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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, 2001
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 1, 2001 was $8,604,101, based upon the $1.80 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 1, 2001, the number of shares outstanding of the Registrant's common
stock, $.51 par value, was 5,437,497.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Proxy Statement related to its 2001 Annual Meeting of
Shareholders to be held on August 23, 2001 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 13, 2001.
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
Item 4a. Executive Officers of the Registrant ........................ 14
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters ................................. 15
Item 6. Selected Financial Data ..................................... 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 17
Item 7a Quantitative and Qualitative Disclosures About Market Risk .. 21
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 Statement Schedules,
and Reports on Form 8-K ..................................... 22
SIGNATURES ........................................................... 25
Part I
ITEM 1. BUSINESS
General
Technology Research Corporation ("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 forms 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
-------- ---------- ---- -------- ---- ----------
2001 $ 12,117,588 68.1 $ 5,687,823 31.9 $ 17,805,411
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
Royalties from license agreements are as follows:
Year Ended
March 31 Royalties
-------- ---------
2001 $ 231,563
2000 126,121
1999 91,295
1998 329,166
1997 381,977
The Company's backlog of unshipped orders at March 31, 2001 was approximately
$3.8 million. This backlog consists of approximately 36% commercial product
orders and approximately 64% military product orders, all of which is expected
to ship within Fiscal Year 2002.
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Commercial Products and Markets
Core Commercial Products. The Company's core commercial business was developed
out of the demand for the following Underwriters Laboratories("UL") classifica-
tions of ground fault protective devices: Ground Fault Circuit Interrupters
("GFCI"); Appliance Leakage Circuit Interrupters ("ALCI"); Leakage Current
Detectors and Interrupters ("LCDI"); and Equipment Leakage Current Interrupters
("ELCI"). Ground fault protective devices help protect against the hazards of
fire and electrical shock that result when water comes in contact with
electrically "live" conductors or when faulty electrical grounding is found in
old or damaged extension cords, appliance cords, house wiring and electrical
equipment. The demand for the Company's commercial products has resulted from
the National Electrical Code ("NEC"), UL product standards and voluntary
efforts by industry to improve the electrical safety of their products.
Electrical safety is compromised when a ground fault occurs, which is a
condition where electric current finds an abnormal path to ground, such as when
a power tool comes in contact with water while plugged into a live outlet or
when it is damaged in such a way as to cause internal wiring to come in contact
with exposed metal parts allowing electricity to pass through the user of that
power tool. 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 human or animal is far below
the level of current required for a fuse to blow or a circuit breaker to trip.
The Company's GFCI devices provide protection from dangerous electrical shock
by sensing leakage of electricity and cutting off power. GFCIs are currently
available in three types: circuit breaker, receptacle and portable. The
Company specializes in the portable types of these products while participating
to a lesser extent in the circuit breaker and receptacle markets. 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.
The Company's ALCI devices are 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 over-current
protection device of the circuit. ALCIs are intended to be used only in a
circuit that has a solidly grounded neutral conductor, and are not intended to
be used in place of a GFCI in applications where the GFCI is required. ALCIs
are considered "personnel protection" devices. These products are 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.
The Company's LCDI devices are intended to reduce the risk of fires by
disconnecting power when sensing current leakage between conductors of power
cords. The Company's "Fire Shield" (TM) product lines are approved in the UL
-4-
classification of LCDIs. Several years ago, both government and industry
research into the major causes of fire 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", 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 fires. The latest annual
statistics from the CPSC indicate that extension cords, toaster/toaster ovens,
power cords on appliances and household wiring are responsible for over $400
million in residential fire damage, 240 lives lost and 860 injuries.
The Company's ELCI devices are intended to protect equipment, such as copy
machines, printers and computers, from excessive electrical leakage of current
that could occur due to the breakdown of insulation between live and grounded
parts, which could cause fires and other damage. Xerox Corporation voluntarily
uses the Company's ELCI products to protect many of its business machines.
Impact of Revised Product Standards. The NEC requires ground fault protection
on many applications, which are enforced by OSHA and local government building
codes and adhered to by most manufacturers. The Company presently focuses its
marketing efforts in certain spot markets, which have developed in response to
NEC imposed requirements. The NEC requirements are often incorporated into UL
product standards.
In January 1989, high-pressure sprayer/washer manufacturers that desired UL
listing of their products 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 requiring the use of GFCIs for UL listed
sprayer/washers has been issued, and the effective date for compliance was
May 6, 2000. The result was that sales to this market grew to approximately
$2.4 million in Fiscal Year 2001 from approximately $1.5 million in Fiscal Year
2000.
On January 1, 1991, a NEC requirement became effective that requires a
protective device to be incorporated into hair dryers to protect users from
possible electrocution. In response to this NEC change, the Company developed
a smaller GFCI plug that incorporates its patented GFCI/ALCI technology.
-5-
Also, Article 625 of the 1996 Edition of the NEC 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.
And recently, on May 23, 2001, the NEC accepted a proposal requiring cord fire
prevention on room air conditioners for adoption into the 2002 national
electric code, pending any successful appeal to the Standards Council or
petition to its Board of Directors opposing its acceptance. The proposal
requires that room air conditioners be provided with either LDCI or Arc Fault
Circuit Interrupter ("AFCI") protected cord sets by their manufacturers. The
Company believes that its "Fire Shield" cord set would provide manufacturers
of room air conditioners with the best solution for this new requirement. The
next step in the implementation process will be for UL to finalize the product
standard for this requirement. The Company believes this newly created market
could generate significant revenues in approximately two years. Industry
estimates indicate that 6.5 million room air conditioners were shipped in the
year 2000.
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 original equipment manufacturers
("OEM") customers, and variations of such products for voltage differences in
both the United States and foreign markets. The Company is focusing more of
its marketing efforts in placing its products with major retailers, which
include Sears Mall stores, Home Depot, Orchard Supply Hardware, Petco and
TruServ(the buying co-op for True Value Hardware Stores) as well as many
independent retailers through distributors. The Company's products are also
being offered through magazines, catalogs and E-commerce retailers.
License Agreements. 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 10 for further information). The Company has entered into
seven license agreements and three sales and marketing agreements concerning
the portable GFCI, ALCI, ELCI and LCDI. 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 into those areas where it
would be difficult for the Company to compete on a direct basis.
On December 31, 1999, the Company entered into a new license agreement with
Applica Inc. (previously named Windmere-Durable Holdings, Inc. ), which
replaces its initial license agreement (the "Agreement"). 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 authorizes Applica Inc.
to use 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 called for an up front
payment plus a royalty payment for each unit manufactured using the Company's
-6-
"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 on the appliance or packaging.
