Trio-Tech International - 10-K annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended June 30, 2008

OR

For the Transition Period from ___ to ___

Commission File Number 1-14523

TRIO-TECH INTERNATIONAL

(Exact name of Registrant as specified in its Charter)

           Registrant's Telephone Number:  818-787-7000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in rule 405 of the Securities Act.  £Yes  RNo

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy statement or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):  Large Accelerated Filer £ Accelerated Filer £Non-Accelerated Filer (Do not check if a smaller reporting company)£  Smaller reporting company R

 

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).  £Yes   RNo

 

The aggregate market value of voting stock held by non-affiliates of Registrant, based upon the closing price of $9.16 for shares of the registrant’s common stock on December 31, 2007, the last business day of the registrant’s most recently completed second fiscal quarter as reported by the AMEX, was approximately $19.6 million. In calculating such aggregate market value, shares of Common Stock held by each officer, director and holder of 5% or more of the outstanding Common Stock (including shares with respect to which a holder has the right to acquire beneficial ownership within 60 days) were excluded because such persons may be deemed to be affiliates.  This determination of affiliate status is not necessarily a conclusive determination for other purposes.

 

The number of shares of Common Stock outstanding as of September 22, 2008 was 3,226,430

Documents Incorporated by Reference

Part III of this Form 10-K incorporates by reference information from Registrant’s Proxy Statement for its 2008 Annual Meeting of Shareholders to be filed with the Commission under Regulation 14A within 120 days of the end of the fiscal year covered by this Form 10-K.

TRIO-TECH INTERNATIONAL

TRIO-TECH INTERNATIONAL

PART I

NOTE CONCERNING FORWARD-LOOKING STATEMENTS

The discussions of Trio-Tech International’s (the “Company”) business and activities set forth in this Form 10-K 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 sharp correction in the housing market and the significant fluctuations of oil prices which occurred in 2007 and 2008 may affect the end-market demand of our products.  See the discussions elsewhere in this Form 10-K, including under item 1A, “Risk Factors,” 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.  You are cautioned not to place undue reliance on these forward-looking statements.

ITEM 1 – BUSINESS (IN THOUSANDS, EXCEPT PERCENTAGE AND SHARE AMOUNTS)

Trio-Tech International was incorporated in 1958 under the laws of the State of California. As used herein, the term "Trio-Tech" or "Company” or “we” or “us” or “Registrant” includes Trio-Tech International and its subsidiaries unless the context otherwise indicates.  Our mailing address and executive offices are located at 16139 Wyandotte Street, Van Nuys, California 91406, and our telephone number is (818) 787-7000.

With more than 50 years dedicated to the semiconductor and related industries, we have applied our expertise to our global customer base in test services, design, engineering, manufacturing, and distribution.

On August 24, 2008, Trio-Tech (Malaysia) Sdn. Bhd. obtained a long-term loan of RM 9,625, or approximately $4,010, offered by CIMB Bank Berhad in Malaysia. This non-revolving long-term loan has a term of fifteen years from the first draw down.  The bank offered an interest rate at the bank‘s prime rate plus 1.5% per annum or a fixed rate of 7.12% per annum in the first five years and the bank’s prime rate plus 1.5% per annum thereafter.  The Company has not made a decision on these interest options yet.

On July 11, 2008, the Board of Directors granted options covering 50,000 shares of Common Stock pursuant to the 2007 Employee Plan and options covering 60,000 shares of Common Stock under the 2007 Directors Equity Incentive Plan, with an exercise price of $4.81 per share (equal to the market price at the grant date).  The options granted to directors have a ten year term and vested in full on the granted date.  The options granted to the employees have a five-year contractual life and vested 25% on the grant date and will vest an additional 25% on each anniversary date.  The fair market value of these stock options was estimated to be approximately $320 based on the Black Scholes option pricing model.

Trio-Tech International provides third-party semiconductor testing and burn-in services primarily through its laboratories in Southeast Asia.  We also design, manufacture and market equipment and systems to be used in the process of testing semiconductors at our facilities in California and Southeast Asia, and distribute semiconductor processing and testing equipment manufactured by other vendors.

We operate in three business segments: Testing Services, Manufacturing and Distribution.  The financial information on the measurement of profit or loss and total assets for the three segments, as well as geographic areas information, can be found under management’s discussion and analysis of results of operations and financial conditions, as well as in the financial statements included in this report.  Our working capital requirements are covered under management’s discussion and analysis of business outlook, liquidity and capital resources.

We currently operate five testing facilities; one in the United States and four 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 semiconductors.  In June 2007, Trio-Tech International Pte., Ltd. established a subsidiary in Chongqing, China.  This subsidiary, Trio-Tech (Chongqing) Co., Ltd., has registered capital of RMB 20,000 (Chinese yuan), or approximately U.S. $2,600, and is wholly owned by Trio-Tech International Pte., Ltd.  On August 27, 2007, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement with Jiasheng Property Development Co., Ltd. (Jiasheng) to jointly develop a piece of property with 24.91 acres owned by Jiasheng located in Chongqing City, China, which is intended for sale after the completion of development.  In fiscal 2008, the Company invested an aggregate of RMB 15,000, equivalent to approximately U.S. $2,187 based on the exchange rate on June 30, 2008 published by the Federal Reserve System on this project. In the fourth quarter of 2008, the investment of RMB 5,000, or approximately $729 was returned to the Company, which reduced the investment in this project to $1,458.  The Company also recorded a profit of RMB 750, approximately $103 in investment income in the fourth quarter of 2008.

In accordance with APB 18, The Equity Method of Accounting for Investments in Common Stock, with the initial investment of 16% equity interest in the joint venture project, the Company considered several factors including primary beneficiary, decision making power and representation on the Board of Directors.  As Jiasheng is responsible for the daily business operations and development of that project and the Company does not have decision making power and has played a passive investor role since the inception of this joint venture, management believes that the cost method of accounting is appropriate.

On January 4, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement with MaoYe Property Ltd. to purchase an office space of 827.2 square meters on the 35th floor of a 40 story high office building located in Chongqing, China.  The total cash purchase price was RMB 5,554 (Chinese yuan), equivalent to approximately $809 based on the exchange rate as of June 30, 2008 published by the Federal Reserve System.  The Company rented this property out to a third party on July 13, 2008.  The term of the rent agreement is five years with a monthly rental income of RMB 39, or approximately $5 for the first three years, with an increase of 8% in the fourth year and another 8% in the fifth year.

The investment income generated by Trio-Tech (Chongqing) Co., Ltd. in fiscal year 2008 was classified as investment income, which was included in other income in the Consolidated Statements of Operations and Comprehensive Income for the years ended June 30, 2008, 2007 and 2006.

Our Ireland operation, as a component of the Testing segment, suffered continued operating losses in the three fiscal years ended June 30, 2005 and the cash flows were minimal during the same three fiscal years.  Thus, in August 2005, we established a restructuring plan to close the testing operation in Dublin, Ireland.  In November 2005, we completed the sale of the property located in Dublin, Ireland and recorded a gain of $8,909 for the fiscal year ended June 30, 2006.  As a result, in fiscal 2006, 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 operations of $450. Ireland has remained a discontinued operation since 2006.

In the third quarter of fiscal 2008, one of our major customers ceased its advanced burn-in testing service contract with us due to one of their product lines reaching the end of its life cycle earlier than expected.  Management took immediate action to reduce costs to assist in matching our expenses with reduced future cash flows from this source of testing revenue.  All of these cost saving actions benefited the Company starting from April 1, 2008.  The Company is in the early stages of developing new customer relationships in China and Malaysia to replace the lost testing revenue from this contract.

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

Our distribution segment operates primarily in Southeast Asia.  This segment markets and supports distribution of our own manufactured equipment in addition to distributing complementary products supplied by other manufacturers that are used by our customers and other semiconductor and electronics manufacturers.  We expanded the distribution business to include a strategic business unit mainly to serve as a distributor of electronic components to customers.

Information for each segment regarding external customers, profit and loss and total assets may be found in the footnotes to the financial statements included in this Form 10-K, which information is incorporated herein by this reference.

As reported by the Semiconductor Industry Association, the worldwide unit demand for semiconductors continued to grow in calendar 2008, driven by healthy growth in major end markets,such as personal computers and consumer devices. The decline of the average selling price of semiconductors helped make possible very attractive prices for many consumer products. According to the Semiconductor Industry Association (SIA), total sales growth for semiconductors for the first half of 2008 grew to $127.5 billion, an increase of 5.4% over the first half of 2007 when sales were $121 billion.

Recent reports show that worldwide sales of semiconductors of $21.8 billion in May 2008 were 7.4% higher than the $20.3 billion reported for May of 2007, and 9% higher than the $20.0 billion reported for April 2007. The increase in sales indicates continued strength in end markets for personal computers and cell phones.

We own and operate facilities that provide testing services for semiconductor products to ensure that these products meet certain requirements imposed for military, aerospace, industrial and commercial applications.  Testing services represented approximately 45%, 45% and 50% of net sales for the fiscal years ended June 30, 2008, 2007 and 2006, respectively.

We use our own proprietary equipment for certain burn-in, centrifugal and leak tests, and commercially available equipment for various other environmental tests. We conduct the majority of our testing operations in Southeast Asia with facilities in Singapore, Malaysia, Thailand and China.  Most of the facilities in Southeast Asia are either ISO9001 or ISO14001 certified.  In 2008, one of our testing operations was awarded ISO/ICE 17025: 2005 accreditation under SAC-SINGLAS (Singapore Accreditation Council-Singapore Laboratory Accreditation Scheme) for the fields of Calibration and Measurement. In June 2008, Trio-Tech (Suzhou) achieved ISO 9001:2000 certification.

In August 2005, we established a restructuring plan to close our testing operation in Dublin, Ireland, as the operation had not generated adequate operating cash flow during the three prior years.  The testing operations closed in November 2005.  In the second quarter of fiscal 2007, our China operation in Suzhou started its testing services.

In the third quarter of fiscal 2008, one of our major customers ceased their advanced burn-in testing service contract with us due to one of their product lines reaching the end of its life cycle earlier than expected. The net sales in the testing segment decreased by $2,711 to $18,172 for the year ended June 30, 2008 as the result of the significant drop in orders from this major customer.  Management took immediate action to reduce expenses in an effort to match future cash flows and is in the process of developing new customer relationships in China and Malaysia and exploring new business opportunities to offset the lost testing revenue from this contract.

Testing services are rendered to manufacturers and purchasers of semiconductors and other entities who either lack testing capabilities or whose in-house screening facilities are insufficient for testing devices in order for them to make sure that these products meet military or certain commercial specifications.  Customers outsource their test services either to accommodate fluctuations in output or to benefit from economies that can be offered by third party service providers.  For those customers with adequate in-house capabilities, we offer testing services for their “overflow” requirements and also provide independent testing verification services.

Our laboratories perform a variety of tests, including stabilization bake, thermal shock, temperature cycling, mechanical shock, constant acceleration, gross and fine leak tests, electrical testing, microprocessor equipment contract cleaning services, static and dynamic burn-in tests, smart burn-in tests, reliability lab services and vibration testing.  Our laboratories also perform qualification testing, consisting of intense tests conducted on small samples of output from manufacturers who require qualification of their processes and devices.

