operating activities		739			(291	)


CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturing short-term deposits		6,576			3,354
Investments in short-term deposits		(9,913	)		(1,408	)
Capital expenditures		(704	)		(1,197	)
Acquisition of business in Malaysia		—			(1,126	)
Proceeds from sale of property – discontinued operation		8,401			—
Proceeds from sale of equipment		—			201
Advances to seller		(138	)		—

Net cash provided by (used in) investing activities		4,222			(176	)

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)


	Six Months Ended
	Dec 31,			Dec 31,
	2005			2004
	(unaudited)			(unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments and borrowings on lines of credit		(77	)		178
Principal payments of debt and capital leases		(501	)		(385	)
Proceeds from long-term debt		1,025			430
Dividends paid to minority interest		(27	)		(53	)
Cash received from stock options exercised		232			5

Net cash provided by financing activities		652			175


EFFECT OF CHANGES IN EXCHANGE RATES		(18	)		61

NET INCREASE (DECREASE) IN CASH		5,595			(231	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		1,439			1,357

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	7,034		$	1,126

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	77		$	93
Income taxes	$	2,071		$	97
NON-CASH INVESTING AND FINANCING ACTIVITIES
Capitalization of property, plant and equipment paid in advance	$	—		$	368
Deposit for the acquisition of business in Malaysia paid in advance	$	—		$	92
Declaration of cash dividends to be paid	$	1,608		$	—

See notes to condensed consolidated financial statements.

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

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

ORGANIZATION AND BASIS OF PRESENTATION

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


	Ownership	Location
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	100%	Dublin, Ireland
(Operation ceased on November 1, 2005)
Trio-Tech International Pte. Ltd.	100%	Singapore
Universal (Far East) Pte. Ltd.	100%	Singapore
Trio-Tech Thailand	100%	Bangkok, Thailand
Trio-Tech Bangkok	100%	Bangkok, Thailand
Trio-Tech Malaysia	55%	Penang and Selangor,Malaysia
Trio-Tech Kuala Lumpur – 100% owned by	55%	Selangor, Malaysia
Trio-Tech Malaysia
Prestal Enterprise Sdn. Bhd.	76%	Selangor, Malaysia
Trio-Tech (Suzhou) Co. Ltd.	100%	Suzhou, China

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All significant inter-company accounts and transactions have been eliminated in consolidation. The unaudited consolidated financial statements are presented in U.S. dollars. The accompanying financial statements do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the six months ended December 31, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2006. 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, 2005.

INVENTORIES

Inventories consist of the following:


	Dec. 31,			June 30,
	2005			2005
	(Unaudited)
Raw materials	$	837		$	842
Work in progress		636			608
Finished goods		209			562
Less: provision for obsolete inventory		(429	)		(428	)

	$	1,253		$	1,584

STOCK OPTIONS

As of December 31, 2005, the Company has two share-based compensation plans, which are described below. The Company historically adopted the APB No. 25 approach – intrinsic value method – and presented the pro forma information in line with the requirements of SFAS No. 123. Historically, the stock based compensation cost has been charged against income, which was $0, $0, and $14 (related to directors option plan) for the fiscal years ended June 30, 2005, 2004 and 2003, respectively. There was no income tax benefit related to share-based compensation for the fiscal years ended June 30, 2005, 2004, and 2003, respectively, as the Company did not claim a deduction for corporate income tax purpose.

Effective July 1, 2005, the Company adopted the fair value recognition provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123R, “Share-Based Payments,” using the modified prospective application method. Under this transition method, compensation cost recognized during the six months ended December 31, 2005 includes the applicable amounts of: (a) compensation cost of all share-based payments granted prior to, but not yet vested as of, July 1, 2005 (based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123) and (b) compensation cost for all share-based payments granted subsequent to July 1, 2005 (based on the grant-date fair value estimated in accordance with the new provisions of SFAS No. 123R). Amortization of unrecognized fair value of the non-vested options as of July 1, 2005 was $7 and $3 for the six months and three months ended December 31, 2005, respectively. Options to purchase 30,000 shares of the Company’s common stock were issued on July 7, 2005 under the Director’s Plan. The fair value of 30,000 shares of the Company’s common stock issuable upon exercise of stock options granted under the Directors Plan was $34 disclosed in Form 10-Q for the quarter ended September 30, 2005. No shares were issued under 1998 Stock Option Plan for the six months ended December 31, 2005. On November 14, 2005, an option to purchase 750 shares of the Company’s common stock was issued to a consultant in connection with his services rendered to the Company and the stock options were not issued pursuant to the 1998 Stock Option Plan of the Company or the Directors Stock Option Plan. The exercise price under the option was $2.66, which was lower than the fair market value of the stock on the grant date of the option. The option was exercisable immediately upon grant. The fair value of the 750 shares of the Company’s common stock issuable upon exercise of such option was approximately $2 based on the value at $2.92 per share determined by the Black Scholes option pricing model.

Assumptions

The disclosure of the above fair value for these awards was estimated using the Black-Scholes option pricing model with the assumptions listed below:


	Six months
	Ended			Years Ended
	December 31,			June 30,			June 30,			June 30,
	2005			2005			2004			2003
Expected Volatility		49.50 – 51.12	%		33.5 - 36.8	%		41.9	%		37.2	%
Weighted average volatility		49.54	%		33.9	%		41.9	%		37.2	%
Risk free interest rate		3.71 – 4.50	%		2.89 – 3.27	%		2.76	%		2.27 - 2.93	%
Expected terms (years)		2.00			2.00			2.00			2.00

The expected volatilities are based on the historical volatility of the Company’s stock. The observation is made on a weekly basis. The observation period covered is consistent with the expected terms of options. The expected terms of stock options are based on the average vesting period on a basis consistent with the historical experience of the similar option grants. The risk-free rate is consistent with the expected terms of stock option and based on the U.S. Treasury yield curve in effect at the time of grant.

1998 Stock Option Plan

The Company’s 1998 Stock Option Plan (the “1998 Plan”), which is shareholder-approved, permits the grant of stock options to its employees of up to 300,000 shares of common stock. The Company believes that such awards better align the interests of its employees with those of its shareholders. Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant. These options have a five-year contractual life term. Awards vest over four years; with 25% generally vesting on the grant date, and the balance vesting in equal installments on the next three succeeding anniversaries of the grant date. The share-based compensation will be

amortized based on accelerated method over the four periods. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the Plan).

A summary of option activities under the 1998 Plan during the six months of fiscal 2006 ended December 31, 2005 is presented as follows:


						Weighted –
				Weighted-		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
Stock Options	Shares			Price		Term		Value

Outstanding at July 1, 2005		165,000		$	3.44
Granted		—			—
Exercised		(59,450	)		3.07
Expired		(22,000	)		5.40

Outstanding at December 31, 2005		83,550		$	2.95		2.00	$	199,536


Exercisable at December 31, 2005		63,925		$	2.99		2.00	$	158,456

Cash received from options exercised by employees during the six months ended December 31, 2005 was approximately $183.

A summary of the status of the Company’s non-vested stock options during the six months ended December 31, 2005 is presented below:


				Weighted-Average
				Grant-Date
Non-vested Options	Shares			Fair Value

Non-vested at July 1, 2005		34,750		$	0.86
Granted		—			—
Vested		(14,875	)		0.80
Forfeited or expired		—			—

Non-vested at December 31, 2005		19,875		$	0.91

As of December 31, 2005, there was approximately $15 of accumulated unrecognized stock compensation based on fair value on the grant date related to non-vested options granted under the 1998 Plan. Such amount is expected to be recognized during the weighted average period of 2.5 years.

Directors Stock Option Plan

The Directors Stock Option Plan (the “Directors Plan”), which is shareholder-approved, permits the grant of stock options to its duly elected non-employee Directors and one of the corporate officers of the Company (if he or she is also a director of the Company) and covers 300,000 shares of common stock. The Company believes that such awards better align the interests of its directors with those of its shareholders. Prior to July 1, 2003, option awards were granted with an exercise price equal to 85% of the fair market price of the Company’s stock at the grant date. Subsequent to July 1, 2003, the Board approved an amendment to the Directors Plan requiring options to purchase the Company’s common stock to be exercisable at a price equal to 100% of the fair market value of the underlying shares on the grant date. These options have five-year contractual terms. Options awards are exercisable immediately as of the grant date.

A summary of the activities under the Directors Plan during the six months ended December 31, 2005 is presented below:


						Weighted -
				Weighted-		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
Stock Options	Shares			Price		Term		Value

Outstanding at July 1, 2005		137,000		$	3.63
Granted		30,000			3.75
Exercised		(15,000	)		3.10
Expired		(32,000	)		5.37

Outstanding at December 31, 2005		120,000		$	2.80		2.00	$	245,009

Exercisable at December 31, 2005		120,000		$	3.26		2.00	$	245,009

Cash received from options exercised by directors during the six months ended December 31, 2005 was approximately $47.

Stock Option issued not pursuant to the 1998 Stock Option Plan or the Directors’ Stock Option Plan

On November 14, 2005, an option to purchase 750 shares of the Company’s common stock was issued to a consultant in connection with his services rendered to the Company. The stock option was not issued pursuant to the 1998 Stock Option Plan of the Company or the Directors Stock Option Plan. The exercise price under the option was $2.66, which was lower than the fair market value of the stock on the grant date of the option and was exercisable immediately upon grant. The fair value of 750 shares of the Company’s common stock issuable upon exercise of stock options granted was approximately $2 based on the value at $2.92 per share determined by the Black Scholes option pricing model.

A summary of option granted not under an existing stock option plan during the six months of fiscal 2006 ended December 31, 2005 is presented as follows:


				Weighted-
				Average
				Exercise
Stock Options	Shares			Price

Outstanding at July 1, 2005		—		$	—
Granted		750			2.66
Exercised		(750	)		2.66
Expired		—			—

Outstanding at December 31, 2005		—		$	—


Exercisable at December 31, 2005		—		$	—

Cash received from the option exercised by the consultant during the six months ended December 31, 2005 was approximately $2.

