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, 1997
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 33760
____________________________________________________________________________
(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 30, 1998
____________________________ _______________________________
Common stock, $.51 par value 5,332,571
TECHNOLOGY RESEARCH CORPORATION
INDEX
Part I - Financial Information Page
Condensed Consolidated Balance Sheets
- December 31, 1997 and March 31, 1997 ............................ 1
Condensed Consolidated Statements of Income
- Three months and nine months ended December 31, 1997
and December 31, 1996 ........................................... 2
Condensed Consolidated Statements of Cash Flows
- Nine months ended December 31, 1997 and December 31, 1996 ....... 3
Notes to Condensed Consolidated 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.............................................. 8
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 CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31 March 31
1997 1997
------------ ---------
ASSETS (unaudited) *
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 98,892 1,307,567
Short term investments 2,012,118 3,031,013
Accounts receivable, net 3,304,298 2,304,449
Income tax receivable - 178,130
Inventories:
Raw material 4,281,287 3,138,639
Work in process 836,088 1,309,312
Finished goods 594,476 694,817
---------- ----------
Total inventories 5,711,851 5,142,768
Prepaid expenses 208,978 178,972
Deferred income taxes 539,360 411,400
---------- ----------
Total current assets 11,875,497 12,554,299
---------- ----------
Property, plant, and equipment 8,818,881 6,817,411
Less accumulated depreciation (4,301,402) (3,859,909)
---------- ----------
Net property, plant, and equipment 4,517,479 2,957,502
---------- ----------
Deferred income taxes 102,120 102,120
Other assets 56,788 24,028
---------- ----------
$ 16,551,884 15,637,949
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 2,275,100 652,999
Accounts payable 1,594,432 1,607,116
Accrued expenses 334,319 296,549
Dividends payable 360,946 346,490
---------- ----------
Total current liabilities 4,564,797 2,903,154
Long-term debt, excluding current installments 148,515 206,250
---------- ----------
Total liabilities 4,713,312 3,109,404
---------- ----------
Stockholders' equity:
Common stock 2,719,611 2,719,611
Additional paid-in capital 7,411,581 7,411,581
Retained earnings 1,707,380 2,397,353
---------- ----------
Total stockholders' equity 11,838,572 12,528,545
---------- ----------
$ 16,551,884 15,637,949
========== ==========
<FN>
<F1>
* The balance sheet as of March 31, 1997 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 CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
December 31 December 31
1997 1996 1997 1996
---------- ---------- ---------- ----------
Operating revenues:
<S> <C> <C> <C> <C>
Net sales $ 4,575,483 3,802,003 13,704,621 10,632,575
Royalties 82,630 77,624 311,027 313,446
---------- ---------- ---------- ----------
4,658,113 3,879,627 14,015,648 10,946,021
---------- ---------- ---------- ----------
Operating expenses:
Cost of sales 3,435,409 2,729,293 9,739,345 7,395,698
Selling, general, and administrative 1,040,719 746,945 2,955,800 2,259,188
Research, development and engineering 327,494 235,294 892,133 809,000
---------- ---------- ---------- ----------
4,803,622 3,711,532 13,587,278 10,463,886
---------- ---------- ---------- ----------
Operating income (145,509) 168,095 428,370 482,135
---------- ---------- ---------- ----------
Other income (deductions):
Interest and sundry income 29,415 54,072 109,025 167,657
Interest expense (36,350) (8,094) (85,798) (25,649)
---------- ---------- ---------- ----------
(6,935) 45,978 23,227 142,008
---------- ---------- ---------- ----------
Income (loss) before income taxes (152,444) 214,073 451,597 624,143
Income taxes expense (benefit) (22,000) 70,000 181,707 107,126
---------- ---------- ---------- ----------
Net income (loss) $ (130,444) 144,073 269,890 517,017
========== ========== ========== ==========
Basic earnings (loss) per share $ (0.02) 0.03 0.05 0.10
========== ========== =========== =========
Weighted average number of common
shares outstanding 5,332,571 5,321,903 5,332,571 5,320,102
========== ========== ========== ==========
Diluted earnings (loss) per share $ (0.02) 0.03 0.05 0.10
========== ========== =========== =========
Weighted average number of common
and equivalent shares outstanding 5,332,571 5,438,892 5,432,971 5,441,928
========== ========== ========== ==========
Dividends paid $ 0.06 0.06 0.18 0.18
========== ========== ========== ==========
<FN>
See accompanying notes to condensed financial statements.
