UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

For the Quarterly Period Ended March 31, 2005

OR

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

For the Transition Period from ___ to ___

Commission File Number 1-14523

TRIO-TECH INTERNATIONAL

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

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

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

Number of shares of common stock outstanding as of May 3, 2005 is 2,966,042.

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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT NUMBER OF SHARES)

See notes to condensed consolidated financial statements.

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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

See notes to condensed consolidated financial statements.

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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED MARCH 31, 2005 AND MARCH 31, 2004 (UNAUDITED, IN THOUSANDS)

See notes to condensed consolidated financial statements.

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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

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

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All significant inter-company accounts and transactions have been eliminated in consolidation. The unaudited consolidated financial statements are presented in U.S. dollars. Accordingly, the accompanying financial statements do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the nine months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2005. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report for the fiscal year ended June 30, 2004, as amended by Form 10-K/A filed October 29, 2004 and interim Form 10-Q’s.

Effective July 1, 2004, the Company changed its fiscal report period to end on the last day of the fiscal quarter. The quarter end dates for periods ending March 31, 2005 and March 31, 2004 were March 31, 2005 and March 26, 2004 respectively.

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2.	INVENTORIES
	Inventories consist of the following:

3.	STOCK OPTIONS
	The Company has adopted the intrinsic value method of accounting for employee stock options as permitted by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-based Compensation” (SFAS No. 123) and discloses the pro forma effect on net loss and loss per share as if the fair value based method had been applied. For equity instruments, including stock options, issued to non-employees, the fair value of the equity instruments or the fair value of the consideration received, whichever is more readily determinable, is used to determine the value of services or goods received and the corresponding charge to operations.
	The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provision of SFAS No. 123 to stock-based employee compensation.

As required by SFAS No. 123, the Company provides the following disclosure of estimated values for these awards. The weighted-average grant-date fair value of options granted during the first three quarters of fiscal 2005 and the first three quarters of fiscal 2004 was estimated to be from $4.40 to $4.50 for fiscal 2005, and $2.66 for fiscal 2004.

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The fair value of each option grant was estimated on the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions for the first three quarters of fiscal 2005 and the first three quarters of fiscal 2004, respectively: risk free interest rates of 3.73% and 1.58% respectively, expected lives of 2 years for the first three quarters of fiscal 2005 and the first three quarters of fiscal 2004; volatility of 36.29% and 42.5% and no assumed dividends.

4.	EARNINGS PER SHARE
	The Company adopted SFAS No. 128, Earnings per Share (“EPS”). Basic Earnings per Share is computed by dividing net income available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during a period. In computing diluted EPS, the average price for the period is used in determining the number of shares assumed to be purchased from exercise of stock options and warrants.
	Stock options to purchase 334,000 shares at exercise prices ranging from $2.25 to $5.63 per share were outstanding as of March 31, 2005. The following options were excluded from the computation of diluted EPS because their effect would have been anti-dilutive.

Stock options to purchase 378,500 shares at prices ranging from $2.25 to $6.00 per share were outstanding as of March 31, 2004. 101,000 options were excluded in the computation of diluted EPS because the exercise price was greater than the average market price of the common shares and therefore were anti-dilutive.

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

5.	ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
	Accounts receivable are customer obligations due under normal trade terms. We sell our products and services to manufacturers in the semiconductor industry. We perform continuing credit evaluations of our customers’ financial condition and although we generally do not require collateral, letters of credit may be required from our customers in certain circumstances.
	Senior management reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. We include any accounts receivable balances that are determined to be uncollectible in our allowance

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for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available to us, we believe our allowance for doubtful accounts for the nine months ended March 31, 2005 and the twelve months ended June 30, 2004 are adequate. However, actual write-offs might be more or less than the recorded allowance.

6.	WARRANTY ACCRUAL

7.	ACQUISITION OF A BUSINESS
	On July 1, 2004, the Company acquired certain assets from TS Matrix Bhd. (“Seller’) utilized by the burn-in testing division of Seller for an aggregate cash purchase price of approximately $1,218. Seller is one of our competitors. The Company paid approximately $92 by way of a deposit in fiscal 2004 and $731 of the purchase price in cash at the completion of the acquisition on July 1, 2004, and the balance of approximately $395 was payable in the form of a bank-guaranteed note which matured at December 31, 2004. Our objectives in acquiring the burn-in testing division were to service a large electronic device manufacturer with whom we had been pursuing a business relationship for some time and to increase our market share in testing services. Upon completion of the acquisition, the customer signed a five-year agreement with the Company to provide testing services. The value of obtaining this customer relationship intangible is included in other intangible assets in the amount of $482. Results of the operations for the burn-in testing business are included in the Company’s income statement effective July 1, 2004.
	In accordance with the Statement of Financial Accounting Standard (SFAS) No. 141, “Business Combinations”, the Company allocated the purchase price to the tangible assets and intangible assets acquired based on their estimated fair values. The fair value assigned to intangible assets acquired was based on estimates and assumptions determined by the management. Other intangibles with finite lives are amortized on a straight-line basis over their respective useful lives. The total purchase price was allocated as follows (in thousands):

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The excess purchase price over the fair value of tangible assets acquired was attributable to the customer relationship obtained from the above business acquisition and recorded as other intangible assets. No goodwill is recognized in this context. The customer relationship intangible will be amortized over its economic life based on the contract term as stated in the sales agreement with the customer on a straight-line method over five years.