The following table illustrates the pro forma effect on net income (loss) and earnings (loss) per share for the six months and three months ended December 31, 2004 as if the Company had applied the fair value recognition provision of SFAS No. 123 to stock-based employee compensation for each period presented:


	Six Months Ended			Three Months Ended
	Dec. 31,			Dec. 31,
	2004			2004
	(Unaudited)			(Unaudited)
Net income (loss)	$	137		$	(100	)

Add: stock based employee compensation included in reported income		—			—

Deduct: total stock based employee compensation expense determined under fair value method for all awards		(18	)		(9	)

Pro forma net income (loss)	$	119		$	(109	)


Earnings (loss) per share -basic
As reported	$	0.05		$	(0.03	)
Pro forma	$	0.04		$	(0.04	)

Earnings (loss) per share -diluted
As reported	$	0.05		$	(0.03	)
Pro forma	$	0.04		$	(0.04	)

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 gives effect to all dilutive potential common shares outstanding during a period. In computing diluted EPS, the average price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options and warrants.

Stock options to purchase 203,550 shares at exercise prices ranging from $2.25 to $4.50 per share were outstanding as of December 31, 2005. No options were excluded in the determination of common shares equivalents because the average market price of common shares was greater than the exercise price of the stock options. The resulted common shares equivalents were approximately 76,000 shares. However, since there was a loss from continued operations, the common share equivalents were not presented in the following table for earning per share calculation purposes.

Stock options to purchase 381,000 shares at prices ranging from $2.25 to $6.00 per share were outstanding as of December 31, 2004. 99,000 options were excluded in the computation of diluted EPS because the exercise price was greater than the average market price of the common shares and therefore were anti-dilutive.

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


	Six Months Ended					Three Months Ended
	Dec. 31,			Dec. 31,		Dec. 31,			Dec. 31,
	2005			2004		2005			2004
	(Unaudited)			(Unaudited)		(Unaudited)			(Unaudited)
(Loss) income from continuing operations	$	(282	)	$	135	$	(446	)	$	(111	)


Income from discontinued operation	$	8,459		$	2	$	8,837		$	11


Income (loss) attribute to common shares	$	8,177		$	137	$	8,391		$	(100	)


Basic Earnings (Loss) Per Share
Basic (loss) earnings per share from Continuing operations	$	(0.09	)	$	0.05	$	(0.15	)	$	(0.03	)
Basic earnings per share from Discontinued operation		2.80			—		2.91			—
Basic earnings (loss) per share from Net Income	$	2.71		$	0.05	$	2.76		$	(0.03	)


Diluted (Loss) Earnings Per Share
Diluted (loss) earnings per share from Continuing operations	$	(0.09	)	$	0.04	$	(0.15	)	$	(0.03	)
Diluted earnings per share from Discontinued operation		2.80			—		2.91			—
Diluted earnings (loss) per share from Net Income	$	2.71		$	0.04	$	2.76		$	(0.03	)


Weighted average number of common shares outstanding — basic		3,016			2,965		3,038			2,966

Dilutive effect of stock options		—			100		—			—


Number of shares used to compute earnings per share — diluted		3,016			3,065		3,038			2,966


5.		ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

Senior management reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. We include any accounts receivable balances that are determined to be uncollectible in our allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available to us, we believe our allowance for doubtful accounts for the six months ended December 31, 2005 and the twelve months ended June 30, 2005 was adequate. However, actual write-offs might be more or less than the recorded allowance.


	Dec. 31,			June 30,
	2005			2005
	(Unaudited)
Beginning	$	147		$	165
Additions charged to expenses		72			44
Recovered		(24	)		(62	)
Actual write-offs		(5	)		—

Ending	$	190		$	147


6.		DIVIDENDS PAYABLE

On December 2, 2005, the Board of Directors of Registrant declared a cash dividend of fifty cents (US 50¢) per share based on the shareholders of records on January 10, 2006. The total number of shares issued and outstanding as of January 10, 2006 was 3,215,532 and the total cash dividends paid on January 25, 2006 were $1,608. The source of cash was from the proceeds of disposing the property located in Dublin, Ireland.


7.		ADVANCES TO SELLER

On November 18, 2005, the Company entered into a Definitive Agreement for Sale and Transfer of Shares (the “Agreement”) with Globetronics International Inc. (the “Seller”), a British Virgin Islands company. The Agreement provided that the Company would buy 100% of the equity interests of Globetronics (Shanghai) Inc. (thereafter “GSI”, which is a China-based wholly owned foreign investment enterprise (WOFIE) conducting business in burn-in testing service) for $153 (which covers certain fixed assets and the current customers of the testing service). The purchase price under the Agreement did not include any other assets or liabilities in GSI. The Agreement further provided that the cash of GSI would be swapped on a dollar-to-dollar basis. In addition, the Company would not be responsible for any disclosed or undisclosed liabilities incurred prior to the acquisition completion date. This Agreement also included a management service agreement, in which the Company appointed the Seller to provide accounting services to the acquired entity for $37 during a three-month transitional period commencing on the acquisition completion date. This transaction was not and is not considered material to the Company.

On December 26, 2005, the application for the share transfer was approved by the relevant governmental authorities in China. On December 30, 2005, the Company and the Seller agreed that the final purchase price would be $153 (of which $138 was the remaining balance due) and a cash swap in the amount of $351 to be wired to the Seller on December 30, 2005 and that the closing date would be deemed to have occurred when the funds arrived at the Seller’s bank, which occurred on January 3, 2006. Before the completion date, the Company did not have any access to the fixed assets owned by the Seller. The completion date of this acquisition was deemed to be January 3, 2006. Pursuant to the terms of the signed agreement, the acquired entity is in the process of changing its name from GSI to Trio-Tech (Shanghai) Co., Ltd.


8.		WARRANTY ACCRUAL


	Dec. 31,		June 30,
	2005		2005
	(Unaudited)
Beginning	$	155	$	162
Additions charged to cost and expenses		29		43
Recovered		—		—
Actual write-offs		—		(50	)

Ending	$	184	$	155


9		DISCONTINUED OPERATION AND CORRESPONDING RESTRUCTURING PLAN

The Company’s Ireland operation, as a component of the Testing segment, suffered continued operating losses in the past three fiscal years and the cash flow was minimal for the past three years. In August 2005, the Company established a restructuring plan to close the Testing operation in Dublin, Ireland. This fact was initially disclosed in the Form 10-K for the fiscal year ended June 30, 2005. Based on the restructuring plan and in accordance with EITF 03-13, the Company presented the operation results from Ireland as a discontinued operation as the Company believed that no continued cash flow would be generated by the disposed component (Ireland subsidiary) and that the Company would have no significant continuing involvement in the operation of the discontinued component. Management of the Company initiated a plan to sell the property located in Dublin, Ireland in August 2005 and ceased the depreciation of the property in accordance with SFAS No. 144. In accordance with the restructuring plan, the Company would transfer the relevant machinery and equipment to Singapore and paid off the outstanding balance on the equipment loans, collect accounts receivable and pay off accounts payable as much as it could before moving out Ireland. If the accounts receivable and accounts payable were not wound down before moving out of Ireland, the Company planned to have the Singapore office take over the responsibility for the collection and repayment matters. As a result, the machinery and equipment located in Dublin, Ireland was not included in the assets held for sale on the balance sheet as of September 30, 2005.

In late September 2005, the Company entered into a Definite Sale and Purchase Agreement with a buyer through an auction process with a selling price of €8.85 million (equivalent to $10,574) and received a deposit of €885 (equivalent to $1,057). The sale was consummated on November 1, 2005. In accordance with SFAS No. 144, the asset held for sale was recorded at historical carrying value of the property of $261, as of September 30, 2005, which was lower than its fair value, less the cost to sell.

During the process of winding down the Company’s operation in Dublin, Ireland, the Company incurred general and administrative expense of approximately $120 and one-time employment termination benefits of approximately $330 (of which $107 were paid in the quarter ended September 30, 2005) for the six months ended December 31, 2005. In connection with the sale of the property located in Dublin, Ireland, the Company also incurred the following direct expenses including professional fees of approximately $92, commissions and other selling related expenses of approximately $40 and incurred a liability estimated at $86 to refund the industrial development agency grant by the Irish government agency. The estimated amount of $86 is subject to the clearance of the Irish government agency. These expenses were directly offset against the proceeds from selling property as these expenses were deemed as cost to sell. The tax on capital gain in Ireland from the sale of property was approximately $1,955, which was deducted from the gross proceeds from selling the property after the taxable gain was determined. The Company considered the inter-period tax allocation noting the impact of allocation was minimal as there was a loss of $450 in the Ireland entity before considering the gain from selling property and there were significant net operating losses carry-forward which cannot be used to offset the taxable capital gain. The gain realized through disposing the property in November 2005 was presented as part of income from discontinued operations in the statement of operations for the six months ended December 31, 2005. The Company anticipates that it may incur additional costs and expenses in winding up the business of the subsidiary through which the Ireland facility was operated.

Under the provision of SFAS No. 52, translation adjustments that result when a foreign entity’s financial statements are translated into a parent company’s or an investor’s reporting currency are separately reported in the parent company’s other comprehensive income. Foreign currency translation adjustments that are accumulated in other comprehensive income are reclassified to income only when they are realized, if the investment in the foreign entity is sold or is

substantially or completely liquidated. Accordingly, the foreign currency translation adjustments on the balance sheet of the Dublin, Ireland subsidiary as of November 1, 2005 in the amount of approximately $769 were reclassified into the process of disposing of the property presented below.