</TABLE>
- 2 -
<TABLE>
TECHNOLOGY RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Nine Months Ended
December 31
1997 1996
---------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 269,890 517,017
Adjustments to reconcile net income to net cash
provided by operating activities:
Accretion of interest (93,041) (153,669)
Depreciation 441,493 369,367
Decrease (increase) in accounts receivable (999,849) 220,152
Decrease (increase) in inventories (569,083) 4,487
Increase in prepaid expenses (30,006) (127,630)
Decrease in income taxes receivable 178,130 -
Decrease (increase) in deferred income taxes (127,960) 75,250
Increase in other assets (32,760) (1,900)
Increase (decrease) in accounts payable (12,684) 20,504
Increase (decrease) in accrued expenses 37,770 (42,755)
Increase in income taxes payable - (991)
---------- ----------
Net cash provided by (used in)
operating activities (938,100) 879,832
---------- ----------
Cash flows from investing activities:
Maturities of short-term investments 2,112,000 4,164,000
Purchase of short-term investments (1,000,064) (3,001,148)
Capital expenditures (2,001,470) (395,232)
---------- ----------
Net cash provided by (used in)
investing activities (889,534) 767,620
---------- ----------
Cash flows from financing activities:
Net borrowings under line-of-credit agreement 1,622,101 -
Principal payments on long-term debt (57,735) (56,250)
Proceeds from exercise of stock options - 1,750
Dividends paid (945,407) (947,856)
---------- ----------
Net cash provided by (used in)
financing activities 618,959 (1,002,356)
---------- ----------
Increase (decrease) in cash and cash equivalents (1,208,675) 645,096
Cash and cash equivalents at beginning of period 1,307,567 341,601
---------- ----------
Cash and cash equivalents at end of period $ 98,892 986,697
========== ==========
<FN>
See accompanying notes to condensed financial statements.
</TABLE>
- 3 -
TECHNOLOGY RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED 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,
1997, are not necessarily indicative of the results to be expected for the
full year.
2. The Company considers all of its investment securities (U.S. Treasury
Bills) to be held-to-maturity. These securities are all classified in
short-term investments on the consolidated balance sheets and mature
within one year.
3. Basic earnings per share has been computed by dividing net income by the
weighted average number of common shares outstanding.
Diluted 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 periods where there are earnings.
The Company adopted Statement of Financial Accounting Standards No. 128
("Statement 128") "Earnings per Share" during the quarter ended December
31, 1997. In accordance with Statement 128, all previously presented
earnings per share information has been calculated under the provisions of
Statement 128, to the nature of the Company's capital structure, there was
no difference between basic and diluted earnings per share calculated under
Statement 128 and primary earnings per share calculated under APB Opinion
No. 15.
- 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 consolidated
financial statements.
Current Nine Months Ended December 31, 1997 versus Nine Months Ended
December 31, 1996
The Company's operating revenues (net sales and royalties) for the third
quarter ended December 31, 1997 were $4,658,113, compared to $3,879,627
reported in the same quarter of the prior year, an increase of approximately
20%. The Company lost $130,444 for the current quarter, compared to earning
$144,073 for the prior year's quarter. Basic and diluted earnings per share
were $(.02) per share for the current period, compared to $.03 per share for
the comparable period last year.