In addition, Applica Inc. recently announced that the Company's "Fire Shield"
technology will be incorporated as part of the Advanced Safety Technology(TM)
("AST") system that is designed into their new line of Black & Decker(R)
heaters and toasters. The AST(TM) system is a combination of the most advanced
and significant safety features available today that can help prevent fires and
electric shock in appliances.
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 sixth straight year, the
Company has been 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 of Fiscal Year 1992. Subsequently, the Company received
production orders for these products from the U.S. Government's prime
contractor in the approximate amount of $12.4 million covering the time period
from August 1992 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 completed shipments under
the first production release valued at $1.9 million in the fourth quarter of
Fiscal Year 1999 and under the second production release valued at $1.2 million
in the fourth quarter of Fiscal Year 2001. Shipments that commenced in April
-7-
2001 under the third release were valued at approximately $1.0 million. The
estimated value of this 10-year contract for the Company for its 5/10/15KW
control equipment is $8.2 million.
In November 1998, the Company received orders in the amount of approximately
$6.3 million for its control equipment for the new 3KW TQG systems. After
first article testing was completed by the U.S. Government's prime contractor,
the Company's first production release valued at $2.8 million was shipped in
Fiscal Year 2001. Shipments under the second production release valued at $1.5
million began in June 2001, and the Company will begin shipments under the
third and final release valued at $1.6 million in the second half of Fiscal
Year 2002. The Company expects military sales to remain strong in Fiscal
Year 2002.
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
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 the Aberdeen Proving Grounds of the United
States Department of Defense.
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.
-8-
The Company's military products are subject to testing and qualification
standards imposed by the U. S. 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 that
it believes meets 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 U. S. Government may disqualify a product if it is subject to
frequent or excessive operational failures. In addition, the Company's
governmental contracts provide that 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 also require witness testing and
acceptance by government inspectors prior to shipment of the product.
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 or purchase order 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 consists of 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 that are produced or distributed by other companies.
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. TRC/Honduras, S.A. de C.V. conducts its operations in a
leased 42,000 square foot building located in ZIP San Jose, a free trade zone
and industrial park, located 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 any profits generated by the
Company's 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.
-9-
Patents, Licenses, and Trademarks
The Company's President, Mr. Legatti, has designed 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. Also, patents on the similar devices have
been issued from France, Japan, Germany, Canada, Australia, United Kingdom,
Japan, Italy, Sweden and Korea. In addition, the Company was issued a patent
covering the basic technology for its "Fire Shield" electrical arc fault
protective system. Several other patent applications have been filed by the
Company and are awaiting action, which will complement the Company's core
technology and products. The Company's U.S. patents will be valid for either
20 years from filing or 17 years from date of issue in the United States
running from January 1986. The term of the Company's patents in all other
countries vary from 15 to 20 years.
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 believes that the success of its business depends more on the
technical and engineering expertise, marketing and service abilities of its
employees than on patents, trademarks and copyrights. Nevertheless, the
Company owns several patents and has a policy of seeking patents when
appropriate on inventions concerning new products and improvements as part of
its ongoing research, development and manufacturing activities. Furthermore,
although the Company vigorously protects its patents, there can be no assurance
that others will not independently develop similar products, duplicate the
Company's products or design around the patents issued to the Company or that
foreign intellectual property laws will protect the Company's intellectual
property rights in any foreign country.
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.
Patent and Trademark Office.
Marketing
The Company's products are sold throughout the world, primarily through an
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.
-10-
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 31
independent sales representatives who sell to over 1,500 electrical, industrial
and safety distributors.
The Company also markets through OEMs that sell the Company's products under
their own brand label. Additionally, the Company has exhibited its 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.
Major Customers and Exports
Individual customers and aggregate exports which accounted for 10% or more of
sales were:
Year ended March 31
Customer 2001 2000 1999
-------- ---- ---- ----
Xerox Corporation $ 723,982 1,266,613 1,934,740
Noma Appliance & Electric, Inc.
Noma Appliance, Inc.
f/k/a Fleck Manufacturing, Inc.
(a Xerox Corporation supplier) 531,835 954,288 1,623,904
Other Xerox suppliers 299,596 987,424 124,473
Fermont (a division of ESSI, a U.S.
Government Prime Contractor) 4,305,101 2,115,722 1,397,211
--------- --------- ---------
$ 5,860,514 5,324,047 5,080,328
Exports: ========= ========= =========
Canada $ 579,511 1,342,365 1,794,855
Far East 805,762 198,026 394,156
Europe 2,328,325 3,243,918 2,787,224
Mexico 383,046 563,550 711,067
Australia 83,232 218,746 117,754
South America 13,784 12 430 37,383
Middle East 22,299 5,281 2,067
--------- --------- ---------
Total exports $ 4,215,959 5,584,316 5,844,506
========= ========= =========
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Overall, the Company's exports were down approximately 25% in Fiscal Year 2001,
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
$1.65 million. Xerox and its suppliers accounted for approximately 9% of the
Company's sales for Fiscal Year 2001, compared to approximately 19% for the
prior fiscal year. Excluding Xerox, exports to the Company's international OEM
customers were stronger for Fiscal Year 2001, 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 2001, military sales were
approximately 32% of total sales, compared to 23% in the prior year. The
increase was primarily due to the level of sales with Fermont, the U.S.
Government's prime contractor for the 5/10/15KW Tactical Quiet Generator
Systems and the new 3KW Variable Speed Generator(See MD&A discussion for more
detail). Fermont accounted for approximately 24% of the Company's sales for
Fiscal Year 2001, compared to approximately 13% for the prior fiscal year.
Because Xerox and Fermont account for such a large percentage of the Company's
sales, the loss of either customer would have a material adverse effect on the
Company's business.
The Company has no relationship with any of its customers except as a supplier
of product.
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 its "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 competitive strengths 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.
-12-
Research, Development and Engineering
The Company employs 12 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 $1,197,874 in Fiscal Year 2001, $1,035,994 in Fiscal Year
2000 and $1,107,253 in Fiscal Year 1999 on research, development and
engineering activities. None of these activities were sponsored or financed
by customers, and all have been expensed as incurred. The Company anticipates
spending levels to remain constant in the new fiscal year.