Income from discontinued operations for the six and three months ended December 31, 2005 was as follows:


	Six Months Ended						Three Months Ended
	Dec. 31,			Dec. 31,			Dec. 31,			Dec. 31,
	2005			2004			2005			2004
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
NET SALES	$	78			257			—			149
COST OF SALES		63			227			—			121


GROSS PROFIT		15			30			—			28
OPERATING EXPENSES:
General and administrative		120			87			38			48
Employment termination benefits		330			—			—			—

Total		450			87			38			48

		(435	)		(57	)		(38	)		(20	)

OTHER INCOME (EXPENSE)

Interest expense		(3	)		(6	)		(1	)		(2	)
Other (expense) income		(12	)		65			(33	)		33

Total		(15	)		59			(34	)		31

(Loss) Income from discontinued operation		(450	)		2			(72	)		11

Gain on sale of property		8,909			—			8,909			—

INCOME FROM DISCONTINUED OPERATION	$	8,459		$	2		$	8,837		$	11


Breakdown of gain on sale of property
Gross proceeds	$	10,574			—		$	10,574			—
Net book value of the property		(261	)		—			(261	)		—
Grant payable to Ireland government		(86	)		—			(86	)		—
Professional fees		(92	)		—			(92	)		—
Commissions and related selling expenses		(40	)		—			(40	)		—

		10,095			—			10,095			—
Capital gain tax		(1,955	)		—			(1,955	)		—

		8,140			—			8,140			—
Foreign currency translation adjustments		769			—			769			—

Gain on sale of property	$	8,909		$	—		$	8,909		$	—

As the Company does not provide a separate cash flow statement for the discontinued operation, the details of cash flow from the discontinued operation in Ireland is summarized as follows: the gross proceeds were approximately $10,574, cost to sell was $218, disbursement for capital gain tax was $1,955, resulting in net proceeds of $8,401. The loss from discontinued operations of $450 was deemed as cash outflow from operating activities of the discontinued operation; the net proceeds provided by investing activities was $8,401 from the sale of the property; the cash used in financing activities was the disbursement to pay off the outstanding equipment loan of $88. The impact of this discontinued operation was immaterial because the total revenues for fiscal years June 30, 2005 and 2004 were approximately $600 and $500, respectively. The Company believes there will not be any future significant cash flows from the discontinued operation as the outstanding accounts receivable and accounts payable are immaterial to the Company financial position and liquidity.

Before moving out of Ireland, the Company wired the remaining cash of approximately $7,800 to its Singapore subsidiary where the main operations are located. Subsequently, approximately $1,608 out of the $7,800 was wired to the U.S. corporate office for distribution of dividends to shareholders, which were paid on January 25, 2006. In addition, $705 of the $7,800 was used for bonuses to the directors and corporate officers paid in December 2005 and January 2006, respectively.

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 $30 and $37 for the six months ended December 31, 2005 and 2004, respectively, and $8 for the three months ended 2004. There were no inter-segment sales for the three months ended December 31, 2005. 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
	Dec. 31,		Sales		(loss)			Assets		Amort.		Expenditures
Manufacturing		2005	$	3,111	$	(117	)	$	2,842	$	27	$	187
		2004		2,425		5			2,138		17		32

Testing Services		2005		3,715		561			21,160		369		385
		2004		2,654		(58	)		14,427		315		241

Distribution		2005		599		(1	)		748		4		1
		2004		454		(94	)		1,293		38		21

Corporate and		2005		—		(817	)		2,145		—		—
unallocated		2004		—		8			228		—		—

Total Company		2005	$	7,425	$	(373	)	$	26,895	$	400	$	573
		2004	$	5,533	$	(138	)	$	18,086	$	370	$	294

Business Segment Information:


	Six
	Months				Operating					Depr
	Ended		Net		Income			Total		and		Capital
	Dec. 31,		Sales		(loss)			Assets		Amort.		Expenditures
Manufacturing		2005	$	4,466	$	(292	)	$	2,842	$	50	$	198
		2004		6,403		152			2,138		35		53

Testing Services		2005		7,260		1,020			21,160		735		505
		2004		5,440		124			14,427		596		956

Distribution		2005		1,404		(2	)		748		7		1
		2004		1,433		(82	)		1,293		75		188

Corporate and		2005		—		(881	)		2,145		—		—
unallocated		2004		—		15			228		1		—

Total Company		2005	$	13,130	$	(155	)	$	26,895	$	792	$	704
		2004	$	13,276	$	209		$	18,086	$	707	$	1,197

Geographic Area Information:


						China												Elimin-
	Quarter					and												ations
	Ended		United			other												and			Total
	Dec. 31,		States			countries			Singapore			Thailand			Malaysia			Other			Company
Net sales to		2005	$	1,093			363			4,589			488			892			—			7,425
customers		2004	$	538			351			3,001			492			1,159			(8	)		5,533

Operating		2005	$	12			(2	)		343			37			67			(830	)		(373	)
Income (loss)		2004	$	(58	)		(32	)		(36	)		(6	)		(14	)		8			(138	)

Long-lived		2005	$	23			20			3,683			822			2,743			(40	)		7,251
Assets		2004	$	7			394			3,538			886			2,065			(40	)		6,850

Geographic Area Information:


	Six					China									Elimin-
	Months					and									ations
	Ended		United			other									and			Total
	Dec. 31,		States			countries			Singapore		Thailand		Malaysia		Other			Company
Net sales to		2005	$	1,527			691			8,380		949		1,613		(30	)		13,130
customers		2004	$	1,207			697			6,083		1,145		4,181		(37	)		13,276

Operating		2005	$	(8	)		(2	)		584		66		113		(908	)		(155	)
Income (loss)		2004	$	(86	)		(20	)		126		28		146		15			209

Long-lived		2005	$	23			20			3,683		822		2,743		(40	)		7,251
Assets		2004	$	7			394			3,538		886		2,065		(40	)		6,850

11. IMPAIRMENT LOSS

During the six months ended December 31, 2005, an impairment loss of approximately $15 was incurred in the Testing segment located in Singapore. The relevant machinery and equipment was not suitable to perform testing services for the high speed microprocessor chips. Consequently, this machinery and equipment was deemed obsolete.

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The 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 statement 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 occurrence of a tsunami in Asia and hurricanes in the southern part of North America had an indirect impact on the Company. World-wide oil prices increased after several hurricanes in the first quarter of fiscal 2006, which caused companies to incur higher costs. We believe customers have tightened and will continue to tighten their spending resulting in a decline in the demand for electronic products and semiconductor equipment. We anticipate that this chain effect will hit the Company’s business gradually in the future. 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.

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. The Testing segment is the largest of these business segments thus far this fiscal year. It accounted for over 55.3% of our revenue for the six months ended December 31, 2005, and it averages a higher growth rate than the other two business segments, although the semiconductor market is characterized by wide swings in growth rates from year to year.

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. The Company uses its own proprietary equipment for certain burn-in, centrifugal and leak tests, and commercially available equipment for various other environmental tests. The Company conducts the majority of its testing operations in Southeast Asia with facilities in Singapore, Malaysia and Thailand.

The Company’s Ireland operation, as a component of the Testing segment, suffered continued operating losses in the past three fiscal years and the cash flow was minimal for the past three years. In August 2005, the Company established a restructuring plan to close the Testing operation in Dublin, Ireland. This fact was initially disclosed in the Form 10-K for the fiscal year ended June 30, 2005. Based on the restructuring plan and in accordance with EITF 03-13, the Company presented the operation results from Ireland as a discontinued operation as the Company believed that no continued cash flow would be generated by the disposed component (Ireland subsidiary) and that the Company would have no significant continuing involvement in the operation of the discontinued component. Management of the Company initiated a plan to sell the property located in Dublin, Ireland in August 2005 and ceased the depreciation of the property in accordance with SFAS No. 144. The Company transferred the relevant machinery and equipment to Singapore and was going to pay the outstanding balance on the equipment loans. As a result, the machinery and equipment located in Dublin, Ireland was not included in the assets held for sale. Management of the Company presented the property as assets held for sale for the three months ended September 30, 2005 as this property was available for immediate sale in its then present condition subject only to terms that are usual and customary for sales of such property; the sale of the property was probable; and transfer of the property was expected to qualify for recognition as a completed sale within one year. In November 2005, the Company completed the sale of property located in Dublin, Ireland and recorded a gain of sale of property of $8,909. As a result, this discontinued operation reported an income of $8,459, which consisted of the gain from the sale of property of $8,909 offset by the loss from discontinued operation of $450. The Company still has accounts receivable and

accounts payables relating to the Ireland location. The Company expects some expenses to incur for collecting accounts receivables and disbursing payables, for statutory expenses and for expenses incurred in winding up the subsidiary.

On December 26, 2005, the application for the share transfer was approved by the relevant governmental authorities in China. On December 30, 2005, the Company and the Seller agreed that the final purchase price would be $153 (of which $138 is the remaining balance due) and a cash swap in the amount of $351 would be wired to the Seller on December 30 and the closing date would be when the funds arrived at the Seller’s bank, which occurred on January 3, 2006. Before the completion date, the Company did not have any access to the fixed assets owned by the Seller. The completion date of this acquisition was January 3, 2006. Pursuant to the terms of the signed agreement, the acquired entity is in the process of changing its name from GSI to Trio-Tech (Shanghai) Co., Ltd.

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. The Manufacturing segment operates primarily in Singapore and the United States.

Our Distribution segment operates primarily in Southeast Asia. This segment markets and supports distribution of the Company’s own manufactured equipment in addition to distributing complementary products from other manufacturers that are used by the Company’s customers and other semiconductor and electronics manufacturers. Our Distribution segment also serves as a distributor of electronic components to customers.

Results of operations and business outlook

The following table sets forth our revenue components for the six and three months ended December 31, 2005 and 2004, respectively.

Revenue Components


	Six Months Ended						Three Months Ended
	Dec. 31,			Dec. 31,			Dec. 31,			Dec. 31,
	2005			2004			2005			2004
Net Sales:
Testing		55.29	%		40.96	%		50.03	%		47.94	%
Manufacturing		34.02			48.24			41.90			43.85
Distribution		10.69			10.80			8.07			8.21

Total		100.00	%		100.00	%		100.00	%		100.00	%

Testing Segment

Net sales in the Testing segment expanded by 14.33% to 55.29% and 2.09% to 50.03% of total net sales for the six months and three months ended December 31, 2005, respectively, when compared for the same periods of the last fiscal year. The Testing segment outperformed the other two business segments during this period due to an increase in testing services to one major customer because of an increased demand for that customer’s personal computers, notebooks and server chips. Volume in the Testing segment varies depending on market demand and customer forecasts. We anticipate that our customers will require our testing services to perform ‘burn-in’ on chips, as wireless handsets, automotive applications and wired communications are currently in demand in the market.

We currently operate four Testing facilities, one in the United States and three in Southeast Asia. These facilities provide customers with a full range of testing services, such as burn-in and product life testing for finished or packaged components. On January 3, 2006, the acquisition of the operation in Shanghai was completed. It is anticipated that such acquisition will enable the Company to expand its testing and burn-in services into China.

Our Testing facilities require substantial investment to construct and are largely fixed-costs assets once in operation. Because we own most of the testing facilities, a significant portion of our operating costs are fixed. In general, these costs do not decline with reductions in customer demand or our utilization of our testing capacity, and can adversely affect profit margin 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.