The Company's operating revenues (net sales and royalties) for the nine-month
period ended December 31, 1997 were $14,015,648, compared to $10,946,021
reported in the same period of the prior year, an increase of approximately
28%. Net income for the nine-month period was $269,890, compared to $517,017,
for the same period in the prior year, a decrease of approximately 48%. Basic
and diluted earnings per share for the nine-month period were $.05 per share,
compared to $.10 per share for the comparable period last year.
The Company's higher revenues were due to commercial sales increasing by
$768,223 and military sales increasing by $2,303,823 over the prior nine-month
period. The increase in commercial sales was primarily due to the level of
business with the Company's OEM customers, both domestic and international.
Sales to the sprayer/washer market increased slightly while sales to Xerox
Corporation and its suppliers decreased primarily due to a price reduction
which went into effect August 1, 1997. Throughout Fiscal Year 1998, the Company
expects commercial sales to remain stable and sales to Xerox to continue to be
affected by the price reduction. The increase in Military sales was primarily
due to the Company now being in full production of the products related to the
Tactical Quiet Generator Systems program.
Although the Company's revenues were higher for the current quarter, compared
to revenues for the prior year's quarter, net income decreased as a result of
higher period expenses primarily due to the Company's marketing programs and
as a result of lower gross margins which were mainly caused by manufacturing
inefficiencies (see next paragraph). The lower gross margins resulted from
approximately $400,000 of additional cost for the Company to build its products
for the third quarter in comparison to the same quarter last year.
The Company's wholly owned subsidiary, TRC Honduras, S.A. de C.V., recorded a
loss of $73,624 for the third quarter and a loss of $192,456 for the nine-month
period ended December 31, 1997. As part of the Company's on-going plan to
produce its high-volume products at its Honduran subsidiary, the Company added
six additional products to the production process in Honduras in the third
quarter. Unfortunately, the manufacturing complexities associated with adding
these additional products caused its subsidiary not to meet its production
shipment plan for the third quarter, and the result was that additional product
- 5 -
continued to be produced at the Company's Clearwater facility which involved
the hiring of temporary employees and heavy overtime as well as higher labor
rates in order to meet customer delivery commitments. The Company believes it
is making progress in resolving the issues in bringing a new plant on-line and
expects fourth quarter performance to be significantly better than the third
quarter.
Total expenses for marketing the Company's "Fire Shield" and consumer Safe
Living Smart products were $93,326 and $141,970 for the current quarter and
$259,645 and $336,780 for the nine-month period, respectively. Although no
significant sales have been recorded to date for these products, the Company
believes that a significant opportunity exists for them. The Company continues
to pursue its marketing plan to sell its line of OEM "Fire Shield" products and
will continue to work to have some of them included in the National Electric
Code; however, the Company will reduce its expenses in pursuing independent
distributors to sell its consumer Safe Living Smart Products and concentrate
on making these products available through catalogs, traditional distributors
and OEM channels.
The Company's gross profit margin on net sales was approximately 25% for the
current quarter and approximately 29% for the nine-month period ended December
30, 1997, compared to 28% and 30% for the same periods last year. The
Company's gross profit margins were negatively impacted by the August 1st Xerox
price reduction, by the costs associated with the Honduran plant start-up and
by the additional costs incurred by the Clearwater facility as a result of the
Honduran plant not meeting its plan for product shipments, as discussed above.
Although the Company's profit margins will continue to be affected by the Xerox
price reduction, the Company expects profit margins to improve as the Honduran
plant improves its productivity and performs to plan.
Selling, general and administrative expenses were $1,040,719 for the current
quarter and $2,955,800 for the nine-month period ended December 31, 1997,
compared to $746,945 and $2,259,188 for the same periods last year, an increase
of approximately 39% and 31%, respectively. Selling expenses were $741,599 for
the current quarter and $1,983,003 for the nine-month period ended December 31,
1997, compared to $460,009 and $1,453,769 for the same periods last year, an
increase of approximately 61% and 36%, respectively, primarily reflecting
higher salary related expenses, travel and advertising costs and professional
fees of which 30% of these expenses for the nine-month period were related to
marketing the Company's "Fire Shield" and consumer Safe Living Smart products.