Employees
As of March 31, 2001, the Company employed 89 persons on a full time basis, and
of that total, 51 employees were engaged in manufacturing operations, 12 in
engineering, 13 in marketing and 13 in administration. The Company's Honduran
subsidiary employed 372 persons on a full time basis as of March 31, 2001, and
of that total, 362 employees were engaged in manufacturing operations and 10 in
administration. Competition for such management, technical, manufacturing,
sales and support personnel is intense, and there can be no assurance that the
Company will be successful in attracting or retaining such personnel.
None of the Company's employees are represented by a collective bargaining
unit, and the Company considers its relations with employees to be stable.
While the Company believes it has established good relations with its local
labor force in both the United States and Honduras, its reliance upon a foreign
manufacturing facility subjects the Company to risks inherent in international
operations. Those risks include inflationary pressures, unexpected changes in
regulatory requirements, changes in political climate, difficulties in
coordinating and managing foreign operations and foreign labor issues. Any of
the foregoing could have a material adverse effect on the Company.
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.
-13-
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, 2001.
ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
Robert S. Wiggins 71 Chief Executive Officer,
Chairman of the Board
Raymond H. Legatti 69 President
Raymond B. Wood 66 Senior Vice President of
Government Operations and
Marketing
Scott J. Loucks 39 Vice President of Finance,
Chief Financial Officer
ROBERT S. WIGGINS, has served as Chairman of the Board, Chief Executive Officer
and Director since March 1988. Additional biographical data on Mr. Wiggins may
be found in Section III of the Company's Proxy.
RAYMOND H. LEGATTI, served as the Company's President since the Company's
inception in 1981. Additional biographical data on Mr. Legatti may be found in
Section III of the Company's Proxy.
RAYMOND B. WOOD, has served as the Senior Vice President of Government
Operations and Marketing since the Company's inception in 1981. Additional
biographical data on Mr. Wood may be found in Section III of the Company's
Proxy.
SCOTT J. LOUCKS, has served the Company in various capacities since March 1985.
Mr. Loucks performed the duties of Information Technology Manager for 4 years,
of Controller for 8 years and of Vice President of Finance and Chief Financial
Officer since August 1996. Mr. Loucks has a Bachelor of Science Degree in
computer science and a Minor Degree in mathematics from Florida State
University. Mr. Loucks has also been a Director and the Secretary of the
Company's Honduran subsidiary, TRC/Honduras S.A. de C.V., since February 1997.
-14-
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 System. 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, 2001, 2000 and
1999 as reported by NASDAQ.
Market Price Cash
Fiscal Year Ended High Low Dividends
March 31, 2001:
First Quarter $ 2.5625 $ 1.5000 $ 0.01
Second Quarter 3.9375 1.8125 0.01
Third Quarter 3.0625 1.3750 0.01
Fourth Quarter 2.0938 1.1875 0.01
$ 0.04
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 -
-----
$ -
As of June 1, 2001, the approximate number of the Company's shareholders was
474. 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 represent an additional 2,700 shareholders.
The Company's authorized capital stock, as of June 1, 2001, consisted of
10,000,000 shares of authorized common stock, par value $.51, of which
5,437,497 shares were issued and outstanding.
On August 30, 1999, the Company re-instituted its quarterly dividend policy at
$.01 per share with a annual cash dividend rate of $.04 per share. The Company
paid dividends of $.04 per share in Fiscal Year 2001, $.03 per share in Fiscal
Year 2000 and no cash dividends were paid in Fiscal Year 1999.
-15-
ITEM 6. SELECTED FINANCIAL DATA
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Year ended March 31:
Operating revenues $ 18,036,974 16,837,725 17,211,014 18,430,951 15,385,571
Gross profit $ 3,901,155 5,124,543 4,078,461 4,836,280 4,747,997
Net income (loss) $ (411,547) 585,755 15,892 (196,314) 566,658
Basic earnings
per share $ (.08) .11 - (.04) .11
Weighted average number
of common shares
outstanding 5,439,811 5,455,756 5,455,756 5,332,571 5,321,698
Diluted earnings
per share $ (.08) .11 - (.04) .10
Weighted average number
of common and
equivalent shares
outstanding 5,439,811 5,473,220 5,476,134 5,332,571 5,441,620
Cash dividends
Paid $ .04 .03 - .18 .24
March 31:
Working capital $ 8,898,697 10,267,576 6,899,677 6,875,679 9,651,145
Total assets $ 15,156,548 15,990,625 15,146,175 15,746,818 15,637,949
Current
liabilities $ 2,012,335 1,366,382 3,521,949 4,243,200 2,903,154
Long-term debt $ 1,750,000 2,500,000 56,250 131,250 206,250
Total liabilities $ 3,835,998 4,000,567 3,578,199 4,374,450 3,109,404
Retained earnings $ 1,050,135 1,679,150 1,257,068 1,241,176 2,397,353
Total stockholders'
equity $ 11,320,550 11,990,058 11,567,976 11,372,368 12,528,545
-16-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Operating Results:
Fiscal Years 2001 and 2000 Comparison
The Company's operating revenues (net sales and royalties) for the year ended
March 31, 2001 totaled $18,036,974, compared to $16,837,725 reported in the
previous year ended March 31, 2000, an increase of approximately 7%. The
Company had a net loss of $411,547 for Fiscal Year 2001, compared to net income
of $585,755 for Fiscal Year 2000. Basic and diluted losses were $(.08) per
share for Fiscal Year 2001, compared to basic and diluted earnings of $.11 per
share for Fiscal Year 2000.
The increase in revenues for the Company's Fiscal Year 2001, compared to Fiscal
year 2000, was due to higher military sales of $1,777,366 resulting from
Inverters being shipped under the new 3KW Tactical Quiet Generator (TQG)
program in addition to its core spare parts and 5/10/15/30/60KW TQG business.
The Company expects military sales to remain strong for Fiscal Year 2002.
Total commercial sales were down $683,559, primarily as a result of lower sales
to Xerox and its suppliers. Commercial sales, other than Xerox, were up
$987,009 for the fiscal year. The Company expects modest growth in overall
commercial sales in Fiscal Year 2002, although sales to Xerox may continue to
weaken. Royalty income was up $105,442 in Fiscal Year 2001 as a result of the
licensing agreement with Applica Inc., formerly Windmere-Durable Holdings Inc.
