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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.51 par value
(Title of Class)
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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of common stock held by non-affiliates of the
Registrant, as of June 2, 2000 was $9,550,318, based upon the $2.00 closing
sale price for the Common Stock on the NASDAQ National Market System on such
date. For the purposes of this computation, all executive officers and
directors of the Registrant have been deemed to be affiliates. Such
determination should not be deemed to be an admission that such directors and
officers are, in fact, affiliates of the Registrant.
As of June 2, 2000, the number of shares outstanding of the Registrant's
common stock, $.51 par value, was 5,455,756.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Proxy Statement related to its 2000 Annual Meeting of
Shareholders to be held on August 24, 2000 will be incorporated by reference
into Part III of this Form 10-K and be filed with the Securities and Exchange
Commission no later than July 14, 2000.
TABLE OF CONTENTS
PART I Page
Item 1. Business .................................................... 3
Item 2. Properties .................................................. 13
Item 3. Legal Proceedings ........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders ..........13
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters ................................. 14
Item 6. Selected Financial Data ..................................... 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 16
Item 8. Financial Statements and Supplementary Data ................. 21
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ...................... 21
PART III
Item 10. Directors and Executive Officers of the Registrant .......... 22
Item 11. Executive Compensation ...................................... 22
Item 12. Security Ownership of Certain Beneficial
Owners and Management ....................................... 22
Item 13. Certain Relationships and Related Transactions .............. 22
PART IV
Item 14. Exhibits, Financial Statements Schedules,
and Reports on Form 8-K ..................................... 23
SIGNATURES ........................................................... 25
Part I
ITEM 1. BUSINESS
General
The Company was incorporated in Florida in June 1981 with the intended purpose
of pursuing orders for products to be designed and manufactured for sale to the
military engine generator set controls market, a segment with which the
Company's founders had acquired substantial experience. As a result, the
Company continues to use its expertise in designing and supplying power
monitors and control equipment to the United States Military and its prime
contractors.
After establishing a military product base, the Company turned its efforts to
the commercial markets based on the founder's expertise in ground fault sensing
technology. This "core" technology led to the development of products that
sense dangerous power leakage from appliances, tools and other electric devices
and then immediately cut off the power before this leakage can cause a fire,
electrocution or serious injury from electrical shock. The Company has become
a worldwide-recognized leader in the design and supply of portable electrical
safety products for the commercial marketplace.
Until the year ended March 31, 1989, a majority of the Company's revenues were
derived from sales of military products. The Company believes that its success
in the design of ground fault sensing products formed the basis for the
Company's greatest potential for future growth.
Net sales contributed by commercial and military products are as follows:
Year Ended
March 31 Commercial % Military % Total
-------- ---------- ---- -------- ---- ----------
2000 $ 12,801,147 76.6 $ 3,910,457 23.4 $ 16,711,604
1999 13,929,177 81.4 3,190,542 18.6 17,119,719
1998 13,434,352 74.2 4,667,433 25.8 18,101,785
1997 12,803,181 85.3 2,200,413 14.7 15,003,594
1996 14,541,301 87.7 2,040,000 12.3 16,581,301
Royalties from license agreements are as follows:
Year Ended
March 31 Royalties
-------- ---------
2000 $ 126,121
1999 91,295
1998 329,166
1997 381,977
1996 797,920
The Company's backlog of unshipped orders at March 31, 2000 was approximately
$6,600,000. This backlog consists of approximately 46% commercial product
orders and approximately 54% military product orders, all of which is expected
to ship within Fiscal Year 2001.
-3-
Commercial Products and Markets
Ground fault protective devices protect equipment and people against electrical
faults which can occur between electrically "live" conductors and ground.
These ground fault conditions can damage equipment, start fires, or seriously
or fatally injure humans.
Ground Fault Circuit Interrupters ("GFCI") and Appliance Leakage Circuit
Interrupters ("ALCI") provide protection from dangerous electrical shock by
sensing leakage of electricity and cutting off power. Equipment Leakage
Current Interrupters ("ELCI") detect current leakage within equipment such as
copy machines, printers and computers. GFCIs are currently available in three
types: circuit breaker, receptacle and portable. The Company specializes in
the portable types of these products.
A ground fault is a condition where electric current finds an unintentional
path to ground such as through the exposed metal parts of an appliance or tool.
Faults occur because of damage that causes internal wiring to touch these
exposed metal parts or because an appliance or tool gets wet. Upon such
occurrence, the entire device can become as electrically alive as the power
line to which it is attached. If a person is touching such a live device while
grounded (by being in contact with the ground or, for example, a metal pipe,
gas pipe, drain or any attached metal device), that person can be seriously or
fatally injured by electric shock. Fuses or circuit breakers do not provide
adequate protection against such shock, because the amount of current necessary
to injure or kill a normal adult is far below the level of current required for
a fuse to blow or a circuit breaker to trip. GFCIs constantly monitor
electric current, and as long as the amount of current returning from the
device is equal to the amount that is directed to the device, the GFCI
performs no activities. Conversely, if there is less current coming back
than there is flowing into the device, some portion must be taking a path
through a foreign body, thereby creating a hazard. Upon recognizing that
condition, the GFCI terminates the flow of electricity instantaneously.
An ALCI is a device intended to be used in conjunction with an electrical
appliance whose function is to interrupt both conductors of the electric
circuit to a load when a fault current to ground exceeds 4 - 6 mA (milli-
amperes) and is less than that required to operate the overcurrent protection
device of the circuit. The ALCI is intended to be used only in a circuit that
has a solidly grounded neutral conductor, and is not intended to be used in
place of a GFCI in applications where the GFCI is required. ALCIs are
considered "personnel protection" devices. This product is intended for
portable and short-time use, and should be used only while attended; for
example, with kitchen appliances, floor care products, hair dryers, and the
like, which are connected to a power supply circuit by means of a flexible
cord terminating in an attachment plug.
An ELCI is a device intended to protect equipment from excessive electrical
leakage current that could occur due to the breakdown of insulation between
live and grounded parts which could cause fires and other damage. Xerox
Corporation uses the Company's ELCI products to protect many of its business
machines. The Company also has a unique versatile consumer ELCI product called
the "Electra Shield" which, in addition to fire prevention capabilities, also
provides three-mode surge suppression, power line filtering, and facsimile
modem surge protection. This unique product offers multimedia protection for
home and office personal computers, fax modems, TV and entertainment systems.
-4-
Government and industry research into the major causes of fire has led to a
search for new, cost-effective methods to prevent electrical fires. In
response to this need, the Company developed and patented "Fire Shield" (TM), a
product designed to prevent fires caused by damaged or aging appliance power
supply cords and extension cords, which have been identified as a leading cause
of electrical fires. On June 1, 1999, the Company announced major enhancements
to its "Fire Shield" line of appliance power supply cords that will add a
higher degree of safety against fire and electric shock for two wire
appliances. These new capabilities have significant safety benefits to the
consumer. These enhancements are based on feedback from the industry and from
the staff of the United States Consumer Product Safety Commission ("CPSC") on
the need to protect not only the power cord, but also the internal wiring of
the appliance. In addition, on January 13, 2000, the Company announced its
"Fire Shield" Home Wiring System at the International Home Builders' Show in
Dallas, Texas. The purpose of this system is to continuously monitor the
integrity of the installed household wiring and alert the home owner, in
advance, of potentially dangerous electrical wiring conditions that could lead
to fire. The latest statistics from the CPSC indicate that extension cords,
toaster/toaster ovens, power cords on appliances and household wiring are
responsible for over $400 million a year in residential fire damage, 240
lives lost and 860 injuries.
The National Electrical Code (the "Code") requires GFCIs for the protection of
all receptacle outlets located outdoors, as well as in bathrooms, garages and
other risk areas, and in new residences, hotels and public buildings. The Code
is followed by most local government building codes. There is increasing effort
by certain groups such as the National Electric Manufacturers Association and
Consumer Products Safety Commission to require GFCI protection in other
locations and applications. The Company presently focuses its marketing
efforts in certain spot markets which have developed in response to Code
imposed requirements.
For example, in January 1989, high-pressure sprayer/washer manufacturers that
desired Underwriter Laboratories ("UL") approval were required to include a
GFCI and/or double-insulation protection on each electrically driven sprayer/
washer. Sales to this industry were severely impacted in Fiscal Year 1996
as the majority of the sprayer/washer manufacturers opted for the more cost
effective double-insulated technology rather than GFCI technology. Effective
January 1996, the double-insulation provision was eliminated from the National
Electric Code, but until recently, UL had not updated its standard enforcing
this change. Sales to this industry were approximately $4.5 million less in
each of the Fiscal Years 1996, 1997, 1998 and 1999, compared to Fiscal Year
1995, due to the choice of sprayer/washer manufacturers not using the Company's
GFCI products and due to the delay of UL enforcing on the industry the
requirement for GFCI technology. The revised standard UL 1776 mandating the
use of GFCIs on sprayer/washers has been issued, and the effective date for
compliance was May 6, 2000. As a result the Company received over $1,000,000
in new orders for GFCI cord sets from manufacturers of electric high pressure
sprayer washers, which are targeted for retail sales in the U.S. Due to the
increased competitive nature of this marketplace, the Company has no certainty
of returning back to its previous revenue level in this market.
A Code requirement became effective on January 1, 1991 that requires a
protective device to be incorporated into hair dryers, curling irons and
crimpers to protect users from possible electrocution. In response to this
Code change, the Company developed a smaller GFCI plug that incorporates its
patented GFCI/ALCI technology. Additionally, the Company developed an
Immersion Detection Circuit Interrupter ("IDCI") that can also be used to
protect users of these products.
-5-
Also, Article 625 of the 1996 Edition of the National Electrical Code requires
electric vehicle ("EV") charging systems to include a system that will protect
people against serious electric shock in the event of a ground fault. The
Company has shipped product to the majority of the major automobile
manufacturers in support of their small EV production builds, and the Company
is active with various standards and safety bodies, relating to the electric
vehicle, on a worldwide basis. Sales for the Company's EV safety products
remain relatively low due to the small number of electric vehicles produced.
