UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.51 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] 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 or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of May 31, 1996, the number of shares outstanding of the registrant's
common stock, $.51 par value was 5,318,902, and based on the closing sale
price on such date, the aggregate market value of the voting stock held by
nonaffiliates of the registrant was $26,075,243.
Part III of this Form 10K is incorporated by reference from the registrant's
Proxy Statement for the Annual Meeting of Shareholders to be held on August
22, 1996.
TABLE OF CONTENTS
PART I Page
Item 1. Business .................................................... 3
Item 2. Properties .................................................. 13
Item 3. Legal Proceedings ........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders ..........13
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters ................................. 14
Item 6. Selected Financial Data ..................................... 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 16
Item 8. Financial Statements and Supplementary Data ................. 20
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ...................... 20
PART III
Item 10. Directors and Executive Officers of the Registrant .......... 20
Item 11. Executive Compensation ...................................... 20
Item 12. Security Ownership of Certain Beneficial
Owners and Management ....................................... 20
Item 13. Certain Relationships and Related Transactions .............. 20
PART IV
Item 14. Exhibits, Financial Statements Schedules,
and Reports on Form 8-K ..................................... 21
SIGNATURES ........................................................... 23
Part I
ITEM 1. BUSINESS
General
The Company was incorporated in Florida in June 1981 with the intended
purpose of pursuing orders for products to be designed and manufactured for
sale to the military engine generator set controls market, a segment with
respect to which the Company's founders had acquired substantial experience.
The Company currently designs, develops, manufactures and markets electronic
control and measurement devices related to the distribution of electric power
and specializes in electrical safety products that protect against shock,
electrocution and fires. Such products include ground fault protective
devices, fire protective devices for fires caused by aging appliance and
extension cords, controls for electrical power generating systems,products
with energy management applications, transformers and magnetics. These
products are used in providing safe and efficient utilization and controlled
distribution of electricity and have residential, industrial and governmental
applications in the United States and throughout the world.
Until the year ended March 31, 1989, a majority of the Company's revenues
were derived from sales of military products. The Company believes that its
successful design of ground fault devices for both personnel and equipment
protection as well as meeting electrical safety requirements for personal
care products, have formed the basis for the Company's entry into
consumer/commercial, non-military markets.
Net sales contributed by commercial and military products are as follows:
Year Ended
March 31 Commercial % Military % Total
-------- ---------- ----- -------- ----- ----------
1996 14,541,301 87.7 $ 2,040,000 12.3 $ 16,581,301
1995 18,095,134 86.4 2,840,423 13.6 20,935,557
1994 14,022,113 71.2 5,681,341 28.8 19,703,454
1993 8,786,733 73.5 3,162,054 26.5 11,948,787
1992 5,730,643 74.4 1,970,063 25.6 7,700,706
Royalties from license agreements are as follows:
Year Ended
March 31 Royalties
-------- ---------
1996 $ 797,920
1995 837,399
1994 785,723
1993 925,800
1992 493,012
The backlog of unshipped orders at March 31, 1996 was approximately
$7,543,750. This backlog consists of approximately 35% commercial product
orders and approximately 65% military product orders. Of the current
backlog, approximately $3,843,750 or 51% of such backlog is expected to be
shipped within the year ended March 31, 1997, and approximately $3,700,000
or 49% of such backlog, primarily consisting of orders for the Tactical Quiet
Generator Systems contract, will be shipped in periods commencing thereafter.
-3-
Commercial Products and Markets
Ground fault protective devices protect equipment and people against power
line conductor to ground faults which can damage equipment and seriously or
fatally injure humans. Ground Fault Circuit Interrupters ("GFCI") and
Appliance Leakage Circuit Interrupters ("ALCI") provide protection from
dangerous electrical shock by sensing leakage of electricity and cutting off
power. Equipment Leakage Current Interrupters ("ELCI") detect current
leakage within machines such as copy machines, printers and computers.
GFCIs are currently available in three types: circuit breaker, receptacle
and portable. The Company specializes in the portable types of these
products.
A ground fault is essentially a small amount of electric current "leaking"
to the exposed metal parts of an appliance or tool. Faults occur because of
damage that causes internal wiring to touch these exposed metal parts or
because an appliance or tool gets wet. Upon such occurrence, the entire
device can become as electrically alive as the power line to which it is
attached. If a person is touching such a live device while grounded (by
being in contact with the ground or, for example, a metal cold water pipe,
gas pipe, drain or any attached metal device), he can be seriously or fatally
injured by electric shock. Fuses or circuit breakers do not provide adequate
protection against such shock, because the amount of current necessary to
injure or kill a normal adult is far below the level of current required for
the fuse to blow or the circuit breaker to trip. GFCIs constantly monitor
electric current. As long as the amount of current returning from the
appliance is equal to the amount that is directed to the device, the GFCI
performs no activities. Conversely, if there is less current coming back
than there is flowing into the device, some portion must be taking a path
through a foreign body, thereby creating a hazard. Upon recognizing that
condition, the GFCI terminates the flow instantaneously.
An ELCI is a device intended to provide leakage current protection in
appliances and utilization equipment whose function is to interrupt all
ungrounded conductors of the supply circuit to electrical equipment in the
event a current, in excess of the trip current, occurs between live parts
and the grounded enclosure or other grounded parts. The basic standard used
to investigate these products is the Standard for Ground Fault Circuit
Interrupters, UL 943, excluding requirements concerning trip current and
time. ELCIs are considered "equipment protection" devices. The Company
recently announced its portable "Electra Shield" product that provides ELCI
capability, three-mode surge suppression, power line filtering, and facsimile
modem surge protection. This unique product offers multimedia protection for
home and office personal computers, fax modems, TV and entertainment systems.
An ALCI is a device intended to be used in conjunction with an electrical
appliance whose function is to interrupt both conductors of the electric
circuit to a load when a fault current to ground exceeds 4 - 6 mA and is
less than that required to operate the overcurrent protection device of the
circuit. The ALCI is intended to be used only in a circuit that has a
solidly grounded neutral conductor, and is not intended to be used in place
of a GFCI in applications where the GFCI is required. ALCIs are considered
"personnel protection" devices. This product is intended for infrequent and
short-time use, and used only while attended; for example, with electric
knives, can openers, hair dryers, and the like, which are connected to a
power supply circuit by means of a flexible cord terminating in an
attachment plug.
-4-
The National Electrical Code (the "Code") now requires GFCIs for the
protection of receptacle outlets outdoors, as well as in bathrooms, garages
and other risk areas, and in new residences, hotels and public buildings.
The Code is followed by most local government building codes. There is
increasing effort by certain groups such as the National Electric
Manufacturers Association and Consumer Products Safety Commission to require
GFCI protection in other locations and applications. The Company presently
focuses its marketing efforts in certain spot markets which have developed
in response to Code imposed requirements on contractors. For example,
commencing in January 1989, high pressure sprayer manufacturers that desire
Underwriter Laboratories ("UL") approval are required to include a GFCI
and/or double-insulation protection on each electrically driven sprayer. The
Company is a supplier to that original equipment manufacturer ("OEM") market.
Another market that has developed in response to a Code requirement consists
of contractors that use temporary power at a construction site. Although
OSHA has required such contractors for several years to utilize GFCIs at
their construction sites, compliance with this requirement has been sporadic
due to the high costs normally associated with GFCIs. In October 1988, the
Company introduced an industrial quality GFCI extension cord at a safety show
and has introduced a wide variety of new products over the ensuing years. A
new line of high current GFCIs were introduced as the Company continues to
pursue meeting requirements for electrical safety across a broad market.
A Code requirement that became effective on January 1, 1991, requires that
a protective device be incorporated into hair dryers, curling irons and
crimpers to protect users from possible electrocution. In response to this
Code change, the Company has developed a smaller GFCI plug that incorporates
its patented GFCI/ALCI technology. Additionally, the Company has developed
an Immersion Detection Circuit Interrupter ("IDCI") that can also be used
to protect users of these products.
The Company currently manufactures and markets various portable GFCI and
ELCI products, such as plug-in portable adapters, several extension cord
models in various lengths, various modules for OEM customers, and
variations of such products for voltage differences in both the United
States and foreign markets. The Company has been issued four domestic and
sixteen foreign patents on its portable GFCI which incorporate design
features not available on any similar product known to the Company. The
Company has entered into eight license agreements concerning the portable
GFCI, ALCI and ELCI. These agreements are with entities located in England,
France, Germany, Australia, Italy, Japan, and the United States and are for
the purpose of market penetration in those areas where it would be difficult
for the Company to compete on a direct basis.
Effective as of August 2, 1988, the Company entered into a license agreement
with Windmere Corporation (the "Windmere Agreement"), a large Miami, Florida
based manufacturer and distributor of a wide variety, among other items, of
portable personal care and household products utilizing electric current
(e.g. haircurlers, irons, food mixers and numerous other items), most of
which are sold both domestically and internationally. Under the Agreement,
Windmere is granted an exclusive license (subject to the rights of certain
other preexisting licensees) to sell and distribute certain GFCI/ALCI or
IDCI based electrical safety products in the United States, and to
manufacture GFCI/ALCI and IDCI units (a) in the Far East (a defined term
within the Agreement referencing most Asiatic countries) for incorporation
into finished electrical safety products to be sold throughout the world
directly or by way of Far East OEMs; or (b) in the United States for sale or
-5-
distribution, at retail, in conjunction with personal care items and
household appliances. The Company also agreed to purchase its requirements
of Far East manufactured GFCI and IDCI units from Windmere and its affiliates
as long as the Company can obtain the same in a reasonable period and at a
competitive cost. Windmere began production and marketing of these products
in late 1990. The Company also developed a manufacturing source through
Windmere which lowered the existing cost structure for its GFCI product line.
The Company receives a substantial portion of its royalty income from
Windmere.
Government and industry research into the major causes of fire has led to a
search for new, cost-effective methods to prevent electrical fires. In
response to this need, the Company developed and patented "Fire Shield", a
product designed to prevent fires caused by damaged or aging appliance and
extension cords, which have been identified as a leading cause of electrical
fires. According to United States Consumer Product Safety Commission (CPSC),
these types of fires caused 149,900 residential structural fires involving
electrical equipment which resulted in 770 civilian deaths, more than 6,000
injuries and $1.2 billion in property losses. The CPSC estimates were based
on 1990 fire service reports.
The Company currently manufactures and markets to an emerging market for
personnel protection devices for electric vehicle charging circuits. The new
Article 625 of the 1996 Edition of the National Electrical Code requires
electric vehicle charging systems to include a system that will protect
people against serious electric shock in the event of a ground fault. The
Company has pilot-production product at the majority of the major automobile
manufacturers and is active with various standards and safety bodies,
relating to the electric vehicle, on a worldwide basis.
The Company designs and manufactures various transformers and magnetics. In
1985, the Company purchased the exclusive right to manufacture and sell the
Weston transformer product line. This transformer is used for calibration
of delicate instruments. These products do not provide significant revenues.
Military Products and Markets
The Company is currently a supplier of control equipment used in engine
generator sets purchased by the United States military and its prime
contractors. The term "control equipment" refers to the electrical controls
used to control the electrical power output of the generating systems
including the transducers for the indicating instruments. In general, the
controls monitor and regulate the operation of generator mobile electric
generating system sets. Electric generating systems are basic to all
branches of the military, and demand has generally remained relatively
constant, unlike products utilized in armaments and missiles. Sales are
made either directly to the government for support parts or to prime
contractors for new electric generator sets which incorporate the Company's
products. The Company is a qualified supplier for 37 control equipment
items as required by the Department of Defense and is a supplier of the
following types of control equipment, among others: protective relays and
relay assemblies, instrumentation transducer controls, fault locating panel
indicators, current transformer assemblies for current sensing control and
instrumentation, motor operated circuit breaker assemblies and electrical
load board and voltage change board assemblies. These products are primarily
furnished for spare parts support for existent systems in the military
inventory.
-6-
In late 1989, the Company completed the redesign of 22 of its control items
and provided prototype units to a prime contractor for testing, which was
completed in the third fiscal quarter for the year ended March 31, 1992.
