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 June 30, 1999
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 (727) 535-0572
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for a shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 30, 1999
Common stock, $.51 par value 5,455,756
TABLE OF CONTENTS
Part I - Financial Information Page
Condensed Consolidated Balance Sheets
- June 30, 1999 and March 31, 1999.................................. 1
Condensed Consolidated Statements of Operations
- Three months ended June 30, 1999 and June 30, 1998................ 2
Condensed Consolidated Statements of Cash Flows
- Three months ended June 30, 1999 and June 30, 1998................ 3
Notes to Condensed Consolidated Financial Statements..................... 4
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 5
Item 3 - Quantitative and Qualitative Disclosure Regarding Market Risk... 6
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 AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30 March 31
1999 1999
----------- ---------
ASSETS (unaudited) *
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,737,469 1,653,952
Accounts receivable, net 3,131,328 3,120,256
Income tax receivable 280,770 332,422
Inventories:
Raw material 3,795,205 3,800,340
Work in process 452,662 242,683
Finished goods 697,725 681,159
---------- ----------
Total inventories 4,945,592 4,724,182
Prepaid expenses 52,582 75,804
Deferred income taxes 515,010 515,010
---------- ----------
Total current assets 10,662,751 10,421,626
---------- ----------
Property, plant, and equipment 9,984,720 9,806,134
Less accumulated depreciation 5,393,139 5,205,162
---------- ----------
Net property, plant, and equipment 4,591,581 4,600,972
---------- ----------
Other assets 113,624 123,577
---------- ----------
$ 15,367,956 15,146,175
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of debt $ 2,525,100 2,525,100
Accounts payable 656,728 649,252
Accrued expenses 361,214 331,984
Dividends payable 15,613 15,613
---------- ----------
Total current liabilities 3,558,655 3,521,949
Long-term debt, excluding current installments 37,500 56,250
---------- ----------
Total liabilities 3,596,155 3,578,199
---------- ----------
Stockholders' equity:
Common stock 2,782,435 2,782,435
Additional paid-in capital 7,528,473 7,528,473
Retained earnings 1,460,893 1,257,068
---------- ----------
Total stockholders' equity 11,771,801 11,567,976
---------- ----------
$ 15,367,956 15,146,175
========== ==========
<FN>
<F1>
* The balance sheet as of March 31, 1999 has been summarized
from the Company's audited balance sheet as of that date.
<F2>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
- 1 -
<TABLE>
TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Three Months Ended
June 30
1999 1998
---------- ----------
Operating revenues:
<S> <C> <C>
Net sales $ 3,914,286 4,737,522
Royalties 20,232 15,879
---------- ----------
3,934,518 4,753,401
---------- ----------
Operating expenses:
Cost of sales 2,583,025 3,310,807
Selling, general, and administrative 804,597 752,484
Research, development and engineering 259,606 279,685
---------- ----------
3,647,228 4,342,976
---------- ----------
Operating income 287,290 410,425
---------- ----------
Other income (deductions):
Interest and sundry income 18,221 17,013
Interest expense (43,897) (51,888)
Gain on foreign exchange 1,211 1,072
---------- ----------
(24,465) (33,803)
---------- ----------
Income before income taxes 262,825 376,622
Income taxes 59,000 136,760
---------- ----------
Net income $ 203,825 239,862
========== ==========
Basic earnings per share $ 0.04 0.04
========== ==========
Weighted average number of common
shares outstanding 5,455,756 5,377,051
========== ==========
Diluted earnings per share $ 0.04 0.04
========== ==========
Weighted average number of common
and equivalent shares outstanding 5,461,762 5,393,711
========== ==========
Dividends paid $ - -
========== ==========
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
- 2 -
<TABLE>
TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Three Months Ended
June 30
1999 1998
---------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 203,825 239,862
Adjustments to reconcile net income to net cash
provided by operating activities:
Accretion of interest - (13,745)
Depreciation 187,977 183,649
Increase in accounts receivable (11,072) (328,946)
Increase in inventories (221,410) (320,799)
Decrease (increase) in prepaid expenses 23,222 (64,012)
Decrease in income taxes receivable 51,652 116,958
Decrease in deferred income taxes - 19,802
Decrease (increase) in other assets 9,953 (39,175)
Increase (decrease) in accounts payable 7,476 (4,600)
Increase (decrease) in accrued expenses 29,230 (143,588)
---------- ----------
Net cash provided (used) by
operating activities 280,853 (354,594)
---------- ----------
Cash flows from investing activities:
Capital expenditures (178,586) (72,072)
---------- ----------
Net cash used by investing activities (178,586) (72,072)
---------- ----------
Cash flows from financing activities:
Principal payments on long-term debt (18,750) (18,750)
Proceeds from exercise of stock options - 86,332
Dividends paid - (10,000)
---------- ----------
Net cash provided (used) by
financing activities (18,750) 57,582
---------- ----------
Increase (decrease) in cash and cash equivalents 83,517 (369,084)
Cash and cash equivalents at beginning of period 1,653,952 1,153,798
---------- ----------
Cash and cash equivalents at end of period $ 1,737,469 784,714
========== ==========
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
- 3 -
TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY
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 three-month period ended June 30, 1999,
are not necessarily indicative of the results to be expected for the full
year.
