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, 2002
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 May 31, 2002 was $9,225,508, based upon the $1.93 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 May 31, 2002, 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 2002 Annual Meeting of
Shareholders to be held on August 22, 2002 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 12, 2002.
TABLE OF CONTENTS
PART I Page
Item 1. Business .................................................... 3
Item 2. Properties .................................................. 15
Item 3. Legal Proceedings ........................................... 16
Item 4. Submission of Matters to a Vote of Security Holders ..........16
Item 4a. Executive Officers of the Registrant ........................ 16
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters ................................. 17
Item 6. Selected Financial Data ..................................... 18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 19
Item 7a Quantitative and Qualitative Disclosures About Market Risk .. 25
Item 8. Financial Statements and Supplementary Data ................. 25
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ...................... 25
PART III
Item 10. Directors and Executive Officers of the Registrant .......... 26
Item 11. Executive Compensation ...................................... 26
Item 12. Security Ownership of Certain Beneficial
Owners and Management ....................................... 26
Item 13. Certain Relationships and Related Transactions .............. 26
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K ..................................... 26
SIGNATURES ........................................................... 29
As used in this Annual Report on Form 10-K, "we", "our", "us", the "Company"
and "TRC" refer to Technology Research Corporation and it subsidiary, unless
the context otherwise requires.
This Annual Report on Form 10-K contains 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 (R)", 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.
Part I
ITEM 1. BUSINESS
General
Technology Research Corporation 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.
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Net sales contributed by commercial and military products are as follows:
Year Ended
March 31 Commercial % Military % Total
-------- ---------- ---- -------- ---- ----------
2002 $ 10,276,165 62.2 $ 6,241,266 37.8 $ 16,517,431
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
Royalties from license agreements are as follows:
Year Ended
March 31 Royalties
-------- ---------
2002 $ 166,854
2001 231,563
2000 126,121
1999 91,295
1998 329,166
The Company's backlog of unshipped orders at March 31, 2002 was approximately
$3.9 million. This backlog consists of approximately 65% commercial product
orders and approximately 35% military product orders, all of which is expected
to ship within Fiscal Year 2003.
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.
-4-
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. 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 product lines are approved in the UL
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 added 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 $450
million in residential fire damage, 180 lives lost and 950 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.
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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. However, due to price erosion, losing sales to far-east competitors and
lower demand for electric high-pressure sprayer/washers in the marketplace,
sales to this market in Fiscal Year 2002 were approximately $1.3 million, down
approximately $1.1 million from the prior year.
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.
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 July 13, 2001, the NEC added the requirement for cord fire
prevention on room air conditioners into the 2002 National Electric Code,
which became effective on August 2, 2001. 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. These events create an approximate $60 million a year market for
its participants. The Company believes it could realize significant revenues
from this opportunity starting in Fiscal Year 2004.
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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 Wal-Mart, Home Depot, Sears Mall stores, Orchard Supply Hardware, 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 11 for further information). The Company has entered into
seven license agreements and three sales and marketing agreements concerning
its portable GFCI, ALCI, ELCI and LCDIs. 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(the
"Agreement") with Applica Inc. (previously named Windmere-Durable Holdings,
Inc. ), which replaces its initial license 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
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. This Agreement converted automatically from an
exclusive to non-exclusive agreement on March 1, 2002 thus allowing the Company
to market this technology to other potential customers.
On June 4, 2002, the Company announced it signed a cross license agreement with
Tecumseh Products Company for technology that provides improved protection for
"Refrigeration and Air Conditioning Systems" against electrical faults. The
licensed product integrates Tecumseh's proprietary technology relating to the
protection of refrigeration compressors with the Company's proprietary Fire
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Shield technology which will bring an advanced level of protection to
refrigeration and air conditioning systems worldwide. The Fire Shield
technology is also being marketed by the Company for cord fire protection on
single-phase cord and plug connected room air conditioners manufactured after
January 2004, as required by the National Electrical Code. The licensed
product is targeted at 15 to 20 million refrigeration and air conditioning
systems sold worldwide each year. Under the term of the agreement, either
party has the right to manufacture and sell the licensed product and a royalty
will be paid by the selling party to the other party for the use of its
technology. The Tecumseh Products Company is a full line global manufacturer
of hermetic compressors for air conditioning and refrigeration products.
The Company believes that its Fire Shield technology will continue to advance
as a valued technology for electrical safety and fire protection in the OEM and
consumer marketplaces. The Company believes the addition of surge protection
within these devices will even further enhance the value of the product. The
Company's Fire Shield technology currently addresses five distinct market
applications: (1) the Fire Shield Safety Circuit - an OEM product; (2) the
Fire Shield Power Cord - an OEM product; (3) the Fire Shield Safety Extension
Cord - a consumer product; (4) the Fire Shield Power Surge Strip - a consumer
product; and (5) the Fire Shield Home Wiring System - for the luxury home
builder. The Company believes that its Fire Shield technology represents the
best opportunity for major long-term growth.
Military Products and Markets
The Defense Logistics Agency established a program rating system for its
suppliers in 1995 for product quality, packaging and on-time deliveries, and
since its inception and for the seventh 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. Spare parts orders
from the military were stronger in Fiscal Year 2002 at $1.6 million compared
to $.9 million in Fiscal Year 2001 primarily as a result of increased fielding
of existent generator systems.
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
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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, under the second production release, valued at $1.2 million,
in the fourth quarter of Fiscal Year 2001 and under the third release, valued
at $1.0 million in the fourth quarter of Fiscal Year 2002. Shipments under the
fourth release, valued at approximately $.4 Million, commenced in May 2002.
The estimated value of this 10-year contract for the Company for its 5/10/15KW
control equipment is approximately $8.2 million.