General and administrative expenses were $299,120 for the current quarter and
$972,797 for the nine-month period ended December 31, 1997, compared to
$286,936 and $805,419 for the same periods last year, an increase of
approximately 4% and 21%, respectively, primarily reflecting higher salary
related expenses, insurance costs and professional fees of which 14% of these
expenses for the nine-month period were related to the Company's Honduran
subsidiary.
Research, development and engineering expenses were $327,494 for the current
quarter and $892,133 for the nine-month period ended December 31, 1997,
compared to $235,294 and $809,000 for the same periods last year, an increase
of approximately 39% and 10%, respectively, primarily reflecting higher salary
related expenses due to a greater number of employees in the department. In
addition to higher salary related expense, UL and group insurance costs were
higher for the current quarter compared to the same period last year.
- 6 -
Interest expense, net of interest and sundry income, for the current quarter
was $6,935 and interest and sundry income, net of interest expense, was $45,978
for the nine-month period ended December 31, 1997, compared to interest and
sundry income, net of interest expense, of $23,227 and $142,008 for same periods
last year, reflecting lower returns and average balances on the Company's
short-term investments.
Income taxes as a percentage of income (loss) before income taxes was (14%) for
the current quarter, compared to 33% for the prior year's quarter, and 40% for
the current nine-month period, compared to 17% for the prior year's nine-month
period. The tax benefit for the current quarter was lower and the tax expense
for the current nine-month period was higher then expected due to the Company's
foreign subsidiary's losses for which no income tax benefit is available. In
addition, the prior year's nine-month period income taxes reflects the refund
of certain state income taxes.
Liquidity and Capital Resources
As of December 31, 1997, the Company's cash and cash equivalents decreased to
$98,892 from the March 31, 1997 total of $1,307,567, and short term
investments decreased to $2,012,118 from the March 31, 1997 total of
$3,031,013. The short term investments are comprised of U.S. Treasury Bills.
On September 10, 1997, the Company renewed its commercial line of credit at
$2,500,000 with its institutional lender for one year, maturing in August 1998.
The Company continues to have 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 Company also has 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's debt from
advances on its line of credit was $2,200,100 as of December 31, 1997.
The Company's working capital decreased by $2,340,445 to $7,310,700 at
December 31, 1997, compared to $9,651,145 at March 31, 1997. The decrease was
primarily a result of the Company funding its Honduran subsidiary and the
Company's earnings not exceeding its dividend. The Company believes cash flow
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.
The mortgage payable to the Company's institutional lender as of December 31,
1997 was $223,515, compared to $281,250 at March 31, 1997, reflecting the
Company's payments on principal for the nine-month period.
The third quarter dividend of $.06 per share was paid on January 20, 1998 to
shareholders of record on December 31, 1997. The Board of Directors will
review the Company's dividend policy at its regularly scheduled board meeting
in March 1998.
- 7 -
Part II - Other Information
Item 1. Legal Proceedings
Not Applicable.
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
Not Applicable.
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 Security 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)
January 30, 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-31-1998
<PERIOD-START> Apr-01-1997
<PERIOD-END> Dec-31-1997
<CASH> 98892
<SECURITIES> 2012118
<RECEIVABLES> 3304298
<ALLOWANCES> 0
<INVENTORY> 5711851
<CURRENT-ASSETS> 11875497
<PP&E> 8818881
<DEPRECIATION> 4301402
<TOTAL-ASSETS> 16551884
<CURRENT-LIABILITIES> 4564797
<BONDS> 0
<COMMON> 2719611
0
0
<OTHER-SE> 9118961
<TOTAL-LIABILITY-AND-EQUITY> 16551884
<SALES> 13704621
<TOTAL-REVENUES> 14015648
<CGS> 9739345
<TOTAL-COSTS> 9739345
<OTHER-EXPENSES> 892133
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<INTEREST-EXPENSE> 85798
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<INCOME-TAX> 181707
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<EPS-PRIMARY> .05
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</TABLE>
