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 September 30, 2000
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 October 31, 2000
Common stock, $.51 par value 5,437,497
TECHNOLOGY RESEARCH CORPORATION
INDEX
Part I - Financial Information Page
Condensed Consolidated Balance Sheets
- September 30, 2000 and March 31, 2000............................. 1
Condensed Consolidated Statements of Operations--Three months and
Six months ended September 30, 2000 and September 30, 1999........ 2
Condensed Consolidated Statements of Cash Flows
- Six months ended September 30, 2000 and September 30, 1999........ 3
Notes to Condensed Consolidated Financial Statements..................... 4
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 5
Item 3 - Quantitative and Qualitative Disclosure Regarding Market Risk... 7
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
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 March 31
2000 2000
----------- ---------
ASSETS (unaudited) *
Current assets:
Cash and cash equivalents $ 1,236,231 2,696,010
Accounts receivable, net 2,858,224 3,105,541
Income tax receivable 163,022 76,600
Inventories:
Raw material 4,081,281 3,927,770
Work in process 638,232 351,964
Finished goods 1,137,284 928,855
---------- ----------
Total inventories 5,856,797 5,208,589
Prepaid expenses 249,131 70,118
Deferred income taxes 468,974 477,100
---------- ----------
Total current assets 10,832,379 11,633,958
---------- ----------
Property, plant, and equipment 9,573,402 9,190,133
Less accumulated depreciation 5,177,805 4,911,305
---------- ----------
Net property, plant, and equipment 4,395,597 4,278,828
---------- ----------
Other assets 52,389 77,839
---------- ----------
$ 15,280,365 15,990,625
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 1,312,345 805,342
Accrued expenses 320,748 349,962
Dividends payable 70,177 69,902
Deferred income 141,176 141,176
---------- ----------
Total current liabilities 1,844,446 1,366,382
Long-term debt, excluding current installments 1,500,000 2,500,000
Deferred income 10,294 73,530
Deferred income taxes 34,659 60,655
---------- ----------
Total liabilities 3,389,399 4,000,567
---------- ----------
Stockholders' equity:
Common stock 2,784,088 2,782,435
Additional paid-in capital 7,526,472 7,528,473
Retained earnings 1,620,551 1,679,150
---------- ----------
11,931,111 11,990,058
Treasury stock (40,145) -
---------- ----------
Total stockholders' equity 11,890,966 11,990,058
---------- ----------
$ 15,280,365 15,990,625
========== ==========
<FN>
<F1>
* The balance sheet as of March 31, 2000 has been summarized
from the Company's audited balance sheet as of that date.
<F2>
See accompanying notes to condensed consolidated financial statements.
</FN>
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TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Six Months Ended
September 30 September 30
2000 1999 2000 1999
---------- ---------- ---------- ----------
Operating revenues:
Net sales $ 4,335,928 4,259,636 9,079,095 8,173,921
Royalties 49,203 26,793 102,556 47,025
---------- ---------- ---------- ----------
4,385,131 4,286,429 9,181,651 8,220,946
---------- ---------- ---------- ----------
Operating expenses:
Cost of sales 3,320,075 2,890,326 6,637,202 5,473,349
Selling, general, and administrative 939,694 844,594 1,829,450 1,649,191
Research, development and engineering 329,368 287,084 621,691 546,689
---------- ---------- ---------- ----------
4,589,137 4,022,004 9,088,343 7,669,229
---------- ---------- ---------- ----------
Operating (loss) income (204,006) 264,425 93,308 551,717
---------- ---------- ---------- ----------
Other income (deductions):
Interest and sundry income 21,024 18,998 48,829 38,428
Interest expense (30,320) (46,018) (70,330) (89,915)
Loss on disposal of assets (2,293) - (4,480) -
---------- ---------- ---------- ----------
(11,589) (27,020) (25,981) (51,487)
---------- ---------- ---------- ----------
Income (loss) before income taxes (215,595) 237,405 67,327 500,230
Income taxes (benefit) expense (63,548) 57,000 17,208 116,000
---------- ---------- ---------- ----------
Net (loss) income $ (152,047) 180,405 50,119 384,230
========== ========== ========== ==========
Basic earnings (loss) per share $ (0.03) 0.03 0.01 0.07
========== ========== ========== ==========
Weighted average number of common
shares outstanding 5,440,444 5,455,756 5,441,795 5,455,756
========== ========== ========== ==========
Diluted earnings (loss) per share $ (0.03) 0.03 0.01 0.07
========== ========== ========== ==========
Weighted average number of common
and equivalent shares outstanding 5,534,624 5,464,014 5,519,537 5,463,609
========== ========== ========== ==========
Dividends paid per share $ 0.01 0.01 0.02 0.01
========== ========== ========== ==========
<FN>
See accompanying notes to condensed consolidated financial statements.