In November 1998, the Company received orders in the amount of approximately
$6.0 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 and final production releases
valued at $1.5 and 1.7 million, respectively, were shipped in Fiscal Year 2002.
In August 2001, the Company announced that it would have the opportunity to
participate in the follow-on 10-year contract for the 3KW TQG systems, valued
at approximately $21 million, with scheduled deliveries from 2002 to 2012. The
Company began shipments under the first production release of this new contract
in May 2002, valued at $1.0 million. The Company expects to begin shipments
under the second production release, valued at $2.7 million, in October 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. 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.
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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.
As a result of a National Electrical Manufacturers Association ("NEMA")
sponsored investigation of the long term performance and installations of GFCI
Dual Outlet Receptacles across the United States, UL announced on November 1,
2001 that it would toughen the test standard for portable GFCI devices. All of
the Company's GFCI devices will need to be re-tested and re-certified by
January 1, 2003, according to the present UL timetable. The re-certification
will test for 1) expanded surge requirements, 2) new requirements for
moisture and corrosion, and 3) new requirements for reverse line-load miss
wiring. The risk to the Company is that certain products may not be certified
by the January 1, 2003 deadline thereby impacting sales of those products until
re-certification is completed.
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.
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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.
As a result of increasing labor costs in Honduras, the Company is implementing
a plan to move approximately 30-40% of its Honduran production to an wholly-
owned subsidiary of Applica Inc., Durable Electrical Metal Factory ("Durable"),
a contract manufacturer in China with which the Company had acquired
substantial experience prior to its setting up operations in Honduras. The
Company's plan is for Durable to manufacture the majority of subassembly boards
which will then be shipped to Honduras for final assembly. Durable will also
build finished product for those customers that have operations already in
China. The Company recently received its first shipment of subassembly boards
from Durable, which are currently being evaluated for workmanship and quality.
The Company expects to receive production quantities sometime during the second
quarter ending September 2002.
The Company continues to manufacture its specialized military products and
low-volume commercial products in its 43,000 square foot facility in
Clearwater, Florida.
Patents, Licenses, and Trademarks
The Company's President, Mr. Legatti, has designed and the Company has been
issued six patents in the U.S. and Great Britain, three patents in Italy, two
patents in Australia, Germany and France and one patent in Canada, Sweden and
Japan with respect to its portable GFCI and Fire Shield technologies. 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.
-11-
The life of certain patents will be expiring within the next few years, and the
Company is unable to predict how that might affect its business. The Company
believes, however, 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.
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 exhibits its products at numerous trade shows, which have resulted
in new commercial markets including the recreational vehicle industry and the
appliance industry.
The Company also markets through OEMs, both domestically and internationally,
that sell the Company's products under their own brand label. The Company has
recently implemented a "value add" upgrade strategy, which provides finished
product to those OEMs who are currently only receiving subassembly modules.
The Company's plastic and receptacle molding capabilities are a key factor in
providing "value add" upgrades to its customers.
-12-
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 2002 2001 2000
-------- ---- ---- ----
Xerox Corporation $ 275,448 723,982 1,266,613
Noma Appliance & Electric, Inc.
Noma Appliance, Inc.
f/k/a Fleck Manufacturing, Inc.
(a Xerox Corporation supplier) 281,011 531,835 954,288
Other Xerox suppliers 263,704 299,596 987,424
Fermont (a division of ESSI, a U.S.
Government Prime Contractor) 3,855,593 4,305,101 2,115,722
--------- --------- ---------
$ 4,675,756 5,860,514 5,324,047
========= ========= =========
Exports:
Canada $ 293,650 579,511 1,342,365
Far East 1,288,102 805,762 198,026
Europe 1,899,842 2,328,325 3,243,918
Mexico 169,833 383,046 563,550
Australia 3,167 83,232 218,746
South America 6,458 13,784 12 430
Middle East 15,000 22,299 5,281
--------- --------- ---------
Total exports $ 3,676,052 4,215,959 5,584,316
========= ========= =========
Overall, the Company's exports were down approximately 13% in Fiscal Year 2002,
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
$735,250. Xerox and its suppliers accounted for approximately 5% of the
Company's sales for Fiscal Year 2002, compared to approximately 9% for the
prior fiscal year. Excluding Xerox, exports to the Company's international OEM
customers were also down for Fiscal Year 2002, compared to the Company's prior
fiscal year, due to the weakness in the overall global economy.
-13-
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 2002, military sales were
approximately 38% of total sales, compared to 32% in the prior year. Although
sales to Fermont were down approximately 10%, compared to prior year, overall
military increased approximately 9% as the result of spare part orders for the
Company's control devices related to generator systems already in the field.
Fermont accounted for approximately 23% of the Company's sales for Fiscal Year
2002, compared to approximately 24% for the prior fiscal year. Orders from
Fermont related to the 5/10/15 KW TQG systems were significantly weaker in
Fiscal Year 2002, compared to the prior year, due to the buy cycle and demand
for such systems by the military.
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. As a result, the Company may not be able
to maintain current profit margins due to price erosion. 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 significant because of the need,
in most cases, for products to pass government tests and qualifications.
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.
-14-
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 $1,049,649 in Fiscal Year 2002, $1,197,874 in Fiscal Year
2001 and $1,035,994 in Fiscal Year 2000 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, 2002, the Company employed 80 persons on a full time basis, and
of that total, 46 employees were engaged in manufacturing operations, 12 in
engineering, 11 in marketing and 11 in administration. The Company's Honduran
subsidiary employed 210 persons on a full time basis as of March 31, 2002, and
of that total, 207 employees were engaged in manufacturing operations and 3 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.