The customer relationship intangible was previously reported in the Form 10-K for the fiscal year ended June 30, 2004 at $493. The difference of $11 ($493 versus the above $482) is related to equipment transferred by Seller to the Malaysia Testing operation subsequent to the completion date on July 1, 2004.

Pro Forma Financial Information

The unaudited financial information in the table below summarizes the combined results of the operations of the Company and the new burn-in testing division in Malaysia for the three and nine months ended March 31, 2004 as if the acquisition had occurred on July 1, 2003. The results from operations for the three and nine months ended March 31, 2005 included the business acquisition that was completed at the beginning of the first quarter of fiscal 2005.

The pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition taken place at the beginning of the three and nine months ended March 31, 2004. The unaudited pro forma combined statement of operations for the three and nine months ended March 31, 2004 combines the historical results for the Company for three and nine months ended March 31, 2004 and the historical results for the new burn-in testing division for the period preceding the acquisition on July 1, 2004. The following amounts are in thousands.

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004

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UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 2004

8.	BUSINESS SEGMENTS
	The Company operates principally in three industry segments, the testing service industry (which performs structural and electronic tests of semiconductor devices), the designing and manufacturing of equipment (which equipment tests the structural integrity of integrated circuits and other products), and the distribution of various products from other manufacturers in Singapore and Southeast Asia. The following net sales were based on customer location rather than subsidiary location.
	The allocation of the cost of equipment, the current year investment in new equipment and depreciation expense have been made on the basis of the primary purpose for which the equipment was acquired.
	All inter-segment sales are sales from the Manufacturing Segment to the Testing and Distribution Segment. Total inter-segment sales were $257 and $96 for the nine months ended March 31, 2005 and 2004, respectively, and $220 and $62 for the three months ended March 31, 2005 and 2004, respectively. Corporate assets mainly consist of cash and prepaid expenses. Corporate expenses mainly consist of salaries, insurance, professional expenses and directors’ fees.
	The following segment information is unaudited and is in thousands:

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Business Segment Information:

Business Segment Information:

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Geographic Area Information:

Geographic Area Information:

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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

The discussions of Trio-Tech International’s (the “Company”) business and activities set forth in this Form 10-Q and in other past and future reports and announcements by the Company may contain forward-looking statements within 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. See the discussions elsewhere in this Form 10-Q for more information. In some cases, you can identify forward-looking statements by the use of terminology such as “may”, “will”, “expects”, “plans”, “anticipates”, “estimates”, “potential”, “believes”, “can impact”, “continue”, or the negative thereof or other comparable terminology.

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

Overview

Founded in 1958, Trio-Tech International provides third-party semiconductor testing and burn-in services primarily through its laboratories in Southeast Asia. The Company operates in three distinct segments: Distribution, Manufacturing, and Testing. At or from its facilities in California and Southeast Asia, the Company also designs, manufactures and markets equipment and systems used in the testing and production of semiconductors, and distributes semiconductor processing and testing equipment manufactured by others.

(i) Results of operations and business outlook

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

Revenue Components

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

After a sudden surge in burn-in systems and boards in the Manufacturing segment in the first and second quarters, the segment sales were almost at the same level as those for the Testing segment. The Testing segment regained its position as our primary business in the third quarter. During the nine months ended March 31, 2005, the sales in the Manufacturing segment, as a percentage of total sales, increased by 11.3% to 44%, while Testing segment sales, as a percentage of total sales, dropped by 4.6% from 49.3% in 2004 to 44.7% in 2005 and sales in the Distribution segment, as a percentage of total sales, decreased by 6.7% to 11.3% in 2005.

The Testing segment experienced an increase, as a percentage of total sales, in the three months ended March 31, 2005 as compared to March 31, 2004 due to a variety of factors. The Testing operation in Singapore experienced a change in product

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mix. We experienced increased Testing sales in Southeast Asia since the newly acquired burn-in division in Malaysia started operation at the beginning of the fiscal year. The Malaysia division also set up a new plant in the same area to handle new projects coming in the next few quarters. Also, the plant in Singapore previously used for the burn-in process of slower speed microprocessor chips was converted to accommodate the new type of microprocessor chips. The semiconductor market in Thailand has declined and the burn-in services for that operation were on the low end of approximately $450 on the quarter to quarter comparison over the past two and a half years. Backlog increased substantially from the Testing operations in Malaysia and Singapore by 82.5% to $8,103 as of March 31, 2005, as compared to the $4,440 backlog as of March 31, 2004, due to the ramp up of services for the increasingly popular new type of microprocessor chips. However, customers continue to look for ways to reduce their costs, and we predict that the Malaysia division will face pressure from clients to reduce prices for both existing and new products for testing services.