We design, develop, manufacture and market equipment for the manufacturing and testing of semiconductor wafers, devices and other electronic components.  Revenue from the sale of products manufactured by the Company represented approximately 54%, 51% and 43% of net sales for the fiscal years ended June 30, 2008, 2007 and 2006, respectively.

Front-End Products

Wet Process Stations are used for cleaning, rinsing and drying semiconductor wafers, magnetic disks, flat panel displays and other microelectronic substrates.  After the etching or deposition of integrated circuits, wafers are typically sent through a series of 100 to 300 additional processing steps.  At many of these processing steps, the wafer is washed and dried using Wet Process Stations.  This product line includes manual, semi-automated and automated Wet Process Stations, and features radial and linear robots, state-of-the-art PC touch-screen controllers and sophisticated scheduling and control software.  The Wet Process Station is currently manufactured in Singapore.

Artic Temperature Controlled Chucks are used for test, characterization and failure analysis of semiconductor wafers and other components at accurately controlled hot and cold temperatures.  Several models are available with temperature ranges from -65°C to +400°C and in diameters from 4 to 12 inches.  The finished wafer is put through a series of tests using the Artic Temperature Controlled Chuck in which each separate integrated device on the wafer is tested at accurately controlled temperatures for functionality.  After testing, the wafer is "diced" or cut up, and each die is then placed into packaging material, usually plastic or ceramic, with lead wires to permit mounting onto printed circuit boards.  These systems provide excellent performance to meet the most demanding customer applications.  Several unique mechanical design features, for which patents have been granted, provide excellent mechanical stability under high probing forces and across temperature ranges.

We manufacture a range of autoclaves and HAST systems and specialized test fixtures.  Autoclaves provide pressurized, saturated vapor (100% relative humidity) test environments for fast and easy monitoring of integrated circuit manufacturing processes.  HAST equipment, which provides a pressurized high temperature environment with variable humidity, are used to determine the moisture resistance of plastic encapsulated devices.  HAST provides a fast and cost-effective alternative to conventional non-pressurized temperature and humidity testing.

We manufacture burn-in systems, burn-in boards and burn-in board test systems.  Burn-in equipment is used to subject semiconductor devices to elevated temperatures while testing them electrically to identify early product failures and to assure long-term reliability.  Burn-in testing approximates, in a compressed time frame, the electrical and thermal conditions to which the device would be subjected during its normal life.

We manufacture the COBIS II burn-in system, which offers state-of-the-art dynamic burn-in capabilities and a Windows-based operating system with full data logging and networking features.  We also offer burn-in boards for our BISIC, COBIS and COBIS II burn-in systems and other brands of burn-in systems.  Burn-in boards are used to mount devices during high temperature environmental stressing tests.

We have developed several new products to complement the burn-in processes, including semi-automatic (LUBIBM) and automatic burn-in board loaders and unloaders (LUBIB).  These products are designed to perform precise, high-speed transfer of IC (Integrated Circuit) packages from the semiconductor holding tray to the burn-in board, or vice versa, while maintaining the integrity of the IC’s leads.  Burn-in-board cleaning systems (CUBIB) are designed to perform wet or dry cleaning for burn-in boards and other modular boards.

We build Smart Burn-In (SBI) electrical equipment and System Level Test (SLT) equipment, which are used in the few final stages of testing microprocessor devices. While providing integrated burn-in solutions, we present total burn-in automation solutions to improve products’ yield, reduce processing downtime and improve efficiency.  In addition, we developed a cooling solution for high power heat dissipation semiconductor devices.  This solution involves the cooling or maintaining of the temperature of high power semiconductor devices.

Component centrifuges and leak detection equipment are used to test the mechanical integrity of ceramic and other hermetically sealed semiconductor devices and electronic parts for high reliability and aerospace applications.  Our centrifuges spin these devices and parts at specific acceleration rates, create gravitational forces (g’s) up to 30,000g’s, and thereby indicate any mechanical weakness in the devices.  Leak detection equipment is designed to detect leaks in hermetic packaging.  The first stage of the test includes pressurizing the devices in a tracer gas for fine leaks or fluid for gross leaks.  The bubble tester is used for gross leak detection.  A visual bubble trail will indicate when a device is defective.

The Company’s Singapore subsidiary continues to develop its international distribution activities in Southeast Asia.  In addition to marketing our own proprietary products, the Singapore subsidiary distributes complementary products from other manufacturers based in the United States, Europe, Japan and other countries.  The products sold include environmental chambers, shaker systems, handlers, interface systems, vibration systems, solderability testers and other manufactured products.

In recent years, many multinational companies in electronic manufacturing and semiconductor industries have set up production facilities in China, and this trend has presented excellent opportunities for our testing equipment in China.  We believe that requirements for auxiliary services such as after-sales installation, equipment services, and spare parts will be natural add-ons to our overall business.

Revenue from distribution activities represented approximately 1%, 4%, and 7% of net sales for the years ended June 30, 2008, 2007, and 2006, respectively. It is the strategy of management to focus on the sales of our own manufactured products. We believe this will help us to reduce our exposure to multiple risks arising from being a mere distributor of manufactured products from others.

Research and development costs in our U.S. operation decreased by $14 in fiscal 2008 when compared with fiscal 2007 due to a decrease in full time research and development engineer headcount in the U.S. operation.  The Company incurred research and development costs of $55 in fiscal 2008, $69 in fiscal 2007, and $70 in fiscal 2006.

In fiscal 2008, we successfully incorporated the new touch panel display and PLC controller into the C-103 Series CENTRSAFE Centrifuge.  The existing C-103 series Centrifuge systems with obsolete display and analog boards are difficult to support.  These systems can now be upgraded with a new design and will have supportable configuration.  This modification is also available as an upgrade to customers that have the previous style display and controller boards.

We market our products and services worldwide, directly and through independent sales representatives.  We have approximately six independent sales representatives operating in the United States and another sixteen in various foreign countries.  Of the twenty-two sales representatives, six are representing the distribution segment and sixteen are representing the testing segment and the manufacturing segment.  Trio-Tech’s United States marketing efforts are coordinated from its California location.  Southeast Asia marketing efforts are assigned to the Company’s subsidiaries located in Singapore.  We advertise our products in trade journals and participate in trade shows.

Independent testing laboratories, users, assemblers and manufacturers of semiconductor devices, including many large, well-known corporations, purchase our products and services.  These customers depend on the current and anticipated market demand for integrated circuits and products utilizing semiconductor devices.  Our ability to maintain close, satisfactory relationships with our customers is essential to our stability and growth.  However, because of a high concentration of customers, the loss, reduction, or delay of orders placed by our significant customers, or delays in collecting accounts receivable from our significant customers, could adversely affect our results of operations and financial positions.

In fiscal 2008, 2007 and 2006, sales of equipment and services to our three largest customers (Advanced Micro Devices, Freescale Semiconductor and Infineon Technology) accounted for approximately 80%, 77% and 71%, respectively, of our total net revenue.  During fiscal 2008, we had sales of $16,760 (42%), $13,777 (34%) and $1,736 (4%) to Advanced Micro Devices, Freescale Semiconductor and Infineon Technology, respectively.  During fiscal 2007, we had sales of $27,895 (60%), $6,923 (15%) and $1,100 (2%) to Advanced Micro Devices, Freescale Semiconductor and Infineon Technology, respectively.  During fiscal 2006, we had sales of $14,490 (50%), $4,787 (16%) and $1,441 (5%) to Advanced Micro Devices, Freescale Semiconductor and Infineon Technology, respectively (see information presented in Note 15-Concentration of customers).  Although the three customers mentioned above are U.S. companies, the revenue generated from them was from their facilities located outside of the U.S.  The majority of our sales and services in fiscal years 2008, 2007 and 2006 were to customers outside of the United States.  See information presented in Note 22 - Business Segments of our financial statements included in this Form 10-K, which note is incorporated by reference, for further financial information about geographic areas.

The following table sets forth the Company's backlog at the dates indicated (amounts in thousands):

Based upon our past experience, we do not anticipate any significant cancellations or renegotiation of sales.  Because the purchase orders for manufacturing, testing and distribution businesses generally require delivery within 12 months from the date of the purchase order, and certain costs are incurred before that delivery, we require our customers to reimburse us for all costs incurred in the event of a cancellation of a confirmed purchase order.  We do not anticipate any difficulties in meeting delivery schedules.

Our products are designed by our engineers and are assembled and tested at our facilities in California, China and Singapore.  We purchase all parts and certain components from outside vendors for assembly purposes.  We have no written contracts with any of our key suppliers.  As these parts and components are available from a variety of sources, we believe that the loss of any one of our suppliers would not have a material adverse effect on our results of operations taken as a whole.

There are numerous testing laboratories in the areas where we operate that perform a range of testing services similar to those offered by us.  However, recent severe competition in the South Asia testing and burn-in services industry has reduced the total number of our competitors.  As we have sold and will continue to sell our products to competing laboratories, and other test products are available from many other manufacturers, our competitors are able to offer the same testing capabilities.  The relevant testing equipment is also available to semiconductor manufacturers and users who might otherwise use third party testing laboratories, including us, to perform testing.  The existence of competing laboratories and the purchase of testing equipment by semiconductor manufacturers and users are potential threats to our future testing services revenue and earnings.  Although these laboratories and new competitors may challenge us at any time, we believe that other factors, including reputation, long service history and strong customer relationships, are more important than pricing in determining our position in the market.

The distribution segment sells a wide range of equipment to be used for testing products.  We believe that the equipment, components trading and equipment servicing markets are key growth areas in Southeast Asia and hence have focused our marketing efforts on Asia.  As the semiconductor equipment industry is highly competitive, the distribution operation faces stiff price competition if the equipment is sold piecemeal.  Thus, "add value" has been a key phrase in our sales mission for the past several years.  We believe that “add value” will continue to dominate as the key focal point as we offer integrated solutions that draw on the strengths of our technical specialists who have undergone intensive training with our vendors.  Equipment is brought into Singapore from various vendors, and depending on customers' specific requirements, is tested and system integrated before distribution, delivery and installation.

The demand for electronic components in fiscal 2008 was relatively strong in Southeast Asia, driven by a greater demand in high-end personal computers, notebooks and server chips.  Many Original Equipment Manufacturers (OEM) customers have been outsourcing for connectors and specialized sockets.  However, as our target customers are mainly multinational contract manufacturers with a worldwide database of suppliers, the most commonly used components became extremely price competitive.  The components division of our distribution segment has been in competition on the market with various distribution methods, including direct online ordering systems put in place by vendors for the products they are distributing.  However, we do not believe that such online competition is a major competitive factor to our business, as we offer good credit facilities and believe that we have maintained excellent business relationships with our long-term customers.

The semiconductor equipment manufacturing industry is highly competitive and most of our competitors for such equipment are located in Southeast Asia.  Some of our electronic device manufacturing customers in Southeast Asia increased their capital equipment in order to meet the increase in production capacity for electronic products.  There is no assurance that competition will not increase or that our technological advantages may not be reduced or lost as a result of technological advances by competitors or changes in semiconductor processing technology.  In the United States, our manufacturing segment focused on marketing used and refurbished equipment, which some customers are more willing to purchase since it is less expensive than new equipment.

We believe that the principal competitive factors in the manufacturing industry include product performance, reliability, service and technical support, product improvements, price, established relationships with customers and product familiarity.  We make every effort to compete favorably with respect to each of these factors.  Although we have competitors for our various products, we believe that our products compete favorably with respect to each of the above factors.  We have been in business for more than 50 years and have operation facilities mostly located in Southeast Asia.  We believe that those factors combined have helped us to establish long-term relationships with customers and will allow us to continue doing business with our existing customers upon their relocation to other regions where we have a local presence or are able to reach.