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. This lease terminated in March 2002, and the Company has renewed
its lease with ZIP San Jose for another year.
-15-
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, 2002.
ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
Robert S. Wiggins 72 Chief Executive Officer,
Chairman of the Board
Raymond H. Legatti 70 President
Raymond B. Wood 67 Senior Vice President of
Government Operations and
Marketing
Scott J. Loucks 40 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 statement.
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 statement.
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 statement.
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.
-16-
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, 2002, 2001 and
2000 as reported by NASDAQ.
Market Price Cash
Fiscal Year Ended High Low Dividends
March 31, 2002:
First Quarter $ 2.000 $ 1.313 $ 0.01
Second Quarter 1.900 1.302 0.01
Third Quarter 2.420 1.400 0.01
Fourth Quarter 1.890 1.280 0.01
$ 0.04
March 31, 2001:
First Quarter $ 2.563 $ 1.500 $ 0.01
Second Quarter 3.938 1.813 0.01
Third Quarter 3.063 1.375 0.01
Fourth Quarter 2.094 1.188 0.01
$ 0.04
March 31, 2000:
First Quarter $ 2.000 $ 0.938 $ -
Second Quarter 1.875 1.156 .01
Third Quarter 1.500 0.625 .01
Fourth Quarter 4.500 1.250 .01
-----
$ .03
As of May 31, 2002, the approximate number of the Company's shareholders was
466. 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 1,700 shareholders.
The Company's authorized capital stock, as of May 31, 2002, 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 2002, $.04 per share in Fiscal
Year 2001 and $.03 per share in Fiscal Year 2000.
-17-
ITEM 6. SELECTED FINANCIAL DATA
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Year ended March 31:
Operating revenues $ 16,684,285 18,036,974 16,837,725 17,211,014 18,430,951
Gross profit $ 4,420,631 3,901,155 5,124,543 4,078,461 4,836,280
Net income (loss) $ 200,360 (411,547) 585,755 15,892 (196,314)
Basic earnings
per share $ .04 (.08) .11 - (.04)
Weighted average number
of common shares
outstanding 5,437,497 5,439,811 5,455,756 5,455,756 5,332,571
Diluted earnings
per share $ .04 (.08) .11 - (.04)
Weighted average number
of common and
equivalent shares
outstanding 5,457,896 5,439,811 5,473,220 5,476,134 5,332,571
Cash dividends
Paid $ .04 .04 .03 - .18
March 31:
Working capital $ 7,934,196 8,898,697 10,267,576 6,899,677 6,875,679
Total assets $ 12,766,937 15,156,548 15,990,625 15,146,175 15,746,818
Current
liabilities $ 913,526 2,012,335 1,366,382 3,521,949 4,243,200
Long-term debt $ 500,000 1,750,000 2,500,000 56,250 131,250
Total liabilities $ 1,463,526 3,835,998 4,000,567 3,578,199 4,374,450
Retained earnings $ 1,032,996 1,050,135 1,679,150 1,257,068 1,241,176
Total stockholders'
equity $ 11,303,411 11,320,550 11,990,058 11,567,976 11,372,368
-18-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Critical Accounting Policies
The Company's critical accounting policies are as follows: (1) revenue
recognition; and (2) excess and obsolete inventory reserves.
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 cost of the product and
the Company's estimate of any additional warranty, rework or other concessions
the Company expects to incur in connection with a sale.
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.
Excess and Obsolete Inventory Reserves. The Company's financial statements
include an estimate associated with reserves with respect to inventory.
Various assumptions and other factors underlie the determination of this
estimate. The process of determining this estimate is fact specific and
takes into account primarily historical experience and expected economic
conditions. The Company evaluates this estimate on a monthly basis and makes
adjustments each quarter where facts and circumstances dictate. The Company
reserves 100%, or $218,504, of that inventory considered to be obsolete and
50%, or $406,097, of that inventory considered to be slow-moving. The Company
evaluates all inventory which has not had activity for twelve months. As of
March 31, 2002, the Company inventory reserve was $624,601 or approximately
13% of total inventory.
The Company's accounting policies are more fully described in the Summary of
Significant Accounting Policies in the Notes to Consolidated Financial
Statements. As described therein, the preparation of financial statements in
conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions about future
events that affect the amounts reported in the financial statements and
accompanying notes. Future events and their effects cannot be determined with
absolute certainty. Therefore, the determination of estimates requires the
exercise of judgment. Actual results inevitably will differ from those
estimates, and such differences may be material to the financial statements.
-19-
Operating Results
Fiscal Years 2002 and 2001 Comparison
The Company's operating revenues (net sales and royalties) for the year ended
March 31, 2002 were $16,684,285, compared to $18,036,974 reported in the prior
year, a decrease of approximately 7%. Net income was $200,360 for Fiscal Year
2002, compared to a net loss of $(411,547) reported in Fiscal Year 2001. Basic
and diluted earnings were $.04 per share for Fiscal Year 2002, compared to a
loss of $(.08) per share for Fiscal Year 2001.
Although the Company did not meet its revenue objectives for Fiscal Year 2002,
the business was managed well, producing a profit instead of a loss in a tough
economy. The improvement in performance was due to lower operating expenses
and increased manufacturing productivity. In addition, supply chain
initiatives produced a reduction in inventory of $1,553,543 allowing the
Company to strengthen its balance sheet significantly, increasing cash by
$978,327 while reducing its bank debt by $1,250,000. The decrease in revenues
for Fiscal Year 2002 was due to commercial sales decreasing by $1,823,903, of
which $735,250 was attributed to Xerox and its suppliers. Royalty income
decreased by $64,709, and military sales increased by $535,923. The increase
in military sales was mainly due to stronger spare parts orders and the Company
being in full production of the control devices related to the 5/10/15/30/60KW
TQG and the variable speed 3KW TQG programs.