Significant factors for the Company's loss in Fiscal Year 2001 include the
following: first, the Company experienced manufacturing inefficiencies
throughout its second and third quarters during the startup of two new product
lines; second, the Company recorded severance expenses of approximately
$125,000 related to reductions in its workforce at both the Company's
Clearwater and Honduras facilities in its fourth quarter; third, the Company
recorded an inventory write-off of approximately $150,000 in its fourth quarter
to reserve for material associated with a discontinued commercial product line;
fourth, the Company's labor cost increased approximately 35% in Honduras during
its third quarter as a result of a government mandated increase in minimum
wage; fourth, the Company incurred rework costs associated with engineering
design changes implemented to bring certain international products up to
specification with a new standard; and fifth, higher than expected initial
costs of manufacturing the Inverter for the new military 3KW TQG program. The
Company made progress in lowering the labor cost of the Inverter in Fiscal Year
2001, and by negotiating better purchase prices for supplied materials, the
Company will realize the benefit of reduced material cost as well in the next
production phase, starting in June 2001. The Company's challenge for Fiscal
Year 2002 is to improve profit margins in a competitive marketplace, especially
in those commercial markets where competitors manufacture in the far east.
The Company's gross profit margin was approximately 22% of net sales for Fiscal
Year 2001 compared to 31% in the prior year, primarily due to those reasons
stated above as significant factors in the Company's loss for Fiscal Year 2001.
On December 13, 2000, the Company announced that its Board of Directors
approved a plan to engage an investment-banking firm for the purpose of
offering the Company for sale to a strategic buyer who could work with the
Company in expanding its business and provide the resources needed to realize
the full market potential of "Fire Shield", a technology designed to reduce
fires in electrical cords. On February 15, 2001, the Company selected an
-17-
investment-banker, and with their assistance, the Company is currently
reviewing a number of preliminary expressions of interest. Any discussions are
currently at an early stage, and there can be no assurance as to their outcome.
Selling, general and administrative expenses for Fiscal Year 2001 were
$3,490,326, compared to $3,301,640 for the prior year, an increase of
approximately 6%. Selling expenses were $2,008,092 for Fiscal Year 2001,
compared to $1,863,656 for the prior year, an increase of approximately 8%,
reflecting an increase in health insurance costs of $68,744, advertising costs
of $77,223, commissions to outside sales reps of $43,995 and a reduction of
$45,526 in other expenses. General and administrative expenses were $1,482,234
for Fiscal Year 2001, compared to $1,437,984 for the prior year, an increase of
approximately 3%, primarily due to a $43,342 write-off of an accounts
receivable.
Research, development and engineering expenses for Fiscal Year 2001 were
$1,197,874, compared to $1,035,994 for the prior year, an increase of
approximately 16%, reflecting an increase in salary related expenses of
$94,840, UL expenses of $59,755, health insurance costs of $24,288 and a
reduction of $17,003 in other expenses.
Interest expense, net of interest and sundry income, for Fiscal Year 2001 was
$76,572, compared to $92,041 for the prior year, reflecting lower interest
rates and the Company using less of its Line of Credit.
Income tax (benefit) expense for the years ended March 31, 2001 and 2000
differs from the amounts computed by applying the Federal income tax rate of
34 percent to pretax income (loss) as 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 20 years. The foreign operations resulted in
income of approximately $51,000 in 2001 and $221,000 in 2000, and no income
taxes have been provided on these results of operations. The total amount of
undistributed earnings of the foreign subsidiary for income tax purposes was
approximately $225,000 at March 31, 2001 and $174,000 at March 31, 2000. It is
the Company's intention to reinvest undistributed earnings of its foreign
subsidiary and thereby indefinitely postpone its remittance. Accordingly, no
provision has been made for foreign withholding taxes or United States income
taxes which may become payable if undistributed earnings of the foreign
subsidiary was paid as dividends to the Company. It is not practicable to
calculate the unrecognized deferred tax liability on those earnings.
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 period
ended March 31, 1999, 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 Fiscal Year 1999, 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 Fiscal Year 1999.
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
-18-
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. Commercial sales were down $1,128,031, of which $457,557 was
related to Xerox and its suppliers.
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 recorded 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, which the Company has yet to record into
royalty income as of March 31, 2001.
The Company's gross profit margin was approximately 31% of net sales for Fiscal
Year 2000 compared to 24% for Fiscal Year 1999, 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 Fiscal Year 1999, 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 of $24,147, salary related expenses of
$83,814 and a reduction of $10,323 in other expenses. General and
administrative expenses were $1,437,984 for Fiscal Year 2000, compared to
$1,384,812 for Fiscal Year 1999, 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 Fiscal Year 1999, 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 Fiscal Year 1999, 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.
Income tax (benefit) expense for the years ended March 31, 2000 and 1999
differs from the amounts computed by applying the Federal income tax rate of
34 percent to pretax income (loss) as 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 20 years. The foreign operations resulted in
income of approximately $221,000 in 2000 and $329,000 in 1999, and no income
taxes have been provided on these results of operations. The total amount of
undistributed earnings of the foreign subsidiary for income tax purposes was
approximately $174,000 at March 31, 2000 and ($47,000) at March 31, 1999. It
is the Company's intention to reinvest undistributed earnings of its foreign
subsidiary and thereby indefinitely postpone its remittance. Accordingly, no
provision has been made for foreign withholding taxes or United States income
taxes which may become payable if undistributed earnings of the foreign
subsidiary was paid as dividends to the Company. It is not practicable to
calculate the unrecognized deferred tax liability on those earnings.
-19-
Liquidity and Capital Resources
As of March 31, 2001, the Company's cash and cash equivalents decreased to
$184,772 from the March 31, 2000 total of $2,696,010. The decrease in cash was
due to cash used in operating activities of $775,753, cash used for investing
activities of $725,680 and cash used in financing activities of $1,009,805,
totaling $2,511,238.
Cash used in operating activities was primarily due to inventory increasing by
$1,143,685, which was offset to some extent by accounts payable increasing by
$774,609. Inventories increased for the following reasons; first, shipments to
Xerox Corporation and its suppliers decreased suddenly leaving the Company in
an overstocked position in the amount of approximately $120,000; second, the
Company ordered raw materials and built finished product in the amount of
approximately $650,000 in anticipation of certain "Fire Shield" orders which
have not materialized as of yet; and third, raw materials increased in the
amount of approximately $350,000 due to increased business with the military
and its prime contractors. The Company anticipates that it will be able to
reduce the inventory associated with Xerox Corporation and "Fire Shield" within
six to twelve months based on current requirements. The increase in accounts
payable was due to the Company extending its payment terms with its suppliers.
Cash used in financing activities was primarily due to the Company paying down
its line of credit by $750,000 in order to reduce its interest expense.
Cash used in investing activities was related to purchases of capital equipment
only. The Company normally purchases between $500,000 to $750,000 of capital
equipment each year.