Improvements in battery technology, along with mandates from individual states
for zero emission vehicles, are projected to make this a viable market in the
year 2003.
The Company currently manufactures and markets various portable GFCI, ALCI and
ELCI products, such as plug-in portable adapters, several extension cord
models in various lengths, various modules for OEM customers, and variations
of such products for voltage differences in both the United States and foreign
markets. The Company has been issued several domestic and foreign patents
on its portable GFCI which incorporate design features not available on any
similar product known to the Company (see Patents, Licenses and Trademarks on
page 9 for further information). The Company has entered into seven license
agreements and three sales and marketing agreements concerning the portable
GFCI, ALCI and ELCI. These agreements are with entities located in Australia,
France, Italy, Japan, the United Kingdom and the United States and are for the
purpose of market penetration in those areas where it would be difficult for
the Company to compete on a direct basis.
The Company is focusing more of its marketing efforts in placing its products
with major retailers, which include select SEARS Mall stores, Homebase and
Orchard Supply Hardware stores as well as in the current SEARS CRAFTMAN (R)
POWER AND HAND TOOLS Catalog. The Company's products are also being offered
through magazines, catalogs and E-commerce retailers.
On December 31, 1999, the Company entered into a second license agreement with
Applica Inc. (previously named Windmere-Durable Holdings, Inc. )
(the "Agreement"), which is filed herewith. Applica Inc. is a large Miami,
Florida based manufacturer and distributor of a wide variety of, among other
items, household appliances and portable personal care products utilizing
electric current (e.g. hair dryers and curlers, irons, food mixers, toasters
and toaster ovens and numerous other items), most of which are sold both
domestically and internationally. The Agreement provides Applica Inc. the use
of the Company's extended "Fire Shield" technology to detect fires and
electrical shock in toasters and toaster ovens manufactured by Applica Inc.
under the Black & Decker(R) brand name. The Agreement calls for an up front
payment plus a royalty payment for each unit manufactured using the Company's
"Fire Shield" technology. The Company's proprietary extended "Fire Shield"
technology enables Applica Inc. to provide its customers an unparalleled degree
of safety for toasters and toaster ovens. The "Fire Shield" technology
includes the ability to detect an open flame in toasters or toaster ovens, or
insulation/dielectric failure due to build up of grease or other substances,
and disconnect the power reducing the risk of injury or property damage. In
addition, the "Fire Shield" technology protects the user from electrocution or
serious injury from electrical shock due to insulation failure or damage to the
electrical wiring of the appliance. The Applica Inc. appliances that use this
technology will display a "Fire Shield" marking somewhere on the appliance.
-6-
Military Products and Markets
The Defense Logistics Agency established a program rating system for its
suppliers in 1995, and since its inception and for the fifth straight year,
the Company was honored as a Best Value Medalist for the highest rating Gold
Category, which signifies the Company's commitment to military contract
performance.
The Company is currently a supplier of control equipment used in engine
generator systems purchased by the United States military and its prime
contractors. The term "control equipment" refers to the electrical controls
used to control the electrical power output of the generating systems. In
general, the controls monitor and regulate the operation of generator mobile
electric generating system sets. Electric generating systems are basic to all
branches of the military, and demand has remained relatively constant, unlike
products utilized in armaments and missiles. Sales are made either directly
to the government for support parts or to prime contractors for new electric
generator sets which incorporate the Company's products. The Company is a
qualified supplier for 37 control equipment products as required by the
Department of Defense and is a supplier of the following types of control
equipment, among others: protective relays and relay assemblies,
instrumentation transducer controls, fault locating panel indicators, current
transformer assemblies for current sensing control and instrumentation, motor
operated circuit breaker assemblies and electrical load board and voltage
change board assemblies. These products are also furnished for spare parts
support for existent systems in the military inventory.
In late 1989, the Company completed the redesign of the control equipment
related to the Tactical Quiet Generator ("TQG") Systems program and provided
prototype units to a prime contractor for testing, which was completed in the
third fiscal quarter for the year ended March 31, 1992. Subsequently, the
Company received production orders for these products from the U.S.
Government's prime contractor in the approximate amount of $7,500,000 covering
the time period from August 1992 to October 1994 and an additional $4,900,000
covering the time period August 1996 to July 1998. All deliveries have been
completed under these contracts. The new contract that has been awarded by
the U.S. Government for 5/10/15KW TQG Systems to the prime contractor is for
a 10-year period with the last ordering period year being 2007. The Company
has received its second production release for this new contract, valued at
$1.2 million, and shipments commenced in the 4th quarter of Fiscal Year 2000.
The estimated value of this 10-year contract for the Company for its 5/10/15KW
control equipment is $8.2 million. As previously reported, the Company also
received orders in the amount of approximately $6.3 million for its control
equipment for the new 3KW TQG systems. First Article Testing has been
completed by the prime contractor for these systems and the Company has
received its first production release of $2.8 million. Shipments of are
estimated to begin in June 2000. The Company expects military sales to
continue to strengthen as Fiscal Year 2001 progresses and shipments are made
under the new 3KW TQG program.
The Company continues to furnish various types of electrical power monitors
for military Naval shipboard requirements. The monitors are used on all
classes of Naval surface vessels, such as minesweepers, destroyers guided
missile cruisers and aircraft carriers in addition to other types of Naval
vessels. The monitors are furnished for new vessel production, retrofit
upgrades and existent vessels requiring spare support parts. The Company also
supplies the military with electrical devices for control and monitoring of the
-7-
on-board auxiliary power diesel electric generating system for the new C2v
Armored Tactical Vehicle, Electronic Command Post System and the newly
developed armored ambulances. These devices include A.C. power monitor
assemblies (which provide system protection and status display on on-board
computers), generator voltage regulators, power transformers, A.C. over current
and short circuit protection monitor assemblies and current sensing
transformers. All of these products have met the high shock and vibration and
endurance testing requirements during both highly accelerated stress screening
tests and vehicle road testing at Aberdeen Proving Grounds. The Company
has completed shipments against orders related to the initial low rate
production phase for C2v vehicles.
The Company's contracts with the U.S. Government are on a fixed-price bid
basis. As with all fixed-price contracts, whether government or commercial,
the Company may not be able to negotiate higher prices to cover losses should
unexpected manufacturing costs occur.
All government contracts contain a provision that allows for cancellation by
the government "for convenience." However, the government must pay for costs
incurred and a percentage of profits expected if a contract is canceled.
Contract disputes may arise which could result in a suspension of such contract
or a reduction in the amounts claimed.
Testing and Qualification
A number of the Company's commercial products must be tested and approved by
UL or an approved testing laboratory. UL publishes certain "Standards of
Safety" which various types of products must meet and perform specific tests
to ascertain whether the products meet the prescribed standards. If a product
passes these tests, it receives UL approval. Once the Company's products have
been initially tested and qualified by UL, they are subject to regular field
checks and quarterly reviews and evaluations. UL may withdraw its approval for
such products if they fail to pass these tests and if prompt corrective action
is not taken. The Company's portable electrical safety products have received
UL approval. In addition, certain of the Company's portable GFCI, ALCI and
ELCI products have successfully undergone similar testing procedures conducted
by comparable governmental testing facilities in Europe, Canada and Japan.
The Company's military products are subject to testing and qualification
standards imposed by the United States Government. The Company has
established a quality control system which has been qualified by the United
States Department of Defense to operate under the requirements of a
particular specification (MIL-I-45208). To the extent the Company designs
a product which it believes to meet those specifications, it submits the
product to the responsible government testing laboratory. Upon issue of the
qualification approval and source listing, the product is rarely subject to
re-qualification; however, the military may disqualify a product if it is
subject to frequent or excessive operational failures. Further, the current
specifications and requirements could be changed at any time, which would
require the Company to redesign its existing products or develop new
products which would have to be submitted for testing and qualification
prior to their approval for purchase by the military or its prime
contractors. Certain contracts require witness testing and acceptance by
government inspectors prior to shipment of the product.
-8-
The Company's wholly owned foreign subsidiary, TRC/Honduras S.A. de C.V. is an
ISO 9002 certified manufacturing facility; is an approved supplier to Xerox
Corporation; and has UL, Canadian Standards Association ("CSA") and the German
standards association Verband Deutsher Elektrotechniker ("VDE") approvals.
Design and Manufacturing
The Company currently designs almost all of the products which it produces
and generally will not undertake special design work for customers unless it
receives a contract to produce the resulting products. The Company continues
to work with foreign licensees to design products for foreign markets.
A significant number of the Company's commercial and military electronic
products are specialized in that they combine both electronic and magnetic
features in design and production.
The business of an electronics manufacturer, such as the Company, primarily
involves assembly of component parts. The only products which the Company
manufactures from raw materials are its transformers and magnetic products.
The manufacture of such products primarily involves the winding of wire around
magnetic steel cores. Recently, in an effort to lower cost by vertical
integration, the Company also molds its own plastic parts for its commercial
product lines at its manufacturing facility in Honduras. The remainder of the
products which the Company manufactures are assembled from component parts
produced by other manufacturers.
On February 3, 1997, the Company's Board of Directors approved the
incorporation of TRC Honduras, S.A. de C.V., a wholly owned subsidiary of
Technology Research Corporation, for the purpose of manufacturing the Company's
high-volume products. This decision was made in line with the Company's goal of
always striving to improve quality, profit margins and customer satisfaction.
TRC Honduras, S.A. de C.V. resides in a leased 42,000 square foot building
located in ZIP San Jose, a free trade zone and industrial park, in San Pedro
Sula, Honduras. The lease is for a term of five years with an option to
extend the lease for another five years. The benefits of being located in a
free trade zone include no Honduran duties on imported raw materials or
equipment, no sales or export tax on exported finished product, a twenty year
Honduran federal income tax holiday and a ten year Honduran municipal income
tax holiday for the profits generated by the Honduran subsidiary, and various
other benefits.
The Company continues to manufacture its specialized military products and
low-volume commercial products in its 43,000 square foot facility in
Clearwater, Florida.