Manufacturing Segment

Net sales in the Manufacturing segment as a percentage of total net sales were 34.02% and 41.90%for the six months and three months ended December 31, 2005, respectively, a drop of 14.22% and 1.95% for the six months and three months ended December 31, 2005,, respectively, compared with those in the same periods of the last fiscal year. The decrease in percentage of Manufacturing sales to total net sales was due to a decrease in sales of burn-in boards. The absolute amount of net sales actually increased by $686 in the three months ended December 31, 2005 from $2,425 to $3,111. However, the Testing service outperformed the Manufacturing segment resulting in a decrease in terms of a percentage of revenue for the Manufacturing segment. For the six months ended December 31, 2005, the Manufacturing segment reported a decrease in sales of $1,937 (or 30.30%) to $4,466 from $6,403 compared to the same period of the last fiscal year.

As Manufacturing costs such as labor and rental expenses in the U.S. are more expensive than those in Singapore, the Company shifted the Wet Process Station Manufacturing operation from San Jose to Singapore in fiscal 2004, and has utilized existing personnel located in Singapore. In the U.S., we are focusing on marketing used and refurbished equipment, which some of our U.S. 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 (electrical and mechanical fabrication houses) and seeking competitive material costs.

Distribution Segment

Net sales in the Distribution segment accounted for 10.69% and 8.07%of total net sales for the six months and three months ended December 31, 2005, respectively, dropped by 0.11% and 0.14% for the six months and three months ended December 31, 2005, respectively, compared with those in the same periods of the last fiscal year. However, the absolute amount of net sales actually increased by $145 in the three months ended December 31, 2005 from $454 to $599. The increase was due to an increase in demand of low margin front-end products, such as Vibration equipment, chambers and wafer fabricators. For the six months ended December 31, 2005, sales decreased by $29 from $1,433 to $1,404 compared to the same period of the last fiscal year. Product volume for the Distribution segment depends on sales activities such as bookings, queries on products and backlog. Equipment and electronic component sales are very competitive, as the products are prevalent in the market. Thus, “add value” has been a key phrase in the Company’s sales mission for the past 12 months.

Our marketing is mainly focused on Asia as we believe that the recovery of equipment sales in that region is improving more rapidly than sales within the U.S. The equipment sales for the U.S. continue to be gradual as many companies are still conservative in capital equipment spending. With Singapore as the manufacturing base for Wet Process Stations, the Singapore Distribution operations market Wet Process Stations mainly to local research institutions and universities, as well as work closely with customers on their specific requirements. Volume for servicing also increased where there was a need for equipment to be tested and integrated before delivery and installation.

The financial information on the measurement of profit or loss and total assets for the three segments as well as geographic areas information can also be found under financial conditions and notes to consolidated financial statements. The working capital requirements of the Company are covered under liquidity and capital resources.

Uncertainties and Remedies

There are several influencing factors which create uncertainties when forecasting performance, such as the ever-changing nature of technology, including specific requirements from the customer, decline in demand for certain types of burn-in devices or equipment, and other similar factors. One of these factors is the highly competitive nature of the semiconductor industry. Another is that some customers are unable to provide a forecast of the products required in the upcoming weeks; hence it is difficult to plan for the resources needed to meet these customers’ requirements due to short lead time and last minute order

confirmation. This will normally result in a lower margin for these products, as it is more expensive to purchase materials in a short time frame. However, the Company has taken action to protect itself and has formulated plans for dealing with these unpredictable factors. For example, in order to meet customers’ demands upon short notice the Company maintains higher inventories, but continues to work closely with its 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 maintaining a lean headcount, while still keeping quality high so as to sell new products at a competitive price. We have also been improving customer service from staff by keeping them up to date on the newest technology and stressing the importance of understanding and meeting the stringent requirements of our customers. Finally, the Company is exploring new markets and products, looking for new customers, and upgrading and improving burn-in technology while at the same time searching for improved testing methods of higher technology chips.

Comparison of Second Quarter Ended December 31, 2005 (“Q2 2006”) and December 31, 2004 (“Q2 2005”)

The following table sets forth certain consolidated statements of income data as a percentage of net sales for the three months ended December 31, 2005 and 2004 (the “second quarters”), respectively:


	Q2 2006			Q2 2005
Net Sales		100.0	%		100.0	%
Cost of Sales		74.9	%		76.8	%

Gross Margin		25.1	%		23.2	%

Operating Expenses
General and administrative		17.3	%		20.4	%
Director and officer bonuses		9.5	%		(0.2	%)
Selling		3.1	%		5.1	%
Research and development		0.2	%		0.4	%
Total Operating Expenses		30.1	%		25.7	%


(Loss) from operations		-5.0	%		-2.5	%

Overall Net Sales

Overall sales increased by $1,892 (or 34.19%) to $7,425 for the three months ended December 31, 2005 from $5,533 in the same period last fiscal year. The sales increase was mainly due to the sales performance of the Singapore burn-in division in the Testing segment. That division experienced higher testing service sales because of increased demand by one customer due to an increased demand for its personal computers, notebooks and server chips. Additionally, the Manufacturing segment experienced better sales performance due to an increase in demand of burn-in systems and burn-boards in Asia. In the Distribution segment, revenue increased due to an increase in demand for low margin front-end products.

Geographically, we operate in the U.S., Singapore, Malaysia, Thailand and China. We have discontinued our operations in Ireland as of August 2005. Net sales into and within China and the Southeast Asia regions increased by $1,337 (or 26.8%) to $6,332 for the three months ended December 31, 2005 from $4,996 in the same period last fiscal year, primarily caused by the increase in sales in the Testing segment. Net sales into and within the United States increased by $555 (or 103.2%) to $1,093 for the three months ended December 31, 2005 from $538 in the same period last fiscal year, primarily due to a sales improvement in the Manufacturing segment which included the sale of a Wet Process Station.

Overall Gross Margin

Overall gross margin increased by 1.9% to 25.1% for the three months ended December 31, 2005 from 23.2% for the same period last fiscal year. The increase was due to higher gross margin of our unique operating cost structure in our Testing segment, offset by the lower profit margin in our Manufacturing segment.

In our Testing segment, a significant portion of the operating expenses is fixed, which means the operating expenses do not decline proportionally to the revenue volume or the utilization of our testing capacity. Thus, as the service demand and the utilization of our testing capacity increase, those fixed portions of operating expenses are spread over the total revenues generated, which then lead to a higher gross profit margin. Revenue in the Testing segment increased by $1,061 (or 40.0%) to $3,715 for the three months ended December 31, 2005 from $2,654 in the same period last fiscal year, while the gross profit margin increased by approximately 8.1%. The average selling price of burn-in systems and burn-in boards in our Manufacturing segment dropped due to price competition and increased cost of materials for the three months ended December 31, 2005, resulting in a 5.5% decrease in gross profit margin. In the Distribution segment, gross margin dropped 1% for the three months ended December 31, 2005 due to an increase in demand for low margin front-end products.

Loss from operations

Loss from operations increased by $235 (or 170.3%) to $373 for the three months ended December 31, 2005 from a loss of $138 as compared to the same period last fiscal year, due to an increase in gross profit of $580, and net of an increase in (i) the director and officer bonuses of approximately $715; and (ii) the operating expenses of $119 due to an increase in legal and professional fees related to the acquisition of the operation in China, the legal procedures for the declaration of dividends in the U.S., the implementation of new accounting principles generally accepted in the U.S. and an increase in payroll and related expenses.

Operating Expenses

The operating expenses for the second quarter of 2006 and 2005 were as follow:


(In Thousands, unaudited)	Q2 2006		Q2 2005
General and administrative	$	1,288	$	1,130
Director and officer bonuses	$	705	$	(10	)
Selling	$	230	$	281
Research and development	$	16	$	23

Total	$	2,239	$	1,424

General and administrative expenses increased by $158 (or 14.0%) to $1,288 for the three months ended December 31, 2005 from $1,130 in the same period last fiscal year. The increase was due to an increase in the operating expenses in legal and professional fees related to the acquisition of the operation in China, the legal procedures for the declaration of dividends in the U.S., the implementation of new accounting principles generally accepted in the U.S. and an increase in payroll and related expenses.

Director and officer bonuses were approximately $705 and a negative of $10 for the three months ended December 31, 2005 and 2004, respectively. The negative bonuses of $10 for the three months ended December 31, 2004 were due to a reversal of bonus overprovided in the prior year. These bonuses were paid and are payable primarily based on the Company’s long standing compensation programs for the Officers and Chairman of the Company, which is based on percentages of the Company’s pre-tax profits for the year. In the case of the profits from the sale of the property in Dublin, Ireland, the recipients agreed to take their percentages from after tax profits. During the second quarter of fiscal 2006, a decision was made to pay that part of the bonuses attributable to the sale of property in Dublin, Ireland.

Selling expenses decreased by $51 (or 18.2%) to $230 for the three months ended December 31, 2005 from $281 as compared to the same period last fiscal year. The decrease was primarily due to a decrease in commissions due to over provision of commissions in the prior year and warranty costs due to less provision for warranty cost required for lower sales in the six months ended December 31, 2005 of approximately $61, offset by an increase in travel expense of approximately $10.

Research and development costs decreased by $7 (or 30.4%) to $16 for the three months ended December 31, 2005 from $23 in the same period last fiscal year. This decrease was primarily due to a decrease in the headcount which had yet to be replaced as of December 31, 2005.

Interest Expense

The interest expenses for the second quarter of 2006 and 2005 were as follow:


(In Thousands, unaudited)	Q2 2006		Q2 2005
Interest expense	$	38	$	55

Interest expenses decreased by $17 from $55 in Q2 2005 to $38 in Q2 2006, primarily due to lower usage of credit line facilities in the Singapore operation for the three months ended December 31, 2005 when compared to the same period last year.

Other Income (Loss)

Other income (loss) for the second quarter of 2006 and 2005 were as follow:


(In Thousands, unaudited)	Q2 2006		Q2 2005
Other income (loss)	$	82	$	(12	)

Other income increased by $94 (or 783.3%) to $82 for the three months ended December 31, 2005 from a loss of $12 for the same period last fiscal year, primarily due to the interest income generated from short-term deposits and a decrease in the currency transaction loss. Interest income was $63 for the three months ended December 31, 2005 and was $53 higher than the interest income generated in the same period last fiscal year due to short-term deposits made using the proceeds from the sale of the Ireland property in Dublin, Ireland. Currency transaction loss improved by $50 from $51 for the three months ended December 31, 2004 to $1 for this quarter.