On August 31, 2000, the Company renewed its $3,000,000 revolving credit loan
with its institutional lender, extending the maturity date to December 14,
2002. The Company has the option of borrowing at the lender's prime rate of
interest minus 25 basis points or the 30-day London Interbank Offering Rate
(L.I.B.O.R.) plus 175 basis points. The Company is currently using the
L.I.B.O.R. option. The Company's debt from advances on its new line of credit
was $1,750,000 as of March 31, 2001.
The Company's working capital decreased by $1,368,879 to $8,898,697 at
March 31, 2001, compared to $10,267,576 at March 31, 2000. The decrease was
primarily due to the Company reducing its line of credit, as noted above, and
the Company's operating loss through the twelve-month period. 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.
The record date for the Company's fourth fiscal quarter dividend of $.01 per
share was March 31, 2001, and the Company paid that dividend on April 20, 2001.
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
-20-
Company adopted SFAS No. 133 on April 1, 2001. The Company held no derivative
financial instruments during fiscal year ending March 31, 2001, therefore, the
adoption of this standard will have no effect on the consolidated financial
statements.
In September 2000, Statement of Financial Accounting Standards No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities - a Replacement of FASB Statement No. 125 ("FAS 140") was
issued. FAS 140 replaces Statement of Financial Accounting Standards No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities ("FAS 125"). FAS 140 revises the standards of accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures, and otherwise reiterates many of the provisions
of FAS 125. FAS 140 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after March 31, 2001.
FAS 140 is effective for recognition and reclassification of collateral and for
disclosures relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. Management believes the adoption of
FAS 140 will not have a material impact on the Company's financial position,
results of operations or cash flows.
Forward Looking Statements
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, and actual events or
results may differ materially. In evaluating these statements, you should
specifically consider the factors described throughout this report. Such key
factors include, but are not limited to, the acceptance of any new products,
such as "Fire Shield", into the marketplace, the effective utilization of the
Company's Honduran manufacturing facility, changes in manufacturing
efficiencies and the impact of competitive products and pricing. The Company
cannot be assured that future results, levels of activity, performance or goals
will be achieved, and the Company disclaims any obligation to revise any
forward-looking statements subsequent to events or circumstances or the
occurrence of unanticipated events.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's debt obligations due to its variable LIBOR pricing.
Accordingly, a 1% change in LIBOR will result in an interest expense change of
approximately $17,500.
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 23, 2001.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. Consolidated Financial Statements
of Technology Research Corporation:
See index on page F-1.
2. The following Consolidated Financial Schedules for the years ended
March 31, 2001, 2000, and 1999 are submitted herewith:
See index on page F-1.
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:
Inserted after Financial Statements.
(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-
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Index
Page
Independent Auditors' Report F-1
Financial Statements:
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
Schedule
II Valuation and Qualifying Accounts for the Years Ended March 31,
2001, 2000 and 1999 F-22
F-1
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 auditing standards generally
accepted in the United States of America. 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, 2001 and 2000, and the results of
their operations and their cash flows for each of the years in the three-year
period ended March 31, 2001, in conformity with accounting principles generally
accepted in the United States of America. 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
April 30, 2001
F-2
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2001 and 2000
Assets 2001 2000
Current assets: ---- ----
Cash and cash equivalents $ 184,772 2,696,010
Accounts receivable,
less allowance for doubtful accounts of
$60,760 in 2001 and $48,199 in 2000 (note 4) 3,364,817 3,105,541
Income tax receivable (note 5) 278,500 76,600
Inventories (notes 2 and 4) 6,352,274 5,208,589
Prepaid expenses and other current assets 145,134 70,118
Deferred income taxes (note 5) 585,535 477,100
---------- ----------
Total current assets 10,911,032 11,633,958
---------- ----------
Property, plant and equipment (notes 3, 4 and 7) 9,304,618 9,190,133
Less accumulated depreciation 5,106,407 4,911,305
---------- ----------
Net property, plant and equipment 4,198,211 4,278,828
---------- ----------
Other assets 47,305 77,839
---------- ----------
$ 15,156,548 15,990,625
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 1,579,951 805,342
Accrued expenses:
Compensation 231,806 298,531
Other 108,990 51,431
Dividends payable 68,058 69,902
Deferred income 23,430 141,176
---------- ----------
Total current liabilities 2,012,335 1,366,382
Debt (note 4) 1,750,000 2,500,000
Deferred income, excluding current portion 50,000 73,530
Deferred income taxes (note 5) 23,663 60,655
---------- ----------
Total liabilities 3,835,998 4,000,567
---------- ----------
Stockholders' equity (note 6):
Common stock, $.51 par value. Authorized
10,000,000 shares; issued and outstanding
5,437,497 and 5,455,756 in 2001 and 2000 2,784,088 2,782,435
Additional paid-in capital 7,526,472 7,528,473
Retained earnings 1,050,135 1,679,150
---------- ----------
11,360,695 11,990,058
Treasury stock, at cost - 21,500 shares (40,145) -
---------- ----------
Total stockholders' equity 11,320,550 11,990,058
Commitments and contingencies (notes 7 and 10)
$ 15,156,548 15,990,625
========== ==========
See accompanying notes to consolidated financial statements.
F-2
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Statements of Operations
Years ended March 31, 2001, 2000 and 1999
2001 2000 1999
Operating revenues: ---- ---- ----
Net sales (note 8) $ 17,805,411 16,711,604 17,119,719
Royalties 231,563 126,121 91,295
---------- ---------- ----------
18,036,974 16,837,725 17,211,014
---------- ---------- ----------
Operating expenses:
Cost of sales 13,904,256 11,587,061 13,041,258
Selling, general, and administrative 3,490,326 3,301,640 3,150,830
Research, development, and engineering 1,197,874 1,035,994 1,107,253
---------- ---------- ----------
18,592,456 15,924,695 17,299,341
---------- ---------- ----------
Operating (loss) income (555,482) 913,030 (88,327)
---------- ---------- ----------
Other income (deductions):
Interest and sundry income 55,736 89,257 84,211
Interest expense (135,519) (184,832) (193,902)
Loss on disposal of property,
plant and equipment (5,320) (20,174) -
Gain on foreign exchange 3,211 3,534 3,558
---------- ---------- ----------
(81,892) (112,215) (106,133)
---------- ---------- ----------
(Loss) income before income taxes (637,374) 800,815 (194,460)
Income taxes (benefit) expense (note 5) (225,827) 215,060 (210,352)
---------- ---------- ----------
Net (loss) income $ (411,547) 585,755 15,892
========== ========== ==========
Basic (loss) earnings per share $ (0.08) .11 -
========== ========== ==========
Diluted (loss) earnings per share $ (0.08) .11 -
========== ========== ==========
Weighted average number of common and
equivalent shares outstanding:
Basic 5,439,811 5,455,756 5,455,756
========== ========== ==========
Diluted 5,439,811 5,473,220 5,476,134
========== ========== ==========
See accompanying notes to consolidated financial statements.