On December 13, 2000, the Company announced that its Board of Directors
approved a plan to find a strategic buyer who could expand the Company's
business, primarily to that of the Company's Fire shield product lines. On
August 13, 2001, the Company announced that it was no longer seeking to sell
the Company due to unfavorable market conditions and the unlikelihood of the
Company meeting its objectives of being acquired by a strategic buyer who could
also increase shareholder value. The Company is now moving forward with a plan
to expand its commercial business through product development. Recent events
related to this plan are as follows: (1) on February 7, 2002, the Company
announced its Surge Guard Plus (TM) Recreational Vehicle Power Monitor, a
microprocessor based power monitor for the recreational vehicle market;
(2) on March 26, 2002, the Company announced its line of Fire Shield surge
protected power strips targeted for retail sales; (3) on June 3, 2002, the
Company announced its cross license agreement with Tecumseh Products Company,
who has developed a protection system using the Company's Fire Shield
technology for Refrigeration and Air Conditioning Systems. On April 16, 2002,
the Company announced the promotion of Rick O'Neal to Vice President of Fire
Shield Sales and Marketing to focus specifically on those markets related to
the Company's Fire Shield technology and product lines since it represents such
a major growth opportunity for the Company. One such market revolves around
the mandate requiring cord fire protection on room air conditioners, beginning
in 2004, which creates a potential $60 million a year market opportunity for
the participants.
The Company's gross profit margin was approximately 27% of net sales for Fiscal
Year 2002 compared to 22% in the prior year. Although the Company's
manufacturing performance improved from year to year, higher than expected
rework expense was recorded in the year due to warranty repairs of inverters
associated with the 3KW TQG program. Latent defects of certain vendor supplied
parts were responsible for the problems. Although the Company has repaired the
majority of the product in question, additional warranty repair expense is
expected to continue, although to a lesser degree, throughout the first half of
Fiscal Year 2003.
-20-
Selling, general and administrative expenses for Fiscal Year 2002 were
$3,175,724, compared to $3,490,326 for the prior year, a decrease of
approximately 9%. Selling expenses were $1,816,133 for Fiscal Year 2002,
compared to $2,008,092 for the prior year, a decrease of approximately 10%,
reflecting a decrease in salary related expenses of $49,621, travel expenses of
$44,303, advertising costs of $58,122, professional fees of $21,841 and a
reduction of $18,072 in other expenses. General and administrative expenses
were $1,359,591 for Fiscal Year 2002, compared to $1,482,234 for the prior
year, a decrease of approximately 8%, reflecting lower professional fees of
$32,878, shareholder expenses of $36,485, travel expenses of $23,151,
telecommunications expenses of $22,850 and a reduction of other expenses of
$7,279.
Research, development and engineering expenses for Fiscal Year 2002 were
$1,049,649, compared to $1,197,874 for the prior year, a decrease of
approximately 12%, reflecting a decrease in salary related expenses of
$102,243, health insurance costs of $48,681 and an increase of $2,699 in
other expenses.
Interest expense, net of interest and sundry income, for Fiscal Year 2002 was
$66,708, compared to $76,572 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, 2002 and 2001
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 $44,000 in 2002 and $51,000 in 2001, 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 $269,000 at March 31, 2002 and $225,000 at March 31, 2001. 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 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.
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. 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.
-21-
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 realized the benefit of reduced material cost in the next production
phase as well, which started in June 2001.
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.
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
-22-
subsidiary was paid as dividends to the Company. It is not practicable to
calculate the unrecognized deferred tax liability on those earnings.
Liquidity and Capital Resources
As of March 31, 2002, the Company's cash and cash equivalents increased to
$1,163,099 from the March 31, 2001 total of $184,772. The increase in cash was
due to cash provided by operating activities of $2,842,684, offset to some
extent, by cash used for investing activities of $397,604 and cash used in
financing activities of $1,466,753, totaling $978,327.
Cash provided by operating activities was primarily due to net income of
$200,360, depreciation in the amount of $897,236 and a decrease in accounts
receivable, inventory and income taxes receivable of $848,214, 1,553,543 and
$278,500, respectively, offset to some extent by accounts payable decreasing
by $1,028,651. The decrease in accounts payable was the result of the
Company improving the timeliness of payments to suppliers. Accounts receivable
decreased primarily as a result of lower shipments in the quarter compared to
the fourth quarter ended March 31, 2001. The decrease in inventory was the
result of the Company moving all material planning to its Clearwater facility
thus eliminating that function at its Honduran subsidiary. In addition, an
Inventory Action Committee was created within the Company in March 2001 to
closely monitor inventory purchases and implement an aggressive material
planning strategy to ensure inventory levels reflect changes in demand.
Cash used in financing activities was primarily due to the Company paying down
its line of credit by $1,250,000 plus dividends paid in the amount of $216,753,
totaling $1,466,753.
Cash used in investing activities of $397,604 was related to purchases of
capital equipment only. Purchases of capital equipment in Fiscal Year 2001 and
Fiscal Year 2000 were $725,680 and $548,122, respectively.
On December 24, 2001, the Company renewed its $3,000,000 revolving credit loan
with its institutional lender, extending the maturity date to December 14,
2003. 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 loan is collateralized with a perfected first security
interest on all of its accounts receivable and inventories, and a blanket
security interest on all of its assets. The Company continues to operate well
within all the covenants of the loan agreement. The Company's debt from
advances on its new line of credit was $500,000 as of March 31, 2002, compared
to $1,750,000 as of March 31, 2001. The Company has no off-balance sheet
arrangements and no debt relationships other than what is noted above.
