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, 1998
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 January 29, 1999
____________________________ _______________________________
Common stock, $.51 par value 5,455,737
TECHNOLOGY RESEARCH CORPORATION
INDEX
Part I - Financial Information Page
Condensed Consolidated Balance Sheets
- December 31, 1998 and March 31, 1998 ............................ 1
Condensed Consolidated Statements of Income
- Three months and nine months ended December 31, 1998
and December 31, 1997 ........................................... 2
Condensed Consolidated Statements of Cash Flows
- Nine months ended December 31, 1998 and December 31, 1997 ....... 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
1998 1998
------------ ---------
ASSETS (unaudited) *
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,767,769 1,153,798
Short term investments - 1,033,902
Accounts receivable, net 2,696,946 2,711,056
Income taxes receivable 161,097 253,019
Inventories:
Raw material 4,208,196 4,499,524
Work in process 815,832 387,170
Finished goods 690,798 438,715
---------- ----------
Total inventories 5,714,826 5,325,409
Prepaid expenses 21,736 235,595
Deferred income taxes 355,798 406,100
---------- ----------
Total current assets 10,718,172 11,118,879
---------- ----------
Property, plant, and equipment 9,675,409 9,033,808
Less accumulated depreciation (5,014,540) (4,476,692)
---------- ----------
Net property, plant, and equipment 4,660,869 4,557,116
---------- ----------
Deferred income taxes 55,928 55,928
Other assets 79,561 14,895
---------- ----------
$ 15,514,530 15,746,818
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 2,525,100 2,525,100
Accounts payable 924,472 1,216,624
Accrued expenses 212,759 455,863
Dividends payable 15,613 45,613
---------- ----------
Total current liabilities 3,677,944 4,243,200
Long-term debt, excluding current installments 75,000 131,250
---------- ----------
Total liabilities 3,752,944 4,374,450
---------- ----------
Stockholders' equity:
Common stock 2,782,425 2,719,611
Additional paid-in capital 7,484,115 7,411,581
Retained earnings 1,495,046 1,241,176
---------- ----------
Total stockholders' equity 11,761,586 11,372,368
---------- ----------
$ 15,514,530 15,746,818
========== ==========
<FN>
<F1>
* The balance sheet as of March 31, 1998 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
1998 1997 1998 1997
---------- ---------- ---------- ----------
Operating revenues:
<S> <C> <C> <C> <C>
Net sales $ 3,688,881 4,575,483 12,865,743 13,704,621
Royalties 25,517 82,630 69,088 311,027
---------- ---------- ---------- ----------
3,714,398 4,658,113 12,934,831 14,015,648
---------- ---------- ---------- ----------
Operating expenses:
Cost of sales 2,859,268 3,435,409 9,327,193 9,739,345
Selling, general, and administrative 748,991 1,040,719 2,348,815 2,955,800
Research, development and engineering 243,071 327,494 824,550 892,133
---------- ---------- ---------- ----------
3,851,330 4,803,622 12,500,558 13,587,278
---------- ---------- ---------- ----------
Operating income (136,932) (145,509) 434,273 428,370
---------- ---------- ---------- ----------
Other income (deductions):
Interest and sundry income 61,240 29,415 101,200 109,025
Interest expense (84,284) (36,350) (183,267) (85,798)
---------- ---------- ---------- ----------
(23,044) (6,935) (82,067) 23,227
---------- ---------- ---------- ----------
Income (loss) before income taxes (159,976) (152,444) 352,206 451,597
Income tax expense (benefit) (89,975) (22,000) 98,336 181,707
---------- ---------- ---------- ----------
Net income (loss) $ (70,001) (130,444) 253,870 269,890
========== ========== ========== ==========
Basic earnings (loss) per share $ (0.01) (0.02) 0.05 0.05
========== ========== =========== =========
Weighted average number of common
shares outstanding 5,455,737 5,332,571 5,455,737 5,332,571
========== ========== ========== ==========
Diluted earnings (loss) per share $ (0.01) (0.02) 0.05 0.05
========== ========== =========== =========
Weighted average number of common
and equivalent shares outstanding 5,426,463 5,332,571 5,429,381 5,432,971
========== ========== ========== ==========
Dividends paid $ - 0.06 - 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
1998 1997
---------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 253,870 269,890
Adjustments to reconcile net income to net cash
provided by operating activities:
Accretion of interest (21,098) (93,041)
Depreciation 537,848 441,493
Decrease (increase) in accounts receivable 14,110 (999,849)
Increase in inventories (389,417) (569,083)
Decrease (increase) in prepaid expenses 213,859 (30,006)
Decrease in income taxes receivable 91,922 178,130
Decrease (increase) in deferred income taxes 50,302 (127,960)
Increase in other assets (64,666) (32,760)
Decrease in accounts payable (292,152) (12,684)
Decrease (increase) in accrued expenses (243,104) 37,770
---------- ----------
Net cash provided by (used in)
operating activities 151,474 (938,100)
---------- ----------
Cash flows from investing activities:
Maturities of short-term investments 1,055,000 2,112,000
Purchase of short-term investments - (1,000,064)
Capital expenditures (641,601) (2,001,470)
---------- ----------
Net cash provided by (used in)
investing activities 413,399 (889,534)
---------- ----------
Cash flows from financing activities:
Net borrowings under line-of-credit agreement - 1,622,101
Principal payments on long-term debt (56,250) (57,735)
Proceeds from exercise of stock options 135,348 -
Dividends paid (30,000) (945,407)
---------- ----------
Net cash provided by financing activities 49,098 618,959
---------- ----------
Increase (decrease) in cash and cash equivalents 613,971 (1,208,675)
Cash and cash equivalents at beginning of period 1,153,798 1,307,567
---------- ----------
Cash and cash equivalents at end of period $ 1,767,769 98,892
========== ==========
<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,
1998, 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.
