-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wk0knKeMtWJlXq8AM7RyFoOcArb3ZGAt3eDo2nnwSNeE7LAkNPpoPJnZm5dLgD4S ixbczYTGJz5rIoGVT1KYsA== /in/edgar/work/20000627/0000741556-00-000011/0000741556-00-000011.txt : 20000920 0000741556-00-000011.hdr.sgml : 20000920 ACCESSION NUMBER: 0000741556-00-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000627 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TECHNOLOGY RESEARCH CORP CENTRAL INDEX KEY: 0000741556 STANDARD INDUSTRIAL CLASSIFICATION: [3613 ] IRS NUMBER: 592095002 STATE OF INCORPORATION: FL FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-13763 FILM NUMBER: 661556 BUSINESS ADDRESS: STREET 1: 5250 140TH AVE NORTH CITY: CLEARWATER STATE: FL ZIP: 34620 BUSINESS PHONE: 8135350572 MAIL ADDRESS: STREET 1: 5250 140TH AVENUE NORTH CITY: CLEARWATER STATE: FL ZIP: 34620 10-K 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2000 Commission file number 0-13763 TECHNOLOGY RESEARCH CORPORATION (Exact name of registrant as specified in its charter) Florida 59-2095002 (State or other jurisdiction of (I.R.S. Employer incorporation or Organization) Identification No.) 5250 140th Avenue North, Clearwater, Florida 33760 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (727) 535-0572 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock $.51 par value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of common stock held by non-affiliates of the Registrant, as of June 2, 2000 was $9,550,318, based upon the $2.00 closing sale price for the Common Stock on the NASDAQ National Market System on such date. For the purposes of this computation, all executive officers and directors of the Registrant have been deemed to be affiliates. Such determination should not be deemed to be an admission that such directors and officers are, in fact, affiliates of the Registrant. As of June 2, 2000, the number of shares outstanding of the Registrant's common stock, $.51 par value, was 5,455,756. DOCUMENTS INCORPORATED BY REFERENCE The Registrant's Proxy Statement related to its 2000 Annual Meeting of Shareholders to be held on August 24, 2000 will be incorporated by reference into Part III of this Form 10-K and be filed with the Securities and Exchange Commission no later than July 14, 2000. TABLE OF CONTENTS PART I Page Item 1. Business .................................................... 3 Item 2. Properties .................................................. 13 Item 3. Legal Proceedings ........................................... 13 Item 4. Submission of Matters to a Vote of Security Holders ..........13 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ................................. 14 Item 6. Selected Financial Data ..................................... 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ......................... 16 Item 8. Financial Statements and Supplementary Data ................. 21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...................... 21 PART III Item 10. Directors and Executive Officers of the Registrant .......... 22 Item 11. Executive Compensation ...................................... 22 Item 12. Security Ownership of Certain Beneficial Owners and Management ....................................... 22 Item 13. Certain Relationships and Related Transactions .............. 22 PART IV Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K ..................................... 23 SIGNATURES ........................................................... 25 Part I ITEM 1. BUSINESS General The Company was incorporated in Florida in June 1981 with the intended purpose of pursuing orders for products to be designed and manufactured for sale to the military engine generator set controls market, a segment with which the Company's founders had acquired substantial experience. As a result, the Company continues to use its expertise in designing and supplying power monitors and control equipment to the United States Military and its prime contractors. After establishing a military product base, the Company turned its efforts to the commercial markets based on the founder's expertise in ground fault sensing technology. This "core" technology led to the development of products that sense dangerous power leakage from appliances, tools and other electric devices and then immediately cut off the power before this leakage can cause a fire, electrocution or serious injury from electrical shock. The Company has become a worldwide-recognized leader in the design and supply of portable electrical safety products for the commercial marketplace. Until the year ended March 31, 1989, a majority of the Company's revenues were derived from sales of military products. The Company believes that its success in the design of ground fault sensing products formed the basis for the Company's greatest potential for future growth. Net sales contributed by commercial and military products are as follows: Year Ended March 31 Commercial % Military % Total -------- ---------- ---- -------- ---- ---------- 2000 $ 12,801,147 76.6 $ 3,910,457 23.4 $ 16,711,604 1999 13,929,177 81.4 3,190,542 18.6 17,119,719 1998 13,434,352 74.2 4,667,433 25.8 18,101,785 1997 12,803,181 85.3 2,200,413 14.7 15,003,594 1996 14,541,301 87.7 2,040,000 12.3 16,581,301 Royalties from license agreements are as follows: Year Ended March 31 Royalties -------- --------- 2000 $ 126,121 1999 91,295 1998 329,166 1997 381,977 1996 797,920 The Company's backlog of unshipped orders at March 31, 2000 was approximately $6,600,000. This backlog consists of approximately 46% commercial product orders and approximately 54% military product orders, all of which is expected to ship within Fiscal Year 2001. -3- Commercial Products and Markets Ground fault protective devices protect equipment and people against electrical faults which can occur between electrically "live" conductors and ground. These ground fault conditions can damage equipment, start fires, or seriously or fatally injure humans. Ground Fault Circuit Interrupters ("GFCI") and Appliance Leakage Circuit Interrupters ("ALCI") provide protection from dangerous electrical shock by sensing leakage of electricity and cutting off power. Equipment Leakage Current Interrupters ("ELCI") detect current leakage within equipment such as copy machines, printers and computers. GFCIs are currently available in three types: circuit breaker, receptacle and portable. The Company specializes in the portable types of these products. A ground fault is a condition where electric current finds an unintentional path to ground such as through the exposed metal parts of an appliance or tool. Faults occur because of damage that causes internal wiring to touch these exposed metal parts or because an appliance or tool gets wet. Upon such occurrence, the entire device can become as electrically alive as the power line to which it is attached. If a person is touching such a live device while grounded (by being in contact with the ground or, for example, a metal pipe, gas pipe, drain or any attached metal device), that person can be seriously or fatally injured by electric shock. Fuses or circuit breakers do not provide adequate protection against such shock, because the amount of current necessary to injure or kill a normal adult is far below the level of current required for a fuse to blow or a circuit breaker to trip. GFCIs constantly monitor electric current, and as long as the amount of current returning from the device is equal to the amount that is directed to the device, the GFCI performs no activities. Conversely, if there is less current coming back than there is flowing into the device, some portion must be taking a path through a foreign body, thereby creating a hazard. Upon recognizing that condition, the GFCI terminates the flow of electricity instantaneously. An ALCI is a device intended to be used in conjunction with an electrical appliance whose function is to interrupt both conductors of the electric circuit to a load when a fault current to ground exceeds 4 - 6 mA (milli- amperes) and is less than that required to operate the overcurrent protection device of the circuit. The ALCI is intended to be used only in a circuit that has a solidly grounded neutral conductor, and is not intended to be used in place of a GFCI in applications where the GFCI is required. ALCIs are considered "personnel protection" devices. This product is intended for portable and short-time use, and should be used only while attended; for example, with kitchen appliances, floor care products, hair dryers, and the like, which are connected to a power supply circuit by means of a flexible cord terminating in an attachment plug. An ELCI is a device intended to protect equipment from excessive electrical leakage current that could occur due to the breakdown of insulation between live and grounded parts which could cause fires and other damage. Xerox Corporation uses the Company's ELCI products to protect many of its business machines. The Company also has a unique versatile consumer ELCI product called the "Electra Shield" which, in addition to fire prevention capabilities, also provides three-mode surge suppression, power line filtering, and facsimile modem surge protection. This unique product offers multimedia protection for home and office personal computers, fax modems, TV and entertainment systems. -4- Government and industry research into the major causes of fire has led to a search for new, cost-effective methods to prevent electrical fires. In response to this need, the Company developed and patented "Fire Shield" (TM), a product designed to prevent fires caused by damaged or aging appliance power supply cords and extension cords, which have been identified as a leading cause of electrical fires. On June 1, 1999, the Company announced major enhancements to its "Fire Shield" line of appliance power supply cords that will add a higher degree of safety against fire and electric shock for two wire appliances. These new capabilities have significant safety benefits to the consumer. These enhancements are based on feedback from the industry and from the staff of the United States Consumer Product Safety Commission ("CPSC") on the need to protect not only the power cord, but also the internal wiring of the appliance. In addition, on January 13, 2000, the Company announced its "Fire Shield" Home Wiring System at the International Home Builders' Show in Dallas, Texas. The purpose of this system is to continuously monitor the integrity of the installed household wiring and alert the home owner, in advance, of potentially dangerous electrical wiring conditions that could lead to fire. The latest statistics from the CPSC indicate that extension cords, toaster/toaster ovens, power cords on appliances and household wiring are responsible for over $400 million a year in residential fire damage, 240 lives lost and 860 injuries. The National Electrical Code (the "Code") requires GFCIs for the protection of all receptacle outlets located outdoors, as well as in bathrooms, garages and other risk areas, and in new residences, hotels and public buildings. The Code is followed by most local government building codes. There is increasing effort by certain groups such as the National Electric Manufacturers Association and Consumer Products Safety Commission to require GFCI protection in other locations and applications. The Company presently focuses its marketing efforts in certain spot markets which have developed in response to Code imposed requirements. For example, in January 1989, high-pressure sprayer/washer manufacturers that desired Underwriter Laboratories ("UL") approval were required to include a GFCI and/or double-insulation protection on each electrically driven sprayer/ washer. Sales to this industry were severely impacted in Fiscal Year 1996 as the majority of the sprayer/washer manufacturers opted for the more cost effective double-insulated technology rather than GFCI technology. Effective January 1996, the double-insulation provision was eliminated from the National Electric Code, but until recently, UL had not updated its standard enforcing this change. Sales to this industry were approximately $4.5 million less in each of the Fiscal Years 1996, 1997, 1998 and 1999, compared to Fiscal Year 1995, due to the choice of sprayer/washer manufacturers not using the Company's GFCI products and due to the delay of UL enforcing on the industry the requirement for GFCI technology. The revised standard UL 1776 mandating the use of GFCIs on sprayer/washers has been issued, and the effective date for compliance was May 6, 2000. As a result the Company received over $1,000,000 in new orders for GFCI cord sets from manufacturers of electric high pressure sprayer washers, which are targeted for retail sales in the U.S. Due to the increased competitive nature of this marketplace, the Company has no certainty of returning back to its previous revenue level in this market. A Code requirement became effective on January 1, 1991 that requires a protective device to be incorporated into hair dryers, curling irons and crimpers to protect users from possible electrocution. In response to this Code change, the Company developed a smaller GFCI plug that incorporates its patented GFCI/ALCI technology. Additionally, the Company developed an Immersion Detection Circuit Interrupter ("IDCI") that can also be used to protect users of these products. -5- Also, Article 625 of the 1996 Edition of the National Electrical Code requires electric vehicle ("EV") charging systems to include a system that will protect people against serious electric shock in the event of a ground fault. The Company has shipped product to the majority of the major automobile manufacturers in support of their small EV production builds, and the Company is active with various standards and safety bodies, relating to the electric vehicle, on a worldwide basis. Sales for the Company's EV safety products remain relatively low due to the small number of electric vehicles produced. Improvements in battery technology, along with mandates from individual states for zero emission vehicles, are projected to make this a viable market in the year 2003. The Company currently manufactures and markets various portable GFCI, ALCI and ELCI products, such as plug-in portable adapters, several extension cord models in various lengths, various modules for OEM customers, and variations of such products for voltage differences in both the United States and foreign markets. The Company has been issued several domestic and foreign patents on its portable GFCI which incorporate design features not available on any similar product known to the Company (see Patents, Licenses and Trademarks on page 9 for further information). The Company has entered into seven license agreements and three sales and marketing agreements concerning the portable GFCI, ALCI and ELCI. These agreements are with entities located in Australia, France, Italy, Japan, the United Kingdom and the United States and are for the