UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission File Number: 0-13763
TECHNOLOGY RESEARCH CORPORATION
_______________________________
(Exact name of registrant as specified in its charter)
Florida 59-2095002
_______________________________ ________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No,)
5250 140th Avenue North, Clearwater, Florida 33760
____________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (727) 535-0572
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for a shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1998
____________________________ ____________________________
Common stock, $.51 par value 5,455,737
TECHNOLOGY RESEARCH CORPORATION
INDEX
Part I - Financial Information Page
Condensed Consolidate Balance Sheets
- June 30, 1998 and March 31, 1998............................ 1
Condensed Consolidate Statements of Income
- Three months ended June 30, 1998 and June 30, 1997.......... 2
Condensed Consolidated Statements of Cash Flows
- Three months ended June 30, 1998 and June 30, 1997.......... 3
Notes to Condensed Consolidated Financial Statements............... 4
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 5
Part II - Other Information
Item 1 - Legal Proceedings......................................... 7
Item 2 - Changes in Securities..................................... 7
Item 3 - Defaults Upon Senior Securities........................... 7
Item 4 - Submission of Matters to a Vote of Shareholders............7
Item 5 - Other Information......................................... 7
Item 6 - Exhibits and Reports on Form 8-K...........................7
Signatures......................................................... 8
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TECHNOLOGY RESEARCH CORPORATION
CONDENSED BALANCE SHEETS
June 30 March 31
1998 1998
----------- ---------
ASSETS (unaudited) *
Current assets:
Cash and cash equivalents $ 784,714 1,153,798
Short term investments 1,047,647 1,033,902
Accounts receivable, net 3,040,002 2,711,056
Income tax receivable 136,061 253,019
Inventories:
Raw material 4,358,270 4,499,524
Work in process 658,097 387,170
Finished goods 629,841 438,715
---------- ----------
Total inventories 5,646,208 5,325,409
Prepaid expenses 299,607 235,595
Deferred income taxes 386,298 406,100
---------- ----------
Total current assets 11,340,537 11,118,879
---------- ----------
Property, plant, and equipment 9,105,880 9,033,808
Less accumulated depreciation (4,660,341) (4,476,692)
---------- ----------
Net property, plant, and equipment 4,445,539 4,557,116
---------- ----------
Deferred income taxes 55,928 55,928
Other assets 54,070 14,895
---------- ----------
$ 15,896,074 15,746,818
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of debt $ 2,525,100 2,525,100
Accounts payable 1,212,024 1,216,624
Accrued expenses 312,275 455,863
Dividends payable 35,613 45,613
---------- ----------
Total current liabilities 4,085,012 4,243,200
Long-term debt, excluding current installments 112,500 131,250
---------- ----------
Total liabilities 4,197,512 4,374,450
---------- ----------
Stockholders' equity:
Common stock 2,759,439 2,719,611
Additional paid-in capital 7,458,085 7,411,581
Retained earnings 1,481,038 1,241,176
---------- ----------
Total stockholders' equity 11,698,562 11,372,368
---------- ----------
$ 15,896,074 15,746,818
========== ==========
<FN>
<F1>
* The balance sheet as of March 31, 1998 has been summarized
from the Company's audited balance sheet as of that date.
<F2>
See accompanying notes to condensed financial statements.
</FN>
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TECHNOLOGY RESEARCH CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
June 30
1998 1997
---------- ----------
Operating revenues:
Net sales $ 4,737,522 4,640,053
Royalties 15,879 171,532
---------- ----------
4,753,401 4,811,585
---------- ----------
Operating expenses:
Cost of sales 3,310,807 3,151,806
Selling, general, and administrative 752,484 923,011
Research, development and engineering 279,685 269,274
---------- ----------
4,342,976 4,344,091
---------- ----------
Operating income 410,425 467,494
---------- ----------
Other income (deductions):
Interest and sundry income 17,013 45,521
Interest expense (51,888) (6,666)
Gain on foreign exchange 1,072 114
---------- ----------
(33,803) 38,969
---------- ----------
Income before income taxes 376,622 506,463
Income taxes 136,760 180,148
---------- ----------
Net income $ 239,862 326,315
========== ==========
Basic earnings per share $ 0.04 0.06
========== ==========
Weighted average number of common
and equivalent shares outstanding 5,377,051 5,332,571
========== ==========
Diluted earnings per share $ 0.04 0.06
========== ==========
Weighted average number of common
and equivalent shares outstanding 5,393,711 5,433,320
========== ==========
Dividends paid $ 0.06 0.06
========== ==========
<FN>
See accompanying notes to condensed financial statements.