Income Tax

Income tax provision increased by $172 (or 286.7%) to $112 for the three months ended December 31, 2005 as compared to a benefit of $60 in the same period last fiscal year. Income tax provision of $112 for this quarter was primarily attributable to the income generated from Singapore and Malaysia. Income tax benefit of $60 for the same period last fiscal year was mainly due to the tax recovery for the tax period between 1999 and 2001 in Singapore.

Income from Discontinued Operations

Income from discontinued operations increased by $8,826 to $8,837 for the three months ended December 31, 2005 from $11 for the same period last fiscal year. The significant increase in the income from discontinued operations was due to the gain from the sale of property of $8,909 completed in November 2005, offset by the loss from discontinued operations of $72. The loss from discontinued operations was $11 for the same period last year.

Net Income (loss)

Net income increased by $8,491 to $8,391 for three months ended December 31, 2005 as compared to a loss of $100 in the same period last fiscal year. Such an increase was primarily due to an increase in income from discontinued operations of $8,826 offset by an increase in loss from continuing operations of $335. Consequently, basic loss per share from continuing operations for the three months ended December 31, 2005 increased by $0.12 from a loss per share of $0.03 in the second quarter 2005 to a loss per share of $0.15 in the second quarter 2006. Diluted loss per share from continuing operations for the three months ended December 31, 2005 were $0.15, which represents an increase of $0.12 from diluted loss per share of $0.03 for the three months ended December 31, 2004. Consequently, there was an increase in both basic and diluted earnings per share attributable to discontinued operations of $2.91 for the three months ended December 31, 2005 due to the closing of the Ireland facility during the period.

Testing Segment

The revenue, gross margin and income (loss) from operations for the Testing segment for the second quarter of 2006 and 2005 were as follows:


(In Thousands, unaudited)	Q2 2006			Q2 2005
Revenue	$	3,715		$	2,654
Gross margin		37.0	%		28.9	%

Income (loss) from operations	$	561		$	(58	)

Revenue in the Testing segment increased by $1,061 (or 40.0%) to $3,715 for the three months ended December 31, 2005 from $2,654 in the same period last fiscal year. This was due to an increase in testing services to one major customer due to an increased demand for that customer’s personal computers, notebooks and server chips.

In our Testing operation, a significant portion of the operating expenses is fixed, which means the operating expenses do not decline proportional to the revenue volume or the utilization of our testing capacity. Thus, as the service demand and the utilization of our testing capacity increase, those fixed portions of operating expenses are spread over the total revenues generated, which then lead to a higher gross profit margin. Since revenue in the Testing segment increased by $1,061 and the utilization of our testing capacity increased in this quarter, as compared to the same period last fiscal year, gross profit margin increased by 8.1% to 37.0% for the three months ended December 31, 2005 from 28.9% as compared to the same quarter last fiscal year. Gross profits were $1,375 and $769 for the three months ended December 31, 2005 and 2004, respectively.

Operating income increased by $619 to an income of $561 for the three months ended December 31, 2005 as compared to a loss of $58 for the same period last fiscal year. Such an increase in operating income was attributable to an increase in gross profit of $606 and offset by a decrease in operating expenses of $11. Operating expenses were $814 and $825 for the three months ended December 31, 2005 and 2004, respectively. Such a decrease in operating expenses was mainly attributable to a slight decrease in the general and administrative expenses.

Manufacturing Segment

The revenue, gross margin and (loss) income from operations for the Manufacturing segment for the second quarter of 2006 and 2005 were as follows:


(In Thousands, unaudited)	Q2 2006			Q2 2005
Revenue	$	3,111		$	2,425
Gross margin		12.8	%		18.3	%

(Loss) income from operations	$	(117	)	$	5

Revenue in the Manufacturing segment increased by $686 (or 28.3%) to $3,111 for the three months ended December 31, 2005 from $2,425 for the same period last fiscal year, due to an increase in demand of burn-in systems and burn-in boards in Asia. However, the average selling price for burn-in systems and burn-in boards dropped due to price competition while the cost of material increased for the three months ended December 31, 2005. The result was a decrease of 5.5% in gross profit margin to 12.8% for this quarter from 18.3% for the same period last fiscal year. Gross profits were $398 and $443 for the three months ended December 31, 2005 and 2004, respectively.

Operating income decreased by $122 to a loss of $117 for the three months ended December 31, 2005 as compared to an income of $5 for the same period last fiscal year. The decrease in operating income was attributed by a decrease in gross profit of $45 and an increase in operating expenses of $77. Operating expenses were $515 and $438 for the three months ended December 31, 2005 and 2004, respectively. The increase in operating expenses was mainly attributable to higher selling, payroll and related expenses.

Distribution Segment

The revenue, gross margin and loss from operations for the Distribution segment for the second quarter of 2006 and 2005 were as follows:


(In Thousands, unaudited)	Q2 2006			Q2 2005
Revenue	$	599		$	454
Gross margin		15.4	%		16.5	%
Loss from operations	$	(1	)	$	(94	)

Revenue in the Distribution segment increased by $145 (or 31.9%) to $599 for the three months ended December 31, 2005 from $454 in the same period last fiscal year, due to an increase in demand of low margin front-end products, such as Vibration equipment, chambers and wafer fabricators. Since revenues were generated primarily from low margin front-end products in the three months ended December 31, 2005, gross profit margin dropped by 1.1% to 15.4% for this quarter from 16.5% in the same period last fiscal year. Gross profits were $92 and $75 for the three months ended December 31, 2005 and 2004, respectively.

Operating loss improved by $93 to a loss of $1 for the three months ended December 31, 2005 from a loss of $94 for the same period last fiscal year. Such an improvement in operating loss was attributable to an increase in gross profit of $17 and a decrease in operating expenses of $76. Operating expenses were $93 and $169 for the three months ended December 31, 2005 and 2004, respectively. Such a reduction in operating expenses was mainly attributable to a decrease in commissions of approximately $36 and other selling related expenses of approximately $40.

Corporate

The (loss) income from operations for Corporate for the second quarter of 2006 and 2005 were as follow:


(In Thousands, unaudited)	Q2 2006			Q2 2005
(Loss) income from operations	$	(817	)	$	8

Corporate operating income decreased by $825 to a loss of $817 for the three months ended December 31, 2005 from an income of $8 in the same period last fiscal year. Such a decrease in corporate income was attributable to (i) director and officer bonuses of approximately $705; and (ii) higher operating expenses due to an increase in legal and professional fees related to the acquisition of the operation in China, the legal procedures for the declaration of dividends in the U.S., the implementation of new accounting principles generally accepted in the U.S. and an increase in payroll and related expenses.

Year to Date Comparison of the Six Months Ended December 31, 2005 (“2006”) and to the Six Months Ended December 31, 2004 (“2005”)

The following table sets forth certain consolidated statements of (loss) income data as a percentage of net sales for the six months ended December 31, 2005 (the “first half”) and 2004, respectively:


	YTD 2006			YTD 2005
Net Sales		100.0	%		100.0	%
Cost of Sales		71.9	%		75.9	%

Gross Margin		28.1	%		24.1	%

Operating Expenses
General and administrative		19.6	%		17.9	%
Director and officer bonuses		5.4	%		0.1	%
Selling		3.9	%		4.1	%
Research and development		0.3	%		0.4	%
Impairment Loss		0.1	%		0.0	%
Total Operating Expenses		29.3	%		22.5	%


(Loss) Income from operations		-1.2	%		1.6	%

Overall Net Sales

Overall sales decreased slightly by $146 (or 1.1%) to $13,130 for the six months ended December 31, 2005 from $13,276 as compared to the same period last fiscal year. Although sales in the Testing segment increased by $1,820 (or 33.5%) to $7,260 for the six months ended December 31, 2005 from $5,440 as compared to the same period last fiscal year, overall sales were still affected by slow sales performance in the Manufacturing segment, which reported a decrease in sales of $1,937 (or 30.3%) to $4,466 for the six months ended December 31, 2005 from $6,403 as compared to the same period last fiscal year. Revenue in the Distribution segment decreased by $29 (or 2%) to $1,404 for the six months ended December 31, 2005 from $1,433 in the same period last fiscal year, due to a decline in the sales of low margin front-end products.

Geographically, we continue to operate in the U.S., Singapore, Malaysia, Thailand and China. We have discontinued our operations in Ireland as of August 2005. On January 3, 2006, the Company completed its acquisition of GSI and is in the process of changing its name to “Trio-Tech (Shanghai) Co., Ltd.” Such acquisition empowers the Company to expand its testing and burn-in services into China. Net sales into and within China and the Southeast Asia regions decreased by $466 (or 3.9%) to $11,603 for the six months ended December 31, 2005 from $12,069 as compared to the same period last fiscal year, attributed mainly attributable to the slow sales performance in the Manufacturing segment in the Southeast Asia and Europe regions. Net sales into and within the United States increased by $320 (or 26.5%) to $1,527 for the six months ended December 31, 2005 from $1,207 as compared to the same period last fiscal year, primarily due to a slight sales improvement in the Manufacturing segment in the United States, which included the sale of a Wet Process Station.

Overall Gross Margin

Overall gross margin increased by 4.0% to 28.1% for the six months ended December 31, 2005 from 24.1% as compared to the same period last fiscal year, due to higher gross margin of our unique operating cost structure in our Testing segment, offset by low profit margin in our Manufacturing segment.

In our Testing segment, a significant portion of the operating expenses is fixed, which means the operating expenses do not decline proportional to the revenue volume or the utilization of our testing capacity. Thus, as the service demand and the utilization of our testing capacity increase, those fixed portions of operating expenses are spread over the total revenues generated, which then lead to a higher gross profit margin. Since revenue in the Testing segment increased by $1,820 (or 33.5%) to $7,260 for the six months ended December 31, 2005 from $5,440 as compared to the same period last fiscal year, gross profit margin increased by approximately 4.9%. However, the average selling price of burn-in systems and burn-in boards in our Manufacturing segment dropped significantly and cost of materials increased adversely for the six months ended December 31,

2005, which resulted in the gross profit margin dropping by 2.3% accordingly. In the Distribution segment, gross margin dropped by 1% for the six months ended December 31, 2005 due to an increase in demand for low margin front-end products. Overall, the gross profit margin still remained at an increase of 4.0%.