purpose of market penetration in those areas where it would be difficult for the Company to compete on a direct basis. The Company is focusing more of its marketing efforts in placing its products with major retailers, which include select SEARS Mall stores, Homebase and Orchard Supply Hardware stores as well as in the current SEARS CRAFTMAN (R) POWER AND HAND TOOLS Catalog. The Company's products are also being offered through magazines, catalogs and E-commerce retailers. On December 31, 1999, the Company entered into a second license agreement with Applica Inc. (previously named Windmere-Durable Holdings, Inc. ) (the "Agreement"), which is filed herewith. Applica Inc. is a large Miami, Florida based manufacturer and distributor of a wide variety of, among other items, household appliances and portable personal care products utilizing electric current (e.g. hair dryers and curlers, irons, food mixers, toasters and toaster ovens and numerous other items), most of which are sold both domestically and internationally. The Agreement provides Applica Inc. the use of the Company's extended "Fire Shield" technology to detect fires and electrical shock in toasters and toaster ovens manufactured by Applica Inc. under the Black & Decker(R) brand name. The Agreement calls for an up front payment plus a royalty payment for each unit manufactured using the Company's "Fire Shield" technology. The Company's proprietary extended "Fire Shield" technology enables Applica Inc. to provide its customers an unparalleled degree of safety for toasters and toaster ovens. The "Fire Shield" technology includes the ability to detect an open flame in toasters or toaster ovens, or insulation/dielectric failure due to build up of grease or other substances, and disconnect the power reducing the risk of injury or property damage. In addition, the "Fire Shield" technology protects the user from electrocution or serious injury from electrical shock due to insulation failure or damage to the electrical wiring of the appliance. The Applica Inc. appliances that use this technology will display a "Fire Shield" marking somewhere on the appliance. -6- Military Products and Markets The Defense Logistics Agency established a program rating system for its suppliers in 1995, and since its inception and for the fifth straight year, the Company was honored as a Best Value Medalist for the highest rating Gold Category, which signifies the Company's commitment to military contract performance. The Company is currently a supplier of control equipment used in engine generator systems purchased by the United States military and its prime contractors. The term "control equipment" refers to the electrical controls used to control the electrical power output of the generating systems. In general, the controls monitor and regulate the operation of generator mobile electric generating system sets. Electric generating systems are basic to all branches of the military, and demand has remained relatively constant, unlike products utilized in armaments and missiles. Sales are made either directly to the government for support parts or to prime contractors for new electric generator sets which incorporate the Company's products. The Company is a qualified supplier for 37 control equipment products as required by the Department of Defense and is a supplier of the following types of control equipment, among others: protective relays and relay assemblies, instrumentation transducer controls, fault locating panel indicators, current transformer assemblies for current sensing control and instrumentation, motor operated circuit breaker assemblies and electrical load board and voltage change board assemblies. These products are also furnished for spare parts support for existent systems in the military inventory. In late 1989, the Company completed the redesign of the control equipment related to the Tactical Quiet Generator ("TQG") Systems program and provided prototype units to a prime contractor for testing, which was completed in the third fiscal quarter for the year ended March 31, 1992. Subsequently, the Company received production orders for these products from the U.S. Government's prime contractor in the approximate amount of $7,500,000 covering the time period from August 1992 to October 1994 and an additional $4,900,000 covering the time period August 1996 to July 1998. All deliveries have been completed under these contracts. The new contract that has been awarded by the U.S. Government for 5/10/15KW TQG Systems to the prime contractor is for a 10-year period with the last ordering period year being 2007. The Company has received its second production release for this new contract, valued at $1.2 million, and shipments commenced in the 4th quarter of Fiscal Year 2000. The estimated value of this 10-year contract for the Company for its 5/10/15KW control equipment is $8.2 million. As previously reported, the Company also received orders in the amount of approximately $6.3 million for its control equipment for the new 3KW TQG systems. First Article Testing has been completed by the prime contractor for these systems and the Company has received its first production release of $2.8 million. Shipments of are estimated to begin in June 2000. The Company expects military sales to continue to strengthen as Fiscal Year 2001 progresses and shipments are made under the new 3KW TQG program. The Company continues to furnish various types of electrical power monitors for military Naval shipboard requirements. The monitors are used on all classes of Naval surface vessels, such as minesweepers, destroyers guided missile cruisers and aircraft carriers in addition to other types of Naval vessels. The monitors are furnished for new vessel production, retrofit upgrades and existent vessels requiring spare support parts. The Company also supplies the military with electrical devices for control and monitoring of the -7- on-board auxiliary power diesel electric generating system for the new C2v Armored Tactical Vehicle, Electronic Command Post System and the newly developed armored ambulances. These devices include A.C. power monitor assemblies (which provide system protection and status display on on-board computers), generator voltage regulators, power transformers, A.C. over current and short circuit protection monitor assemblies and current sensing transformers. All of these products have met the high shock and vibration and endurance testing requirements during both highly accelerated stress screening tests and vehicle road testing at Aberdeen Proving Grounds. The Company has completed shipments against orders related to the initial low rate production phase for C2v vehicles. The Company's contracts with the U.S. Government are on a fixed-price bid basis. As with all fixed-price contracts, whether government or commercial, the Company may not be able to negotiate higher prices to cover losses should unexpected manufacturing costs occur. All government contracts contain a provision that allows for cancellation by the government "for convenience." However, the government must pay for costs incurred and a percentage of profits expected if a contract is canceled. Contract disputes may arise which could result in a suspension of such contract or a reduction in the amounts claimed. Testing and Qualification A number of the Company's commercial products must be tested and approved by UL or an approved testing laboratory. UL publishes certain "Standards of Safety" which various types of products must meet and perform specific tests to ascertain whether the products meet the prescribed standards. If a product passes these tests, it receives UL approval. Once the Company's products have been initially tested and qualified by UL, they are subject to regular field checks and quarterly reviews and evaluations. UL may withdraw its approval for such products if they fail to pass these tests and if prompt corrective action is not taken. The Company's portable electrical safety products have received UL approval. In addition, certain of the Company's portable GFCI, ALCI and ELCI products have successfully undergone similar testing procedures conducted by comparable governmental testing facilities in Europe, Canada and Japan. The Company's military products are subject to testing and qualification standards imposed by the United States Government. The Company has established a quality control system which has been qualified by the United States Department of Defense to operate under the requirements of a particular specification (MIL-I-45208). To the extent the Company designs a product which it believes to meet those specifications, it submits the product to the responsible government testing laboratory. Upon issue of the qualification approval and source listing, the product is rarely subject to re-qualification; however, the military may disqualify a product if it is subject to frequent or excessive operational failures. Further, the current specifications and requirements could be changed at any time, which would require the Company to redesign its existing products or develop new products which would have to be submitted for testing and qualification prior to their approval for purchase by the military or its prime contractors. Certain contracts require witness testing and acceptance by government inspectors prior to shipment of the product. -8- The Company's wholly owned foreign subsidiary, TRC/Honduras S.A. de C.V. is an ISO 9002 certified manufacturing facility; is an approved supplier to Xerox Corporation; and has UL, Canadian Standards Association ("CSA") and the German standards association Verband Deutsher Elektrotechniker ("VDE") approvals. Design and Manufacturing The Company currently designs almost all of the products which it produces and generally will not undertake special design work for customers unless it receives a contract to produce the resulting products. The Company continues to work with foreign licensees to design products for foreign markets. A significant number of the Company's commercial and military electronic products are specialized in that they combine both electronic and magnetic features in design and production. The business of an electronics manufacturer, such as the Company, primarily involves assembly of component parts. The only products which the Company manufactures from raw materials are its transformers and magnetic products. The manufacture of such products primarily involves the winding of wire around magnetic steel cores. Recently, in an effort to lower cost by vertical integration, the Company also molds its own plastic parts for its commercial product lines at its manufacturing facility in Honduras. The remainder of the products which the Company manufactures are assembled from component parts produced by other manufacturers. On February 3, 1997, the Company's Board of Directors approved the incorporation of TRC Honduras, S.A. de C.V., a wholly owned subsidiary of Technology Research Corporation, for the purpose of manufacturing the Company's high-volume products. This decision was made in line with the Company's goal of always striving to improve quality, profit margins and customer satisfaction. TRC Honduras, S.A. de C.V. resides in a leased 42,000 square foot building located in ZIP San Jose, a free trade zone and industrial park, in San Pedro Sula, Honduras. The lease is for a term of five years with an option to extend the lease for another five years. The benefits of being located in a free trade zone include no Honduran duties on imported raw materials or equipment, no sales or export tax on exported finished product, a twenty year Honduran federal income tax holiday and a ten year Honduran municipal income tax holiday for the profits generated by the Honduran subsidiary, and various other benefits. The Company continues to manufacture its specialized military products and low-volume commercial products in its 43,000 square foot facility in Clearwater, Florida. Patents, Licenses, and Trademarks The Company's President, Mr. Legatti, has designed for the Company and the Company has been issued four U.S. patents and two British, Canadian, Italian and Australian patents with respect to its portable GFCIs that have features not presently available on any similar product known to the Company. Also, patents on the same device have been issued from France, Japan, Germany and three other countries. The patents will be valid for either 20 years from filing or 17 years from issue in the United States running from January 1986. Duration of patents in the other countries vary from 15 to 20 years. -9- On October 12, 1999, Xerox Corporation was issued a patent, which listed Mr. Legatti as a co-inventor for the Modular, Distributed Equipment Leakage Circuit Interrupter. This product is used on some of Xerox's business machines and shuts off power when sensing a certain leakage of electricity which could produce dangerous results. The Company licenses its technology for use by others in exchange for a royalty or product purchases. Licensees are located in Australia, France, Italy, Japan, the United Kingdom and the United States. Each licensee agrees to pay the Company a royalty or purchase product based on schedules set forth in the applicable agreement. The Company agrees to provide certain technical support and assistance to its licensees. The licensees have agreed to indemnify and hold the Company harmless against any liability associated with the manufacture and sale of products subject to the license agreement, including but not limited to defects in materials or workmanship. The Company has no other patents on or licensee agreements with respect to its products or technology, but has registered its TRC trademark with the U.S. Office of Patents and Trademarks. Marketing The Company's products are sold throughout the world, primarily through an expanded in-house sales force, licenses and sales and marketing agreements. Although the Company will continue to market existing and new products through these channels, the Company is looking for other viable channels through which to market its products. The Company relies significantly upon the marketing skills and experience, as well as the business experience, of the management of the Company in marketing its products. The Company complements its sales and marketing activity through the use of additional distributors and sales representative organizations. The Company's internal distribution division, TRC Distribution, is supported by 37 independent sales representatives who sell to over 800 electrical, industrial and safety distributors. The Company also markets through OEMs that sell the Company's GFCI products under their own brand label. Additionally, the Company has exhibited its GFCI products at numerous trade shows which have resulted in new commercial markets, including the recreational vehicle industry and the appliance industry. The Company primarily utilizes foreign licenses and sales and marketing agreements to market its