The Company's working capital decreased by $964,501 to $7,934,196 at
March 31, 2002, compared to $8,898,697 at March 31, 2001. The decrease was
primarily due to the Company's reduction of inventory and its line of credit,
as noted above. 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.
-23-
The Company's earnings before interest, income taxes, depreciation and
amortization ("EBITDA") was $1,651,781, or $.30 per share, for Fiscal Year
2002, compared to $610,279, or $.11 per share, for the Fiscal Year 2001. The
Company wishes to present its EBITDA results as an indication of its liquidity
and should not be interpreted as earnings.
The fourth quarter dividend of $.01 per share was paid on April 26, 2002
to shareholders of record on March 31, 2002. The Company paid $.04 per share
for Fiscal Year 2002.
New Accounting Standards
In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS 141 requires that all
business combination initiated after June 30, 2001, be accounted for using the
purchase method. SFAS 142 will require that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS 142.
SFAS 142 will also require that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
To Be Disposed Of." The Company is required to adopt the provisions of
SFAS 141 immediately, and SFAS 142 effective April 1, 2002. The adoption of
SFAS 141 had no effect on the consolidated financial statements.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. The standard applies to legal
obligations associated with the retirement of long-lived assets that result
from the acquisition, construction, development and(or) normal use of the
asset. Statement No. 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The fair value of the
liability is added to the carrying amount of the associated asset and this
additional carrying amount is depreciated over the life of the asset. The
liability is accreted at the end of each period through charges to operating
expense. If the obligation is settled for other than the carrying amount of
the liability, the Company will recognize a gain or loss on settlement. The
Company is required and plans to adopt the provisions of Statement No. 143
for fiscal years beginning after June 2002. To accomplish this, the Company
must identify all legal obligations for asset retirement obligations, if any,
and determine the fair value of these obligations on the date of adoption. The
determination of fair value is complex and will require the Company to gather
market information and develop cash flow models. Additionally, the Company
will be required to develop processes to track and monitor these obligations.
The Company does not expect the adoption of SFAS 143 to have a material impact
on the consolidated financial statements.
On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS 144 supersedes SFAS 121; however, it retains many of the fundamental
provisions of that Statement. SFAS 144 also supersedes the accounting and
reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
-24-
Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for
the disposal of a segment of a business. However, it retains the requirement
in Opinion No. 30 to report separately discontinued operations and extends that
reporting to a component of an entity that either has been disposed of (by
sale, abandonment, or in a distribution to owners) or is classified as held for
sale. By broadening the presentation of discontinued operations to include
more disposal transactions, the FASB has enhanced managements' ability to
provide information that helps financial statement users to assess the effects
of a disposal transaction on the ongoing operations of an entity. The Company
is required to adopt the provisions of SFAS 144 on April 1, 2002, and the
adoption of SFAS 144 is not expected to have any effect on the consolidated
financial statements.
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 $5000.
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.
-25-
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 22, 2002.
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 next page.
2. The following Consolidated Financial Schedules for the years ended
March 31, 2002, 2001, and 2000 are submitted herewith:
See index on next page.
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.
-26-
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,
2002, 2001 and 2000 F-18
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 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, 2002 and 2001, and the results of
their operations and their cash flows for each of the years in the three-year
period ended March 31, 2002, 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 23, 2002
F-1
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2002 and 2001
Assets 2002 2001
Current assets: ---- ----
Cash and cash equivalents $ 1,163,099 184,772
Accounts receivable,
less allowance for doubtful accounts of
$11,908 in 2002 and $60,760 in 2001 (note 4) 2,516,603 3,364,817
Income tax receivable (note 5) - 278,500
Inventories (notes 2 and 4) 4,798,731 6,352,274
Prepaid expenses and other current assets 97,720 145,134
Deferred income taxes (note 5) 271,569 585,535
---------- ----------
Total current assets 8,847,722 10,911,032
---------- ----------
Property, plant and equipment (notes 3, 4 and 7) 9,493,313 9,304,618
Less accumulated depreciation 5,795,667 5,106,407
---------- ----------
Net property, plant and equipment 3,697,646 4,198,211
---------- ----------
Noncurrent deferred income taxes (note 5) 162,861 -
Other assets 58,708 47,305
---------- ----------
$ 12,766,937 15,156,548
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 551,300 1,579,951
Accrued expenses:
Compensation 228,210 231,806
Other 65,212 108,990
Dividends payable 68,804 68,058
Deferred income - 23,430
---------- ----------
Total current liabilities 913,526 2,012,335
Debt (note 4) 500,000 1,750,000
Deferred income, excluding current portion 50,000 50,000
Deferred income taxes (note 5) - 23,663
---------- ----------
Total liabilities 1,463,526 3,835,998
---------- ----------
Stockholders' equity (note 6):
Common stock, $.51 par value. Authorized
10,000,000 shares; issued and outstanding
5,437,497 shares in 2002 and 2001 2,784,088 2,784,088
Additional paid-in capital 7,526,472 7,526,472
Retained earnings 1,032,996 1,050,135
---------- ----------
11,343,556 11,360,695
Treasury stock, at cost - 21,500 shares (40,145) (40,145)
---------- ----------
Total stockholders' equity 11,303,411 11,320,550
Commitments and contingencies (notes 7 and 10)
$ 12,766,937 15,156,548
========== ==========
See accompanying notes to consolidated financial statements.