F-3
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended March 31, 2001, 2000 and 1999
Retained
Additional earnings Total
Common stock paid-in (accumulated Treasury stockholders'
Shares Amount capital deficit) stock equity
Balances at ------ ------ ------- --------- -------- ----------
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 62,824 116,892 - - 179,716
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
Dividends - $.04 per share - - - (217,468) - (217,468)
Net loss - - - (411,547) - (411,547)
Exercise of stock
options via exchange
of 2,534 common shares
and cash of $(348) for
5,775 new common
shares 3,241 1,653 (2,001) - - (348)
Treasury stock,
at cost (21,500) - - - (40,145) (40,145)
--------- --------- --------- --------- -------- ----------
March 31, 2001: 5,437,497 2,784,088 7,526,472 1,050,135 (40,145) 11,320,550
========= ========= ========= ========= ======== ==========
See accompanying notes to consolidated financial statements.
F-4
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended March 31, 2001, 2000 and 1999
2001 2000 1999
Cash flows from operating activities: ---- ---- ----
Net income (loss) $ (411,547) 585,755 15,892
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Accretion of interest - - (21,098)
Loss on disposal of equipment 5,320 20,174 -
Allowance for doubtful accounts 12,561 (15,501) (1,000)
Depreciation and amortization 800,977 850,092 733,906
Decrease (increase) in
accounts receivable (271,837) 30,216 (408,200)
Decrease (increase) in income
taxes receivable (201,900) 255,822 (35,035)
Decrease (increase) in inventories (1,143,685) (484,407) 601,227
Decrease (increase) in prepaid expenses
and other current assets (75,016) 5,686 159,791
Decrease (increase) in deferred
income taxes (145,427) 98,565 (52,982)
Decrease (increase) in other assets 30,534 45,738 (114,118)
Increase in deferred income (141,176) 214,706 -
Increase (decrease) in
accounts payable 774,609 156,090 (567,372)
Increase (decrease) in
accrued expenses (9,166) 17,978 (123,879)
--------- --------- ---------
Net cash provided by (used in)
operating activities (775,753) 1,780,914 187,132
--------- --------- ---------
Cash flows from investing activities:
Maturities of short-term investments - - 1,055,000
Capital expenditures for property,
plant and equipment (725,680) (548,122) (772,326)
--------- --------- ---------
Net cash provided by (used in)
investing activities (725,680) (548,122) 282,674
--------- --------- ---------
Cash flows from financing activities:
Net (repayments) borrowings under
line-of-credit agreement (750,000) 49,900 -
Principal payments on mortgage
note payable - (131,250) (75,000)
Acquisition of treasury stock (40,145) - -
Proceeds from exercise of
stock options and warrants (348) - 135,348
Dividends paid (219,312) (109,384) (30,000)
--------- --------- ---------
Net cash provided by (used in)
financing activities (1,009,805) (190,734) 30,348
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents (2,511,238) 1,042,058 500,154
Cash and cash equivalents at
beginning of year 2,696,010 1,653,952 1,153,798
--------- --------- ---------
Cash and cash equivalents at end of year $ 184,772 2,696,010 1,653,952
========= ========= =========
Supplemental cash flow information:
Cash paid for interest $ 139,761 180,590 193,902
========= ========= =========
Cash paid (received) for income taxes $ 121,500 (139,327) (228,299)
========= ========= =========
See accompanying notes to consolidated financial statements.
F-5
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2001 and 2000
(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. 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 original equipment manufacturers
involved in a variety of industries including business machinery and personal
care appliances and to governmental entities. 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 revenue 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.
(d) Financial Instruments
The Company believes the book value of its debt approximates fair value due to
its short-term nature and the variable interest rate.
F-7
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2001 and 2000
(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 with a maturity of three months or less to be cash
equivalents. Short-term investments at March 31, 2001 and 2000 consisted of
interest bearing demand deposit accounts.
(g) Revenue Recognition
The Company recognizes revenue when an order has been received, pricing is
fixed, product has been shipped, and collectibility is reasonably assured.
Title to goods passes to customers upon shipment, there are no customer
acceptance provisions included in sales contracts and the Company has no
installation obligation subsequent to product shipment. Similarly, revenue is
recognized upon shipment to distributors as title passes to them without
additional involvement or obligation. Collection of receivables related to
distributor sales is not contingent upon subsequent sales to third parties.
Cost of sales includes the Company's estimate of any additional warranty,
rework or other concessions the Company expects to incur in connection with a
sale.
Government sales are fixed price contracts. The Company has not experienced
losses in the past on such contracts. Should the Company identify a loss on a
future contract, the Company would account for the loss under Statement of
Position 81-1, Accounting for Performance of Construction-Type and Certain
Production Type Contracts, and record a charge against earnings in the period
the estimated loss was identified.
The Company accrues minimum royalties due from customers over the related
royalty period. Royalties earned in excess of minimum royalties due are
recognized as reported by the licensees. The Company enters into license
agreements and receives nonrefundable license fees in exchange for the use of
technology previously developed by the Company. The licensee receives the
right to manufacture and sell certain products exclusively within specified
geographic areas. The nonrefundable license fees are recorded as deferred
revenue and recognized as income on a straight-line basis over the exclusivity
period of the agreement. A termination or change to the initial license
agreement could result in an accelerated recognition of the deferred revenue.
License fees are included in royalty revenue.
F-8
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2001 and 2000
(h) Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of
The Company reviews long-lived assets 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.
(j) 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-9
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2001 and 2000
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 adopted SFAS No. 133 on April 1, 2001. The Company held no derivative
financial instruments during fiscal year ending March 31, 2001, therefore, the
adoption of this standard will have no effect on the consolidated financial
statements.
In September 2000, Statement of Financial Accounting Standards No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities - a Replacement of FASB Statement No. 125 ("FAS 140") was
issued. FAS 140 replaces Statement of Financial Accounting Standards No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities ("FAS 125"). FAS 140 revises the standards of accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures, and otherwise reiterates many of the provisions
of FAS 125. FAS 140 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after March 31, 2001. FAS
140 is effective for recognition and reclassification of collateral and for
disclosures relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. Management believes the adoption of FAS
140 will not have a material impact on the Company's financial position,
results of operations or cash flows.