The Company allocated the purchase price of the newly acquired burn-in division in Malaysia to the tangible assets and intangible assets acquired based on their estimated fair values. The fair value assigned to intangible assets acquired was based on estimates and assumptions determined by the management. Other intangibles with finite lives are amortized on a straight-line basis over their respective useful lives. The total purchase price was allocated as follows (in thousands):

The excess purchase price over the fair value of tangible assets acquired was attributed to the customer relationship obtained from the above busines s acquisition and recorded as other intangible assets. No goodwill is recognized in this context. The customer relationship intangible will be amortized over its economic life based on the contract term as stated in the sales agreement with the customer on a straight-line method over five years.

As previously reported in the Form 10-K, the customer relationship intangible was $493. The difference of $11 ($493 versus the above $482) was related to equipment transferred by Seller to the Malaysia Testing operation subsequent to the completion date on July 1, 2004.

The Manufacturing segment experienced an increase in sales of 89.7% in the first nine months of fiscal 2005 as compared to the same period last year. The Manufacturing operation in Singapore focused on back-end products such as burn -in boards and systems in Asia. Conversely, the capital equipment spending on high-end test equipment in the U.S. continued to decline and delay due, we believe, to the rise in inventories of most semiconductor manufacturers. Our U.S. Manufacturing operation continued to focus on marketing used and refurbished equipment, since it is less expensive than new equipment and thus in greater demand by our customers. The backlog in the Manufacturing segment as of March 31, 2005 dropped by $91 to $1,769 as of March 31, 2005, as compared to the backlog as of March 31, 2004, as more backlog was converted to actual sales and shipped out, resulting in higher sales and less backlog. The Singapore Manufacturing operation expects a decline in sales in the fourth quarter due to the cyclical effect in the semiconductor industry and aggressive orders during the first half of the fiscal year.

The backlog for the Distribution segment increased by 62% to $972 as of March 31, 2005, as compared to $599 as of March 31, 2004 as our Singapore Distribution operation closed orders on Vibration equipment and Test Chambers during the third quarter. In addition, non-semiconductor customers in Asia spent more on capital equipment. The expanded Distribution operation in Singapore procured distribution rights from a manufacturer in Asia to sell a range of electronic components, such as sockets and connectors. One of the Singapore Distribution operations will focus on selling Wet Process Stations primarily to research institutions and local universities. In addition, this operation will continue to work on new products to expand into the PCBA manufacturing industry and semiconductors dealing in microelectronics, with customers mainly in Asian countries.

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The Company’s key performance indicators are based on market demand. Sales activities such as bookings, queries on products and backlog also formed part of our performance indicators, as well as customers’ forecasts and the financial results of customers and competitors. Another performance indicator is based on the data in the Worldwide Semiconductor Equipment Market Statistics (SEMS) Report. According to the SEMS Report, worldwide manufacturing equipment sales totaled $37.1 billion in 2004, representing a year-over-year increase of 67.1%. Japan, the largest world market, grew about 49%, followed by the Taiwan market region with a growth of 166.8%, while North America sales increased by 23% as compared to 2004. In spite of this, SEMS reports that the recovery in the North American market remains slow.

The Company believes the current market trend indicates that the semiconductor industry in Asia is still on the upswing. According to the SEMS Report, a communication revolution will drive the Semiconductor industry to new heights. There was a demand in microprocessors, which will be used in broadband, cell phones and PC’s. Cost conscious consumer spending translates to more price pressure through the supply chain, which means efficiency and productivity are of utmost importance. Moreover, high-end testing equipment spending remains slow in the U.S. due to high oil prices and continued concern with the ongoing instability in the Middle East. Therefore, many U.S. semiconductor companies plan to postpone high-end capital purchases until inventories are reduced and the semiconductor industry improves.

There are several influencing factors which create uncertainties when forecasting performance, such as the ever-changing nature of technology, specific requirements from the customer, decline in demand for certain types of burn-in devices or equipment, and other similar factors. An additional factor is the highly competitive nature of the semiconductor industry itself. Another is that the life-cycles of certain types of burn-in products are falling quicker than expected. Customers continue to exert pressure to cut selling prices. While one of the Singapore Distribution operations bid for high technology products, it is unable to proceed due to the complicated specifications required by the potential customers. As a result, the Company has taken action to help protect itself from these uncertainties by, among other things, upgrading and improving its burn-in technology so as to gain customers’ confidence and maintain market shares. Additionally, we are always looking for alternatives to burn-in and exploring new markets, as we have with the Distribution segment. The Company continues to cut costs, especially material costs, and maintain a lean headcount.