Patents, Licenses, and Trademarks
The Company's President, Mr. Legatti, has designed for the Company and the
Company has been issued four U.S. patents and two British, Canadian, Italian
and Australian patents with respect to its portable GFCIs that have features
not presently available on any similar product known to the Company. Also,
patents on the same device have been issued from France, Japan, Germany and
three other countries. The patents will be valid for either 20 years from
filing or 17 years from issue in the United States running from January 1986.
Duration of patents in the other countries vary from 15 to 20 years.
-9-
On October 12, 1999, Xerox Corporation was issued a patent, which listed
Mr. Legatti as a co-inventor for the Modular, Distributed Equipment Leakage
Circuit Interrupter. This product is used on some of Xerox's business machines
and shuts off power when sensing a certain leakage of electricity which could
produce dangerous results.
The Company licenses its technology for use by others in exchange for a
royalty or product purchases. Licensees are located in Australia, France,
Italy, Japan, the United Kingdom and the United States. Each licensee agrees
to pay the Company a royalty or purchase product based on schedules set forth
in the applicable agreement. The Company agrees to provide certain technical
support and assistance to its licensees. The licensees have agreed to
indemnify and hold the Company harmless against any liability associated with
the manufacture and sale of products subject to the license agreement,
including but not limited to defects in materials or workmanship.
The Company has no other patents on or licensee agreements with respect to
its products or technology, but has registered its TRC trademark with the U.S.
Office of Patents and Trademarks.
Marketing
The Company's products are sold throughout the world, primarily through an
expanded in-house sales force, licenses and sales and marketing agreements.
Although the Company will continue to market existing and new products through
these channels, the Company is looking for other viable channels through which
to market its products. The Company relies significantly upon the marketing
skills and experience, as well as the business experience, of the management
of the Company in marketing its products.
The Company complements its sales and marketing activity through the use of
additional distributors and sales representative organizations. The Company's
internal distribution division, TRC Distribution, is supported by 37
independent sales representatives who sell to over 800 electrical, industrial
and safety distributors.
The Company also markets through OEMs that sell the Company's GFCI products
under their own brand label. Additionally, the Company has exhibited its GFCI
products at numerous trade shows which have resulted in new commercial markets,
including the recreational vehicle industry and the appliance industry.
The Company primarily utilizes foreign licenses and sales and marketing
agreements to market its products internationally (see Patents, Licenses and
Trademarks for further information). The Company's products have world-wide
application, and the Company believes that international demand for these
products will continue to contribute to the Company's growth.
The Company offers its customers no specific product liability protection
except with regards to those customers that are specifically named as "Broad
Form Vendors" under its product liability coverage. The Company does extend
protection to purchasers in the event there is a claimed patent infringement
that pertains to the Company's portion of the final product. The Company also
carries product and general liability insurance for protection in such cases.
-10-
Major Customers and Exports
Individual customers and aggregate exports which accounted for 10% or more of
sales were:
Year ended March 31
Customer 2000 1999 1998
-------- ---- ---- ----
Xerox Corporation $ 1,266,613 1,934,740 2,838,905
Noma Appliance & Electric, Inc.
Noma Appliance, Inc.
f/k/a Fleck Manufacturing, Inc.
(a Xerox Corporation supplier) 954,288 1,623,904 1,666,516
Other Xerox suppliers 987,424 124,473 133,044
Fermont Division
(a U.S. Government prime contractor) 2,115,722 1,397,211 2,817,079
--------- --------- ---------
$ 5,324,047 5,080,328 7,455,544
Exports: ========= ========= =========
Canada $ 1,342,365 1,794,855 1,894,215
Far East 198,026 394,156 486,277
Europe 3,243,918 2,787,224 2,554,772
Mexico 563,550 711,067 979,187
Australia 218,746 117,754 218,530
South America 12 430 37,383 20,994
Middle East 5,281 2,067 3,397
--------- --------- ---------
Total exports $ 5,584,316 5,844,506 6,157,372
========= ========= =========
Overall, the Company's exports were down approximately 4% in Fiscal Year 2000,
compared to the Company's prior fiscal year, due to Xerox Corporation and
its suppliers whose sales were down from the previous fiscal year by
approximately $460,000. Xerox and its suppliers accounted for approximately
19% of the Company's sales for Fiscal Year 2000, compared to approximately 22%
for the prior fiscal year, and because they account for such a large percentage
of the Company's sales, the loss of Xerox as a customer would have a material
adverse effect on the Company's business. Excluding Xerox, exports to the
Company's international OEM customers were stronger for Fiscal Year 2000,
compared to the Company's prior fiscal year.
The Company's military product sales are primarily to OEM prime contractors
and secondarily to military procurement logistic agencies for field service
support on previously shipped systems. In Fiscal Year 2000, military sales
were approximately 23% of total sales, compared to 19% in the prior year. The
increase was primarily due to the level of sales with Fermont Division, the
U.S. Government's prime contractor for the 5/10/15KW Tactical Quiet
Generator System Programs (See MD&A discussion for more detail). Sales to
Fermont Division were $2,115,722 in Fiscal Year 2000, $1,397,211 in Fiscal Year
1999 and $2,817,079 in Fiscal Year 1998.
The Company has no relationship with any of its customers except as a
supplier of product.
-11-
Competition
The commercial and military business of the Company is highly competitive.
In the commercial market, the Company has significant competition, except
with respect to the "Fire Shield" products. The Company believes, however,
that product knowledge, patented technology, ability to respond quickly to
customer requirements, positive customer relations, price, technical
background and industry experience are major competitive factors, and that it
competes favorably with respect to these factors. In addition, the Company's
patented GFCI technology utilizes, in certain adaptations, waterproofing, a
retractable ground pin and "trip mechanism" techniques, each of which
provides the Company, in the judgment of its management, with a current
competitive advantage.
In the military market, the Company's products must initially pass
government specified tests. The Company must compete with other companies,
some being larger and some smaller than the Company, acting as suppliers of
similar products to prime government contractors. The Company believes that
knowledge of the procurement process, engineering and technical support, price
and delivery are major competitive factors in the military market. The Company
believes that it has strength in all of these areas due to senior management's
involvement in the government procurement process and experience in the design
engineering requirements for military equipment. A substantial portion of
spare part procurement is set aside for small business concerns, which are
defined in general as entities with fewer than 1,000 employees. Because the
Company is classified as a small business concern, it qualifies for such set
aside procurements for which larger competitors are not qualified. The entry
barriers to the military market are great because of the need, in most cases,
for products to pass government tests and qualifications.
Research, Development and Engineering
The Company employs 16 persons in the Engineering Department, all of whom
are engaged either full or part-time in research and development activities.
This department is engaged in designing and developing new commercial and
military products and improving existing products to meet the needs of the
Company's customers.
In connection with its efforts in developing the GFCI product, the Company
believes that the increasing use of portable GFCI protection will provide
new markets for the commercial marketplace, and accordingly, the Company has
modified its GFCI designs to fit these markets and new applications. There can
be no assurance, however, that the Company can maintain its sales levels in the
commercial market in view of the possibility that an increased level of
competition may develop.
The Company spent $1,035,994 in Fiscal Year 2000, $1,107,253 in Fiscal Year
1999 and $1,223,422 in Fiscal Year 1998 on research, development and
engineering activities. None of these activities were sponsored or financed
by customers, and all are expensed as incurred. The Company anticipates
spending levels to remain constant in the new fiscal year.
-12-
Employees
As of March 31, 2000, the Company employed 98 persons on a full time basis,
and of that total, 56 employees were engaged in manufacturing operations, 16 in
engineering, 15 in marketing and 11 in administration.
The Company's subsidiary employed 448 persons on a full time basis as of
March 31, 2000, and of that total, 436 employees were engaged in manufacturing
operations and 12 in administration.
None of the Company's employees are represented by a collective bargaining
unit, and the Company considers its relations with employees to be stable.
ITEM 2. PROPERTIES
The Company's executive offices and U.S. manufacturing facility are located on
4.7 acres of leased land in the St. Petersburg-Clearwater Airport Industrial
Park. The lease, with options, extends for 40 years until 2021 and is subject
to certain price escalation provisions every five years. This leased land is
adequate to enable the Company to expand this facility to 60,000 square feet.
The present facility provides a total of 43,000 square feet, including 10,000
square feet of offices and engineering areas, as well as 23,000 square feet of
production areas and 10,000 square feet of warehouse space.
In March 1997, the Company entered into a five year lease agreement with
ZIP San Jose, an industrial park located in San Pedro Sula, Honduras, for a
42,000 square foot building in which the Company manufactures its high-volume
products. The Company has the option of extending the lease another five years
if it wishes. Lease payments began in May 1997 and continue through July 2002.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of the Company, the ultimate
disposition of these matters will not have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 2000.
-13-
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
The Company's shares of Common Stock are registered under 12(g) of the
Securities Exchange Act of 1934 and are traded in the over-the-counter market
utilizing the NASDAQ trading system, to which the Company gained admittance in
December 1984, under the symbol "TRCI". In November 1995, NASDAQ approved the
Company's application for listing on the National Market. The following tables
set forth a range of high and low market prices for the Company's Common Stock
for the fiscal years ended March 31, 2000, 1999 and 1998 as reported by the
NASDAQ system.
Market Price Cash
Fiscal Year Ended High Low Dividends
March 31, 2000:
First Quarter ................. 2.0000 0.9375 $ -
Second Quarter ................. 1.8750 1.1563 .01
Third Quarter ................. 1.5000 0.6250 .01
Fourth Quarter ................. 4.5000 1.2500 .01
-----
$ .03
March 31, 1999:
First Quarter ................. 2.5000 1.0625 $ -
Second Quarter ................. 2.8438 1.5625 -
Third Quarter ................. 2.0000 0.9375 -
Fourth Quarter ................. 1.3750 1.0000 -
-----
$ -
March 31, 1998:
First Quarter ................. 4.1250 3.0625 $ .06
Second Quarter ................. 4.5000 3.5625 .06
Third Quarter ................. 4.5625 3.0000 .06
Fourth Quarter ................. 3.4375 1.9375 -
-----
$ .18
As of June 2, 2000, the approximate number of the Company's shareholders was
498. This number does not include any adjustment for shareholders owning
common stock in the Depository Trust name or otherwise in "Street" name,
which the Company believes represents an additional 2,700 shareholders.