products internationally (see Patents, Licenses and Trademarks for further information). The Company's products have world-wide application, and the Company believes that international demand for these products will continue to contribute to the Company's growth. The Company offers its customers no specific product liability protection except with regards to those customers that are specifically named as "Broad Form Vendors" under its product liability coverage. The Company does extend protection to purchasers in the event there is a claimed patent infringement that pertains to the Company's portion of the final product. The Company also carries product and general liability insurance for protection in such cases. -10- Major Customers and Exports Individual customers and aggregate exports which accounted for 10% or more of sales were: Year ended March 31 Customer 2000 1999 1998 -------- ---- ---- ---- Xerox Corporation $ 1,266,613 1,934,740 2,838,905 Noma Appliance & Electric, Inc. Noma Appliance, Inc. f/k/a Fleck Manufacturing, Inc. (a Xerox Corporation supplier) 954,288 1,623,904 1,666,516 Other Xerox suppliers 987,424 124,473 133,044 Fermont Division (a U.S. Government prime contractor) 2,115,722 1,397,211 2,817,079 --------- --------- --------- $ 5,324,047 5,080,328 7,455,544 Exports: ========= ========= ========= Canada $ 1,342,365 1,794,855 1,894,215 Far East 198,026 394,156 486,277 Europe 3,243,918 2,787,224 2,554,772 Mexico 563,550 711,067 979,187 Australia 218,746 117,754 218,530 South America 12 430 37,383 20,994 Middle East 5,281 2,067 3,397 --------- --------- --------- Total exports $ 5,584,316 5,844,506 6,157,372 ========= ========= ========= Overall, the Company's exports were down approximately 4% in Fiscal Year 2000, compared to the Company's prior fiscal year, due to Xerox Corporation and its suppliers whose sales were down from the previous fiscal year by approximately $460,000. Xerox and its suppliers accounted for approximately 19% of the Company's sales for Fiscal Year 2000, compared to approximately 22% for the prior fiscal year, and because they account for such a large percentage of the Company's sales, the loss of Xerox as a customer would have a material adverse effect on the Company's business. Excluding Xerox, exports to the Company's international OEM customers were stronger for Fiscal Year 2000, compared to the Company's prior fiscal year. The Company's military product sales are primarily to OEM prime contractors and secondarily to military procurement logistic agencies for field service support on previously shipped systems. In Fiscal Year 2000, military sales were approximately 23% of total sales, compared to 19% in the prior year. The increase was primarily due to the level of sales with Fermont Division, the U.S. Government's prime contractor for the 5/10/15KW Tactical Quiet Generator System Programs (See MD&A discussion for more detail). Sales to Fermont Division were $2,115,722 in Fiscal Year 2000, $1,397,211 in Fiscal Year 1999 and $2,817,079 in Fiscal Year 1998. The Company has no relationship with any of its customers except as a supplier of product. -11- Competition The commercial and military business of the Company is highly competitive. In the commercial market, the Company has significant competition, except with respect to the "Fire Shield" products. The Company believes, however, that product knowledge, patented technology, ability to respond quickly to customer requirements, positive customer relations, price, technical background and industry experience are major competitive factors, and that it competes favorably with respect to these factors. In addition, the Company's patented GFCI technology utilizes, in certain adaptations, waterproofing, a retractable ground pin and "trip mechanism" techniques, each of which provides the Company, in the judgment of its management, with a current competitive advantage. In the military market, the Company's products must initially pass government specified tests. The Company must compete with other companies, some being larger and some smaller than the Company, acting as suppliers of similar products to prime government contractors. The Company believes that knowledge of the procurement process, engineering and technical support, price and delivery are major competitive factors in the military market. The Company believes that it has strength in all of these areas due to senior management's involvement in the government procurement process and experience in the design engineering requirements for military equipment. A substantial portion of spare part procurement is set aside for small business concerns, which are defined in general as entities with fewer than 1,000 employees. Because the Company is classified as a small business concern, it qualifies for such set aside procurements for which larger competitors are not qualified. The entry barriers to the military market are great because of the need, in most cases, for products to pass government tests and qualifications. Research, Development and Engineering The Company employs 16 persons in the Engineering Department, all of whom are engaged either full or part-time in research and development activities. This department is engaged in designing and developing new commercial and military products and improving existing products to meet the needs of the Company's customers. In connection with its efforts in developing the GFCI product, the Company believes that the increasing use of portable GFCI protection will provide new markets for the commercial marketplace, and accordingly, the Company has modified its GFCI designs to fit these markets and new applications. There can be no assurance, however, that the Company can maintain its sales levels in the commercial market in view of the possibility that an increased level of competition may develop. The Company spent $1,035,994 in Fiscal Year 2000, $1,107,253 in Fiscal Year 1999 and $1,223,422 in Fiscal Year 1998 on research, development and engineering activities. None of these activities were sponsored or financed by customers, and all are expensed as incurred. The Company anticipates spending levels to remain constant in the new fiscal year. -12- Employees As of March 31, 2000, the Company employed 98 persons on a full time basis, and of that total, 56 employees were engaged in manufacturing operations, 16 in engineering, 15 in marketing and 11 in administration. The Company's subsidiary employed 448 persons on a full time basis as of March 31, 2000, and of that total, 436 employees were engaged in manufacturing operations and 12 in administration. None of the Company's employees are represented by a collective bargaining unit, and the Company considers its relations with employees to be stable. ITEM 2. PROPERTIES The Company's executive offices and U.S. manufacturing facility are located on 4.7 acres of leased land in the St. Petersburg-Clearwater Airport Industrial Park. The lease, with options, extends for 40 years until 2021 and is subject to certain price escalation provisions every five years. This leased land is adequate to enable the Company to expand this facility to 60,000 square feet. The present facility provides a total of 43,000 square feet, including 10,000 square feet of offices and engineering areas, as well as 23,000 square feet of production areas and 10,000 square feet of warehouse space. In March 1997, the Company entered into a five year lease agreement with ZIP San Jose, an industrial park located in San Pedro Sula, Honduras, for a 42,000 square foot building in which the Company manufactures its high-volume products. The Company has the option of extending the lease another five years if it wishes. Lease payments began in May 1997 and continue through July 2002. ITEM 3. LEGAL PROCEEDINGS The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of the Company, the ultimate disposition of these matters will not have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended March 31, 2000. -13- Part II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS The Company's shares of Common Stock are registered under 12(g) of the Securities Exchange Act of 1934 and are traded in the over-the-counter market utilizing the NASDAQ trading system, to which the Company gained admittance in December 1984, under the symbol "TRCI". In November 1995, NASDAQ approved the Company's application for listing on the National Market. The following tables set forth a range of high and low market prices for the Company's Common Stock for the fiscal years ended March 31, 2000, 1999 and 1998 as reported by the NASDAQ system. Market Price Cash Fiscal Year Ended High Low Dividends March 31, 2000: First Quarter ................. 2.0000 0.9375 $ - Second Quarter ................. 1.8750 1.1563 .01 Third Quarter ................. 1.5000 0.6250 .01 Fourth Quarter ................. 4.5000 1.2500 .01 ----- $ .03 March 31, 1999: First Quarter ................. 2.5000 1.0625 $ - Second Quarter ................. 2.8438 1.5625 - Third Quarter ................. 2.0000 0.9375 - Fourth Quarter ................. 1.3750 1.0000 - ----- $ - March 31, 1998: First Quarter ................. 4.1250 3.0625 $ .06 Second Quarter ................. 4.5000 3.5625 .06 Third Quarter ................. 4.5625 3.0000 .06 Fourth Quarter ................. 3.4375 1.9375 - ----- $ .18 As of June 2, 2000, the approximate number of the Company's shareholders was 498. This number does not include any adjustment for shareholders owning common stock in the Depository Trust name or otherwise in "Street" name, which the Company believes represents an additional 2,700 shareholders. The Company's authorized capital stock, as of June 2, 2000, consisted of 10,000,000 shares of authorized common stock, par value $.51, of which 5,455,756 shares were issued and outstanding. On August 30, 1999, the Company re-instituted its quarterly dividend policy at 1 cent per share with a annual cash dividend rate of 4 cents per share. The Company paid dividends of 3 cents per share in Fiscal Year 2000, 0 cents per share in Fiscal Year 1999 and 18 cents per share in Fiscal Year 1998. -14- ITEM 6. SELECTED FINANCIAL DATA 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Year ended March 31: Operating revenues $ 16,837,725 17,211,014 18,430,951 15,385,571 17,379,221 Gross profit $ 5,124,543 4,078,461 4,836,280 4,747,997 5,895,687 Net income (loss) $ 585,755 15,892 (196,314) 566,658 2,038,785 Basic earnings per share $ .11 - (.04) .11 .39 Weighted average number of common shares outstanding 5,455,756 5,455,756 5,332,571 5,321,698 5,281,932 Diluted earnings per share $ .11 - (.04) .10 .38 Weighted average number of common and equivalent shares outstanding 5,473,220 5,476,134 5,332,571 5,441,620 5,404,885 Cash dividends Paid $ .03 - .18 .24 .24 March 31: Working capital $ 10,267,576 6,899,677 6,875,679 9,651,145 10,931,740 Total assets $ 15,990,625 15,146,175 15,746,818 15,637,949 15,380,590 Current liabilities $ 1,366,382 3,521,949 4,243,200 2,903,154 1,867,678 Long-term debt $ 2,500,000 56,250 131,250 206,250 281,350 Total liabilities $ 4,000,567 3,578,199 4,374,450 3,109,404 2,149,028 Retained earnings $ 1,679,150 1,257,068 1,241,176 2,397,353 3,108,371 Total stockholders' equity $ 11,990,058 11,567,976 11,372,368 12,528,545 13,231,562 -15- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating Results: Fiscal Years 2000 and 1999 Comparison The Company's operating revenues (net sales and royalties) for the year ended March 31, 2000 were $16,837,725, compared to $17,211,014 reported in the same period last year, a decrease of approximately 2%. The Company's pre-tax profit, however, increased by $995,000 in Fiscal Year 2000, compared to Fiscal Year 1999, and net income was $585,755 for the year ended March 31, 2000, compared to $15,891 for the same period last year, a substantial improvement. Basic and diluted earnings were $.11 per share for the year ended March 31, 2000, compared to basic and diluted earnings of $.00 per share for the same period last year. The improvement in net income was due to higher military sales and increased manufacturing productivity. As a result, the Company was able to improve operating performance this year in a highly competitive marketplace. Military sales were up $719,915 for Fiscal Year 2000, compared to Fiscal Year 1999, primarily due to the Company being in full production of the control devices related to the 5/10/15/30/60KW Tactical Quiet Generator (TQG) System programs. In addition, direct military shipments of spare parts and of control devices for the C2V Armored Bradley Chassis Tactical Vehicle were strong in Fiscal Year 2000. The Company expects military sales to continue to strengthen as Fiscal Year 2001 progresses and shipments are made under the new 3KW TQG program. Commercial sales and sales to Xerox were down $670,474 and $457,557, respectively. Commercial revenues for the year ended March 31, 2000 include approximately $168,000 from a new customer, which accepted delivery of product in the second, third and fourth quarters of the fiscal year. In May 2000, the customer returned approximately $130,000 of this product for upgrade and warranty work that the Company agreed to perform at no cost. The Company accrued the cost of these upgrades and rework as of March 31, 2000 in the amount of $7,500. The Company is making the requested modifications in June 2000 and expects the product to ship by June 30,2000. The Company has historically experienced few product returns for upgrades or warrant work, and as of March 31, 2000, there were no other similar costs accrued. Royalty income was up $34,827 in Fiscal Year 2000 as a result of the new license agreement with Windmere-Durable, Holdings Inc. (now Applica, Inc.) In January 2000, the Company received $200,000 from Applica Inc. in return for exclusive rights to the Company's "Fire Shield" technology on certain household appliances effective January 2000 through May 2001. The Company will record this up-front payment as royalty income over the 17-month exclusivity period. In January 2000, the Company also received $50,000 from Applica, Inc. as a credit against royalties due in the future. The Company will record this amount to income when the royalty is earned. -16- In Fiscal Year 2000, the Company significantly strengthened its already sound financial position by adding $1,042,058 to cash and $3,307,244 to working capital. With its financial strength and successful off-shore manufacturing facility, the Company is currently well positioned to grow the business by taking advantage of emerging markets in Fiscal Year 2001. Some of these emerging markets have been highlighted recently by the Company's press releases, all of which should have an impact on Fiscal Year 2001. In January 2000, the Company announced a new license agreement with Windmere-Durable, Holdings Inc. (now Applica, Inc.) to provide "Fire Shield" safety for toaster and toaster ovens, manufactured under the Black & Decker brand name. Also, in January, the Company introduced