     (ii) Financial information

During the nine months ended March 31, 2005, total assets increased by $136 from $18,000 at June 30, 2004 to $18,136. The majority of the increase was in trade receivables, property, plant and equipment, and other intangible assets, but offset with a decrease in cash and short term deposits of $108 and $2,306, respectively.

The increase in accounts receivable from $3,695 at June 30, 2004 to $3,871 at March 31, 2005 was mainly attributable to the higher sales for the Manufacturing and Testing segments in Southeast Asia during the first nine months of fiscal 2005 as compared to the first nine months of fiscal 2004, combined with more efficient collections. Sales for all operations for the nine months ended March 31, 2005 were $19,650, which increased by 40.9% as compared to the sales for the nine months ended March 31, 2004. At the same time, the operations in Southeast Asia improved their efficiency in collection, and the Malaysia operation placed more focus in collection of long overdue debts. The collection period for the Company was shortened from an average of 71 days at June 30, 2004 to an average of 53 days at March 31, 2005.

Property, plant and equipment increased substantially by $1,957 from $5,202 at June 30, 2004 to $7,159 at March 31, 2005 mainly due to the acquisition of fixed assets by the Testing segment in Southeast Asia. During the nine months ended March 31, 2005 the additions to property, plant and equipment totaled $2,792, of which $365 was paid as a deposit before June 30, 2004, but the renovation was completed and the equipment was received in the first quarter of fiscal 2005. $736 of the additions were due to acquisition of fixed assets located in the new burn-in operation in Malaysia and $742 related to the purchases of new plant and machinery in Malaysia to meet the new customer’s requirements. In addition, we converted three of the existing facilities in the Singapore Testing operation to be able to handle the burn-in process of the new type of microprocessor chips to improve cost effectiveness, and hence incurred $755 for the upgrading of facilities. Other fixed asset purchases included office equipment and machinery by the Singapore and Thailand operations.

The Company recognized $482 as of July 1, 2004 in other intangible assets for the customer relationship intangible which will be amortized over five years. The amortized expenses of the customer relationship intangible incurred were $71 for the nine months ended March 31, 2005. Consequently, the balance of the customer relationship intangible amounted to $411 at March 31, 2005.

Other assets decreased by $43 at March 31, 2005 from $485 at June 30, 2004 due to the capitalization of property, plant and equipment of $92, previously placed as a deposit for the Malaysia operation, which was offset with a deposit placed for additional rental of factory and utilities in the Malaysia operation.

The drop in cash and short term deposits, which decreased by $2,414 from $7,006 at June 30, 2004 to $4,592 at March 31, 2005, was due to several reasons. The total acquisition costs of the burn-in operation in Malaysia, which amounted to $1,218,

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were fully paid by March 31, 2005 through internal funding. In addition, more plant and machinery, in the amount of $463, were purchased to meet our new customer’s requirements; $88 was placed as a deposit for the rental of the factory and utilities with the landlord and utilities vendor respectively in the Malaysia operation as mentioned earlier. The existing Malaysia operation paid out dividends of $54 to its minority interest, which was declared out of reserves for the year ended June 30, 2004. There was a payment of annual wages, salaries and performance incentives of $218 during the first nine months of fiscal 2005 in the Singapore and Malaysia operations. The Company also made payments of $115 for the 2004 year-end audit during the nine months ended March 31, 2005. In addition, the Singapore and Ireland operations paid taxes of $78 and $23, respectively, during the nine months ended March 31, 2005 which were offset by a tax refund of $115 in the Singapore and Malaysia operations after the tax assessment for prior years had been finalized.

Total liabilities as of March 31, 2005 were $6,692, reflecting a $174 decrease in total liabilities from $6,866 at June 30, 2004. Accounts payable at March 31, 2005 decreased by $816 since June 30, 2004 due mainly to fewer materials purchased in the Singapore Manufacturing operation as the inventories, which were previously stocked up, will be sufficient for usage in the next quarter. This offset the higher finished goods and raw materials of $576 purchased by the Singapore Distribution operation and fixed assets purchase of $71 by the Malaysia and Thailand operations towards the end of the third quarter.

The decrease in accounts payable was offset by the increase in accrued expenses and notes payable. Accrued expenses increased by $526 mainly attributable to the Singapore, Malaysia and U.S. operations. In the Singapore operation, there was a higher provision for warranty of $93 due to higher equipment sales and commissions of $41 for a greater number of commissionable sales; final payment for fixed assets of $143; higher sales tax of $62; offset with lower accrued utilities of $51 at March 31, 2005. In the Malaysia operation, there was an increase in accrual of payroll for contract workers of $107, performance incentives of $12 for employees who previously worked for the Seller of the burn-in operation, and payroll related costs of $10 and higher accrued utilities of $22 at March 31, 2005. The Malaysia operation also incurred higher audit fees of $15 for SEC disclosure purposes. In addition, a sales tax of $33 at March 31, 2005 incurred by the previous Universal System was absorbed by Corporate as the operation became dormant.

