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, 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 October 30, 1998
____________________________ _______________________________
Common stock, $.51 par value 5,455,737
TECHNOLOGY RESEARCH CORPORATION
INDEX
Part I - Financial Information Page
Condensed Consolidate Balance Sheets
- September 30, 1998 and March 31, 1998....................... 1
Condensed Consolidate Statements of Income--Three months and
Six months ended September 30, 1998 and September 30, 1997.. 2
Condensed Consolidated Statements of Cash Flows
- Six months ended September 30, 1998 and September 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......................................... 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
1998 1998
------------ ---------
ASSETS (unaudited) *
Current assets:
Cash and cash equivalents $ 1,769,991 1,153,798
Short term investments - 1,033,902
Accounts receivable, net 3,139,948 2,711,056
Income tax receivable 61,751 253,019
Inventories:
Raw material 3,827,845 4,499,524
Work in process 950,222 387,170
Finished goods 657,189 438,715
---------- ----------
Total inventories 5,435,256 5,325,409
Prepaid expenses 57,062 235,595
Deferred income taxes 371,048 406,100
---------- ----------
Total current assets 10,835,056 11,118,879
---------- ----------
Property, plant, and equipment 9,464,904 9,033,808
Less accumulated depreciation (4,840,297) (4,476,692)
---------- ----------
Net property, plant, and equipment 4,624,607 4,557,116
---------- ----------
Deferred income taxes 55,928 55,928
Other assets 105,129 14,895
---------- ----------
$ 15,620,720 15,746,818
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 2,525,100 2,525,100
Accounts payable 825,967 1,216,624
Accrued expenses 308,702 455,863
Dividends payable 35,613 45,613
---------- ----------
Total current liabilities 3,695,382 4,243,200
Long-term debt, excluding current installments 93,750 131,250
---------- ----------
Total liabilities 3,789,132 4,374,450
---------- ----------
Stockholders' equity:
Common stock 2,782,425 2,719,611
Additional paid-in capital 7,484,115 7,411,581
Retained earnings 1,565,048 1,241,176
---------- ----------
Total stockholders' equity 11,831,588 11,372,368
---------- ----------
$ 15,620,720 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 CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Six Months Ended
September 30 September 30
1998 1997 1998 1997
---------- ---------- ---------- ----------
Operating revenues:
Net sales $ 4,439,340 4,489,085 9,176,862 9,129,138
Royalties 27,692 56,865 43,571 228,397
---------- ---------- ---------- ----------
4,467,032 4,545,950 9,220,433 9,357,535
---------- ---------- ---------- ----------
Operating expenses:
Cost of sales 3,157,118 3,152,129 6,467,925 6,303,936
Selling, general, and administrative 847,340 992,071 1,599,824 1,915,081
Research, development and engineering 301,794 295,365 581,479 564,639
---------- ---------- ---------- ----------
4,306,252 4,439,565 8,649,228 8,783,656
---------- ---------- ---------- ----------
Operating income 160,780 106,385 571,205 573,879
---------- ---------- ---------- ----------
Other income (deductions):
Interest and sundry income 26,877 33,974 44,961 79,609
Interest expense (52,096) (42,781) (103,983) (49,447)
---------- ---------- ---------- ----------
(25,219) (8,807) (59,022) 30,162
---------- ---------- ---------- ----------
Income before income taxes 135,561 97,578 512,183 604,041
Income taxes 51,551 23,559 188,311 203,707
---------- ---------- ---------- ----------
Net income $ 84,010 74,019 323,872 400,334
========== ========== ========== ==========
Basic earnings per share $ 0.02 0.01 0.06 0.08
========== ========== ========== ==========
Weighted average number of common
and equivalent shares outstanding 5,424,946 5,332,571 5,410,774 5,332,571
========== ========== ========== ==========
Diluted earnings per share $ 0.02 0.01 0.06 0.07
========== ========== ========== ==========
Weighted average number of common
and equivalent shares outstanding 5,424,946 5,436,578 5,410,774 5,434,708
========== ========== ========== ==========
Dividends paid $ - 0.06 - 0.12
========== ========== ========== ==========
<FN>
See accompanying notes to condensed financial statements.