its unique industry-first "Fire Shield" Home Wiring System, which provides fire protection/detection for household wiring. In February 2000, the Company announced its agreement with Equity Electrical Associates that added 200 new potential distributors selling to the commercial and industrial distribution marketplace. In March, the Company announced the production release of the new 3KW-TQG military program. Finally, in April, the Company announced its successful penetration back into the retail high-pressure sprayer washer market. The Company will continue its strategy to grow the business by focusing on additional specific application markets, as mentioned above. The fourth quarter dividend of $.01 per share was paid on April 21, 2000 to shareholders of record on March 31, 2000. The Company paid dividends of $.03 per share for Fiscal Year 2000. The Company's gross profit margin was approximately 31% of net sales for Fiscal Year 2000 compared to 24% for the prior year, reflecting lower manufacturing costs primarily due to the Company transferring additional manufacturing processes from its Clearwater, Florida plant to its plant in San Pedro Sula, Honduras. Selling, general and administrative expenses for Fiscal Year 2000 were $3,301,640, compared to $3,150,830 for the prior year, an increase of approximately 5%. Selling expenses were $1,863,656 for Fiscal Year 2000, compared to $1,766,018 for the prior year, an increase of approximately 6%, reflecting higher advertising costs and salary related expenses. General and administrative expenses were $1,437,984 for Fiscal Year 2000, compared to $1,384,812 for the prior year, an increase of approximately 4%, reflecting those expenses related to retaining an investor relations firm in Fiscal Year 2000. Research, development and engineering expenses for Fiscal Year 2000 were $1,035,994, compared to $1,107,253 for the prior year, a decrease of approximately 6%, reflecting lower salary related expenses due to fewer number of employees in the department. Interest expense, net of interest and sundry income, for Fiscal Year 2000 was $92,041, compared to $106,133 for the prior year, reflecting lower interest expense, due to the Company not using its line of credit for approximately three weeks while refinancing its debt during the third quarter. -17- In accordance with FSAS 109, "Accounting for Income Taxes", the Company does not record deferred income taxes on the foreign undistributed earnings of an investment in a foreign subsidiary that is essentially permanent in duration. Accordingly, the Company's Honduras subsidiary was profitable which caused a decrease in the effective tax rate of the Company. If circumstances change, and it becomes apparent that some or all of the undistributed earnings of the subsidiary will be remitted in the foreseeable future, but U.S. income taxes have not been recognized by the Company, the Company will record as an expense of the current period the U.S. income taxes attributed to that remittance. Income tax expense for Fiscal Year 2000 was $215,060 and was based on the Company's U.S. income of $579,721. Fiscal Years 1999 and 1998 Comparison The Company's operating revenues (net sales and royalties) for the year ended March 31, 1999 were $17,211,014, compared to $18,430,951 reported in the period ended March 31, 1998, a decrease of approximately 7%. The Company earned $15,892 in Fiscal Year 1999, compared to a loss of $196,314, in Fiscal Year 1998, and basic and diluted earnings were $.00 per share in Fiscal Year 1999, compared to basic and diluted earnings (loss) of $(.04) per share in Fiscal Year 1998. The decline in revenues for the year ended March 31, 1999, as compared to the year ended March 31, 1998, was due to a decrease in military sales and royalties of $1,476,891 and $237,871, respectively. Total commercial sales were up $494,825 even though sales to Xerox Corporation, the Company's largest customer, were down $1,081,566 for Fiscal Year 1999. The Company's primary commercial distribution strategy of forming alliances with companies that have a significant market presence, for which the Company's products are used, contributed to the overall increase in commercial business. The result, excluding Xerox, was that the Company's international sales increased $337,503 and domestic sales increased $1,238,888 in Fiscal Year 1999, compared to Fiscal Year 1998. The decrease in military sales for Fiscal Year 1999 was mainly due to the Company completing the previous contract related to the 5/10/15/30/60KW Tactical Quiet Generator ("TQG") Systems program. The new contract that has been awarded to the prime contractor by the U.S. Government for 5/10/15KW TQG Systems is for a 10-year period with the last ordering period year being 2007. The Company has received initial production releases for this new contract, valued at $1.9 million, and shipments commenced in the 4th quarter of Fiscal Year 1999. The estimated value of the new 10-year contract for the Company for its 5/10/15KW control equipment is $8.2 million. As previously reported, the Company also received orders for approximately $6.3 million for the new 3KW military TQG Program. Royalty income was higher in Fiscal Year 1998 due to licensing fees of $135,000 from Yaskawa Control Company of Japan and a one-time final royalty payment of $100,000 from Windmere-Durable, Holdings Inc. (now Applica, Inc.) recorded in the first quarter of that year. The Company's Fiscal Year 1999 business plan called for a reduction in operating expenses of $800,000, and for the year ended March 31, 1999, the Company reduced its operating expenses by $988,544 in Fiscal Year 1999, compared to Fiscal Year 1998. -18- The Company's gross profit margin was approximately 24% of net sales for Fiscal Year 1999 compared to 27% for the prior year. The difference was primarily due to weaker profit margins resulting from the price reduction to Xerox Corporation and manufacturing inefficiencies, inventory adjustments and the Company restructuring its manufacturing operations from a contract manufacturer in China to its wholly owned subsidiary in Honduras. The Company believes this restructuring will ultimately result in lower duty, freight and product costs thus positioning the Company to remain competitive in the future. Selling, general and administrative expenses for Fiscal Year 1999 were $3,150,830, compared to $4,023,205 for the prior year, a decrease of approximately 22%. Selling expenses were $1,766,018 for Fiscal Year 1999, compared to $2,710,774 for the prior year, a decrease of approximately 35%, reflecting lower group insurance and advertising costs. General and administrative expenses were $1,384,812 for Fiscal Year 1999, compared to $1,312,431 for the prior year, an increase of approximately 6%, reflecting higher professional fees and higher salary related expenses due to a greater number of employees in the department. Research, development and engineering expenses for Fiscal Year 1999 were $1,107,253, compared to $1,223,422 for the prior year, a decrease of approximately 9%, reflecting lower UL fees and lower salary related expenses due to fewer number of employees in the department. Interest expense, net of interest and sundry income, for Fiscal Year 1999 was $106,133, compared to $4,462 for the prior year, reflecting higher interest expense, due to the Company using its line of credit, and lower returns and average balances on the Company's cash investments. Income tax benefit for Fiscal Year 1999 was $210,352 and was based on the Company's U.S. loss of $523,114. Due to provisions in the Honduran tax code, the Company's wholly owned foreign subsidiary, TRC Honduras S.A. de C.V., benefits from a 20-year income tax holiday; therefore, no income tax expense was recorded on the profit of $328,653 recognized by the subsidiary. Liquidity and Capital Resources As of March 31, 2000, the Company's cash and cash equivalents were $2,696,010, compared to $1,653,952 at March 31, 1999. The Company's cash is currently held in a money market fund whose yield is comparable to U.S. Treasury Bills. The Company continues to generate cash through its operating activities. On December 14, 1999, the Company closed on a $3,000,000 revolving credit loan with a new institutional lender. The term of the loan is for two years, and at the end of each year, the Company has the option to extend the maturity date another year. Similar to the previous line of credit, the Company has the option of borrowing at the lender's prime rate of interest minus 25 basis points or the 30-day London Interbank Offering Rate (L.I.B.O.R.) plus 200 basis points. The Company's debt from advances on its new line of credit was $2,500,000 as of March 31, 2000. -19- The Company's working capital increased by $3,367,899 to $10,267,576 at March 31, 2000, compared to $6,899,677 at March 31, 1999. The increase was primarily a result of the Company's new two-year line of credit agreement, which allowed the Company to record the advances on its line of credit as long term debt as of March 31, 2000, as compared to current liabilities as of March 31, 1999. The Company's continued profitability, although to a lesser extent, also contributed to the increase of working capital. The Company believes cash flow from operations, the available bank line and current cash position will be sufficient to meet its working capital requirements for the immediate future. On August 30, 1999, the Company announced that its Board of Directors, at its regularly scheduled board meeting on August 26, 1999, voted to re-institute the Company's quarterly dividend policy at $0.01 cent per share. The record date for the Company's fourth fiscal quarter dividend was March 31, 2000, and the Company paid that dividend on April 21, 2000. Several key factors were important in the Board's decision to re-institute the payment of a cash dividend to its shareholders. These factors were the successful implementation of key strategies that have long term positive effect on future earnings and growth, the overall strength of the Company's Consolidated Balance Sheet, positive cash flow and the turnaround of the Company's Honduras manufacturing operation. Year 2000 Issues The Year 2000 issue was a result of certain microprocessors and computer programs that were designed using two digits rather than four to define the applicable year. Computer programs that have time sensitive software may have recognized a date using "00" as the year 1900 rather that the year 2000; however, to date, the Company has not experienced any Year 2000 disruptions within or by its business partners. In addition, the Company believes that the likelihood of futures disruptions at this point are very remote; therefore, the Company will not make further comment in the future on Year 2000 issues, unless otherwise required by the Securities and Exchange Commission ("SEC"). New Accounting Standards In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair values. In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No. 133" which deferred the effective date of the adoption of SFAS No. 133. The Company will be required to adopt SFAS No. 133 for financial statements issued beginning the first quarter of fiscal year 2001. The Company has no derivative financial instruments at March 31, 2000; therefore, the adoption of this standard is not expected to have any effect on the consolidated financial statements. -20- In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). The bulletin draws on existing accounting rules and provides specific guidance on how those accounting rules should be applied. SAB 101 was to be effective for the Company's quarter ended March 31, 2000. However, in March 2000, the SEC issued SAB 101A which delays the effective date to the Company's quarter ended June 30, 2000. Recently, the SEC indicated it would be providing further written guidance with respect to the adoption of specific issues addressed by SAB 101. Based on what is currently known by the Company, management does not believe that adoption of SAB 101 will have a material impact on its financial position or results of operations. Forward Looking Statement Some of the statements in this report constitute forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities Exchange Act of 1934. These statements related to future events, other future financial performance or business strategies, and may be identified by terminology such as "may," "will," "should," "expects," "scheduled," "plans," "intends", "anticipates," "believes," "estimates," "potential," or "continue" or the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider the factors described throughout this report. We cannot be assured that future results, levels of activity, performance or goals will be achieved. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Response to this item is submitted in a separate section of this report starting at Page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -21- PART III Part III of this Form 10-K is incorporated by reference from the registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on August 26, 2000. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) 1. Consolidated Financial Statements Page of Technology Research Corporation: Independent Auditors' Report .............................. F-1 Balance Sheets--March 31, 2000 and 1999 ................... F-2 Statements of Operations--Years Ended March 31, 2000, 1999, and 1998 .......................... F-3 Statements of Stockholders' Equity--Years Ended March 31, 2000, 1999, and 1998 .......................... F-4 Statements of Cash Flows--Years Ended March 31, 2000, 1999, and 1998 .......................... F-5 Notes to Financial Statements ............................. F-6 2. The following Consolidated Financial Schedules for the years ended March 31, 2000, 1999, and 1998 are submitted herewith Schedule II--Valuation and Qualifying Accounts ............ F-20 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 3. Exhibits included herein: (See Next Page) (B) Reports on Form 8K No reports on Form 8K have been filed by the registrant during the last quarter of the fiscal year. -22- INDEX TO EXHIBITS (Item 14(A)3) Exhibit (3) (a) Articles of Incorporation and By-Laws* (b) Certificate of Amendment to the Articles of Incorporation, dated September 24, 1990*** (c) Certificate of Amendment to the Articles of Incorporation, dated September 24, 1996*** (10) Material contracts: (a) License Agreement, dated as of January 1, 1985, between the Company and Societe BACO, a French corporation, granting BACO a non-exclusive right to manufacture the Company's GFCI products in France, and the non-exclusive right to sell GFCI products other than in North America.* (b) License Agreement between the Company and B & R Electrical Products, Ltd., an English corporation ("B & R") dated January 1, 1985, granting B & R a limited exclusive license to manufacture GFCI products within the United Kingdom and a non- exclusive license to market other such products other than in North America.