F-2
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Statements of Operations
Years ended March 31, 2002, 2001 and 2000
2002 2001 2000
Operating revenues: ---- ---- ----
Net sales (note 8) $ 16,517,431 17,805,411 16,711,604
Royalties 166,854 231,563 126,121
---------- ---------- ----------
16,684,285 18,036,974 16,837,725
---------- ---------- ----------
Operating expenses:
Cost of sales 12,096,800 13,904,256 11,587,061
Selling, general, and administrative 3,175,724 3,490,326 3,301,640
Research, development, and engineering 1,049,649 1,197,874 1,035,994
---------- ---------- ----------
16,322,173 18,592,456 15,924,695
---------- ---------- ----------
Operating income (loss) 362,112 (555,482) 913,030
---------- ---------- ----------
Other income (deductions):
Interest and sundry income 12,629 58,947 92,791
Interest expense (79,337) (135,519) (184,832)
Loss on disposal of property,
plant and equipment (933) (5,320) (20,174)
---------- ---------- ----------
(67,641) (81,892) (112,215)
---------- ---------- ----------
Income (loss) before income taxes 294,471 (637,374) 800,815
Income taxes expense (benefit) (note 5) 94,111 (225,827) 215,060
---------- ---------- ----------
Net income (loss) $ 200,360 (411,547) 585,755
========== ========== ==========
Basic earnings (loss) per share $ 0.04 (0.08) .11
========== ========== ==========
Diluted earnings (loss) per share $ 0.04 (0.08) .11
========== ========== ==========
Weighted average number of common and
equivalent shares outstanding:
Basic 5,437,497 5,439,811 5,455,756
========== ========== ==========
Diluted 5,457,896 5,439,811 5,473,220
========== ========== ==========
See accompanying notes to consolidated financial statements.
F-3
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended March 31, 2002, 2001 and 2000
Retained
Additional earnings Total
Common stock paid-in (accumulated Treasury stockholders'
Shares Amount capital deficit) stock equity
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)
--------- --------- --------- --------- -------- ----------
Balances at
March 31, 2001: 5,437,497 2,784,088 7,526,472 1,050,135 (40,145) 11,320,550
Dividends - $.04 per share - - - (217,499) - (217,499)
Net income - - - 200,360 - 200,360
Balances at
March 31, 2002: 5,437,497 2,784,088 7,526,472 1,032,996 (40,145) 11,303,411
========= ========= ========= ========= ======== ==========
See accompanying notes to consolidated financial statements.
F-4
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended March 31, 2002, 2001 and 2000
2002 2001 2000
Cash flows from operating activities: ---- ---- ----
Net income (loss) $ 200,360 (411,547) 585,755
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Loss on disposal of equipment 933 5,320 20,174
Change in allowance for
doubtful accounts (48,852) 12,561 (15,501)
Depreciation and amortization 897,236 800,977 850,092
Decrease (increase) in
accounts receivable 897,066 (271,837) 30,216
Decrease (increase) in income
taxes receivable 278,500 (201,900) 255,822
Decrease (increase) in inventories 1,553,543 (1,143,685) (484,407)
Decrease (increase) in prepaid expenses
and other current assets 36,011 (75,016) 5,686
Decrease (increase) in deferred
income taxes 127,442 (145,427) 98,565
Decrease (increase) in other assets - 30,534 45,738
Increase (decrease) in deferred income (23,530) (141,176) 214,706
Increase (decrease) in
accounts payable (1,028,651) 774,609 156,090
Increase (decrease) in
accrued expenses (47,374) (9,166) 17,978
--------- --------- ---------
Net cash provided by (used in)
operating activities 2,842,684 (775,753) 1,780,914
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures for property,
plant and equipment (397,604) (725,680) (548,122)
--------- --------- ---------
Net cash used in
investing activities (397,604) (725,680) (548,122)
--------- --------- ---------
Cash flows from financing activities:
Net (repayments) borrowings under
line-of-credit agreement (1,250,000) (750,000) 49,900
Principal payments on mortgage
note payable - - (131,250)
Acquisition of treasury stock - (40,145) -
Proceeds from exercise of
stock options and warrants - (348) -
Dividends paid (216,753) (219,312) (109,384)
--------- --------- ---------
Net cash used in
financing activities (1,466,753) (1,009,805) (190,734)
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 978,327 (2,511,238) 1,042,058
Cash and cash equivalents at
beginning of year 184,772 2,696,010 1,653,952
--------- --------- ---------
Cash and cash equivalents at end of year$ 1,163,099 184,772 2,696,010
========= ========= =========
Supplemental cash flow information:
Cash paid for interest $ 79,337 139,761 180,590
========= ========= =========
Cash paid (received) for income taxes $ (278,500) 121,500 (139,327)
========= ========= =========
See accompanying notes to consolidated financial statements.
F-5
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2002, 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) 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.
(d) 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.
(e) 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.
F-6
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2002, 2001 and 2000
(f) 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.
(g) 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.
(h) Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method.
(i) 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.
F-7
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2002, 2001 and 2000
(j) 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.
(k) 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.
The Company has elected to continue to apply the provisions of APB 25 and
provide the pro forma disclosures of SFAS 123.
(l) Earnings per Share
Basic earnings per share have 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.
(m) New Accounting Standards
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS No. 143). SFAS No. 143 requires the Company to record the
fair value of an asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the retirement of tangible
long-lived assets that result from the acquisition, construction, development
and/or normal use of the assets. The Company would also record a corresponding
asset, which is depreciated over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the obligation will be
adjusted at the end of each period to reflect the passage of time and changes
in the estimated future cash flows underlying the obligation. The Company is
required to adopt SFAS No. 143 on April 1, 2003. The Company does not expect
the adoption of SFAS No. 143 to have a material effect on the consolidated
financial statements.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
F-8
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2002, 2001 and 2000
This Statement requires that long-lived assets be reviewed for impairment
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 the carrying amount
of an asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. SFAS No. 144 requires companies to separately report
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.