F-10
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2001 and 2000
(2) Inventories
Inventories at March 31, 2001 and 2000 consist of:
2001 2000
---- ----
Raw materials $ 4,443,662 3,927,770
Work in process 224,449 351,964
Finished goods 1,684,163 928,855
--------- ---------
$ 6,352,274 5,208,589
========= =========
Approximately 47 percent and 40 percent of inventories were located in Honduras
at March 31, 2001 and 2000, respectively.
(3) Property, Plant and Equipment
Property, plant and equipment at March 31, 2001 and 2000 consists of:
Estimated
2001 2000 useful lives
---- ---- ------------
Building and improvements $ 1,609,961 1,519,681 20 years
Machinery and equipment 7,694,657 7,670,452 5 - 15 years
--------- --------- ------------
$ 9,304,618 9,190,133
========= =========
Approximately 27 percent and 25 percent of property, plant and equipment is
located in Honduras at March 31, 2001 and 2000, respectively.
F-11
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2001 and 2000
(4) Debt
Debt at March 31, 2001 and 2000 consists of the following:
2001 2000
---- ----
$3,000,000 line of credit; interest at LIBOR plus
175 basis points, (6.63% at March 31, 2001). $ 1,750,000 -
$3,000,000 line of credit; interest at LIBOR plus
200 basis points, (8.16% at March 31, 2000). - 2,500,000
--------- ---------
Debt, excluding current installments $ 1,750,000 2,500,000
========= =========
Borrowings under the line of credit are secured by all accounts receivable,
inventories, and property, plant and equipment, and require 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, 2001 and 2000. The line was renewed in August 2000 and the full
balance outstanding is due December 14, 2002, unless renewed.
F-12
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2001 and 2000
(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, 2001 and
2000 are presented below:
2001 2000
---- ----
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts $ 22,000 17,000
Deferred income for financial reporting 26,000 77,000
Inventories, principally due to valuation
allowance for financial reporting purposes
and additional costs inventoried for
tax purposes 361,000 286,000
Accrued expenses, principally due to accrual
for financial reporting purposes 32,000 35,000
Net operating loss carryforwards 184,000 58,000
Tax credit carryforwards 122,000 214,000
-------- --------
Total gross deferred tax assets 747,000 687,000
Less valuation allowance 60,000 187,000
-------- --------
687,000 500,000
-------- --------
Deferred tax liabilities:
Property, plant and equipment, principally
due to differences in depreciation (125,128) (83,555)
-------- --------
Net deferred tax assets $ 561,872 416,445
======== ========
Net deferred tax assets are included in the accompanying balance sheets at
March 31, 2001 and 2000 as:
2001 2000
---- ----
Deferred income taxes, current asset $ 585,535 477,100
Deferred income taxes, noncurrent liability (23,663) (60,655)
-------- --------
$ 561,872 416,445
======== ========
F-13
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2001 and 2000
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. Based upon the level of
historical taxable income and projections for future taxable income, management
believes the Company will realize the benefits of these deductible differences,
net of the existing valuation allowance at March 31, 2001. The valuation
allowance at March 31, 2001 and 2000 relates to tax credit carryforwards which
management expects will expire unused.
At March 31, 2001, the Company has net operating loss carryforwards for Federal
income tax purposes of approximately $289,000, which are available to offset
future taxable income through 2021. The Company also has available tax credit
carryforwards for Federal income tax purposes of approximately $74,000, which
are available to offset future Federal income taxes through 2003. As a result
of an ownership change in 1989, the Internal Revenue Code limits the income tax
benefit of $136,000 of net operating loss and $74,000 of tax credit
carryforwards to approximately $61,000 each year.
The Company has approximately $48,000 of alternate minimum tax credit
carryforward. This credit is not subject to an expiration date.
Income tax (benefit) expense for the years ended March 31, 2001, 2000 and 1999
consists of:
2001 2000 1999
---- ---- ----
Current:
Federal $ (80,400) 116,495 (263,334)
State - - -
-------- -------- ---------
(80,400) 116,495 (263,334)
-------- -------- ---------
Deferred:
Federal (133,874) 90,731 70,000
State (11,553) 7,834 (17,018)
-------- -------- ---------
(145,427) 98,565 52,982
-------- -------- ---------
$ (225,827) 215,060 (210,352)
======== ======== =========
F-14
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2001 and 2000
Income tax (benefit) expense for the years ended March 31, 2001, 2000 and 1999
differs from the amounts computed by applying the Federal income tax rate of 34
percent to pretax income (loss) as a result of the following:
2001 2000 1999
---- ---- ----
Computed expected tax (benefit) expense $ (216,707) 272,000 (66,000)
Increase (reduction) in income taxes
resulting from:
Foreign activity for which no
income tax has been provided (17,000) (75,000) (112,000)
State income taxes, net of
Federal income tax effect (7,400) 5,000 (8,000)
Other 15,280 13,060 (24,352)
-------- -------- ---------
$ (225,827) 215,060 (210,352)
======== ======== =========
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 20 years.
The foreign operations resulted in income of approximately $51,000 in 2001,
$221,000 in 2000 and $329,000 in 1999. No income taxes have been provided on
these results of operations.
The total amount of undistributed earnings of the foreign subsidiary for income
tax purposes was approximately $225,000 at March 31, 2001 and $174,000 at
March31, 2000. It is the Company's intention to reinvest undistributed
earnings of its foreign subsidiary and thereby indefinitely postpone its
remittance. Accordingly, no provision has been made for foreign withholding
taxes or United States income taxes which may become payable if undistributed
earnings of the foreign subsidiary was paid as dividends to the Company. It is
not practicable to calculate the unrecognized deferred tax liability on those
earnings.
F-15
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2001 and 2000
(6) Stock Options and Grants
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. During 2000, stockholders
approved a Long Term Incentive Plan with an aggregate of 300,000 shares
reserved for this plan.