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TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
September 30
2000 1999
---------- ----------
Cash flows from operating activities:
Net income $ 50,119 384,230
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 266,500 381,553
Decrease in accounts receivable 247,317 36,046
Decrease (increase) in income taxes receivable (86,422) 230,502
Increase in inventories (648,208) (499,568)
Decrease (increase) in prepaid expenses (179,013) 23,545
Decrease (increase) in deferred income taxes (17,870) 30,499
Decrease in other assets 25,450 45,327
Increase in accounts payable 507,003 55,576
Increase(decrease) in accrued expenses (29,214) 65,479
Decrease in deferred income (63,236) -
---------- ----------
Net cash provided by operating activities 72,426 753,189
---------- ----------
Cash flows from investing activities:
Capital expenditures (383,269) (275,357)
---------- ----------
Net cash used in investing activities (383,269) (275,357)
---------- ----------
Cash flows from financing activities:
Principal payments on long-term debt (1,000,000) (37,500)
Dividends paid (108,791) -
Purchase of treasury stock (40,145) -
---------- ----------
Net cash used in financing activities (1,148,936) (37,500)
---------- ----------
Increase (decrease) in cash and cash equivalents (1,459,779) 440,332
Cash and cash equivalents at beginning of period 2,696,010 1,653,952
---------- ----------
Cash and cash equivalents at end of period $ 1,236,231 2,094,284
========== ==========
<FN>
See accompanying notes to condensed consolidated financial statements.
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TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for the
fair statement of results for the interim period.
The results of operations for the six-month period ended September 30, 2000
are not necessarily indicative of the results to be expected for the full
year.
2. Basic earnings per share has been computed by dividing net income by the
weighted average number of common shares outstanding.
Diluted earnings per share has been computed by dividing net income by
the weighted average number of common and equivalent shares outstanding.
Common share equivalents included in the computation represent shares
issuable upon exercise of stock options which would have a dilutive effect
in periods where there are earnings.
3. In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" (SAB 101). The bulletin
draws on existing accounting rules and provides specific guidance on how
those accounting rules should be applied. SAB 101 was to be effective for
the Company's quarter ended March 31, 2000. However, in March 2000, the
SEC issued SAB 101A which delays the effective date to the Company's
quarter ended September 30, 2000. Recently, the SEC indicated it would be
providing further written guidance with respect to the adoption of
specific issues addressed by SAB 101. Based on what is currently known by
the Company, management does not believe that adoption of SAB 101 will
have a material impact on its financial position, results of operations or
cashflows.
4. In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities," (SFAS 133) effective for fiscal
years beginning after June 15, 1999. SFAS 133 requires that derivatives be
carried at fair value and provides for hedge accounting when certain
conditions are met. In June 1999, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standard No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133" (SFAS 137) which
deferred the effective date of adoption of SFAS 133 for one year. The
adoption of SFAS 137 will not have an impact on the Company's financial
position, results of operations or cashflows.
- 4 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULT OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying condensed consolidated
financial statements.
Current Three Months Ended September 30, 2000 versus Three Months Ended
September 30, 1999
The Company's operating revenues (net sales and royalties) for the second
quarter ended September 30, 2000 were $4,385,131, compared to $4,286,429
reported in the same quarter last year, an increase of approximately 2% even
though sales to Xerox Corporation, and its suppliers, decreased $498,487. The
Company had a net loss of $152,047, compared to net income of $180,405, for the
same quarter last year. Basic and diluted losses for the current period were
$(.03) per share compared to basic and diluted earnings of $.03 per share for
the same quarter last year.
The loss for the quarter was primarily the result of higher than expected
start-up costs for both the new military 3KW Tactical Quiet Generator (TQG)
program and the initial high volume production of the Fire Shield( Safety
Extension Cords, resulting in lower profit margins. The Company also recorded
a write-off for an uncollectable account receivable and a one-time expense
related to securing a new general manager for its Honduran manufacturing plant,
both of which have been typically non-recurring expenses for the Company and
resulted in approximately $(.02) per share of the loss for the current quarter.
The Company commenced delivery of the Inverter for the new 3KW TQG program
and also delivered Fire Shield Safety Extension Cords to its customers on-time
during the quarter. The Company believes the on-going sales activity for Fire
Shield is encouraging and expects to continue to add new business for Fire
Shield. The Company also expects to improve margins on the 3KW Inverter and
Fire Shield Safety Extension Cords over the next several quarters by lowering
material costs and improving productivity.
The Company's operating revenues (net sales and royalties) for the six-month
period ended September 30, 2000 were $9,181,651, compared to $8,220,946
reported in the same period of the prior year, an increase of approximately
12%. Net income for the six-month period was $50,119, compared to $384,230,
for the same period in the prior year. Basic and diluted earnings for the
six-month period were $.01 per share compared to basic and diluted earnings of
$.07 per share for the same period last year.
- 5 -
The increase in revenues for the six-month period ended September 30, 2000,
compared to the same period last year, was due to commercial sales improving by
$277,585, military sales by $627,589 and royalty income by $55,531. The
increase in commercial sales was due to an overall increase in the level of
commercial business, including distribution, consumer and OEM sales except for
Xerox Corporation and its suppliers, which decreased $613,242. The Company
expects this trend in commercial sales to continue throughout the remainder of
the fiscal year. The increase in military sales was mainly due to the Company
being in full production of the control devices related to the 5/10/15/30/60KW
TQG program in the Company's first quarter and the new 3KW TQG program in the
second quarter. The Company will continue to be in full production of the
Inverter for the new 3KW TQG program for the remainder of the fiscal year. The
next production phase of the 5/10/15/30/60KW TQG program is scheduled to
commence in the fourth quarter.
The Company's gross profit margin on net sales was approximately 23% for the
current quarter and approximately 27% for the six-month period ended September
30, 2000, compared to 32% and 33% for the same periods last year, reflecting
higher manufacturing costs as mentioned above.
Selling, general and administrative expenses were $939,694 for the current
quarter and $1,829,450 for the six-month period ended September 30, 2000,
compared to $844,594 and $1,649,191 for the same periods last year. Selling
expenses were $508,876 for the current quarter and $1,030,268 for the six-month
period ended September 30, 2000, compared to $480,097 and $935,471 for the same
periods last year, an increase of approximately 6% and 10%, respectively,
reflecting higher health insurance, advertising and commission expenses.
General and administrative expenses were $430,818 for the current quarter and
$799,182 for the six-month period ended September 30, 2000, compared to
$364,497 and $713,720 for the same periods last year, an increase of
approximately 18% and 12%, respectively, reflecting higher professional fees
and the write-off of the account receivable mentioned above.
Research, development and engineering expenses were $329,368 for the current
quarter and $621,691 for the six-month period ended September 30, 2000,
compared to $287,084 and $546,689 for the same periods last year, an increase
of approximately 15% and 14%, respectively, reflecting higher UL fees and
salary related expenses.
Interest expense, net of interest and sundry income, for the current quarter
was $9,296 and $21,501 for the six-month period ended September 30, 2000,
compared to $27,020 and $51,487 for the same periods last year. This decrease
reflects lower line of credit balances over the comparable periods.
The Company's effective income tax rate was 26% for the six-month period ended
September 30, 2000, compared to 23% for the same period last year.
Liquidity and Capital Resources
As of September 30, 2000, the Company's cash and cash equivalents decreased to
$1,236,231 from the March 31, 2000 total of $2,696,010. The decrease in cash
was due to capital expenditures of approximately $400,000 and the Company
paying down its line of credit by $1,000,000.
- 6 -
On August 31, 2000, the Company renewed its $3,000,000 revolving credit loan
with its institutional lender, extending the maturity date another year. 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 is currently using the L.I.B.O.R. option.
The Company's debt from advances on its new line of credit was $1,500,000 as of
September 30, 2000.
The Company's working capital decreased by $1,279,643 to $8,987,933 at
September 30, 2000, compared to $10,267,576 at March 31, 2000. The decrease
was primarily due to the Company reducing its line of credit, as noted above
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 record date for the Company's second fiscal quarter dividend of $.01 per
share was September 30, 2000, and the Company paid that dividend on
October 20, 2000.
Item 3. Quantitative and Qualitative Disclosure Regarding Market Risk
The Company has no derivative instruments as of September 30, 2000. The
Company is exposed to changes in interest rates as a result of its bank credit
agreement, which is based on the London Interbank Offered Rate. A 10% increase
in interest rates related to the Company's bank credit facility would not have
a material effect on the Company's earnings over the next fiscal year or the
bank credit agreement's fair value.
Forward Looking Statement
Some of the statements in this report constitute forward-looking statements,
within the meaning of the Private Securities Litigation Reform Act of 1995 and
the Securities Exchange Act of 1934. These statements related to future
events, other future financial performance or business strategies, and 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. Actual events or results
may differ materially. In evaluating these statements, you should specifically
consider the factors described throughout this report. We cannot be assured
that future results, levels of activity, performance or goals will be achieved.
- 7 -
Part II - Other Information
Item 1. Legal Proceedings
Not Applicable.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of shareholders held on August 24, 2000, the
following matters were submitted for a vote by the shareholders:
1. To elect seven members of the Board of Directors who will be elected
to a one-year term of office.
VOTES FOR VOTES AGAINST
--------- -------------
Robert S. Wiggins 4,945,679 55,060
Raymond H. Legatti 4,951,918 48,821
Raymond B. Wood 4,947,068 53,671
Gerry Chastelet 4,952,612 48,127
Edmund F. Murphy, Jr. 4,948,420 52,319
Martin L. Poad 4,952,286 48,453
2. To ratify the selection by the Company's Board of Directors of
KPMG LLP, Certified Public Accountants, as independent auditors
of the Company for its fiscal year ending March 31, 2001.
VOTES FOR VOTES AGAINST VOTES ABSTAINED
--------- ------------- ---------------
To ratify auditors 9,967,081 29,189 8,108
3. To approve and adopt the Technology Research Corporation 2000 Long
Term Incentive Plan.
VOTES FOR VOTES AGAINST VOTES ABSTAINED
--------- ------------- ---------------
Mandatory retirement 2,243,102 148,816 46,846
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)
November 14, 2000 Scott J. Loucks
___________________________ __________________________________
Date Scott J. Loucks
Chief Financial Officer,
(principal financial, accounting and
Duly Authorized Officer)
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