The Company's authorized capital stock, as of June 2, 2000, consisted of
10,000,000 shares of authorized common stock, par value $.51, of which
5,455,756 shares were issued and outstanding.
On August 30, 1999, the Company re-instituted its quarterly dividend policy at
1 cent per share with a annual cash dividend rate of 4 cents per share. The
Company paid dividends of 3 cents per share in Fiscal Year 2000, 0 cents per
share in Fiscal Year 1999 and 18 cents per share in Fiscal Year 1998.
-14-
ITEM 6. SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Year ended March 31:
Operating revenues $ 16,837,725 17,211,014 18,430,951 15,385,571 17,379,221
Gross profit $ 5,124,543 4,078,461 4,836,280 4,747,997 5,895,687
Net income (loss) $ 585,755 15,892 (196,314) 566,658 2,038,785
Basic earnings
per share $ .11 - (.04) .11 .39
Weighted average number
of common shares
outstanding 5,455,756 5,455,756 5,332,571 5,321,698 5,281,932
Diluted earnings
per share $ .11 - (.04) .10 .38
Weighted average number
of common and
equivalent shares
outstanding 5,473,220 5,476,134 5,332,571 5,441,620 5,404,885
Cash dividends
Paid $ .03 - .18 .24 .24
March 31:
Working capital $ 10,267,576 6,899,677 6,875,679 9,651,145 10,931,740
Total assets $ 15,990,625 15,146,175 15,746,818 15,637,949 15,380,590
Current
liabilities $ 1,366,382 3,521,949 4,243,200 2,903,154 1,867,678
Long-term debt $ 2,500,000 56,250 131,250 206,250 281,350
Total liabilities $ 4,000,567 3,578,199 4,374,450 3,109,404 2,149,028
Retained earnings $ 1,679,150 1,257,068 1,241,176 2,397,353 3,108,371
Total stockholders'
equity $ 11,990,058 11,567,976 11,372,368 12,528,545 13,231,562
-15-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Operating Results:
Fiscal Years 2000 and 1999 Comparison
The Company's operating revenues (net sales and royalties) for the year ended
March 31, 2000 were $16,837,725, compared to $17,211,014 reported in the same
period last year, a decrease of approximately 2%. The Company's pre-tax
profit, however, increased by $995,000 in Fiscal Year 2000, compared to Fiscal
Year 1999, and net income was $585,755 for the year ended March 31, 2000,
compared to $15,891 for the same period last year, a substantial improvement.
Basic and diluted earnings were $.11 per share for the year ended March 31,
2000, compared to basic and diluted earnings of $.00 per share for the same
period last year. The improvement in net income was due to higher military
sales and increased manufacturing productivity. As a result, the Company was
able to improve operating performance this year in a highly competitive
marketplace.
Military sales were up $719,915 for Fiscal Year 2000, compared to Fiscal Year
1999, primarily due to the Company being in full production of the control
devices related to the 5/10/15/30/60KW Tactical Quiet Generator (TQG) System
programs. In addition, direct military shipments of spare parts and of control
devices for the C2V Armored Bradley Chassis Tactical Vehicle were strong in
Fiscal Year 2000. The Company expects military sales to continue to strengthen
as Fiscal Year 2001 progresses and shipments are made under the new 3KW TQG
program. Commercial sales and sales to Xerox were down $670,474 and $457,557,
respectively. Commercial revenues for the year ended March 31, 2000 include
approximately $168,000 from a new customer, which accepted delivery of product
in the second, third and fourth quarters of the fiscal year. In May 2000, the
customer returned approximately $130,000 of this product for upgrade and
warranty work that the Company agreed to perform at no cost. The Company
accrued the cost of these upgrades and rework as of March 31, 2000 in the
amount of $7,500. The Company is making the requested modifications in June
2000 and expects the product to ship by June 30,2000. The Company has
historically experienced few product returns for upgrades or warrant work, and
as of March 31, 2000, there were no other similar costs accrued.
Royalty income was up $34,827 in Fiscal Year 2000 as a result of the new
license agreement with Windmere-Durable, Holdings Inc. (now Applica, Inc.)
In January 2000, the Company received $200,000 from Applica Inc. in return for
exclusive rights to the Company's "Fire Shield" technology on certain
household appliances effective January 2000 through May 2001. The Company
will record this up-front payment as royalty income over the 17-month
exclusivity period. In January 2000, the Company also received $50,000 from
Applica, Inc. as a credit against royalties due in the future. The Company
will record this amount to income when the royalty is earned.
-16-
In Fiscal Year 2000, the Company significantly strengthened its already sound
financial position by adding $1,042,058 to cash and $3,307,244 to working
capital. With its financial strength and successful off-shore manufacturing
facility, the Company is currently well positioned to grow the business by
taking advantage of emerging markets in Fiscal Year 2001. Some of these
emerging markets have been highlighted recently by the Company's press
releases, all of which should have an impact on Fiscal Year 2001. In January
2000, the Company announced a new license agreement with Windmere-Durable,
Holdings Inc. (now Applica, Inc.) to provide "Fire Shield" safety for toaster
and toaster ovens, manufactured under the Black & Decker brand name. Also, in
January, the Company introduced its unique industry-first "Fire Shield" Home
Wiring System, which provides fire protection/detection for household wiring.
In February 2000, the Company announced its agreement with Equity Electrical
Associates that added 200 new potential distributors selling to the commercial
and industrial distribution marketplace. In March, the Company announced the
production release of the new 3KW-TQG military program. Finally, in April, the
Company announced its successful penetration back into the retail high-pressure
sprayer washer market. The Company will continue its strategy to grow the
business by focusing on additional specific application markets, as mentioned
above.
The fourth quarter dividend of $.01 per share was paid on April 21, 2000 to
shareholders of record on March 31, 2000. The Company paid dividends of $.03
per share for Fiscal Year 2000.
The Company's gross profit margin was approximately 31% of net sales for Fiscal
Year 2000 compared to 24% for the prior year, reflecting lower manufacturing
costs primarily due to the Company transferring additional manufacturing
processes from its Clearwater, Florida plant to its plant in San Pedro Sula,
Honduras.
Selling, general and administrative expenses for Fiscal Year 2000 were
$3,301,640, compared to $3,150,830 for the prior year, an increase of
approximately 5%. Selling expenses were $1,863,656 for Fiscal Year 2000,
compared to $1,766,018 for the prior year, an increase of approximately 6%,
reflecting higher advertising costs and salary related expenses. General and
administrative expenses were $1,437,984 for Fiscal Year 2000, compared to
$1,384,812 for the prior year, an increase of approximately 4%, reflecting
those expenses related to retaining an investor relations firm in Fiscal Year
2000.
Research, development and engineering expenses for Fiscal Year 2000 were
$1,035,994, compared to $1,107,253 for the prior year, a decrease of
approximately 6%, reflecting lower salary related expenses due to fewer number
of employees in the department.
Interest expense, net of interest and sundry income, for Fiscal Year 2000 was
$92,041, compared to $106,133 for the prior year, reflecting lower interest
expense, due to the Company not using its line of credit for approximately
three weeks while refinancing its debt during the third quarter.
-17-
In accordance with FSAS 109, "Accounting for Income Taxes", the Company does
not record deferred income taxes on the foreign undistributed earnings of an
investment in a foreign subsidiary that is essentially permanent in duration.
Accordingly, the Company's Honduras subsidiary was profitable which caused a
decrease in the effective tax rate of the Company. If circumstances change,
and it becomes apparent that some or all of the undistributed earnings of the
subsidiary will be remitted in the foreseeable future, but U.S. income taxes
have not been recognized by the Company, the Company will record as an expense
of the current period the U.S. income taxes attributed to that remittance.
Income tax expense for Fiscal Year 2000 was $215,060 and was based on the
Company's U.S. income of $579,721.
Fiscal Years 1999 and 1998 Comparison
The Company's operating revenues (net sales and royalties) for the year ended
March 31, 1999 were $17,211,014, compared to $18,430,951 reported in the period
ended March 31, 1998, a decrease of approximately 7%. The Company earned
$15,892 in Fiscal Year 1999, compared to a loss of $196,314, in Fiscal Year
1998, and basic and diluted earnings were $.00 per share in Fiscal Year 1999,
compared to basic and diluted earnings (loss) of $(.04) per share in Fiscal
Year 1998.
The decline in revenues for the year ended March 31, 1999, as compared to the
year ended March 31, 1998, was due to a decrease in military sales and
royalties of $1,476,891 and $237,871, respectively. Total commercial sales
were up $494,825 even though sales to Xerox Corporation, the Company's largest
customer, were down $1,081,566 for Fiscal Year 1999.
The Company's primary commercial distribution strategy of forming alliances
with companies that have a significant market presence, for which the Company's
products are used, contributed to the overall increase in commercial business.
The result, excluding Xerox, was that the Company's international sales
increased $337,503 and domestic sales increased $1,238,888 in Fiscal Year 1999,
compared to Fiscal Year 1998.
The decrease in military sales for Fiscal Year 1999 was mainly due to the
Company completing the previous contract related to the 5/10/15/30/60KW
Tactical Quiet Generator ("TQG") Systems program. The new contract that has
been awarded to the prime contractor by the U.S. Government for 5/10/15KW TQG
Systems is for a 10-year period with the last ordering period year being
2007. The Company has received initial production releases for this new
contract, valued at $1.9 million, and shipments commenced in the 4th quarter of
Fiscal Year 1999. The estimated value of the new 10-year contract for the
Company for its 5/10/15KW control equipment is $8.2 million. As previously
reported, the Company also received orders for approximately $6.3 million for
the new 3KW military TQG Program.