* (c) License Agreement, dated as of January 8, 1987, between the Company and HPM INDUSTRIES PTY LTD, an Australian corporation ("HPM"), granting to HPM an exclusive license to manufacture and sell GFCI products in Australia, New Zealand, New Guinea, Papua and Fiji.* (f) Incentive Stock Option Plan, dated October 15, 1981.* (g) The 1993 Incentive Stock Option Plan, which was previously filed with and as part of the Registrant's Registration Statement on Form S-8 (No. 33-62397). (h) Non-Qualified Stock Option Agreements, dated as of various dates, between the Company and each of its current directors and officers, as well as two independent consultants, an independent entity which had provided the Company with certain technology rights and certain former directors.* (i) The 1993 Amended and Restated Non-Qualified Stock Option Plan, which was previously filed with and as part of the Registrant's Registration Statement on Form S-8 (No. 33-62379). (j) License Agreement, dated May 17, 1997, between the Company and Yaskawa Controls Company, Ltd., a Japanese company, granting Yaskawa an exclusive right to market and manufacture the Company's products developed for use in electrical vehicle charging systems.*** -23- (k) Sales and Marketing Agreement, dated May 17, 1997, between the Company and Yaskawa Controls Company, Ltd., a Japanese company, granting Yaskawa exclusive sales and marketing rights to the Company's full line of commercial electrical protection devices, including "Fire Shield", "Shock Shield" and "Electra Shield".*** (l) License Agreement, dated February 16, 1999, between the Company and Windmere-Durable Holdings, Inc. granting Windmere-Durable a non-exclusive license to manufacture, have manufactured, use and sell the Company's line of "Fire Shield" products.*** (m) $3,000,000 Revolving Credit Agreement, dated December 14, 1999, between the Company and SouthTrust Bank*** (n) License Agreement, dated December 31, 1999, between the Company and Windmere-Durable Holdings, Inc. granting Windmere-Durable a non-exclusive license to manufacture, have manufactured, use and sell the Company's line of "Fire Shield" products.***** (23) Consents of Experts and Counsel: (a) Consent of Independent Certified Public Accountants. ***** * Previously filed with and as part of the Registrant's Registration Statement on Form S-1 (No. 33-24647). ** Previously filed with and as a part of the Registrant's Registration Statement on Form S-1 (No. 33-31967). *** Previously filed with and as part of the Registrant's Annual Report on Form 10-K. **** Previously filed with and as part of the Registrant's Post-Effective Amendment No. 1 to Form S-1 (No. 33-31967) ***** Filed herewith. -24- Independent Auditors' Report The Board of Directors and Stockholders Technology Research Corporation: We have audited the consolidated financial statements of Technology Research Corporation and subsidiary as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Technology Research Corporation and subsidiary as of March 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2000, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP St. Petersburg, Florida May 5, 2000 F-1 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Consolidated Balance Sheets March 31, 2000 and 1999 Assets 2000 1999 Current assets: ---- ---- Cash and cash equivalents $ 2,696,010 1,653,952 Accounts receivable, less allowance for doubtful accounts of $48,199 in 2000 and $63,700 in 1999 (note 4) 3,105,541 3,120,256 Income tax receivable (note 5) 76,600 332,422 Inventories (notes 2 and 4) 5,208,589 4,724,182 Prepaid expenses and other current assets 70,118 75,804 Deferred income taxes (note 5) 477,100 515,010 ---------- ---------- Total current assets 11,633,958 10,421,626 ---------- ---------- Property, plant and equipment (notes 3 and 4) 9,190,133 9,806,134 Less accumulated depreciation 4,911,305 5,205,162 ---------- ---------- Net property, plant and equipment 4,278,828 4,600,972 ---------- ---------- Other assets 77,839 123,577 ---------- ---------- $ 15,990,625 15,146,175 ========== ========== Liabilities and Stockholders' Equity Current liabilities: Current installments of debt (note 4) $ - 2,525,100 Current portion of deferred income 141,176 - Trade accounts payable 805,342 649,252 Accrued expenses: Compensation 298,531 232,972 Other 51,431 99,012 Dividends payable 69,902 15,613 ---------- ---------- Total current liabilities 1,366,382 3,521,949 Debt, excluding current installments (note 4) 2,500,000 56,250 Deferred income, excluding current portion 73,530 - Deferred income taxes (note 5) 60,655 - ---------- ---------- Total liabilities 4,000,567 3,578,199 ---------- ---------- Stockholders' equity (note 6): Common stock, $.51 par value. Authorized 10,000,000 shares; issued and outstanding 5,455,756 in 2000 and 1999 2,782,435 2,782,435 Additional paid-in capital 7,528,473 7,528,473 Retained earnings 1,679,150 1,257,068 ---------- ---------- Total stockholders' equity 11,990,058 11,567,976 ---------- ---------- Commitments and contingencies (notes 7,9 and 10) $ 15,990,625 15,146,175 ========== ========== See accompanying notes to consolidated financial statements. F-2 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Consolidated Statements of Operations Years ended March 31, 2000, 1999 and 1998 2000 1999 1998 Operating revenues: ---- ---- ---- Net sales (note 8) $ 16,711,604 17,119,719 18,101,785 Royalties 126,121 91,295 329,166 ---------- ---------- ---------- 16,837,725 17,211,014 18,430,951 ---------- ---------- ---------- Operating expenses: Cost of sales 11,587,061 13,041,258 13,265,505 Selling, general, and administrative 3,301,640 3,150,830 4,023,205 Research, development, and engineering 1,035,994 1,107,253 1,223,422 ---------- ---------- ---------- 15,924,695 17,299,341 18,512,132 ---------- ---------- ---------- Operating income (loss) 913,030 (88,327) (81,181) ---------- ---------- ---------- Other income (deductions): Interest and sundry income 89,257 84,211 131,727 Interest expense (184,832) (193,902) (136,380) Loss on disposal of property, plant and equipment (20,174) - - Gain on foreign exchange 3,534 3,558 191 ---------- ---------- ---------- (112,215) (106,133) (4,462) ---------- ---------- ---------- Income (loss) before income taxes 800,815 (194,460) (85,643) Income taxes expense (benefit) (note 5) 215,060 (210,352) 110,671 ---------- ---------- ---------- Net income (loss) $ 585,755 15,892 (196,314) ========== ========== ========== Basic earnings (loss) per share $ .11 - (.04) ========== ========== ========== Diluted earnings (loss) per share $ .11 - (.04) ========== ========== ========== Weighted average number of common and equivalent shares outstanding: Basic 5,455,756 5,455,756 5,332,571 Diluted 5,473,220 5,476,134 5,332,571 ========== ========== ========== See accompanying notes to consolidated financial statements. F-3 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Consolidated Statements of Stockholders' Equity Years ended March 31, 2000, 1999 and 1998 Retained Additional earnings Total Common stock paid-in (accumulated stockholders' Shares Amount capital deficit) equity Balances at ------ ------ ------- ------- ------ March 31, 1997: 5,332,571 2,719,611 7,411,581 2,397,353 12,528,545 Dividends - $.18 per share - - - (959,863) (959,863) Net loss - - - (196,314) (196,314) --------- --------- --------- --------- ---------- March 31, 1998: 5,332,571 $ 2,719,611 7,411,581 1,241,176 11,372,368 Exercise of stock options via exchange of 30,915 common shares and cash of $179,716 for 154,100 new common shares 123,185 62,824 72,524 - 135,348 Tax benefit related to exercise of employee stock options - - 44,368 - 44,368 Net income - - - 15,892 15,892 --------- --------- --------- --------- ---------- Balances at March 31, 1999: 5,455,756 $ 2,782,435 7,528,473 1,257,068 11,567,976 Dividends - $.03 per share - - - (163,673) (163,673) Net income - - - 585,755 585,755 Balances at March 31, 2000: 5,455,756 $ 2,782,435 7,528,473 1,679,150 11,990,058 ========= ========= ========= ========= ========== See accompanying notes to consolidated financial statements. F-4 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Consolidated Statements of Cash Flows Years ended March 31, 2000, 1999 and 1998 2000 1999 1998 Cash flows from operating activities: ---- ---- ---- Net income (loss) $ 585,755 15,892 (196,314) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Accretion of interest - (21,098) (114,825) Loss on disposal of equipment 20,174 - - Allowance for doubtful accounts (15,501) (1,000) (4,800) Depreciation and amortization 850,092 733,906 622,219 Decrease (increase) in accounts receivable 30,216 (408,200) (401,807) Decrease (increase) in income taxes receivable 255,822 (35,035) (74,889) Decrease (increase) in inventories (484,407) 601,227 (182,641) Decrease (increase) in prepaid expenses and other current assets 5,686 159,791 (56,623) Decrease (increase) in deferred income taxes 98,565 (52,982) 51,492 Decrease (increase) in other assets 45,738 (114,118) 3,697 Increase in deferred income 214,706 - - Increase (decrease) in accounts payable 156,090 (567,372) (390,492) Increase (decrease) in accrued expenses 17,978 (123,879) 159,314 --------- --------- --------- Net cash provided (used) by operating activities 1,780,914 187,132 (585,669) --------- --------- --------- Cash flows from investing activities: Maturities of short-term investments - 1,055,000 3,112,000 Purchases of short-term investments - - (1,000,064) Capital expenditures for property, plant and equipment (548,122) (772,326) (2,216,397) --------- --------- --------- Net cash provided (used) by investing activities (548,122) 282,674 (104,461) --------- --------- --------- Cash flows from financing activities: Net borrowings under line-of-credit agreement 49,900 - 1,872,101 Principal payments on mortgage note payable (131,250) (75,000) (75,000) Proceeds from exercise of stock options - 135,348 - Dividends paid (109,384) (30,000) (1,260,740) --------- --------- --------- Net cash provided (used) by financing activities (190,734) 30,348 536,361 --------- --------- --------- Net increase (decrease) in cash and cash equivalents 1,042,058 500,154 (153,769) Cash and cash equivalents at beginning of year 1,653,952 1,153,798 1,307,567 --------- --------- --------- Cash and cash equivalents at end of year $ 2,696,010 1,653,952 1,153,798 ========= ========= ========= Supplemental cash flow information: Cash paid for interest $ 180,590 193,902 136,380 ========= ========= ========= Cash paid (received) for income taxes $ (137,327) (228,299) 134,068 ========= ========= ========= See accompanying notes to consolidated financial statements. F-5 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements March 31, 2000, 1999 and 1998 (1) Summary of Significant Accounting Policies (a) Description of Business Technology Research Corporation and subsidiary (the Company) is engaged in the design, development, manufacturing, and marketing of electronic control and measurement devices related to the distribution of electrical power and specializes in electrical safety products that prevent electrocution, electrical fires and protect against serious injury from electrical shock. The Company's corporate headquarters are located in Clearwater, Florida. During February 1997, the Company incorporated TRC Honduras, S.A. de C.V., a wholly owned subsidiary, for the purpose of manufacturing the Company's high volume products in Honduras. The Company primarily sells its products to governmental entities and original equipment manufacturers involved in a variety of industries including business machinery and personal care appliances. The Company performs credit evaluations of all new customers and generally does not require collateral. Historically, the Company has experienced minimal losses related to receivables from individual customers or groups of customers in any particular industry or geographic area. The Company's customers are located throughout the world. See note 8 for further information on major customers. The Company also licenses its technology for use by others in exchange for a royalty or product purchases. Licensees are located in Australia, France, Italy, Japan, the United Kingdom and the United States. (b) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (c) Foreign Currency Translation The U.S. dollar is the functional currency of the Honduran subsidiary. Foreign currency denominated assets and liabilities of this subsidiary are remeasured at the rates of exchange at the balance sheet date. Income and expense items are remeasured at average monthly rates of exchange. Gains and losses from foreign currency transactions of this subsidiary are included in operations. F-6 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements March 31, 2000, 1999 and 1998 (d) Financial Instruments The Company believes the book value of its financial instruments (accounts receivable, trade accounts payable, accrued expenses, dividends payable, income taxes receivable and payable and debt) approximate their fair value due to their short-term nature or with respect to debt, the interest rate appropriately reflects the credit risk. (e) Principles of Consolidation The consolidated financial statements include the financial statements of Technology Research Corporation and its wholly-owned subsidiary, TRC Honduras, S.A. de C.V. All significant intercompany balances and transactions have been eliminated in consolidation. (f) Cash Equivalents For purposes of the statements of cash flows, the Company considers all short- term investments purchased with a maturity of three months or less to be cash equivalents. Short-term investments at March 31, 2000 and 1999 consisted of interest bearing demand deposit accounts. (g) Revenue Recognition The Company recognizes revenue when an order has been received, the product has been shipped, pricing is fixed and collectability is reasonably assured. Cost of sales include the Company's estimate of any warranty, rework or other concessions the Company expects to incur in connection with a sale. Such costs amounted to $7,500 at March 31, 2000 and $0 at March 31, 1999. The Company accrues minimum royalties due over the related royalty period. Royalties earned in excess of minimum royalties due are recognized as reported by the licenses. Nonrefundable, up-front license fees are recognized at the time of receipt, unless the Company is obligated to incur incremental costs in connection with the agreement. Up-front license fees that include when and if available clauses are deferred over the exclusivity period of the agreement. The Company classifies up-front license fees as current deferred income when it will be earned within the next year. License fees are included in royalty revenues. F-7 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements March 31, 2000, 1999 and 1998 (h) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company reviews long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. (i) Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. (k) Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets. (k) Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (l) Stock-Based Compensation The Company accounts for stock-based compensation in accordance with Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock- Based Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS 123 also allows entities to continue to apply the provisions of APB 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS 123 had been applied. F-8 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements March 31, 2000, 1999 and 1998 The Company has elected to continue to apply the provisions of APB 25 and provide the pro forma disclosures of SFAS 123. (m) Earnings Per Share Basic earnings per share has been computed by dividing net income by the weighted average number of common shares outstanding. Common share equivalents included in the dilutive weighted average shares outstanding computation represent shares issuable upon assumed exercise of stock options which would have a dilutive effect in years where there are earnings. (n) New Accounting Standards In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair values. In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No. 133" which deferred the effective date of the adoption of SFAS No. 133. The Company will be required to adopt SFAS No. 133 for financial statements issued beginning the first quarter of fiscal year 2001. The Company has no derivative financial instruments at March 31, 2000; therefore, the adoption of this standard is not expected to have any effect on the consolidated financial statements. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). The bulletin draws on existing accounting rules and provides specific guidance on how those accounting rules should be applied. SAB 101 was to be effective for the Company's quarter ended March 31, 2000. However, in March 2000, the Securities and Exchange Commission issued SAB 101A which delays the effective date to the Company's quarter ended June 30, 2000. Recently, the Securities and Exchange Commission indicated it would be providing further written guidance with respect to the adoption of specific issues addressed by SAB 101. Based on what is currently known by the Company, management does not believe that adoption of SAB 101 will have a material impact on its financial position or results of operations. F-9 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements March 31, 2000, 1999 and 1998 (2) Inventories Inventories at March 31, 2000 and 1998 consist of: 2000 1999 ---- ---- Raw materials $ 3,927,770 3,800,340 Work in process 351,964 242,683 Finished goods 928,855 681,159 --------- --------- $ 5,208,589 4,724,182 ========= ========= Approximately 40% and 29% of inventories were located in Honduras at March 31, 2000 and 1999 respectively. (3) Property, Plant and equipment Property, plant and equipment at March 31, 2000 and 1999 consists of: Estimated 2000 1999 useful lives ---- ---- ------------ Building and improvements $ 1,519,681 1,516,676 20 years Machinery and equipment 7,670,452 8,289,458 5 - 15 years --------- --------- ------------ $ 9,190,133 9,806,134 ========= ========= Approximately 25% and 21% of property, plant and equipment is located in Honduras at March 31, 2000 and 1999, respectively. F-10 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements March 31, 2000, 1999 and 1998 (4) Debt Debt at March 31, 2000 and 1999 consists of the following: 2000 1999 ---- ---- $3,000,000 line of credit; interest at LIBOR plus 200 basis points (8.16%at March 31, 2000), due December 14, 2001; secured by receivables, inventories and equipment (subject to provisions stated below) $ 2,500,000 - $2,500,000 line of credit; interest at LIBOR plus 175 basis points (6.69% at March 31, 1999), payable monthly, due August 1999; secured by receivables, inventories and equipment (subject to provisions stated below) - 2,450,100 First mortgage note payable; interest at LIBOR plus 175 basis points (7.69% at March 31, 1999); due in monthly installments of $6,250, plus interest, secured by operating facility, paid in full in December 1999 - 131,250 --------- --------- Total debt 2,500,000 2,581,350 Less current installments - (2,525,100) --------- ---------- Debt, excluding current installments $ 2,500,000 56,250 ========= ========== Borrowings under the $3,000,000 are secured by all accounts receivable, inventories, and property, plant and equipment, and requires the Company to maintain certain financial ratios, minimum working capital and minimum tangible net worth amounts. The Company was in compliance with these covenants at March 31, 2000. The full balance outstanding under the line of credit is due December 14, 2001. Borrowings under the $2,500,000 line of credit are limited to 80 percent of eligible accounts receivable under 90 days, plus the lesser of 40 percent of eligible inventory or $450,000. The line of credit is secured by accounts receivable, inventories, and property, plant and equipment, and requires the Company to maintain certain financial ratios and a minimum tangible net worth amount. The Company was in compliance with these covenants at March 31, 1999. The line of credit was paid in full in December 1999. F-11 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements March 31, 2000, 1999 and 1998 (5) Income Taxes The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2000 and 1999 are presented below: 2000 1999 ---- ---- Deferred tax assets: Accounts receivable, principally due to allowance for doubtful accounts $ 17,000 23,300 Deferred income for financial reporting 77,000 - Inventories, principally due to valuation allowance for financial reporting purposes and additional costs inventoried for tax purposes 286,000 281,000 Accrued expenses, principally due to accrual for financial reporting purposes 35,000 47,000 Net operating loss carryforwards 58,000 214,000 Tax credit carryforwards 214,000 221,000 -------- -------- Total gross deferred tax assets 687,000 786,000 Less valuation allowance 187,000 187,000 -------- -------- 500,000 559,000 -------- -------- Deferred tax liabilities: Property, plant and equipment, principally due to differences in depreciation (83,555) (83,990) -------- -------- Net deferred tax assets $ 416,445 515,010 ======== ======== Net deferred tax assets are included in the accompanying balance sheets at March 31, 2000 and 1999 as: 2000 1999 ---- ---- Deferred income taxes, current asset $ 477,100 515,010 Deferred income taxes, noncurrent liability (60,655) - -------- -------- $ 416,445 515,010 ======== ======== F-12 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements March 31, 2000, 1999 and 1998 Management assesses the likelihood deferred tax assets will be realized which is dependent upon the generation of taxable income during the periods in which those temporary differences are deductible. Management considers historical taxable income, the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset related to net operating loss and tax credit carryforwards, the Company will need to generate future taxable income of approximately $170,000 each year prior to the expiration of the net operating loss and tax credit carryforwards in 2003 and 2002, respectively. Based upon the level of historical taxable income and projections for future taxable income, management believes it will realize the benefits of these deductible differences, net of the existing valuation allowance at March 31, 2000. The valuation allowance at March 31, 2000 and 1999 relates to tax credit carryforwards which management expects will expire unused. At March 31, 2000, the Company has net operating loss carryforwards for Federal income tax purposes of approximately $140,000, which are available to offset future taxable income through 2003. The Company also has available tax credit carryforwards for Federal income tax purposes of approximately $214,000, which are available to offset future Federal income taxes through 2002. As a result of an ownership change in 1989, the Internal Revenue Code limits the income tax benefit of $140,000 of net operating loss and $214,000 of tax credit carryforwards to approximately $65,000 each year. Income tax expense (benefit) for the years ended March 31, 2000, 1999 and 1998 consists of: 2000 1999 1998 ---- ---- ---- Current: Federal $ 116,495 (263,334) 59,179 State - - - -------- -------- --------- 116,495 (263,334) 59,179 -------- -------- --------- Deferred: Federal 90,731 70,000 48,600 State 7,834 (17,018) 2,892 -------- -------- --------- 98,565 52,982 51,492 -------- -------- --------- $ 215,060 (210,352) 110,671 ======== ======== ========= F-13 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements March 31, 2000, 1999 and 1998 Income tax expense (benefit) for the years ended March 31, 2000, 1999 and 1998 differs from the amounts computed by applying the Federal income tax rate of 34% to pretax income (loss) as a result of the following: 2000 1999 1998 ---- ---- ---- Computed expected tax (benefit) expense $ 272,000 (66,000) (29,000) Increase (reduction) in income taxes resulting from: Foreign activity for which no income tax has been provided (75,000) (112,000) 128,000 State income taxes, net of Federal income tax effect 5,000 (8,000) 2,000 Other 13,060 (24,352) 9,671 -------- -------- --------- $ 215,060 (210,352) 110,671 ======== ======== ========= The operating results of the foreign manufacturing subsidiary are not subject to foreign tax since it is operating under a tax holiday for at least twenty years. The foreign operations resulted in income of approximately $221,000 in 2000, $329,000 in 1999 and a loss of $375,000 in 1998. No income taxes have been provided on these results of operations. (6) Stock Options, Grants and Warrants The Company has two qualified incentive stock option plans, one performance- incentive stock option plan, and one nonqualified stock option plan (the Plans). Options granted under the Plans are granted to directors, officers and employees at fair value and expire ten years after the date of grant. Except for the Performance Plan, options granted under the Plans generally vest over three years. Options granted under the Performance Plan vest at the end of year ten but are subject to accelerated vesting if certain targets are met. Options may be exercised by payment of cash or with stock of the Company owned by the officer or employee. In November 1998, the Board of Directors approved a repricing of options under the qualified incentive stock option and nonqualified stock option plans. The options were repriced on November 19, 1998 based on the closing stock price on that date. F-14 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements March 31, 2000, 1999 and 1998 Option transactions and other information relating to the Plans for the three years ended March 31, 2000 are as follows: Qualified Performance Non- incentive incentive qualified Weighted stock stock stock average option option option exercise plans plan plan Total price ------- ------- ------- --------- -------- Outstanding at March 31, 1997 147,167 400,000 198,568 745,735 4.70 Granted 1,000 - 10,000 11,000 3.29 Canceled (14,020) - (2,000) (16,020) 5.29 ------- ------- ------- --------- Outstanding at March 31, 1998 134,147 400,000 206,568 740,715 4.32 Granted 141,911 - 46,134 188,045 1.57 Exercised - - (154,100) (154,100) 1.33 Canceled (134,147) - (52,468) (186,615) 5.08 ------- ------- ------- --------- Outstanding at March 31, 1999 141,911 400,000 46,134 588,045 3.99 Granted 24,750 - 10,000 34,750 1.55 Exercised - - - - - Canceled (14,401) (100,000) (1,700) (116,101) 4.64 ------- ------- ------- --------- Outstanding at March 31, 2000 152,260 300,000 54,434 506,694 3.67 ======= ======= ======= ========= Total number of options available under the plans 166,667 400,000 333,333 900,000 ======= ======= ======= ========= Exercisable at March 31, 2000 39,741 - 40,374 80,115 1.52 ======= ======= ======= ========= Available for issue at March 31, 2000 3,296 100,000 - 103,296 ======= ======= ======= ========= The per share weighted average fair value of stock options granted during 2000, 1999 and 1998 was $1.13, $1.15 and $1.85, respectively, on the date of grant using the Black Scholes option pricing model, with the following assumptions: (1) risk free interest rate - 5.00 percent to 6.26 percent, (2) expected life - 6.5 to 10.0 years, (3) expected volatility - 73 percent to 83 percent, and (4) expected dividends - 2.0 percent to 5.8 percent. At March 31, 2000, the range of exercise prices and weighted average remaining contractual life of options outstanding and exercisable was as follows: Options Outstanding Options Exercisable - ------------------------------------------------- ---------------------------- Number Weighted average Weighted Number Weighted Range of outstanding remaining average exercisable average exercise as of contractual exercise as of exercise prices March 31, 2000 life price March 31, 2000 price - -------- -------------- -------------- --------- -------------- -------- $1.06 - 1.19 36,750 9.18 1.11 16,337 1.10 $1.62 164,944 8.70 1.62 63,778 1.62 $2.75 5,000 9.99 2.75 - - $5.12 300,000 6.25 5.12 - - F-15 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements March 31, 2000, 1999 and 1998 The Company grants options at fair value and applies APB 25 in accounting for its Plans. Accordingly, no compensation cost has been recognized for stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS 123, the Company's net income at March 31, 2000, 1999 and 1998 would have been reduced to the pro forma amounts indicated below: 2000 1999 1998 ---- ---- ---- Net income (loss): As reported $ 585,755 15,892 (196,314) ========= ========= ========= Pro forma $ 539,899 (70,343) (290,371) ========= ========= ========= Income (loss) per common share: As reported $ .11 - (.04) ========= ========= ========= Pro forma $ .10 (.01) (.05) ========= ========= ========= Pro forma net income reflects only options granted after March 31, 1995. Therefore, the full impact of calculating compensation costs for stock options under SFAS 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' vesting period of three to ten years, and compensation costs for options granted prior to April 1, 1995 are not considered. The Company has also reserved 32,667 shares of its common stock for issuance to employees or prospective employees at the discretion of the Board of Directors of which 16,033 shares are available for future issue. There were no reserved shares issued during the years ended March 31, 2000, 1999 or 1998. On March 24, 2000, the Company's Board of Directors approved a new stock incentive plan of 300,000 shares. The Plan will be submitted for shareholder approval at the Company's annual meeting. F-16 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements March 31, 2000, 1999 and 1998 (7) Leases The Company leases the land on which its operating facility is located. This