- 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, 1998 versus Nine Months Ended
December 31, 1997
The Company's operating revenues (net sales and royalties) for the third
quarter ended December 31, 1998 were $3,714,398, compared to $4,658,113
reported in the same quarter last year, a decrease of approximately 20%. The
Company lost $70,001 for the current quarter, compared to a loss of $130,444,
for the same quarter last year. Basic and diluted earnings for the current
period were $(.01) per share compared to basic and diluted earnings of $(.02)
per share for the same quarter last year.
The decline in revenues for the three-month period ended December 31, 1998, as
compared to the same period last year, was due to a decrease in commercial
sales of $545,702, military sales of $340,900 and royalties of $57,113. The
dip in commercial sales resulted from lower shipments to the Company's domestic
OEM customers, including Xerox Corporation and its suppliers, which accounted
for approximately $350,000. See comments below on military sales and royalties.
The Company expects revenues to be higher in its fourth quarter, and the
Company will continue its efforts to lower product costs and reduce operating
expenses in order to remain profitable for the fiscal year. Operating expenses
were reduced by approximately $376,000 for the three-month period and
approximately $675,000 for the nine-month period ended December 31, 1998,
compared to the same periods last year, which was part of the Company's
commitment to reduce operating expenses by $800,000 for the fiscal year.
The Company's operating revenues (net sales and royalties) for the nine-month
period ended December 31, 1998 were $12,934,831, compared to $14,015,648
reported in the same period of the prior year, a decrease of approximately 8%.
Net income for the nine-month period was $253,870, compared to $269,890, for
the same period in the prior year, a decrease of approximately 6%. Basic and
diluted earnings for the nine-month period were $.05 per share compared to
basic and diluted earnings of $.05 per share for the same period last year.
Revenues for the nine-month period ended December 31, 1998, as compared to the
same period last year, decreased due to military sales and royalties being down
by $1,150,147 and $241,939, respectively, while commercial sales increased by
$311,269. The decrease in Military sales was mainly due to the Company
completing the previous contract related to the Tactical Quiet (TQ) Generator
Systems program; however, the Company has received an initial release under a
new contract for the same TQ control equipment and deliveries began in December
1998. Royalty income was higher in the prior year's nine-month period due to
licensing fees of $106,666 from Yaskawa Control Company of Japan and a one-time
final royalty payment of $100,000 from Windmere Corporation in the first
quarter of the prior year. The increase in commercial sales was mainly due to
the level of business with the Company's domestic and international OEM
customers, while sales to Xerox Corporation and its suppliers were down for the
nine-month period due to weak sales during the third quarter.
- 5 -
The Company's manufacturing plant in San Pedro Sula, Honduras was not damaged
by Hurricane Mitch, which devastated Honduras in late October. The plant
operation, however, was adversely affected by delays in shipping and by the
inability of its employees to travel to work due to heavy flooding, as
previously reported on November 2, 1998.
In addition to the Company's two web sites www.techrsrch.com and
www.safeliving.com, the Company opened its first "Store Front" on the Web at
www.surgeguard.com, specializing in sales for the recreational vehicle
marketplace. Also, as a way for the Company to participate in the explosive
E-Commerce market, it is pursuing reciprocal affiliations with companies whose
customers may benefit from the Company's products.
The Company's gross profit margin on net sales was approximately 22% for the
current quarter and approximately 28% for the nine-month period ended December
30, 1998, compared to 25% and 29% for the same periods last year, respectively,
primarily reflecting the effects of Hurricane Mitch on the Company's Honduran
operations and the lower revenues in the third quarter.