Royalty income was higher in Fiscal Year 1998 due to licensing fees of $135,000
from Yaskawa Control Company of Japan and a one-time final royalty payment of
$100,000 from Windmere-Durable, Holdings Inc. (now Applica, Inc.) recorded in
the first quarter of that year.
The Company's Fiscal Year 1999 business plan called for a reduction in
operating expenses of $800,000, and for the year ended March 31, 1999, the
Company reduced its operating expenses by $988,544 in Fiscal Year 1999,
compared to Fiscal Year 1998.
-18-
The Company's gross profit margin was approximately 24% of net sales for Fiscal
Year 1999 compared to 27% for the prior year. The difference was primarily
due to weaker profit margins resulting from the price reduction to Xerox
Corporation and manufacturing inefficiencies, inventory adjustments and
the Company restructuring its manufacturing operations from a contract
manufacturer in China to its wholly owned subsidiary in Honduras. The Company
believes this restructuring will ultimately result in lower duty, freight and
product costs thus positioning the Company to remain competitive in the future.
Selling, general and administrative expenses for Fiscal Year 1999 were
$3,150,830, compared to $4,023,205 for the prior year, a decrease of
approximately 22%. Selling expenses were $1,766,018 for Fiscal Year 1999,
compared to $2,710,774 for the prior year, a decrease of approximately 35%,
reflecting lower group insurance and advertising costs. General and
administrative expenses were $1,384,812 for Fiscal Year 1999, compared to
$1,312,431 for the prior year, an increase of approximately 6%, reflecting
higher professional fees and higher salary related expenses due to a greater
number of employees in the department.
Research, development and engineering expenses for Fiscal Year 1999 were
$1,107,253, compared to $1,223,422 for the prior year, a decrease of
approximately 9%, reflecting lower UL fees and lower salary related expenses
due to fewer number of employees in the department.
Interest expense, net of interest and sundry income, for Fiscal Year 1999 was
$106,133, compared to $4,462 for the prior year, reflecting higher interest
expense, due to the Company using its line of credit, and lower returns and
average balances on the Company's cash investments.
Income tax benefit for Fiscal Year 1999 was $210,352 and was based on the
Company's U.S. loss of $523,114. Due to provisions in the Honduran tax code,
the Company's wholly owned foreign subsidiary, TRC Honduras S.A. de C.V.,
benefits from a 20-year income tax holiday; therefore, no income tax expense
was recorded on the profit of $328,653 recognized by the subsidiary.
Liquidity and Capital Resources
As of March 31, 2000, the Company's cash and cash equivalents were $2,696,010,
compared to $1,653,952 at March 31, 1999. The Company's cash is currently held
in a money market fund whose yield is comparable to U.S. Treasury Bills. The
Company continues to generate cash through its operating activities.
On December 14, 1999, the Company closed on a $3,000,000 revolving credit loan
with a new institutional lender. The term of the loan is for two years, and at
the end of each year, the Company has the option to extend the maturity date
another year. Similar to the previous line of credit, 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 200 basis
points. The Company's debt from advances on its new line of credit was
$2,500,000 as of March 31, 2000.
-19-
The Company's working capital increased by $3,367,899 to $10,267,576 at March
31, 2000, compared to $6,899,677 at March 31, 1999. The increase was primarily
a result of the Company's new two-year line of credit agreement, which allowed
the Company to record the advances on its line of credit as long term debt as
of March 31, 2000, as compared to current liabilities as of March 31, 1999.
The Company's continued profitability, although to a lesser extent, also
contributed to the increase of working capital. The Company believes cash flow
from operations, the available bank line and current cash position will be
sufficient to meet its working capital requirements for the immediate future.
On August 30, 1999, the Company announced that its Board of Directors, at its
regularly scheduled board meeting on August 26, 1999, voted to re-institute the
Company's quarterly dividend policy at $0.01 cent per share. The record date
for the Company's fourth fiscal quarter dividend was March 31, 2000, and the
Company paid that dividend on April 21, 2000. Several key factors were
important in the Board's decision to re-institute the payment of a cash
dividend to its shareholders. These factors were the successful implementation
of key strategies that have long term positive effect on future earnings and
growth, the overall strength of the Company's Consolidated Balance Sheet,
positive cash flow and the turnaround of the Company's Honduras manufacturing
operation.
Year 2000 Issues
The Year 2000 issue was a result of certain microprocessors and computer
programs that were designed using two digits rather than four to define the
applicable year. Computer programs that have time sensitive software may
have recognized a date using "00" as the year 1900 rather that the year 2000;
however, to date, the Company has not experienced any Year 2000 disruptions
within or by its business partners. In addition, the Company believes that the
likelihood of futures disruptions at this point are very remote; therefore,
the Company will not make further comment in the future on Year 2000 issues,
unless otherwise required by the Securities and Exchange Commission ("SEC").
New Accounting Standards
In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which establishes accounting and reporting standards
for derivatives as either assets or liabilities on the balance sheet and
measure those instruments at fair values. In June 1999, the Financial
Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS
No. 133" which deferred the effective date of the adoption of SFAS No. 133.
The Company will be required to adopt SFAS No. 133 for financial statements
issued beginning the first quarter of fiscal year 2001. The Company has no
derivative financial instruments at March 31, 2000; therefore, the adoption of
this standard is not expected to have any effect on the consolidated financial
statements.
-20-
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 June 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 or results of
operations.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Response to this item is submitted in a separate section of this report
starting at Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
-21-
PART III
Part III of this Form 10-K is incorporated by reference from the registrant's
Proxy Statement for the Annual Meeting of Shareholders to be held on August
26, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. Consolidated Financial Statements Page
of Technology Research Corporation:
Independent Auditors' Report .............................. F-1
Balance Sheets--March 31, 2000 and 1999 ................... F-2
Statements of Operations--Years Ended
March 31, 2000, 1999, and 1998 .......................... F-3
Statements of Stockholders' Equity--Years Ended
March 31, 2000, 1999, and 1998 .......................... F-4
Statements of Cash Flows--Years Ended
March 31, 2000, 1999, and 1998 .......................... F-5
Notes to Financial Statements ............................. F-6
2. The following Consolidated Financial Schedules for the years ended
March 31, 2000, 1999, and 1998 are submitted herewith
Schedule II--Valuation and Qualifying Accounts ............ F-20
All other schedules are omitted because they are not
applicable or the required information is shown in
the financial statements or notes thereto.
3. Exhibits included herein: (See Next Page)
(B) Reports on Form 8K
No reports on Form 8K have been filed by the registrant during the last
quarter of the fiscal year.
-22-
INDEX TO EXHIBITS (Item 14(A)3)
Exhibit
(3) (a) Articles of Incorporation and By-Laws*
(b) Certificate of Amendment to the Articles of Incorporation,
dated September 24, 1990***
(c) Certificate of Amendment to the Articles of Incorporation,
dated September 24, 1996***
(10) Material contracts:
(a) License Agreement, dated as of January 1, 1985, between the
Company and Societe BACO, a French corporation, granting BACO a
non-exclusive right to manufacture the Company's GFCI products
in France, and the non-exclusive right to sell GFCI products
other than in North America.*
(b) License Agreement between the Company and B & R Electrical
Products, Ltd., an English corporation ("B & R") dated
January 1, 1985, granting B & R a limited exclusive license to
manufacture GFCI products within the United Kingdom and a non-
exclusive license to market other such products other than in
North America.*
(c) License Agreement, dated as of January 8, 1987, between the
Company and HPM INDUSTRIES PTY LTD, an Australian corporation
("HPM"), granting to HPM an exclusive license to manufacture and
sell GFCI products in Australia, New Zealand, New Guinea, Papua
and Fiji.*
(f) Incentive Stock Option Plan, dated October 15, 1981.*
(g) The 1993 Incentive Stock Option Plan, which was previously filed
with and as part of the Registrant's Registration Statement on
Form S-8 (No. 33-62397).
(h) Non-Qualified Stock Option Agreements, dated as of various dates,
between the Company and each of its current directors and
officers, as well as two independent consultants, an independent
entity which had provided the Company with certain technology
rights and certain former directors.*
(i) The 1993 Amended and Restated Non-Qualified Stock Option Plan,
which was previously filed with and as part of the Registrant's
Registration Statement on Form S-8 (No. 33-62379).
(j) License Agreement, dated May 17, 1997, between the Company and
Yaskawa Controls Company, Ltd., a Japanese company, granting
Yaskawa an exclusive right to market and manufacture the Company's
products developed for use in electrical vehicle charging
systems.***
-23-
(k) Sales and Marketing Agreement, dated May 17, 1997, between the
Company and Yaskawa Controls Company, Ltd., a Japanese company,
granting Yaskawa exclusive sales and marketing rights to the
Company's full line of commercial electrical protection devices,
including "Fire Shield", "Shock Shield" and "Electra Shield".***
(l) License Agreement, dated February 16, 1999, between the Company
and Windmere-Durable Holdings, Inc. granting Windmere-Durable a
non-exclusive license to manufacture, have manufactured, use and
sell the Company's line of "Fire Shield" products.***
(m) $3,000,000 Revolving Credit Agreement, dated December 14, 1999,
between the Company and SouthTrust Bank***
(n) License Agreement, dated December 31, 1999, between the Company
and Windmere-Durable Holdings, Inc. granting Windmere-Durable a
non-exclusive license to manufacture, have manufactured, use and
sell the Company's line of "Fire Shield" products.*****
(23) Consents of Experts and Counsel:
(a) Consent of Independent Certified Public Accountants. *****
* Previously filed with and as part of the Registrant's Registration
Statement on Form S-1 (No. 33-24647).
** Previously filed with and as a part of the Registrant's Registration
Statement on Form S-1 (No. 33-31967).
*** Previously filed with and as part of the Registrant's Annual Report
on Form 10-K.
**** Previously filed with and as part of the Registrant's Post-Effective
Amendment No. 1 to Form S-1 (No. 33-31967)
***** Filed herewith.
-24-
Independent Auditors' Report
The Board of Directors and Stockholders
Technology Research Corporation:
We have audited the consolidated financial statements of Technology Research
Corporation and subsidiary as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Technology Research
Corporation and subsidiary as of March 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended March 31, 2000, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information
set forth therein.