operating lease is for a period of twenty years through 2001 with options to renew for two additional ten-year periods. The lease provides for rent adjustments every five years. The Company is responsible for payment of taxes, insurance, and maintenance. In the event the Company elects to terminate the lease, title to all structures on the land reverts to the lessor. The Company's subsidiary leases its operating facility in Honduras. This operating lease is for five years through the year 2002, with an option to renew for an additional five-year term. The Company also leases certain office equipment under long-term operating lease agreements. Future minimum lease payments under noncancelable operating leases as of March 31, 2000 are: Year ending March 31, --------------------- 2001 245,000 2002 206,000 2003 17,000 -------- Total minimum lease payments $ 468,000 ======== Rental expense for all operating leases was approximately $245,000 in 2000, $249,000 in 1999 and $187,000 in 1998. (8) Major Customers The Company operates in one business segment - the design, development, manufacture and marketing of electronic control and measurement devices for the distribution of electric power. The Company only reports sales and standard gross profit by market (commercial and military), no allocations of manufacturing variances and other costs of operations or assets are made to the market. Sales by market are: 2000 1999 1998 ---- ---- ---- Commercial $ 12,801,147 13,929,177 13,434,352 Military $ 3,910,457 3,190,542 4,667,433 ---------- ---------- ---------- $ 16,711,604 17,119,719 18,101,785 ========== ========== ========== F-17 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements March 31, 2000, 1999 and 1998 Significant customers which accounted for 10% or more of sales in 2000, 1999 or 1998 and aggregate exports were: Year ended March 31 ------------------- Customer 2000 1999 1998 -------- ---- ---- ---- Xerox Corporation $ 1,266,613 1,934,740 2,838,905 Noma Appliance & Electric, Inc. Noma Appliance, Inc. f/k/a Fleck Manufacturing, Inc. (a Xerox Corporation supplier) 954,288 1,623,904 1,666,516 Other Xerox suppliers 987,424 124,473 133,044 Fermont Division 2,115,722 1,397,211 2,817,079 --------- --------- --------- $ 5,324,047 5,080,328 7,455,544 Exports: ========= ========= ========= Canada $ 1,342,365 1,794,855 1,894,215 Far East 198,026 394,156 486,277 Europe 3,243,918 2,787,224 2,554,772 Mexico 563,550 711,067 979,187 Australia 218,746 117,754 218,530 South America 12 430 37,383 20,994 Middle East 5,281 2,067 3,397 --------- --------- --------- Total exports $ 5,584,316 5,844,506 6,157,372 ========= ========= ========= (9) Benefit Plan The Company's 401(k) plan covers all employees with one year of service who are at least twenty-one years old. The Company matches employee contributions dollar-for-dollar up to $300. On December 9, 1999, the Company's Board of Directors approved an increase in the company match up to $400 for the 2000 plan year. Total Company contributions were approximately $24,000 in 2000, $25,000 in 1999 and $29,000 in 1998. F-18 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements March 31, 2000, 1999 and 1998 (10) Litigation The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. (11) Stock Repurchase Plan On December 9, 1999, the Company's Board of Directors approved a plan for the Company to buy back up to 500,000 shares of the Company stock on the open market. The Company has not made any repurchases of shares as of March 31, 2000. (12) Selected Quarterly Data (Unaudited) Information (unaudited) related to operating revenues, operating income, net income and earnings per share, by quarter, for the years ended March 31, 2000 and 1999 are: First Second Third Fourth quarter quarter quarter quarter ------- ------- ------- ------- Year ended March 31, 2000: Operating revenues $ 3,934,518 4,286,429 4,006,422 4,610,356 ========= ========= ========= ========= Gross profit $ 1,331,261 1,369,310 1,226,256 1,197,716 ========= ========= ========= ========= Operating income (loss) $ 287,290 264,425 228,310 133,005 ========= ========= ========= ========= Net income (loss) $ 203,825 180,405 113,603 87,922 ========= ========= ========= ========= Basic earnings per share $ .04 .03 .02 .02 ========= ========= ========= ========= Diluted earnings per share $ .04 .03 .02 .02 ========= ========= ========= ========= Year ended March 31, 1999: Operating revenues $ 4,753,401 4,467,032 3,714,398 4,276,183 ========= ========= ========= ========= Gross profit $ 1,426,715 1,282,222 829,614 539,910 ========= ========= ========= ========= Operating income (loss) $ 410,425 160,780 (136,931) (522,601) ========= ========= ========= ========= Net income (loss) $ 239,862 84,010 (70,001) (237,979) ========= ========= ========= ========= Basic earnings per share $ .04 .02 (.02) (.04) ========= ========= ========= ========= Diluted earnings per share $ .04 .02 (.02) (.04) ========= ========= ========= ========= F-19 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements March 31, 2000, 1999 and 1998 The fourth quarter of the years ended March 31, 1999 was adversely affected by an approximately $250,000 reduction in inventory as a result of the Company's physical inventory. It is not practicable to determine what, if any, other quarters are affected by this adjustment. The fourth quarter of the year ended March 31, 2000 was adversely affected by an approximately $51,000 reduction in property, plant and equipment as a result of the Company's physical inventory of certain equipment. It is not practicable to determine what, if any, other quarters are affected by this adjustment. F-20 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Schedule II Valuation and Qualifying Accounts Years ended March 31, 2000, 1999 and 1998 Additions ---------------------- Balances at Charged to Charged to Balances beginning costs and other at end of Description of period expenses accounts Deductions period ----------- ---------- ---------- ---------- ---------- --------- Allowance for doubtful accounts: Year ended March 31, 2000 $ 63,700 45,105 - 60,606 48,199 ======= ======= ======= ======= ======= Year ended March 31, 1999 $ 64,700 24,500 - 25,000 63,700 ======= ======= ======= ======= ======= Year ended March 31, 1998 $ 69,500 - - 4,800 64,700 ======= ======= ======= ======= ======= F-21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TECHNOLOGY RESEARCH CORPORATION Dated: 6/9/2000 By: /s/ Robert S. Wiggins Robert S. Wiggins Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated: Signature Title Date Chairman, Chief Executive Officer, and Director (Principal Executive /s/ Robert S. Wiggins Officer) 6/9/2000 Robert S. Wiggins Vice President of Finance and Chief Financial Officer (Principal Financial /s/ Scott J. Loucks Officer) 6/9/2000 Scott J. Loucks /s/ Raymond H. Legatti President and Director 6/9/2000 Raymond H. Legatti Senior Vice President Government Operations and Marketing and /s/ Raymond B. Wood Director 6/9/2000 Raymond B. Wood /s/ Gerry Chastelet Director 6/16/2000 Gerry Chastelet /s/ Edmund F. Murphy, Jr. Director 6/14/2000 Edmund F. Murphy, Jr. /s/ Martin L. Poad Director 6/16/2000 Martin L. Poad -25- EX-10 2 0002.txt EXHIBIT (10) LICENSE AGREEMENT THIS AGREEMENT is made effective as of the thirty-first day of December, 1999 ("Effective Date"), between TECHNOLOGY RESEARCH CORPORATION, a corporation organized under the laws of the State of Florida, United States of America (herein "TRC"), having its registered office at 5250 140th Avenue North, Clearwater, Florida 33760, and WINDMERE-DURABLE HOLDINGS, INC. (hereinafter "WINDMERE"), a corporation organized under the laws of the State of Florida, United States of America, having its principal office at 5980 Miami Lakes Drive, Miami Lakes, Florida 33014. WHEREAS, TRC has developed expertise and technology used in a product offering shock detection, insulation failure detection, flame detection and an automatic shut-off feature ("SAFETY CIRCUIT"); and WHEREAS, TRC represents and warrants that it is the owner of all rights in and to inventions described and claimed in United States Patent Application, as identified in attached Schedule A; WHEREAS, TRC represents and warrants that it has the legal power to extend the licenses granted to WINDMERE under the Licensed Patents (as hereinafter defined); and WHEREAS, WINDMERE is desirous of obtaining licenses pursuant to the terms, conditions and limitations hereinafter set forth under the Licensed Patents and to use the technical information and data that shall be conveyed by TRC to WINDMERE pursuant to this Agreement. ARTICLE I Definitions ----------- Section 1.1 Licensed Patents The term "Licensed Patents" shall mean the (i) United States patent applications listed on Schedule A, additional counterpart applications filed in the future in the Territory (as hereinafter defined) by TRC; (ii) all patents issuing from the patent applications defined in (i) above; (iii) all divisions, continuations, continuations-in-part, reissues, reexaminations or extensions of the patents or patent applications defined in (i) and (ii) above; and (iv) Improvement Patents (as hereinafter defined in Section 2.2). Section 1.2 Licensed Products The term "Licensed Products" shall mean consumer electrically operated food cooking appliances, specifically toasters and toaster ovens incorporating the SAFETY CIRCUIT. Section 1.3 Subsidiaries The term "Subsidiaries" shall mean companies which during the Term, directly or indirectly, are controlled by WINDMERE. A company is controlled by ownership of more than fifty percent (50%) of the capital stock entitled to vote for directors or persons performing a function similar to that of directors. Section 1.4 Territory The term "Exclusive Territory" shall mean Canada, the United States, Mexico and each of their respective possessions and territories. The term "Non-Exclusive Territory" shall mean all countries of the world other than the countries comprising the Exclusive Territory. Section 1.5 Improvements The term "Improvements" means any modification of the SAFETY CIRCUIT described in a Licensed Patent, provided such modified SAFETY CIRCUIT, if unlicensed, would infringe one or more claims of such Licensed Patents. 2 Section 1.6 Additional Licensed Products The term "Additional Licensed Products" shall mean further categories of products incorporating the SAFETY CIRCUIT. ARTICLE II Grant ----- Section 2.1 Grant of License TRC grants and agrees to grant to WINDMERE and its Subsidiaries throughout the Term (with the right to sublicense on the terms and conditions set forth herein), an exclusive license in the Exclusive Territory under the Licensed Patents to make, have made for its own account, use, import, offer to sell, sell and otherwise dispose of Licensed Products. TRC further grants and agrees to grant to WINDMERE and its Subsidiaries throughout the Term (with the right to sublicense according to the terms and conditions set forth herein) a non- exclusive license in the Non-Exclusive Territory under the Licensed Patents to make, have made for its own account, use, import, offer to sell, sell, and otherwise dispose of Licensed Products. The licenses granted under this Section 2.1 to WINDMERE and its Subsidiaries shall extend throughout the Territory. The exclusive license granted pursuant to this Section 2.1 shall extend for a period of one year from May 31, 2000. At the expiration of the one year period, the exclusive license granted pursuant to this Section 2.1 shall automatically convert to a non-exclusive license under the same terms and conditions. Section 2.2 Improvement Inventions TRC further agrees to grant to WINDMERE and its Subsidiaries licenses of the scope specified in Section 2.1 in respect to inventions, whether patentable or otherwise, developed, or otherwise acquired by TRC on any Improvements, which inventions are developed or acquired before the termination or expiration of the Term. Any patents on Improvements shall, when issued, be added to Schedule A. 3 Section 2.3 Technical Information TRC shall provide in English language to WINDMERE, at no cost or charge, and at the time WINDMERE makes the first payment provided in Section 3.2, all written reports, test data, prototypes, written product information, sourcing information (if any) for components of the SAFETY CIRCUIT, engineering drawings in either computer or hard copy form, calculations, and any and all data and information of a similar nature ("Information") to enable Windmere or its Subsidiaries to manufacture the SAFETY CIRCUIT. TRC represents and warrants that it has no knowledge that practice of the subject matter disclosed in the Licensed Patents or in the Information infringes patents or other intellectual property rights of third parties. Section 2.4 Confidentiality WINDMERE shall retain Information provided pursuant to Section 2.3 in confidence, both during and subsequent to the Term of this Agreement, subject, however, to the conditions that no such obligation on the part of WINDMERE shall apply if such Information was known by WINDMERE based upon written evidence prior to first receipt of same from TRC; is now or through no act or failure to act on the part of WINDMERE becomes generally known to the public; is properly furnished to WINDMERE by a third party without restriction on disclosure; is developed independently by a third party and furnished to WINDMERE; is disclosed pursuant to an Order from a court or other governmental authority; or is developed independently by an employee of WINDMERE who has not been privy to the Information. WINDMERE's obligation to maintain the Information in confidence shall expire eighteen (18) months after termination of this Agreement. Notwithstanding anything herein to the contrary, WINDMERE shall have the right to use the Information in the exercise of its license under Section 2.1 herein. Section 2.5 Option WINDMERE shall have the option ("Option") to acquire all or part of the Licensed Patents pursuant to the terms of a separate Letter Agreement between WINDMERE and TRC. 4 Section 2.6 Additional Licensed Products During the Term of this Agreement, WINDMERE shall have both the right of first option and the right of first refusal to add Additional Licensed Products to this Agreement. If WINDMERE decides to exercise its rights, it shall pay TRC a non-refundable fee of Twenty-Five Thousand Dollars (US $25,000.00) for each category of Additional Licensed Products. As used herein the term "category" means a type of product defined by a task, such as, by way of example and not limitation, garment care, heaters, fans, beverage makers and the like. Upon payment of the Twenty-Five Thousand Dollar (US $25,000.00) fee, TRC grants and agrees to grant to WINDMERE and its Subsidiaries for a period of one (1) year an exclusive license under the Licensed Patents in the Exclusive Territory, and a non-exclusive license under the Licensed Patents in the Non-Exclusive Territory, to make, have made for its own account, use, import, offer