Loss from operations

Loss from operations of $155 increased by $364 (or 174.2%) from an income of $209 for the six months ended December 31, 2005 mainly due to better sales performance, which resulted in higher gross profit of $497, offset with an increase in (i) the director and officer bonuses of approximately $696; and (ii) the operating expenses due to an increase in legal and professional fees related to the acquisition of the operation in China, the legal procedures for the declaration of dividends in the U.S., the implementation of new accounting principles generally accepted in the U.S. and an increase in payroll and related expenses.

Operating Expenses

The operating expenses for the first half of 2006 and 2005 were as follows:

Operating Expenses


(In Thousands, unaudited)	YTD 2006		YTD 2005
General and administrative	$	2,577	$	2,368
Director and officer bonuses	$	705	$	9
Selling	$	515	$	550
Research and development	$	33	$	56
Impairment loss	$	15	$	1

Total	$	3,845	$	2,984

General and administrative expenses increased by $209 (or 8.8%) to $2,577 for the six months ended December 31, 2005 from $2,368 as compared to the same period last fiscal year, due to an increase in legal and professional fees related to the implementation of new accounting principles generally accepted in the United States and an increase in payroll and related expenses.

Director and officer bonuses were approximately $705 and $9 for the six months ended December 31, 2005 and 2004, respectively. These bonuses were paid and are payable primarily based on the Company’s long standing compensation programs for the Officers and Chairman of the Company, which is based on percentages of the Company’s pre-tax profits for the year. In the case of the profits on the sale of the property in Dublin, Ireland, the recipients agreed to take their percentages on the after tax profits. During the period ended in the second quarter of fiscal 2006, a decision was made to pay that part of the bonuses attributable to the sale of property in Dublin, Ireland.

Selling expenses decreased by $35 (or 6.4%) to $515 for the six months ended December 31, 2005 from $550 as compared to the same period last fiscal year, primarily due to a decrease in warranty costs of approximately $35, resulting from lower sales in the Manufacturing segment.

Research and development costs decreased by $23 (or 41.1%) to $33 for the six months ended December 31, 2005 from $56 as compared to the same period last fiscal year. This decrease was primarily due to a decrease in the headcount which had yet to be replaced as of December 31, 2005.

Impairment loss increased by $14 to $15 for the six months ended December 31, 2005 from $1 as compared to the same period last fiscal year, which was attributed by the obsolescence of certain machinery and equipment not suitable for performing testing services for the high speed microprocessor chips for one of our major customers.

Interest Expense

The interest expenses for the first half of 2006 and 2005 were as follows:


(In Thousands, unaudited)	YTD 2006		YTD 2005
Interest expense	$	74	$	86

Interest expenses decreased by $12 during the first six months of fiscal 2006 compared to the same period last year, primarily due to lower usage of credit line facilities by the Singapore operation for the six months ended December 31, 2005 when compared to the same period last year.

Other Income

Other income for the first half of 2006 and 2005 were as follows:


(In Thousands, unaudited)	YTD 2006		YTD 2005
Other income	$	112	$	42

Other income increased by $70 (or 166.7%) to $112 for the six months ended December 31, 2005 from a loss of $42 as compared to the same period last fiscal year, primarily due to the interest income generated from short-term deposits and the currency transaction loss. Interest income was $79 for the six months ended December 31, 2005 and was $55 higher than the interest income generated in the same period last fiscal year due to deposits entered into with the funds from the sale of the Ireland property. Currency transaction loss improved by $20 to $3 for the six months ended December 31, 2005 from $23 as compared to the same period last fiscal year.

Income Tax

Income tax provision increased by $133 (or 260.8%) to $184 for the six months ended December 31, 2005 from $51 as compared to the same period last fiscal year. Income tax provision of $184 for the six months ended December 31, 2005 was primarily attributed by the income generated from Singapore, Thailand and Malaysia. Income tax provision of $51 for the same period last fiscal year mainly resulted from the tax provision provided for taxable income generated during the period, net of the tax recovery of $68 for the tax period between 1999 and 2001 in Singapore. Because of the different income tax jurisdictions, the loss generated in the United States is not applicable against the taxable income generated in foreign countries. Therefore, the Company generally incurs certain income tax expenses in every fiscal year.

Income from Discontinued Operations

Income from discontinued operations increased by $8,457 to $8,459 for the six months ended December 31, 2005 from $2 for the same period last fiscal year. The significant increase in the income from discontinued operations was contributed by the gain from sale of property of $8,909 completed in November 2005, offsetting the loss from discontinued operation of $450. The loss from discontinued operations was $2 for the same period last year.

Net Income

Net income increased by $8,040 to $8,177 for the six months ended December 31, 2005 from $137 in the same period last fiscal year. Such an increase was primarily due to an increase in income from discontinued operations of $8,457 offset by an increase in loss from continuing operations of $417. Consequently, basic loss per share contributed from continuing operations for the six months ended December 31, 2005 decreased by $0.14 from earnings per share of $0.05 in the first half of fiscal 2005 to a loss of $0.09 per share in the first half of fiscal 2006. Diluted loss per share contributed from continuing operations for the six months ended December 31, 2005 was $0.09, which represented a decrease of $0.13 from diluted earnings per share of $0.04 for the six months ended December 31, 2004. Consequently, there was an increase in both basic and diluted earnings per share attributed to discontinued operations of $2.80 for the six months ended December 31, 2005 due to the closing of the Ireland facility during the period.

Testing Segment

The revenue, gross margin and income from operations for the Testing segment for the first half of 2006 and 2005 were as follows:


(In Thousands, unaudited)	YTD 2006			YTD 2005
Revenue	$	7,260		$	5,440
Gross margin		37.7	%		32.8	%

Income from operations	$	1,020		$	124

Revenue in the Testing segment increased by $1,820 (or 33.5%) to $7,260 for the six months ended December 31, 2005 from $5,440 in the same period last fiscal year, due to an increase in testing services to one major customer due to an increase in demand for that customer’s personal computers, notebooks and server chips.

In our Testing operation, a significant portion of the operating expenses is fixed, which means the operating expenses do not decline proportional to the revenue volume or the utilization of our testing capacity. Thus, as the service demand and the utilization of our testing capacity increase, those fixed portions of operating expenses are spread over the total revenues generated, which then lead to a higher gross profit margin. Since revenue in the Testing segment increased by $1,820 and the utilization of our testing capacity increased in this quarter, as compared to the same period last fiscal year, gross profit margin increased by 4.9% to 37.7% for the six months ended December 31, 2005 from 32.8% as compared to the same quarter last fiscal year. Gross profits were $2,735 and $1,785 for the six months ended December 31, 2005 and 2004, respectively.

Operating income increased by $896 to $1,020 for the six months ended December 31, 2005 as compared to $124 for the same period last fiscal year. Such an increase in operating income was attributed by an increase in gross profit of $950 and an increase in operating expenses of $57. Operating expenses were $1,717 and $1,660 for the six months ended December 31, 2005 and 2004, respectively. Such an increase in operating expenses was mainly attributed by an increase in the variable portion of payroll and related expenses in our Testing operation.

Manufacturing Segment

The revenue, gross margin and (loss) income from operations for the Manufacturing segment for the first half of 2006 and 2005 were as follows:


(In Thousands, unaudited)	YTD 2006			YTD 2005
Revenue	$	4,466		$	6,403
Gross margin		14.5	%		16.8	%

(Loss) income from operations	$	(292	)	$	152

Revenue in the Manufacturing segment, which reported a decrease in sales of $1,937 (or 30.3%) to $4,466 for the six months ended December 31, 2005 from $6,403 in the same period last fiscal year, was due to a decrease in sales of burn-in boards by $2,288, offset by an increase in sales of burn-in systems and Wet Process Stations of approximately $351.

Since the average selling price of burn-in systems and burn-in boards dropped due to price competition and cost of materials increased adversely for the six months ended December 31, 2005, the gross profit margin dropped by 2.3% to 14.5% for the first half from 16.8% in the same period last fiscal year. Gross profits were $647 and $1,076 for the six months ended December 31, 2005 and 2004, respectively.

Operating income decreased by $444 to a loss of $292 for the six months ended December 31, 2005 as compared to an income of $152 for the same period last fiscal year. Such a decrease in operating income was attributed by a decrease in gross profit of $429 and an increase in operating expenses of $15. Operating expenses were $939 and $924 for the six months ended December 31, 2005 and 2004, respectively. Such an increase in operating expenses was mainly attributed by slightly higher general and administrative expenses.

Distribution Segment

The revenue, gross margin and loss from operations for the Distribution segment for the first half of 2006 and 2005 were as follows:


(In Thousands, unaudited)	YTD 2006			YTD 2005
Revenue	$	1,404		$	1,433
Gross margin		22.0	%		23.4	%
Loss from operations	$	(2	)	$	(82	)

Revenue in the Distribution segment decreased by $29 (or 2.0%) to $1,404 for the six months ended December 31, 2005 from $1,433 in the same period last fiscal year, which was attributable to a decline in the sales of low margin front-end products.

Since revenues are generated primarily from low margin front-end products, gross profit margin dropped by 1.4% to 22.0% for the six months ended December 31, 2005 from 23.4% as compared to the same period last fiscal year. Gross profits were $309 and $335 for the six months ended December 31, 2005 and 2004, respectively.

Operating loss improved by $80 to a loss of 2 for the six months ended December 31, 2005 from a loss of $82 in the same period last fiscal year. Such an improvement in operating loss was attributable to a decrease in operating expenses of $105, offset by a drop in gross profit of $26. Operating expenses were $311 and $416 for the six months ended December 31, 2005 and 2004, respectively. Such a reduction in operating expenses was mainly attributable to a decrease in commissions of approximately $61 and other selling related expenses of approximately $44.

Corporate

The (loss) income from operations for Corporate for the first half of 2006 and 2005 were as follow:


(In Thousands, unaudited)	YTD 2006			YTD 2005
(Loss) income from operations	$	(881	)	$	15

Corporate operating loss increased by $896 to a loss of $881 for the six months ended December 31, 2005 from an income of $15 as compared to the same period last fiscal year. Such a decrease in corporate income was attributable to (i) an increase in director and officer bonuses of approximately $696; and (ii) higher operating expenses due to an increase in legal and professional fees related to the acquisition of the operation in China, the legal procedures for the declaration of dividends in the U.S., the implementation of new accounting principles generally accepted in the U.S. and an increase in payroll and related expenses.