The manufacturing segment holds a United States patent granted in 1994 on certain aspects of our Artic temperature test systems.  In 2001, we registered a new United States patent (for 20 years) for several aspects of our new range of Artic Temperature Controlled Chucks.  Although we believe that these patents are an integral part of our manufacturing segment, the capitalized cost of the patents was written off in fiscal 2002 because of the impairment assessed by our management.  In fiscal 2006, 2007 and 2008 we did not register any patents within the U.S.

It is typical in the semiconductor industry to receive notices from time to time alleging infringement of patents or other intellectual property rights of others.  We do not believe that we infringe the intellectual property rights of any others.  However, should any claims be brought against us, the cost of litigating such claims and any damages could materially and adversely affect our business, financial condition, and results of operations.

As of June 30, 2008 we had approximately 10 employees in the United States and 470 in Southeast Asia for a total of approximately 480 employees.  None of our employees are represented by a labor union.  As of June 30, 2008, there were approximately 300 employees in the testing segment, 117 employees in the manufacturing segment, 61 employees in the distribution segment, and 2 in the corporate office.

ITEM 1A ─ RISK FACTORS

The following are certain risk factors that could impact our business, financial results and results of operations.  Investing in our Common Stock involves risks, including those described below.  The risk factors below, among others, should be considered by prospective and current investors in our Common Stock before making or evaluating an investment in our securities.  These risk factors could cause actual results and conditions to differ materially from those projected herein.  If the risks we face, including those listed below, actually occur, our business, financial condition or results of operations could be negatively impacted, and the trading price of our Common Stock could decline, which could cause you to lose all or part of your investment.

Our operating results are affected by a variety of factors

Our operating results are affected by a wide variety of factors that could materially affect revenue and profitability or lead to significant variability of quarterly or annual operating results.  These factors include, among others, components relating to:

Unfavorable changes in these or other factors could materially and adversely affect our financial condition or results of operations.  We may not be able to generate revenue growth, and any revenue growth that is achieved may not be sustained.  Our business, results of operations and financial condition would be materially adversely affected if operating expenses increased and were not subsequently followed by increased revenues.

Our business depends primarily upon the capital expenditures of semiconductor manufacturers, assemblers and other testing companies worldwide.  These industries in turn depend on the current and anticipated market demand for integrated circuits and products utilizing semiconductor devices.  The global semiconductor industry generally, and the semiconductor testing equipment industry in particular, are volatile and cyclical, with periodic capacity shortages and excess capacity.  In periods of excess capacity, the industry sharply cuts its purchases of capital equipment, including our distributed products, and reduces testing volumes, including our testing services.  Excess capacity also causes downward pressure on the selling prices of our products and services.

Our operating results have been adversely affected by past downturns and slowdowns.  There is no assurance that there will not be downturns or slowdowns in the future that may adversely affect our financial condition or operating results.  In addition, if one or more of our primary customers reduces its or their purchases or use of our products or testing services, our financial results could be materially and adversely affected.  We anticipate that we will continue to be primarily dependent on the semiconductor industry for the foreseeable future.

Rapid technological changes may make our products obsolete or result in decreased prices or increased expenses

Technology changes rapidly in the semiconductor industry and may make our services or products obsolete.  Advances in technology may lead to significant price erosion for products that we test with our older testing technologies.  Our success will depend in part on our ability to develop and offer more advanced testing technologies and processes in the future, to anticipate both future demand and the technology to supply that demand, to enhance our current products and services, to provide those products and services at competitive prices on a timely and cost-effective basis and to achieve market acceptance of those products and services.  To accomplish these goals, we may be required to incur significant engineering expenses.  As new products or services are introduced, we may experience warranty claims or product returns.  We may not be able to accomplish these goals correctly or timely enough.  If we fail in our efforts, our products and services may become less competitive or obsolete.

Our dependence on international sales involves significant risk

Sales and services to customers outside the United States accounted for approximately 88%, 86% and 91% of our sales for fiscal 2008, 2007 and 2006, respectively.  Approximately 98%, 98% and 90% of our net revenues in fiscal 2008, 2007and 2006, respectively, were generated from business in Southeast Asia.  We expect that our non-U.S. sales and services will continue to generate the majority of our future revenue.  Testing services in Southeast Asia were performed primarily for American companies, and to a lesser extent German companies, selling products and doing business in those regions.  International business operations may be adversely affected by many factors, including fluctuations in exchange rates, imposition of government controls, trade restrictions, political, economic and business events and social and cultural differences.

We may incur losses due to foreign currency fluctuations

Significant portions of our revenue are denominated in Singapore and Euro dollars, Malaysian ringgit, Thai baht, Chinese yuan and other currencies.  Consequently, a portion of our costs, revenue 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 because our reporting currency is the U.S. dollar whereas the functional currencies in our Southeast Asia operations are non-U.S. dollars.  Foreign currency translation adjustments resulted in an increase of $1,548 to shareholders’ equity for fiscal 2008, an increase of $911 to shareholders’ equity for fiscal 2007, and a decrease of $190 to shareholders’ equity for fiscal 2006.

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.

We do not rely on patents to protect our products or technology

We hold U.S. patents relating to our pressurization humidity testing equipment and certain aspects of our Artic Temperature test systems.  Additionally, in fiscal 2001, we were granted patents for certain aspects of our new range of Artic Temperature Controlled Chucks.  However, although we believe our patents are integral to the business of our manufacturing segment, generally we do not rely on patent or trade secret protection for our products or technology.  Competitors may develop technologies similar to or more advanced than ours.  We cannot assure that our current or future products will not be copied or will not infringe on the patents of others.  Moreover, the cost of litigation of any claim or damages resulting from infringement of patents or other intellectual property could adversely affect our business, financial condition and results of operations.

Intense competition can adversely affect our operating results

The semiconductor equipment and testing industries are intensely competitive.  Significant competitive factors include price, technical capabilities, quality, automation, reliability, product availability and customer service.  We face competition from established and potential new competitors, many of whom have greater financial, engineering, manufacturing and marketing resources than us.  New products or testing facilities offered by our competitors could cause a decline in our revenue or a loss of market acceptance of our existing products and services.  Increased competitive pressure could also lead to intensified price-based competition.  Price-based competition may result in lower prices, adversely affecting our operating results.

The semiconductor manufacturing industry is highly concentrated, with a relatively small number of large manufacturers and assemblers accounting for a substantial portion of our revenue from product sales and testing revenue.  Our experience has been that sales to particular customers may fluctuate significantly from quarter to quarter and year to year.  In fiscal 2008, 2007, and 2006, sales of equipment and services to our three largest customers accounted for approximately 80%, 77% and 71%, respectively, of our total net revenue.  Our ability to maintain close, satisfactory relationships with our customers is essential to our stability and growth.  The loss of or reduction or delay in orders from our significant customers, or delays in collecting accounts receivable from our significant customers, could adversely affect our financial condition and results of operations.

Our testing products and services may be adversely affected by our sales of testing equipment

If our testing equipment is purchased by semiconductor manufacturers and assemblers, it may reduce the likelihood that they will make further purchases of such equipment or use our laboratories for testing services.  Although military or other specifications require certain testing to be done by independent laboratories, over time other current customers may have less need of our testing services.  We believe that there is a growing trend toward outsourcing of the integrated circuit testing process.  As a result, we anticipate continued growth in the test laboratory business.  However, there is no assurance that this trend will continue.  In an attempt to diversify our sales mix, we may seek to develop and introduce new or advanced products, and to acquire other companies in the semiconductor equipment manufacturing business.

A portion of any future growth may be accomplished through the acquisition of other entities.  The success of those acquisitions will depend, in part, on our ability to integrate the acquired personnel, operations, products, services and technologies into our organization, to retain and motivate key personnel of the acquired entities and to retain the customers of those entities.  We may not be able to identify suitable acquisition opportunities, obtain financing on acceptable terms to bring the acquisition to fruition or to integrate such personnel, operations, products or services.  The process of identifying and closing acquisition opportunities and integrating acquisitions into our operations may distract our management and employees, disrupt our ongoing business, increase our expenses and materially and adversely affect our operations.  We may also be subject to certain other risks if we acquire other entities, such as the assumption of additional liabilities.  We may issue additional equity securities or incur debt to pay for future acquisitions.

We do not have contracts with key suppliers

We have no written contracts with any of our suppliers.  Our suppliers may terminate their relationships with us at any time without notice.  There can be no assurance that we will be able to find satisfactory replacement suppliers or that new suppliers will not be more expensive than the current suppliers if any of our suppliers were to terminate their relationship with us.

We are highly dependent on key personnel

Our success has depended, and to a large extent will depend, on the continued services of S. W. Yong, our Chief Executive Officer and President, Victor H. M. Ting, our Vice President and Chief Financial Officer, our other key senior executives, and engineering, marketing, sales, production and other personnel.  We do not have an employment agreement with Mr. Yong or Mr. Ting, but we are the beneficiary of “key man” life insurance in the amount of $6 million on Mr. Yong and $2 million on Mr. Ting.  The loss of these key personnel, who would be difficult to replace, could harm our business and operating results.  Competition for management in our industry is intense and we may be unsuccessful in attracting and retaining the executive management and other key personnel that we require.

Our management has significant influence over corporate decisions

As of September 20, 2008, our officers and directors and their affiliates beneficially owned approximately 29.94% of the outstanding shares of Common Stock, including options held by them that are exercisable within 60 days of the date of filing of this 10-K.  As a result, they may be able to significantly influence matters requiring approval of the shareholders, including the election of directors, and may be able to delay or prevent a change in control of the Company.

We may not pay cash dividends in the future

We declared a cash dividend of eleven cents (U.S. $0.11) per share payable to the shareholders of record on February 25, 2008, a cash dividend of ten cents (U.S. $0.10) per share payable to the shareholders of record on December 15, 2006 and a cash dividend of fifty cents (U.S. $0.50) per share payable to the shareholders of record on January 10, 2006.  However, there is no assurance that we will, or that we will be able to, pay any cash dividends on our Common Stock in the future.  We anticipate that future earnings, if any, will be retained for use in the business or for other corporate purposes.  Additionally, California law prohibits the payment of dividends if the Company does not have sufficient retained earnings or cannot meet certain asset to liability ratios.

The market price for our Common Stock is subject to fluctuation

The trading price of our Common Stock has from time to time fluctuated widely.  The trading price may similarly fluctuate in the future in response to quarter-to-quarter variations in our operating results, announcements of innovations or new products by us or our competitors, general conditions in the semiconductor industry and other events or factors.  In addition, in recent years, broad stock market indices in general, and the securities of technology companies in particular, have experienced substantial price fluctuations on a daily basis.  Fluctuations in the trading price of our Common Stock may adversely affect our liquidity.

Our results may be affected by interest rate fluctuations

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.

The interest rates on our loans and lines of credit range from 5.25% to 6.02% per annum.  As of June 30, 2008, the outstanding aggregate principal balance on these loans and lines of credit was approximately $3,023.  These interest rates are subject to change and we cannot predict an increase or decrease in rates, if any.  However, an increase in interest rates could have an adverse effect on our financial results.