Notes payable, offset with lower capitalized leases, increased by $46, due to high borrowings of $683 offset with net payments of $637 during the nine months ended March 31, 2005.

As of March 31, 2005, total liabilities (excluding minority interest) were 71.2% of total capital, compared with 76.1% at June 30, 2004. Total liabilities as a percentage of total capital were lower in fiscal 2005 mainly due to lower accounts payable as mentioned earlier.

Comparison of Third Quarter Ended March 31, 2005 (“2005”) and March 31, 2004 (“2004”)

The following table sets forth certain consolidated statements of income data as a percentage of net sales for the third quarters in fiscal 2005 and 2004, respectively:

Overall Net Sales and Gross Margin

Overall sales for the Company increased $1,075, an increase of 21.3%, from Q3 2004 to Q3 2005. The increase was attributable primarily to higher sales in the Testing and Manufacturing segments, offset by lower sales in the Distribution segment. The sales increase in the first two segments was mostly due to the ramp up of burn-in services for the new type of microprocessor chips in Singapore and additional sales from the newly acquired testing operation in Malaysia. The overall

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gross margin remained constant in spite of a change in sales mix. A surge in demand for low margin burn-in boards in the Manufacturing segment lowered the group margin, but this was compensated for by an increased gross margin in the Testing and Distribution segments.

Manufacturing Segment

The revenue and gross margin for the Manufacturing Segment for the third quarters of 2005 and 2004 were as follows:

There were mixed signals in demand for computers and consumer products in the various regions, but overall the Manufacturing segment experienced an increase of $307, or 15.8%, in sales from Q3 2004 to Q3 2005. We believe the improvement was due in part to a 160% increase in sales of burn-in boards with a 46.7% increase in the selling price. Demand for this product derived primarily from customers in Asia we have pursued for some time. There was also increased demand for electronic components in the market led by some of our electronic device manufacturing customers, including the new ones, in order to increase their capacity in the third quarter.

However, this increase in sales was offset by a decrease in sales of HAST Systems by $105, as none were sold in 2005, and an $81 decrease in sales of Environmental Test Equipment, a 25% drop in quantity sold with a 52.4% drop in price. We believe this was a result of continued slow capital spending on high-end test equipment in the U.S. due to high oil prices and ongoing instability in the Middle East. The oversupply of inventories also forced semiconductor companies to push back any plans to purchase capital equipment. Wet Process Stations sales fell by $429, as none were sold in Q3 2005. One Wet Process Station was delivered at the end of March 2005, but the Company was unable to recognize the sale, as we had not yet met the requirements of SAB101 revenue recognition. As demand for Wet Process Stations in the U.S. market has remained slow, the Company plans to focus its attention on marketing in Asia to new customers.

In spite of the 15.8% rise in overall sales in the Manufacturing segment, the gross margin dropped by 8.5%. The primary reason for this was the weak margin for burn-in boards. However, management wishes to continue to manufacture this product in order to maintain market share. Additionally, the Company shifted focus to Wet Process Stations in Asia due to a weak market in the U.S.

Testing Segment

The revenue and gross margin for the Testing Segment for the third quarters of 2005 and 2004 were as follows:

Sales in the Testing segment increased by $835, or 37.2%, from the third quarter of 2004 to the third quarter of 2005, mainly due to the increasingly popular type of burn-in services for the new microprocessor chips in the Singapore Testing operation. This was offset by the drop in demand for services of another type of microprocessor chip. Net sales in the Singapore Testing operation rose by approximately $310. Another source of the increase in sales in the Testing segment was our newly acquired burn-in division in Malaysia, which contributed to approximately $500 in sales of dynamic burn-in.

The gross margin increased by 1.9% in the Testing segment. The existing plants in the Singapore Testing operation, which were previously used for the burn-in services of a slower speed microprocessor chip, were converted to service the increasingly popular type of microprocessor chips. Economy of scale was achieved in the Singapore Testing operation when no additional rent was incurred and the operation saved by incurring minimal upgrading and depreciation costs rather than renovating the entire plant, which would have cost more. In addition, the margin in the Thailand Testing operation improved by 8% from 20% in Q3 2004 to 28% in Q3 2005 due to a change in product mix, hence there were lower sales of low-margin products and higher sales of high-margin products.