KPMG LLP
St. Petersburg, Florida
May 5, 2000
F-1
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2000 and 1999
Assets 2000 1999
Current assets: ---- ----
Cash and cash equivalents $ 2,696,010 1,653,952
Accounts receivable,
less allowance for doubtful accounts of
$48,199 in 2000 and $63,700 in 1999 (note 4) 3,105,541 3,120,256
Income tax receivable (note 5) 76,600 332,422
Inventories (notes 2 and 4) 5,208,589 4,724,182
Prepaid expenses and other current assets 70,118 75,804
Deferred income taxes (note 5) 477,100 515,010
---------- ----------
Total current assets 11,633,958 10,421,626
---------- ----------
Property, plant and equipment (notes 3 and 4) 9,190,133 9,806,134
Less accumulated depreciation 4,911,305 5,205,162
---------- ----------
Net property, plant and equipment 4,278,828 4,600,972
---------- ----------
Other assets 77,839 123,577
---------- ----------
$ 15,990,625 15,146,175
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of debt (note 4) $ - 2,525,100
Current portion of deferred income 141,176 -
Trade accounts payable 805,342 649,252
Accrued expenses:
Compensation 298,531 232,972
Other 51,431 99,012
Dividends payable 69,902 15,613
---------- ----------
Total current liabilities 1,366,382 3,521,949
Debt, excluding current installments (note 4) 2,500,000 56,250
Deferred income, excluding current portion 73,530 -
Deferred income taxes (note 5) 60,655 -
---------- ----------
Total liabilities 4,000,567 3,578,199
---------- ----------
Stockholders' equity (note 6):
Common stock, $.51 par value. Authorized
10,000,000 shares; issued and outstanding
5,455,756 in 2000 and 1999 2,782,435 2,782,435
Additional paid-in capital 7,528,473 7,528,473
Retained earnings 1,679,150 1,257,068
---------- ----------
Total stockholders' equity 11,990,058 11,567,976
---------- ----------
Commitments and contingencies (notes 7,9 and 10)
$ 15,990,625 15,146,175
========== ==========
See accompanying notes to consolidated financial statements.
F-2
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Statements of Operations
Years ended March 31, 2000, 1999 and 1998
2000 1999 1998
Operating revenues: ---- ---- ----
Net sales (note 8) $ 16,711,604 17,119,719 18,101,785
Royalties 126,121 91,295 329,166
---------- ---------- ----------
16,837,725 17,211,014 18,430,951
---------- ---------- ----------
Operating expenses:
Cost of sales 11,587,061 13,041,258 13,265,505
Selling, general, and administrative 3,301,640 3,150,830 4,023,205
Research, development, and engineering 1,035,994 1,107,253 1,223,422
---------- ---------- ----------
15,924,695 17,299,341 18,512,132
---------- ---------- ----------
Operating income (loss) 913,030 (88,327) (81,181)
---------- ---------- ----------
Other income (deductions):
Interest and sundry income 89,257 84,211 131,727
Interest expense (184,832) (193,902) (136,380)
Loss on disposal of property,
plant and equipment (20,174) - -
Gain on foreign exchange 3,534 3,558 191
---------- ---------- ----------
(112,215) (106,133) (4,462)
---------- ---------- ----------
Income (loss) before income taxes 800,815 (194,460) (85,643)
Income taxes expense (benefit) (note 5) 215,060 (210,352) 110,671
---------- ---------- ----------
Net income (loss) $ 585,755 15,892 (196,314)
========== ========== ==========
Basic earnings (loss) per share $ .11 - (.04)
========== ========== ==========
Diluted earnings (loss) per share $ .11 - (.04)
========== ========== ==========
Weighted average number of common and
equivalent shares outstanding:
Basic 5,455,756 5,455,756 5,332,571
Diluted 5,473,220 5,476,134 5,332,571
========== ========== ==========
See accompanying notes to consolidated financial statements.
F-3
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended March 31, 2000, 1999 and 1998
Retained
Additional earnings Total
Common stock paid-in (accumulated stockholders'
Shares Amount capital deficit) equity
Balances at ------ ------ ------- ------- ------
March 31, 1997: 5,332,571 2,719,611 7,411,581 2,397,353 12,528,545
Dividends - $.18 per share - - - (959,863) (959,863)
Net loss - - - (196,314) (196,314)
--------- --------- --------- --------- ----------
March 31, 1998: 5,332,571 $ 2,719,611 7,411,581 1,241,176 11,372,368
Exercise of stock
options via exchange
of 30,915 common shares
and cash of $179,716
for 154,100 new common
shares 123,185 62,824 72,524 - 135,348
Tax benefit related
to exercise of
employee stock options - - 44,368 - 44,368
Net income - - - 15,892 15,892
--------- --------- --------- --------- ----------
Balances at
March 31, 1999: 5,455,756 $ 2,782,435 7,528,473 1,257,068 11,567,976
Dividends - $.03 per share - - - (163,673) (163,673)
Net income - - - 585,755 585,755
Balances at
March 31, 2000: 5,455,756 $ 2,782,435 7,528,473 1,679,150 11,990,058
========= ========= ========= ========= ==========
See accompanying notes to consolidated financial statements.
F-4
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended March 31, 2000, 1999 and 1998
2000 1999 1998
Cash flows from operating activities: ---- ---- ----
Net income (loss) $ 585,755 15,892 (196,314)
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities:
Accretion of interest - (21,098) (114,825)
Loss on disposal of equipment 20,174 - -
Allowance for doubtful accounts (15,501) (1,000) (4,800)
Depreciation and amortization 850,092 733,906 622,219
Decrease (increase) in
accounts receivable 30,216 (408,200) (401,807)
Decrease (increase) in income
taxes receivable 255,822 (35,035) (74,889)
Decrease (increase) in inventories (484,407) 601,227 (182,641)
Decrease (increase) in prepaid expenses
and other current assets 5,686 159,791 (56,623)
Decrease (increase) in deferred
income taxes 98,565 (52,982) 51,492
Decrease (increase) in other assets 45,738 (114,118) 3,697
Increase in deferred income 214,706 - -
Increase (decrease) in
accounts payable 156,090 (567,372) (390,492)
Increase (decrease) in
accrued expenses 17,978 (123,879) 159,314
--------- --------- ---------
Net cash provided (used) by
operating activities 1,780,914 187,132 (585,669)
--------- --------- ---------
Cash flows from investing activities:
Maturities of short-term investments - 1,055,000 3,112,000
Purchases of short-term investments - - (1,000,064)
Capital expenditures for property,
plant and equipment (548,122) (772,326) (2,216,397)
--------- --------- ---------
Net cash provided (used) by
investing activities (548,122) 282,674 (104,461)
--------- --------- ---------
Cash flows from financing activities:
Net borrowings under line-of-credit
agreement 49,900 - 1,872,101
Principal payments on mortgage
note payable (131,250) (75,000) (75,000)
Proceeds from exercise of
stock options - 135,348 -
Dividends paid (109,384) (30,000) (1,260,740)
--------- --------- ---------
Net cash provided (used) by
financing activities (190,734) 30,348 536,361
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 1,042,058 500,154 (153,769)
Cash and cash equivalents at
beginning of year 1,653,952 1,153,798 1,307,567
--------- --------- ---------
Cash and cash equivalents at end of year $ 2,696,010 1,653,952 1,153,798
========= ========= =========
Supplemental cash flow information:
Cash paid for interest $ 180,590 193,902 136,380
========= ========= =========
Cash paid (received) for income taxes $ (137,327) (228,299) 134,068
========= ========= =========
See accompanying notes to consolidated financial statements.
F-5
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
(1) Summary of Significant Accounting Policies
(a) Description of Business
Technology Research Corporation and subsidiary (the Company) is engaged in the
design, development, manufacturing, and marketing of electronic control and
measurement devices related to the distribution of electrical power and
specializes in electrical safety products that prevent electrocution,
electrical fires and protect against serious injury from electrical shock.
The Company's corporate headquarters are located in Clearwater, Florida.
During February 1997, the Company incorporated TRC Honduras, S.A. de C.V., a
wholly owned subsidiary, for the purpose of manufacturing the Company's high
volume products in Honduras. The Company primarily sells its products to
governmental entities and original equipment manufacturers involved in a
variety of industries including business machinery and personal care
appliances. The Company performs credit evaluations of all new customers and
generally does not require collateral. Historically, the Company has
experienced minimal losses related to receivables from individual customers or
groups of customers in any particular industry or geographic area. The
Company's customers are located throughout the world. See note 8 for further
information on major customers. The Company also licenses its technology for
use by others in exchange for a royalty or product purchases. Licensees are
located in Australia, France, Italy, Japan, the United Kingdom and the United
States.
(b) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(c) Foreign Currency Translation
The U.S. dollar is the functional currency of the Honduran subsidiary. Foreign
currency denominated assets and liabilities of this subsidiary are remeasured
at the rates of exchange at the balance sheet date. Income and expense items
are remeasured at average monthly rates of exchange. Gains and losses from
foreign currency transactions of this subsidiary are included in operations.
F-6
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
(d) Financial Instruments
The Company believes the book value of its financial instruments (accounts
receivable, trade accounts payable, accrued expenses, dividends payable, income
taxes receivable and payable and debt) approximate their fair value due to
their short-term nature or with respect to debt, the interest rate
appropriately reflects the credit risk.
(e) Principles of Consolidation
The consolidated financial statements include the financial statements of
Technology Research Corporation and its wholly-owned subsidiary, TRC Honduras,
S.A. de C.V. All significant intercompany balances and transactions have been
eliminated in consolidation.
(f) Cash Equivalents
For purposes of the statements of cash flows, the Company considers all short-
term investments purchased with a maturity of three months or less to be cash
equivalents. Short-term investments at March 31, 2000 and 1999 consisted of
interest bearing demand deposit accounts.
(g) Revenue Recognition
The Company recognizes revenue when an order has been received, the product
has been shipped, pricing is fixed and collectability is reasonably assured.
