Technology Research (TRCI) 10-Q 2010 Q4 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-Q

þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 For the quarterly period ended December 31, 2009

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 For the transition period from ______ to ______

0-13763

(Commission file No.)

TECHNOLOGY RESEARCH CORPORATION

(Exact name of registrant as specified in its charter)

FLORIDA	59-2095002
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)

5250-140th Avenue North Clearwater, Florida 33760

(Address of principal executive offices)

(727) 535-0572

(Registrant’s telephone number, including area code)

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  þ   No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  þ  No 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer.  See definitions of “accelerated filer, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one): 

Large accelerated filer o	Accelerated filer o
Non-accelerated filer   o	Smaller reporting company þ

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes   No þ

The aggregate number of shares of the Registrant’s Common Stock, $.51 par value, outstanding on February 4, 2010, was 5,920,002.

FORM 10-Q

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
	Item 1.  Financial Statements  (Unaudited)
	Condensed Consolidated Balance Sheets
	Condensed Consolidated Statements of Income
	Condensed Consolidated Statements of Cash Flows
	Notes to the Condensed Consolidated Financial Statements
	Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3.  Quantitative and Qualitative Disclosures About Market Risk
	Item 4.  Controls and Procedures
PART II — OTHER INFORMATION
	Item 1.  Legal Proceedings
	Item 1A.  Risk Factors
	Item 4.  Unregistered Sales of Equity Securities and Use of Proceeds
	Item 6.  Exhibits
Exhibit 31.1— Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2 — Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1 — Certification of Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2— Certification of Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002

PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements.

TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)

	December 31,			March 31,
ASSETS	2009			2009
Current assets:
Cash and cash equivalents	$	11,117			2,954
Short-term investments		1,000			3,996
Trade and other accounts receivable, net of allowance for doubtful
accounts of $135 at December 31, 2009 and $203 at March 31, 2009		4,725			5,372
Income taxes receivable		597			631
Inventories, net		6,243			8,013
Deferred income taxes		692			622
Prepaid expenses and other current assets		295			265
Total current assets		24,669			21,853
Property, plant and equipment, net of accumulated depreciation of
$10,314 and $9,852, respectively		2,695			3,189
Intangible asset, net of accumulated amortization of $222 and $178, respectively		360			404
Deferred income taxes – non-current		94			-
Other assets		33			33
Total assets	$	27,851			25,479
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable	$	1,383			1,309
Unsettled treasury obligation		-			998
Accrued expenses		1,503			1,422
Accrued dividends		121			121
Total current liabilities		3,007			3,850
Income taxes payable		418			111
Deferred income taxes		-			37
Total liabilities		3,425			3,998
Stockholders' equity:
Common stock $0.51 par value; 10,000,000 shares authorized,
5,945,787 shares issued and 5,920,002 shares outstanding and      5,912,328 shares issued and 5,890,828 outstanding, respectively		3,030			3,015
Additional paid-in capital		10,375			9,982
Retained earnings		11,077			8,524
Common stock held in treasury, 25,785 and 21,500 shares, respectively, at cost		(56	)		(40	)
Total stockholders' equity		24,426			21,481
Total liabilities and stockholders' equity	$	27,851			25,479

The accompanying notes are an integral part of the condensed consolidated financial statements.

  TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY

Condensed Consolidated Statements of Income

(Unaudited)

(In thousands, except share and per share data)

Three Months Ended December 31,						Nine months Ended December 31,
	2009		2008			2009		2008
Revenue:
Commercial	$	3,525		3,932			10,569		15,021
Military		3,978		3,774			16,087		10,459
Royalty		85		115			258		269
Total revenue		7,588		7,821			26,914		25,749
Cost of sales		4,832		5,270			16,202		17,140
Gross profit		2,756		2,551			10,712		8,609
Operating expenses:
Selling and marketing		582		701			1,862		2,212
General and administrative		919		1,103			2,917		3,673
Research and development		565		586			1,896		1,716
Total operating expenses		2,066		2,390			6,675		7,601
Income from operations		690		161			4,037		1,008
Other income (expense):
Other income, net		-		165			5		545
Interest expense		-		(6	)		-		(10	)
Other income, net		-		159			5		535
Income  before income taxes		690		320			4,042		1,543
Income tax expense		208		65			1,128		292
Net income	$	482		255			2,914		1,251
Earnings  per share - basic	$	0.08		0.04			0.49		0.21
Earnings  per share - diluted	$	0.08		0.04			0.48		0.21
Shares outstanding - basic		5,896,728		5,890,828			5,892,903		5,890,828
Shares outstanding - diluted		6,022,855		5,897,310			5,975,212		5,902,647

The accompanying notes are an integral part of the condensed consolidated financial statements.

  TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 0;         Nine months Ended December 31,
	2009                                       2008
Cash flows from operating activities:
Net income	$	2,914		1,251
Adjustments to reconcile net income
to net cash provided by operating activities:
Accretion of interest on short-term investments and other receivable		(8	)		(46)
Bad debt expense		-		125
Depreciation		732		850
Amortization of intangible assets		44		44
Stock compensation expense		368		311
Deferred income taxes		(201)			750
Loss on disposal of equipment		143		42
Changes in operating assets and liabilities:
Trade and other accounts receivable, net		647		1,708
Inventories, net		1,770		(341)
Other receivable		-		(34)
Prepaid expenses and other current assets		(30)			(193)
Other assets		-		8
Trade accounts payable		74		(1,286)
Accrued expenses		81		(321)
Income taxes receivable and income taxes payable		341		(457)
Net cash provided by operating activities		6,875		2,411
Cash flows from investing activities:
Maturities of short-term investments		6,000		3,500
Purchase of short-term investments		(3,994)			(5,960)
Purchases of property and equipment		(381)			(597)
Net cash provided by (used in) investing activities		1,625		(3,057)
Cash flows from financing activities:
Proceeds from exercise of stock options		2		-
Tax benefit of restricted stock vesting		38		-
Purchase of treasury stock		(16)			-
Cash dividends paid		(361)			(355)
Net cash used in financing activities		(337)			(355)
Net increase (decrease) in cash and cash equivalents		8,163		(1,001)
Cash and cash equivalents at beginning of period		2,954		2,132
Cash and cash equivalents at end of period		$          11,117                                              $1,131

The accompanying notes are an integral part of the condensed consolidated financial statements.

  TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY

Notes to the Condensed Consolidated Financial Statements

(In thousands, except share data)

1.  Basis of Presentation: 

The unaudited interim condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, certain information and footnote disclosures normally included in complete financial statements prepared in accordance with United States generally accepted accounting principles have been omitted pursuant to such rules and regulations.  The accompanying unaudited interim condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Technology Research Corporation  Annual Report on Form 10-K for the year ended March 31, 2009.  Operating results for the nine-month period ended December 31, 2009 are not necessarily an indication of the results that may be expected for the fiscal year ending March 31, 2010.

The information furnished reflects, in the opinion of our management, all adjustments necessary for a fair presentation of the financial results for the interim periods presented.  We evaluated all subsequent events through February 4, 2010, the date the financial statements were issued.