Subsequently, the Company reported receiving a production contract in the
approximate amount of $7,500,000 covering the time period August 1992 to
October 1994 to provide these control devices for the new design Tactical
Quiet Generator System from the U. S. Government's prime contractor. All
deliveries have been completed under this contract, and an additional
$4,300,000 contract for the Company's control devices was awarded to the
Company by a prime contractor in March 1995. Recently, $600,000 has been
added to the Contract bringing the total of the Contract to $4,900.000.
Deliveries are expected to begin in the second half of calendar year 1996
with completion within two years of initial production shipments.
The Company has also designed and qualified various types of electrical power
monitors for military Naval Shipboard requirements. The monitors are used on
all types of class Naval surface vessels, such as minesweepers, destroyers
guided missile cruisers and the aircraft carriers in addition to other types
of Naval vessels. The monitors are furnished for both existent vessels
requiring spare support parts for retrofit upgrades and for new vessel
production.
From 1993 through 1996, the Company designed and qualified electrical control
devices for control and monitoring of the A.C. power self contained diesel
generating system, which is part of the new configuration C2v armored
electronic command post system that is mounted on the Bradley tracked chassis
of the Bradley Fighting Vehicle and the newly developed armored ambulance,
which will utilize the same components for the electrical power system.
The control devices are the A.C. power monitor assemblies (which provide
system protection and status display on the on-board computer), generator
voltage regulator, power transformer, A.C. overcurrent and short circuit
protection monitor assembly for vehicle A.C. power distribution circuits and
the current sensing transformers. All devices have met the high shock and
vibration and endurance testing requirements during both highly accelerated
stress screening tests and vehicle road testing at Aberdeen Proving Grounds.
A production release Contract is expected for the components in the near
future.
The Company has also completed the development and initial production
contracts for the D.C. voltage regulator used on armored tracked recovery
vehicles and intends to pursue additional production contracts for this
military qualified product.
The Company's contracts with the U.S. Government are on a fixed-price bid
basis and are not subject to price renegotiation. As with all fixed-price
contracts, should manufacturing costs exceed the selling price, the contract
could result in a loss. All government contracts contain a provision that
allows for cancellation by the government "for convenience." However, the
government must pay for costs incurred and a percentage of profits expected
if a contract is so canceled. On occasion, contract disputes arise which
could result in a suspension of the contract or a reduction in the amounts
claimed.
-7-
Testing and Qualification
A number of the Company's commercial products must be tested and approved by
UL. UL publishes certain "Standards of Safety" which various types of
products must meet and performs specific tests to ascertain whether a product
meets the prescribed standards. If a product passes the tests, it receives
UL approval. Once the Company's products have been initially tested and
qualified by UL, they are subject to regular field checks and quarterly
reviews and evaluations. UL may withdraw its approval for such products if
they fail to pass these tests and if prompt corrective action is not taken.
The Company's portable electrical safety products have received UL approval.
In addition, certain of the Company's portable GFCI, ALCI and ELCI products
have successfully undergone similar testing procedures conducted by
comparable governmental testing facilities in Europe, Canada and Japan.
The Company's military products are subject to testing and qualification
standards imposed by the United States government. The Company has
established a quality control system which has been qualified by the United
States Department of Defense to operate under the requirements of a
particular specification (MIL-I-45208). To the extent the Company designs
a product which it believes to meet those specifications, it submits the
products to a government testing laboratory, such as that located at Ft.
Belvoir, Virginia. If approved, the product is rarely subject to
requalification; however, the military may disqualify a product if it is
subject to frequent or excessive operational failures. Further, the current
specifications and requirements could be changed at any time, which would
require the Company to redesign its existing products or develop new
products which would have to be submitted for testing and qualification
prior to their approval for purchase by the military or its prime
contractors. Certain contracts require testing and acceptance by government
inspectors prior to shipment of the product.
The Company is presently enhancing its quality processes with the objective
to meet the ISO 9000 Series International Quality Standards.
Design and Manufacturing
The Company currently designs almost all of the products which it produces
and generally will not undertake special design work for customers unless it
receives a contract to produce the resulting products. The Company has
worked with foreign GFCI licensees to design a product for foreign markets.
A significant number of the Company's military and commercial electronic
products are specialized in that they combine both electronic and magnetic
features in design and production.
The business of an electronic manufacturer, such as the Company, primarily
involves assembly of component parts. The only products which the Company
manufactures from raw materials are its transformers and magnetic products.
The manufacture of such products primarily involves the winding of wire
around magnetic steel cores. The remainder of the products which the
Company manufactures are assembled from component parts produced by other
manufacturers.
The Company purchases some of its circuit board assemblies and certain
completed products under the Windmere Agreement from the Far East. As
previously described with regard to the Windmere Agreement, the Company has
increased its use of this type of operation for its expanding commercial
-8-
product requirements. The Company has now located other sources of contract
manufacturing in the Far East and in Central America which it will use in a
limited capacity in the coming year. The Company believes that these
offshore type operations reduce production costs, improve profits and
increase volume through more competitive pricing. The balance of the
Company's products are currently manufactured in its 43,000 square foot
facility in Clearwater, Florida.
Patents, Licenses, and Trademarks
The Company's President, Mr. Legatti, has designed for the Company and has
been issued four U.S. patents and two British, Canadian, Italian and
Australian patents with respect to its portable GFCIs that have features not
presently available on any similar product known to the Company. Also,
patents on the same device have been issued from France, Japan, Germany and
three other countries. The patents will be valid for 17 years in the United
States running from January 1986. Duration of patents in the other countries
vary from 15 to 20 years.
The Company licenses its technology for use by others in exchange for a
royalty or product purchases. Licensees are located in Australia, France,
Germany, Italy, Japan, the United Kingdom and the United States. Each
licensee agrees to pay the Company a royalty or purchase product based on
schedules set forth in the applicable agreement. The Company agrees to
provide certain technical support and assistance to its licensees. The
licensees have agreed to indemnify and hold the Company harmless against
any liability associated with the manufacture and sale of products subject
to the license agreement, including but not limited to defects in materials
or workmanship.
In 1988, the Company received a patent for a circuit utilized in the
measurement of AC electric power. This circuit will be used in products such
as watt transducers.
In 1990, the Company received a patent that allows its GFCI to sense arcing
faults in power cables. Arcing faults are known to be a major contributor
to electrical fires.
In 1996, the Company obtained an exclusive license to manufacture, market
and sell all products inherent to U.S. patents No. 4,911,654 and 5,299,951.
These patents add to the Company's existing product lines a device for
preventing disconnection of or damage to electrical connectors.
The Company has no other patents on or licensee agreements with respect to
its products or technology, but has registered its TRC trademark with the U.S.
Office of Patents and Trademarks.
Marketing
The Company's products are sold throughout the World, primarily through an
expanded in-house sales force. The Company believes that it will continue to
market existing and new products through this medium. The Company relies
significantly upon the marketing skills and experience, as well as the
business experience, of the management of the Company in marketing its
products.
-9-
The Company complements its marketing activity through the use of
additional distributors and sales representative organizations. The Company
has also expanded its marketing activity through OEMs that sell the
Company's GFCI products under their own brand label. Additionally, the
Company has exhibited its GFCI products at numerous trade shows which have
resulted in new commercial markets, including the recreational vehicle
industry and stone and tile cutters. Although the Company's primary
marketing efforts have focused upon OEMs, an internal distribution division
has been established to handle small quantity sales. Any sales leads
generated through trade shows and Company promotional mailers are handled
through this outlet.
The Company offers purchasers of its products no specific product liability
protection. The Company does extend protection to purchasers in the event
there is a claimed patent infringement that pertains to the Company's
portion of the final product. The Company also carries product and general
liability insurance for protection in such cases.
The Company's products are marketed throughout the world with the Company
also selling component pieces as well as finished products to its foreign
licensees, which incorporate such parts, pieces and finished products in
their final products sold in England, France, Germany, Australia and Italy.
The Company's GFCI products have world-wide application and the Company
believes that its direct and indirect foreign sales will increase. In Fiscal
Year 1996, export sales comprised 43% of total sales.
In Fiscal Year 1997, the Company will be implementing a direct sales activity
through the use of independent distributors that specialize in selling
productsdirectly to the household consumer. This approach is being
implemented by companies today as an economical way to reach the end user.
Management believes that consumer sales represent a major growth opportunity
for the Company.
Major Customers
Individual customers and aggregate exports which accounted for 10% or more of
sales were:
Year ended March 31
-------------------
Customer 1996 1995 1994
-------- ---- ---- ----
Fleck Manufacturing
(a Xerox Corporation supplier) $ 2,358,887 $ 3,090,322 $ 2,981,063
========= ========= =========
Exports:
Canada $ 2,367,890 $ 3,168,677 $ 3,084,235
Far East 1,967,494 725,368 343,854
Europe 1,750,257 5,748,882 3,789,053
Mexico 569,845 549,980 465,798
Australia 438,875 536,176 398,456
--------- --------- ---------
Total exports (including
Fleck Manufacturing, $ 7,094,361 10,729,083 8,081,396
Inc. ========= ========== =========
Libby Corporation - - 3,432,952
========= ========== =========
-10-
For the Company's current fiscal year, sales to Xerox Corporation and its
suppliers (e.g., Fleck Manufacturing), of the Company's Equipment Leakage
Current Interrupter ("ELCI") were down from the previous fiscal year due
primarily to a reduction in selling price to Xerox and a licensee, "TEMIC",
beginning production of product (formerly produced by the Company) for the
European market requirements. However, in the second half of Fiscal Year
1997, the Company expects again to be the supplier of Xerox's European product
requirements, which will increase sales to Xerox and decrease royalty income
from Temic. Xerox and its suppliers accounted for approximately 30% of the
Company's revenue for the current year, and because Xerox and its suppliers
account for such a large percentage of the Company's revenues, the loss of
Xerox as a substantial customer would have a material adverse effect on the
Company's business.
The Company's military product sales are primarily to OEM prime contractors
and secondarily to military procurement depots for spare parts. Of the total
military product sales for the 1996 fiscal year, approximately 52% were to
OEM contractors and 48% to military depots. In Fiscal Year 1996, military
sales were approximately 12% of total sales, compared to 14% in the prior
year.
Due to the completion of the TQ contract with Libby Corporation, the
revenues from Libby were less than 10% of the Company's revenues for Fiscal
1995 and 1996.
The Company has no relationship with any of its customers except as a
supplier of product.
Competition
The commercial and military business of the Company is highly competitive.
In the commercial market, the Company has significant competition, except
with respect to the "Fire Shield" products. The Company believes, however,
that product knowledge, patented technology, ability to respond quickly to
customer requirements, positive customer relations, price, technical
background and industry experience are major competitive factors, and that it
competes favorably with respect to these factors. In addition, the Company's
patented GFCI technology utilizes, in certain adaptations, waterproofing, a
retractable ground pin and "trip mechanism" techniques, each of which
provides the Company, in the judgment of its management, with a current
competitive advantage.
In the military market, the Company's products must initially pass
government specified tests. The Company must compete with other companies,
some being larger and some smaller than the Company, acting as suppliers of
similar products to prime government contractors. The Company believes that
knowledge of the procurement process, price, delivery and technical
support are major competitive factors in the military market. The Company
believes that it has strength in all of these areas due to the involvement
of senior management personnel of the Company in the government procurement
process for up to 36 years in connection with products similar to those
currently marketed by the Company. A substantial portion of spare part
procurement is set aside for small business concerns, which are defined in
general as entities with fewer than 1,000 employees. Because the Company
is classified as a small business concern, it qualifies for such set aside
-11-
procurements for which larger competitors are not qualified. The entry
barriers to the military market are great because of the need, in most
cases, for products to pass government tests and qualifications.
Research, Development and Engineering
The Company employs 17 persons in the Engineering Department, all of whom
are engaged either full or part-time in research and development activities.
This department is engaged in designing and developing new military and
commercial products and improving presently existing products to meet the
needs of the Company's customers.
In connection with its efforts in developing the GFCI product, the Company
believes that the increasing use of portable GFCI protection will provide
new markets for its expansion into the commercial marketplace, and
accordingly, the Company has modified its GFCI designs to fit these markets
and new applications. The Company has also developed a "user connected"
GFCI plug which has received considerable interest from manufacturers that
require GFCI protection for their products. The Company believes that its
"user connected" GFCI plug can be sold in large quantities to the average
homeowner as the awareness of electrical danger and availability of
protection becomes generally understood. There can be no assurance,
however, that the Company can maintain its sales levels in the commercial
market in view of the possibility that an increased level of competition may
develop.
The Company spent $975,568 in Fiscal Year 1996, $1,013,825 in Fiscal Year
1995 and $1,062,314 in Fiscal Year 1994 on research, development and
engineering activities. None of these activities were sponsored or financed
by customers, and all are expensed as incurred. The Company anticipates
spending levels to remain constant in the new fiscal year.
Employees
As of March 31, 1996, the Company employed 135 persons on a full time basis.
Of that total, 94 employees, both permanent and temporary, were engaged in
manufacturing operations, 17 in engineering, 14 in marketing and 10 in
management and administration. The Company has reduced its manufacturing
employment significantly in the past year due to the moving of additional
high-volume products off-shore. None of the Company's employees are
represented by a collective bargaining unit. The Company considers its
relations with employees to be stable.
-12-
ITEM 2. PROPERTIES
The Company's executive offices and manufacturing facilities are located on
4.7 acres of leased land in the St. Petersburg-Clearwater Airport Industrial
Park. The lease, with options, extends for 40 years from 1981. The current
annual rental of the land on which the building is located is approximately
$24,612, subject to certain escalation provisions every five years. This
leased land is adequate to enable the Company to expand its offices and
manufacturing facilities to 60,000 square feet. The present facility
provides a total of 43,000 square feet, including 10,000 square feet of
offices and engineering areas, as well as 23,000 square feet of production
areas and 10,000 square feet of warehouse space.
In January 1993, the Company obtained a loan of $600,000, securing the same
by a first mortgage on its facility. The mortgage note is for a term of 8
years and bears interest at the lending institution's prime rate.
ITEM 3. 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 suit seeks unspecified
compensatory and exemplary damages in excess of $100,000. The Company has
both product liability and umbrella liability insurance. The case is in the
discovery stage. Management believes the ultimate disposition of this
matter will not have a material adverse effect on the Company's financial
position, results of operations or liquidity. A trial date has been
scheduled for September 30, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 1996.
-13-
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
The Company's shares of Common Stock are registered under 12(g) of the
Securities Exchange Act of 1934 and are traded in the over-the-counter market
utilizing the NASDAQ trading system, to which the Company gained admittance in
December 1984, under the symbol "TRCI". In November 1995, NASDAQ approved the
Company's application for listing on the National Market. The following
tables set forth a range of high and low market prices for the Company's
Common Stock for the fiscal year ended March 31, 1996 and a range of high and
low bid and ask quotations for the fiscal years ended March 31, 1995 and 1994,
as reported by the NASDAQ system.
Market Price Cash
Fiscal Year Ended High Low Dividends
---- ---- ---------
March 31, 1996 (post-reverse split)
First Quarter ................. 5 1/4 3 $ .06
Second Quarter ................. 6 3/16 4 5/16 .06
Third Quarter ................. 5 1/2 3 3/4 .06
Fourth Quarter ................. 5 11/16 3 7/8 .06
-----
$ .24
Bid Price Ask Price
High Low High Low
March 31, 1995 ---- ---- ---- ----
First Quarter ................. 6 3/8 4 1/8 6 21/32 4 13/32
Second Quarter ................. 6 4 19/32 6 3/8 4 23/32
Third Quarter ................. 4 7/8 3 15/32 5 1/4 3 3/4
Fourth Quarter ................. 4 5/16 3 9/32 4 1/2 3 15/32
March 31, 1994
First Quarter ................. 6 3/16 3 15/16 6 3/8 4 1/8
Second Quarter ................. 6 9/16 5 7/16 6 21/32 5 5/8
Third Quarter ................. 6 3/4 4 31/32 6 15/16 5 1/4
Fourth Quarter ................. 8 5/8 5 13/16 8 13/16 6
As of May 31, 1996, the approximate number of the Company's shareholders was
800. This number does not include any adjustment for shareholders owning
common stock in the Depository Trust name or otherwise in "Street" name,
which the Company believes represents an additional 3,000 shareholders.
On August 23, 1995, at the Company's Annual Meeting, the shareholders
approved a one share for three share reverse stock split, by a majority vote
of 82.24%. The record date for the reverse stock split was September 15,
1995, and the Company's financial information now reflects the reverse split.
The Company's authorized capital stock, as of May 31, 1996, consisted of
10,000,000 shares of authorized common stock, par value $.51, of which
5,318,902 shares were issued and outstanding.
-14-
The Company's fourth quarter dividend of $.06 per share was paid on April 15,
1996 to shareholders of record on March 31, 1996. The Company has paid
dividends of $.24 per share during its Fiscal Year 1996. No dividends were
paid in prior fiscal years.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year ended March 31:
Operating revenues $ 17,379,221 21,772,956 20,489,177 12,874,587 8,193,718
Net income $ 2,038,785 1,867,957 2,296,778 1,655,023 183,710
Net income
per common share $ .38 .35 .45 .41 .05
Cash dividends paid $ .24 - - - -
Weighted average number
of common and equivalent
shares outstanding 5,404,885 5,339,953 5,083,007 4,066,724 3,876,124
March 31:
Working capital $ 10,931,740 10,089,672 9,102,131 4,616,296 1,898,132
Total assets $ 15,380,590 14,813,938 13,443,899 8,709,221 5,387,522
Current liabilities $ 1,867,678 2,119,000 2,216,719 2,594,303 2,253,522
Long-term debt $ 281,350 356,350 831,350 1,421,829 261,963
Total liabilities $ 2,149,028 2,475,350 3,123,069 4,076,132 2,515,485
Retained earnings
(accumulated deficit) $ 3,108,371 2,340,267 470,310 (1,824,468) (3,479,491)
Total stockholders'
equity $ 13,231,562 12,338,588 10,320,830 4,633,089 2,872,037
</TABLE>
-15-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Operating Results:
Fiscal Years 1996 and 1995 Comparison
Operating revenues (net sales and royalties) for the Company's fiscal year
ended March 31, 1996 ("Fiscal Year 1996") were $17,379,221, a 20% decrease
from the $21,772,956 reported with respect to the Company's fiscal year ended
March 31, 1995 ("Fiscal Year 1995").
Net sales for the Company's Fiscal Year 1996 were $16,581,301, a 21%
decrease from the $20,935,557 reported with respect to the Company's Fiscal
Year 1995. Income before income taxes for the current year was $3,204,599,
compared to $2,412,957 for Fiscal Year 1995, an increase of approximately
33%. The Company's net income for Fiscal Year 1996 was $2,038,785, or $.38
per share, compared to $1,867,957, or $.35 per share, for Fiscal Year 1995,
an increase of approximately 9%. Common shares and common share equivalents
outstanding were comparable from year to year.
Net sales of the Company's family of ground fault circuit interrupters for
personnel and equipment protection products were approximately 88% of net
sales for Fiscal Year 1996, compared to 86% in Fiscal Year 1995. U.S. sales
and multinational accounts for the current year decreased by $3,553,833 over
the previous year. Military sales decreased by $800,424 from the previous
year due primarily to the completion of the initial contract for the TQ
Generator Set Program and subsequent delay in the awarding of the follow-on
contract. The contract now has been awarded and TRC, as previously reported,
has received a contract for approximately $4.9 million from the prime
contractor with shipments to begin in the July/August 1996 time frame
assuming the successful completion of First Article testing by the prime
contractor.
As expected, sales to Xerox and its suppliers were somewhat lower for the
current year primarily due to Temic (Telefunken Microelectronics) GmbH, a TRC
licensee, increasing its production for Xerox's European requirements.
However, the Company expects sales to Xerox to slightly increase over the
coming year, in spite of lower prices, due to TRC again supplying product for
Xerox's European requirements rather than Temic. In addition, TRC will be
supplying Xerox with new products, and TRC, rather than Fleck Manufacturing
Inc., will be attaching cord to Xerox's units in Fiscal Year 1997. Xerox and
its suppliers accounted for approximately 30% of the Company's revenue for
the current year, and because Xerox and its suppliers account for a large
percentage of the Company's sales, the loss of Xerox as a substantial
customer would have a material adverse effect on the Company's business.
Revenues from the high pressure sprayer/washer market were negatively
impacted in Fiscal Year 1996 by a provision in the National Electric Code
permitting the use of double-insulation for certain sprayer/washer products
to be sold without a GFCI provided they are used with a GFCI. This provision
has been eliminated in the National Electric Code, effective January 1996;
however, the Company has no certainty that it will recover its previous
revenue level in that market. Nevertheless, the Company will have the
opportunity to recover revenues in this market as UL enforces the change in
the National Electric Code on the manufacturers. UL has not commented on how
long this process will take.
-16-
Although revenues were down $4,393,735 for the fiscal year, the Company's
pre-tax income of $3,204,599 was a record for the Company, which is
attributed to the Company's continued efforts to control costs and improve
profit margins.
Royalty income for Fiscal Year 1996 was $797,920, compared to $837,399 in
the prior year, a decrease of $39,479, or approximately 5%. Royalties will
continue to decline in Fiscal Year 1997 as Windmere Corporation, in an effort
to reduce their product cost because of competitive pressures, has
renegotiated a lower royalty agreement with the Company. Royalties from
Temic will also decline in Fiscal Year 1997 as a result of Xerox transferring
their European product requirements back to TRC during Fiscal Year 1997 as
mentioned above.
Although the Company is tooled for its major products in both the U.S. and in
the Far East, any major disruption to the subcontractor's facility in the
Far East would temporarily have a material adverse effect on the Company's
business. The Company has located other sources of contract manufacturing in
the Far East and in Central America which it will use in a limited capacity
in the coming year.
Cost of sales was approximately 64% of net sales for Fiscal Year 1996,
compared to approximately 75% incurred with respect to Fiscal Year 1995.
The improvement in cost of sales was primarily due to better gross margins
resulting from the additional products now being manufactured in the Far East
and the cost control measures implemented at TRC's Clearwater facility.
Selling, general and administrative expenses for Fiscal Year 1996 were
$2,734,096, compared to $2,782,058 for the prior year. Selling expenses
were $1,747,194 in the Fiscal Year 1996, compared to $1,749,459 in Fiscal
Year 1995, reflecting comparable costs year to year. General and
administrative expenses were $986,902, compared to $1,032,599 in the
respective periods, reflecting a decrease in professional fees and operating
costs year to year.
Research, development and engineering expenses for Fiscal Year 1996 were
$975,567, compared to $1,013,825 for the prior year, reflecting a decrease
primarily in salary expenses.
The Company anticipates spending levels for general and administrative and
research and development to remain approximately the same in the coming year,
and the Company expects selling expenses to increase as the Company pursues
reaching the consumer market with its products, marketing the Fire Shield
products and developing the Electric Vehicle market in Fiscal Year 1997.
Interest and sundry income, net of interest expense, for Fiscal Year 1996
was $220,656, compared to $125,336 for the prior year, reflecting the
Company's increased short term investments and reduced borrowings.
Income tax expense as a percentage of net income before income tax was
approximately 36% for Fiscal Year 1996, compared to 23% in the prior year.
The actual tax rate for Fiscal Year 1995 was less than the expected tax rate
primarily due to the reduction of the valuation allowance for deferred tax
assets from $592,000 in Fiscal Year 1994 to $187,000 in Fiscal Year 1995.
The reduction in the valuation allowance was attributable to management's
increased estimates of future taxable income.
-17-
Fiscal Years 1995 and 1994 Comparison
Operating revenues (net sales and royalties) for the Company's fiscal year
ended March 31, 1995 ("Fiscal Year 1995") were $21,772,956, a 6% increase
from the $20,489,177 reported with respect to the Company's fiscal year ended
March 31, 1994 ("Fiscal Year 1994").
Net sales for the Company's Fiscal Year 1995 were $20,935,557, a 6% increase
from the $19,703,454 reported with respect to the Company's Fiscal Year 1994.
Income before income taxes for Fiscal Year 1995 was $2,412,957, compared to
$3,142,278, a decrease of approximately 23% over Fiscal Year 1994. The
Company's net income for Fiscal Year 1995 was $1,867,957, or $.35 per share,
compared to $2,296,778, or $.45 per share, for the Fiscal Year 1994, a
decrease of approximately 19% over the comparative year. Common shares and
common share equivalents outstanding increased approximately 5% during Fiscal
Year 1995.
Net sales of the Company's family of ground fault circuit interrupters for
personnel and equipment protection products were approximately 86% of net
sales for Fiscal Year 1995, compared to 71% in Fiscal Year 1994. U.S.
sales and multinational accounts for the current year increased by
$4,073,021 over the previous year. Military sales decreased by $2,840,918
from the previous year due primarily to the completion of the initial
contract for the TQ Generator Set Program and subsequent delay in the
awarding of the follow-on contract. As expected, sales to Xerox and its
suppliers were somewhat lower for Fiscal Year 1995 primarily due to Temic, a
TRC licensee, increasing its production for Xerox's European requirements.
Under the agreement with this licensee, TRC receives a royalty for each
unit shipped. Xerox and its suppliers accounted for approximately 27% of
the Company's revenue for Fiscal Year 1995.
Royalty income for Fiscal Year 1995 was $837,399, compared to $785,723 in
the prior year, an increase of $51,676, or approximately 7%. The increase
can be attributed to the royalties now being received from Temic and higher
royalties being received from Windmere Corporation in the current year.
The Company continued the implementation of a business strategy involving
manufacturing its high volume products off-shore while continuing to
manufacture military products and lower volume commercial products at the
Clearwater facility. TRC successfully transferred the manufacture of several
of these products off-shore. As a result of this transition and the delays
in the award of the follow-on Tactical Quiet Generator Systems Programs
contract, TRC down-sized its Clearwater operation by 82 persons in the third
quarter and 34 persons in the fourth quarter with the Company expensing
$75,000 and $50,000, respectively, in severance cost related to these events.
Cost of sales was approximately 75% of net sales for the Fiscal Year 1995,
compared to approximately 72% incurred with respect to Fiscal Year 1994.
Higher cost of sales can be attributed to additional labor and freight
costs associated with the transfer of products from Clearwater to the Far
East in the current year.
Selling, general and administrative expenses for the Fiscal Year 1995 were
$2,782,058, compared to $2,186,969 for the prior year. Selling expenses
were $1,749,459 in the Fiscal Year 1995, compared to $1,182,430 in Fiscal
Year 1994, reflecting higher salary, advertising and commission expenses.
General and administrative expenses were $1,032,599, compared to $1,004,539
in the respective periods, reflecting comparable costs year to year.
-18-
Research, development and engineering expenses for the Fiscal Year 1995
were $1,013,825, compared to $1,062,314 for the prior year.
The Company anticipates spending levels for selling, general and
administrative and research and development to remain approximately the
same in the coming year.
Interest and sundry income, net of interest expense, for the Fiscal Year
1995 was $125,336, compared to interest expense, net of interest and sundry
income, of $12,258 for the prior year, reflecting the Company's increased
short term investments and reduced borrowings.
Income tax expense as a percentage of net income before income tax was 23%
for Fiscal Year 1995. The actual rate was less than the expected rate
primarily due to the reduction of the valuation allowance for deferred tax
assets from $592,000 in Fiscal Year 1994 to $187,000 in Fiscal Year 1995.
The reduction in the valuation allowance was attributable to management's
increased estimates of future taxable income.
Liquidity and Capital Resources
As of March 31, 1996, the Company's cash and cash equivalents decreased to
$341,601 from the March 31, 1995 total of $1,707,930, and short term
investments increased to $4,084,698 from the March 31, 1995 total of
$2,742,128. 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 Fiscal Year 1996, and the
mortgage payable to the Company's institutional lender as of March 31, 1996
was $356,350, compared to $431,350 in the prior year, reflecting the
Company's payments on principal during its fiscal year.
The Company's working capital increased by $842,068 to $10,931,740 at March
31, 1996, compared to $10,089,672 at March 31, 1995. The Company believes
cash flows from operations, the available bank line, and its short term
investments and current cash position will be sufficient to meet its working
capital requirements for the immediate future.
-19-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Response to this item is submitted in a separate section of this report
starting at Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
Part III of this Form 10-K is incorporated by reference from the registrant's
Proxy Statement for the Annual Meeting of Shareholders to be held on August
22, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. Financial Statements of Technology Research Corporation: Page
Independent Auditors' Report .............................. F-1
Balance Sheets--March 31, 1996 and 1995 ................... F-2
Statements of Income--Years Ended
March 31, 1996, 1995, and 1994 .......................... F-3
Statements of Stockholders' Equity--Years Ended
March 31, 1996, 1995, and 1994 .......................... F-4
Statements of Cash Flows--Years Ended
March 31, 1996, 1995, and 1994 .......................... F-5
Notes to Financial Statements ............................. F-6
2. The Following Financial Schedules for the years ended
March 31, 1996, 1995, and 1994 are submitted herewith:
Schedule II--Valuation and Qualifying Accounts ............ F-17
All other schedules are omitted because they are not
applicable or the required information is shown in
the financial statements or notes thereto.
3. Exhibits included herein: (See Next Page)
(B) Reports on Form 8K
No reports on Form 8K have been filed by the registrant during the last
quarter of the fiscal year.
-20-
INDEX TO EXHIBITS (Item 14(A)3)
Exhibit
(3) (a) Articles of Incorporation and By-Laws*
(b) Certificate of Amendment to the Articles of Incorporation,
dated September 24, 1990***
(c) Certificate of Amendment to the Articles of Incorporation,
dated September 24, 1996*****
(10) Material contracts:
(a) License Agreement, dated as of January 1, 1985, between the
Company and Societe BACO, a French corporation, granting BACO a
non-exclusive right to manufacture the Company's GFCI products
in France, and the non-exclusive right to sell GFCI products
other than in North America.*
(b) License Agreement between the Company and B & R Electrical
Products, Ltd., an English corporation ("B & R") dated
January 1, 1985, granting B & R a limited exclusive license to
manufacture GFCI products within the United Kingdom and a non-
exclusive license to market other such products other than in
North America.*
(c) License Agreement, dated as of January 8, 1987, between the
Company and HPM INDUSTRIES PTY LTD, an Australian corporation
("HPM"), granting to HPM an exclusive license to manufacture and
sell GFCI products in Australia, New Zealand, New Guinea, Papua
and Fiji.*
(d) License Agreement between the Company and Windmere Corporation,
dated August 2, 1988, granting to Windmere an exclusive (subject
to previously existing marketing rights held by others under
separate license agreements) license to sell and distribute the
Company's patented GFCI and Immersion Detector Circuit
Interrupter ("IDCI") products within the United States, and to
manufacture the GFCI and IDCI products in certain Asiatic
countries.*
(e) Incentive Stock Option Plan, dated October 15, 1981.*
(f) The 1993 Incentive Stock Option Plan, which was previously filed
with and as part of the Registrant's Registration Statement on
Form S-8 (No. 33-62397).
(g) Non-Qualified Stock Option Agreements, dated as of various dates,
between the Company and each of its current directors and
officers, as well as two independent consultants, an independent
entity which had provided the Company with certain technology
rights and certain former directors.*
(h) The 1993 Amended and Restated Non-Qualified Stock Option Plan,
which was previously filed with and as part of the Registrant's
Registration Statement on Form S-8 (No. 33-62379).
-21-
(i) $600,000 Loan Agreement, dated January 8, 1993, between the
Company and First Union National Bank of Florida.***
(j) License Agreement, dated November 23, 1992, between the Company
and TEMIC Telefunken Microelectronic GmbH, a German corporation,
granting Telefunken an exclusive right to manufacture the
Company's ELCI product line in Europe for sale to Xerox
Corporation, its European affiliates, or its authorized
suppliers.***
(k) $2,500,000 Revolving Credit Agreement, dated November 12, 1993,
between the Company and First Union National Bank of Florida.***
(l) $2,500,000 Revolving Credit Agreement renewal, dated August 22,
1995, between the Company and First Union National Bank of
Florida.*****
(23) Consents of Experts and Counsel:
(a) Consent of Independent Certified Public Accountants. *****
* Previously filed with and as part of the Registrant's Registration
Statement on Form S-1 (No. 33-24647).
** Previously filed with and as a part of the Registrant's Registration
Statement on Form S-1 (No. 33-31967).
*** Previously filed with and as part of the Registrant's Annual Report
on Form 10-K.
**** Previously filed with and as part of the Registrant's Post-Effective
Amendment No. 1 to Form S-1 (No. 33-31967)
***** Filed herewith.
-22-
Independent Auditors' Report
The Board of Directors and Stockholders
Technology Research Corporation:
We have audited the financial statements of Technology Research Corporation
as listed in the accompanying index. In connection with our audits of the
financial statements, we also have audited the financial statement schedules
as listed in the accompanying index. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes 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 financial statements referred to above present fairly, in
all material respects, the financial position of Technology Research
Corporation as of March 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the years in the three-year period ended
March 31, 1996 in conformity with generally accepted accounting principles.
Also in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
St. Petersburg, Florida
April 26, 1996
F-1
<TABLE>
TECHNOLOGY RESEARCH CORPORATION
Balance Sheets
March 31, 1996 and 1995
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 341,601 1,707,930
Short-term investments 4,084,698 2,742,128
Accounts receivable (notes 5 and 8):
Trade, less allowance for doubtful accounts
of $84,000 in 1996 and $107,000 in 1995 2,519,616 3,325,157
Other 87,536 10,569
Inventories (notes 2 and 5) 5,226,762 3,946,025
Prepaid expenses 94,205 36,863
Deferred income taxes (note 4) 445,000 440,000
---------- ----------
Total current assets 12,799,418 12,208,672
---------- ----------
Property, plant, and equipment (notes 3 and 5) 6,120,341 5,536,933
Less accumulated depreciation (3,698,692) (3,213,002)
---------- ----------
Net property, plant, and equipment 2,421,649 2,323,931
---------- ----------
Deferred income taxes (note 4) 159,000 228,000
Other assets 523 53,335
---------- ----------
159,523 281,335
---------- ----------
$ 15,380,590 14,813,938
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 5) $ 75,000 75,000
Trade accounts payable 1,236,591 1,728,332
Accrued expenses:
Compensation 164,070 101,041
Other 54,974 129,136
Dividends payable 336,052 -
Income taxes payable 991 85,491
---------- ----------
Total current liabilities 1,867,678 2,119,000
Long-term debt, excluding current installments (note 5) 281,350 356,350
---------- ----------
Total liabilities 2,149,028 2,475,350
---------- ----------
Stockholders' equity (note 6):
Common stock, $.51 par value. Authorized 10,000,000
shares; issued and outstanding 5,318,902 in 1996
and 5,246,278 in 1995 2,712,437 2,675,398
Additional paid-in capital 7,410,754 7,322,923
Retained earnings 3,108,371 2,340,267
---------- ----------
Total stockholders' equity 13,231,562 12,338,588
---------- ----------
Commitments and contingencies (notes 7, 9 and 10)
$ 15,380,590 14,813,938
========== ==========
<FN>
See accompanying notes to financial statements.
</FN>
F-2
</TABLE>
<PAGE>
<TABLE>
TECHNOLOGY RESEARCH CORPORATION
Statements of Income
Years ended March 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Operating revenues:
Net sales (note 8) $ 16,581,301 20,935,557 19,703,454
Royalties 797,920 837,399 785,723
---------- ---------- ----------
17,379,221 21,772,956 20,489,177
---------- ---------- ----------
Operating expenses:
Cost of sales 10,685,614 15,689,452 14,085,358
Selling, general, and administrative 2,734,096 2,782,058 2,186,969
Research, development, and engineering 975,568 1,013,825 1,062,314
---------- ---------- ----------
14,395,278 19,485,335 17,334,641
---------- ---------- ----------
Operating income 2,983,943 2,287,621 3,154,536
---------- ---------- ----------
Other income (deductions):
Interest and sundry income 262,623 176,041 61,036
Interest expense (41,967) (50,705) (73,294)
---------- ---------- ----------
220,656 125,336 (12,258)
---------- ---------- ----------
Income before income taxes 3,204,599 2,412,957 3,142,278
Income taxes (note 4) 1,165,814 545,000 845,500
---------- ---------- ----------
Net income $ 2,038,785 1,867,957 2,296,778
========== ========== ==========
Earnings per share $ .38 .35 .45
==== ==== ====
Weighted average number of common and
equivalent shares outstanding 5,404,885 5,339,953 5,083,007
========== ========== ==========
<FN>
See accompanying notes to financial statements.
</FN>
F-3
</TABLE>
<PAGE>
<TABLE>
TECHNOLOGY RESEARCH CORPORATION
Statements of Stockholders' Equity
Years ended March 31, 1996, 1995 and 1994
<CAPTION>
Retained
Additional earnings Total
Common stock paid-in (accumulated stockholders'
Shares Amount capital deficit) equity
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balances at March 31, 1993 3,940,914 $ 2,009,662 4,447,895 (1,824,468) 4,633,089
Exercise of stock options via
exchange of 23,035 common
shares and cash of $81,644
for 117,494 new common
shares 94,459 48,174 33,470 - 81,644
Exercise of Class A warrants 907,433 462,791 2,395,624 - 2,858,415
Exercise of underwriters'
warrants 76,133 38,828 181,167 - 219,995
Debenture conversion 112,650 57,452 280,498 - 337,950
Common stock issue costs - - (107,041) - (107,041)
Net income - - - 2,296,778 2,296,778
--------- --------- --------- --------- ----------
Balances at March 31, 1994 5,131,589 2,616,907 7,231,613 472,310 10,320,830
Exercise of stock options via
exchange of 6,874 common
shares and cash of $149,801
for 121,563 new common
shares 114,689 58,491 91,310 - 149,801
Net income - - - 1,867,957 1,867,957
--------- --------- --------- --------- ----------
Balances at March 31, 1995 5,246,278 2,675,398 7,322,923 2,340,267 12,338,588
Exercise of stock options via
exchange of 113 common
shares and cash of $124,870
for 72,737 new common
shares 72,624 37,039 87,831 - 124,870
Dividends - - - (1,270,681) (1,270,681)
Net income - - - 2,038,785 2,038,785
--------- --------- --------- --------- ----------
Balances at March 31, 1996 5,318,902 $ 2,712,437 7,410,754 3,108,371 13,231,562
========= ========= ========= ========= ==========
<FN>
See accompanying notes to financial statements.
</FN>
F-4
</TABLE>
<PAGE>
<TABLE>
TECHNOLOGY RESEARCH CORPORATION
Statements of Cash Flows
Years ended March 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,038,785 1,867,957 2,296,778
Adjustments to reconcile net income to net
cash provided by operating activities:
Accretion of interest (216,814) (134,839) -
Allowance for doubtful accounts (23,000) (21,000) -
Depreciation 493,201 472,245 393,271
Loss on sale of equipment 107 - 2,475
Decrease (increase) in accounts receivable 751,574 928,898 (812,664)
Increase in inventories (1,280,737) (251,079) (824,794)
Increase in prepaid expenses (57,342) (4,391) (25,894)
Decrease (increase) in deferred income taxes 64,000 (259,000) (344,000)
Decrease (increase) in other assets 52,812 (33,983) 23,555
Increase (decrease) in accounts payable (491,741) 229,424 (274,293)
Increase (decrease) in accrued expenses (11,133) (211,143) 98,168
Increase (decrease) in income taxes payable (84,500) (116,000) 136,491
--------- --------- ---------
Net cash provided by operating activities 1,235,212 2,467,089 669,093
--------- --------- ---------
Cash flows from investing activities:
Maturities of short-term investments 4,832,000 2,357,000 -
Purchases of short-term investments (5,957,756) (4,197,107) (767,182)
Capital expenditures for property, plant,
and equipment (599,028) (690,479) (1,045,728)
Proceeds from sale of equipment 8,002 - -
--------- --------- ---------
Net cash used by investing activities (1,716,782) (2,530,586) (1,812,910)
--------- --------- ---------
Cash flows from financing activities:
Net borrowings under line-of-credit agreement - (400,000) (509,229)
Principal payments on long-term debt (75,000) (75,000) (81,250)
Proceeds from exercise of stock options
and warrants 124,870 149,801 3,160,054
Common stock issuance cost - - (107,041)
Dividends paid (934,629) - -
--------- --------- ---------
Net cash provided (used) by
financing activities (884,759) (325,199) 2,462,534
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents (1,366,329) (388,696) 1,318,717
Cash and cash equivalents at beginning of year 1,707,930 2,096,626 777,909
--------- --------- ---------
Cash and cash equivalents at end of year $ 341,601 1,707,930 2,096,626
========= ========= =========
Supplemental cash flow information:
Cash paid for interest $ 41,967 50,705 96,803
========= ========= =========
Cash paid for income taxes $ 1,186,314 920,000 1,053,009
========= ========= =========
<FN>
<F1>
During the year ended March 31, 1994, convertible debentures in the amount of $337,950 were
converted into common stock.
<F2>
See accompanying notes to financial statements.
</FN>
F-5
</TABLE>
<PAGE>
TECHNOLOGY RESEARCH CORPORATION
Notes to Financial Statements
March 31, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
(a) Description of Business
Technology Research Corporation designs, develops, manufactures and markets
electronic control and measurement devices related to the distribution of
electric power. The Company's plant is located in Clearwater, Florida. The
Company also has a contract manufacturer, Durable, in China that is
headquartered in Hong Kong, which is a major supplier to the Company. The
Company primarily sells its products to governmental entities and original
equipment manufacturers involved in a variety of industries including
business machinery and personal care appliances. The Company performs credit
evaluations of all new customers and generally does not require collateral.
Historically, the Company has experienced minimal losses related to
receivables from individual customers or groups of customers in any
particular industry or geographic area. The Company's customers are located
in North America, Europe, Asia and Australia. See note 8 for further
information on major customers. The Company also licenses its technology for
use by others in exchange for a royalty or product purchases. Licensees are
located in Australia, France, Germany, Italy, Japan, the United Kingdom and
the United States.
(b) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results may differ from estimates.
(c) Financial Instruments
The Company believes the book value of its financial instruments (short-term
investments accounts receivable, trade accounts payable, accrued expenses,
dividends payable, income taxes payable and long-term debt) approximate their
fair value due to their short-term nature or with respect to long-term debt,
the interest rate appropriately reflects the credit risk.
(d) Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
short-term investments purchased with a maturity of three months or less to
be cash equivalents. There were no short-term investments considered cash
equivalents at March 31, 1996. Cash equivalents of $1,003,892 at March 31,
1995 consisted of overnight repurchase agreements and U.S. Treasury Bills.
F-6
(e) Short-Term Investments
The Company adopted Statement of Financial Accounting Standard No. 115,
Accounting for Certain Investments in Debt and Equity Securities effective
April 1, 1995. The Company considers all of its short-term investments to be
"held to maturity," and therefore, the effect of adoption of this statement
was not material.
(f) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
(g) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is
calculated on the straight-line method over the estimated useful lives of the
assets.
(h) Revenue Recognition
Sales and cost of sales related to governmental contracts are recognized
under the unit-of-delivery method, whereby sales and cost of sales are
recorded as units are delivered. All other sales and cost of sales are
recognized as product is shipped. The Company accrues minimum royalties due
over the related royalty period. Royalties earned in excess of minimum
royalties due are recognized as reported by the licensees.
(i) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(j) Earnings Per Share
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
assumed exercise of stock options and convertible debt which would have a
dilutive effect in years where there are earnings.
F-7
(k) New Accounting Standards
The Company will be required to adopt Statements of Financial Accounting
Standard No. 121, Accounting for Long-Lived Assets and Long-Lived Assets to
be Disposed Of (Statement 121), and No. 123, Accounting for Stock-Based
Compensation (Statement 123) in 1997. Statement 121 requires that long-lived
assets be reviewed for impairment whenever events or changes indicate that the
carrying amount of the asset in question may not be recoverable. The Company
does not expect the adoption of Statement 121 to have a material effect on the
Company's financial position or results of operations. Statement 123 allows
the Company to select either a fair value based method or its current
intrinsic value based method of accounting for employee stock-based
compensation. Companies that select the intrinsic value based method will be
required to provide pro forma disclosures of net income and earnings per share
as if the fair value method was selected. The Company plans to retain its
current intrinsic value method of accounting, and therefore, adoption of this
standard is not expected to have a material effect on the Company's financial
statements.
(2) Inventories
Inventories at March 31, 1996 and 1995 consist of:
1996 1995
---- ----
Raw materials $ 3,423,236 2,707,054
Work in process 945,795 654,520
Finished goods 857,731 584,451
--------- ---------
$ 5,226,762 3,946,025
========= =========
Approximately 23% of raw materials are located in China.
(3) Property, Plant, and Equipment
Property, plant, and equipment at March 31, 1996 and 1995 consists of:
Estimated
useful
1996 1995 lives
---- ---- -----
Building and improvements $ 1,457,251 1,444,089 20 years
Machinery and equipment 4,663,090 4,092,844 5-15 years
--------- ---------
$ 6,120,341 5,536,933
========= =========
F-8
(4) Income Taxes
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at March 31, 1996 and
1995 are presented below:
1996 1995
---- ----
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts $ 32,000 41,000
Inventories, principally due to valuation
allowance for financial reporting purposes
and additional costs inventoried for
tax purposes 316,000 297,000
Accrued expenses, principally due to accrual
for financial reporting purposes 32,000 38,000
Net operating loss carryforwards 313,000 377,000
Tax credit carryforwards 214,000 214,000
------- -------
Total gross deferred tax assets 907,000 967,000
Less valuation allowance (187,000) (187,000)
------- -------
720,000 780,000
------- -------
Deferred tax liabilities:
Property, plant, and equipment, principally
due to differences in depreciation (104,000) (70,000)
Other (12,000) (42,000)
------- -------
(116,000) (112,000)
------- -------
Net deferred tax assets $ 604,000 668,000
======= =======
Net deferred tax assets are included in the accompanying balance sheets at
March 31, 1996 and 1995 as:
1996 1995
---- ----
Deferred income taxes, current asset $ 445,000 440,000
Deferred income taxes, noncurrent asset 159,000 228,000
------- -------
$ 604,000 668,000
======= =======
F-9
In evaluating deferred tax assets, management assesses the likelihood the
deferred tax assets will be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of taxable income during the
periods in which those temporary differences are deductible. Management
considers historical taxable income, the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. In order to fully realize the deferred tax asset
related to net operating loss and tax credit carryforwards, the Company will
need to generate future taxable income of approximately $170,000 each year
prior to the expiration of the net operating loss and tax credit
carryforwards in 2003 and 2002, respectively. Taxable income for the years
ended March 31, 1996, 1995 and 1994 was approximately $2,800,000, $2,200,000
and $2,800,000, respectively. Based upon the level of historical taxable
income and projections for future taxable income over the periods which the
deferred tax assets are deductible, management believes it will realize the
benefits of these deductible differences, net of the existing valuation
allowance at March 31, 1996. The valuation allowance at March 31, 1996 and
1995 relates to tax credit carryforwards which management expects to expire
unused.
At March 31, 1996, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $824,000, which are available to
offset future taxable income through 2003. The Company also has available
tax credit carryforwards for Federal income tax purposes of approximately
$214,000, which are available to offset future Federal income taxes through
2002. As a result of an ownership change in 1989, the Internal Revenue Code
limits the income tax benefit of net operating loss and tax credit
carryforwards to approximately $65,000 each year.
Income tax expense for the years ended March 31, 1996, 1995 and 1994 consists
of:
1996 1995 1994
---- ---- ----
Current:
Federal $ 936,214 669,000 997,000
State 165,600 135,000 192,500
--------- --------- ---------
1,101,814 804,000 1,189,500
--------- --------- ---------
Deferred:
Federal 55,000 (222,000) (294,000)
State 9,000 (37,000) (50,000)
--------- --------- ---------
64,000 (259,000) (344,000)
--------- --------- ---------
$ 1,165,814 545,000 845,500
========= ========= =========
F-10
The significant components of deferred income tax expense (benefit) for the
years ended March 31, 1996, 1995 and 1994 are as follows:
1996 1995 1994
---- ---- ----
Deferred tax expense (benefit)
(exclusive of the effects of
other components listed below) $ (1,000) 81,000 (21,000)
Benefits of operating loss carryforwards 65,000 65,000 65,000
Investment tax credits - - (53,000)
Decrease in beginning-of-the-year balance
of the valuation allowance for deferred
tax assets - (405,000) (335,000)
------- ------- -------
$ 64,000 (259,000) (344,000)
======= ======= =======
Income tax expense for the years ended March 31, 1996, 1995 and 1994 differs
from the amounts computed by applying the Federal income tax rate of 34% to
pretax income as a result of the following:
1996 1995 1994
---- ---- ----
Computed expected tax expense $ 1,090,000 820,000 1,068,000
Increase (reduction) in income taxes
resulting from:
Change in valuation allowance
for deferred tax assets - (405,000) (335,000)
State income taxes, net of
Federal income tax benefit 115,000 65,000 94,000
Other (39,186) 65,000 18,500
--------- --------- ---------
$ 1,165,814 545,000 845,500
========= ========= =========
F-11
(5) Long-Term Debt
Long-term debt at March 31, 1996 and 1995 consists of the following:
1996 1995
---- ----
$2,500,000 line of credit, interest at LIBOR plus 200
basis points (7.41% at March 31, 1996); payable
monthly, due August 1997; secured by receivables,
inventories and equipment (subject to provisions
stated below) $ 100 100
First mortgage note payable; interest at prime (8.25%
at March 31, 1996); due in monthly installments
of $6,250, plus interest, matures December 2000;
secured by operating facility 356,250 431,250
------- -------
Total long-term debt 356,350 431,350
Less current installments 75,000 75,000
------- -------
Long-term debt, excluding current installments $ 281,350 356,350
======= =======
Borrowings under the line of credit are limited to 80% of eligible accounts
receivable under 90 days, plus the lesser of 40% of eligible inventory or
$450,000. The line of credit is secured by receivables, inventories, and
equipment, and requires the Company to maintain certain financial ratios and
a minimum tangible net worth amount.
The aggregate maturities of long-term debt are:
Year ending March 31,
1997 $ 75,000
1998 75,100
1999 75,000
2000 75,000
2001 56,250
-------
$ 356,350
=======
F-12
(6) Stock Options, Grants and Warrants
Under the Company's qualified incentive stock option plan which expired in
October 1991, 546,667 shares of common stock were reserved for issuance upon
exercise of options granted to officers and key employees. Options granted
are exercisable at any time after the date of grant. In August 1993, the
shareholders approved a new incentive stock option plan which reserved
166,667 shares of common stock for issuance upon exercise of options granted
to officers and employees. Options granted are exercisable equally over
three years after the date of grant.
The plans provide that the option price will be fixed by the Board of
Directors but will not be less than 100% of the fair market value of the
stock at the date of grant. Options granted expire ten years after the date
of grant. Options may be exercised by payment of cash or with stock of the
Company owned by the officer or employee. Option transactions and other
information relating to the plans for the three years ended March 31, 1996
are as follows:
Number of Option price
shares per share
--------- ---------
Outstanding at March 31, 1993 283,681 $ .75 to $4.14
Granted 50,333 $5.52
Exercised (107,494) $ .75 to $4.14
-------
Outstanding at March 31, 1994 226,520 $ .75 to $5.52
Granted 116,167 $ 4.02 to $5.43
Exercised (121,564) $ .75 to $4.14
Canceled (667) $5.52
-------
Outstanding at March 31, 1995 220,456 $ .75 to $5.52
Granted 9,800 $5.44
Exercised (58,737) $ .75 to $4.03
Canceled (67,866) $ .75 to $5.52
-------
Outstanding at March 31, 1996 103,653 $ .75 to $5.52
=======
F-13
The Company adopted a nonqualified stock option plan in December 1989 and
reserved a total of 266,667 shares of its common stock for future issuance to
selected officers, directors, consultants and other key employees designated
by the Company's Board of Directors. In August 1993 the shareholders
approved an increase in the total number of reserved shares from 266,667 to
333,333. Previously granted nonqualified stock options were ratified and
authorized as options under the nonqualified stock option plan. During the
years ended March 31, 1996, 1995 and 1994, individuals purchased 14,000,
33,889 and 10,000 shares, respectively, of common stock through the exercise
of nonqualified stock options. Information relating to remaining options,
all of which are outstanding and exercisable, are as follows:
Number of Option price Term of
Option dates shares per share option
------------ --------- --------- -------
July 14, 1988 121,956 1.37 10 years
September 28, 1990 23,810 1.31 10 years
November 11, 1991 16,669 .75 10 years
August 25, 1993 5,000 5.53 5 years
August 23, 1995 29,468 5.44 10 years
-------
196,903
=======
Shares available for future grants totaled 38,540 at March 31, 1996. The
Company has also reserved 32,667 shares of its common stock for issuance to
employees or prospective employees at the discretion of the Board of
Directors of which 16,033 shares are available for future issue at March 31,
1995. There were no reserved shares issued during the years ended March 31,
1996, 1995 or 1994.
In connection with the January 1990 issuance of common stock through a public
offering, the Company issued 913,600 Class A redeemable warrants. During
1994, 907,433 shares were issued upon exercise of Class A warrants.
Additionally, the Company issued warrants to the underwriter of the January
1990 public offering of common stock, which entitle the underwriter to
purchase up to 76,133 shares of the Company's common stock at a price of
$2.88 per share. The warrants were all exercised during 1994.
(7) Leases
The Company leases the land on which its operating facility is located. This
operating lease is for a period of twenty years through 2001 with options to
renew for two additional ten-year periods. The lease provides for rent
adjustments every five years. The Company is responsible for payment of taxes,
insurance, and maintenance. In the event the Company elects to terminate the
lease, title to all structures on the land reverts to the lessor. The Company
also leases certain office equipment under long-term operating lease
agreements.
F-14
Future minimum lease payments under noncancelable operating leases as of
March 31, 1996 are:
Year ending March 31,
---------------------
1997 $ 35,000
1998 23,000
1999 23,000
2000 23,000
2001 23,000
Thereafter 9,000
-------
Total minimum lease payments $ 136,000
=======
Rental expense for all operating leases was approximately $56,000 in 1996,
$50,000 in 1995, and $59,000 in 1994.
(8) Major Customers
The Company operates in one business segment - the design, development,
manufacture and marketing of electronic control and measurement devices for
the distribution of electric power.
Individual customers and aggregate exports which accounted for 10% or more of
sales were:
Year ended March 31
-------------------
Customer 1996 1995 1994
-------- ---- ---- ----
Fleck Manufacturing, Inc. (a
Xerox Corporation supplier) $ 2,358,887 3,090,322 2,981,063
========= ========= =========
Exports:
Canada $ 2,367,890 3,168,677 3,084,235
Far East 1,967,494 725,368 343,854
Europe 1,750,257 5,748,882 3,789,053
Mexico 569,845 549,980 465,798
Australia 438,875 536,176 398,456
--------- --------- ---------
Total exports (including
Fleck Manufacturing, Inc.) $ 7,094,361 10,729,083 8,081,396
========= ========== =========
Libby Corporation $ - - 3,432,952
========= ========== =========
At March 31, 1996, receivables from Fleck Manufacturing, Inc. were $80,845.
F-15
(9) Benefit Plan
The Company adopted a 401(k) plan effective January 1, 1994. The Plan covers
all employees with one year of service who are at least twenty-one years old.
The Company matches employee contributions dollar-for-dollar up to $250.
Total Company contributions were approximately $19,000 in 1996, $13,000 in
1995 and $16,000 in March 1994.
(10) Litigation
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 suit seeks unspecified
compensatory and exemplary damages in excess of $100,000. The Company has
both product liability and umbrella liability insurance. The case is in the
discovery stage. Management believes the ultimate disposition of this matter
will not have a material adverse effect on the Company's financial position,
results of operations or liquidity.
(11) Selected Quarterly Data (Unaudited)
Information (unaudited) related to operating revenues, operating income, net
income and earnings per share, by quarter, for the years ended March 31, 1996
and 1995 are:
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
Year ended March 31, 1996:
Operating revenues $ 4,415,990 4,385,585 4,353,880 4,223,766
========= ========= ========= =========
Operating income $ 951,001 645,076 673,542 714,324
========= ========= ========= =========
Net income $ 629,856 455,131 464,733 489,065
========= ========= ========= =========
Earnings per share $ .12 .08 .09 .09
==== ==== ==== ====
Year ended March 31, 1995:
Operating revenues $ 5,727,623 6,012,658 5,508,136 4,524,539
========= ========= ========= =========
Operating income $ 996,262 776,567 250,953 263,839
========= ========= ========= =========
Net income $ 645,956 630,833 177,771 413,397
========= ========= ========= =========
Earnings per share $ .12 .12 .03 .08
==== ==== ==== ====
The fourth quarter results for 1995 were positively impacted by a reduction
in the valuation allowance for deferred tax assets of $405,000.
F-16
<TABLE>
TECHNOLOGY RESEARCH CORPORATION
Schedule II
Valuation and Qualifying Accounts
Years ended March 31, 1996, 1995 and 1994
<CAPTION>
Additions
----------------------
Balances at Charged to Charged to Balances
beginning costs and other at end
Description of period expenses accounts Deductions of period
----------- --------- --------- --------- ---------- --------
Allowance for doubtful accounts:
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1996 $ 107,000 - - 23,000 84,000
======= ======= ======= ======= =======
Year ended March 31, 1995 $ 128,000 - - 21,000 107,000
======= ======= ======= ======= =======
Year ended March 31, 1994 $ 128,000 40,000 - 40,000 128,000
======= ======= ======= ======= =======
</TABLE>
F-17
<PAGE>
SIGNATURES
----------
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.
TECHNOLOGY RESEARCH CORPORATION
Dated: 7/1/96 By: /s/ Robert S. Wiggins
Robert S. Wiggins
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and
on the dates indicated:
Signature Title Date
--------- ----- ----
Chairman, Chief Executive
Officer, and Director
(Principal Executive
Officer and Financial
/s/ Robert S. wiggins Officer) 7/1/96
Robert S. Wiggins
President and Director
Raymond H. Legatti
/s/ Edmund F. Murphy, Jr. Director 6/27/96
Edmund F. Murphy, Jr.
/s/ Jerry T. Kendall Director 6/27/96
Jerry T. Kendall
Senior Vice President
Government Operations
and Marketing and
/s/ Raymond B. Wood Director 6/28/96
Raymond B. Wood
-23-
EXHIBIT (3)(c)
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
TECHNOLOGY RESEARCH CORPORATION
***********************************************
TECHNOLOGY RESEARCH CORPORATION, a Florida corporation (the
"Corporation"), hereby certifies as follows:
1. The Articles of Incorporation of the Corporation are hereby amended
by deleting the present form of Article IV in its entirety and by substituting,
in lieu thereof, the following:
"The aggregate number of shares of stock authorized to be issued by
this Corporation shall be 10,000,000 shares of common stock, each with a
par value of $.51. Each share of issued and outstanding common stock shall
entitle the holder thereof to fully participate in all shareholder meetings,
to cast one vote on each matter with respect to which shareholders have the
right to vote, and to share ratably in all dividends and other distributions
declared and paid with respect to the common stock, as well as in the net
assets of the Corporation upon liquidation or dissolution."
2. On May 10, 1995 the Board of Directors of the Corporation, and on
August 23, 1995, the shareholders of the Corporation, approved a one for three
reverse stock split or share combination, effective September 15, 1995. In
addition to reducing the Corporation's authorized common stock to from
30,000,000 to 10,000,000 shares, the reverse stock split will effect a
reduction in the issued and outstanding shares of common stock, from 15,844,507
to 5,281,502 (plus such additional shares as are created by rounding up each
fractional share generated by the share combination to the next higher whole
number).
3. The amendment recited above does not adversely affect the rights or
preferences of the holders of outstanding shares of any class or series and
does not result in the percentage of authorized shares that remain unissued
after the division or combination exceeding the percentage of authorized
shares that were unissued before the division or combination, except as a
result of de minimis rounding up of each fractional share generated by the
share combination to the next higher whole number, as approved by the
Corporation's shareholders.
4. The amendment recited above (including the reverse stock split) has
been duly adopted in accordance with the provisions of Sections 607.1003 and
607.10025(6), Florida Statutes, the Board of Directors of the Corporation
having adopted a resolution setting forth such amendment, declaring its
advisability and directing that such amendment be considered by the
shareholders of the Corporation at its annual meeting thereof; notice of such
meeting having been provided in accordance with the By-Laws of the Corporation;
a quorum of such shareholders having been present at the meeting held in
response to such notice on August 23, 1995; and a majority of the shareholders
present at such meeting and entitled to vote on the proposed amendment having
voted in favor thereof, a vote sufficient for approval of the amendment.
5. The foregoing amendment and reverse stock split shall become effective as
of the close of business on September 15, 1995.
IN WlTNESS WHEREOF, the Corporation has made this Certificate under the
signature of its President and the attestation of its Secretary this 23 day
of August, 1995.
TECHNOLOGY RESEARCH
CORPORATION
/s/Raymond H. Legatti
Attest: BY:______________________________
Raymond H. Legatti, President
/s/Robert S. Wiggins
By:_____________________________
Robert S. Wiggins, Secretary
STATE OF FLORIDA
COUNTY OF PINELLAS
I HEREBY CERTIFY that on this 23 day of August, 1995, before me, the
undersigned authority, personally appeared Raymond H. Legatti, President of
TECHNOLOGY RESEARCH CORPORATION, to be well known and known to me to be the
person who signed and executed the foregoing instrument, and who acknowledged
before me that he executed the same on behalf of and as the act and deed of
that corporation, freely and voluntarily, for the uses and purposes therein
expressed, and that the facts stated therein are correct and complete to the
best of his knowledge and belief.
SWORN TO AND SUBSCRIBED before me the day and year aforesaid.
/s/ Ida C. Larsen
_______________________________
NOTARY PUBLIC, State of Florida
at Large
Print Name: Ida C. Larsen
My Commission Expires: Sept. 6, 1996
First Union National Bank of Florida
410 Central Avenue
St. Petersburg, Florida 33701
August 22, 1995
Mr. Robert S. Wiggins, CEO
Technology Research Corporation
5250 140th Avenue North
Clearwater, Florida 34620
Re: Loan Commitment and Agreement Reaffirmation
Dear Mr. Wiggins:
We are pleased to advise you that First Union National Bank of Florida ("First
Union") has renewed the $2,500,000.00 Line of Credit to Technology Research
Corporation under Loan Commitment and Agreement dated September 24, 1993 (the
"Line of Credit"). First Union's obligation to advance under this Line of
Credit will now expire on August 15, 1997. Except as expressly provided in this
letter, all other terms and conditions of the Line of Credit will remain in
full force and effect.
At the Borrower's option, advances under the Line of Credit shall bear and
accrue interest at a rate per annum which shall be either a) the 30 day London
Interbank Offering Rate (LIBOR) plus 200 basis points; or b) the Bank's Prime
Rate. Interest shall be due and payable monthly, calculated using year basis
of 360 days, and charged for the actual number of days elapsed in an interest
period.
LIBOR base rate shall mean that rate per annum which, in the opinion of the
Bank, United States dollars are being offered to major top credit quality
banks at 11:00 a.m. London time, two (2) business days prior to +he
commencement of the applicable interest period for settlement in immediately
available funds by major top credit quality banks in the London Interbank
market for a period equal to the interest period selected.
Prime Rate is defined as that rate of interest announced from time to time by
the Bank as its Prime Rate.
The Line of Credit shall maintain a $750,000.00 sub-limit for Banker's
Acceptances.
The fee for this Line of Credit will continue to be one-quarter percent (0.25%)
per annum and will be billed monthly in arrears on the unused portion of the
Line of Credit.
Page 2 of 2, Loan Commitment and Agreement Reaffirmation
Thank you for allowing First Union the continuing opportunity to be of service.
Sincerely,
/s/Timothy J. Coop
Timothy J. Coop
Assistant Vice President
Acknowledged and Accepted by:
TECHNOLOGY RESEARCH CORPORATION
/s/ Robert S. Wiggins
By: ______________________
Robert S. Wiggins, CEO
PROMISSORY NOTE
$2,500,000.00 August 22, 1995
Technology Research Corporation
5250 140th Avenue North
Clearwater, FL 34620
Individually and collectively "Borrower")
First Union National Bank of Florida
214 North Hogan Street
Jacksonville, FL 32202
(Hereinafter referred to as the "Bank")
RENEWAL/MODIFICATION. This Promissory Note renews, extends and/or modifies
that certain promissory note dated November 12, 1993 evidencing an original
principal indebtedness of $2,500,000.00 of which $2,500,000.00 is currently
outstanding. This Promissory Note is not a novation.
Borrower promises to pay to the order of Bank, in lawful money of the United
States of America, at its office indicated above or wherever else Bank may
specify, the sum of Two Million, Five Hundred Thousand and No/100 dollars
($2,500,000.00) or such sum as may be advanced from time to time with interest
on the unpaid principal balance at the rate and on the terms provided in this
Promissory Note (including all renewals, extensions and/or modifications
hereof, this "Note").
INTEREST RATE SELECTIONS.
Prime Rate. The Bank's Prime Rate as that rate may change from time to time
with changes to occur on the date Bank's Prime Rate changes ("Prime-Based
Rate"). Bank's Prime Rate shall be that rate announced by Bank from time to
time as its prime rate and is one of several interest rate bases used by Bank.
Bank lends at rates both above and below Bank's Prime Rate, and Borrower
acknowledges that Bank's Prime Rate is not represented or intended to be the
lowest or most favorable rate of interest offered by Bank.
LIBOR Rate. The 30-day LIBOR Rate plus 200 basis points ("LlBOR-Based Rate").
The LlBOR-Based Rate shall be determined in accordance with Bank's adjusted
LIBOR Rate formula.
INTEREST RATE SELECTION AND ADJUSTMENT.
Interest Rate Options. Subject to the provisions hereof, at the election of
Borrower, the unpaid principal balance of this Note shall bear interest from
the date hereof at the Prime-Based Rate or the LIBOR-Based Rate (each, an
"Interest Rate"). Borrower shall elect the Interest Rate, except the Prime-
Based Rate, the period of time such Interest Rate will continuously apply
(each, an "Interest Period"), if any, applicable thereto at the time of each
borrowing and each rate conversion pursuant to the subparagraph entitled
"Notice and Manner of Borrowing and Rate Conversion" below. There shall be no
more than one Interest Rate in effect at any time.
When the Prime-Based Rate is elected, it shall be adjusted daily as applicable
to reflect Bank's Prime Rate and the Prime-Based Rate shall continue to apply
until another Interest Rate option is elected pursuant to the subparagraph
entitled "Notice and Manner of Borrowing and Rate Conversion." When the LlBOR-
Based Rate is elected, such rate shall be fixed for the Interest Period and
shall apply for successive Interest Periods at the then prevailing successive
rate until another Interest Rate option is elected pursuant to the subparagraph
entitled "Notice and Manner of Borrowing and Rate Conversion." When Borrower
has not duly specified an Interest Rate as provided herein, the Note shall bear
interest at the Prime-Based Rate.
Interest Periods. In connection with each LlBOR-Based Rate Borrower, by giving
notice at the times described in the subparagraph entitled "Notice and Manner
of Borrowing and Rate Conversion" below, shall select an Interest Period to be
applicable thereto, which Interest Period shall be a period of 1 month for
1-month LlBOR-Based Rate. No Interest Period selection is required for the
Prime-Based Rate.
Default Rate. In addition to all other rights contained in this Note, if a
Default (defined herein) occurs, and as long as a Default continues,
(a) Borrower shall no longer have the option to request the LlBOR-Based Rate
and (b) all outstanding Obligations shall bear interest at the Prime-Based Rate
plus three percent (3%) ("Default Rate") except if the Note is governed by
North Carolina law and is under or equal to Three Hundred Thousand and No/100
Dollars ($300,000.00), the Default Rate shall be the Prime-Based Rate. The
Default Rate shall apply from the occurrence of a Default (defined herein)
until the Obligations or any judgment thereon is paid in full.
Notice and Manner of Borrowing and Rate Conversion. Borrower shall give Bank
irrevocable telephonic notice (confirmed in writing) of each proposed borrowing
or rate conversion not later than 11:00 a.m. local time at the office of Bank
first shown above (a) on the same business day as each proposed borrowing or
rate conversion at a Prime-Based Rate and (b) at least two (2) business days
before each proposed borrowing or rate conversion at a LlBOR-Based Rate. Each
such notice shall specify (I) the date of such borrowing or rate conversion,
which shall be a business day, (ii} the amount to be borrowed or converted,
(iii) the Interest Rate or Interest Rates selected by Borrower, and (iv) except
for the Primed-Based Rate, the duration of any Interest Period applicable
thereto, which period must equal the Interest Rate option. Notices received
after 11:00 a.m. local time at the office of Bank first shown above shall be
deemed received on the next business day.
INDEMNIFICATION AND ADDITIONAL COSTS
Indemnification. Borrower indemnifies Bank against Bank's loss or expense in
employing deposits as a consequence (a) of Borrower's failure to make any
payment when due under this Note or (b) any payment, prepayment or conversion
of any loan on a date other than the last day of the Interest Period
("Indemnified Loss or Expense " ) .
Additional Costs. If, at any time, a new, or a revision in any existing law
or interpretation or administration (including reversals) thereof by any
government authority, central bank or comparable agency imposes, increases
or modifies any reserve or similar requirement against assets, deposits or
credit extended by Bank, or subjects Bank to any tax, duty or other charge
(except tax on Bank's net income), and any of the foregoing increase the cost
to Bank of maintaining its commitment or reduce the amount of any sum received
or receivables by Bank under this Note, within 15 days after demand by Bank,
Borrower agrees to pay Bank such additional amounts as will compensate Bank
for such increased costs or reduction ("Additional Costs").
Match Funding. The amount of such (a) Indemnified Loss or Expense or (b)
Additional Costs outlined above shall be determined, in Bank's sole discretion,
based upon the assumption that Bank funded 100% of the loan in the applicable
London interbank or domestic certificate of deposit market.
Unavailability of Interest Rate. If, at any time, (a) Bank shall determine
that, by reasons of circumstances affecting foreign exchange and interbank
markets generally, LIBOR or CD deposits in the applicable amounts are not
being offered to Bank; or (b) a new, or a revision in any existing law or
interpretation or administration (including reversals) thereof by any
government authority, central bank or comparable agency shall make it unlawful
or impossible for Bank to honor its obligations under this Note, (I) Bank's
obligation to make, maintain or convert into a LlBOR-Based Rate shall be
suspended; and (ii) the applicable LIBOR-Based Rate shall immediately be
converted to the Prime-Based Rate for the remainder of the Interest Period.
INTEREST COMPUTATION.
Actual/360 Computation. Interest shall be computed on the basis of a 360-day
year for the actual number of days in the interest period ("Actual/360
Computation"). The Actual/360 Computation determines the annual effective
interest yield by taking the stated (nominal) interest rate for a year's
period and then dividing said rate by 360 to determine the daily periodic rate
to be applied for each day in the interest period. Application of the
Actual/360 Computation produces an annualized effective interest rate exceeding
that of the nominal rate.
PAYMENT. This Note shall be due and payable in consecutive periodic payments
of accrued interest only commencing September 15, 1995, and on the fifteenth
day of each month thereafter until fully paid. In any event, all principal and
accrued interest shall be due and payable August 15, 1997.
APPLICATION OF PAYMENTS. Monies received by Bank from any source for
application toward payment of the Obligations (defined herein) shall be
applied to accrued interest and then to principal. If a Default
(defined herein) occurs, monies may be applied to the Obligations in any
manner or order deemed appropriate by Bank.
If any payment received by Bank under this Note or other Loan Documents
(defined herein) is rescinded, avoided or for any reason returned by Bank
because of any adverse claim or threatened action, the returned payment shall
remain payable as an obligation of all persons liable under this Note or other
Loan Documents as though such payment had not been made.
LOAN DOCUMENTS AND OBLIGATIONS. The term "Loan Documents" used in this Note
and other Loan Documents refers to all documents executed in connection with
the loan evidenced by this Note and may include, without limitation, a
commitment letter that survives closing, a loan agreement, this Note, guaranty
agreements, security agreements, security instruments, financing statements,
mortgage instruments, letters of credit and any modifications, but however,
does not include swap agreements as defined in 11 U.S.C. Section 101 whenever
executed.
The term "Obligations" used in this Note refers to any and all indebtedness
and other obligations under this Note, all other obligations as defined in the
respective Loan Documents, and all obligations under any swap agreements as
defined in 11 U.S.C. Section 101 between Borrower and Bank whenever executed.
LATE CHARGE. If any payments are not timely made, Borrower shall also pay to
Bank a late charge equal to five percent (5%) of each payment past due for ten
(10) or more days.
Acceptance by bank of any late payment without an accompanying late charge
shall not be deemed a waiver of Bank's right to receive such late charge or to
receive a late charge for any subsequent late payment received.
If this Note is secured by owner-occupied residential real property located
outside the state in which the office of Bank first shown above is located,
the late charge laws of the state where the real property is located shall
apply to this Note.
ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank's
reasonable expenses incurred to enforce or collect any of the Obligations,
including, without limitation, reasonable arbitration, paralegals', attorneys'
and experts' fees and expenses, whether incurred without the commencement of a
suit, in any triad arbitration, or administrative proceeding, or in any
appellate or bankruptcy proceeding.
USURY. Regardless of any other provision of this Note or other Loan Documents,
if for any reason the effective interest should exceed the maximum lawful
interest, the effective interest shall be deemed reduced to and shall be such
maximum lawful interest, and (I) the amount which would be excessive interest
shall be deemed applied to the reduction of the principal balance of this Note
and not to the payment of interest, and (ii) if the loan evidenced by this Note
has been or is thereby paid in full, the excess shall be returned to the party
paying same, such application to the principal balance of this Note or the
refunding of excess to be a complete settlement and acquittance thereof.
DEFAULT. If any of the following occurs, a default ("Default") under this Note
shall exist: (a) Nonpayment; Nonperformance. The failure of timely payment or
performance of the Obligations or Default under this Note or any other Loan
Documents; (b) False Warranty. A warranty or representation made in the Loan
Documents or furnished Bank in connection with the loan evidenced by this Note
proves materially false, or if of a continuing nature, becomes materially
false; (c) Cross Default. At Bank's option, any default in payment or
performance of any obligation under any other loans, contracts or agreements
of Borrower, any Subsidiary or Affiliate of Borrower ("Affiliate" shall have
the meaning as defined in 11 U.S.C. Section 101, except that the term "debtor"
therein shall be substituted by the term "Borrower" herein; "Subsidiary" shall
mean any corporation of which more than 50% of the issued and outstanding
voting stock is owned directly or indirectly by Borrower), any general partner
of or the holder(s) of the majority ownership interests of Borrower with Bank
or its affiliates; (d) Cessation; Bankruptcy. The death of, appointment of
guardian for, dissolution of, termination of existence of, loss of good
standing status by, appointment of a receiver for, assignment for the benefit
of creditors of, or commencement of any bankruptcy or insolvency proceeding by
or against the Borrower, its Subsidiaries or Affiliates, if any, or any general
partner of or the holder(s) of the majority ownership interests of Borrower,
or any party to the Loan Documents; or (e) Material Capital Structure or
Business Alteration. A material alteration in the type or kind of Borrower's
business or that of its Subsidiaries or Affiliates, if any; or the acquisition
of substantially all of Borrower's, any Subsidiary's, any Affiliate's, or
guarantor's business or assets, or a material portion (10% or more) of such
business or assets if such a sale is outside Borrower's, any Subsidiary's, any
Affiliate's or any guarantor's, ordinary course of business, or more than 50%
of its outstanding stock or voting power in a single transaction or a series
of transactions, or the acquisition of substantially all of the business or
assets or more than 50% of the outstanding stock or voting power of any other
entity, or should any Borrower, Subsidiary, Affiliate, or guarantor enter into
any merger or consolidation without prior written consent of Bank.
REMEDIES UPON DEFAULT. (a) Bank Lien and Set-off. Except as prohibited by law,
Borrower grants Bank a security interest in all of Borrower's accounts with
Bank and any of its affiliates. If a Default (defined herein) occurs, Bank is
authorized to exercise its right of set-off or to foreclose its lien against
any agreement or account of any nature or maturity of Borrower without notice.
(b) Acceleration Upon Default. If a Default occurs, Bank may, at Bank's
discretion, accelerate the maturity of this Note and all other Obligations,
and all of the Obligations shall be immediately due and payable.
(c) Cumulative. All remedies available to Bank with respect to this Note and
other Loan Documents and remedies available at law or in equity shall be
cumulative and may be pursued concurrently or successively.
SECURITY. Borrower has granted Bank a security interest in the collateral
described in the Loan Documents, including, but not limited to, a Loan
Commitment and Agreement dated September 24, 1993, a Loan Commitment and
Agreement Reaffirmation dated August 15, 1994 and a Loan Commitment and
Agreement Reaffirmation dated August 22, 1995.
LINE OF CREDIT ADVANCES. Borrower may borrow, repay and reborrow, and Bank
may advance and readvance under this Note respectively from time to time, so
long as the total indebtedness outstanding at any one time does not exceed the
principal amount stated on the face of this Note. Bank's obligation to advance
or readvance under this Note shall terminate if Borrower is in Default under
this Note.
WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note
and other Loan Documents shall be valid unless in writing and signed by an
officer of Bank. No waiver by Bank of any Default shall operate as a waiver of
any other Default or the same Default on a future occasion. Neither the failure
nor any delay on the part of Bank in exercising any right, power, or privilege
granted pursuant to this Note and other Loan Documents shall operate as a
waiver thereof, nor shall a single or partial exercise thereof preclude any
other or further exercise or the exercise of any other right, power or
privilege.
Each Borrower or any other person who may be liable under the Loan Documents
waives presentment, protest, notice of dishonor, demand for payment, notice of
intention to accelerate maturity, notice of acceleration of maturity, notice
of sale and all other notices of any kind. Further, each agrees that Bank may
extend, modify or renew this Note or make a novation of the loan evidenced by
this Note for any period; whether or not longer than the original period of
the Note, and grant any releases, compromises or indulgences with respect to
any collateral securing this Note, or with respect to any Borrower or any
person who may be liable under this Note or other Loan Documents, all without
notice to or consent of any Borrower or any person who may be liable under this
Note or other Loan Documents and without affecting the liability of Borrower or
any person who may be liable under this Note or other Loan Documents.
MISCELLANEOUS PROVISIONS. (a) Assignment. This Note and other Loan Documents
shall inure to the benefit of and be binding upon the parties and their
respective heirs, legal representatives, successors and assigns. Bank's
interests in and rights under this Note and other Loan Documents are freely
assignable, in whole or in part, by Bank. Borrower shall not assign its rights
and interest hereunder without the prior written consent of Bank, and any
attempt by Borrower to assign without Bank's prior written consent is null and
void. Any assignment shall not release Borrower from the Obligations. (b)
Applicable Law; Conflict Between Documents. This Note and other Loan Documents
shall be governed by and construed under the laws of the state where Bank first
shown above is located without regard to that state's conflict of laws
principles. If the terms of this Note should conflict with the terms of the
loan agreement or any commitment letter that survives closing, the terms of
this Note shall control. (c) Jurisdiction. Borrower irrevocably agrees to non-
exclusive personal jurisdiction in the state in which the office of Bank first
shown above is located. (d) Severability. If any provision of this Note or of
the other Loan Documents shall be prohibited or invalid under applicable law,
such provision shall be ineffective but only to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Note or other such document. (e) Notices. Any
notices to Borrower shall be sufficiently given, if in writing and mailed or
delivered to the Borrower's address shown above or such other address as
provided hereunder, and to Bank, if in writing and mailed or delivered to
Bank's office address shown above or such other address as Bank may specify in
writing from time to time. In the event that Borrower changes Borrower's
address at any time prior to the date the Obligations are paid in full,
Borrower agrees to promptly give written notice of said change of address by
registered or certified mail, return receipt requested, all charges prepaid.
(f) Plural; Captions. All references in the Loan Documents to Borrower,
guarantor, person, document or other nouns of reference mean both the singular
and plural form, as the case may be, and the term "person" shall mean any
individual, person or entity. The captions contained in the Loan Documents
are inserted for convenience only and shall not affect the meaning or
interpretation of the Loan Documents. (g) Binding Contract. Borrower by
execution of and Bank by acceptance of this Note agree that each party is
bound to ail terms and provisions of this Note. (h) Advances. Bank in its
sole discretion may make other advances and readvances under this Note pursuant
hereto. (i) Posting of Payments. All payments received during normal banking
hours after 2:00 p.m. local time at the office of Bank first shown above shall
be deemed received at the opening of the next banking day. (j) Joint and
Several Obligations. Each person who signs this Note is a Borrower and is
jointly and severally obligated. (k) Fees and Taxes. Borrower shall promptly
pay all documentary, intangible recordation and/or similar taxes on this
transaction whether assessed at closing or arising from time to time.
ARBITRATION AND PRESERVATION OF REMEDIES. (a) Upon demand of any party hereto,
whether made before or after institution of any judicial action, any dispute,
claim or controversy arising out of or connected with this Note and other Loan
Documents ("Disputes") shall be resolved by binding arbitration as provided
herein. Disputes may include, without limitation, tort claims, counterclaims,
claims brought as class actions, claims arising from Loan Documents executed
in the future. Arbitration shall be conducted under the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association and Title 9 of the U.S. Code. All arbitration hearings
shall be conducted in the city where the Bank first shown above is located or
any place agreed to in writing by the parties. The expedited procedures set
forth in Rule 51 et. Seq. Of the Arbitration Rules shall be applicable to
claims of less than $1,000,000. All applicable statutes of limitation shall
apply to any Dispute. A judgment upon the award may be entered in any court
having jurisdiction. The panel from which all arbitrators are selected shall
be comprised of licensed attorneys. The single arbitrator selected for
expedited procedure shall be a retired judge from the highest court of general
jurisdiction, state or federal, of the state where the hearing will be
conducted. (b) Notwithstanding the preceding binding arbitration provision,
Bank and Borrower preserve certain remedies that any party hereto may exercise
freely, either alone or during a Dispute. Any party hereto shall have the right
to proceed in any court of proper jurisdiction or by self help to exercise or
prosecute the following remedies, as applicable: (i) all rights to foreclose
against any real or personal property or other security by exercising a power
of sale granted in the Loan Documents or under applicable law, (ii) all rights
of self help including peaceful occupation of real property and collection of
rents, set-off, and peaceful possession of personal property, (iii) obtaining
provisional or ancillary remedies including injunctive relief, sequestration,
garnishment, attachment, and appointment of receiver, and (iv) when applicable,
a judgment by confession of judgment. Preservation of these remedies does not
limit the power of an arbitrator to grant similar remedies that may be
requested by a party in a Dispute. (c) Borrower and Bank agree that they shall
not have a remedy of punitive or exemplary damages against the other in any
Dispute and hereby waive any right or claim to punitive or exemplary damages
they have now or which may arise in the future in connection with any
Dispute whether the Dispute is resolved by arbitration or judicially. (d)
Notwithstanding the foregoing, this arbitration provision does not apply to
disputes under or related to swap agreements.
IN WITNESS WHEREOF, Borrower, on the day and year first above written, has
caused this Note to be executed under seat.
TECHNOLOGY RESEARCH CORPORATION
By: /s/ Robert S. Wiggins
---------------------
Robert S. Wiggins, Chief Executive Officer
Taxpayer Identification No.: 59-2095002
Consent of Independent Certified Public Accountants
___________________________________________________
The Board of Directors
Technology Research Corporation:
We consent to incorporation by reference in the registration statements
(No. 33-62379 and No. 33-62397) on Form S-8 of Technology Research
Corporation of our report dated April 26, 1996, relating to the balance
sheets of Technology Research Corporation as of March 31, 1996, and 1995,
and the related statements of income, stockholders' equity, and cash flows
for each of the years in the three-year period ended March 31, 1996, and
related schedule, which report appears in the March 31, 1996, annual report
on Form 10-K of Technology Research Corporation.
KPMG Peat Marwick LLP
St. Petersburg, Florida
July 1, 1996
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