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TECHNOLOGY RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
September 30
1998 1997
---------- ----------
Cash flows from operating activities:
Net income $ 323,872 400,334
Adjustments to reconcile net income to net cash
provided by operating activities:
Accretion of interest (21,098) (66,709)
Depreciation 363,605 296,560
Increase in accounts receivable (428,892) (335,472)
Increase in inventories (109,847) (135,484)
Decrease (increase) in prepaid expenses 178,533 (77,363)
Decrease in income taxes receivable 191,268 178,130
Decrease(increase) in deferred income taxes 35,052 (105,961)
Increase in other assets (90,234) (34,119)
Decrease in accounts payable (390,657) (410,028)
Increase(decrease) in accrued expenses (147,161) 43,347
---------- ----------
Net cash used in operating activities (95,559) (246,765)
---------- ----------
Cash flows from investing activities:
Maturities of short-term investments 1,055,000 2,112,000
Purchase of short-term investments - (1,000,064)
Capital expenditures (431,096) (1,700,902)
---------- ----------
Net cash provided by (used in)
investing activities 623,904 (588,966)
---------- ----------
Cash flows from financing activities:
Net borrowings under line-of-credit agreement - 822,101
Principal payments on long-term debt (37,500) (37,500)
Proceeds from exercise of stock options 135,348 -
Dividends paid (10,000) (630,209)
---------- ----------
Net cash provided financing activities 87,848 154,392
---------- ----------
Increase (decrease) in cash and cash equivalents 616,193 (681,339)
Cash and cash equivalents at beginning of period 1,153,798 1,307,567
---------- ----------
Cash and cash equivalents at end of period $ 1,769,991 626,228
========== ==========
<FN>
See accompanying notes to condensed financial statements.
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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, 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.
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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 Six Months Ended September 30, 1998 versus Six Months Ended
September 30, 1997
The Company's operating revenues (net sales and royalties) for the second
quarter ended September 30, 1998 were $4,467,032, compared to $4,545,950
reported in the same quarter last year, a decrease of approximately 2%. Net
income for the current quarter was $84,010, compared to $74,019, for the same
quarter last year, an increase of approximately 13%. Basic and diluted
earnings for the current period were $.02 per share compared to basic and
diluted earnings of $.01 per share for the same quarter last year.
The Company continued to be profitable in its second fiscal quarter and
attributes this to lower operating expenses and better performance from its
Honduran subsidiary as shipments improved from that facility during the
quarter. Also, on September 25, 1998, the Company's subsidiary received its
ISO 9002 certification. ISO 9002 is a worldwide recognized quality system for
manufacturing.
The Company's operating revenues (net sales and royalties) for the six-month
period ended September 30, 1998 were $9,220,433, compared to $9,357,535
reported in the same period of the prior year, a decrease of approximately 1%.
Net income for the six-month period was $323,872, compared to $400,334, for
the same period in the prior year, a decrease of approximately 19%. Basic and
diluted earnings for the six-month period were $.06 per share compared to basic
earnings of $.08 per share and diluted earnings of $.07 per share for the same
period last year.
The Company's slight decline in revenues for the six-month period ended
September 30, 1998, as compared to the same period last year, was due to
military sales and royalty income being down by $809,247 and $184,826,
respectively, while commercial sales increased by $856,971. The decrease in
Military sales was mainly due to the Company completing the current contract
related to the Tactical Quiet (TQ) Generator Systems program; however, the
Company has received an initial release under a new contract for the same TQ
control equipment with deliveries to begin in December 1998. Royalty income
was higher in the prior year's six-month period due to the Company recording a
one-time final royalty payment of $100,000 from Windmere Corporation in the
first quarter of the prior year and recording licensing fees of $78,324 from
Yaskawa Control Company of Japan during the six-month period ending
September 30, 1997. The increase in commercial sales was mainly due to the
level of business with the Company's Domestic and International OEM customers.
Sales to Xerox Corporation and its suppliers were relatively the same.
The Company had a small layoff of 12 employees, 9 hourly and 3 salary, in its
second quarter ended September 30, 1998, and the total cost associated with the
layoff, including accrued vacation and severance, was approximately $55,000.
The layoff resulted from the Company's efforts to streamline activities in
marketing and balance work requirements in manufacturing, purchasing and
shipping with that of the Company's Honduran facility.
- 5 -
The Company is continuing its marketing effort to convince manufacturers of
appliances to include an OEM Fire Shield power cord with their products to
prevent dangerous fires. The Company is also continuing its public relations
efforts to increase consumer awareness of its Safe Living/Smart Products which
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 its customer base.
The Company's gross profit margin on net sales was approximately 29% for the
current quarter and approximately 30% for the six-month period ended September
30, 1998, compared to 30% and 31% for the same periods last year, reflecting
comparable gross profit margins year to year. 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 were $847,340 for the current
quarter and $1,599,824 for the six-month period ended September 30, 1998,
compared to $992,071 and $1,915,081 for the same periods last year, a decrease
of approximately 15% and 16%, respectively. Selling expenses were $479,955 for
the current quarter and $898,393 for the six-month period ended September 30,
1998, compared to $632,878 and $1,241,404 for the same periods last year, a
decrease of approximately 24% and 28%, respectively, reflecting lower salary
related expense, professional fees, travel expenses and advertising costs, all
of which is in line with the Company's plan to reduce operating expenses and
improve profitability in Fiscal Year 1999. General and administrative expenses
were $367,385 for the current quarter and $701,431 for the six-month period
ended September 30, 1998, compared to $359,193 and $673,677 for the same
periods last year, reflecting comparable expenses year to year.