Financial Condition

During the six months ended December 31, 2005, total assets increased $8,550 from $18,345 at June 30, 2005 to $26,895 at December 31, 2005. The majority of the increase was in cash, short term deposits, other receivables, prepaid expenses, advances to seller and other assets of $9,517, but offset by a decrease in accounts receivables of $325, inventories of $331 and property, plant and equipment and other intangibles of $311.

At the end of the second quarter of fiscal 2006, total cash and short term deposits totaled $13,661, up $9,011 from fiscal year-end 2005. During the first six months of fiscal 2006, cash increased primarily due to net proceeds received from the sale of property in Dublin, Ireland of $8,401, offset by advances for the newly acquired subsidiary in China, capital expenditures of $704, principal repayments of debt and capital leases of $501 (which includes the repayment of Ireland’s outstanding equipment loan of $88) and payments on the lines of credit of $77.

Inventories of $1,253 at the end of the second quarter of fiscal 2006 decreased $331 from fiscal year-end 2005 mainly due to the sales of finished goods from our Distribution segment. The turnover of inventory of 27 days at the end of the second quarter of fiscal 2006 improved marginally compared with 28 days at fiscal year-end 2005.

Accounts receivable at the end of the second quarter of fiscal 2006 decreased $325 from fiscal year-end 2005 primarily due to more efficient collections in the Southeast Asia operations but offset with higher sales in the second quarter of fiscal 2006, compared with the first quarter of fiscal 2006. Accounts receivables turnover remained unchanged at 56 days at the end of the second quarter of fiscal 2006 and at fiscal year-end 2005.

Advances to seller increased by $138 to $153 as of December 31, 2005 from $15 at June 30, 2005 due to the final payment of $153 to Seller to acquire GSI in China. This acquisition was completed on January 3, 2006.

Property, plant and equipment decreased by $264 from $7,176 at June 30, 2005 to $6,912 at December 31, 2005 due to the disposal of assets held for sale in the Ireland Testing operation with a carrying value of $261. Capital expenditures of $704 for the first six months ended December 31, 2005 were offset by the depreciation of $743 for the same period last fiscal year.
Capital expenditures were $704 for the first six months of fiscal 2006, compared with $1,841 the first six months of fiscal 2005. The decrease in capital expenditures was mainly due to higher purchases of machinery and equipment during the first six months ended fiscal 2005 for the acquired Malaysia Testing operation to meet customers’ requirements.

Depreciation and amortization was $792 for the first six months of fiscal 2006, compared with $707 for the first six months of fiscal 2005, as more fixed assets were acquired in the first half of fiscal 2006 than in the same period last fiscal year.

Accrued expenses of $3,286 at the end of the second quarter of fiscal 2006 increased $688 from June 30, 2005 primarily due to accrued bonuses, higher sales tax, commission and utilities in one of the Singapore operations but offset with the lower accrued purchases and fixed assets purchases.

Liquidity and Capital Resources

Net cash provided by operating activities increased by $1,030 to $739 for the six months ended December 31, 2005 from net cash used of $291 in the same period last fiscal year. The increase in the net cash provided by operating activities was primarily due to (1) the swing in net income from $137 to $8,177 during the six months of fiscal 2006 as compared to same period last fiscal year; and (2) the net impact of adjusting non-cash items during the first six months of fiscal 2006 was $8,099 which has decreased the net income as compared to $742 which had increased the net income during the first six months of fiscal 2005, which was mainly due to a gain on sale of property in Dublin, Ireland of $8,909. In addition, the increase was attributable to a positive cash flow of $957 from accounts receivable, inventories and accounts payable and accrued expenses and offset by a negative cash flow of $367 from other receivables and prepaid expenses and other current assets for six months ended December 31, 2005.

Net cash provided by investing activities increased by $4,398 to $4,222 for the six months ended December 31, 2005 from a negative cash flow of $176 for the same period last fiscal year. The improvement in net cash provided by investing activities was primarily due an increase in the net investment in short-term deposits of $5,283 to $3,337 during the six months of fiscal 2006 as compared to net proceeds of $1,946 during the six months of fiscal 2005. The increase in the investment in short-term deposits in fiscal 2006 was due to placement of the proceeds received from the sale of property in Dublin, Ireland in the short-term deposits. Capital expenditures decreased by $493 to $704 during the six months of fiscal 2006 from $1,197 during the first six months of fiscal 2005. The net proceeds from discontinued operations increased by $8,401 during the first six months of fiscal 2006 as compared to nil during the first six months of fiscal 2005, which was mainly due to the sale of property in Dublin, Ireland. There were no proceeds from sale of equipment during the six months of fiscal year 2006 as compared to $201 during the six months of fiscal 2005. Acquisition of business decreased by $637 to $138 during the six months of fiscal 2006 from $1,126 during the six months of fiscal 2005, which was attributable to the advance payments in business acquisition in China of $138 during the six months of fiscal 2006 as compared to the business acquisition in Malaysia of $1,126 during the six months of fiscal 2005.

Net cash provided by financing activities increased by $477 to $652 for the six months ended December 31, 2005 from $175 in the same period last fiscal year. The improvement in net cash provided by financing activities was primarily due to: (1) more proceeds from long-term debt of $1,025 during the six months of fiscal 2006 compared to $430 during the six months of fiscal 2005; (2) repayments of $501, which includes repayment of Ireland’s outstanding equipment loan of $88 made during the first six months of fiscal 2006 compared to repayments of $385 made during the first six months of fiscal 2005; (3) proceeds from stock options exercised of $232 during the first six months of fiscal 2006 compared to $5 during the first six months of fiscal 2005; (4) net repayments on the line of credit of $77 during the six months of fiscal 2006 whereas there were net borrowings of $178 during the six months of fiscal 2005; and (5) less dividends paid to minority interest of $27 during the six months of fiscal 2006 compared to $53 during the six months of fiscal 2005.

The details of cash flow from the discontinued operation in Ireland are summarized as follows: the gross proceeds was approximately $10,574, cost to sell was $218, disbursement for capital gain tax was $1,955, resulting in net proceeds of $8,401. The loss from discontinued operation of $450 was deemed as cash outflow from operating activities of the discontinued operation; the net proceeds provided by investing activities was $8,401 from the sale of the property; the cash used in financing activities was the disbursement to pay off the outstanding equipment loan of $88. The impact of this discontinued operation was immaterial because the total revenues for fiscal years June 30, 2005 and 2004 were approximately $600 and $500, respectively. The Company believes there will not be any future significant cash flows from the discontinued operation as the outstanding accounts receivable and accounts payable are immaterial to the Company financial position and liquidity.

Before moving out of Ireland, the Company wired the remaining cash of approximately $7,800 to its Singapore subsidiary where the main operations are located. On December 2, 2005, the Board of Directors of Registrant declared a cash dividend of fifty cents (US 50¢) per share based on the shareholders of records on January 10, 2006. The total number of shares issued and outstanding as of January 10, 2006 was 3,215,532 and the total cash dividends paid on January 25, 2006 were $1,608, which was paid out of the above $7,800. In addition, $705 of the $7,800 was used for bonuses to the directors and corporate officers paid in December 2005 and January 2006, respectively.

In addition, as of December 31, 2005, approximately $838 of cash deposits were held in the Company’s 55% owned Malaysian subsidiary. Of such amount, $833 were denominated in the currency of Malaysia, but $139 is currently available for movement to overseas, as authorized by the Central Bank of Malaysia. There are additional amounts available for distribution as dividends (after making deductions for income tax) pursuant to Malaysian regulations.

The current ratio (defined as current assets divided by current liabilities) improved to 2.42 as of December 31, 2005 compared to 1.82 as of June 30, 2005. We believe the Company has sufficient financial resources for its ordinary operations, capital expenditures, dividend payments and other business requirements for the next twelve months.

Corporate Guarantee Arrangement

The Company provides a corporate guarantee of approximately $1,504 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.

Recently Issued Accounting Pronouncements

In May 2005, the FASB issued Statement No. 154, “Accounting Changes and Error Corrections”, a replacement of APB Opinion No. 20, Accounting Changes, and Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements.” (SFAS No. 154). SFAS No. 154 changes the requirements for the accounting for, and reporting of, a change in accounting principle. Previously, most voluntary changes in accounting principles were required to be recognized by way of a cumulative effect adjustment within net income during the period of the change. SFAS No. 154 generally requires retrospective application to the prior period financial statements of voluntary changes in accounting principles. SFAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005. However, SFAS No. 154 does not change the transition provisions of any existing accounting pronouncements. The Company does not believe the adoption of SFAS No. 154 will have a material effect on its results of operations or financial condition.

Critical Accounting Estimates & Policies

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 require 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.

In response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policy,” the Company identified the most critical accounting principles upon which its financial status depends. The Company determined that those critical accounting principles are related to the use of estimates, inventory valuation, revenue recognition, income tax and impairment of long-lived assets. The Company states these accounting policies in the relevant sections in this management’s discussion and analysis, including the Recently Issued Accounting Pronouncements discussed below.

Use of Estimates

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and judgments that significantly affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The Company regularly evaluates these estimates, including those related to inventory valuation, revenue recognition and income taxes. These estimates are based on historical experience and on assumptions that are believed by management to be reasonable under the circumstances. The most important estimates included in the financial statements are the allowance for doubtful accounts, provision for inventory obsolescence, the estimated useful life of long-lived assets, and valuation allowance for deferred tax assets. Actual results may differ materially from these estimates, which may impact the carrying values of assets and liabilities.

Accounts Receivable and Allowance for Doubtful Accounts

During the normal course of business, we extend unsecured credit to our customers. Typically, credit terms require payment to be made between 30 to 60 days of the sale. We do not require collateral from our customers. We maintain our cash accounts at credit worthy financial institutions.

We regularly evaluate and monitor the creditworthiness of each customer on a case-by-case basis. We include any account balances that are determined to be uncollectible, along with a general reserve, in the overall allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available to management, we believe that our allowance for doubtful accounts was adequate as of December 31, 2005.

Inventory Valuation

Our inventories are stated at the lower of cost (on a first-in, first-out basis) or market value. Our industry is characterized by rapid technological change, short-term customer commitments and rapid changes in demand. We make provisions for estimated excess and obsolete inventory based on our regular reviews of inventory quantities on hand and the latest forecasts of product demand and production requirements from our customers. We write-down inventories for not saleable, excess or obsolete raw materials, works-in-process and finished goods by charging such write-downs to cost of sales. In addition to write-downs based on newly introduced parts, statistics and judgments are used for assessing provision of the remaining inventory based on salability and obsolescence.