Selling, general and administrative expenses were $748,991 for the current
quarter and $2,348,815 for the nine-month period ended December 31, 1998,
compared to $1,040,719 and $2,955,800 for the same periods last year, a
decrease of approximately 28% and 21%, respectively. Selling expenses were
$414,400 for the current quarter and $1,312,794 for the nine-month period ended
December 31, 1998, compared to $741,599 and $1,983,003 for the same periods
last year, a decrease of approximately 44% and 34%, respectively, primarily
reflecting lower travel expense, advertising costs and salary related expenses,
due to fewer employees in the department. General and administrative
expenses were $334,591 for the current quarter and $1,036,021 for the
nine-month period ended December 31, 1998, compared to $299,120 and $972,797
for the same periods last year, an increase of approximately 12% and 6%,
respectively, primarily reflecting higher salary related expenses and
professional fees. The Company's Honduran subsidiary accounted for
approximately 12% of the total general and administrative expenses for the
nine-month period.
Research, development and engineering expenses were $243,071 for the current
quarter and $824,550 for the nine-month period ended December 31, 1998,
compared to $327,494 and $892,133 for the same periods last year, a decrease
of approximately 26% and 8%, respectively, primarily reflecting lower UL costs
and salary related expenses, due to fewer employees in the department.
Interest expense, net of interest and sundry income, for the current quarter
was $23,044 and $82,067 for the nine-month period ended December 31, 1998,
compared to interest expense, net of interest and sundry income of $6,935 and
interest and sundry income, net of interest expense, of $23,227 for same
periods last year, reflecting the Company's use of its line of credit.
In accordance with FSAS 109, "Accounting for Income Taxes", the Company does
not record deferred income taxes on the foreign undistributed earnings of an
investment in a foreign subsidiary that is essentially permanent in duration.
Accordingly, the Company's Honduras subsidiary was profitable which caused a
decrease in the effective tax rate of the Company. If circumstances change,
and it becomes apparent that some or all of the undistributed earnings of the
subsidiary will be remitted in the foreseeable future, but U.S. income taxes
have not been recognized by the Company, the Company will record as an expense
of the current period the U.S. income taxes attributed to that remittance.
- 6 -
Liquidity and Capital Resources
As of December 31, 1998, the Company's cash and cash equivalents were
$1,767,769, compared to cash and cash equivalents of $1,153,798 and short term
investments of $1,033,902 at March 31, 1998. The short term investments at
year end were comprised of U.S. Treasury Bills. The Company's cash is
currently held in a money market fund whose yield is comparable to U.S. Treasury
Bills. The decrease in overall cash was due primarily to capital equipment
purchases during the nine-month period.
On September 15, 1998, the Company renewed its $2,500,000 commercial line of
credit with its institutional lender for another year, maturing in September
1999. The Company has the option of borrowing at the lender's prime rate of
interest minus 25 basis points 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 December 31, 1998.
The Company's working capital increased by $164,549 to $7,040,228 at December
31, 1998, compared to $6,875,679 at March 31, 1998. The increase was primarily
a result of the Company's profitability through the nine-month period. 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,
1998 was $150,000, compared to $206,250 at March 31, 1998, reflecting the
Company's payments on principal for the nine-month period.
The Company's Board of Directors did not declare a dividend for its third
quarter ended December 31, 1998. The Company's Board of Directors will review
the Company's dividend policy on a quarterly basis and make a determination at
such time as to whether the Company will resume declaration of a dividend based
on the Company's cash and earnings position.
Year 2000
The "Year 2000 problem" arose because many existing computer programs use only
the last two digits to refer to a year. Therefore, these computer programs do
not properly recognize a year that begins with "20" instead of the familiar
"19." If not corrected, many computer applications could fail or create
erroneous results. To avoid any consequences of the Year 2000 issues, the
Company has timely completed the conversion of its major date-sensitive
computer systems to be Year 2000 compliant at its U.S. facility on
January 1, 1999 and at its Honduran facility on July 4, 1998. None of the
Company's products are Year 2000 sensitive, so the total cost of the project
was minimal 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. By June of 1999, the Company expects to
complete its efforts in evaluating the state of those suppliers which may
materially adversely affect the Company if not Year 2000 ready. 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.
- 7 -
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 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.
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)
February 9, 1999 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-31-1999
<PERIOD-START> Apr-01-1998
<PERIOD-END> Dec-31-1998
<CASH> 1767769
<SECURITIES> 0
<RECEIVABLES> 2696946
<ALLOWANCES> 0
<INVENTORY> 5714826
<CURRENT-ASSETS> 10718172
<PP&E> 9675409
<DEPRECIATION> 5014540
<TOTAL-ASSETS> 15514530
<CURRENT-LIABILITIES> 3677944
<BONDS> 0
<COMMON> 2782425
0
0
<OTHER-SE> 8979161
<TOTAL-LIABILITY-AND-EQUITY> 15514530
<SALES> 12865743
<TOTAL-REVENUES> 12934831
<CGS> 9327193
<TOTAL-COSTS> 9327193
<OTHER-EXPENSES> 824550
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<INTEREST-EXPENSE> 183267
<INCOME-PRETAX> 352206
<INCOME-TAX> 98336
<INCOME-CONTINUING> 253870
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<EPS-PRIMARY> .05
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</TABLE>