to sell, sell, and otherwise dispose of Additional Licensed Products in the category. As consideration for the Twenty-Five Thousand Dollar (US $25,000.00) payment, TRC shall perform the necessary engineering tasks associated with adapting the SAFETY CIRCUIT to the Additional Licensed Products and assist WINDMERE in the process of obtaining U.L. certification for any Additional Licensed Products that are covered by the payment of the aforementioned fee. The one (1) year period for the exclusive license(s) granted pursuant to this Section 2.6 shall commence upon the date that TRC shall deliver to WINDMERE functional drawings adapting the SAFETY CIRCUIT to the Additional Licensed Products. At the expiration of the one (1) year period, the exclusive license granted pursuant to this Section 2.6 shall automatically convert to a non-exclusive license under the same terms and conditions. The license granted under this Section 2.6 to WINDMERE and its Subsidiaries shall extend throughout the Exclusive and Non-Exclusive Territories. ARTICLE III Compensation ------------ Section 3.1 Royalties Royalties shall be paid by WINDMERE to TRC throughout the Term at the rate set forth in Schedule B. 5 Section 3.2 Initial License Fee In return for the exclusivity rights granted pursuant to Section 2.1, WINDMERE shall pay to TRC an initial license fee of Two Hundred Fifty Thousand Dollars (US $250,000.00) payable as of the Effective Date of this Agreement. Section 3.3 Royalty Credit WINDMERE shall receive a five percent (5%) credit towards the payment of any royalties due TRC pursuant to Section 3.1. Section 3.4 Underwriters Laboratories Approval TRC shall assist WINDMERE in the process of obtaining U.L. certification for Licensed Products and Additional Licensed Products. Section 3.5 Most Favored Licensee If TRC, after expiration of the exclusivity period, grants a license to any third party for a Licensed Product containing provisions that require payments at rates of royalty less than provided for in Schedule B hereof, TRC shall promptly notify WINDMERE of those royalty provisions. WINDMERE shall then be entitled, upon written request to TRC, to the more favorable royalty. ARTICLE IV Reports and Payments -------------------- Section 4.1 Statement Within forty-five (45) days after the end of each quarter year on the last day of March, June, September and December of each calendar year during the Term, WINDMERE shall furnish TRC with written statements reflecting WINDMERE's production of all Licensed Products during the preceding calendar quarter and shall pay the royalties due pursuant to Article III. The first statement submitted under this Agreement shall cover the period commencing with the first sale of Licensed Products to the end of the quarter being reported. All royalties and other payments to be made pursuant to this Agreement shall be payable by WINDMERE in United States dollars to TRC at its address specified in Section 6.12 hereof. 6 Section 4.2 Accounts WINDMERE shall keep for three (3) years after the date of submission of each statement, true and accurate records and books of accounts containing all the data reasonably required for the verification of WINDMERE's manufacture of Licensed Products. WINDMERE shall permit a public accountant to inspect such records and books of account at WINDMERE's premises during normal business hours provided reasonable prior notice is given to WINDMERE, and all expenses associated with such inspection are borne by TRC. ARTICLE V Term and Termination -------------------- Section 5.1 Term This Agreement shall commence as of the Effective Date and continue in force until the expiration of the last Licensed Patent unless sooner terminated by TRC or WINDMERE as hereinafter provided, or unless WINDMERE exercises its Option pursuant to Section 2.5. Section 5.2 Termination on Default If TRC or WINDMERE shall at any time default on any payments due in accordance with this Agreement, or in fulfillment of any of the other obligations or conditions hereof, the non-defaulting party shall give notice of such default specifying the reasons therefor. If such default is not cured within sixty (60) days of such notice, the non-defaulting party shall then have the right in its discretion to terminate this Agreement by giving written notice of termination. This Agreement shall terminate on the tenth (10) day after such notice is given. 7 Section 5.3 Termination on Insolvency In the event that WINDMERE shall cease conducting business in the normal course, become insolvent, make a general assignment for the benefit of creditors, or suffer or permit the appointment of a receiver for its business or assets, then this Agreement shall terminate automatically effective on the date of such event. Section 5.4 Waiver of Default No failure or delay on the part of TRC or WINDMERE in exercising its right of termination hereunder for any one or more defaults shall be construed to prejudice its right of termination for such or for any other or subsequent default. ARTICLE VI Additional Provisions --------------------- Section 6.1 Offensive Litigation If either TRC or WINDMERE knows or has reason to believe that any Licensed Patent is being infringed, either directly or indirectly or contributively or otherwise by a third party, the party possessing such knowledge or belief shall promptly notify the other party thereof. While and as long as TRC is the owner of Licensed Patents, TRC at its own discretion and judgment may take action to terminate such infringement. WINDMERE agrees to cooperate with TRC in such enforcement. If TRC initiates litigation for enforcement of the Licensed Patents against a third party, all reasonable expenses associated with any such legal suits or proceedings incurred by WINDMERE in relation to all aspects of such suits, including defenses to any counterclaims and cross-claims that may be asserted by third party defendants, shall be borne by TRC. If WINDMERE is joined in any lawsuit brought by TRC, either voluntarily or involuntarily, TRC shall provide counsel for WINDMERE (who may at TRC's option also be the same counsel who represents TRC) at TRC's sole expense. TRC shall be entitled to all amounts received from third parties resulting from settlement or enforcement of the suits alleging infringement of Licensed Patents. 8 Should TRC decline to exercise a right of enforcement or bring suit to terminate any infringement of any Licensed Patents, then WINDMERE may, at its own discretion, bring such an action and incur all expenses and attorney fees and keep all proceeds of any such actions. In such an instance, TRC agrees to cooperate with WINDMERE in such enforcement. If TRC is joined in any lawsuit brought by WINDMERE, either voluntarily or involuntarily, WINDMERE shall provide counsel for TRC (who may at WINDMERE's option also be the same counsel who represents WINDMERE) at WINDMERE's sole expense. If TRC desires counsel of its own to represent it in such suits, TRC shall have the right to designate its own counsel. TRC shall pay its own designated attorney fees. Section 6.2 Patent Validity In the event of any challenge in any judicial or administrative forum relating to the validity or enforceability of any Licensed Patent, any obligation specified in this Agreement to pay royalties to TRC shall continue unless and until the challenged patent has been finally determined, without possibility of appeal, by duly constituted judicial or administrative authority in the country in question, to be invalid and/or unenforceable ("Finally Determined"). Once any Licensed Patent has been held invalid at trial, all subsequent royalty payments due TRC shall be paid into an escrow account established by WINDMERE for receipt of said royalty payments. In the event a Licensed Patent is Finally Determined not invalid, the monies from the escrow account shall be paid to TRC. In the event the Licensed Patent is Finally Determined invalid, the monies from the escrow account shall be paid to WINDMERE, and WINDMERE shall have no further obligation to pay the royalties set forth in Schedule B; provided, however, if TRC has other Licensed Patents covering Licensed Products, then WINDMERE's obligation to pay TRC royalties shall continue, and TRC shall be entitled to receive the monies from the escrow account. Section 6.3 Assignment This Agreement may be assigned by WINDMERE without TRC's consent with the disposition of all or a substantial portion of the business to which this Agreement relates provided, however, that such assignee shall have agreed in writing with TRC to assume all of the obligations of 9 WINDMERE and at any other time by WINDMERE only with the prior written consent of TRC. This Agreement may be assigned by TRC under the same terms and conditions by which WINDMERE may assign the Agreement. This Agreement shall extend to and be binding upon the parties hereto, their successors and permitted assigns. Section 6.4 Construction This Agreement will be governed by and construed in accordance with the laws of the State of Florida, without regard to its law of conflicts. The headings of Articles and Sections in this Agreement are intended solely for convenience of reference and shall not be considered in construing this Agreement. Section 6.5 Extraneous Writings This Agreement constitutes the entire understanding between the parties with respect to the subject matter hereof; all prior agreements, drafts, representations, negotiations and undertakings are superseded hereby. No amendment to this Agreement shall be effective unless it is in writing and signed by duly authorized representatives of both parties. Section 6.6 Counterparts This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together constitute one and the same Agreement. Section 6.7 Patent Marking WINDMERE agrees to place, and cause its Subsidiaries to place, in a conspicuous location on each Licensed Product sold in the United States, a patent notice in the form authorized by 35 U.S.C. Section 287 setting forth the number of each United States Letters Patent licensed under this Agreement, and agrees further to similarly place the patent notice on each Licensed Product sold by WINDMERE or its Subsidiaries in the other countries within the Territory, in the manner and form as may be requested reasonably by TRC from time to time during the Term. 10 In addition, WINDMERE agrees to use the trademark "FIRE SHIELD" to identify the SAFETY CIRCUIT used in Licensed Products. WINDMERE shall attribute ownership of the trademark "FIRE SHIELD" to TRC. Section 6.8 Negation of Agency and Similar Relationships Nothing herein contained shall be deemed to create an agency, joint venture or partnership relationship between the parties hereto. Section 6.9 Enforceability The illegality of any clause or paragraph in this Agreement shall not affect the enforceability of the remaining portions of this Agreement unless said clause or paragraph is an essential, material portion of the Agreement, in which case the parties agree to negotiate in good faith with respect to modification of said clause or paragraph. Section 6.10 Vicarious Performance WINDMERE may perform any of its duties and obligations hereunder through any of its Subsidiaries, and performance by any Subsidiary shall be deemed to be performance by WINDMERE. Any rights granted hereunder to WINDMERE may be exercised by any of its Subsidiaries. Any Subsidiary performing any of WINDMERE's duties and obligations or exercising its rights shall conclusively be deemed to be bound by the terms of this Agreement as if a signatory hereto. WINDMERE shall be fully liable for breach of the terms of this Agreement by any Subsidiary. Section 6.11 News Release No news release relating to the subject matter of this Agreement shall be issued by either party without the express written approval of the other party. 11 Section 6.12 Notice All notices, payments or statements given under this License Agreement shall be in writing and shall be deemed to have been properly given when delivered personally or sent by prepaid registered or certified mail, or by facsimile or electronic transmission to the following addresses: If given to TRC: TECHNOLOGY RESEARCH CORPORATION Attention of Mr. Ray Legatti 5250 140th Avenue North Clearwater, Florida 33760. If given to WINDMERE: WINDMERE-DURABLE HOLDINGS, INC. Attention of Mr. Harry D. Schulman 5980 Miami Lakes Drive Miami Lakes, Florida 33014, with a copy to: Barry E. Deutsch, Esq. Windmere-Durable Holdings, Inc. Six Armstrong Road Shelton, CT 06484. The date of service shall be deemed to be the date on which such notice, payment or statement was personally delivered, posted, or sent by facsimile or electronic transmission. Either party may give written notice of a change of address, and after notice of such change has been received, any notice, payment or statement thereafter shall be given to such party as herein provided at such changed address. 12 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed in their names by their proper officers thereunto duly authorized. WINDMERE-DURABLE HOLDINGS, INC. By /s/ Harry D. Schulman --------------------- Harry D. Schulman Title C.O.O. Date December 31, 1999 TECHNOLOGY RESEARCH CORPORATION By /s/ Raymond H. Legatti ---------------------- Raymond H. Legatti Title President Date December 31, 1999 13 SCHEDULE A Patent Application Serial Number Filing Date entitled "Protection System For Devices Connected to an an Alternating Current Electrical Power Supply (Attorney Docket TRC-P-42) SCHEDULE B WINDMERE shall pay TRC a royalty of US $0.05 for each of the first million (1,000,000) Licensed and Additional Licensed Products manufactured by or for WINDMERE.* WINDMERE shall pay TRC a royalty of US $0.10 for each Licensed and Additional Licensed Products manufactured by or for WINDMERE in excess of one million (1,000,000) units.* *Each of the royalty payments above shall be discounted by five percent (5%) per Section 3.3. EX-23 3 0003.txt EXHIBIT (23)(A) Consent of Independent Certified Public Accountants --------------------------------------------------- The Board of Directors Technology Research Corporation: We consent to incorporation by reference in the registration statements (Nos. 33-62379 and No. 33-62397) on Form S-8 of Technology Research Corporation of our report dated May 5, 2000, relating to the consolidated balance sheets of Technology Research Corporation and subsidiary as of March 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended March 31, 2000, and related schedule, which report appears in the March 31, 2000, annual report on Form 10-K of Technology Research Corporation. KPMG LLP St. Petersburg, Florida June 27, 2000 EX-27 4 0004.txt ARTICLE 5 FDS FOR FISCAL YEAR 2000 10-K
5 1 12-MOS Mar-31-1999 Mar-31-2000 2696010 0 3153740 48199 5208589 11633958 9190133 4911305 15990625 1366382 0 2782435 0 0 9207623 15990625 16711604 16837725 11587061 11587061 1035994 0 184832 800815 215060 585755 0 0 0 585755 .11 .11
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