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TECHNOLOGY RESEARCH CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
June 30
1998 1997
---------- ----------
Cash flows from operating activities:
Net income $ 239,862 326,315
Adjustments to reconcile net income to net cash
provided by operating activities:
Accretion of interest (13,745) (38,967)
Depreciation 183,649 170,139
Increase in accounts receivable (328,946) (290,348)
Increase in inventories (320,799) (247,226)
Increase in prepaid expenses (64,012) (11,018)
Decrease in income taxes receivable 116,958 178,130
Decrease in deferred income taxes 19,802 15,250
Increase in other assets (39,175) (37,136)
Increase(decrease) in accounts payable (4,600) 406,015
Increase(decrease) in accrued expenses (143,588) 42,894
Increase in income taxes payable - 123,303
---------- ----------
Net cash provided by (used in)
operating activities (354,594) 637,351
---------- ----------
Cash flows from investing activities:
Maturities of short-term investments - 1,056,000
Purchase of short-term investments -
Capital expenditures (72,072) (740,610)
---------- ----------
Net cash provided by(used in)
investing activities (72,072) 315,390
---------- ----------
Cash flows from financing activities:
Net borrowings under line-of-credit agreement - 422,101
Principal payments on long-term debt (18,750) (18,650)
Proceeds from exercise of stock options 86,332 -
Dividends paid (10,000) (315,097
---------- ----------
Net cash provided by financing activities 57,582 88,354
---------- ----------
Increase(decrease) in cash and cash equivalents (369,084) 1,041,095
Cash and cash equivalents at beginning of period 1,153,798 1,307,567
---------- ----------
Cash and cash equivalents at end of period $ 784,714 2,348,662
========== ==========
<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 three-month period ended June 30, 1998,
are not necessarily indicative of the results to be expected for the full
year.
2. The Company considers all of its investment securities (U.S. Treasury
Bills) to be held-to-maturity. These securities are all classified in
short-term investments on the consolidated balance sheets and mature
within one year.
3. Basic earnings per share has been computed by dividing net income by the
weighted average number of common shares outstanding.
Diluted earnings per share has been computed by dividing net income by
the weighted average number of common and equivalent shares outstanding.
Common share equivalents included in the computation represent shares
issuable upon exercise of stock options which would have a dilutive effect
in periods where there are earnings.
The Company adopted Statement of Financial Accounting Standards No. 128
("Statement 128") "Earnings per Share" during the quarter ended December
31, 1997. In accordance with Statement 128, all previously presented
earnings per share information has been calculated under the provisions of
Statement 128, to the nature of the Company's capital structure, there was
no difference between basic and diluted earnings per share calculated under
Statement 128 and primary earnings per share calculated under APB Opinion
No. 15.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULT OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying condensed consolidated
financial statements.
Current Three Months Ended June 30, 1998 versus Three Months Ended
June 30, 1997
The Company's operating revenues (net sales and royalties) for the first
quarter ended June 30, 1998 were $4,753,401, compared to $4,811,585 reported
in the same quarter last year, a decrease of approximately 1%. Net income for
the current quarter was $239,862, compared to $326,315, for the same quarter
last year, a decrease of approximately 26%. Basic and diluted earnings for
the current period were $.04 per share compared to basic and diluted earnings
of $.06 per share for the same quarter last year.
The Company returned to profitability in its first fiscal quarter after
recording losses for its fourth quarter and fiscal year ended March 31, 1998.
The Company attributes this turnaround to lower operating expenses and better
performance from its Honduran subsidiary as shipments improved from that
facility during the quarter. Production should continue to make gains in the
second quarter and productivity should improve which would be reflected in
lower manufacturing costs.
The slight decline in revenues, compared to the same quarter last year, was
due to military sales and royalty income being down by $336,437 and $155,653,
respectively, while commercial sales increased by $433,906. The decrease in
Military sales was mainly due to the Company nearing completion of the current
contract related to the Tactical Quiet Generator Systems program. However,
several new Government Contracts have been awarded with the same control
equipment requirements, and the Company has positioned itself with the
Government Prime Contractors for continued participation in this business.
Royalty income was higher in the prior year's quarter due to the Company
recording a one-time final royalty payment of $100,000 from Windmere
Corporation and a licensing fee of $50,000 from Yaskawa Control Company of
Japan during that period. The increase in commercial sales was mainly due to
the level of business with the Company's International OEM customers and the
progress made by the Company in shipping backordered product to its domestic
OEM customers. Sales to Xerox Corporation and its suppliers were down slightly.
The Company believes it is making progress in convincing manufacturers of
appliances to include an OEM Fire Shield power cord with their products to
prevent dangerous fires, and the Company's public relations efforts to increase
consumer awareness of Safe Living/Smart Products has resulted in opportunities
in the Pet and Insurance industries for the Company's Fire Shield Smart Cord.
The Company has also targeted the Electric Utility industry as a channel for
selling the Company's Safe Living/Smart Products, and one major utility company
is actively marketing these products to their customer base.
- 5 -
The Company's gross profit margin on net sales was 30% for the current quarter
and 32% for the same quarter last year. The Company's gross profit margins were
negatively impacted by the August 1, 1997 Xerox price reduction and by higher
manufacturing costs, due to inefficiencies associated with the Honduran plant.
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 which would be reflected in lower manufacturing
costs.
Selling, general and administrative expenses for the current quarter were
$752,484, compared to $923,011 in the same quarter last year, a decrease of
approximately 18%, which reflect the Company's efforts to lower period expenses
and operate within reduce budgets. Selling expenses were $492,935 for the
current quarter, compared to $608,526 the same quarter last year, a decrease
of approximately 19%, reflecting lower professional fees, travel expenses and
advertising costs. General and administrative expenses were $259,549, compared
to $314,485 in the same quarter last year, a decrease of approximately 17%,
reflecting lower salary related expenses.
Research, development and engineering expenses for the current quarter were
$279,685, compared to $269,274 for the same quarter last year, an increase of
approximately 4%, reflecting comparable expenses over the respective periods.
Interest expense, net of interest and sundry income, was $33,803 for the
current quarter, compared to interest and sundry income, net of interest
expense, of $38,969 for the same quarter last year, reflecting lower returns
and average balances on the Company's short-term investments.
Liquidity and Capital Resources
As of June 30, 1998, the Company's cash and cash equivalents decreased to
$784,714 from the March 31, 1998 total of $1,153,798, and short term
investments increased to $1,047,647 from the March 31, 1998 total of
$1,033,902. The short term investments are comprised of U.S. Treasury Bills.
On September 15, 1998, the Company expects to renew its $2,500,000 commercial
line of credit with its institutional lender for another year, maturing in
August 1999. 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's debt from advances on
its line of credit was $2,450,100 as of June 30, 1998.
The Company's working capital increased by $379,846 to $7,255,525 at June 30,
1998, compared to $6,875,679 at March 31, 1998. The increase was primarily a
result of the Company returning to profitability in its first fiscal quarter.
The Company believes cash flow from operations, the available bank line, and
its short term investments and current cash position will be sufficient to
meet its working capital requirements for the immediate future.
The mortgage payable to the Company's institutional lender as of June 30, 1998
was $187,500, compared to $206,250 at March 31, 1998, reflecting the Company's
payments on principal for the three-month period.
- 6 -
The Company's Board of Directors did not declare a dividend for its first
quarter ended June 30, 1998. The Company's Board of Directors will review the
Company's dividend policy on a quarterly basis and make a determination at
such time as to whether the Company will resume payment of a dividend based on
the Company's cash and earnings position.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: The statements in this report that relate to future plans, expectations,
events, performance and the like are forward-looking statements, within the
meaning of the Private Securities Litigation Act of 1995 and the Securities
Exchange Act of 1934. Actual results or events could differ materially from
those described in the forward-looking statements due to a variety of factors,
including those set forth in the Company's reports on Form 10-K and 10-Q filed
with the Securities and Exchange Commission.
Part II - Other Information
Item 1. Legal Proceedings
Not Applicable.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter covered by this
Report.
- 7 -
___________________________________________
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)
July 31, 1998 Scott J. Loucks
___________________________ __________________________________
Date Scott J. Loucks
Chief Financial Officer,
(principal financial, accounting and
Duly Authorized Officer)
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