2.  Earnings Per Share:

In June 2008, the Financial Accounting Standards Board (“the FASB”) issued guidance now codified as FASB Accounting Standards Codification (“ASC”) Topic 260, “Earnings Per Share.” Under FASB ASC Topic 260, unvested share-based payment awards that contain rights to receive non-forfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing earnings per share.  As of April 1, 2009, we implemented FASB ASC Topic 260 which requires us to treat unvested shares of restricted stock as participating securities in accordance with the two-class method in the calculation of both basic and diluted earnings per share.  We had no shares of unvested restricted stock as of December 31, 2008 so the retrospective application of FASB ASC Topic 260 had no effect on our earnings per share for the quarter or nine months ended December 31, 2008.

The following tables summarize the components of basic and diluted earnings per share computations.

	Three months ended December 31,				Nine months ended December 31,
	2009		2008		2009		2008
Reconciliation of undistributed earnings:
Net income available to common shareholders	$	482		255		2,914		1,251
Less dividends on common stock		119		118		357		237
Less dividends on unvested participating securities		1		-		4		-
Undistributed earnings (1)	$	362		137		2,553		1,014

	Three months ended December 31,				Nine months ended December 31,
	2009		2008		2009		2008
Basic earnings per share computation:
Net income available to common shareholders	$	482		255		2,914		1,251
Less: dividends equivalents on unvested participating securities		1		-		4		-
Less: undistributed earnings allocated to unvested participating securities(1)		5		-		34		-
Undistributed earnings allocated to common sharelholders	$	476		255		2,876		1,251

EPS Denominator
Weighted average shares outstanding for basic earnings per share	$	5,896,728	5,890,828	5,892,903	5,890,828
Basic earnings per common share		0.08	0.04	0.49	0.21

	Three months ended December 31,				Nine months ended December 31,
	2009		2008				2009		2008
Diluted earnings per common share computation (1)
Net income available to common shareholders	$	482		255		2,914		1,251
Less: dividend equivalents on unvested participating securities		1		-		4		-
Less: undistributed earnings allocated to unvested participating securities		5		-		34		-
Undistributed earnings allocated to common shareholders	$	476		255		2,876		1,251
EPS Denominator:
Weighted average shares outstanding for basic earnings per share		5,896,728		5,890,828		5,892,903		5,890,828
Dilutive common shares issuable upon exercise of stock options (2)		77,644		6,482		41,254		11,819
Dilutive unvested common shares associated with restricted stock awards		48,483		-		41,055		-
Weighted average shares outstanding - diluted		6,022,855		5,897,310		5,975,212		5,902,647
Diluted earnings per common share	$	0.08		0.04		0.48		0.21

(1) For the three and nine months ended December 31, 2009, 78,825 of our issued but unvested shares of restricted stock are considered participating securities.  For the three and nine months ended December 31, 2008, there were no shares of restricted stock outstanding.  The undistributed earnings are allocated to both common shares and unvested participating securities in computing the earnings per share under the two-class method.

(2) For the nine-month and three-month periods ended December 31, 2009 options to purchase 654,643  and 605,200 shares of common stock, respectively, were considered anti-dilutive for purposes of calculating earnings per share.  For the nine-month and three-month periods ended December 31, 2008, options to purchase 698,000 shares of common stock were considered anti-dilutive for the purposes of calculating earnings per share.  

Restricted Stock

The fair value of our restricted stock is calculated based upon the fair market value of our underlying stock at the date of grant.  As of February 4, 2010, there were 78,825 shares of restricted stock outstanding with an unrecognized stock-based compensation expense of approximately $121 to be recognized as compensation expense over a weighted average-period of two years.

3.  Short-term Investments:

 The value of our short-term investments totaled $1,000 as of December 31, 2009, consisting of original cost plus accrued interest on U.S. Treasury Bills.  As of March 31, 2009, the value of our short-term investments totaled $3,996, consisting of original cost plus accrued interest on U.S. Treasury Bills and included $998 for an unsettled purchase of a U.S. Treasury bill resulting in a matching liability being recorded in current liabilities.  We consider all of our short-term investments to be held-to-maturity, and therefore, are recorded at amortized cost. The carrying amount approximates fair value because of the relative short maturity of these instruments.

4.  Inventories:

 Inventories consist of the following:

December 31, 2009			March 31, 2009
Raw materials	$	4,135	5,084
Work-in-process		417	766
Finished goods		1,691	2,163
Total	$	6,243	8,013

 5.  Warranty:

 We generally provide a one year warranty period for all of our commercial and military products.  We also provide coverage on certain of our surge products for “downstream” damage of products not manufactured by us.  Our warranty provision represents management's best estimate of probable liabilities, calculated as a function of sales volume and historical repair experience for each product under warranty.   A roll-forward of the activity in our warranty liability reserve, included in accrued expenses, for the three and nine month periods ended December 31, 2009 and 2008 is as follows:

	Three months ended December 31,				Nine months ended December 31,
	2009		2008		2009		2008
Beginning Balance	$	240		137		164		137
Accruals for warrenties		37		53		232		112
Settlements made		(38)		(26)		(157)		(85)
Ending Balance	$	239		164		239		164

6.  Debt:

Effective September 30, 2009, we entered into the First Amendment to Amended and Restated Loan Agreement (the “Loan Agreement”) and Promissory Note dated that same date (the “Replacement Note”) with Wachovia Bank, N.A. (“Wachovia”), our current institutional lender.  The Replacement Note provides for an interest rate on our line of credit equal to the 30-day London Interbank Offering Rate (“LIBOR”) Market Index Rate plus 2.10%, through December 31, 2009.  Thereafter, the interest rate will be reset quarterly as follows:

If Funded Debt/EBITDA Ratio Is:	The LIBOR Spread (basis points) will be:
< 1.50:1.00	210
≥ 1.50:1.00 < 2.00:1.00	240
≥ 2.00:1.00	270

As a result, effective for the quarter beginning on January 1, 2010 and continuing thereafter, the interest rate on the Replacement Note will be reset at a rate equal to the LIBOR Market Interest Rate plus the applicable LIBOR Spread for such quarter.  The Loan Agreement extends the maturity date Loan Agreement until September 30, 2011.  

The Loan Agreement reduces our existing $6,000,000 credit facility to $3,000,000.  As of December 31, 2009 and March 31, 2009, we had no borrowings on this credit facility.  The revolving line of credit can be used for working capital and general corporate purposes.  Revolving loans may be borrowed, repaid and re-borrowed until September 30, 2011, at which time all amounts borrowed must be repaid.  Our Loan Agreement with Wachovia obligates us to pay a customary unused facility fee for a credit facility of this size. The revolving loans under the Loan Agreement are secured by a continuing security interest in most of our key assets, including accounts and notes receivable, inventory, investments, demand deposit accounts maintained with our lender and 65% of the voting stock of Technology Research Corporation/Honduras, S.A. DE C.V, our wholly-owned subsidiary.  

