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, 1997
Commission File Number: 0-13763
TECHNOLOGY RESEARCH CORPORATION
_______________________________
(Exact name of registrant as specified in its charter)
Florida 59-2095002
_______________________________ ________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No,)
5250 140th Avenue North, Clearwater, Florida 33760
____________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (813) 535-0572
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for a shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1997
____________________________ _______________________________
Common stock, $.51 par value 5,332,571
TECHNOLOGY RESEARCH CORPORATION
INDEX
Part I - Financial Information Page
Condensed Consolidate Balance Sheets
- September 30, 1997 and March 31, 1997....................... 1
Condensed Consolidate Statements of Income--Three months and
Six months ended September 30, 1997 and September 30, 1996.. 2
Condensed Consolidated Statements of Cash Flows
- Six months ended September 30, 1997 and September 30, 1996.. 3
Notes to Condensed Consolidated Financial Statements............... 4
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 5
Part II - Other Information
Item 1 - Legal Proceedings......................................... 8
Item 2 - Changes in Securities..................................... 8
Item 3 - Defaults Upon Senior Securities........................... 8
Item 4 - Submission of Matters to a vote of Shareholders............8
Item 5 - Other Information......................................... 8
Item 6 - Exhibits and Reports on Form 8-K...........................8
Signatures......................................................... 9
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TECHNOLOGY RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 March 31
1997 1997
------------ ---------
ASSETS (unaudited) *
Current assets:
Cash and cash equivalents $ 626,228 1,307,567
Short term investments 1,985,786 3,031,013
Accounts receivable, net 2,639,921 2,304,449
Income tax receivable - 178,130
Inventories:
Raw material 3,666,931 3,138,639
Work in process 687,057 1,309,312
Finished goods 924,264 694,817
---------- ----------
Total inventories 5,278,252 5,142,768
Prepaid expenses 256,335 178,972
Deferred income taxes 517,361 411,400
---------- ----------
Total current assets 11,303,883 12,554,299
---------- ----------
Property, plant, and equipment 8,518,313 6,817,411
Less accumulated depreciation (4,156,469) (3,859,909)
---------- ----------
Net property, plant, and equipment 4,361,844 2,957,502
---------- ----------
Deferred income taxes 102,120 102,120
Other assets 58,147 24,028
---------- ----------
$ 15,825,994 15,637,949
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 1,475,100 652,999
Accounts payable 1,197,088 1,607,116
Accrued expenses 339,896 296,549
Dividends payable 356,189 346,490
---------- ----------
Total current liabilities 3,368,273 2,903,154
Long-term debt, excluding current installments 168,750 206,250
---------- ----------
Total liabilities 3,537,023 3,109,404
---------- ----------
Stockholders' equity:
Common stock 2,719,611 2,719,611
Additional paid-in capital 7,411,581 7,411,581
Retained earnings 2,157,779 2,397,353
---------- ----------
Total stockholders' equity 12,288,971 12,528,545
---------- ----------
$ 15,825,994 15,637,949
========== ==========
<FN>
<F1>
* The balance sheet as of March 31, 1997 has been summarized
from the Company's audited balance sheet as of that date.
<F2>
See accompanying notes to condensed financial statements.
</FN>
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TECHNOLOGY RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Six Months Ended
September 30 September 30
1997 1996 1997 1996
---------- ---------- ---------- ----------
Operating revenues:
Net sales $ 4,489,085 3,551,235 9,129,138 6,830,572
Royalties 56,865 137,692 228,397 235,822
---------- ---------- ---------- ----------
4,545,950 3,688,927 9,357,535 7,066,394
---------- ---------- ---------- ----------
Operating expenses:
Cost of sales 3,152,129 2,361,474 6,303,936 4,666,405
Selling, general, and administrative 992,071 776,381 1,915,081 1,512,243
Research, development and engineering 295,365 295,573 564,639 573,706
---------- ---------- ---------- ----------
4,439,565 3,433,428 8,783,656 6,752,354
---------- ---------- ---------- ----------
Operating income 106,385 255,499 573,879 314,040
---------- ---------- ---------- ----------
Other income (deductions):
Interest and sundry income 33,974 58,123 79,609 113,585
Interest expense (42,781) (8,579) (49,447) (17,555)
---------- ---------- ---------- ----------
(8,807) 49,544 30,162 96,030
---------- ---------- ---------- ----------
Income before income taxes 97,578 305,043 604,041 410,070
Income taxes 23,559 3,126 203,707 37,126
---------- ---------- ---------- ----------
Net income $ 74,019 301,917 400,334 372,944
========== ========== ========== ==========
Earnings per share $ 0.01 0.06 0.07 0.07
========== ========== =========== =========
Weighted average number of common
and equivalent shares outstanding 5,436,578 5,441,393 5,434,708 5,444,097
========== ========== ========== ==========
Dividends paid $ 0.06 0.06 0.12 0.12
========== ========== ========== ==========
<FN>
See accompanying notes to condensed financial statements.
- 2 -
TECHNOLOGY RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
September 30
1997 1996
---------- ----------
Cash flows from operating activities:
Net income $ 400,334 372,944
Adjustments to reconcile net income to net cash
provided by operating activities:
Accretion of interest (66,709) (106,814)
Depreciation 296,560 247,475
Decrease(increase) in accounts receivable (335,472) 416,771
Increase in inventories (135,484) (248,681)
Increase in prepaid expenses (77,363) (109,462)
Decrease in income taxes receivable 178,130 -
Decrease(increase) in deferred income taxes (105,961) 59,657
Increase in other assets (34,119) (1,537)
Decrease in accounts payable (410,028) (126,877)
Increase in accrued expenses 43,347 3,533
Increase in income taxes payable - 50,927
---------- ----------
Net cash provided by(used in)
operating activities (246,765) 557,936
---------- ----------
Cash flows from investing activities:
Maturities of short-term investments 2,112,000 3,109,000
Purchase of short-term investments (1,000,064) (3,001,148)
Capital expenditures (1,700,902) (176,574)
---------- ----------
Net cash used in investing activities (588,966) (68,722)
---------- ----------
Cash flows from financing activities:
Net borrowings under line-of-credit agreement 822,101 -
Principal payments on long-term debt (37,500) (37,500)
Dividends paid (630,209) (629,179)
---------- ----------
Net cash provided by(used in)
financing activities 154,392 (666,679)
---------- ----------
Decrease in cash and cash equivalents (681,339) (177,465)
Cash and cash equivalents at beginning of period 1,307,567 341,601
---------- ----------
Cash and cash equivalents at end of period $ 626,228 164,136
========== ==========
<FN>
See accompanying notes to condensed financial statements.
- 3 -
TECHNOLOGY RESEARCH CORPORATION
NOTES TO CONDENSED 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, 1997, are not necessarily indicative of the results to be
expected for the full year.
2. The Company considers all of its investment securities (U.S. Treasury
Bills) to be held-to-maturity. These securities are all classified in
short-term investments on the consolidated balance sheets and mature
within one year.
3. 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 years where there are earnings.
- 4 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULT OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying condensed consolidated
financial statements.
Current Six Months Ended September 30, 1997 versus Six Months Ended
September 30, 1996
The Company's operating revenues (net sales and royalties) for the second
quarter ended September 30, 1997 were $4,545,950, compared to $3,688,927
reported in the same quarter of the prior year, an increase of approximately
23%. Net income for the current quarter was $74,019, compared to $301,917, for
the prior year's quarter, a decrease of approximately 75%. The earnings per
share for the current period were $.01 per share, compared to $.06 for the
comparable period last year.
The Company's operating revenues (net sales and royalties) for the six-month
period ended September 30, 1997 were $9,357,535, compared to $7,066,394
reported in the same period of the prior year, an increase of approximately
32%. Net income for the six-month period was $400,334, compared to $372,944,
for the same period in the prior year, an increase of approximately 1%. The
earnings per share for the six-month period were $.07 per share, compared to
$.07 for the comparable period last year.
The Company's higher revenues were due to commercial sales increasing by
$503,771 and military sales increasing by $1,794,795 over the prior six-month
period. Royalty income was down $7,425. The increase in commercial sales was
mainly due to the level of business with the Company's OEM customers, both
domestic and international. Sales to the sprayer/washer market increased
slightly while sales to Xerox Corporation and its suppliers decreased mainly
due to a price reduction which went into effect August 1, 1997. Throughout
Fiscal Year 1998, the Company expects commercial sales to remain stable and
sales to Xerox to continue to be affected by the recent price reduction. The
increase in Military sales was mainly due to the Company now being in full
production of the products related to the Tactical Quiet Generator Systems
program.
Although the Company's revenues were higher for the current quarter, net income
decreased for the following reasons: first, the Company's royalty income was
down by $80,827 due to the completion of the Windmere Agreement; second, the
Company had higher period expenses due to the Company's marketing programs and
the additional costs associated with the start-up of the Company's Honduran
subsidiary; and third, the Company's income tax expense was considerably higher
in the current quarter, compared to the same period last year, due to a
one-time income tax credit of $110,000 which the Company recorded in the prior
year's quarter.
- 5 -
Total marketing expenses for "Fire Shield" and consumer marketing were $86,513
and $80,771 for the current quarter and for the six-month period ended
September 30, 1997, $166,319 and $194,810, respectively. No significant sales
have been recorded to date for the Company's "Fire Shield" products or as a
result of the Company's consumer marketing program, although the Company added
two additional distributorships in the second quarter for the distribution of
the Company's "Safe Living/Smart Products" for the Tampa Bay, Florida area and
for the state of Pennsylvania. The Company continues to believe that the
market for "Fire Shield" is large and that the consumer market for the
Company's products provide significant opportunities for growth.
The Company's wholly owned subsidiary, TRC Honduras, S.A. de C.V., is currently
producing the majority of the Company's high-volume products. The Company's
subsidiary recorded a $24,020 loss for the second quarter and a $118,832 loss
for the six-month period ended September 30, 1997. The Company expected its
subsidiary to break even for the second quarter; however, it did not meet its
plan for product shipments due to unexpected plant inefficiencies. The result
was that additional product had to be produced at the Company's Clearwater
facility using temporary labor and heavy overtime. The Company has taken steps
to correct these inefficiencies, and the Company expects its subsidiary to
produce a profit in the third quarter as the plant becomes more productive.
The Company's goal for its Honduran subsidiary is to deliver product on-time
with better quality and lower cost than what the Company was experiencing with
its Far East contract manufacturer. The Company expects to achieve these
targets by the end of its fiscal year. The subsidiary has passed Xerox
certification and will go through ISO 9002 certification in early January 1998.
The Company's gross profit margin on net sales was approximately 29% for the
current quarter and approximately 31% for the six-month period ended September
30, 1997, compared to 34% and 32% for the same periods last year. The
Company's gross profit margins were negatively impacted by the August 1st Xerox
price reduction, by the costs associated with the Honduran plant start-up and
by the additional costs incurred by the Clearwater facility as a result of the
Honduran plant not meeting its plan for product shipments, as discussed above.
Although the Company's profit margins will continue to be affected by the Xerox
price reduction, the Company expects profit margins to improve as the Honduran
plant improves its productivity and performs to plan.
Selling, general and administrative expenses were $992,071 for the current
quarter and $1,915,081 for the six-month period ended September 30, 1997,
compared to $776,381 and $1,512,243 for the same periods last year, an increase
of approximately 28% and 27%, respectively. Selling expenses were $632,878 for
the current quarter and $1,241,404 for the six-month period ended September 30,
1997, compared to $481,654 and $993,760 for the same periods last year, an
increase of approximately 31% and 25%, respectively, mainly reflecting expenses
related to the "Fire Shield" and TRC Consumer Marketing programs. General and
administrative expenses were $359,193 for the current quarter and $673,677 for
the six-month period ended September 30, 1997, compared to $294,727 and
$518,483 for the same periods last year, an increase of approximately 22% and
30%, respectively, reflecting higher salaries, insurance costs and professional
fees of which 18% of these expenses were related to the Company's Honduran
subsidiary.
Research, development and engineering expenses were $295,365 for the current
quarter and $564,639 for the six-month period ended September 30, 1997,
compared to $295,573 and $573,706 for the same periods last year, reflecting
comparable expenses year to year.
- 6 -
Interest expense, net of interest and sundry income, for the current quarter
was $8,897 and interest and sundry income, net of interest expense, was $30,162
for the six-month period ended September 30, 1997, compared to interest and
sundry income, net of interest expense, of $49,544 and $96,030 for same periods
last year, reflecting lower returns and average balances on the Company's
short-term investments.
Liquidity and Capital Resources
As of September 30, 1997, the Company's cash and cash equivalents decreased to
$626,228 from the March 31, 1997 total of $1,307,567, and short term
investments decreased to $1,985,786 from the March 31, 1997 total of
$3,031,013. The short term investments are comprised of U.S. Treasury Bills.
On September 10, 1997, the Company renewed its commercial line of credit at
$2,500,000 with its institutional lender for one year, maturing in August 1998.
The Company continues to have the option of borrowing at the lender's prime
rate of interest or the 30-day London Interbank Offering Rate (L.I.B.O.R.) plus
200 basis points. The Company also has available a Banker's Acceptance
agreement which gives the Company the option of borrowing up to $750,000 under
the line of credit with the interest rate being determined by the lender's
International Division at the time of borrowing.
The Company's working capital decreased by $1,715,535 to $7,935,610 at
September 30, 1997, compared to $9,651,145 at March 31, 1997. The decrease was
primarily a result of the Company funding its Honduran subsidiary with its line
of credit. The Company had expected to renew its line of credit in the second
quarter for two years, causing the line of credit debt to be re-classed as
long-term debt, thus improving the Company's working capital position; however,
the Company opted to renew its line of credit for one year in order to maintain
flexible loan covenants and lower non-usage costs. The Company believes cash
flow from operations, the available bank line, and its short term investments
and current cash position will be sufficient to meet its working capital
requirements for the immediate future.
The mortgage payable to the Company's institutional lender as of September 30,
1997 was $243,750, compared to $281,250 at March 31, 1997, reflecting the
Company's payments on principal for the six-month period.
The second quarter dividend of $.06 per share was paid on October 22 1997 to
shareholders of record on September 30, 1997
- 7 -
Part II - Other Information
Item 1. Legal Proceedings
Not Applicable.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter covered by this
Report.
- 8 -
___________________________________________
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHNOLOGY RESEARCH CORPORATION
(registrant)
October 31, 1997 Scott J. Loucks
___________________________ __________________________________
Date Scott J. Loucks
Chief Financial Officer,
(principal financial, accounting and
Duly Authorized Officer)
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