UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File Number: 0-13763
TECHNOLOGY RESEARCH CORPORATION
_______________________________
(Exact name of registrant as specified in its charter)
Florida 59-2095002
_______________________________ ________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No,)
5250 140th Avenue North, Clearwater, Florida 34620
____________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (813) 535-0572
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 a 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 [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1996
____________________________ ____________________________
Common stock, $.51 par value 5,318,902
TECHNOLOGY RESEARCH CORPORATION
INDEX
Part I - Financial Information Page
Condensed Balance Sheets--September 30, 1996 and March 31, 1996.... 1
Condensed Statements of Income--Three months and six months ended
September 30, 1996 and September 30, 1995..................... 2
Condensed Statements of Cash Flows--Six months ended
September 30, 1996 and September 30, 1995..................... 3
Notes to Condensed Financial Statements............................ 4
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 5
Part II - Other Information
Item 1 - Legal Proceedings......................................... 7
Item 4 - Submission of Matters to a Vote of Shareholders............8
Item 6 - Exhibits and Reports on Form 8-K.......................... 8
Signatures......................................................... 9
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TECHNOLOGY RESEARCH CORPORATION
CONDENSED BALANCE SHEETS
<CAPTION>
September 30 March 31
1996 1996
------------ ---------
ASSETS (unaudited) *
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 164,136 341,601
Short term investments 4,083,660 4,084,698
Accounts receivable, net 2,190,381 2,607,152
Inventories:
Raw material 3,828,357 3,423,236
Work in process 923,949 945,795
Finished goods 723,137 857,731
---------- ----------
Total inventories 5,475,443 5,226,762
Prepaid expenses 203,667 94,205
Deferred income taxes 417,000 445,000
---------- ----------
Total current assets 12,534,287 12,799,418
---------- ----------
Property, plant, and equipment 6,296,915 6,120,341
Less accumulated depreciation (3,946,167) (3,698,692)
---------- ----------
Net property, plant, and equipment 2,350,748 2,421,649
---------- ----------
Deferred income taxes 127,343 159,000
Other assets 2,060 523
---------- ----------
$ 15,015,438 15,380,590
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 75,000 75,000
Accounts payable 1,109,714 1,236,591
Accrued expenses 222,577 219,044
Dividends payable 345,141 336,052
Income taxes payable 51,918 991
---------- ----------
Total current liabilities 1,804,350 1,867,678
Long-term debt, excluding current installments 243,850 281,350
---------- ----------
Total liabilities 2,048,200 2,149,028
---------- ----------
Stockholders' equity:
Common stock 2,712,640 2,712,437
Additional paid-in capital 7,410,551 7,410,754
Retained earnings 2,843,047 3,108,371
---------- ----------
Total stockholders' equity 12,966,238 13,231,562
---------- ----------
$ 15,014,438 15,380,590
========== ==========
<FN>
<F1>
* The balance sheet as of March 31, 1996 has been summarized
from the Company's audited balance sheet as of that date.
<F2>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
- 1 -
<TABLE>
TECHNOLOGY RESEARCH CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Three Months Ended Six Months Ended
September 30 September 30
1996 1995 1996 1995
---------- ---------- ---------- ----------
Operating revenues:
<S> <C> <C> <C> <C>
Net sales $ 3,551,235 4,171,788 6,830,572 8,415,818
Royalties 137,692 213,797 235,822 385,757
---------- ---------- ---------- ----------
3,688,927 4,385,585 7,066,394 8,801,575
---------- ---------- ---------- ----------
Operating expenses:
Cost of sales 2,361,474 2,780,050 4,666,405 5,376,077
Selling, general, and administrative 776,381 705,430 1,512,243 1,344,151
Research, development and engineering 295,573 255,029 573,706 485,270
---------- ---------- ---------- ----------
3,433,428 3,740,509 6,752,354 7,205,498
---------- ---------- ---------- ----------
Operating income 255,499 645,076 314,040 1,596,077
---------- ---------- ---------- ----------
Other income (deductions):
Interest and sundry income 58,123 68,633 113,585 138,197
Interest expense (8,579) (11,578) (17,555) (22,473)
---------- ---------- ---------- ----------
49,544 57,055 96,030 115,724
---------- ---------- ---------- ----------
Income before income taxes 305,043 702,131 410,070 1,711,801
Income taxes 3,126 247,000 37,126 626,814
---------- ---------- ---------- ----------
Net income $ 301,917 455,131 372,944 1,084,987
========== ========== ========== ==========
Earnings per share $ 0.06 0.08 0.07 0.20
========== ========== =========== =========
Weighted average number of common
and equivalent shares outstanding 5,432,392 5,392,499 5,418,696 5,383,817
========== ========== ========== ==========
Dividend declared per share $ 0.06 0.06 0.12 0.12
========== ========== ========== ==========
<FN>
See accompanying notes to condensed financial statements.