7.  Income Taxes:

Our effective income tax rate was 30.1% and 20.3% for the three months ended December 31, 2009 and 2008, respectively.  For the nine months ended December 31, 2009 and 2008, our effective income tax rate was 27.9% and 18.9%, respectively.  The effective income tax rate is based on the estimated income for the year and the composition of this income from the U.S. and from our Honduran subsidiary.  The income tax rate on income earned from Honduras is zero due to a tax holiday and, therefore, the corporate effective rate is lower than the U.S. statutory rate due to the mix of income earned in the U.S. versus income earned in Honduras.

In accordance with FASB ASC Topic 740, “Income Taxes,” we provide for the recognition of deferred tax assets if realization of such assets is more likely than not. We have provided a valuation allowance against a portion of our net U.S. deferred tax assets due to uncertainties regarding their realization. We evaluate the realizability of our deferred tax assets on a quarterly basis by determining whether or not the anticipated pre-tax income for the upcoming twelve months is expected to be sufficient to utilize the deferred tax assets that we have recognized.   As of December 31, 2009, we have unrecognized tax benefits of $434, of which $16 is included in income taxes receivable and $418 is included in noncurrent income taxes payable.  During the three months ended December 31, 2009 and 2008, we recorded $87 and $137, respectively, of unrecognized tax benefits primarily related to transfer pricing. Interest expense related to uncertain tax positions amounted to $1 for the three months ended both December 31, 2009 and 2008, respectively. During the nine month periods ended December 31, 2009 and 2008, we recorded $307 and $140, respectively, of unrecognized tax benefits primarily related to transfer pricing. Interest expense related to uncertain tax positions amounted to $2 for the nine months both ended December 31, 2009 and 2008, respectively. Total accrued interest at December 31, 2009 and March 31, 2009 was $10 and $7, respectively, and was included in income taxes receivable. There are no accrued penalties for income taxes in our financial statements as of December 31, 2009.  With the adoption of FASB ASC Topic 740, our policy is to recognize interest and penalties in the provision for income taxes in our financial statements.

A reconciliation of unrecognized tax benefits is as follows:

	Three months ended December 31,				Nine months ended December 31,
	2009		2008			2009		2008
Beginning balance	$	346		14			127		12
Additions based on tax positions                                                                      related to the current year		-		-			-		-
Additions for tax positions of prior years		88		138			307		140
Ending balance	$	434		152			434		152

We file U.S. Federal and Florida income tax returns.  Audits relating to all U.S. federal income tax matters for our income tax returns have been completed through the fiscal 2004 year.  State income tax returns for fiscal years 2006 through 2008 have not been audited and we are currently undergoing a Federal tax audit for fiscal 2008.

8.  Stock-Based Compensation: 

For purposes of determining the variables used in the calculation of stock compensation expense under the provisions of FASB ASC Topic 505, “Equity” and FASB ASC Topic 718, “Compensation — Stock Compensation,” we perform an analysis of current market data and historical company data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate.  We use these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted, any fluctuations in these calculations could have a material effect on the results presented in our Consolidated Condensed Statement of Income. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our financial statements.

Stock compensation expense of $118 and $101, respectively, was included in the Condensed Consolidated Statements of Income for the three months ended December 31, 2009 and 2008. Stock compensation expense of $368 and $311, respectively, was included in the Condensed Consolidated Statements of Income for the nine months ended December 31, 2009 and 2008.

Cash received from the exercise of stock options under all share-based payment arrangements for the three months and nine months ended December 31, 2009 was $0 and $2, respectively.  No options were exercised during the three month and nine month periods ended December 31, 2008.   Currently, we expect to utilize authorized, but unissued, shares that have been registered with the U.S. Securities and Exchange Commission on a Form S-8 when share-based restricted stock awards are granted.

Stock Option Plans

We have adopted stock plans that provide for the grant of equity based awards to employees and directors, including incentive stock options, non-qualified stock options and restricted stock awards (non-vested shares) of our common stock (the “Plans”).  Employee stock options that have been granted generally vest over a three year period and, until March 2008, director stock options were subject to a two-year vesting period.  Beginning in March 2008 when directors were granted stock options for the fiscal 2009 year, our director options that have been issued are subject to a three-year vesting period. The exercise price of any incentive stock options granted under the Plans will not be less than 100% of the fair market value of shares of our common stock on the date of grant.  For any participant owning stock representing more than 10% of the voting power of all classes of our stock, the exercise price will not be less than 110% of the fair market value of the shares of our common stock on the date of grant.  The term of any stock options that we grant may not exceed ten years.  Non-qualified stock options will be granted at the fair market value of our common stock on the date of grant.

Our 1993 Incentive Stock Option Plan and our 1993 Amended and Restated Non-Qualified Stock Option Plan have expired, and no options will be granted from these plans in the future.  Certain stock options under these plans, however, are still outstanding and can be exercised in the future.

 On March 24, 2000, our Board of Directors adopted the 2000 Long Term Incentive Plan and it was approved by our stockholders in August 2000 at our annual meeting of stockholders.  The 2000 Long Term Incentive Plan provides for the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code to employees and non-qualified stock options to our employees and directors.  The 2000 Long Term Incentive Plan also authorizes the grant of restricted stock awards (non-vested shares) to our officers and directors. 

On June 24, 2008, our Board of Directors approved the Amended and Restated 2000 Long Term Incentive Plan and it was approved by our stockholders on August 27, 2008 at our annual meeting.  A total of 500,000 additional shares of our common stock have been reserved for issuance under the Amended and Restated 2000 Long Term Incentive Plan.  A total of 1.6 million shares of our common stock have been reserved for issuance under the Amended and Restated 2000 Long Term Incentive Plan, of which 376,107 shares remain available for awards as of December 31, 2009.

 The table below summarizes the stock option activity in the Plans from April 1 through December 31, 2009:

						Aggregate		Weighted		Weighted
	Shares					intrinsic		average		average
	available		Options			value		exercise		remaining
	for grant		outstanding			(in thousands)		price		contractual life
Balance as of March 31, 2009		332,750		955,586		$	1	$	4.44		8.09
Options expired		14,299		(14,299	)		-		9.92		-
Options granted		-		-			-		-		-
Options canceled		29,058		(29,058	)		-		3.54		-
Options exercised		-		(1,000	)		2		1.63		-
Balance as of December 31, 2009		376,107		911,229		$	637	$	4.39		7.21
Exercisable as of December 31, 2009				541,988		$	234	$	5.65		6.35
_________________

There were no options granted during the nine months ended December 31, 2009. The weighted average grant date fair value of options granted during the nine months ended December 31, 2008 was $1.09 per share. The total intrinsic value of options exercised during the nine months ended December 31, 2009 was $2. There were no options exercised during the nine months ended December 31, 2008.

As of December 31, 2009, there was $400 of unrecognized compensation cost related to non-vested stock options that is expected to be recognized over a weighted average period of 1.3 years.  The total fair value of stock options vested during the nine months ended December 31, 2009 and 2008 was $247 and $29, respectively.