2. 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.
- 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 Three Months Ended June 30, 1999 versus Three Months Ended
June 30, 1998
The Company's operating revenues (net sales and royalties) for the quarter
ended June 30, 1999 were $3,934,518, compared to $4,753,401 reported in the
same quarter last year, a decrease of approximately 17%. Net income for the
current quarter was $203,825, compared to $239,862, for the same quarter last
year, a decrease of approximately 15%. Basic and diluted earnings for the
current period were $.04 per share compared to basic and diluted earnings of
$.04 per share for the same quarter last year.
Although net sales were down, the Company generated a profit for the quarter
ended June 30, 1999. This improvement is due to lower product costs, which
were realized by moving more of the Company's U.S. manufacturing processes to
its Honduran manufacturing facility in the first quarter. The Company also
experienced a favorable income tax effect on the profit realized by its
Honduran subsidiary due to the Honduran tax holiday. The decline in revenues,
compared to the same quarter last year, was due to military and commercial
sales being down by $101,996 and $721,240, respectively, while royalty income
was up slightly by $4,353.
The decrease in military sales was mainly due to the Company completing the
previous contract related to the 5/10/15/30/60KW Tactical Quiet Generator (TQG)
Systems program. As previously reported, the Company has received initial
releases in the amount of $1.9 million under a new contract for its 5/10/15KW
TQG control equipment and orders in the amount of approximately $6.3 million
for the new 3KW military TQG Program. Shipments of the 5/10/15KW TQG control
equipment began in December 1998, and assuming successful completion of First
Article Testing and release of the production phase of the initial contract,
shipments of approximately 4,200 3KW TQG control devices are estimated to begin
in March 2000. The Company expects military sales to remain steady for Fiscal
Year 2000 with potential strengthening in the fourth quarter to the extent that
shipments are made under the new 3KW TQG Program.
The decrease in commercial sales was primarily due to the level of business
with Xerox Corporation and its suppliers, which was down by $536,803 compared
to the same quarter last year. Commercial sales, other than Xerox, also showed
a decrease of $184,437, compared to the prior year's quarter. However, the
first quarter last year had approximately $400,000 of shipments, which had been
delayed from the previous quarter due to production problems at the Company's
Honduran manufacturing plant. Excluding this condition, commercial sales,
other than Xerox, were stronger in the current quarter compared to the same
quarter last year. For the upcoming quarter, the Company expects total
commercial sales to remain at current levels unless orders from Xerox increase.
The Company's gross profit margin on net sales was 34% for the current quarter
and 30% for the same quarter last year. The improvement in gross profit margin
were mainly due to the Company moving additional U.S. manufacturing processes
to its Honduran manufacturing facility in the first quarter.
- 5 -
Selling, general and administrative expenses for the current quarter were
$804,597, compared to $752,484 in the same quarter last year, an increase of
approximately 7%, reflecting comparable expenses over the respective periods.
Selling expenses were $455,374 for the current quarter, compared to $418,438
the same quarter last year, an increase of approximately 9%, and General and
administrative expenses were $349,223, compared to $334,046 in the same quarter
last year, an increase of approximately 5%.
Research, development and engineering expenses for the current quarter were
$259,606, compared to $279,685 for the same quarter last year, a decrease of
approximately 7%, reflecting comparable expenses over the respective periods.