Option transactions and other information relating to the Plans for the three
years ended March 31, 2001 are as follows:
Qualified Performance Non- Long-term
incentive incentive qualified incentive Weighted
stock stock stock stock average
option option option option exercise
plans plan plan Total price
------- ------- ------- --------- -------- --------
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
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
Granted - - - 93,000 93,000 1.82
Exercised (5,207) - (568) - (5,775) 1.48
Canceled (4,001) - (5,700) - (9,701) 1.63
------- ------- ------- --------- --------
Outstanding at
March 31, 2001 143,052 300,000 48,166 93,000 584,218 3.41
======= ======= ======= ========= ========
Total number of
options available
under the plans 166,667 400,000 333,333 300,000 1,200,000
======= ======= ======= ========= ========
Exercisable at
March 31, 2001 80,499 - 41,366 15,000 136,865 1.52
======= ======= ======= ========= ========
Available for issue at
March 31, 2001 3,296 100,000 - 207,000 310,296
======= ======= ======= ========= ========
F-16
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2001 and 2000
The per share weighted average fair value of stock options granted during 2001,
2000 and 1999 was $1.82, $1.13 and $1.15, 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, 2001, 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, 2001 life price March 31, 2001 price
- -------- -------------- -------------- --------- -------------- --------
$1.06-1.19 30,250 8.2 1.11 18,753 1.10
$1.62 155,968 7.7 1.62 101,445 1.62
$1.44-1.94 76,000 9.8 1.77 - -
$2.00-2.06 17,000 9.2 2.01 15,000 2.00
$2.75 5,000 9.0 2.75 1,667 2.75
$5.12 300,000 5.2 5.12 - -
-------------- -------------- --------- -------------- --------
584,218 136,865
============== ==============
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 consolidated 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, 2001, 2000 and
1999 would have been reduced to the pro forma amounts indicated below:
2001 2000 1999
---- ---- ----
Net income (loss):
As reported $ (411,547) 585,755 15,892
========= ========= ========
Pro forma $ (515,843) 539,899 (70,343)
========= ========= ========
Income (loss) per common share:
As reported $ (.08) .11 -
========= ========= ========
Pro forma $ (.09) .10 (.01)
========= ========= ========
F-17
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2001 and 2000
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, 2001, 2000 or 1999.
(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 August 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.
Future minimum lease payments under noncancelable operating leases as of
March 31, 2001 are:
Year ending March 31,
---------------------
2002 230,303
2003 41,754
2004 24,613
--------
Total minimum lease payments $ 296,670
========
Rental expense for all operating leases was approximately $241,000 in 2001,
$245,000 in 2000 and $249,000 in 1999.
F-18
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2001 and 2000
(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
markets. Sales by market are:
2001 2000 1999
---------- ---------- ----------
Commercial $ 12,117,588 12,801,147 13,929,177
Military 5,687,823 3,910,457 3,190,542
---------- ---------- ----------
$ 17,805,411 16,711,604 17,119,719
Significant customers who accounted for 10 percent or more of sales and
aggregate exports were:
Year ended March 31
Customer 2001 2000 1999
-------- ---- ---- ----
Xerox Corporation $ 723,982 1,266,613 1,934,740
Noma Appliance & Electric, Inc.
Noma Appliance, Inc.
f/k/a Fleck Manufacturing, Inc.
(a Xerox Corporation supplier) 531,835 954,288 1,623,904
Other Xerox suppliers 299,596 987,424 124,473
Fermont (a division of ESSI, a U.S.
Government Prime Contractor) 4,305,101 2,115,722 1,397,211
--------- --------- ---------
$ 5,860,514 5,324,047 5,080,328
========= ========= =========
F-19
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2001 and 2000
Year ended March 31
Customer 2001 2000 1999
-------- ---- ---- ----
Exports: ========= ========= =========
Canada $ 579,511 1,342,365 1,794,855
Far East 805,762 198,026 394,156
Europe 2,328,325 3,243,918 2,787,224
Mexico 383,046 563,550 711,067
Australia 83,232 218,746 117,754
South America 13,784 12 430 37,383
Middle East 22,299 5,281 2,067
--------- --------- ---------
Total exports $ 4,215,959 5,584,316 5,844,506
========= ========= =========
(9) Benefit Plan
The Company's 401(k) plan covers all employees with one year of service who are
at least 21 years old. Through plan year 1999, the Company matched employee
contributions dollar-for-dollar up to $300. Effective for the 2000 plan year,
the board of directors approved an increase in the Company match up to $400.
Total Company contributions were approximately $29,000 in 2001, $24,000 in 2000
and $25,000 in 1999.
(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. Through fiscal year end the Company has repurchased 21,500 shares at a
cost of $40,145.
F-20
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2001 and 2000
(12) Selected Quarterly Data (Unaudited)
Information (unaudited) related to operating revenue, operating income (loss),
net income (loss) and earnings per share, by quarter, for the years ended
March 31, 2001 and 2000 are:
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
Year ended March 31, 2001:
Operating revenues $ 4,796,520 4,385,131 3,981,283 4,874,040
========= ========= ========= =========
Gross profit $ 1,426,040 1,015,853 770,750 688,512
========= ========= ========= =========
Operating income (loss) $ 297,314 (204,006) (249,745) (399,045)
========= ========= ========= =========
Net income (loss) $ 202,166 (152,047) (123,255) (338,411)
========= ========= ========= =========
Basic earnings per share $ .04 (.03) (.02) (.07)
========= ========= ========= =========
Diluted earnings per share $ .04 (.03) (.02) (.07)
========= ========= ========= =========
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
========= ========= ========= =========
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-21
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Schedule II
Valuation and Qualifying Accounts
Years ended March 31, 2001, 2000 and 1999
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, 2001 $ 48,199 126,105 - 113,544 60,760
======= ======= ======= ======= =======
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
======= ======= ======= ======= =======
F-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) 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).
(i) 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.***
(j) 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".***
(k) 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.***
-23-
(l) $3,000,000 Revolving Credit Agreement, dated December 14, 1999,
between the Company and SouthTrust Bank***
(m) 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.***
(n) The 2000 Long Term Incentive Plan.***
(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-
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: 6/7/2001 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) 6/7/2001
Robert S. Wiggins
Vice President of Finance and
Chief Financial Officer
(Principal Financial
/s/ Scott J. Loucks Officer) 6/7/2001
Scott J. Loucks
/s/ Raymond H. Legatti President and Director 6/11/2001
Raymond H. Legatti
Senior Vice President
Government Operations
and Marketing and
/s/ Raymond B. Wood Director 6/18/2001
Raymond B. Wood
/s/ Gerry Chastelet Director 6/18/2001
Gerry Chastelet
/s/ Edmund F. Murphy, Jr. Director 6/7/2001
Edmund F. Murphy, Jr.
/s/ Martin L. Poad Director 6/15/2001
Martin L. Poad
-25-