We estimated the fair value of stock-based payment awards on the date of grant using the Black-Scholes option pricing model, which is impacted by our stock price as well as assumptions regarding several subjective variables including our expected stock price volatility over the term of the awards, actual and projected employee option exercise experience, the risk free interest rate and expected dividends.  The estimated expected term of options that have been granted was based on historical option exercise trends.  Estimated volatility was based on historical volatility over the expected term and the risk free interest rate was based on U.S. Treasury Bills similar to the expected term.  The expected dividend yield was based on our experience with paying dividends over the past 12 months.  We are also required to estimate forfeitures at the time of the grant and to revise these estimates in later periods if actual forfeitures differ from those estimates.  Historical data was used to estimate pre-vesting forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

The assumptions used to value stock option grants for the three and nine months ended December 31, 2009 and 2008 are as follows:

	Three months ended December 31,		Nine months ended December 31,
	2009	2008	2009	2008
Expected dividend yield	N/A	3.23%	N/A	3.05%
Risk free interest rate	N/A	1.92%	N/A	2.14%
Expected volatility	N/A	75.60%	N/A	76.48%
Expected life	N/A	8.00 yrs	N/A	7.89 yrs

Restricted Stock Awards

We granted 81,999 shares of restricted stock awards (non-vested shares) in December 2008 at a fair market value of $1.70 per share on the date of grant.  We granted 25,000 shares of restricted stock awards (non-vested shares) in February 2009 at a fair market value of $1.90 per share on the date of grant.  The restricted shares have a three-year vesting period, with one-third of such restricted shares vesting after the completion of a year of service.  On December 15, 2009, 28,174 restricted shares vested and as of December 31, 2009, 78,825 shares of restricted stock are non-vested and remain outstanding.

As of December 31, 2009, there was $121 of total unrecognized compensation cost related to non-vested restricted stock awards that is expected to be recognized over a weighted average period of 2.0 years. None of the restricted shares that we have granted vested in the fiscal year ended March 31, 2009 and 28,174 vested during the three month and nine month periods ended December 31, 2009.

The following table summarizes activity relating to our restricted stock grants during the period from April 1 through December 31, 2009:

				Weighted-average
				Grant-Date
	Shares			Fair Value
Non-vested balance at March 31, 2009		106,999		$	1.75
Restricted stock granted		-
Restricted stock vested		(28,174	)		1.70
Restricted stock forfeited		-
Non-vested balance as of December 31, 2009		78,825		$	1.76

9.  Litigation:

We are involved in various claims and legal actions arising in the ordinary course of business.  In our opinion, the ultimate disposition of these matters will not have a material adverse effect on our financial condition, results of operations or cash flows.

10.  New Accounting Standards:

In September 2006, the Financial Accounting Standards Board (“FASB”) issued guidance now codified as FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The pronouncement is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB released additional guidance now codified under FASB ASC Topic 820, which provides for delayed application of certain guidance related to non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those years. Pursuant to the requirements of FASB ASC Topic 820, we adopted the provisions of Topic 820 with respect to our non-financial assets and non-financial liabilities effective April 1, 2009. The implementation of this pronouncement had no impact on our consolidated financial position, results of operations or cash flows.

In January 2010, the FASB amended guidance now codified as FASB ASC Topic 810, “Consolidation.” FASB ASC Topic 810 changes the accounting and reporting for minority interests, which will be recharacterized as non-controlling interests and classified as a component of equity.  The amendment of FASB ASC Topic 810-10 establishes the accounting and reporting guidance for noncontrolling interests and changes in ownership interests of a subsidiary.  FASB ASC Topic 810 is effective for us on a prospective basis for business combinations with an acquisition date beginning in the first quarter of fiscal year 2010.  As of March 31 and December 31, 2009, we did not have any minority interests.  The adoption of FASB ASC Topic 810 as amended did not have an impact on our consolidated financial statements.

In June 2008, the FASB issued guidance now codified as FASB ASC Topic 260, “Earnings Per Share.” Under FASB ASC Topic 260, unvested share-based payment awards that contain rights to receive non-forfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing earnings per share.  As of April 1, 2009, we implemented FASB ASC Topic 260 which requires us to treat unvested shares of restricted stock as participating securities in accordance with the two-class method in the calculation of both basic and diluted earnings per share.  We had no shares of unvested restricted stock as of December 31, 2008 so the retrospective application of FASB ASC Topic 260 had no effect on our earnings per share for the quarter or nine months ended December 31, 2008.

In November 2008, the FASB issued guidance now codified as FASB ASC Topic 815, “Derivatives and Hedging.” that changes the disclosure requirements for derivative instruments and hedging activities. We will be required to provide enhanced disclosures about (a) how and why derivative instruments are used, (b) how derivative instruments and related hedged items are accounted for under FASB ASC Topic 815, and its related interpretations, and (c) how derivative instruments and related hedged items affect our financial position, financial performance, and cash flows. The adoption of FASB ASC Topic 815 did not have an impact on our financial position, results of operations or cash flows.

In December 2008, the FASB issued guidance now codified as FASB ASC Topic 805, “Business Combinations” whichrequires that business combinations will result in assets and liabilities of an acquired business being recorded at their fair values as of the acquisition date, with limited exceptions. Certain forms of contingent consideration and certain acquired contingencies will be recorded at fair value at the acquisition date. FASB ASC Topic 805 also states acquisition costs will generally be expensed as incurred and restructuring costs will be expensed separately from the business combination in periods after the acquisition date.  We will be required to apply this new standard prospectively to business combinations for which the acquisition date is on or after April 1, 2009.  The adoption of FASB ASC Topic 805 did not have an impact on our consolidated financial statements.

Effective January 1, 2009, we adopted FASB guidance now codified as FASB ASC Topic 718-740, “Compensation – Stock Compensation, Income Taxes.”  FASB ASC Topic 718-740 requires us to recognize a realized income tax benefit associated with dividends or dividend equivalents paid on non-vested equity-classified employee share-based payment awards that are charged to retained earnings as an increase to additional paid-in capital. The adoption of FASB ASC Topic 718-740 did not have a material impact on our financial position, results of operations or cash flows.

In April 2009, the FASB issued guidance now codified as FASB ASC Topic 825, “Financial Instruments,” which amends previous Topic 825 guidance to require disclosures about fair value of financial instruments in interim as well as annual financial statements. This pronouncement is effective for periods ending after June 15, 2009.  The adoption of this pronouncement did not have an impact on our consolidated financial position, results of operations or cash flows.

In May 2009, the FASB issued guidance now codified as FASB ASC Topic 855, “Subsequent Events,” which establishes general standards of accounting for, and disclosures of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Although there is new terminology, the standard is based on the same principles as those that currently exist in the auditing standards.  The standard, which includes a new required disclosure of the date through which an entity has evaluated subsequent events, is effective for interim or annual periods ending after June 15, 2009.  We adopted FASB ASC Topic 855 on June 30, 2009 with no material effects to the financial results of the Company.

In June 2009, the FASB issued guidance now codified as FASB ASC Topic 105, “Generally Accepted Accounting Principles,” as the single source of authoritative non-governmental U.S. GAAP. FASB ASC Topic 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place. All existing accounting standard documents will be superseded and all other accounting literature not included in the FASB Codification will be considered non-authoritative. These provisions of FASB ASC Topic 105 are effective for interim and annual periods ending after September 15, 2009 and, accordingly, are effective for us for the current fiscal reporting period. The adoption of this pronouncement did not have an impact on our financial condition or results of operations, but will impact our financial reporting process by eliminating all references to pre-codification standards. On the effective date of this Statement, the Codification superseded all then-existing non-SEC accounting and reporting standards, and all other non-grandfathered non-SEC accounting literature not included in the Codification became non-authoritative.