Interest expense, net of interest and sundry income was $24,465 for the
current quarter, compared to $33,803 for the same quarter last year.
Liquidity and Capital Resources
As of June 30, 1999, the Company's cash and cash equivalents increased to
$1,737,469 from the March 31, 1999 total of $1,653,952. The increase in cash
was mainly provided by operating activities.
On August 28, 1999, the Company expects to renew its $2,500,000 commercial
line of credit with its institutional lender for another year, maturing in
August 2000. 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 175 basis points. The Company's debt from advances on
its line of credit was $2,450,100 as of June 30, 1999.
The Company's working capital increased by $204,419 to $7,104,096 at June 30,
1999, compared to $6,899,677 at March 31, 1999. The increase was primarily a
result of the Company's profitability in its first fiscal quarter. 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 June 30, 1999
was $112,500, compared to $131,250 at March 31, 1999, reflecting the Company's
payments on principal for the three-month period.
The Company's Board of Directors did not declare a dividend for its first
quarter ended June 30, 1999. The Company's Board of Directors reviews the
Company's dividend policy on a quarterly basis and makes a determination at
such time as to whether the Company will resume payment of a dividend based on
the Company's cash and earnings position.
Item 3. Quantitative and Qualitative Disclosure Regarding Market Risk
The Company has no derivative securities as of March 31, 1999. The Company is
exposed to changes in interest rates as a result of its bank credit agreement,
which is based on the London Interbank Offered Rate. A 10% increase in interest
rates related to the Company's bank credit facility would not have a material
effect on the Company's earnings over the next fiscal year or the bank credit
agreement's fair value.
- 6 -
Year 2000 Issues
The Year 2000 issue is a result of certain microprocessors and computer
programs that were designed using two digits rather than four to define the
applicable year. Computer programs that have time sensitive software may
recognize a date using "00" as the year 1900 rather that the year 2000. This
could result in a system failure or miscalculation causing disruptions to
operations including, among other things, a temporary inability to process
transactions, send invoices or engage in similar activities.
The Company is continually working to resolve the potential risks and concerns
of the Year 2000 issues. The Company has made progress in assessing and
implementing systems to be Year 2000 ready, completing the conversion of its
major business computer systems to be Year 2000 ready, on January 1, 1999 at its
U.S. facility and on July 4, 1998 at its Honduran facility.
None of the Company's products are Year 2000 sensitive, so the total cost of
the Year 2000 project has been minimal so far at approximately $10,000. The
Company expensed all costs associated with these system changes as the costs
were incurred, and they were funded through operating cash flows. Since the
Company's major computer systems are already Year 2000 compliant, the Company
does not foresee the need of a contingency plan for those minor systems that
are not significant enough to disrupt the Company's business.
The Company is also assessing the readiness of its significant suppliers, which
if not Year 2000 ready, could have a material adverse effect on the Company's
operations. The Company believes that if certain suppliers were not Year 2000
ready, then alternate arrangements could be made to alleviate any material
impact on operations.
Achieving Year 2000 compliance is dependent on many factors, some of which are
not completely within the Company's control. There can be no assurances that
the Company will be able to identify all aspects of its business that are
subject to Year 2000 problems, specifically those related to suppliers that
could have a material effect on the Company. As a contingency plan, the
Company will maintain sufficient inventory of those parts with long lead times
that are critical to the manufacturing process.
Safe Harbor Statement
The statements in this report that relate to future plans, expectations,
events, performance and the like are forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995 and the
Securities Exchange Act of 1934. Actual results or events could differ
materially from those described in the forward-looking statements due to a
variety of factors, including those set forth in the Company's reports on
Form 10-K and 10-Q filed with the Securities and Exchange Commission.
- 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)
August 11, 1999 Scott J. Loucks
___________________________ __________________________________
Date Scott J. Loucks
Chief Financial Officer,
(principal financial, accounting and
Duly Authorized Officer)
- 9 -
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<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Mar-31-2000
<PERIOD-START> Apr-01-1999
<PERIOD-END> Jun-30-1999
<CASH> 1737469
<SECURITIES> 0
<RECEIVABLES> 3483352
<ALLOWANCES> 71254
<INVENTORY> 4945592
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0
0
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