Cost of sales include the Company's estimate of any warranty, rework or other
concessions the Company expects to incur in connection with a sale. Such costs
amounted to $7,500 at March 31, 2000 and $0 at March 31, 1999.
The Company accrues minimum royalties due over the related royalty period.
Royalties earned in excess of minimum royalties due are recognized as reported
by the licenses. Nonrefundable, up-front license fees are recognized at the
time of receipt, unless the Company is obligated to incur incremental costs in
connection with the agreement. Up-front license fees that include when and if
available clauses are deferred over the exclusivity period of the agreement.
The Company classifies up-front license fees as current deferred income when it
will be earned within the next year. License fees are included in royalty
revenues.
F-7
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
(h) Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of
The Company reviews long-lived assets and certain identifiable intangibles
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value, less costs to sell.
(i) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
(k) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is calculated
on the straight-line method over the estimated useful lives of the assets.
(k) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(l) Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with Statement
of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-
Based Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS 123 also allows entities to continue to apply the
provisions of APB 25 and provide pro forma net income and pro forma earnings
per share disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS 123 had been applied.
F-8
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
The Company has elected to continue to apply the provisions of APB 25 and
provide the pro forma disclosures of SFAS 123.
(m) Earnings Per Share
Basic earnings per share has been computed by dividing net income by the
weighted average number of common shares outstanding. Common share equivalents
included in the dilutive weighted average shares outstanding computation
represent shares issuable upon assumed exercise of stock options which would
have a dilutive effect in years where there are earnings.
(n) New Accounting Standards
In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which establishes accounting and reporting standards
for derivatives as either assets or liabilities on the balance sheet and
measure those instruments at fair values. In June 1999, the Financial
Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS
No. 133" which deferred the effective date of the adoption of SFAS No. 133.
The Company will be required to adopt SFAS No. 133 for financial statements
issued beginning the first quarter of fiscal year 2001. The Company has no
derivative financial instruments at March 31, 2000; therefore, the adoption of
this standard is not expected to have any effect on the consolidated financial
statements.
In December 1999, the Securities and Exchange Commission 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 Securities and Exchange Commission issued SAB 101A which delays
the effective date to the Company's quarter ended June 30, 2000. Recently, the
Securities and Exchange Commission 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 or results of operations.
F-9
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
(2) Inventories
Inventories at March 31, 2000 and 1998 consist of:
2000 1999
---- ----
Raw materials $ 3,927,770 3,800,340
Work in process 351,964 242,683
Finished goods 928,855 681,159
--------- ---------
$ 5,208,589 4,724,182
========= =========
Approximately 40% and 29% of inventories were located in Honduras at
March 31, 2000 and 1999 respectively.
(3) Property, Plant and equipment
Property, plant and equipment at March 31, 2000 and 1999 consists of:
Estimated
2000 1999 useful lives
---- ---- ------------
Building and improvements $ 1,519,681 1,516,676 20 years
Machinery and equipment 7,670,452 8,289,458 5 - 15 years
--------- --------- ------------
$ 9,190,133 9,806,134
========= =========
Approximately 25% and 21% of property, plant and equipment is located in
Honduras at March 31, 2000 and 1999, respectively.
F-10
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
(4) Debt
Debt at March 31, 2000 and 1999 consists of the following:
2000 1999
---- ----
$3,000,000 line of credit; interest at LIBOR plus 200
basis points (8.16%at March 31, 2000), due
December 14, 2001; secured by receivables,
inventories and equipment (subject to provisions
stated below) $ 2,500,000 -
$2,500,000 line of credit; interest at LIBOR plus 175
basis points (6.69% at March 31, 1999), payable
monthly, due August 1999; secured by receivables,
inventories and equipment (subject to provisions
stated below) - 2,450,100
First mortgage note payable; interest at LIBOR plus
175 basis points (7.69% at March 31, 1999); due in
monthly installments of $6,250, plus interest, secured
by operating facility, paid in full in December 1999 - 131,250
--------- ---------
Total debt 2,500,000 2,581,350
Less current installments - (2,525,100)
--------- ----------
Debt, excluding current installments $ 2,500,000 56,250
========= ==========
Borrowings under the $3,000,000 are secured by all accounts receivable,
inventories, and property, plant and equipment, and requires the Company to
maintain certain financial ratios, minimum working capital and minimum tangible
net worth amounts. The Company was in compliance with these covenants at
March 31, 2000. The full balance outstanding under the line of credit is due
December 14, 2001.
Borrowings under the $2,500,000 line of credit are limited to 80 percent of
eligible accounts receivable under 90 days, plus the lesser of 40 percent of
eligible inventory or $450,000. The line of credit is secured by accounts
receivable, inventories, and property, plant and equipment, and requires the
Company to maintain certain financial ratios and a minimum tangible net worth
amount. The Company was in compliance with these covenants at March 31, 1999.
The line of credit was paid in full in December 1999.
F-11
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
(5) Income Taxes
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at March 31, 2000 and
1999 are presented below:
2000 1999
---- ----
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts $ 17,000 23,300
Deferred income for financial reporting 77,000 -
Inventories, principally due to valuation
allowance for financial reporting purposes
and additional costs inventoried for
tax purposes 286,000 281,000
Accrued expenses, principally due to accrual
for financial reporting purposes 35,000 47,000
Net operating loss carryforwards 58,000 214,000
Tax credit carryforwards 214,000 221,000
-------- --------
Total gross deferred tax assets 687,000 786,000
Less valuation allowance 187,000 187,000
-------- --------
500,000 559,000
-------- --------
Deferred tax liabilities:
Property, plant and equipment, principally
due to differences in depreciation (83,555) (83,990)
-------- --------
Net deferred tax assets $ 416,445 515,010
======== ========
Net deferred tax assets are included in the accompanying balance sheets at
March 31, 2000 and 1999 as:
2000 1999
---- ----
Deferred income taxes, current asset $ 477,100 515,010
Deferred income taxes, noncurrent liability (60,655) -
-------- --------
$ 416,445 515,010
======== ========
F-12
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
Management assesses the likelihood deferred tax assets will be realized which
is dependent upon the generation of taxable income during the periods in which
those temporary differences are deductible. Management considers historical
taxable income, the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this assessment.
In order to fully realize the deferred tax asset related to net operating loss
and tax credit carryforwards, the Company will need to generate future taxable
income of approximately $170,000 each year prior to the expiration of the net
operating loss and tax credit carryforwards in 2003 and 2002, respectively.
Based upon the level of historical taxable income and projections for future
taxable income, management believes it will realize the benefits of these
deductible differences, net of the existing valuation allowance at March 31,
2000. The valuation allowance at March 31, 2000 and 1999 relates to tax credit
carryforwards which management expects will expire unused.
At March 31, 2000, the Company has net operating loss carryforwards for Federal
income tax purposes of approximately $140,000, which are available to offset
future taxable income through 2003. The Company also has available tax credit
carryforwards for Federal income tax purposes of approximately $214,000, which
are available to offset future Federal income taxes through 2002. As a result
of an ownership change in 1989, the Internal Revenue Code limits the income tax
benefit of $140,000 of net operating loss and $214,000 of tax credit
carryforwards to approximately $65,000 each year.
Income tax expense (benefit) for the years ended March 31, 2000, 1999 and 1998
consists of:
2000 1999 1998
---- ---- ----
Current:
Federal $ 116,495 (263,334) 59,179
State - - -
-------- -------- ---------
116,495 (263,334) 59,179
-------- -------- ---------
Deferred:
Federal 90,731 70,000 48,600
State 7,834 (17,018) 2,892
-------- -------- ---------
98,565 52,982 51,492
-------- -------- ---------
$ 215,060 (210,352) 110,671
======== ======== =========
F-13
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
Income tax expense (benefit) for the years ended March 31, 2000, 1999 and 1998
differs from the amounts computed by applying the Federal income tax rate of
34% to pretax income (loss) as a result of the following:
2000 1999 1998
---- ---- ----
Computed expected tax (benefit) expense $ 272,000 (66,000) (29,000)
Increase (reduction) in income taxes
resulting from:
Foreign activity for which no
income tax has been provided (75,000) (112,000) 128,000
State income taxes, net of
Federal income tax effect 5,000 (8,000) 2,000
Other 13,060 (24,352) 9,671
-------- -------- ---------
$ 215,060 (210,352) 110,671
======== ======== =========
The operating results of the foreign manufacturing subsidiary are not subject
to foreign tax since it is operating under a tax holiday for at least twenty
years. The foreign operations resulted in income of approximately $221,000 in
2000, $329,000 in 1999 and a loss of $375,000 in 1998. No income taxes have
been provided on these results of operations.
(6) Stock Options, Grants and Warrants
The Company has two qualified incentive stock option plans, one performance-
incentive stock option plan, and one nonqualified stock option plan
(the Plans). Options granted under the Plans are granted to directors,
officers and employees at fair value and expire ten years after the date of
grant. Except for the Performance Plan, options granted under the Plans
generally vest over three years. Options granted under the Performance Plan
vest at the end of year ten but are subject to accelerated vesting if certain
targets are met. Options may be exercised by payment of cash or with stock of
the Company owned by the officer or employee. In November 1998, the Board of
Directors approved a repricing of options under the qualified incentive stock
option and nonqualified stock option plans. The options were repriced on
November 19, 1998 based on the closing stock price on that date.