In January 2010, the FASB amended its guidance now codified as FASB ASC Topic 505-20, “Equity – Stock Dividends and Stock Splits,” to clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260.  These provisions of FASB ASC Topic 505 are effective for interim and annual periods ending after December 15, 2009 and, accordingly, are effective for us for the current fiscal reporting period. The adoption of this pronouncement did not have an impact on our financial condition or results of operations as we do not currently have distributions that allow shareholders such an election.

In January 2010, the FASB amended its guidance now codified as FASB ASC Topic 718-10-S99, “Compensation – Stock Compensation – Escrowed Share Arrangement and the Presumption of Compensation,” to clarify SEC staff views on overcoming the presumption that for certain shareholders escrowed share arrangements represent compensation.  The adoption of this pronouncement did not have an impact on our financial condition or results of operations.

11.  Subsequent Events:

In May 2009, the FASB issued accounting guidance now codified as FASB ASC Topic 855, “Subsequent Events,” which establishes general standards of accounting for, and disclosures of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. FASB ASC Topic 855 is effective for interim or fiscal periods ending after June 15, 2009. Accordingly, we adopted the provisions of FASB ASC Topic 855 on June 30, 2009.  We evaluated subsequent events for the period from December 31, 2009, the date of these financial statements, through February 4, 2010, which represents the date these financial statements are being filed with the Commission. Pursuant to the requirements of FASB ASC Topic 855, there were no events or transactions occurring during this subsequent event reporting period that require recognition or disclosure in the financial statements. With respect to this disclosure, we have not evaluated subsequent events occurring after February 4, 2010.

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 As used in this interim report on Form 10-Q, “we”, “our”, “us”, the “Company” and “TRC” all refer to Technology Research Corporation and its subsidiary unless the context otherwise requires.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

         This interim report on Form 10-Q contains forward-looking statements, which are subject to the safe harbor provisions created by of the Private Securities Litigation Reform Act of 1995 and the Securities Exchange Act of 1934.  Any forward looking statements made herein are based on our current expectations, involve a number of risks and uncertainties and should not be considered as guarantees of future performance.  Such statements may be identified by terminology such as “may,” “will,” “should,” “expects,” “scheduled,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “potential,” or “continue,” or the negative of such terms, or other comparable terminology.  These statements are only predictions, and actual events as well as results may differ materially.  

 The identification of certain statements as “forward-looking” is not intended to mean that other statements not specifically identified are not forward-looking.  Forward-looking statements include, but are not limited to, statements that relate to our future revenue, product development, demand, acceptance and market share, competitiveness, gross margins, levels of research and development (R & D), outsourcing plans and operating expenses, tax expenses, our management’s plans and objectives for our current and future operations, the levels of customer spending or R & D activities, general economic conditions and the sufficiency of financial resources to support future operations, and capital expenditures.  

Such statements are based on current expectations and are subject to risks, uncertainties, and changes in condition, significance, value and effect, including those discussed below under the heading “Risk Factors” within the section of this report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other documents we file from time to time with the Securities and Exchange Commission (“SEC”), such as our last filed Annual Report on Form 10-K for the fiscal year ended March 31, 2009, our quarterly reports on Form 10-Q, and our current reports on Form 8-K.  Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results to differ materially from those expressed herein and in ways not readily foreseeable. 

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based on information currently and reasonably known to us.  We undertake no obligation to release the results of any revisions to these forward-looking statements, which may be made to reflect events or circumstances which occur after the date hereof or to reflect the occurrence or effect of anticipated or unanticipated events.

Actual results could, however, differ materially from those projected or assumed in any of our forward-looking statements within this report. Our future financial condition and results of operations, as well as our operational and financial expectations, are subject to inherent risks and uncertainties.  See part Part II, Item 1A, entitled Risk Factors.

OVERVIEW

Technology Research Corporation is an internationally recognized leader in the design, manufacture and marketing of electrical safety products that save lives, protect people against serious injury from electrical shock and/or prevent electrical fires in the home and workplace.  Based on our core technology in ground fault sensing and leakage current detection, our products are designed to meet the needs of the consumer, commercial and industrial markets worldwide.  TRC also designs and supplies power monitoring and control equipment to the United States military and its prime contractors for its tactical vehicles, naval vessels and mobile electric generators.

TRC was incorporated in Florida in 1981.  Our principal offices are located at 5250 140th Avenue North, Clearwater, Florida 33760, our telephone number is (727) 535-0572 and our website can be accessed at www.trci.net.  Information contained or referenced on our website is not incorporated by reference into, and does not form a part of, this Quarterly Report on Form 10-Q.

Our operating strategy is to grow revenue and improve operating margin in our military, recreational vehicle, industrial, and consumer markets as well as closely aligned markets if they share similar products or have other synergies.  We plan to achieve these growth goals through internal development of new products, acquisitions, strategic partnerships and licensing.  We have undertaken a number of initiatives to lower cost, improve asset turnover and reduce our risk.  These initiatives include, but are not limited to, product line simplification, establishing product platforms in design, greater utilization of our operations in Honduras, utilizing new designs and operations software to improve quality, accelerate product development and reduce the cost of redesigned products.

 Revenue for the three months and nine months ended December 31, 2009 decreased $0.2 million and increased $1.2 million, respectively, compared with the comparable periods for the prior year. Military revenue increased by $0.2 million and $5.6 million over the comparable three month and nine month periods for the prior year, respectively.  The increase in military revenue during the first half of fiscal year 2010 was primarily due to an accelerated delivery schedule in our military business while military revenue in the third quarter ended December 31, 2009 was consistent with the comparable quarter in the prior year. We anticipate that military revenue will remain at the prior year level for the remainder of fiscal year 2010. Commercial revenue , including royalties, decreased by $0.4 million and $4.5 million for the three month and nine month periods, ended December 31, 2009, respectively. The extreme volatility and disruption of financial markets in the United States, Europe and Asia and depressed conditions in the real estate market have all contributed to weakening worldwide economic conditions and have contributed to a reduction in revenue in our commercial business that began during the third quarter of fiscal year 2009 and has continued throughout the current fiscal year. The decline in commercial revenue was principally a result of weakness in our traditional markets, including RV OEM and industrial construction, and acontinuing decline in RAC revenue, a market that we exited as of June 30, 2009.

Gross profit improved by $0.2 million and $2.1 million over the three month and nine month periods, from the prior year comparable periods, respectively.  The increase in gross margin was due to a favorable shift in the mix of military and commercial business as well as cost reductions, primarily in overhead.  The prior year gross profit margin for the nine month period ended December 31, 2008 was favorably impacted by $0.6 million from the disposition of inventory held with one of our contract manufacturers.  The current year margin for the nine month period ended December 31, 2009 was negatively impacted by a $0.3 million increase in inventory reserves based on an analysis of the future utility of inventory, primarily in our commercial product lines, and an increased warranty provision of $0.1 million.  Additionally, gross margin for the nine month period ended December 31, 2009 was reduced by $0.3 million due to the write-off of RAC inventory and tooling.

RESULTS OF OPERATIONS

Revenue for the third quarter ended December 31, 2009 and 2008 was $7.6 million and $7.8 million, respectively. Military revenue increased $0.2 million while commercial revenue, including royalties, decreased by $0.4 million.  Revenue for the nine-month period ended December 31, 2009 was $26.9 million compared to $25.7 million reported in the same period of the prior year, an increase of 4.5%.  Military revenue increased $5.6 million while commercial revenue, including royalties, for the nine months ended December 31, 2009 decreased $4.5 million from the same period last year.  The increase in military revenue during the first half of fiscal year 2010 was primarily due to an accelerated delivery schedule in our military business while military revenue in the third quarter ended December 31, 2009 was consistent with the comparable quarter in the prior year. We anticipate that military revenue will remain at the prior year level for the remainder of fiscal year 2010.The extreme volatility and disruption of financial markets in the United States, Europe and Asia and depressed conditions in the real estate market have all contributed to weakening worldwide economic conditions and have contributed to a reduction in revenue in our commercial business that began during the third quarter of fiscal year 2009 and has continued throughout the current fiscal year. The decline in commercial revenue was principally a result of weakness in our traditional markets, including RV OEM and industrial construction and acontinuing decline in RAC revenue, a market that we exited as of June 30, 2009.

Gross profit increased $0.2 million, or 8.0%, to $2.8 million for the quarter ended December 31, 2009, as compared to the comparable period in the prior year.  The increase in gross margin for the quarter was due to a favorable shift in the mix of military and commercial business.  Gross profit increased $2.1 million or 24.4% to $10.7 million for the nine months ended December 31, 2009. The prior year gross profit margin for the nine month period ended December 31, 2008 was favorably impacted by $0.6 million from the disposition of inventory held with one of our contract manufacturers.  The current year margin for the nine month period ended December 31, 2009 was negatively impacted by a $0.3 million increase in inventory reserves based on an analysis of the future utility of inventory, primarily in our commercial product lines, and an increased warranty provision of $0.1 million.  Additionally, gross margin for the nine month period ended December 31, 2009 was reduced by $0.3 million due to the write-off of RAC inventory and tooling.

Selling and marketing expense of $0.6 million, or 7.7% of revenue, for the quarter ended December 31, 2009 decreased from $0.7 million or 9.0% of revenue for the quarter ended December 31, 2008.  For the nine months ended December 31, 2009, selling and marketing expense of $1.9 million, or 6.9% of revenue, was $0.3 million lower than the $2.2 million, or 8.6% of revenue, compared with the prior year.   This decrease in selling and marketing expense for both the three and nine month periods ended December 31, 2009 as compared with the comparable periods in the prior year is due to lower compensation related costs.

General and administrative expense of $0.9 million, or 12.1% of revenue, for the quarter ended December 31, 2009 decreased from $1.1 million, or 14.1% of revenue for the quarter ended December 31, 2008.  The decrease of general and administrative expense for the quarter ended December 31, 2009 is primarily due to lower professional fees and bad debt expense.  For the nine months ended December 31, 2009, general and administrative expense of $2.9 million or 10.8% of revenue was $0.8 million lower than the $3.7 million or 14.3% of revenue for the prior year. The reduction in general and administrative expenses as well as the 3.5 percentage point decrease in general and administrative expense as a percent of revenue for the nine months ended December 31, 2009, as compared to comparable period in the prior year, primarily results from reductions in current year expenses, primarily professional fees, employment related costs and bad debt expense.

   Research and development expense of $0.6 million, or 7.4% of revenue, for the quarter ended December 31, 2009 showed no change from the $0.6 million, or 7.5% of revenue, for the same quarter last year.  For the nine months ended December 31, 2009, research and development expense was $1.9 million, or 7.0% of revenue, compared to $1.7 million, or 6.7% of revenue, for the same period last year.  The increase in nine-month research and development expense from the prior year periods is primarily due to higher salary costs and consulting related expenses as we added resources to improve our engineering expertise.  

Other income (expense), net decreased for the quarter ended December 31, 2009 as the prior year period included payments received from settlements with vendors and for the nine months ended December 31, 2009 primarily due to a payment received in the prior year as part of a legal settlement.

 Income tax expense was $0.2 million for the quarter ended December 31, 2009 and $0.1 million for the quarter ended December 31, 2008.  For the nine months ended December 31, 2009, income tax expense was $1.1 million compared to $0.3 million for the same period last year.  Income taxes as a percent of income before income taxes was 30.1% and 27.9% for the quarter and nine months ended December 31, 2009, compared with 20.3% and 18.9% for the quarter and nine months ended December 31, 2008.  Our effective tax rate varies based primarily on the mix of income before income taxes derived from our Honduran subsidiary, which is not subject to income taxes, and the balance of income before income taxes, which is subject to U.S. income taxes. 

At each reporting period, we make our best estimate of the effective tax rate expected for the full fiscal year and apply that rate to the current year-to-date income before income taxes.  Any difference between the current and preceding estimated effective tax rate expected for the full fiscal year is reflected as an adjustment in the current quarter's income tax expense.  In accordance with FASB ASC Topic 740, “Income Taxes,” we do not record deferred income taxes on the foreign undistributed earnings of an investment in a foreign subsidiary that is essentially permanent in duration.  If circumstances change, and it becomes apparent that some or all of the undistributed earnings of our subsidiary will be remitted in the foreseeable future, but U.S. income taxes have not been recognized, we will record as an expense of the current period the U.S. income taxes attributed to that remittance.

 Net income for the quarter ended December 31, 2009 was $0.5 million, compared to a $0.3 million in the same quarter last year.  The basic and diluted earnings per share was $0.08 for the quarter ended December 31, 2009, compared to basic and diluted earnings per share of $0.04 for the same quarter last year.  The net income for the nine-month period ended December 31, 2009 was $2.9 million, compared to net income of $1.3 million for the same period in the prior year.  The basic and diluted earnings per share was $0.49 and $0.48, respectively, for the nine-month period ended December 31, 2009, compared to basic and diluted earnings per share of $0.21 for the same period of the prior year.  

  LIQUIDITY AND CAPITAL RESOURCES

 Our cash and cash equivalents increased from $2.9 million as of March 31, 2009 to $11.1 million as of December 31, 2009.  Cash provided by operating activities was $6.9 million, cash provided by investing activities was $1.6 million and cash used in financing activities was $0.3 million resulting in a total increase in cash of $8.2 million for the nine-month period ended December 31, 2009.

 Cash provided by operating activities primarily resulted from net income of $2.9 million, a decrease in inventory of $1.8 million, a decrease in trade accounts receivable of $0.6 million, a decrease in income taxes receivable of $0.3 million, and depreciation of $0.7 million, partially offset by an increase in deferred income taxes of $0.2 million.

 Cash provided by investing activities was due to the excess of maturing investments over the purchase of short-term investments reduced by cash used for purchases of property and equipment.

 Cash used in financing activities was due primarily to the payment of quarterly dividends.

Effective as of September 30, 2009, we entered into the Loan Agreement and Replacement Note with Wachovia, our current institutional lender.  The Replacement Note provides for an interest rate equal to the 30-day London Interbank Offering Rate (“LIBOR”) Market Index Rate plus 2.10%, through December 31, 2009.  Thereafter, the interest rate will be reset quarterly.   As a result, effective for the quarter beginning on January 1, 2010 and continuing thereafter, the interest rate on the Replacement Note will be reset at a rate equal to the LIBOR Market Interest Rate plus the applicable LIBOR Spread for such quarter as follows:  

If Funded Debt/EBITDA Ratio Is:	The LIBOR Spread (basis points) will be:
< 1.50:1.00	210
≥ 1.50:1.00 < 2.00:1.00	240
≥ 2.00:1.00	270

The revolving line of credit can be used for acquisitions, working capital and general corporate purposes.  Revolving loans may be borrowed, repaid and re-borrowed until September 30, 2011, at which time all amounts borrowed must be repaid.  The Loan Agreement obligates us to pay a customary unused facility fee for a credit facility of this size. The revolving loans under the Loan Agreement are secured by a continuing security interest in most of our key assets including accounts and notes receivable, inventory, investments, demand deposit accounts maintained with our lender and 65% of the voting stock of our Honduran subsidiary, which require us to maintain certain financial ratios.  As of December 31, 2009 and March 31, 2009, we had no borrowings on our Wachovia credit facility.  

 We believe cash flow from operations, the available bank borrowings, current short-term investments and cash and cash equivalents will be sufficient to meet our working capital requirements for the next 12 months.

OFF-BALANCE SHEET ARRANGEMENTS

 We do not have financial partnerships with unconsolidated entities, such as entities often referred to as structured finance or variable interest entities, which are often established for the purposes of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.  As a result, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had such relationships.

NEW ACCOUNTING STANDARDS

See Note 10 – “New Accounting Standards” to the Condensed Consolidated Financial Statements for a discussion of recent accounting standards.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements and related disclosures, in conformity with United States generally accepted accounting principles, requires management to make judgments, assumptions and estimates that affect the amounts reported.  Certain of these significant accounting policies are considered to be critical accounting policies, as defined below. 

A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations.  Specifically, critical accounting estimates have the following attributes:  (i) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and (ii) different estimates that we could reasonably have used, or changes in the estimates actually used resulting from events that could be reasonably foreseen as likely to have a material effect on our financial condition or results of operations.

Estimates and assumptions about future events and their effects cannot be determined with certainty.  We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances.  These estimates may change as new events occur, as additional information is obtained and as our operating environment changes.  These changes have historically been minor and have been included in the consolidated financial statements once known.  In addition, we are periodically faced with uncertainties, the outcomes of which are not within our control and will not be known for prolonged periods of time.  These uncertainties are discussed in the section above entitled Disclosure Regarding Forward-Looking Statements and in section Item 1A below, entitled Risk Factors.  Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our consolidated financial statements are fairly stated in accordance with United States generally accepted accounting principles and present a meaningful presentation of our financial condition and results of operations. 

 We believe that the following are critical accounting policies:

Revenue Recognition/Allowance for Doubtful Accounts.  We recognize revenue from commercial customers when an order has been received and accepted, pricing is fixed, delivery has occurred and title to the product has passed and collectability is reasonably assured.  Title generally passes upon shipment to the customer; however, in a limited number of cases, title passes upon receipt of shipment by the customer.  We have no installation obligation subsequent to product shipment.  Similarly, revenue from sales to distributors is recognized as title passes to them without additional involvement or obligation.  Collection of receivables related to distributor sales is not contingent upon subsequent sales to third parties.  Royalty revenue is recognized as reported by licensees.

 We may enter into government contracts that fall within the scope of FASB ASC Topic 912-605, “Contractors-Federal Government Revenue Recognition”.  Currently we do not have any transactions being accounted for within the scope of FASB ASC Topic 912-605.  We may enter into government contracts that fall within the scope of FASB ASC Topic 605-35, “Revenue Recognition, Construction-Type and Production-Type Contracts”.   For government contracts within the scope of FASB Topic 605-35, we record revenue under a units-of-delivery model with revenue and costs equal to the average unit value times the number of units delivered.  Any estimated loss on an overall contract would be recognized in the period determined in accordance with FASB ASC Topic 605-35.  We have not experienced past losses on government contracts.

 We record an allowance for estimated losses resulting from the inability of customers to make timely payments of amounts due on account of product purchases.  We assess the credit worthiness of our customers based on multiple sources of information, including publicly available credit data, subscription based credit reports, trade association data, and other factors such as historical bad debt experience, changes in customer payment terms or payment patterns, credit risk related to industry and geographical location and economic trends.  This assessment requires significant judgment.  If the financial condition of our customers were to worsen, additional write-offs could be required, resulting in write-offs not included in our current allowance for doubtful accounts.

 Inventories.  Because of the lead times required to obtain certain raw materials, we must maintain sufficient quantities on hand to meet expected product demand for each of our many products.  If actual demand is much lower than forecasted, we may not be able to dispose of our inventory at or above our cost.  We write down our inventory for estimated excess and obsolete amounts to the lower of cost or market.  We review the reasonableness of our estimates each quarter (or more frequently).  A write-down is established for inventory that has had no activity for long periods of time, is in excess of reasonable needs, or for which management believes is no longer salable. This write-down is reviewed and approved by the senior management team.  In the future, based on our quarterly analysis, if we estimate that any remaining write-down for obsolescence is either inadequate or in excess of the inventory allowance required, we may need to adjust it.  At present, based on our analysis, we believe the write-down amount is properly valued for the inventory held by us.

 Income Taxes.  Significant management judgment is required in developing our provision for income taxes, including the determination of any accrual for tax contingencies, any foreign withholding taxes or any United States income taxes on undistributed earnings of the foreign subsidiary, deferred tax assets and liabilities and any valuation allowances that might be required to be applied against the deferred tax assets.  It had been management’s intention to reinvest undistributed earnings of our foreign subsidiary and thereby indefinitely postpone their repatriation.  Accordingly, prior to fiscal 2005 no provision was made for foreign withholding taxes or United States income taxes which would become payable if undistributed earnings of our foreign subsidiary are paid to us as dividends.  In fiscal 2005 and fiscal 2006, pursuant to Sections 951 and 956 of the Internal Revenue Code, approximately $3.3 million of current year and prior undistributed earnings of our Honduras subsidiary were deemed to be dividends paid to the parent company and, therefore, subject to U.S. income tax.  We recorded for all of the taxes attributable to these deemed dividends in fiscal 2005 and fiscal 2006 in our financial statements. The circumstances that triggered the taxation of our foreign earnings no longer exist and it is our intention to reinvest future undistributed earnings of our Honduras subsidiary and thereby indefinitely postpone their repatriation.

We apply the Comparable Profits Method for transfer pricing to determine the amounts our subsidiary charges to the parent.

 Warranty.  We generally provide a one year warranty period for all of our products.  We also provide coverage on certain of our surge products for “downstream” damage of products not manufactured by us.  Our warranty provision represents our estimate of probable liabilities, calculated as a function of sales volume and historical repair experience for each product under warranty.  Our warranty accrual represents our estimate of our liability for warranty repairs that we will incur over the warranty period.

Impairment of Long-Lived Assets.  We evaluate the recoverability of property, plant and equipment and intangible assets in accordance with FASB ASC Topic 360, “Property, Plant, and Equipment,” and FASB ASC Topic 205, “Presentation of Financial Statements.” We test for impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. An impairment loss is recognized in the event the carrying value of these assets exceeds the fair value of the applicable assets. Impairment evaluations involve management estimates of asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management, which could have a material effect on our operating results and financial position.

The Company evaluates goodwill and other intangible assets in accordance with FASB ASC Topic 350, “Intangibles — Goodwill and Other.” Goodwill is recorded at the time of an acquisition and is calculated as the difference between the total consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired. Accounting for acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired, including in-process research and development (“IPR&D”). Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. If the assumptions and estimates used to allocate the purchase price are not correct, or if business conditions change, purchase price adjustments or future asset impairment charges could be required. We have no goodwill recorded.  The value of our intangible assets could be impacted by future adverse changes such as: (i) any future declines in our operating results, (ii) a decline in the valuation of technology company stocks, including the valuation of our common stock, (iii) a significant slowdown in the worldwide economy and the semiconductor industry or (iv) any failure to meet the performance projections included in our forecasts of future operating results. In accordance with FASB ASC Topic 350, we test intangible assets for impairment on an annual basis or more frequently if we believe indicators of impairment exist. Impairment evaluations involve management estimates of asset useful lives and future cash flows. Significant management judgment is required in the forecasts of future operating results that are used in the evaluations. It is possible, however, that the plans and estimates used may be incorrect. If our actual results, or the plans and estimates used in future impairment analysis, are lower than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges in a future period.

Stock-Based Compensation.  For purposes of determining the variables used in the calculation of stock compensation expense under the provisions of FASB ASC Topic 505, “Equity” and FASB ASC Topic 718, “Compensation — Stock Compensation,” we perform an analysis of current market data and historical company data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, we use these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted, any fluctuations in these calculations could have a material effect on the results presented in our Consolidated Condensed Statement of Operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our financial statements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

          We do not engage in investing in or trading market risk sensitive instruments.  We also do not purchase, for investing, hedging, or for purposes “other than trading,” instruments that are likely to expose us to market risk, whether interest rate, foreign currency exchange, commodity price or equity price risk, except as noted in the following paragraph.  We have not entered into any forward or futures contracts, purchased any options or entered into any interest rate swaps.  Additionally, we do not currently engage in foreign currency hedging transactions to manage exposure for transactions denominated in currencies other than U.S. dollars.

             As of December 31, 2009, we had no borrowings.  If we borrow under our Wachovia credit facility, our borrowing costs will be affected by changes in interest rates.   We also have exposure to changes in interest rates from investments in held-to-maturity securities.  With our current level and term of investments, a 1% change in the market rate of interest would result in a change in interest income of approximately $100 on an annual basis. 

Item 4.  Controls and Procedures.

Disclosure Controls and Procedures

 As of the end of the period covered by this interim report on Form 10-Q, we carried out, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”), an evaluation of the effectiveness of our “disclosure controls and procedures” (as the term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 as amended).  Based on this evaluation, the Certifying Officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

 Further, there were no changes in our internal control over financial reporting during our first three fiscal quarters that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.  Legal Proceedings.

 We are involved in various claims and legal actions arising in the ordinary course of business.  In our opinion, the ultimate disposition of these matters will not have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A.  Risk Factors.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, the reader should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our annual Report on Form 10-K for the fiscal year ended March 31, 2009. With the exception of the risk factor discussed below, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2009. 

We depend on our subsidiary in Honduras to manufacture a significant number of our products.

We manufacture a significant number of products in Honduras that complement and support the manufacturing operation that we maintain in Clearwater, Florida.  Our operations in Honduras are subject to risks including, among others:

 labor unrest;

                       political instability;

                       lack of developed infrastructure;

 longer payment cycles and greater difficulty in collecting accounts;

 import and export duties and quotas;

 changes in domestic and international customs and tariffs;

 unexpected changes in regulatory environments;

 difficulty in complying with a variety of foreign laws;

 difficulty in obtaining distribution and support;

 potentially adverse tax consequences; and

                       changes in exchange rates between the U.S. dollar and the foreign currency.

On November 29, 2009 elections were held in Honduras resulting in the election of Porforio Lobo as President and the United States recognized the election results on November 30, 2009, significantly reducing political tensions in Honduras. On January 27, 2010, President Lobo was sworn in as the new President of Honduras.  There had been considerable political instability in Honduras since June 28, 2009, when soldiers of the Honduran military removed President Manuel Zelaya from office after he defied court orders to cancel a referendum that sought to amend the constitution of Honduras to permit him to seek re-election and potentially expand his powers.

To date, there has been no significant disruption in our manufacturing operations since the political crisis in Honduras commenced and we continue to ship components into and our products out of Honduras.  In addition, there has been no impact on our ability to make and receive payments and conduct routine banking and financial transactions.  However, while the political situation in Honduras has improved it still remains uncertain and could result in disruption of our manufacturing operations which could have a material adverse effect on our manufacturing operations and results of operations.

Item 4.  Unregistered Sales of Equity Securities and Use of Proceeds.

On December 15, 2008, our Board of Directors approved the grant of restricted stock awards to certain key employees and executive officers of the Company under the Company’s Amended and Restated 2000 Long Term Incentive Plan.  The total number of restricted stock grants that were issued was 81,999.  With the exception of one award made to our Senior Vice President and Director of Government Operations and Marketing (which will vest annually over a two year period), the restricted stock grants vest annually over a three year period, with one-third vesting annually on the anniversary date of the grant.

The terms of restricted stock awards provide that the grantees could satisfy their tax withholding obligations upon the vesting of their restricted stock by having the Company withhold a number of vested shares having a value on the date of vesting equal to the tax withholding obligation.  As a result of this tax obligation, we withheld 4,285 of the shares that vested and paid the value of those shares to federal tax authorities for the grantees’ account.  As a result, we repurchased 4,285 of the Company’s restricted stock awards to satisfy federal tax obligations that were triggered by the vesting of these shares.

Item 6.  Exhibits.

Exhibit 31.1 — Certification of the CEO pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).

Exhibit 31.2 — Certification of the CFO pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).

Exhibit 32.1 — Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the

                       Sarbanes-Oxley Act of 2002.

Exhibit 32.2 — Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the

                       Sarbanes-Oxley Act of 2002.

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
February 4, 2010	By:       /s/ Owen Farren
	Owen Farren
	President and Chief Executive Officer
	(Principal Executive Officer)
February 4, 2010	By:       /s/ Thomas. G. Archbold
	Thomas G. Archbold
	Chief Financial Officer
	(Principal Financial and Accounting Officer)