Distribution Segment

The revenue and gross margin for the Distribution Segment for the third quarters of 2005 and 2004 were as follows:

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Sales in the Distribution segment declined by $67 from Q3 2004 to Q3 2005, a difference of 7.8%. This decline was partly due to the drop of $415 in sales of low margin front-end products, a decrease of 28.9% in quantity sold and 41.4% in selling price due to declining customer demand. Additionally, sales of spare parts and services dipped by $16. However, the overall decline was offset by an increase in demand for Reflow Ovens and Test Chambers, which saw elevated sales of $343 as six were sold in Q3 2005 at an average unit selling price of $63 while only two were sold in Q3 2004 at an average unit selling price of $16. Surprisingly, the demand for these products derived primarily from customers in non-semiconductor industries. With the substantial percentage increase in quantity and average unit selling price for this equipment, it pulled up Distribution sales. Concurrently, the semiconductor industry in Asia started slowly to recover, and with past marketing efforts from the Distribution operations, the Company closed some orders for Vibration equipment and Test Chambers during this quarter.

In spite of a decrease in sales, the gross margin in the Distribution segment almost doubled due to an improvement in the average unit selling price of Test Chambers and Reflow Ovens, combined with a decrease in unit volume of low-margin products. As certain customers had various specifications on the Test Chambers and Reflow Ovens, we were able to quote a higher average unit selling price.

Sales by geographical area

Geographically, net sales into and within the United States region during Q3 2005 decreased by 61% compared to Q3 2004. This occurred after the Manufacturing operation in San Jose moved to Singapore and the Company focused more on capturing the promising Asian market instead. The sales from Universal Systems contributed to half of the total decline in sales within the U.S and sales of HAST System and Environmental Test Equipment in the U.S. operations declined due to the rise in inventories and a decrease in equipment spending in this region.

Net sales into and within the Southeast Asia region increased by 52.6% as compared to Q3 2004, mainly derived from customers in Asia we have pursued for sometime. The increase in demand for burn-in boards mainly came from our electronic device manufacturing customers. In addition, the recovery of the consumer and electronic markets in the Asia region boosted the sales for the Testing and Distribution operations in this area. Sales generated from the new testing operation in Malaysia contributed to this increase as well.

Net sales into and within Ireland and other countries increased by 162.2% as compared to Q3 2004. This was due to the increase in distribution of equipment and higher programming services in the Ireland operation. In addition, there were higher sales into other countries, derived mainly from the Singapore Distribution operation, which sold more equipment and peripherals to Japan, Taiwan and India.

Operating Expenses

The operating expenses for the third quarters of 2005 and 2004 were as follow:

As a percentage of sales, operating expenses increased by 3.6% from 21.1% in Q3 2004 to 24.7% in Q3 2005. This was mainly attributable to an increase in selling expenses in the Distribution operations in Southeast Asia, which will be explained later. In addition, there was a gain on disposal of assets of $62 in Q3 2004, whereas there was none in Q3 2005.

As a percentage of sales, general and administrative expenses decreased by 0.3%, to 18.8% in Q3 2005. However, expenses in this area did increase in terms of dollar value by $188 due to several factors. First, salaries increased in Southeast Asia by $67 due to the new Testing operation in Malaysia and higher headcount for the Singapore cost center to support the operations in Southeast Asia. Second, bonuses of $74 were paid out during Q3 2005 due to the Singapore operation’s exceptional performance, whereas there was a reversal of bonuses of $43 in Q3 2004 as the performance of the operation was below the bonus criteria. Similarly, in Q3 2004 there was a reversal of bonuses of $11 in the U.S. operation for the same reason. A provision for interim audit fees of $5 in Corporate also contributed to the increase in Q3 2005, whereas there was no such

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provision in Q3 2004. The provision for doubtful debts in the Singapore Manufacturing operation in Q3 2005 was $26 due to a long overdue debt from a customer, and none in the same quarter last year. There was a higher depreciation of $23 incurred for office equipment and fittings in the Singapore and Malaysia operations. Another $23 was incurred as a result of an increase in amortization costs for customer relation intangibles in the new Malaysia operation. Operating expenses such as printing and stationary, insurance, upkeep of office and non-capitalized assets increased by $18 in the Malaysia operation and $5 in one of U.S operations. Higher bank charges of $9 were generated in the Singapore operation for the renewal of a bank guarantee, while sales tax of $33 was accrued by the previous operation in the U.S. Finally, there was an increase in miscellaneous costs of $9 compared to the same quarter last year. Offsetting all this was a savings of $51 derived from relocating the operation in San Jose to Singapore, as we were able to save on salaries, equipment rental, rent, insurance, and professional and audit fees. Also, there was a reduction in Corporate officers’ bonuses by $9 as the group performance did not meet bonus criteria, whereas bonuses of $11 were paid out in Q3 2004.

As a percentage of sales, selling expenses increased from 2.7% in 2004 to 5.5% in 2005, a difference of $204. This was mainly attributable to the Singapore operation where there was an increase in headcount in Distribution due to expansion, which increased salaries by $21, as well as higher provision for warranty costs of $34 and commission fees of $65 in both the U.S. Manufacturing and Singapore Distribution operations due to higher equipment sales. Additionally, there was commission income of $55 received in Q3 2004 for being an agent, and none in Q3 2005. Traveling expenses went up by $8 in Singapore in order to oversee the new operation in Malaysia. Advertising costs went up by $19 to procure new customers and miscellaneous costs increased by $9. All this was offset by a savings of $8 on rental and utilities when the San Jose operation relocated to Singapore.