F-14
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
Option transactions and other information relating to the Plans for the three
years ended March 31, 2000 are as follows:
Qualified Performance Non-
incentive incentive qualified Weighted
stock stock stock average
option option option exercise
plans plan plan Total price
------- ------- ------- --------- --------
Outstanding at March 31, 1997 147,167 400,000 198,568 745,735 4.70
Granted 1,000 - 10,000 11,000 3.29
Canceled (14,020) - (2,000) (16,020) 5.29
------- ------- ------- ---------
Outstanding at March 31, 1998 134,147 400,000 206,568 740,715 4.32
Granted 141,911 - 46,134 188,045 1.57
Exercised - - (154,100) (154,100) 1.33
Canceled (134,147) - (52,468) (186,615) 5.08
------- ------- ------- ---------
Outstanding at March 31, 1999 141,911 400,000 46,134 588,045 3.99
Granted 24,750 - 10,000 34,750 1.55
Exercised - - - - -
Canceled (14,401) (100,000) (1,700) (116,101) 4.64
------- ------- ------- ---------
Outstanding at March 31, 2000 152,260 300,000 54,434 506,694 3.67
======= ======= ======= =========
Total number of options available
under the plans 166,667 400,000 333,333 900,000
======= ======= ======= =========
Exercisable at March 31, 2000 39,741 - 40,374 80,115 1.52
======= ======= ======= =========
Available for issue at
March 31, 2000 3,296 100,000 - 103,296
======= ======= ======= =========
The per share weighted average fair value of stock options granted during 2000,
1999 and 1998 was $1.13, $1.15 and $1.85, respectively, on the date of grant
using the Black Scholes option pricing model, with the following assumptions:
(1) risk free interest rate - 5.00 percent to 6.26 percent, (2) expected
life - 6.5 to 10.0 years, (3) expected volatility - 73 percent to 83 percent,
and (4) expected dividends - 2.0 percent to 5.8 percent.
At March 31, 2000, the range of exercise prices and weighted average remaining
contractual life of options outstanding and exercisable was as follows:
Options Outstanding Options Exercisable
- ------------------------------------------------- ----------------------------
Number Weighted average Weighted Number Weighted
Range of outstanding remaining average exercisable average
exercise as of contractual exercise as of exercise
prices March 31, 2000 life price March 31, 2000 price
- -------- -------------- -------------- --------- -------------- --------
$1.06 - 1.19 36,750 9.18 1.11 16,337 1.10
$1.62 164,944 8.70 1.62 63,778 1.62
$2.75 5,000 9.99 2.75 - -
$5.12 300,000 6.25 5.12 - -
F-15
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
The Company grants options at fair value and applies APB 25 in accounting for
its Plans. Accordingly, no compensation cost has been recognized for stock
options in the financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under
SFAS 123, the Company's net income at March 31, 2000, 1999 and 1998 would have
been reduced to the pro forma amounts indicated below:
2000 1999 1998
---- ---- ----
Net income (loss):
As reported $ 585,755 15,892 (196,314)
========= ========= =========
Pro forma $ 539,899 (70,343) (290,371)
========= ========= =========
Income (loss) per common share:
As reported $ .11 - (.04)
========= ========= =========
Pro forma $ .10 (.01) (.05)
========= ========= =========
Pro forma net income reflects only options granted after March 31, 1995.
Therefore, the full impact of calculating compensation costs for stock options
under SFAS 123 is not reflected in the pro forma net income amounts presented
above because compensation cost is reflected over the options' vesting period
of three to ten years, and compensation costs for options granted prior to
April 1, 1995 are not considered.
The Company has also reserved 32,667 shares of its common stock for issuance to
employees or prospective employees at the discretion of the Board of Directors
of which 16,033 shares are available for future issue. There were no reserved
shares issued during the years ended March 31, 2000, 1999 or 1998.
On March 24, 2000, the Company's Board of Directors approved a new stock
incentive plan of 300,000 shares. The Plan will be submitted for shareholder
approval at the Company's annual meeting.
F-16
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
(7) Leases
The Company leases the land on which its operating facility is located. This
operating lease is for a period of twenty years through 2001 with options to
renew for two additional ten-year periods. The lease provides for rent
adjustments every five years. The Company is responsible for payment of taxes,
insurance, and maintenance. In the event the Company elects to terminate the
lease, title to all structures on the land reverts to the lessor. The
Company's subsidiary leases its operating facility in Honduras. This operating
lease is for five years through the year 2002, with an option to renew for an
additional five-year term. The Company also leases certain office equipment
under long-term operating lease agreements.
Future minimum lease payments under noncancelable operating leases as of March
31, 2000 are:
Year ending March 31,
---------------------
2001 245,000
2002 206,000
2003 17,000
--------
Total minimum lease payments $ 468,000
========
Rental expense for all operating leases was approximately $245,000 in 2000,
$249,000 in 1999 and $187,000 in 1998.
(8) Major Customers
The Company operates in one business segment - the design, development,
manufacture and marketing of electronic control and measurement devices for the
distribution of electric power. The Company only reports sales and standard
gross profit by market (commercial and military), no allocations of
manufacturing variances and other costs of operations or assets are made to
the market. Sales by market are:
2000 1999 1998
---- ---- ----
Commercial $ 12,801,147 13,929,177 13,434,352
Military $ 3,910,457 3,190,542 4,667,433
---------- ---------- ----------
$ 16,711,604 17,119,719 18,101,785
========== ========== ==========
F-17
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
Significant customers which accounted for 10% or more of sales in 2000, 1999
or 1998 and aggregate exports were:
Year ended March 31
-------------------
Customer 2000 1999 1998
-------- ---- ---- ----
Xerox Corporation $ 1,266,613 1,934,740 2,838,905
Noma Appliance & Electric, Inc.
Noma Appliance, Inc.
f/k/a Fleck Manufacturing, Inc.
(a Xerox Corporation supplier) 954,288 1,623,904 1,666,516
Other Xerox suppliers 987,424 124,473 133,044
Fermont Division 2,115,722 1,397,211 2,817,079
--------- --------- ---------
$ 5,324,047 5,080,328 7,455,544
Exports: ========= ========= =========
Canada $ 1,342,365 1,794,855 1,894,215
Far East 198,026 394,156 486,277
Europe 3,243,918 2,787,224 2,554,772
Mexico 563,550 711,067 979,187
Australia 218,746 117,754 218,530
South America 12 430 37,383 20,994
Middle East 5,281 2,067 3,397
--------- --------- ---------
Total exports $ 5,584,316 5,844,506 6,157,372
========= ========= =========
(9) Benefit Plan
The Company's 401(k) plan covers all employees with one year of service who are
at least twenty-one years old. The Company matches employee contributions
dollar-for-dollar up to $300. On December 9, 1999, the Company's Board of
Directors approved an increase in the company match up to $400 for the 2000
plan year. Total Company contributions were approximately $24,000 in 2000,
$25,000 in 1999 and $29,000 in 1998.
F-18
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
(10) Litigation
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
(11) Stock Repurchase Plan
On December 9, 1999, the Company's Board of Directors approved a plan for
the Company to buy back up to 500,000 shares of the Company stock on the
open market. The Company has not made any repurchases of shares as of
March 31, 2000.
(12) Selected Quarterly Data (Unaudited)
Information (unaudited) related to operating revenues, operating income, net
income and earnings per share, by quarter, for the years ended March 31, 2000
and 1999 are:
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
Year ended March 31, 2000:
Operating revenues $ 3,934,518 4,286,429 4,006,422 4,610,356
========= ========= ========= =========
Gross profit $ 1,331,261 1,369,310 1,226,256 1,197,716
========= ========= ========= =========
Operating income (loss) $ 287,290 264,425 228,310 133,005
========= ========= ========= =========
Net income (loss) $ 203,825 180,405 113,603 87,922
========= ========= ========= =========
Basic earnings per share $ .04 .03 .02 .02
========= ========= ========= =========
Diluted earnings per share $ .04 .03 .02 .02
========= ========= ========= =========
Year ended March 31, 1999:
Operating revenues $ 4,753,401 4,467,032 3,714,398 4,276,183
========= ========= ========= =========
Gross profit $ 1,426,715 1,282,222 829,614 539,910
========= ========= ========= =========
Operating income (loss) $ 410,425 160,780 (136,931) (522,601)
========= ========= ========= =========
Net income (loss) $ 239,862 84,010 (70,001) (237,979)
========= ========= ========= =========
Basic earnings per share $ .04 .02 (.02) (.04)
========= ========= ========= =========
Diluted earnings per share $ .04 .02 (.02) (.04)
========= ========= ========= =========
F-19
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
The fourth quarter of the years ended March 31, 1999 was adversely affected by
an approximately $250,000 reduction in inventory as a result of the Company's
physical inventory. It is not practicable to determine what, if any, other
quarters are affected by this adjustment.
The fourth quarter of the year ended March 31, 2000 was adversely affected by
an approximately $51,000 reduction in property, plant and equipment as a result
of the Company's physical inventory of certain equipment. It is not
practicable to determine what, if any, other quarters are affected by this
adjustment.
F-20
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Schedule II
Valuation and Qualifying Accounts
Years ended March 31, 2000, 1999 and 1998
Additions
----------------------
Balances at Charged to Charged to Balances
beginning costs and other at end of
Description of period expenses accounts Deductions period
----------- ---------- ---------- ---------- ---------- ---------
Allowance for
doubtful accounts:
Year ended
March 31, 2000 $ 63,700 45,105 - 60,606 48,199
======= ======= ======= ======= =======
Year ended
March 31, 1999 $ 64,700 24,500 - 25,000 63,700
======= ======= ======= ======= =======
Year ended
March 31, 1998 $ 69,500 - - 4,800 64,700
======= ======= ======= ======= =======
F-21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: 6/9/2000 By: /s/ Robert S. Wiggins
Robert S. Wiggins
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and
on the dates indicated:
Signature Title Date
Chairman, Chief Executive
Officer, and Director
(Principal Executive
/s/ Robert S. Wiggins Officer) 6/9/2000
Robert S. Wiggins
Vice President of Finance and
Chief Financial Officer
(Principal Financial
/s/ Scott J. Loucks Officer) 6/9/2000
Scott J. Loucks
/s/ Raymond H. Legatti President and Director 6/9/2000
Raymond H. Legatti
Senior Vice President
Government Operations
and Marketing and
/s/ Raymond B. Wood Director 6/9/2000
Raymond B. Wood
/s/ Gerry Chastelet Director 6/16/2000
Gerry Chastelet
/s/ Edmund F. Murphy, Jr. Director 6/14/2000
Edmund F. Murphy, Jr.
/s/ Martin L. Poad Director 6/16/2000
Martin L. Poad
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