The Company adopted SFAS No. 144 on April 1, 2002. Adoption of SFAS No. 144
did not have a material affect on the Company.
(n) Reclassifications
Certain amounts in the 2001 and 2000 consolidated financial statements have
been reclassified to conform to the 2002 presentation.
(2) Inventories
Inventories at March 31, 2002 and 2001 consist of:
2002 2001
---- ----
Raw materials $ 3,130,889 4,443,662
Work in process 190,348 224,449
Finished goods 1,477,494 1,684,163
--------- ---------
$ 4,798,731 6,352,274
========= =========
Approximately 47 percent of inventories were located in Honduras at
March 31, 2002 and 2001.
(3) Property, Plant and Equipment
Property, plant and equipment at March 31, 2002 and 2001 consists of:
Estimated
2002 2001 useful lives
---- ---- ------------
Building and improvements $ 1,608,756 1,609,961 20 years
Machinery and equipment 7,884,557 7,694,657 5 - 15 years
--------- --------- ------------
$ 9,493,313 9,304,618
========= =========
Approximately 28 percent and 27 percent of property, plant and equipment is
located in Honduras at March 31, 2002 and 2001, respectively.
F-9
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2002, 2001 and 2000
(4) Debt
Debt at March 31, 2002 and 2001 consists of a $3,000,000 line of credit with an
outstanding balance of $500,000 and $1,750,000 at March 31, 2002 and 2001,
respectively. Interest is based on LIBOR plus 175 basis points 3.78% and 6.63%
at March 31, 2002 and 2001, respectively. 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, 2002 and 2001. The line
was renewed in August 2000 and the full balance outstanding is due
December 14, 2003, unless renewed.
(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, 2002 and
2001 are presented below:
2002 2001
---- ----
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts $ 4,287 22,000
Deferred income for financial reporting - 26,000
Inventories, principally due to valuation
allowance for financial reporting purposes
and additional costs inventoried for
tax purposes 283,059 361,000
Accrued expenses, principally due to accrual
for financial reporting purposes 33,076 32,000
Net operating loss carryforwards 270,048 184,000
Tax credit carryforwards 93,063 122,000
-------- --------
Total gross deferred tax assets 683,533 747,000
Less valuation allowance 78,152 60,000
-------- --------
605,381 687,000
-------- --------
Deferred tax liabilities:
Property, plant and equipment, principally
due to differences in depreciation (170,951) (125,128)
-------- --------
Net deferred tax assets $ 434,430 561,872
======== ========
F-10
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2002, 2001 and 2000
Net deferred tax assets are included in the accompanying balance sheets at
March 31, 2002 and 2001 as:
2002 2001
---- ----
Deferred income taxes, current asset $ 271,569 585,535
Deferred income taxes, noncurrent asset 162,861 -
Deferred income taxes, noncurrent liability (23,663)
-------- --------
$ 434,430 561,872
======== ========
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.
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, 2002. The valuation allowance at March 31, 2002 and 2001 relates to
tax credit carryforwards which management expects will expire unused.
At March 31, 2002, the Company has net operating loss carryforwards for Federal
income tax purposes of approximately $671,000, which are available to offset
future taxable income through 2022. 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.
The Company has approximately $19,000 of alternate minimum tax credit
carryforward. This credit is not subject to an expiration date.
Income tax expense (benefit) for the years ended March 31, 2002, 2001,
and 2000 consists of:
2002 2001 2000
---- ---- ----
Current:
Federal $ (33,331) (80,400) 116,495
State - - -
-------- -------- ---------
(33,331) (80,400) 116,495
-------- -------- ---------
Deferred:
Federal 117,247 (133,874) 90,731
State 10,195 (11,553) 7,834
-------- -------- ---------
127,442 (145,427) 98,565
-------- -------- ---------
$ 94,111 (225,827) 215,060
======== ======== =========
F-11
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2002, 2001 and 2000
Income tax expense (benefit) for the years ended March 31, 2002, 2001 and 2000
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:
2002 2001 2000
---- ---- ----
Computed expected tax expense (benefit) $ 100,120 (216,707) 272,000
(Reduction) increase in income taxes
resulting from:
Foreign activity for which no
income tax has been provided (17,691) (17,000) (75,000)
State income taxes, net of
Federal income tax effect 6,525 (7,400) 5,000
Other 5,157 15,280 13,060
-------- -------- ---------
$ 94,111 (225,827) 215,060
======== ======== =========
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 $44,000 in 2002,
$51,000 in 2001, and $221,000 in 2000. 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 $269,000 at March 31, 2002 and $225,000 at
March 31, 2001. 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.
(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. 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, 2002 are as follows:
F-12
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2002, 2001 and 2000
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, 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
Granted - - - 100,250 100,250 1.64
Canceled (8,968) (50,000) (1,500) (15,000) (75,468) 3.97
------- ------- ------- --------- --------
Outstanding at
March 31, 2002 134,084 250,000 46,666 178,250 609,000 3.07
------- ------- ------- --------- --------
Total number of options available
under the plans 166,667 400,000 333,333 300,000 1,200,000
======= ======= ======= ========= ========
Exercisable at
March 31, 2002 120,651 - 46,666 51,003 218,320 1.63
======= ======= ======= ========= ========
Available for issue at
March 31, 2002 - 150,000 - 121,750 271,750
======= ======= ======= ========= ========
The per share weighted average fair value of stock options granted during 2002,
2001 and 2000 was $1.64, $1.82, and $1.13, 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% to 83%, and (4) expected
dividends - 2.0% to 5.8%.