Research and development expenses decreased by $9 due to lower sales queries and bookings for Artic Temperature Controlled Chucks.

Income (loss) from operations

The income (loss) from operations for the third quarters of 2005 and 2004 were as follow:

The Company incurred an operating loss of $40 in Q3 2005 compared to Q3 2004. The deterioration in results was mainly attributable to the Manufacturing segment.

The Manufacturing segment saw a loss of $230 in Q3 2005 compared to Q3 2004. Though sales increased by 15.8% in this period compared to the same period last year, the impact on the income from operation was minimal due to the change in product mix, as mentioned earlier. Hence, the bulk of the increased sales of low-margin burn-in boards was not significant enough to impact the margin. In terms of dollar value, the gross margin dropped by $124 as compared to Q3 2004. The low gross margin of 13.2% was not enough to cover the fixed and semi-fixed costs such as salaries, rental, depreciation, insurance and others, as well as $83 in additional operating expenses such as provision of warranty, salaries for higher headcount, bonus provision for good performance and advertising costs. These costs, however, were in line with the increase in sales. In addition, there was a provision for doubtful debts of $23 for an outstanding debt.

The income from operation in Corporate dropped by $24 to $8 in Q3 2005. There was a provision of audit interim fees of $5, whereas there was none in Q3 2004. Sales tax of $33 incurred by the previous Universal Systems operation was absorbed by Corporate as the operation became dormant. This was offset by a lower provision of bonuses of $20 for the Corporate officers compared to Q3 2004. Also, the Corporate office attempts to reimburse its operating expenses by imposing a fee on all subsidiaries on a fixed percentage of total revenue, and the sudden surge in sales in Singapore Manufacturing contributed to a recovery of expenses. However, these factors were not enough to recover the losses incurred in this division.

The Testing segment experienced a gain from operations of $54 in Q3 2005 over Q3 2004. This improvement was due to the increase in gross margin from 28.7% in Q3 2004 to 30.6% in the same period this year, which was mostly contributed from the Testing operations in Singapore and Thailand, as previously mentioned. While the bulk of the sales increase derived from Singapore, its operating expenses did not increase at the same pace. The Singapore Testing operation maintained the same number of engineers and managers as the same quarter a year ago and still managed to cope with the surge in sales in Q3 2005.

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The Distribution segment saw a gain in operations of $25 over Q3 2004. This improvement was attributable to the Singapore Distribution operation. The margin for certain equipment improved due to the increase in average unit selling price and quantity and the other factors previously mentioned. Additionally, the increase in gross margin was substantial enough to cover the increase in costs such as commissions and salaries due to greater headcount, a total of approximately $132, and resulted in a profit of $8 in Q3 2005.

Interest Expense

The interest expenses for the third quarters of 2005 and 2004 were as follow:

The increase in interest expense of $16 from Q3 2004 to Q3 2005 was mainly due to the usage of accounts receivables financing in Singapore, incurring higher interest expenses of $21. This was slightly offset by the decrease in capitalized lease interest of $3 and term loan interest of $2.

Other Income

Other income for the third quarters of 2005 and 2004 were as follow:

Other income increased by $18 from Q3 2004 to Q3 2005 due to bad debts of $24 which were recovered in the Thailand operation, whereas none were recovered in Q3 2004. This was slightly offset by a decrease in interest income of $5 and miscellaneous income of $1.

Income Tax

The Company was in a tax refundable position of $26 for the three months ended March 31, 2005, as compared to the income tax provision of $7 in the third quarter of 2004, which was due mainly to the recoverable tax of $47 for the tax period in 2000 and 2002 in Malaysia. In contrast, there was a provision for tax of $21 from one of the Singapore operations in Q3 2005 due to the higher profit of $108 generated in the third quarter of fiscal 2005 as compared to $44 in the third quarter of fiscal 2004.

Net Income

As a result of all of the factors analyzed above, the net income attributable to common shares for the third quarter ended March 31, 2005 was approximately $22, which represented a decline of $146 from a net income of approximately $168 attributable to common shares for the third quarter ended March 31, 2004. Consequently, basic earnings per share for the third quarter ended March 31, 2005 decreased by $0.05 from earnings per share of $0.06 in 2004 to $0.01 per share in 2005. Diluted income per share for the third quarter ended March 31, 2005 was $0.01, which decreased by $0.05 from $0.06 per share for the third quarter ended March 31, 2004.

Year to Date Comparison of the Nine Months Ended March 31, 2005 (“2005”) to the Nine Months Ended March 31, 2004 (“2004”)

The following table sets forth certain consolidated statement of income data as a percentage of net sales for the nine months of fiscal years 2005 and 2004, respectively:

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Overall Net Sales and Gross Margin

Overall sales for 2005 increased by 40.9% compared to 2004, a variance of $5,702. The increase in sales came primarily from the Manufacturing and Testing segments, offset with lower sales in the Distribution segment. The overall sales increase mainly resulted from the sudden surge in the Manufacturing segment’s sales volume of burn-in systems and boards. The Testing segment sales increase was attributable to the ramp up of burn-in services for the new type of microprocessor chips in Singapore and additional sales from the newly acquired testing operation in Malaysia. These were offset by the decrease in sales volume for low margin products in the Distribution segment due to fewer shipments. The gross margin fell 1.5% from 2004 to 2005. It was negatively impacted by the Manufacturing segment, where sales of low margin burn-in boards and systems caused the group margin to slide slightly. The decline in gross margin from Manufacturing was partially offset by the increased margin from the Testing and Distribution segments due to several factors which will be later explained.

Manufacturing Segment

The revenue and gross margin for the Manufacturing segment for the first three quarters of 2005 and 2004 were as follows:

Sales in the Manufacturing segment increased by 89.7%, an improvement of $4,089 from 2004 to 2005. The first nine months of 2005 evidenced a conflicting demand for computers and consumer electronics products in different regions. The PC market showed evidence of expansion in Asia with high demand for electronic components, and the increase in sales of burn-in boards derived mainly from customers in this region we had been pursuing for some time. Sales of burn-in boards increased by $1,042 in 2005 compared to 2004, with a 109.2% increase in quantity sold and 9.9% drop in selling price. Burn-in systems experienced a similar spike in sales with a sales increase of $4,196 over the previous year, a 291.9% increase in quantity sold and an 83.5% increase in average unit selling price. Certain customers of ours who are electronic device manufacturers increased their capital equipment in order to meet an increase in production capacity. However, these factors were offset by lower sales of Artic Temperature Controlled Chucks, which experienced a $77 drop in sales, a 62.5% decline in quantity sold and a 54.5% rise in average unit selling price, and Environmental Test Equipment, which experienced a $74 drop in sales, a 13% decline in quantity sold and a 30.8% decline in average unit selling price, due to the fact that capital spending on high-end test equipment in the U.S. remained slow due to high oil prices and ongoing instability in the Middle East. We believe an oversupply of inventories also forced semiconductor companies to push back any plans to purchase capital equipment. Furthermore, Wet Process Station sales dropped by $1,003 from 2004 to 2005, as none sold in 2005. Therefore, the Company plans to focus marketing Wet Process Stations to research institutions and local universities in Asia, though it will require some time to establish a presence in the Asian market. Additionally, one Wet Process Station was delivered at the end of March 2005, but the Company was unable to recognize the sale as we had not yet met the SAB101 requirements on revenue recognition.

The gross margin in the Manufacturing segment decreased by 3.6% in spite of sales almost doubling compared to 2004. Though the sales of burn-in systems with a better margin almost doubled compared to last year, it was insufficient to pull up the overall margin as sales of lower margin burn-in boards were much more significant. However, management wishes to continue to manufacture this product in order to maintain market share. Furthermore, sales in the U.S. operation dropped by 71% from $2,370 in 2004 to $688 in 2005. However, cost of sales, which include fixed and semi-fixed expenses, did not

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decrease correspondingly, as the operation was already operating at minimal cost. Additionally, the Company shifted focus on the marketing of Wet Process Stations to Asia due to a weak market in the U.S. for high-end test equipment.

Testing Segment

The revenue and gross margin for the Testing segment for the first three quarters of 2005 and 2004 were as follows:

Sales in the Testing segment increased by $1,898 from 2004 to 2005, an improvement of 27.6%. This increase in sales mainly derived from the newly acquired burn-in operation in Malaysia. This operation contributed approximately $1,459 to burn-in services, whereas it was inactive at this period last year. The increased demand for burn-in services for the new type of microprocessor chips, which helped increase sales by $424 compared to 2004, was countered by the fall in services for another type of microprocessor chip.

Despite the changes in sales mix, the overall margin for the Testing segment increased marginally by 0.4% as compared to this same period in 2004. The Testing operation in Singapore avoided incurring additional rental cost for the burn-in service for the new microprocessor chips by upgrading the existing facilities, and the operation saved in terms of minimal upgrading and depreciation costs rather than incurring the more significant costs of renovating the entire plant. These factors were offset with slightly higher utilities costs as a percentage of sales, which increased from 19.7% in the first nine months of 2004 to 20.5% in the first nine months of 2005 due to the Singapore Testing operation’s higher utilities consumption for the burn-in services for the new chips.

Distribution Segment

The revenue and gross margin for the Distribution segment for the first three quarters of 2005 and 2004 were as follows: