10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 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 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for a shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at January 31, 2001 ____________________________ _______________________________ Common stock, $.51 par value 5,437,497 TECHNOLOGY RESEARCH CORPORATION INDEX Part I - Financial Information Page Condensed Consolidated Balance Sheets - December 31, 2000 and March 31, 2000............................... 1 Condensed Consolidated Statements of Operations - Three months and nine months ended December 31, 2000 and December 31, 1999.............................................. 2 Condensed Consolidated Statements of Cash Flows - Nine months ended December 31, 2000 and December 31, 1999.......... 3 Notes to Condensed Consolidated Financial Statements...................... 4 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 5 Item 3 - Quantitative and Qualitative Disclosure Regarding Market Risk.... 7 Part II - Other Information Item 1 - Legal Proceedings................................................ 8 Item 2 - Changes in Securities............................................ 8 Item 3 - Defaults Upon Senior Securities.................................. 8 Item 4 - Submission of Matters to a vote of Shareholders.................. 8 Item 5 - Other Information................................................ 8 Item 6 - Exhibits and Reports on Form 8-K................................. 8 Signatures................................................................ 9 PART I - FINANCIAL INFORMATION Item 1. Financial Statements TECHNOLOGY RESEARCH CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
December 31 March 31 2000 2000 ------------ --------- ASSETS (unaudited) * Current assets: Cash and cash equivalents $ 401,243 2,696,010 Accounts receivable, net 2,464,070 3,105,541 Income tax receivable 294,996 76,600 Inventories: Raw material 4,558,278 3,927,770 Work in process 658,028 351,964 Finished goods 1,796,177 928,855 ---------- ---------- Total inventories 7,012,483 5,208,589 Prepaid expenses 217,553 70,118 Deferred income taxes 475,384 477,100 ---------- ---------- Total current assets 10,865,729 11,633,958 ---------- ---------- Property, plant, and equipment 9,250,054 9,190,133 Less accumulated depreciation 4,886,136 4,911,305 ---------- ---------- Net property, plant, and equipment 4,363,918 4,278,828 ---------- ---------- Other assets 51,130 77,839 ---------- ---------- $ 15,280,777 15,990,625 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable 1,572,488 805,342 Accrued expenses 287,427 349,962 Dividends payable 67,870 69,902 Deferred income 117,647 141,176 ---------- ---------- Total current liabilities 2,045,432 1,366,382 Long-term debt, excluding current installments 1,500,000 2,500,000 Deferred income - 73,530 Deferred income taxes 21,661 60,655 ---------- ---------- Total liabilities 3,567,093 4,000,567 ---------- ---------- Stockholders' equity: Common stock 2,784,088 2,782,435 Additional paid-in capital 7,526,820 7,528,473 Retained earnings 1,442,921 1,679,150 ---------- ---------- 11,753,829 11,990,058 Treasury stock (40,145) - ---------- ---------- Total stockholders' equity 11,713,684 11,990,058 ---------- ---------- $ 15,280,777 15,990,625 ========== ========== See accompanying notes to condensed consolidated financial statements.
- 1 - TECHNOLOGY RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended Nine Months Ended December 31 December 31 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Operating revenues: Net sales $ 3,917,394 3,981,788 12,996,489 12,155,709 Royalties 63,889 24,634 166,445 71,659 ---------- ---------- ---------- ---------- 3,981,283 4,006,422 13,162,934 12,227,368 ---------- ---------- ---------- ---------- Operating expenses: Cost of sales 3,146,644 2,755,532 9,783,845 8,228,881 Selling, general, and administrative 804,239 781,654 2,633,688 2,430,845 Research, development and engineering 280,145 240,926 901,838 787,615 ---------- ---------- ---------- ---------- 4,231,028 3,778,112 13,319,371 11,447,341 ---------- ---------- ---------- ---------- Operating income (249,745) 228,310 (156,437) 780,027 ---------- ---------- ---------- ---------- Other income (deductions): Interest and sundry income 4,510 24,116 57,360 62,544 Interest expense (28,562) (41,649) (102,914) (131,564) Loss on disposal of asset (841) (20,174) (5,320) (20,174) ---------- ---------- ---------- ---------- (24,893) (37,707) (50,874) (89,194) ---------- ---------- ---------- ---------- Income (loss) before income taxes (274,638) 190,603 (207,311) 690,833 Income tax expense (benefit) (151,383) 77,000 (134,175) 193,000 ---------- ---------- ---------- ---------- Net income (loss) $ (123,255) 113,603 (73,136) 497,833 ========== ========== ========== ========== Basic (loss) earnings per share $ (0.02) 0.02 (0.01) 0.09 ========== ========== =========== ========= Weighted average number of common shares outstanding 5,442,062 5,455,756 5,440,505 5,455,756 ========== ========== ========== ========== Diluted (loss) earnings per share $ (0.02) 0.02 (0.01) 0.09 ========== ========== =========== ========= Weighted average number of common and equivalent shares outstanding 5,496,150 5,457,382 5,506,731 5,463,215 ========== ========== ========== ========== Dividends paid $ 0.01 0.01 0.03 0.02 ========== ========== ========== ========== See accompanying notes to condensed consolidated financial statements.
- 2 - TECHNOLOGY RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended December 31 2000 1999 ---------- ---------- Cash flows from operating activities: Net income $ (73,136) 497,833 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 608,707 589,687 Decrease in accounts receivable 641,471 491,682 Increase in inventories (1,803,894) (846,775) Decrease (increase) in prepaid expenses (147,435) 34,502 Decrease (increase) in income taxes receivable (218,396) 292,252 Decrease (increase) in deferred income taxes (37,278) 45,749 Decrease in other assets 26,709 39,736 Increase in accounts payable 767,146 99,443 Decrease in accrued expenses (62,535) (46,336) Decrease in deferred income (97,059) - ---------- ---------- Net cash provided (used) by operating activities (395,700) 1,197,773 ---------- ---------- Cash flows from investing activities: Capital expenditures (693,797) (403,868) ---------- ---------- Net cash used by investing activities (693,797) (403,868) ---------- ---------- Cash flows from financing activities: Principal payments of short-term debt - (2,525,100) Net borrowings (payments) of long-term debt (1,000,000) 2,443,750 Dividends paid (165,125) (54,317) Purchase of treasury stock (40,145) - ---------- ---------- Net cash used by financing activities (1,205,270) (135,667) ---------- ---------- Increase (decrease) in cash and cash equivalents (2,294,767) 658,238 Cash and cash equivalents at beginning of period 2,696,010 1,653,952 ---------- ---------- Cash and cash equivalents at end of period $ 401,243 2,312,190 ========== ========== See accompanying notes to condensed consolidated financial statements.
- 3 - TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair statement of results for the interim period. The results of operations for the nine-month period ended December 31, 2000 are not necessarily indicative of the results to be expected for the full year. 2. Basic earnings per share has been computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share has been computed by dividing net income by the weighted average number of common and equivalent shares outstanding. Common share equivalents included in the computation represent shares issuable upon exercise of stock options which would have a dilutive effect in periods where there are earnings. 3. 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 September 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, results of operations or cashflows. 4. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS 133) effective for fiscal years beginning after June 15, 1999. SFAS 133 requires that derivatives be carried at fair value and provides for hedge accounting when certain conditions are met. The Financial Accounting Standards Board issued Statements of Financial Accounting Standard No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" (SFAS 137) and Financial Accounting Standard No. 138, "Accounting for Certain Deravitive Instruments and Certain Hedging Activities" which amended and deferred the effective date of adoption of SFAS 133. The adoption of SFAS 137 and 138 will not have an impact on the Company's financial position, results of operations or cashflows. - 4 - Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the Company's financial position and operating results during the periods included in the accompanying condensed consolidated financial statements. Current Nine Months Ended December 31, 2000 versus Nine Months Ended December 31, 1999 The Company's operating revenues (net sales and royalties) for the third quarter ended December 31, 2000 were $3,981,283, compared to $4,006,422 reported in the same quarter of the prior year, a decrease of approximately 1%. Although military sales were up $474,688 for the current quarter, compared to the prior year's quarter, sales to Xerox Corporation, and its suppliers, were down $584,492. The Company had a net loss of $123,255, compared to net income of $113,603, for the same quarter of the prior year. Basic and diluted losses for the current period were $(.02) per share compared to basic and diluted earnings of $.02 per share for the same quarter of the prior year. The loss for the quarter was primarily the result of the decrease in sales volume with Xerox Corporation and its suppliers and the result of higher than expected cost of manufacturing the Inverter for the new military 3KW Tactical Quiet Generator (TQG) program. The Company made progress in taking cost out of the Inverter in the third quarter, and the Company expects to continue improving margins on the 3KW Inverter going forward. The Company's operating revenues (net sales and royalties) for the nine-month period ended December 31, 2000 were $13,162,934, compared to $12,227,368 reported in the same period of the prior year, an increase of approximately 8%. The Company had a net loss for the nine-month period of $73,136, compared to net income of $497,833, for the same period in the prior year. Basic and diluted losses for the nine-month period were $(.01) per share compared to basic and diluted earnings of $.09 per share for the same period of the prior year. The loss for the nine-month period ended December 31, 2000 was primarily due to the Company's startup of two new product lines, which experienced cost overruns during its second and third quarters as noted above and as noted in the Company's second quarter release. The increase in revenues for the nine-month period ended December 31, 2000, compared to the same period in the prior year, was due to military sales increasing by $1,102,276 and royalty income increasing by $94,786. Sales to Xerox and its suppliers were down by $1,197,734 for the nine-month period ended December 31, 2000, compared to the same period in the prior year. Other commercial sales, including distribution, consumer and OEM sales, showed growth of $936,238, resulting in an overall decrease of $261,496 for commercial sales. Excluding Xerox, the Company expects this upward trend in commercial sales to continue throughout the remainder of the fiscal year. The increase in military sales was mainly due to the Company being in full production of the control devices related to the 5/10/15/30/60KW TQG program in the Company's first quarter and the new 3KW TQG program in the second and third quarters. The Company will continue to be in full production of the Inverter for the new 3KW TQG program for the remainder of the fiscal year. Shipments under the next production phase of the 5/10/15/30/60KW TQG program have begun. - 5 - The on-going sales activity for both Fire Shield extension cords and Fire Shield OEM products remain strong and should result in new business being added during the next several quarters. The Company will demonstrate its Fire Shield products at the Domotechnica Appliance Engineering Conference in Cologne, Germany during the first week of March 2001. As part of an overall expense control program, the Company reduced its workforce by sixteen persons at its Clearwater, Florida facility in January 2001. In addition, the Company lowered other operating expenses and moved additional products to its Honduras manufacturing facility. The severance expense related to this reduction in personnel will be recorded in the Company's fourth quarter, ending March 31, 2001, and will be approximately $60,000. The Company's gross profit margin on net sales was approximately 20% for the current quarter and approximately 25% for the nine-month period ended December 31, 2000, compared to 31% and 32% for the same periods last year, reflecting higher than expected manufacturing costs on the new military 3KW TGQ program in the Company's second and third quarters and low margins on the first high- volume production of Fire Shield extension cords in the Company's third quarter. Selling, general and administrative expenses were $804,239 for the current quarter and $2,633,688 for the nine-month period ended December 31, 2000, compared to $781,654 and $2,430,845 for the same periods last year, an increase of approximately 3% and 8%, reflecting higher professional fees, advertising costs, sales commissions and health insurance costs. Selling expenses were $463,096 for the current quarter and $1,493,363 for the nine-month period ended December 31, 2000, compared to $450,826 and $1,386,297 for the same periods last year. General and administrative expenses were $341,143 for the current quarter and $1,140,325 for the nine-month period ended December 31, 2000, compared to $330,828 and $1,044,548 for the same periods last year. Research, development and engineering expenses were $280,145 for the current quarter and $901,838 for the nine-month period ended December 31, 2000, compared to $240,926 and $787,615 for the same periods last year, primarily due to higher Underwriter Laboratory testing fees and health insurance costs. Interest expense, net of interest and sundry income, for the current quarter was $24,052 and $45,554 for the nine-month period ended December 31, 2000, compared to $17,533 and $69,020, for same periods last year, reflecting lower cash balances in the current quarter and lower line of credit balances in the nine-month period. In accordance with FSAS 109, "Accounting for Income Taxes", the Company does not record deferred income taxes on the foreign undistributed earnings of its investment in its Honduran subsidiary that is essentially permanent in duration. Accordingly, the Company's Honduran subsidiary has been profitable which causes 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 to the parent 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. - 6 - Liquidity and Capital Resources As of December 31, 2000, the Company's cash and cash equivalents decreased to $401,243 from the March 31, 2000 total of $2,696,010. The decrease in cash was due to capital expenditures of $693,797, and increase of inventory of $1,803,894 and the Company paying down its line of credit by $1,000,000. On August 31, 2000, the Company renewed its $3,000,000 revolving credit loan with its institutional lender, extending the maturity date another year. The Company has the option of borrowing at the lender's prime rate of interest minus 25 basis points or the 30-day London Interbank Offering Rate (L.I.B.O.R.) plus 175 basis points. The Company is currently using the L.I.B.O.R. option. The Company's debt from advances on its new line of credit was $1,500,000 as of December 31, 2000. The Company's working capital decreased by $1,447,279 to $8,820,297 at December 31, 2000, compared to $10,267,576 at March 31, 2000. The decrease was primarily due to the Company reducing its line of credit, as noted above, and the Company's operating loss through the nine month period. The Company believes cash flow from operations, the available bank line, and its short term investments and current cash position will be sufficient to meet its working capital requirements for the immediate future. The record date for the Company's third fiscal quarter dividend of $.01 per share was December 29, 2000, and the Company paid that dividend on January 19, 2001. Item 3. Quantitative and Qualitative Disclosure Regarding Market Risk The Company has no derivative instruments as of December 31, 2000. The Company is exposed to changes in interest rates as a result of its bank credit agreement, which is based on the London Interbank Offered Rate. A 10% increase in interest rates related to the Company's bank credit facility would not have a material effect on the Company's earnings over the next fiscal year or the bank credit agreement's fair value. 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. - 7 - Part II - Other Information Item 1. Legal Proceedings Not Applicable. Item 2. Changes in Securities Not Applicable. Item 3. Defaults Upon Senior Securities Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders Not Applicable. Item 5. Other Information Not Applicable. Item 6. Exhibits and Reports on Form 8-K The Company filed no reports on Form 8-K during the quarter covered by this Report. - 8 - ___________________________________________ SIGNATURES Pursuant to the requirements of the Security Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TECHNOLOGY RESEARCH CORPORATION (registrant) February 15, 2000 Scott J. Loucks ___________________________ __________________________________ Date Scott J. Loucks Chief Financial Officer, (principal financial, accounting and Duly Authorized Officer) - 9 -