Research, development and engineering expenses were $301,794 for the current
quarter and $581,479 for the six-month period ended September 30, 1998,
compared to $295,365 and $564,639 for the same periods last year, reflecting
comparable expenses year to year.
Interest expense, net of interest and sundry income, for the current quarter
was $25,219, compared to $8,807 for the same period last year, and $59,022 for
the six-month period ended September 30, 1998, compared to interest and sundry
income, net of interest expense, of $30,162 for the same period last year,
reflecting lower returns and average balances on the Company's short-term
investments.
- 6 -
Liquidity and Capital Resources
As of September 30, 1998, the Company's cash and cash equivalents were
$1,769,991, compared to cash and cash equivalents of $1,153,798 and short term
investments of $1,033,902 at March 31, 1998. The short term investments at
year end were comprised of U.S. Treasury Bills. The Company's cash is
currently held in a money market fund whose yield is comparable to U.S. Treasury
Bills. The decrease in overall cash was due primarily to capital equipment
purchases during the six-month period.
On September 15, 1998, the Company renewed its $2,500,000 commercial line of
credit with its institutional lender for another year, maturing in September
1999. The Company has the option of borrowing at the lender's prime rate of
interest minus 25 basis points or the 30-day London Interbank Offering Rate
(L.I.B.O.R.) plus 175 basis points. The Company's debt from advances on its
line of credit was $2,450,100 as of September 30, 1998.
The Company's working capital increased by $263,995 to $7,139,674 at September
30, 1998, compared to $6,875,679 at March 31, 1998. The increase was primarily
a result of the Company's continued profitability through its second 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 September 30,
1998 was $168,750, compared to $206,250 at March 31, 1998, reflecting the
Company's payments on principal for the six-month period.
The Company's Board of Directors did not declare a dividend for its second
quarter ended September 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.
Year 2000
The Year 2000 problem is the result of computer programs being written using
two digits rather than four to define the applicable year. The Company has
begun converting its date-sensitive systems to be Year 2000 compliant with its
Honduran subsidiary already in compliance. The Company's plan is to have all
of its date-sensitive systems compliant by the middle of 1999. None of the
Company's products are Year 2000 sensitive, so the total cost of the project
will be minimal, estimated at $10,000. The Company is expensing all costs
associated with these system changes as the costs are incurred, and they will
be funded through operating cash flows
Safe Harbor Statement
The statements in this report that relate to future plans, expectations,
events, performance and the like are forward-looking statements, within the
meaning of the Private Securities Litigation Act of 1995 and the Securities
Exchange Act of 1934. Actual results or events could differ materially from
those described in the forward-looking statements due to a variety of factors,
including those set forth in the Company's reports on Form 10-K and 10-Q filed
with the Securities and Exchange Commission.
- 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 20, 1999, the
following matters were submitted for a vote by the shareholders:
1. To elect five members of the Board of Directors who will be elected
to a one-year term of office.
VOTES FOR VOTES AGAINST
--------- -------------
Robert S. Wiggins 4,303,239 560,999
Raymond H. Legatti 4,803,573 60,665
Raymond B. Wood 4,806,940 57,298
Edmund F. Murphy, Jr. 4,801,872 62,366
Jerry T. Kendall 4,805,739 58,499
2. To ratify the selection by the Company's Board of Directors of KPMG
Peat Marwick LLP, Certified Public Accountants, as independent
auditors of the Company for its fiscal year ending March 31, 1999.
VOTES FOR VOTES AGAINST VOTES ABSTAINED
--------- ------------- ---------------
To ratify auditors 4,838,401 22,855 11,968
Item 5. Other Information
The Company announced, on November 2, 1998, that the Company's manufacturing
facility in San Pedro Sula, Honduras is operational and was not damaged by
Hurricane Mitch. Due to heavy flooding, however, some delays may be experienced
in moving material in and out of the country. The plant is currently operating
at approximately 60% capacity and is expected to return to full capacity within
the week as employees are able to return to work from the flooded areas.
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 2, 1998 Scott J. Loucks
___________________________ __________________________________
Date Scott J. Loucks
Chief Financial Officer,
(principal financial, accounting and
Duly Authorized Officer)
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