At March 31, 2002, 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, 2002 life price March 31, 2002 price
- -------- -------------- -------------- --------- -------------- --------
$1.05-1.19 28,250 7.2 1.10 26,333 1.10
$1.20-1.64 208,500 7.5 1.59 139,651 1.62
$1.65-2.00 115,250 8.6 1.81 48,336 1.85
$2.06-2.74 7,000 8.1 2.55 4,000 2.64
$2.75-5.25 250,000 4.2 5.13 - -
-------------- -------------- --------- -------------- --------
609,000 6.4
============== ==============
F-13
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2002, 2001 and 2000
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, 2002, 2001 and
2000 would have been reduced to the pro forma amounts indicated below:
2002 2001 2000
---- ---- ----
Net income (loss):
As reported $ 200,360 (411,547) 585,755
========= ========= ========
Pro forma $ 100,782 (515,843) 539,899
========= ========= ========
Income (loss) per common share:
As reported $ .04 (.08) .11
========= ========= ========
Pro forma $ .02 (.09) .10
========= ========= ========
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, 2002, 2001 or 2000.
(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 and was extended in
2002 for one additional year.
Future minimum lease payments under noncancelable operating leases as of
March 31, 2002 are:
Year ending March 31,
---------------------
2003 173,113
2004 24,613
2005 24,613
--------
Total minimum lease payments $ 222,339
========
F-14
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2002, 2001 and 2000
Rental expense for all operating leases was approximately $233,000 in 2002,
$241,000 in 2001 and $245,000 in 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:
2002 2001 2000
---------- ---------- ----------
Commercial $ 10,276,165 12,117,588 12,801,147
Military 6,241,266 5,687,823 3,910,457
---------- ---------- ----------
$ 16,517,431 17,805,411 16,711,604
========== ========== ==========
Significant customers who accounted for 10 percent or more of sales and
aggregate exports were:
Year ended March 31
Customer 2002 2001 2000
-------- ---- ---- ----
Xerox Corporation $ 275,448 723,982 1,266,613
Noma Appliance & Electric, Inc.
Noma Appliance, Inc.
f/k/a Fleck Manufacturing, Inc.
(a Xerox Corporation supplier) 281,011 531,835 954,288
Other Xerox suppliers 263,704 299,596 987,424
Fermont (a division of ESSI, a U.S.
Government Prime Contractor) 3,855,593 4,305,101 2,115,722
--------- --------- ---------
$ 4,675,756 5,860,514 5,324,047
========= ========= =========
Exports:
Canada $ 293,650 579,511 1,342,365
Far East 1,288,102 805,762 198,026
Europe 1,899,842 2,328,325 3,243,918
Mexico 169,833 383,046 563,550
Australia 3,167 83,232 218,746
South America 6,458 13,784 12 430
Middle East 15,000 22,299 5,281
--------- --------- ---------
Total exports $ 3,676,052 4,215,959 5,584,316
========= ========= =========
F-15
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2002, 2001 and 2000
(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 $26,700 in 2002, $29,000 in
2001, and $24,000 in 2000.
(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.
(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, 2002 and 2001 are:
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
Year ended March 31, 2002:
Operating revenues $ 4,107,353 4,870,671 3,724,728 3,981,533
========= ========= ========= =========
Gross profit $ 1,092,392 1,094,904 1,079,672 1,153,663
========= ========= ========= =========
Operating income $ 33,599 99,475 68,080 160,958
========= ========= ========= =========
Net income $ 2,090 56,158 43,269 98,843
========= ========= ========= =========
Basic earnings per share $ - .01 .01 .02
========= ========= ========= =========
Diluted earnings per share $ - .01 .01 .02
========= ========= ========= =========
F-16
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2002, 2001 and 2000
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)
========= ========= ========= =========
F-17
TECHNOLOGY RESEARCH CORPORATION
AND SUBSIDIARY
Schedule II
Valuation and Qualifying Accounts
Years ended March 31, 2002, 2001 and 2000
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, 2002 $ 60,760 19,761 - 68,613 11,908
======= ======= ======= ======= =======
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
======= ======= ======= ======= =======
F-18
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.*
(d) 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.***
(e) 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".***
(f) 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 products that use the Company's Fire Shield cord set
technology.***
(g) $3,000,000 Revolving Credit Agreement, dated December 14, 1999,
between the Company and SouthTrust Bank***
(h) 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 cooking appliances using the Company's Fire Shield safety
circuit technology.***
-27-
(i) The 2000 Long Term Incentive Plan.***
(j) Amended Revolving Credit Agreement, dated December 24, 2001,
between the Company and its subsidiary and SouthTrust Bank,
extending the maturity date to December 13, 2003.*****
(k) License Agreement, dated March 24, 2002, between the Company and
Tecumseh Products Company granting use of the Company's Fire Shield
technology to be integrated into a protective product for
Refrigeration and Air Conditioning Systems against electric
faults.*****
(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.
-28-
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: 6/20/2001 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) 6/20/2001
Robert S. Wiggins
Vice President of Finance and
Chief Financial Officer
(Principal Financial
/s/ Scott J. Loucks Officer) 6/20/2001
Scott J. Loucks
/s/ Raymond H. Legatti President and Director 6/21/2001
Raymond H. Legatti
Senior Vice President
Government Operations
and Marketing and
/s/ Raymond B. Wood Director 6/21/2001
Raymond B. Wood
/s/ Gerry Chastelet Director 6/24/2001
Gerry Chastelet
/s/ Edmund F. Murphy, Jr. Director 6/24/2001
Edmund F. Murphy, Jr.
/s/ Martin L. Poad Director 6/25/2001
Martin L. Poad
-29-