Revenue Recognition

Revenue from sales of the Company’s products is recognized upon shipment or delivery, depending upon the terms of the sales order, provided that persuasive evidence of a sales arrangement exists, title and risk of loss have transferred to the customer, the sales amount is fixed and determinable, and collection of the revenue is reasonably assured. We allocate a portion of the invoice value to products sold and the remaining portion of invoice value to installation work in proportion to the fair value of products sold and installation work to be performed. The fair value determination of products sold and the installation and training work is also based on our specific historical experience of the relative fair values of the elements if there is no easily determinable market price to be considered. A portion of the Company’s sales is contributed from testing services. Revenue derived from testing service is recognized when testing services are rendered.

The Company reduces revenue based on estimates of future credits to be granted to customers. Credits are granted for reasons such as product returns due to quality issues, volume-based incentives, and other special pricing arrangements.

Income Tax

In determining income for financial statement purposes, the Company must make certain estimates and judgments in the calculation of tax expense and the resultant tax liabilities and in the recoverability of deferred tax assets that arise from temporary differences between the tax and financial statement recognition of revenue and expense.

In the ordinary course of global business there may be many transactions and calculations where the ultimate tax outcome is uncertain. The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax laws. Our foreign subsidiaries are subject to income taxes in the regions where they operate. Because of the different income tax jurisdictions, net losses generated in the U.S. cannot be utilized to offset the taxable income generated in foreign countries. Therefore, we may incur certain income tax expenses in any fiscal year though the Company may generate lower income before income taxes. Although the Company believes the estimates are reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals.

As part of its financial process, the Company must assess the likelihood that its deferred tax assets can be recovered. If recovery is not likely, the provision for taxes must be increased by recording a reserve in the form of a valuation allowance for the deferred tax assets that are estimated not to be ultimately recoverable. In this process, certain relevant criteria are evaluated including the existence of deferred tax liabilities that can be used to absorb deferred tax assets, the taxable income that can be used to absorb net operating losses and credit carrybacks, and taxable income in future years. The Company’s judgment regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors. These changes, if any, may require material adjustments to these deferred tax assets and an accompanying reduction or increase in net income in the period when such determinations are made.

In addition to the risks described above, the effective tax rate is based on current enacted tax law. Significant changes during the year in enacted tax law could affect these estimates.

Impairment of Long-Lived Assets

We review long-lived assets for impairment when certain indicators are present that suggest the carrying amount may not be recoverable. This review process primarily focuses on other intangible assets from business acquisitions and property, plant and equipment. Factors considered include the under-performance of a business compared to expectations and shortened useful lives due to planned changes in the use of the assets. Recoverability is determined by comparing the carrying amount of long-lived assets to estimate future undiscounted cash flows. If future undiscounted cash flows are less than the carrying amount of the long-lived assets, an impairment charge would be recognized for the excess of the carrying amount over fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique. Additionally, in the case of assets that will continue to be used by the Company in future periods, a shortened life may be utilized if appropriate, resulting in accelerated amortization or depreciation based upon the expected net realizable value of the asset at the date the asset will no

longer be utilized by the Company. Actual results may vary from estimates due to, among other things, differences in operating results, shorter asset useful lives and lower market values for excess assets.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk. We do not use derivative financial instruments in our investment portfolio. Our investment portfolio is generally comprised of cash deposits. Our policy is to place these investments in instruments that meet high credit quality standards. These securities are subject to interest rate risk, and could decline in value if interest rates fluctuate and thus subject us to market risk due to those fluctuations. Due to the short duration and conservative nature of our investment portfolio, we do not expect any material loss with respect to our investment portfolio, though no assurances can be given that material losses will not occur.

As of December 31, 2005, the outstanding aggregate principal balance on these loans, capital leases and lines of credit was approximately $2,305. The interest on our loans, capital leases and lines of credit range from 4.19% to 7.50% per annum. A majority of these interest rates are variable and are subject to change in line with market rates.


	Dec. 30,		June 30,
	2005		2005
	(unaudited)
Loans:
denominated by Singapore dollars with variable interest rate at prime rates ranging from 2.95% to 5.75% plus 1% to 6.25% per annum	$	1,665	$	1,045

denominated by Irish pound with variable interest rate at prime rates ranging from 2.09% to 2.11% plus 5.11% to 5.59% per annum		—		98

denominated by Thailand baht with fixed interest rate at 4.50% per annum		116		146


Subtotal	$	1,781	$	1,289


Capital leases:
denominated by Singapore dollars with fixed interest rate ranging from 4.19% to 6.60% per annum	$	247	$	199

denominated by Malaysia ringgit with fixed interest rate at 4.30% per annum		18		22

denominated by US dollars with fixed interest rate at 0.81% per annum		8		—

denominated by Irish pound with variable interest rate at a prime rate of 2.09% plus 7.10%		—		12


Subtotal	$	265	$	233


Line of credit:
denominated by Singapore dollars with variable interest rate at 5.75% plus 6.00% per annum	$	259	$	336


Total	$	2,305	$	1,858

The outstanding aggregate principal balance on these loans, capital leases and lines of credit were mainly utilized by the Testing segment for investments in facilities and equipment to meet customers’ requirement. One of the Singapore operations used 48% of the banking facilities as of December 31, 2005. Nevertheless, the Singapore operation was able to meet repayment of loans and capital obligations as the majority of the overall net sales were contributed from the operation. The Thailand operation utilized term loans to finance the extension of a building in Bangkok and it will be able to meet the repayment of loan obligations as the operation has been generating cash for the past few years. With the cessation of Ireland operation and sale of property, the term loan was fully redeemed at the end of second quarter of Fiscal 2006.

Foreign Currency Exchange Rate Risk. Although the majority of our sales, cost of manufacturing and marketing are transacted in U.S. dollars, significant portions of our revenues are denominated in Singapore and Euro dollars, Malaysian ringgit, Thai Baht and other currencies. Consequently, a portion of our costs, revenues and operating margins may be affected by fluctuations in exchange rates, primarily between the U.S. dollar and such foreign currencies. We are also affected by fluctuations in exchange rates if there is a mismatch between our foreign currency denominated assets and liabilities. Foreign currency translation adjustments resulted in an decrease of $989 and $243 to shareholders’ equity for the six months ended December 31, 2005 and 2004, respectively.

We try to reduce our risk of foreign currency fluctuations by purchasing certain equipment and supplies in U.S. dollars and seeking payment, when possible, in U.S. dollars. However, we may not be successful in our attempts to mitigate our exposure to exchange rate fluctuations. Those fluctuations could have a material adverse effect on the Company’s financial results.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was carried out by the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2005, 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. During the period covered by this report, there were no changes in the Company’s internal control over financial reporting that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

TRIO-TECH INTERNATIONAL

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable

Item 1A. Risk Factors

			CERTAIN RISKS THAT MAY AFFECT OUR FUTURE RESULTS

			We hereby caution stockholders, prospective investors in Trio-Tech International and other readers that there is no change to the risk factors disclosed in the Form 10-K for the fiscal year ending June 30, 2005 except for the material change in the following important factors. Such factors in some cases have affected, and in the future could affect, our stock price or cause our actual results for the six months ending December 31, 2005 and future quarters and fiscal years to differ materially from those expressed in any forward-looking statements, oral or written, made by or on behalf of us.

			We have paid cash dividends. On December 2, 2005, the Board of Directors of Registrant declared a cash dividend of fifty cents (US 50¢) per share based on the shareholders of records on January 10, 2006. The total number of shares issued and outstanding as of January 10, 2006 was 3,215,532 and the total cash dividends paid on January 25, 2006 were approximately $1,608,000. The dividend was declared from the Company’s retained earnings and the cash for payment of the dividends was from the net proceeds of disposing the property located in Dublin, Ireland.

			Possible dilutive effect of outstanding options

			As of December 31, 2005, there were 203,550 shares of common stock reserved for issuance upon exercise of outstanding stock options. The outstanding options are currently exercisable at exercise prices ranging from $2.25 to $4.50 per share. We anticipate that the trading price of our common stock at the time of exercise of any such outstanding options will exceed the exercise price under those options. Thus such exercise will have a dilutive effect on our shareholders.

Item 2. Unregistered Sales of Equity Securities and Use of 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 Upon Senior Securities

Not applicable

Item 4. Submission of Matters to Vote of Security Holders

An annual meeting of shareholders was held December 2, 2005. The only matter voted on at the annual meeting was the election of Directors. Proxies for the annual meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. There was no solicitation in opposition to management’s nominees for Directors as listed in the Proxy Statement. All of such nominees were elected. The number of votes for each of such nominees was as follows (there being no abstentions or votes withheld):


Director	For		Against		Abstain	No Vote		Total
Jason Adelman		2,129,874		3,840			916,028		3,049,742
Richard Horowitz		2,127,474		6,240			916,028		3,049,742
Yong Siew Wai		2,130,949		2,765			916,028		3,049,742
A. Charles Wilson		2,130,964		2,750			916,028		3,049,742

Item 5. Other Information

Not applicable

Item 6. Exhibits

	10.1		Memorandum of Agreement, dated September 30, 2005 between European Electronic Test Centre Ltd. and Dorville Homes Ltd. [Incorporated by reference to Exhibit 10.1 to the quarterly report on Form 10-Q for September 30, 2005]

	10.2		Deed of Assignment, dated October 27, 2005 between European Electronic Test Centre Ltd. and Dorville Homes Ltd. [Incorporated by reference to Exhibit 10.2 to the quarterly report on Form 10-Q for September 30, 2005]

	31.1		Rule 13a-14(a) Certification of Principal Executive Officer of Registrant

	31.2		Rule 13a-14(a) Certification of Principal Financial Officer of Registrant

	32		Section 1350 Certification.

SIGNATURES

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


		TRIO-TECH INTERNATIONAL

		By:		/s/ Victor H.M. Ting

				VICTOR H.M. TING
				Vice President and
				Chief Financial Officer
				(Principal Financial Officer)
				Dated: February 17, 2006

TRIO-TECH INTERNATIONAL - Quarter Report: 2005 December (Form 10-Q)

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