</TABLE>
- 2 -
<TABLE>
TECHNOLOGY RESEARCH CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Six Months Ended
September 30
1996 1995
---------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 372,944 1,084,987
Adjustments to reconcile net income to net cash
provided by operating activities:
Accretion of interest (106,814) (104,998)
Depreciation 247,475 233,295
Decrease in accounts receivable 416,771 673,058
Decrease(increase) in inventories (248,681) (622,776)
Increase in prepaid expenses (109,462) (60,497)
Decrease in deferred income taxes 59,657 32,000
Decrease in other assets (1,537) 52,812
Decrease in accounts payable (126,877) (338,561)
Increase in accrued expenses 3,533 44,896
Increase(decrease) in income taxes payable 50,927 (85,491)
---------- ----------
Net cash provided by operating activities 557,936 908,725
---------- ----------
Cash flows from investing activities:
Maturities of short-term investments (3,001,148) (2,957,884)
Purchase of short-term investments 3,109,000 1,803,000
Capital expenditures (176,574) (354,821)
---------- ----------
Net cash used in investing activities (68,722) (1,509,705)
---------- ----------
Cash flows from financing activities:
Principal payments on long-term debt (37,500) (37,500)
Proceeds from exercise of stock options - 58,013
Dividends paid (629,179) (316,890)
---------- ----------
Net cash provided by(used in)
financing activities (666,679) (296,377)
---------- ----------
Decrease in cash and cash equivalents (177,465) (897,357)
Cash and cash equivalents at beginning of period 341,601 1,707,930
---------- ----------
Cash and cash equivalents at end of period $ 164,136 810,573
========== ==========
<FN>
See accompanying notes to condensed financial statements.
</TABLE>
- 3 -
TECHNOLOGY RESEARCH CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. The financial information included herein is unaudited; however,
such information reflects all adjustments (consisting solely of
normal recurring adjustments) which are, in the opinion of management,
necessary for the fair statement of results for the interim period.
The results of operations for the six-month period ended September
30, 1996, are not necessarily indicative of the results to be
expected for the full year.
2. Short-term investments consist of U.S. Treasury Bills with a
purchased maturity of greater than three months.
3. Earnings per share has been computed by dividing net income by the
weighted average number of common and equivalent shares outstanding.
Common share equivalents included in the computation represent
shares issuable upon exercise of stock options which would have a
dilutive effect in years where there are earnings.
- 4 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULT OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying condensed financial
statements.
Current Six Months Ended September 30, 1996 versus Six Months Ended
September 30, 1995
Operating revenues (net sales and royalties) for the second quarter ended
September 30, 1996 were $3,688,927, compared to $4,385,585 reported in the
same quarter of the prior year, a decrease of approximately 16%. Net income
for the current quarter was $301,917, compared to $455,131, for the prior
year's quarter, a decrease of approximately 34%. The earnings per share for
the current period were $.06 per share as compared to $.08 for the comparable
period last year.
Operating revenues (net sales and royalties) for the six-month period ended
September 30, 1996 were $7,066,394, compared to $8,801,575 reported in the
same period for the prior year, a decrease of approximately 20%. Net income
for the six-month period was $372,944, compared to $1,084,987, for the same
period in the prior year, a decrease of approximately 66%. The earnings per
share for the six-month period were $.07 per share as compared to $.20 for
the comparable period last year.
The lower revenues were due to commercial sales being down $844,550 over the
prior six-month period while military sales showed a decrease of $740,695.
Royalty income was down by $149,936. The reduction in commercial sales was
evenly distributed over sales to Xerox and to the sprayer/washer and OEM
markets. The Company expects sales to Xerox and its OEM market to stabilize
and increase as the fiscal year progresses, but the Company does not
anticipate increased sales to the sprayer/washer market, as UL has not
commented on when enforcement will begin for the change in the National
Electric Code requiring attached GFCI protection for these products.
Military product shipments continue to be impacted by the transition period
from the previous to the new Tactical Quiet (TQ) Generator Systems Program
contract; however, the Company has now received firm releases from the prime
contractor. The Company began shipping limited product under the new contract
in the current quarter, but full production is not expected until the fourth
quarter. The new contract covers approximately a two-year period with a total
expected value of $4,900,000. Royalty income was down, as expected, due to
less royalties from Windmere Corporation.
The Company believes that revenues and profits will continue to improve as the
fiscal year progresses; however, revenues from "Fire Shield" and TRC Consumer
Marketing will be needed, in addition to the Company's existing business, to
achieve growth over Fiscal Year 1996. The Company continues to actively
promote the "Fire Shield" line of appliance cords and extension cords to the
market. The "Fire Shield" extension cords are currently being sold through TRC
Consumer Marketing and TRC Distribution in modest quantities; however, the
- 5 -
Company has yet to receive significant orders for this product. The Company
also continues to develop a direct consumer sales initiative through the use
of independent distributors that specialize in selling products directly to
the household consumer. The Company expects modest sales can be achieved
through this marketing strategy beginning in the third and fourth quarters of
Fiscal Year 1997. The Company expensed over $250,000 in the "Fire Shield" and
TRC Consumer Marketing programs in the first six months of the current fiscal
year, and the Company will continue to invest in these programs in expectation
of significant revenues being generated from them in the future. In addition,
the Company will increase its expenses for sales and marketing in the OEM and
TRC Distribution areas as they also represent opportunity for revenue growth.
Cost of sales was approximately 66% of net sales for the current quarter and
approximately 68% of net sales for the six-month period ended September 30,
1996, compared to 67% and 64% for the same periods last year. The Company
expects cost of sales as a percent of sales to continue to remain stable
throughout the fiscal year. The labor inefficiencies experienced in the first
quarter of Fiscal Year 1997 are correcting themselves as the Company ramps up
production for the TQ Generator Systems Program. The Company has given Xerox
Corporation another price reduction, effective October 1, 1996; however, Xerox
and its suppliers will start receiving product directly from China resulting
in lower duty, freight and packaging costs to the Company, thus offsetting, in
part, the effect of the price reduction. The Company, historically, has been
successful in offsetting price reduction with product cost reduction in order
to maintain acceptable margins with Xerox Corporation.
Selling, general and administrative expenses for the current quarter were
$776,381 and $1,512,243 for the six-month period ended September 30, 1996,
compared to $705,430 and $1,344,151 in the same periods last year, an increase
of approximately 10% and 13%, respectively. Selling expenses were $481,654 for
the current quarter and $993,760 for the six-month period ended September 30,
1996, compared to $432,604 and $871,136 in the same period last year, an
increase of approximately 11% and 14%, respectively, reflecting expenses
related to the "Fire Shield" and TRC Consumer Marketing programs. General and
administrative expenses were $294,727 for the current quarter and $518,483 for
the six-month period ended September 30, 1996, compared to $272,826 and
$473,015 in the same periods last year, an increase of approximately 11% and
10%, respectively, reflecting higher salary, employee relation and shareholder
relation expenses.
Research, development and engineering expenses for the current quarter were
$295,573 and $573,706 for the six-month period ended September 30, 1996,
compared to $255,029 and $485,270 for the same periods in the prior year, an
increase of approximately 16% and 18%, respectively, reflecting higher salary
related expenses.
Interest and sundry income, net of interest expense, for the current quarter
was $49,544 and $96,030 for the six-month period ended September 30, 1996,
compared to $57,055 and $115,724 for the same periods last year, reflecting
lower returns on the Company's short-term investments.
- 6 -
On August 20, 1996, the Company received a favorable ruling from the State of
Florida regarding apportionment factors for state income tax purposes. As a
result of this ruling, the Company is amending previously filed state income
tax returns. Accordingly, the Company recorded a $240,000 state income tax
credit, net of federal income taxes and adjustments in deferred taxes of
$110,000, in the current quarter related to state income taxes paid in Fiscal
Years 1993, 1994, 1995 and 1996. As long as the Company maintains "nexus"
(doing business) outside the State of Florida, the Company's apportionment
factors will result in a lower effective income tax rate.
Liquidity and Capital Resources
As of September 30, 1996, the Company's cash and cash equivalents decreased to
$164,136 from the March 31, 1996 total of $341,601, and short term investments
were $4,083,660, compared to the March 31, 1996 total of $4,084,698. The
short term investments are comprised of U.S. Treasury Bills.
On August 22, 1995, the Company's institutional lender renewed its commercial
line of credit at $2,500,000 and extended the maturity date to August 15, 1997.
The lender continues to give the Company the option of borrowing at the
lender's prime rate of interest or the 30 day London Interbank Offering
Rate(L.I.B.O.R.) plus 200 basis points. The lender also continues to make
available a Banker's Acceptance agreement which gives the Company the option
of borrowing up to $750,000 under the line of credit with the interest rate
being determined by the lender's International Division at the time of
borrowing. The Company did not use its line of credit in the current period,
and the mortgage payable to the Company's institutional lender as of June 30,
1996 was $318,850, compared to $356,350 at March 31, 1996.
The Company's working capital decreased by $201,803 to $10,729,937 at
September 30, 1996, compared to $10,931,740 at March 31, 1996. The Company
believes that its cash flow from operations, the available bank line, and its
current cash position will be sufficient to meet its working capital
requirements for the immediate future.
The second quarter dividend of $.06 per share was paid on October 15, 1996 to
shareholders of record on September 30, 1996.
Part II - Other Information
Item 1. Legal Proceedings
In March 1995, the Company, along with seven other defendants, was sued in
Harris County, Texas. The suit claims, among other things, that the Company's
GFCI product was defectively designed and manufactured and caused the death by
electrocution of an individual. The parties to the lawsuit have agreed to an
"out of court" settlement subject to final review and approval by the Court.
The Company's product liability insurance will cover the settlement cost.
- 7 -
Item 4. Submission of Matters to a Vote of Shareholders
At the Company's annual meeting of shareholders held on August 22, 1996, the
following matters were submitted for a vote by the shareholders:
1. To elect five members of the Board of Directors who will be elected
to a one-year term of office.
VOTES FOR VOTES AGAINST
--------- -------------
Robert S. Wiggins 4,666,266 168,539
Raymond H. Legatti 4,668,100 166,705
Raymond B. Wood 4,668,033 166,772
Edmund F. Murphy, Jr. 4,666,133 168,672
Jerry T. Kendall 4,667,399 167,406
2. To ratify the selection by the Company's Board of Directors of KPMG
Peat Marwick LLP, Certified Public Accountants, as independent
auditors of the Company for its fiscal year ending March 31, 1997.
VOTES FOR VOTES AGAINST VOTES ABSTAINED
--------- ------------- ---------------
To ratify auditors 4,730,148 7,463 34,523
3. To consider and vote upon a proposal to adopt the 1996 Stock Option
Performance Plan.
VOTES FOR VOTES AGAINST VOTES ABSTAINED
--------- ------------- ---------------
To approve plan 2,474,587 390,836 169,508
Item 6. Exhibits and Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter covered by this
Report.
- 8 -
___________________________________________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHNOLOGY RESEARCH CORPORATION
(registrant)
November 1, 1996 Scott J. Loucks
___________________________ __________________________________
Date Scott J. Loucks
Chief Financial Officer,
(principal financial, accounting and
Duly Authorized Officer)
- 9 -
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<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-START> Apr-01-1996
<PERIOD-END> Sep-30-1996
<CASH> 164136
<SECURITIES> 4083660
<RECEIVABLES> 2190381
<ALLOWANCES> 0
<INVENTORY> 5475443
<CURRENT-ASSETS> 12534748
<PP&E> 6296915
<DEPRECIATION> 3946167
<TOTAL-ASSETS> 14807379
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<BONDS> 0
<COMMON> 2712640
0
0
<OTHER-SE> 10253598
<TOTAL-LIABILITY-AND-EQUITY> 15014438
<SALES> 6830572
<TOTAL-REVENUES> 7066394
<CGS> 4666405
<TOTAL-COSTS> 4666405
<OTHER-EXPENSES> 573706
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<INCOME-TAX> 37126
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</TABLE>