Not applicable.

ITEM 2 – PROPERTIES

As of the date of filing of this Form 10-K, we believe that we are utilizing approximately 92% of our fixed property capacity.  We also believe that our existing facilities are under-utilized and are adequate and suitable to cover any sudden increase in our needs in the foreseeable future.

The following table presents the relevant information regarding the location and general character of our principal manufacturing and testing facilities:

ITEM 3  – LEGAL PROCEEDINGS

The Company is, from time to time, the subject of litigation claims and assessments arising out of matters occurring in its normal business operations.  In the opinion of management, resolution of these matters will not have a material adverse effect on our financial statements.

There are no material proceedings to which any director, officer or affiliate of the Company, any beneficial owner of more than five percent of the Company’s Common Stock, or any associate of such person is a party that is adverse to the Company or its properties.

ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

Our Common Stock is traded on the American Stock Exchange under the symbol “TRT.”  The following table sets forth, for the periods indicated, the range of high and low sales prices of our Common Stock as quoted by AMEX:

On December 2, 2005, our Board of Directors declared a cash dividend of fifty cents (U.S. $0.50) per share payable to the shareholders of record on January 10, 2006.  The total number of shares issued and outstanding as of January 10, 2006 was 3,215,532 and the total amount of the cash dividends paid on January 25, 2006 was approximately $1,607,766.  The source of cash was from the proceeds from disposition of the property located in Dublin, Ireland.

On December 5, 2006, our Board of Directors declared a cash dividend of ten cents (U.S. $0.10) per share payable to the shareholders of record on December 15, 2006.  The total number of shares issued and outstanding as of December 15, 2006 was 3,225,242 and the total amount of the cash dividends paid on January 15, 2007 was approximately $322,524.

On February 12, 2008, the Board of Directors declared a cash dividend of eleven cents (U.S. $0.11) per share payable to the shareholders of record on February 25, 2008.  The total number of shares issued and outstanding as of February 25, 2008 was 3,226,430 and total cash dividends paid on March 25, 2008 were $354,907.

The determination as to whether to pay any future cash dividends will depend upon our earnings and financial position at that time and other factors as the Board of Directors may deem appropriate.  California law prohibits the payment of dividends if a corporation does not have sufficient retained earnings or cannot meet certain asset to liability ratios.  There is no assurance that dividends will be paid to holders of Common Stock in the foreseeable future.

The graph below compares our cumulative total shareholder return of the Common Stock of the Company with that of the Standard & Poor’s 500 Index and the AMEX Composite Index for the five-year period ending June 30, 2008.  The graph assumes an investment of $100 on June 30, 2003 in the AMEX Composite Index and in the S&P 500 Index.  The graph also assumes reinvestment of dividends, if any.  The historical stock performance shown on the following graph should not be considered indicative of future shareholder returns, and we will not make or endorse any predictions of future shareholder returns.

$100 invested on 06/30/03 in stock or index-including reinvestment of dividends.  Fiscal year ends June 30.

ITEM 6 – SELECTED FINANCIAL DATA

(In thousands, except per share data)

ITEM 7 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PERCENTAGES AND SHARE AMOUNTS)

Trio-Tech International operates in three distinct segments: distribution, manufacturing and testing.  We provide third-party semiconductor testing and burn-in services primarily through our laboratories in Southeast Asia.  At or from our facilities in California and Southeast Asia, we also design, manufacture and market equipment and systems to be used in the testing and production of semiconductors, and distribute semiconductor processing and testing equipment manufactured by other vendors.

Geographically, we operate in the U.S., Singapore, Malaysia, Thailand and China.  Our major operation activities are conducted in our Singapore location.  Our customers are mainly concentrated in Southeast Asia and they are either semiconductor chip manufacturers or testing facilities that purchase our testing equipment.

In August 2005, we established a winding-down plan to close the testing operation in Dublin, Ireland.  In November 2005, we completed the sale of property located in Dublin, Ireland and recorded a gain on the sale of property of $8,909.  As a result, this discontinued operation reported income of $8,459, which consisted of the gain from the sale of property of $8,909 offset by an operating loss from the discontinued operation of $450.  For basis of comparison, the financial statements related to the discontinued operation are now presented separately in this report under discontinued operations.

In the management’s discussion and analysis of financial condition and results of operations, for basis of comparison, the amounts used in comparison have been reclassified to exclude the amounts from discontinued operations, which have been discussed as a separate line item listed on the statements of income.

In January 2006, we completed the acquisition of a burn-in testing division in Shanghai.  Beginning on January 3, 2006, the operating results of this subsidiary were included in the consolidated financial statement of the Company.

In June 2007, we established a subsidiary in Chongqing, China.  This newly established subsidiary, Trio-Tech (Chongqing) Co., Ltd., has a registered capital of RMB 20,000 (Chinese yuan), or equivalent to approximately U.S. $2,600, and is wholly owned by Trio-Tech International Pte., Ltd.

In fiscal 2008, Trio-Tech (Chongqing) Co., Ltd. invested an aggregate of RMB 15,000, equivalent to approximately $2,187 based on the exchange rate on June 30, 2008 published by the Federal Reserve System, to jointly develop a 24.91 acre parcel owned by Jiasheng Property Development Co., Ltd. (Jiasheng hereafter) located in Chongqing City, China. The joint venture intends to sell the property after the completion of development.  The Company initially held a 16% equity interest in the joint venture.  In accordance with APB 18, the Equity Method of Accounting for Investments in Common Stock, and given the Company’s 16% equity interest in the joint venture project, the Company was required to consider several factors regarding its investment in accounting for this investment.  Those factors included the primary beneficiary, decision making power and representation on the Board of Directors.  Specifically, the Company took into consideration the fact that Jiasheng is responsible for the daily business operations and development of that project and the Company does not have decision making power and has played a passive investor role since the inception of this joint venture.  Based on the foregoing, management believes that the cost method of accounting is appropriate for its investment in this joint venture.  In the fourth quarter of fiscal 2008, the investment of RMB 5,000, approximately $729, was returned to the Company, which reduced the aggregate investment in this project to $1,458.  The Company also recorded a profit of RMB 750, approximately $103, in investment income in the fourth quarter of 2008.

On January 4, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement with MaoYe Property Ltd. to purchase an office space of 827.2 square meters on the 35th floor of a 40 story high office building located in Chongqing, China.  The total cash purchase price was RMB 5,554 (Chinese yuan), equivalent to approximately U.S. $809 based on the exchange rate as of June 30, 2008 published by the Federal Reserve System.  Under the terms of the agreement, the Company paid the purchase price in full on January 4, 2008.  The Company rented this property out to a third party on July 13, 2008.  The term of the rent agreement is five years with a monthly rental income of RMB 39 (approximately $5.7) for the first three years, with an increase of 8% in the fourth year and another 8% in the fifth year.

In the third quarter of fiscal 2008, one of our major customers ceased their advanced burn-in testing service contract with us due to one of their product lines reaching the end of its life cycle earlier than expected.  Management took immediate actions to reduce the costs to match our expenses with the anticipated reduced future cash flows as a result of the loss of this testing revenue.  All these cost saving actions benefited the Company starting from April 1, 2008.  The Company is in the early stages of developing new customer relationships in China and Malaysia to replace the lost testing revenue from this contract.

In January 2008, our U.S. office moved to a new location. Our new address is 16139 Wyandotte Street, Van Nuys, California 91406. Our corporate phone number is still 818-787-7000.

Fiscal 2008 Highlights

in testing service provided by our facilities in Singapore and China.

The highlights above are intended to identify some of our more significant events and transactions during our fiscal year 2008, and recent events that occurred after the fiscal year end. However, these highlights are not intended to be a full discussion of our results for the year.  These highlights should be read in conjunction with the following discussion of “Results of Operations” and “Liquidity and Capital Resources” and with our consolidated financial statements and footnotes accompanying this Annual Report.

The Company rented out the office space purchased in Chongqing, China to a third party on July 13, 2008. The term of the rent agreement is five years with a monthly rental income of RMB 39 (or approximately $5.7) for the first three years, with an increase of 8% in the fourth year and another 8% in the fifth year.

On July 11, 2008, pursuant to the 2007 Employee Plan, 50,000 shares of stock options were granted to certain officers and employees with an exercise price equal to the fair market value of the Company’s Common Stock of $4.81 (as defined under the 2007 Employee Plan in conformity with Regulation 409A of the Internal Revenue Code of 1986, as amended) at the date of grant.  The Company also granted 60,000 shares of stock options pursuant to the 2007 Directors Plan at the same exercise price. The fair market value of these stock options was estimated to be approximately $320 based on the Black Scholes option pricing model.

On August 24, 2008, Trio-Tech (Malaysia) Sdn. Bhd. obtained a long-term loan of RM 9,625, or approximately $4,010, offered by CIMB Bank Berhad in Malaysia.  This non-revolving long-term loan has a term of fifteen years from the date of the first draw down.  The bank offered an interest rate at the bank‘s prime rate plus 1.5% per annum or a fixed rate of 7.12% per annum in the first five years and the bank’s prime rate plus 1.5% per annum thereafter.  The Company has not yet made a decision on these interest options.

General Financial Information

During the fiscal year ended June 30, 2008, total assets increased by $1,971 from $32,788 at June 30, 2007 to $34,759 at June 30, 2008.  The increase was in inventory, investment, property, plant and equipment, other receivable and other assets, but offset with a decrease primarily in trade accounts receivables, cash and cash equivalents.

Cash and short-term deposits at June 30, 2008 totaled $14,346, a decrease of $604, or 4.0%, as compared to a total of $14,950 as of June 30, 2007.  The decrease in cash and short-term deposits was mainly due to a decrease in net cash provided by operating activities as a result of a net loss during fiscal 2008, the investment in Chongqing, China of $2,267 and capital expenditures of $3,357. Income from continuing operations in fiscal 2008 decreased by $4,264 to a loss of $956 as compared to income of $3,308 in fiscal year 2007 due to a decrease in sales from the manufacturing, testing and distribution segments.  This decrease was partially offset by an increase in proceeds from long-term loans.  In the first quarter of fiscal 2008, we obtained a new term loan of $3,822 (based on the exchange rate of June 30, 2008 published by the Federal Reserve System) to support our long-term investment and the opportunities for potential business expansion.

Accounts receivables at June 30, 2008 were $5,702, representing a decrease of $1,708, or 23.0%, compared to $7,410 at June 30, 2007.  The decrease was attributable mainly to a decrease in sales due to the loss of a major customer in fiscal 2008, as discussed previously. Total sales from all of the segments in fiscal 2008 were $40,314, a decrease of $6,436, or 13.8%, compared to total sales of $46,750 in fiscal 2007.  We believe that the loss of our major customer will continue to have a negative impact on our revenue in the future if we are unable to compensate for the loss of this source of revenue.  The turnover of accounts receivables was 59 days for fiscal 2008, a decrease of 3 days, compared to 62 days for fiscal 2007.  The decrease in the accounts receivable turnover rate was primarily due to improvements in collections at the Singapore operations.

Prepaid expenses and other current assets at June 30, 2008 were $796, an increase of $551 from that balance at June 30, 2007, due primarily to an increase of $120 in prepayment to suppliers and an increase of $222 of prepaid Singapore General Sales Tax related to an increase in material purchase.

Inventory at June 30, 2008 was $2,449, an increase of $503, or 25.8%, compared to $1,946 at June 30, 2007.  The increase in inventory was mainly from an increase in work-in-progress inventories.  Our manufacturing segment built up additional inventory in the fourth quarter of fiscal 2008 for the expected product shipments in the first quarter of fiscal 2009.  The turnover of inventory was 26 days for fiscal 2008, reflecting an increase of 3 days compared with a turnover rate of 23 days for fiscal 2007.

Property, plant and equipment at June 30, 2008 were $8,136, an increase of $678, or 9.1%, compared to $7,458 at June 30, 2007 due to an increase in capital expenditures.  Capital expenditures were $3,453 ($3,357 in cash, and $96 in capital lease) in fiscal 2008, compared with $2,864 ($2,812 in cash, and $52 in capital lease) for fiscal 2007.  The increase in capital expenditures was mainly due to purchases of machinery and equipment in the amount of $2,998 during fiscal year 2008 for the Malaysia testing operations in order to meet specifications from our customers.

In the fourth quarter of 2008, we disposed of the asset held for sale in the Malaysia operation.  The proceeds of this sale transaction were $216. We recorded a loss of $5 based on the book value of that asset on the transaction date.

Depreciation and amortization was $2,715 for fiscal 2008, compared with $2,857 for fiscal 2007.  The decrease in depreciation expenses was due to the write down of certain fixed assets in the Singapore operations starting in the third quarter of fiscal 2008, thus reducing our depreciation expenses related to those assets.  However, this reduction was partially offset by an increase in depreciation expenses of some property, plant and equipment that were newly put into use.

Other assets at June 30, 2008 increased by $368 to $813, compared to $445 at June 30, 2007.  The increase in other assets was primarily due to an increase of the down payment for fixed assets in the Malaysia operations of $402 and partially offset by a decrease of $29 in deposits for rent and utilities in the China operations.

On August 27, 2007 and November 15, 2007, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement and a Supplement Agreement, respectively, with Jiasheng Property Development Co., Ltd. to jointly develop a 24.91 acres parcel owned by Jiasheng located in Chongqing, China.  Pursuant to the Memorandum Agreement, an investment of $1,458 was transferred into a special bank account jointly monitored by both Trio-Tech (Chongqing) Co., Ltd. and Jiasheng.

Pursuant to the Supplement Agreement, Trio-Tech (Chongqing) Co., Ltd. transferred RMB 5,000, approximately $729, from its bank account into the special bank account on December 17, 2007.  In the fourth quarter of 2008, the investment of RMB 5,000, approximately $729, was returned to the Company, which reduced the investment in this project back to $1,458.

On January 4, 2008, Trio-Tech (Chongqing) Co., Ltd. entered into a Memorandum Agreement with MaoYe Property Ltd. to purchase an office space of 827.2 square meters on the 35th floor of a 40 story high office building located in Chongqing, China.  The total cash purchase price was RMB 5,554 (Chinese yuan), equivalent to approximately U.S. $809 based on the exchange rate as of June 30, 2008 published by the Federal Reserve System.  The Company rented this property out to a third party on July 13, 2008.  The term of the lease agreement is five years (starting from July 13, 2008) with a monthly rental income of RMB 39 (approximately $5.7) for the first three years, with an increase of 8% in the fourth year and another 8% in the fifth year.  As of June 30, 2008, the total of all the Company’s investments in Chongqing, China was $2,267.

Total liabilities at June 30, 2008 were $9,810, an increase of $915, or 10.3%, compared to $8,895 at June 30, 2007.  The increase in liabilities was mainly due to the increase in accounts payable, notes payable and deferred tax liabilities, but partially offset by the decrease in accrued expenses and income tax payable.

Accounts payable increased by $321 from $2,265 at June 30, 2007 to $2,586 at June 30, 2008.  The increase in accounts payable was a result of the increase in material purchases in the fourth quarter of 2008 due to a higher backlog in the Singapore distribution segment.

Accrued expenses decreased by $1,318 from $4,354 at June 30, 2007 to $3,036 at June 30, 2008.  The decrease in accrued expenses was mainly due to a decrease in accrued payroll expenses as the result of a decrease in headcount in the Singapore operation and a reduction of performance bonuses, which were based on the group performance.  In addition, provision for sales tax, warranty cost and commission also decreased due to a decrease in revenue in fiscal 2008 as compared to fiscal 2007.

Critical Accounting Estimates & Policies

The discussion and analysis of the Company’s financial condition presented in this section are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States.  During the preparation of the consolidated financial statements, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.  On an ongoing basis, we evaluate our estimates and judgments, including those related to sales, returns, pricing concessions, bad debts, inventories, investments, fixed assets, intangible assets, income taxes and other contingencies.   We base our estimates on historical experience and on various other assumptions that we believe are reasonable under current conditions.  Actual results may differ from these estimates under different assumptions or conditions.

In response to the SEC’s Release No. 33-8040, Cautionary Advice Regarding Disclosure about Critical Accounting Policy, we have identified the most critical accounting policies upon which our financial status depends.  We determined that those critical accounting policies are related to the inventory valuation, allowance for doubtful accounts, revenue recognition, and income tax. These accounting policies are discussed in the relevant sections in this management’s discussion and analysis, including the Recently Issued Accounting Pronouncements discussed below.

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 June 30, 2008.

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 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 and training work in proportion to the fair value of products sold and installation and training 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 observable market price to be considered. A significant portion of the Company’s sales is generated by 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

We recognize deferred tax liabilities and assets for the future tax consequence attributable to the difference between the tax bases of assets and liabilities and their reported amounts in the financial statements.  Deferred tax assets and liabilities are measured using the enacted tax rate expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that included the enactment date.

During the process of determining tax liabilities, we have to deal with uncertainties involved in the application of complex tax laws.  Our foreign subsidiaries are subject to income taxes in the regions or countries 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 while the Company, on a consolidated basis, may report a loss before income taxes.  Although we believe that our estimates are reasonable, no assurance can be given that the final outcome of these matters will not be different from what is reflected in the historical income tax provisions and accruals.

We assess the likelihood that our 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 carry-backs, and taxable income in future years.  Our 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. For U.S. income tax purposes, no provision has been made for U.S. taxes on undistributed earnings of overseas subsidiaries with which the Company intends to continue to reinvest.

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.

Comparison of Fiscal 2008 and 2007

The following table presents certain data from the consolidated statements of income as a percentage of net sales for the fiscal years ended June 30, 2008 and 2007:

The overall revenue is composed of the revenues from the manufacturing, testing and distribution segments.   The following table presents the components of the overall revenue realized in fiscal 2008 and 2007 in percentage format, respectively.

Net sales for fiscal 2008 were $40,314, a decrease of $6,436, or 13.8%, compared to $46,750 for fiscal 2007.  The decrease in net sales can be discussed within the three segments.

As a percentage of total revenue, the revenue generated by the manufacturing segment in fiscal 2008 accounted for 53.9% of total sales, representing an increase of 2.4%, compared to 51.5% in fiscal 2007.  But in terms of dollar amount, the revenue for fiscal 2008 was $21,731, reflecting a decrease of $2,325, or 9.7%, compared to $24,056 for fiscal 2007.  The decrease in revenue generated by the manufacturing segment was due to the fact that fewer orders were placed by one of our major customers, which was the result of slower movement of that customer’s product line and equipment capacity.  We believe that the loss of our major customer will continue to have a negative impact on our revenue in the future if we are unable to compensate for the loss of this source of revenue.

The backlog in the manufacturing segment decreased by 49.6%, from $6,275 in fiscal 2007 to $3,165 in fiscal 2008, due to the   decrease in demand from one of our major customers.

As a percentage of total revenue, the revenue generated by the testing segment in fiscal 2008 accounted for 45.1% of total sales, an increase of 0.4%, compared to 44.7% in fiscal year 2007.  In terms of dollar amount, the revenue for fiscal year 2008 was $18,172, reflecting a decrease of $2,711, or 13.0%, compared to $20,883 for fiscal 2007.  This decrease in revenue was due to a significant drop in orders from one of our main customers due to one of their product lines reaching the end of its life cycle earlier than expected, rendering our testing services in the Singapore, Thailand and China operations for that product no longer necessary.  This decrease was partially offset by an increase in demand for testing services in the Malaysia operation.  The revenue in the Malaysia subsidiary was $5,283, an increase of $1,870 or 54.8%, compared to $3,413 in fiscal 2007.  Demand for testing services varies from country to country depending on changes taking place in the market and our customers’ forecasts.  Since it is difficult to accurately forecast fluctuations in the market, it is necessary to maintain testing facilities in close proximity to our customers in order to make it convenient for them to send us their newly manufactured parts for testing and enable us to maintain a share of the market.  It was necessary to shut down testing facilities in certain locations with the loss of one of our major customers.

Backlog in the testing segment at June 30, 2008 was $6,965, an increase of $513 or 8.0%, compared to $6,452 at June 30, 2007, mainly from our subsidiary in Malaysia due to an increase in testing service demands in our Malaysia operations.

As a percentage of total revenue, the revenue generated by the distribution segment in fiscal year 2008 accounted for 1.0%, a decrease of 2.8%, compared to 3.8% in fiscal year 2007.  In terms of dollar amount, revenue for fiscal year 2008 was $411, a decrease of $1,400, or 77.3%, compared to $1,811 for fiscal year 2007.  The drop in revenue was mainly attributable to lower demand in the current market for back-end products such as Vibration equipment and chambers and a saturation of equipment and electronic components in the current market.  It is the strategy of management to focus on the sales of our own manufactured products. We believe this will help us to reduce our exposure to multiple risks arising from being a mere distributor of manufactured products from others.  Product volume for the distribution segment depends on sales activities such as placing orders, queries on products and backlog.  Equipment and electronic component sales are very competitive, as the products are readily available in the market.

The backlog in the distribution segment at June 30, 2008 was $316, reflecting an increase of $214, or 209.8%, compared to the backlog of $102 at June 30, 2007, as we believe there will be an increase in market demand for environmental and mechanical testing chambers in Asia in fiscal year 2009.

Overall gross margin as a percentage of revenue decreased by 3.7%, from 25.7% in fiscal year 2007 to 22.0% in fiscal year 2008.  The lower margin was due primarily to a decrease in the gross margin in the testing and manufacturing segments. In terms of dollar value, the overall gross margin for fiscal 2008 was $8,875, a decrease of $3,147, or 26.2%, compared to $12,022 for fiscal 2007.

The gross profit margin as a percentage of revenue in the manufacturing segment decreased by 1.2%, from 16.0% in fiscal 2007 to 14.8% in fiscal 2008.  The decrease in the gross margin was due to a decrease in average selling prices of burn-in-boards and burn-in systems as a result of strong competition in the market place.  In terms of dollar amounts, gross profits in fiscal 2008 were $3,217, a decrease of $641, or 16.6%, compared to $3,858 in fiscal 2007.

The gross profit margin as a percentage of revenue in the testing segment decreased by 7.0%, from 37.5% in fiscal 2007 to 30.5% in fiscal 2008.  In terms of dollar amounts, gross margin in the testing segment in fiscal 2008 was $5,549,a decrease of $2,286, or 29.2%, compared to $7,835 in fiscal 2007.  The decrease in the gross margin was primarily due to a drop in the average selling price of services in the Singapore testing operations.  Our customers changed their demands and specifications for burn-in hours, which resulted in a lower average unit selling price for burn-in services.  Another factor contributing to the decline in gross margin was the fact that significant portions of our operating costs are fixed in the testing segment; thus as product demands decrease and factory utilization decreases, the fixed costs are spread over the decreased output, resulting in a drop in profit margin. Management believes that our gross margin in the testing segment will be lower in the future compared with previous years if we are unable to increase our testing revenue and increase the utilization of our facilities

The gross margin as a percentage of revenue in the distribution segment improved by 8.3%, from 18.2% for fiscal 2007 to 26.5% for fiscal 2008.  The improvement in the gross profit as a percentage of sales was due to an increase in average sales prices compared to related expenses in fiscal 2008 compared to fiscal 2007.  However, in terms of dollar amount, gross margin in the distribution segment decreased by 66.9%, from $329 for fiscal 2007 to $109 for fiscal 2008, due to a decrease in revenue, as previously discussed. The gross margin in the distribution segment fluctuated during past periods. The gross margin of the distribution segment is not only affected by the market price of our products, but also our product mix, which changes frequently as a result of changes in market demand.

Operating expenses for the fiscal years ended June 30, 2008 and 2007 were as follows:

During fiscal year 2008, we reclassified $387 in selling expenses to $297 in general and administrative expenses and reclassified $90 to cost of sales, in order to reflect a more accurate presentation of our operations. Accordingly, $303 of selling expenses was reclassified to general and administrative expenses and cost of sales in fiscal 2007 for the purpose of comparison.  General and administrative expenses increased by $1,051, or 15.5%, from $6,793 for fiscal 2007 to $7,844 for fiscal year 2008.  The increase was attributable to an increase in payroll and related expenses in the Malaysia operation to handle a rise in sales volume and an increase of $56 in unemployment benefits in the Singapore operations.  In order to reduce our cost to match with production activity, we terminated the employment of 65 employees in our Singapore operation in March 2008.  Share based compensation expenses, as a result of the stock options granted in the second quarter of fiscal 2008, increased by $463 compared to such expenses in fiscal 2007.

Selling expenses decreased by $143, or 18.0%, to $645 for fiscal year 2008, from $788 for fiscal 2007, mainly due to a decrease in the warranty costs and commission expenses attributable to the decrease in sales in fiscal 2008, as compared to such expenses for fiscal 2007.

Research and development expenses were $55 for fiscal 2008, a decrease of $14, or 20.3%, from $69 for fiscal 2007. The decrease was primarily due to a decrease in full time employee headcount in the U.S. operation.

Impairment loss increased by $274, or 155.7%, from $176 for fiscal 2007 to $450 for fiscal 2008.  The impairment loss of $450 in fiscal year 2008 consisted of $316 from certain advanced burn-in testing equipment in the Singapore operation utilized in connection with the contract that was terminated and also due to a decrease in our testing backlog and projected future sales in our Singapore operation.  An impairment of $72 related to the burn-in board testing system in our Shanghai operation in China due to change in demand for certain burn-in services, which in turn made certain of our existing burn-in facilities obsolete.  An impairment of $57 related to the building renovations for certain testing projects due to a decrease in the same major customer’s order in our Shanghai operation in China, while $5 was related to the asset held for sale in Malaysia, which was sold in the fourth quarter of 2008.

The impairment loss in fiscal 2007 consisted of machinery and equipment (pertaining to the Singapore operation) due to the decrease in demand for the slower speed microprocessor chips, as those of our existing burn-in facility assets used for testing chips became obsolete.  Since there will be no future cash flows from those assets, the carrying value of these assets was written down to zero and the impairment loss was recorded.  We review the carrying amount of assets held for use and those to be disposed of whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Gain on disposal of property, plant and equipment was $78 for fiscal 2008, an increase of $77 as compared to a gain of $1 for fiscal 2007.

Income from operations as a percentage of total revenue decreased by 9.1% from an income of 9% for fiscal 2007 to a loss of 0.1% for fiscal 2008.  In terms of dollar amount, income from operations decreased by $4,238 from an income of $4,197 for fiscal 2007 to a loss of $41 for fiscal 2008 due to a decrease in sales in all segments and an increase in operating expenses, as previously discussed.

The interest expenses for fiscal years 2008 and 2007 were as follows:

Interest expenses increased by $157, or 112.9%, to $296 for fiscal year 2008 from $139 to $296 in fiscal 2007 due to a new term loan facility of $3,822 entered into during the first quarter of fiscal 2008 to support the expansion plans and potential business opportunities of the Singapore and China operations.

Other (expenses) income for fiscal years 2008 and 2007 was as follows:

Other expenses/income decreased by $231, or 129.8%, from an income of $178 for fiscal 2007 to expenses of $53 for fiscal 2008 primarily due to an increase in the currency transaction loss, but partially offset by an increase in investment income generated from the investment in Chongqing, short-term deposits and rental income.  Currency transaction loss increased by $563, from a translation gain of $2 in fiscal 2007 to a translation loss of $561 in fiscal 2008.  This was attributable to the weakening of the U.S. dollar against foreign currencies with regard to transactions denominated in U.S. dollars.  Investment income increased from the investment in Chongqing.  Interest income increased by $109 from $149 for fiscal 2007 to $258 for fiscal 2008 due to an increase in short-term deposits, as the idle cash was placed into income generating investments.  Rental income, which was mainly from the rental of space located in Malaysia to third party tenants, increased by $43 to $162 for fiscal 2008 from $119 for fiscal 2007.

Loss from continuing operations before minority interest increased by $4,626, from an income of $4,236 in fiscal 2007 to a loss of $390 in fiscal 2008.  The result of a decrease in net income was mainly due to a decrease in revenue, an increase in operating expenses and interest expenses, and a decrease in other income, as previously discussed.

Income tax provision decreased by $549, or 71.8%, from $765 in fiscal 2007 to $216 in fiscal 2008.  The decrease was primarily attributable to a loss suffered by our Singapore operations. The Singapore operations generated a loss of $1,135 in fiscal 2008 compared with a profit of $3,403 in fiscal 2007.

As of June 30, 2008 we held a 55% interest in Trio-Tech Malaysia.  The minority interest for fiscal 2008, in the net income of subsidiaries, was $350, an increase of $187 compared to the minority interest of $163 for fiscal 2007.  The increase in the minority interest was attributable to the improvement in the net income generated from the Malaysia testing operation due to stronger market demands from our customers there.

The basic loss per share for fiscal 2008 decreased by $1.33 to a loss of $0.30 per share from an earning of $1.03 per share in fiscal 2007, and the diluted loss per share decreased by $1.32 to a loss of $0.30 per share from an earning of $1.02 per diluted share as compared to fiscal 2007.

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

Income from operations in the manufacturing segment decreased by $1,011, to a loss of $46 in fiscal 2008 from an operating income of $965 in fiscal 2007.  The decrease in operating income was attributable to a decrease of $641 in gross profit and an increase of $370 in operating expenses.  Operating expenses for the manufacturing segment were $3,263 and $2,893 for fiscal 2008 and 2007, respectively.  The increase in operating expenses was mainly attributable to the impairment loss of $87 related to certain machinery and equipment in our Singapore operation due to a decrease in our backlog and projected future sales.

Income from operations in the testing segment in fiscal 2008 was $427, a decrease of 2,903 or 87.2%, compared to $3,330 in fiscal 2007.  The decrease was attributable to a drop in gross profit of $2,286 due to a decline in sales in the Singapore testing operation and an increase in operating expenses of $617.  The increase in operating expense was mainly due to an increase of $189 in impairment loss, from $175 in fiscal 2007 to $364 in fiscal 2008, as a result of the termination of the advanced burn-in testing service contract with one of our major customers.  The other contributing factor for the increase in operation expenses was an increase in payroll and related expenses in the testing segment in the Malaysia operation in order to handle the rise in sales volume there.

 Distribution Segment

Loss from operations in the distribution segment increased by $183 to $249 in fiscal 2008, compared to $66 for fiscal 2007.  The increase in operating loss was mainly due to a decrease in gross margin of $220, but partially offset by a decrease in operating expenses of $36 resulting from a decrease in commission expenses, which was a corresponding effect from the decrease in commissionable sales.

The loss from operations for Corporate in fiscal 2008 and 2007 was as follows:

Corporate operating loss increased by $141 from $32 in fiscal 2007 to $173 in fiscal 2008.  In March 2008, we increased the corporate management fee which is based on the percentage of revenue imposed on all the subsidiaries due to a decrease in the revenue from subsidiaries.  The revenue percentage charged on subsidiaries is a reimbursement to the corporate office to cover its operating expenses. Management reviews this percentage periodically to make sure the amount charged is sufficient to cover its corporate expenses. In terms of dollar amount, there was an increase of $538 in the fees we imposed on all the subsidiaries in fiscal 2008 as compared to fiscal 2007. However, this increase was offset by an increase in corporate expenses, primarily due to an increase of $463 in stock option compensation expenses, as a result of the stock options granted in the second quarter of fiscal 2008.  The stock compensation expenses were included in the general and administrative expenses of Corporate.

Comparison of Fiscal 2007 and 2006

The following table presents certain data from the consolidated statements of income as a percentage of net sales for fiscal years 2007 and 2006 ended June 30:

The overall revenue is composed of the revenues from the manufacturing, testing and distribution segments.   The following table presents the components of the overall revenue realized in fiscal 2007 and 2006 in percentage format, respectively.

Net sales for fiscal 2007 were $46,750, an increase of $17,651, or 60.6%, compared to $29,099 for fiscal 2006.  The increase in net sales can be discussed within three segments.

As a percentage of the total revenue, the revenue generated by the manufacturing segment in fiscal 2007 accounted for 51.5% of total sales, representing an increase of 8.7%, compared to 42.8% in fiscal 2006.  In terms of dollar amount, the revenue for fiscal 2007 was $24,056, reflecting an increase of $11,612, or 93.3%, compared to $12,444 for fiscal 2006.  We believe that the increase in revenue generated by the manufacturing segment was due to greater demand from the personal computer market in Asia, which in turn led to greater demand for our products.  The demand for our burn-in systems appeared to increase concurrently with the demand for more microprocessor chips in Southeast Asia.  The increase primarily resulted from an increase in demand from one of our major customers, which was a result of that customer’s growing share in the market for microprocessor chips.  Due to the competitive environment in the manufacturing segment, we anticipate that we will continue to implement our cost reduction plan by outsourcing a portion of our manufacturing process to outside suppliers, such as electrical and mechanical fabrication houses, and seek competitively priced materials.

The backlog in the manufacturing segment increased by 68.2%, from $3,729 in fiscal 2006 to $6,275 in fiscal 2007, correlative to the increase in demand for more high-speed microprocessor chips in Southeast Asia.

As a percentage of the total revenue, the revenue generated by the testing segment in fiscal 2007 accounted for 44.7% of total sales, a decrease of 5.0%, compared to 49.7% in fiscal 2006.  In terms of dollar amount, the revenue for fiscal 2007 was $20,883, reflecting an increase of $6,428, or 44.5%, compared to $14,455 for fiscal 2006.  The testing segment continued to show improvement in revenue compared to last fiscal year due to a hike in demand for testing services in Southeast Asia, which resulted from the strong economic growth and robust development in the electronics manufacturing industries in China.  The increase in revenue generated by the testing segment was the result of an improvement in performance by our testing operations in Southeast Asia.  Furthermore, our China operation in Suzhou started its testing operation in the second quarter of fiscal 2007, which contributed to this increase in testing revenue.  Demand for testing services varies from time to time depending on changes taking place in the market and our customers’ forecasts.  We anticipate that our customers will continue to request our services to perform “burn-in” on chips to be used in wireless handsets, automotive applications and wired communications, which chips are currently in high demand in their respective markets.

Backlog in the testing segment at June 30, 2007 was $6,452, a decrease of $5,578, or 46.4%, compared to $12,030 at June 30, 2007 due to a decrease in demand for testing services from one of our major customers in Singapore.

As a percentage of the total revenue, the revenue generated by the distribution segment in fiscal 2007 accounted for 3.8%, a decrease of 3.7%, compared to 7.5% in fiscal 2006.  In terms of dollar amount, revenue for fiscal 2007 was $1,811, a decrease of $389, or 17.7%, compared to $2,200 for fiscal 2006.  The decrease in revenue was mainly attributable to fewer bookings from customers resulting from what we believe is a saturation of equipment and electronic components in the current market. 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 readily available in the market.

We continued to focus our marketing efforts on Asia, as we believe that the recovery of equipment sales in that region is improving more rapidly than sales within the U.S.  Equipment sales in the U.S. continue to decline as we believe that many companies are still conservative in capital equipment spending.  The distribution operation located in Singapore will focus on selling Wet Process Stations primarily to research institutions and local universities

The backlog in the distribution segment at June 30, 2007 was $102, reflecting a decrease of $433, or 81.0%, compared to the backlog of $535 at June 30, 2006, due to a lower demand for back-end products, such as Vibration equipment, chambers and wafer fabricator.

Overall gross margin, as a percentage of net sales, dropped by 1.4% from 27.1% for fiscal 2006 to 25.7% for fiscal 2007.  The lower margin was due primarily to the fact that sales in terms of dollar amount from the manufacturing segment increased faster than the increase in sales in terms of dollar amount from the testing segment in fiscal 2007. This led to the fact that the manufacturing segment accounted for 51.5% of total sales and the testing segment accounted for 44.7%, while the gross margin in the manufacturing segment was lower than the gross margin in the testing segment.  In addition, the gross margin in the manufacturing segment decreased due to an increase in sales of low margin products, which was offset by the improvement in gross margin in the testing and distribution segments.  In terms of dollar amount, gross margin for fiscal 2007 was $12,022, an increase of $4,150, or 52.7%, compared to $7,872 for fiscal 2006, as a result of better sales performances by the manufacturing and testing segments.

Gross margin as a percentage of revenue in the manufacturing segment was decreased by 3.1%, from 19.1% in fiscal 2006 to 16.0% in fiscal 2007.  The decrease in the gross margin was due to an increase in sales of low margin burn-in systems pass-through products in fiscal 2007 compared with fiscal 2006.  Neither the increase in the absolute dollar amount of sales of burn-in boards and burn-in systems nor the increase in the quantity of burn-in systems sold in fiscal 2007 was sufficient to maintain or increase the gross margin in the manufacturing segment due to the decrease in sales prices for burn-in boards and burn-in systems as a result of strong competition in the market place.  However, the Company currently intends to continue manufacturing low-margin burn-in systems and boards in order to maintain market share of these products with its current customers.  In absolute amount, gross profits from the manufacturing segment in fiscal 2007 was $3,858,an increase of $1,478, or 62.1%, compared to $2,380 in fiscal 2006, as the result of an increase in revenue, as previously discussed.

Gross margin as a percentage of revenue in the testing segment improved by 2.3%, from 35.2% in fiscal 2006 to 37.5% in fiscal 2007.  In terms of dollar amount, gross margin in the testing segment in fiscal 2007 was $7,835, an increase of $2,743, or 53.9%, compared to $5,092 in fiscal 2006.  The increase in the gross margin was primarily due to higher sales volume with lower overhead costs, especially in the China operation.  Significant portions of our operating costs are fixed in the testing segment, thus as service demands rise and factory utilization increases, the fixed costs are spread over the increased output, which improves profit margin.  However, this was offset by a drop in the average selling price of services in the Singapore testing operation.  Our customers changed their demands and specifications for burn-in hours, which resulted in a lower average unit selling price for burn-in services.  We expect that the effect of such trend may be offset in the future by increases in our burn-in services for the faster microprocessor chips, the demand for which chips appears to be increasing.

Gross margin as a percentage of revenue in the distribution segment remained constant in fiscal 2007 and 2006 at 18.2%.  In terms of dollar amount, gross margin in the distribution segment decreased by 17.8%, from $400 for fiscal 2006 to $329 for fiscal 2007, due to a decrease in revenue, as previously discussed.

Operating expenses for fiscal years ended June 30, 2007 and 2006, respectively:

General and administrative expenses increased by $279, or 4.3%, from $6,514 for fiscal 2006 to $6,793 for fiscal year 2007.  The increase was attributable to a hike in payroll and related expenses due to a rise in headcount in the Singapore operation and the China operation in Suzhou, and also an increase in general and administrative expenses in the Suzhou operation, which commenced its testing operations in the second quarter of fiscal 2007.  However, such an increase was offset by a decrease in bonus expenses in fiscal year 2007.  In fiscal year 2006, general and administrative expenses included directors’ and officers’ bonuses of $779 as a result of the gain related primarily to the sale of the property in Dublin, Ireland.  The Company had no comparable bonus expenses for fiscal 2007.

Selling expenses increased by $70, or 9.6%, to $788 for fiscal year 2007 from $718 for fiscal 2006, mainly due to an increase in the provision for warranty costs, traveling expenses related with sales efforts and commission expenses attributable to the increase in commissionable sales from the Singapore manufacturing segment in fiscal 2007, as compared to fiscal 2006.

Research and development was $69 for fiscal 2007, decreased slightly by $1, or 1.4%, from $70 for fiscal 2006.

Impairment loss increased by $115, or 188.5%, from $61 for fiscal 2006 to $176 for fiscal 2007.  The impairment loss consisted of machinery and equipment (pertaining to the Singapore operation) due to the decrease in demand for the slower speed microprocessor chips, as those of our existing burn-in facility assets used for testing such chips became obsolete.  Since there will be no future cash flows from those assets, the carrying value of these assets was written down to zero, and the impairment loss was recorded.  The Company reviews the carrying amount of assets held for use and those to be disposed of whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Loss on disposal of property, plant and equipment was $22 for fiscal 2006, which mainly resulted from the disposal of certain fixed assets at a loss.  The Company had no such loss for fiscal 2007.

Income from operations as a percentage of total revenue improved by 7.3%, from 1.7% for fiscal 2006 to 9.0% for fiscal 2007.  In terms of dollar amount, income from operations increased by $3,710, or 762%, from $487 for fiscal 2006 to $4,197 for fiscal 2007, due to an increase in gross profit of $4,162, offset with a net increase in operating expenses of $452.

The interest expenses for fiscal years ended June 30, 2007 and 2006 were as follows:

Interest expenses decreased by $3, or 2.1%, for fiscal 2007, from $142 to $139 compared with fiscal 2006 due mainly to a lower usage of lines of credit facilities in the Singapore operation as the result of the improved cash flow from operating activities.

Other income for fiscal years ended June 30, 2007 and 2006 was as follows:

Other income decreased by $420, or 70.2%, from $598 for fiscal 2006 to $178 for fiscal 2007, primarily due to a decrease in interest income generated from short-term deposits and a decrease in other items, but offset by an increase in rental income and currency transactional gain.  Interest income in fiscal 2007 decreased by $64 due to a decrease in interest income generated from short-term deposits as the result of a decrease in short-term deposits throughout the year. The decrease in the short-term deposits was because the short-term deposits in fiscal year 2006 were from the proceeds from the sale of property in Dublin, Ireland, whereas there was no such activity in fiscal 2007.  Other items decreased by $436, which was mainly due to the reversal of a provision of $269 in the fourth quarter of fiscal year 2006 related to the value added tax assessment incurred in our Bangkok testing operation in fiscal 1996.  Also contributing to the decrease in other items was the provision for the value added tax of $115 for our China operation in Suzhou in fiscal 2007 due to a change in the local tax policy and a refund of $39 from the Ireland government in fiscal year 2006 due to redundant payments made in prior years by our Ireland testing operation prior to its closure. The Company had no similar other income in fiscal 2007.  Rental income, which consisted mainly of space in our Malaysia operation rented to outside vendors, increased by $27 from $87 for fiscal year 2006 to $114 for fiscal year 2007.  Currency transaction gain improved by $48, from a translation loss of $46 for fiscal 2006 to a translation gain of $2 for fiscal 2007, due to fluctuations in the exchange rates.

Income tax provision increased by $507, or 196.5%, from $258 in fiscal 2006 to $765 in fiscal 2007.  The increase was primarily attributable to higher taxable income generated from the Singapore location.  The Singapore operations generated a profit of $3,403 in fiscal 2007, up from $1,416 in fiscal 2006.  The income tax provision included a utilization of deferred tax assets of $160 in the Malaysia operation due to the utilization of the operating loss carried forward in fiscal 2007.  The Malaysia operations generated a profit of $520 in fiscal 2007, an increase of $420, as compared to $100 for fiscal 2006.  The reversal of deferred tax assets in Malaysia was offset by a reversal of the deferred tax liability of $226 in the Singapore operations.  The statutory income tax rate in Singapore decreased to 18% in fiscal 2007 from 20% in fiscal 2006.

As of June 30, 2007 we held a 55% interest in Trio-Tech Malaysia.  The minority interest for fiscal 2007, in the net income of subsidiaries, was $163, an increase of $75 compared to the minority interest of $88 for fiscal 2006.  The increase in the minority interest was attributable to the improvement in the net income generated from the Malaysia testing operation.

The income from discontinued operations of $8,459 for fiscal year 2006 represented gain from the sale of property located in Dublin, Ireland of $8,909, which was completed in November 2005, offset by the loss from discontinued operations of $450.  The Company had no similar transactions for fiscal 2007.

Income from continuing operations before minority interest increased by $2,786 as the result of an increase in income from operations and a decrease in interest expenses, but offset by a decrease in other income and an increase in tax provision, as previously discussed.  Net income for fiscal 2007 was $3,308, a decrease of $5,748 compared to $9,056 in fiscal 2006.  The decrease was primarily due to a drop in income from discontinued operations of $8,459, as there was no income generated from discontinued operations in fiscal 2007.

Basic and diluted earnings per share from continuing operations were $1.03 and $1.02, respectively, in fiscal 2007, an increase of $0.84 and $0.83, respectively, compared with $0.19 for fiscal 2006.  There was no income or loss from discontinued operations for fiscal 2007.  Basic and diluted earnings per share attributable to discontinued operations for fiscal 2006 were $2.72 and $2.71, respectively.

Segment Information

The revenue, gross margin and income from each segment for fiscal 2007 and fiscal 2006, respectively, are presented below.  As the segment revenue and gross margin for each segment have been discussed in the previous section, only the comparison of income from operations is discussed below.

Income from operations in the testing segment in fiscal 2007 was $3,330, an increase of $1,876, or 129.0%, compared to $1,454 in fiscal 2006.  The increase was due primarily to an increase of $2,743 in gross profit, but offset by an increase of $867 in operating expenses.  Operating expenses in the testing segment were $4,505 and $3,638 for fiscal 2007 and 2006, respectively.  The increase in operating expenses was primarily due to an increase in payroll and related expenses as a result of the increase in headcount in the Singapore operations and an increase in operating expenses in the newly started China operation in Suzhou, which began its testing operation in the second quarter of fiscal 2007.

Loss from operations in the distribution segment decreased from $118 in fiscal 2006 to $66 in fiscal 2007. Lower operating loss in fiscal year 2007 was attributable to a decrease in operating expenses of $123, but offset by a drop in gross profit of $71.  Operating expenses were $395 and $518 for fiscal 2007 and fiscal 2006, respectively.  The decrease in operating expenses was due to a decrease in provision for doubtful debts, as some doubtful debts from customers provided in fiscal 2006 were recovered in fiscal 2007, and lower commission expenses as a result of the decrease in commissionable sales.

The loss from operations for Corporate for the fiscal years 2007 and 2006 were as follows:

Corporate operating loss decreased by $739, from fiscal 2006 to $32 in fiscal 2007.  Such decrease in corporate income was attributable to the fee imposed on all the subsidiaries on a fixed percentage of revenue, which income increased as the result of increased revenue from subsidiaries.  Another factor was operation expenses in fiscal 2006 included accrued director and corporate officer bonuses of $859 mainly attributable to bonuses based on the gain from the sale of real property in Dublin, Ireland.  The Company had no comparable bonuses for fiscal 2007.  The director and corporate officer bonuses were $350 in fiscal 2007 and $859 in fiscal 2006.

Liquidity Comparison

Net cash provided by operating activities during fiscal 2008 was $1,905, a decrease of $6,033 from net cash flow of $7,938 in fiscal 2007. The decrease in net cash provided by operating activities in fiscal 2008 was primarily due to a decrease in net income of $4,264 in fiscal year 2008 as compared to net income of $3,308 in fiscal year 2007 and a decrease in operating assets and liabilities of $2,018 in fiscal year 2008.The net income for fiscal 2008 decreased by $4,264 to a loss of $956 as previously discussed. However, an increase in non-cash impairment loss of $274 and stock compensation of $463, which were included as adjustments to net income in fiscal 2008, offset the decrease in net cash provided by operating activities by an aggregate of $737 (positive cash flow).

Net cash used in investing activities increased by $2,603 to $5,271for fiscal 2008 from $2,668 for fiscal 2007.  The increase in net cash used by investing activities was primarily due to an increase in investment in China.  We invested an aggregate of $2,996 in Chongqing, China in fiscal 2008 to jointly develop with Jiasheng Property Development Co., Ltd. a 24.91 acre parcel and to purchase an office space of 827.2 square meters in Chongqing.  In the fourth quarter of 2008, we received a return of RMB 5,750; RMB 5,000 (approximately $729) in initial investment and an additional RMB 750 in profit.

Net cash provided by financing activities in fiscal 2008 was $1,818, representing an increase of $3,092 compared to the net cash used in financing activities of $1,274 in fiscal 2007.   The increase was mainly due to proceeds from the long-term bank loans of $3,822 entered into in fiscal 2008 as compared to bank loans of $6 in fiscal 2007.  However, this increase was offset primarily by an increase of $711 in repayment of bank loans and capital leases.

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

Net cash provided by operating activities during fiscal 2007 was $7,938, an increase of $8,788 from net cash outflows of $850 in fiscal 2006.  The increase in net cash provided by operating activities in fiscal 2007 was primarily due to the following reasons: an increase of $2,711 in income from continuing operations, an increase of $10, 460 in non-cash items and an increase of $4,076 in cash flow from changes in operating assets and liabilities.  The net income for fiscal 2007 decreased by $5,748 to $3,308 compared with $9,056 for fiscal 2006.  However, a non-cash gain of $8,909 from discontinued operations on the sale of property in Dublin, Ireland was included as an adjustment to net income in fiscal 2006.  Depreciation and amortization expenses as a non-cash item for fiscal 2007 also made a significant impact of $2,857 (positive cash flow).  Simultaneously, changes in the accounts receivables for fiscal 2007 resulted in a positive cash flow of $967 compared to a negative cash flow of $4,515 for fiscal 2006, which was reduced primarily by negative cash outflow of $276 from other assets.

Net cash used in investing activities increased by $5,401 to $2,668 for fiscal 2007 from a cash inflow of $2,733 for fiscal 2006. The increase in net cash used by investing activities was primarily due to an increase in capital expenditures from $1,255 in fiscal 2006 to $2,812 in fiscal 2007, and proceeds of $8,401 received from the sale of the Ireland property in fiscal 2006.  The increase in capital expenditure was primarily for the purchase of machinery and equipment in fiscal 2007 in the Singapore and China operations in order to meet customers’ demands.  Offsetting the increase in net cash used by investing activities was an increase of $4,562 in the net proceeds from maturing short-term deposits.

Net cash used in financing activities increased by $228, from $1,046 for fiscal 2006 to $1,274 for fiscal 2007.  The increase was mainly due to a drop of $1,056 in proceeds from long-term bank loans and capital leases, and a decrease of $761 in proceeds from exercising stock options.  Furthermore, dividends paid to minority interests also increased by $14.  However, these were offset by (i) dividends of $323 paid to shareholders in fiscal 2007 compared to $1,608 in fiscal 2006; (ii) proceeds of $118 received in fiscal 2007 from a 10% shareholder from disgorgement of short-swing profits from prohibited transactions in our common shares pursuant to section 16(b) of the Securities and Exchange Act of 1934; (iii) a decrease of $104 in net payment on lines of credit; and (iv) a decrease of $96 in repayment of bank loans and capital leases.

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

Capital Resources

Our working capital (defined as current assets minus current liabilities) has historically been generated primarily from the following sources: operating cash flow, availability under our revolving line of credit and short-term loans.  The working capital was $15,903 as of June 30, 2008, representing a decrease of $542, or 3.3%, compared to working capital of $16,445 as of June 30, 2007 mainly due to a decrease in cash, accounts receivables and an increase in notes payable as discussed above.

The majority of our capital expenditures are based on the demands from our customers, as we are operating in a capital intensive industry.  In the past three years, our capital expenditures ranged from $1.7 million to $3.4 million.  We financed our capital expenditures and other operating expenses through operating cash flows, our revolving line of credit and long-term debts.  While in fiscal 2008 we had no current outstanding borrowings under our revolving lines of credit, we obtained a loan of  $3,822 and capitalized leases of $96.

Our credit rating provides us with ready and adequate access to funds in global markets.  At June 30, 2008, we had available unused short-term lines of credit totaling $13,014.

We believe that projected cash flows from operations, borrowing availability under our revolving lines of credit, cash on hand, and trade credit will provide the necessary capital to meet our projected cash requirements for at least the next 12 months. Should we find attractive capital investment, we may seek additional debt or equity financing in order to fund the transaction, in the form of bank financing, convertible debt, or the issuance of Common Stock.

Contractual Obligations

The following contractual obligations servicing table describes our overall future cash obligation based on various current contracts in the next five years:

Corporate Guarantee Arrangement

The Company provides a corporate guarantee of approximately $1,837 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.

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.

The interest rates on our loans range from 5.250% to 6.017% per annum.  These interest rates are subject to change and we cannot predict an increase or decrease in rates, if any. As of June 30, 2008, the outstanding aggregate principal balance on these loans was approximately $3,023.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information called for by this item is included in the Company's consolidated financial statements beginning on page 45 of this Annual Report on Form 10-K.

ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A (T) – CONTROLS AND PROCEDURES

An evaluation was carried out by the Company’s Chief Executive Officer and Chief Financial Officer (the principal executive and principal financial officers, respectively, of the Company) of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of June 30, 2008, the end of the period covered by this Form 10-K.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2008.

Additionally, management has the responsibility for establishing and maintaining adequate internal control over financial reporting for the Company and thus also assessed the effectiveness of our internal controls over financial reporting as of June 30, 2008.  Management used the framework set forth in the report entitled “Internal Control – Integrated Framework” published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of the Company’s internal control over financial reporting.

Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purpose in accordance with U.S. generally accepted accounting principles, and includes those policies and procedures that:

Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s internal controls over financial reporting were effective as of June 30, 2008.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations.  Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures.  Internal control over financial reporting also can be circumvented by collusion or improper management override.  Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.  However, these inherent limitations are known features of the financial reporting process.  Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, the risk. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.

This annual report does not include an attestation report of the Company’s registered independent public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

ITEM 9B – OTHER INFORMATION

Not applicable.

PART III

The information required by Items 10 through 14 of Part III of this Form 10-K (information regarding our directors and executive officers, executive compensation, security ownership of certain beneficial owners, management, related stockholder matters, and certain relationships and related transactions and principal accountant fees and services, respectively) is hereby incorporated by reference from the Company's Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the end of fiscal 2008.

PART IV

ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1 and 2)                                FINANCIAL STATEMENTS AND SCHEDULES:

1.           Management’s Report on Internal Control over Financial Reporting

2           Report of Independent Public Registered Accounting Firm

3           Consolidated Balance Sheets

4.           Consolidated Statements of Income and Comprehensive Income

5.           Consolidated Statements of Shareholders' Equity

6.           Consolidated Statements of Cash Flows

7.           Notes to Consolidated Financial Statements

(b)                    EXHIBITS:

Number                                                        Description                                                            0;        

 

             Trio-Tech International Pte. Ltd., a Singapore Corporation

             Universal (Far East) Pte. Ltd., a Singapore Corporation

             Trio-Tech Reliability Services, a California Corporation

             Express Test Corporation, a California Corporation

             European Electronic Test Center. Ltd. a Cayman Islands Corporation

             Trio-Tech Malaysia, a Malaysia Corporation (55% owned by the Registrant)

              Trio-Tech Kuala Lumpur, a Malaysia Corporation (100% owned by Trio-Tech Malaysia)

              Trio-Tech Bangkok, a Thailand Corporation

              Trio-Tech Thailand, a Thailand Corporation

              Prestal Enterprise Sdn. Bhd., a Malaysia Corporation (76% owned by the Registrant)

              KTS Incorporated, dba Universal Systems, a California Corporation

              Trio-Tech (Suzhou) Co. Ltd., a China Corporation

              Trio-Tech (Shanghai) Co. Ltd., a China Corporation

              Trio-Tech (ChongQing) Co. Ltd (100% owned by Trio-Tech International Pte. Ltd., a Singapore Corporation)

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. *

* Filed electronically herewith.

** Indicates management contracts or compensatory plans or arrangements required to be filed as an exhibit to this report.

Pursuant to the requirements of Section 13 or 15(d) 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

                                     Date: September 26, 2008

Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated.

    A.Charles Wilson, Director

    Chairman of the Board

 

    S. W. Yong, Director

    President, Chief Executive Officer

    (Principal Executive Officer)

    Victor H.M. Ting

    Vice President, Chief Financial Officer

    (Principal Financial Officer)

    Jason T. Adelman, Director

     Richard M. Horowitz, Director

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Trio-Tech International

Van Nuys, California

We have audited the accompanying consolidated balance sheets of Trio-Tech International and Subsidiaries (the “Company”) as of June 30, 2008 and 2007, and the related consolidated statements of operations and comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended June 30, 2008. These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Trio-Tech International and Subsidiaries at June 30, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2008 in conformity with accounting principles generally accepted in the United States of America.

BDO Raffles

_/s_/ BDO Raffles

Singapore

September 26, 2008

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES