UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for a shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at January 31, 1997
____________________________ _______________________________
Common stock, $.51 par value 5,324,237
TECHNOLOGY RESEARCH CORPORATION
INDEX
Part I - Financial Information Page
Condensed Balance Sheets--December 31, 1996 and March 31, 1996..... 1
Condensed Statements of Income--Three months and nine months ended
December 31, 1996 and December 31, 1995....................... 2
Condensed Statements of Cash Flows--Nine months ended
December 31, 1996 and December 31, 1995....................... 3
Notes to Condensed Financial Statements............................ 4
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 5
Part II - Other Information
Item 1 - Legal Proceedings......................................... 7
Item 2 - Changes in Securities..................................... 8
Item 3 - Defaults Upon Senior Securities........................... 8
Item 4 - Submission of Matters to a vote of Shareholders............8
Item 5 - Other Information......................................... 8
Item 6 - Exhibits and Reports on Form 8-K...........................8
Signatures......................................................... 9
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TECHNOLOGY RESEARCH CORPORATION
CONDENSED BALANCE SHEETS
<CAPTION>
December 31 March 31
1996 1996
------------ ---------
ASSETS (unaudited) *
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 986,697 341,601
Short term investments 3,075,515 4,084,698
Accounts receivable, net 2,387,000 2,607,152
Inventories:
Raw material 3,713,820 3,423,236
Work in process 891,755 945,795
Finished goods 616,700 857,731
---------- ----------
Total inventories 5,222,275 5,226,762
Prepaid expenses 221,835 94,205
Deferred income taxes 403,000 445,000
---------- ----------
Total current assets 12,296,322 12,799,418
---------- ----------
Property, plant, and equipment 6,515,573 6,120,341
Less accumulated depreciation (4,068,059) (3,698,692)
---------- ----------
Net property, plant, and equipment 2,447,514 2,421,649
---------- ----------
Deferred income taxes 125,750 159,000
Other assets 2,423 523
---------- ----------
$ 14,872,009 15,380,590
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 75,000 75,000
Accounts payable 1,257,095 1,236,591
Accrued expenses 176,289 219,044
Dividends payable 345,918 336,052
Income taxes payable - 991
---------- ----------
Total current liabilities 1,854,302 1,867,678
Long-term debt, excluding current installments 225,100 281,350
---------- ----------
Total liabilities 2,079,402 2,149,028
---------- ----------
Stockholders' equity:
Common stock 2,715,361 2,712,437
Additional paid-in capital 7,409,580 7,410,754
Retained earnings 2,667,666 3,108,371
---------- ----------
Total stockholders' equity 12,792,607 13,231,562
---------- ----------
$ 14,872,009 15,380,590
========== ==========
<FN>
<F1>
* The balance sheet as of March 31, 1996 has been summarized
from the Company's audited balance sheet as of that date.
<F2>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
- 1 -
<TABLE>
TECHNOLOGY RESEARCH CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
December 31 December 31
1996 1995 1996 1995
---------- ---------- ---------- ----------
Operating revenues:
<S> <C> <C> <C> <C>
Net sales $ 3,802,003 4,136,934 10,632,575 12,552,751
Royalties 77,624 216,946 313,446 602,704
---------- ---------- ---------- ----------
3,879,627 4,353,880 10,946,021 13,155,455
---------- ---------- ---------- ----------
Operating expenses:
Cost of sales 2,729,293 2,756,469 7,395,698 8,132,547
Selling, general, and administrative 746,945 690,288 2,259,188 2,034,440
Research, development and engineering 235,294 233,581 809,000 718,849
---------- ---------- ---------- ----------
3,711,532 3,680,338 10,463,886 10,885,836
---------- ---------- ---------- ----------
Operating income 168,095 673,542 482,135 2,269,619
---------- ---------- ---------- ----------
Other income (deductions):
Interest and sundry income 54,072 69,342 167,657 207,540
Interest expense (8,094) (10,151) (25,649) (32,625)
---------- ---------- ---------- ----------
45,978 59,191 142,008 174,915
---------- ---------- ---------- ----------
Income before income taxes 214,073 732,733 624,143 2,444,534
Income taxes 70,000 268,000 107,126 894,814
---------- ---------- ---------- ----------
Net income $ 144,073 464,733 517,0174 1,549,720
========== ========== ========== ==========
Earnings per share $ 0.03 0.09 0.10 0.29
========== ========== =========== =========
Weighted average number of common
and equivalent shares outstanding 5,438,892 5,405,639 5,441,928 5,407,725
========== ========== ========== ==========
Dividend declared per share $ 0.06 0.06 0.18 0.18
========== ========== ========== ==========
<FN>
See accompanying notes to condensed financial statements.
</TABLE>
- 2 -
<TABLE>
TECHNOLOGY RESEARCH CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Nine Months Ended
December 31
1996 1995
---------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 517,017 1,549,720
Adjustments to reconcile net income to net cash
provided by operating activities:
Accretion of interest (153,669) (166,953)
Depreciation 369,367 349,595
Decrease in accounts receivable 220,152 484,505
Decrease (increase) in inventories 4,487 (982,904)
Increase in prepaid expenses (127,630) (39,693)
Decrease in deferred income taxes 75,250 48,000
Decrease (increase) in other assets (1,900) 52,812
Increase (decrease) in accounts payable 20,504 (193,638)
Increase (decrease) in accrued expenses (42,755) 14,760
Decrease in income taxes payable (991) (60,500)
---------- ----------
Net cash provided by operating activities 879,832 1,055,704
---------- ----------
Cash flows from investing activities:
Maturities of short-term investments (3,001,148) (4,958,036)
Purchase of short-term investments 4,164,000 3,832,000
Capital expenditures (395,232) (417,212)
---------- ----------
Net cash provided by (used in)
investing activities 767,620 (1,543,248)
---------- ----------
Cash flows from financing activities:
Principal payments on long-term debt (56,250) (56,250)
Proceeds from exercise of stock options 1,750 64,263
Dividends paid (947,856) (629,308)
---------- ----------
Net cash used in financing activities (1,002,356) (621,295)
---------- ----------
Increase (decrease) in cash and cash equivalents 645,096 (1,108,839)
Cash and cash equivalents at beginning of period 341,601 1,707,930
---------- ----------
Cash and cash equivalents at end of period $ 986,697 599,091
========== ==========
<FN>
See accompanying notes to condensed financial statements.
</TABLE>
- 3 -
TECHNOLOGY RESEARCH CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. The financial information included herein is unaudited; however,
such information reflects all adjustments (consisting solely of
normal recurring adjustments) which are, in the opinion of management,
necessary for the fair statement of results for the interim period.
The results of operations for the nine-month period ended December
31, 1996, are not necessarily indicative of the results to be
expected for the full year.
2. Short-term investments consist of U.S. Treasury Bills with a
purchased maturity of greater than three months.
3. Earnings per share has been computed by dividing net income by the
weighted average number of common and equivalent shares outstanding.
Common share equivalents included in the computation represent
shares issuable upon exercise of stock options which would have a
dilutive effect in years where there are earnings.
- 4 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULT OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying condensed financial
statements.
Current Nine Months Ended December 31, 1996 versus Nine Months Ended
December 31, 1995
Operating revenues (net sales and royalties) for the third quarter ended
December 31, 1996 were $3,879,627, compared to $4,353,880 reported in the same
quarter of the prior year, a decrease of approximately 11%. Net income for the
current quarter was $144,073, compared to $464,733 for the prior year's
quarter, a decrease of approximately 69%. The earnings per share for the
current period were $.03 per share as compared to $.09 for the comparable
period last year.
Operating revenues (net sales and royalties) for the nine-month period ended
December 31, 1996 were $10,946,021, compared to $13,155,455 reported in the
same period for the prior year, a decrease of approximately 17%. Net income
for the nine-month period was $517,017, compared to $1,549,720 for the same
period in the prior year, a decrease of approximately 67%. The earnings per
share for the nine-month period were $.10 per share as compared to $.29 for
the comparable period last year.
The lower revenues were due to commercial sales being down $1,568,811 over the
prior nine-month period while military sales showed a decrease of $351,365.
Royalty income was down by $289,258. The reduction in commercial sales was
mainly due to the level of business with Xerox and, to a lesser extent, the
sprayer/washer market. The revenues associated with Xerox were negatively
impacted by another price reduction on October 1, 1996 and by the transition
period of the Company supplying Xerox with its European product requirements
instead of Temic Telefunken, which impacted the current quarter both in
royalties from Temic and in shipments of piece parts to Temic which were used
by Temic to manufacture finished product. This development should result in
higher shipments to Xerox in the future. Military sales continued to improve
in the current quarter with an increase of $389,330 over the same quarter of
the prior year. The Company is now in full production of the products related
to the Tactical Quiet Generator Systems program, which has an expected value
of $4,900,000 over approximately two years. Royalty income was down, as
expected, due to less royalties from Windmere Corporation and Temic Telefunken.
- 5 -
The Company's revenues have increased from quarter to quarter this fiscal
year, and the Company believes that revenues will continue to improve in the
fourth quarter. The Company has yet, however, to experience the anticipated
revenues from the "Fire Shield" products and the consumer marketing
initiative, which were needed, in addition to the Company's existing business,
to achieve revenue growth over Fiscal Year 1996. The Company believes that
the market for "Fire Shield" is large and that the consumer market for the
Company's products provide significant opportunities for growth; therefore,
the Company will continue to increase its expenditures in market development
in this fiscal year and thereafter.
The Company will be test marketing "Fire Shield" extension cords by way of a
TV Infomercial which will be slated for viewing in four geographic areas in
late February.
The Company is aggressively pursuing ways to produce quality products at lower
costs using automation and alternative sites of manufacturing so that the
Company can continue to be successful in reducing product cost to maintain
acceptable profit margins (See Item 5. Other Information for further detail).
Cost of sales was approximately 72% of net sales for the current quarter and
approximately 70% of net sales for the nine-month period ended December 31,
1996, compared to 67% and 65% for the same periods last year. The difference
was primarily due to weaker profit margins resulting from a price reduction to
Xerox Corporation, effective October 1, 1996, and due to the transition period
of the Company shipping product directly to Xerox and its suppliers from China
in the current quarter. This action will ultimately result in lower duty,
freight and packaging costs to the Company, thus offsetting, in part, the
effect of the price reduction. The Company, historically, has been successful
in offsetting price reduction with product cost reduction in order to maintain
acceptable margins with Xerox Corporation.
Selling, general and administrative expenses for the current quarter were
$746,945 and $2,259,188 for the nine-month period ended December 31, 1996,
compared to $690,288 and $2,034,440 in the same periods last year, an increase
of approximately 8% and 11%, respectively. Selling expenses were $460,009 for
the current quarter and $1,453,769 for the nine-month period ended December 31,
1996, compared to $410,523 and $1,281,659 in the same period last year, an
increase of approximately 12% and 13%, respectively, reflecting expenses
related to the marketing of the "Fire Shield" products and the consumer
marketing program. General and administrative expenses were $286,936 for the
current quarter and $805,419 for the nine-month period ended December 31, 1996,
compared to $279,765 and $752,781 in the same periods last year, an increase
of approximately 3% and 7%, respectively, reflecting comparable expenses year
to year.
Research, development and engineering expenses for the current quarter were
$235,294 and $809,000 for the nine-month period ended December 31, 1996,
compared to $233,581 and $718,849 for the same periods in the prior year, an
increase of approximately 13% for the nine-month period, reflecting higher
salary related expenses.
Interest and sundry income, net of interest expense, for the current quarter
was $45,978 and $142,008 for the nine-month period ended December 31, 1996,
compared to $59,191 and $174,915 for the same periods last year, reflecting
lower returns and average balances on the Company's short-term investments.
- 6 -
Liquidity and Capital Resources
As of December 31, 1996, the Company's cash and cash equivalents was $986,697,
compared to the March 31, 1996 total of $341,601, and short term investments
were $3,075,515, compared to the March 31, 1996 total of $4,084,698. The
short term investments are comprised of U.S. Treasury Bills.
On August 22, 1995, the Company's institutional lender renewed its commercial
line of credit at $2,500,000 and extended the maturity date to August 15, 1997.
The lender continues to give the Company the option of borrowing at the
lender's prime rate of interest or the 30 day London Interbank Offering
Rate(L.I.B.O.R.) plus 200 basis points. The lender also continues to make
available a Banker's Acceptance agreement which gives the Company the option
of borrowing up to $750,000 under the line of credit with the interest rate
being determined by the lender's International Division at the time of
borrowing. The Company did not use its line of credit in the current period,
and the mortgage payable to the Company's institutional lender as of December
31, 1996 was $300,100, compared to $356,350 at March 31, 1996.
The Company's working capital decreased by $489,720 to $10,442,020 at December
31, 1996, compared to $10,931,740 at March 31, 1996. The Company believes
that its cash flow from operations, the available bank line, and its current
cash position will be sufficient to meet its working capital requirements for
the immediate future.
The third quarter dividend of $.06 per share was paid on January 21, 1997 to
shareholders of record on December 31, 1996.
Part II - Other Information
Item 1. Legal Proceedings
In March 1995, the Company, along with seven other defendants, was sued in
Harris County, Texas. The suit claims, among other things, that the Company's
GFCI product was defectively designed and manufactured and caused the death by
electrocution of an individual. The parties to the lawsuit have agreed to an
"out of court" settlement subject to final review and approval by the Court.
The Company's product liability insurance will cover its portion of the
settlement cost.
- 7 -
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other Information
On February 3, 1997, the Company's Board of Directors approved the
incorporation of TRC Honduras, S.A., a wholly owned subsidiary of Technology
Research Corporation, for the purpose of manufacturing the Company's high-
volume products. This decision was made in line with the Company's goal of
always striving to improve quality, profit margins and customer satisfaction.
TRC Honduras, S.A. will reside in a leased 42,000 square foot building located
in ZIP San Jose, a free trade zone and industrial park, in San Pedro Sula,
Honduras. The lease will be for a term of five years with an option to extend
the lease for another five years if desired. The benefits of being located in
a free trade zone include no Honduran duties on imported raw materials or
equipment, no sales or export tax on exported finished product, a twenty year
federal income tax holiday and a ten year municipal income tax holiday for the
profits generated by the Honduran subsidiary, and various other benefits. TRC
Honduras, S.A. will be funded with equity at one million four hundred thousand
dollars to be used for machinery, equipment and various start-up cost. The
Company expects to receive significant benefit from its investment in the form
of profits and positive cash flow with first product shipments expected to
begin from Honduras in April 1997 and full production expected by the third
quarter of Fiscal Year 1998. Although the Company has several options
available for financing its Honduran subsidiary, including using its bank line
of credit or its short term investments, the Company is also investigating
additional financing through its institutional lender.
Item 6. Exhibits and Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter covered by this
Report.
- 8 -
___________________________________________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHNOLOGY RESEARCH CORPORATION
(registrant)
December 6, 1997 Scott J. Loucks
___________________________ __________________________________
Date Scott J. Loucks
Chief Financial Officer,
(principal financial, accounting and
Duly Authorized Officer)
- 9 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-START> Apr-01-1996
<PERIOD-END> Dec-31-1996
<CASH> 986697
<SECURITIES> 3075515
<RECEIVABLES> 2387000
<ALLOWANCES> 0
<INVENTORY> 5222275
<CURRENT-ASSETS> 12296322
<PP&E> 6515573
<DEPRECIATION> 4068059
<TOTAL-ASSETS> 14872009
<CURRENT-LIABILITIES> 1854302
<BONDS> 0
<COMMON> 2715361
0
0
<OTHER-SE> 10077246
<TOTAL-LIABILITY-AND-EQUITY> 14872009
<SALES> 10632575
<TOTAL-REVENUES> 10946021
<CGS> 7395698
<TOTAL-COSTS> 7395698
<OTHER-EXPENSES> 809000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25649
<INCOME-PRETAX> 624143
<INCOME-TAX> 107126
<INCOME-CONTINUING> 624143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 517017
<EPS-PRIMARY> .10
<EPS-DILUTED> 0
</TABLE>
