form10q081109.htm

	June 30,			March 31,
ASSETS	2009			2009
Current assets:
Cash and cash equivalents	$	3,203			2,954
Short-term investments		4,998			3,996
Trade and other accounts receivable, net of allowance for doubtful
accounts of $134 at June 30, 2009 and $203 at March 31, 2009		5,779			5,372
Income taxes receivable		177			631
Inventories		7,052			8,013
Deferred income taxes		654			622
Prepaid expenses and other current assets		330			265
Total current assets		22,193			21,853

Property, plant and equipment, net of accumulated depreciation of
$9,856 at June 30, 2009 and $9,852 at March 31, 2009		2,871			3,189

Intangible assets, net of accumulated amortization of $193 at June 30, 2009 and $178 at March 31, 2009		389			404
Other assets		33			33
Total assets	$	25,486			25,479

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable	$	1,334			1,309
Accrued expenses		1,113			1,422
Accrued dividends		121			121
Unsettled treasury obligation		-			998
Total current liabilities		2,568			3,850

Income taxes payable		190			111
Deferred income taxes		25			37
Total liabilities		2,783			3,998

Stockholders' equity:
Common stock $0.51 par value; 10,000,000 shares
authorized, 5,912,328 shares issued and
5,890,828 shares outstanding		3,015			3,015
Additional paid-in capital		10,109			9,982
Retained earnings		9,619			8,524
Common stock held in treasury, 21,500 shares at cost		(40	)		(40	)
Total stockholders' equity		22,703			21,481
Total liabilities and stockholders' equity	$	25,486			25,479

Three Months Ended June 30,
	2009		2008
Revenue:
Commercial	$	3,365		5,562
Military		6,208		2,988
Royalty		126		81
Total revenue		9,699		8,631
Cost of sales		5,649		6,097
Gross profit		4,050		2,534

Operating expenses:
Selling and marketing		672		687
General and administrative		1,004		1,247
Research and development		673		537
Total operating expenses		2,349		2,471
Income from operations		1,701		63

Other income, net		3		18
Income before income taxes		1,704		81
Income tax expense		489		23
Net income	$	1,215		58

Earnings per share - basic	$	0.20		0.01

Earnings per share - diluted	$	0.20		0.01

Shares outstanding - basic		5,890,828		5,890,828

Shares outstanding – diluted		5,915,579		5,903,215

TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Three Months Ended June 30,

		2009		2008
Cash flows from operating activities:
Net income	$	1,215		58
Adjustments to reconcile net income
to net cash provided by operating activities:
Accretion of interest on short-term investments		(5	)	(7	)
Bad debt expense		-		8
Accretion of interest on note receivable		-		(12	)
Depreciation		275		299
Loss on disposal of property and equipment		143		-
Amortization of intangible assets		15		15
Stock compensation expense		127		112
Deferred income taxes		(44	)	(73	)
Changes in operating assets and liabilities:
Trade and other accounts receivable		(407	)	1,130
Inventories		961		(147	)
Prepaid expenses and other current assets		(65	)	(113	)
Other assets		-		8
Trade accounts payable		25		(302	)
Accrued expenses		(309	)	(355	)
Income taxes receivable and income taxes payable		533		97
Net cash provided by operating activities		2,464		718
Cash flows from investing activities:
Maturities of short-term investments		1,000		500
Purchase of short-term investments		(2,995	)	(1,487	)
Purchases of property and equipment		(100	)	(148	)
Net cash used in investing activities		(2,095	)	(1,135	)
Cash flows from financing activities:
Cash dividends paid		(120	)	(118	)
Net cash used in financing activities		(120	)	(118	)
Net increase (decrease) in cash and cash equivalents		249		(535	)
Cash and cash equivalents at beginning of period		2,954		2,132
Cash and cash equivalents at end of period	$	3,203		1,597

The unaudited interim condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in complete financial statements prepared in accordance with United States generally accepted accounting principles have been omitted pursuant to such rules and regulations. The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Technology Research Corporation (the “Company”) Annual Report on Form 10-K for the year ended March 31, 2009. Operating results for the three-month period ended June 30, 2009 are not necessarily an indication of the results that may be expected for the fiscal year ending March 31, 2010.

As of April 1, 2009, the Company implemented Financial Accounting Standards Board (FASB) Staff Position Emerging Issues Task Force 03-6-1 (FSP EITF 03-6-1). The provisions of FSP EITF 03-6-1 require the Company to treat unvested shares of restricted stock as participating securities in accordance with the two-class method in the calculation of both basic and diluted earnings per share. FSP EITF 03-6-1 must be applied retroactively. The Company had no shares of unvested restricted stock as of June 30, 2008 so the retrospective application of FSP EITF 03-6-1 had no effect on the Company’s earnings per share for the quarter ended June 30, 2008.

	Three months ended June 30,

		2009	2008
Basic earnings per share computation:
Net income available to common shareholders	$	1,215	58
Less: dividend equivalents on unvested participating securities		2	-
Less: undistributed earnings allocated to unvested participating securities (1)		20	-
Undistributed earnings allocated to common shareholders	$	1,193	58
EPS Denominator:
Weighted average shares outstanding for basic earnings per share		5,890,828	5,890,828
Basic earnings per common share	$	0.20	0.01

	Three months ended June 30,

		2009	2008
Diluted earnings per common share computation:
Net income available to common shareholders	$	1,215	58
Less: dividend equivalents on unvested participating securities		2	-
Less: undistributed earnings allocated to unvested participating securities		20	-
Undistributed earnings allocated to common shareholders	$	1,193	58
EPS Denominator:
Weighted average shares outstanding for basic earnings per share		5,890,828	5,890,828
Dilutive common shares issuable upon exercise of stock options (2)		3,848	12,387
Dilutive unvested common shares associated with restricted stock awards awards		20,903	-
Weighted average shares outstanding - diluted		5,915,579	5,903,215

Diluted earnings per common share	$	0.20	0.01

(1) For the three months ended June 30, 2009, 106,999 of unvested outstanding shares of restricted stock are considered participating securities. For the three months ended June 30, 2008 there were no restricted stock shares outstanding. The undistributed earnings are allocated to both common shares and unvested participating securities in computing the earnings per share under the two-class method.

The value of short-term investments totaled $4,998 as of June 30, 2009, consisting of original cost plus accrued interest on U.S. Treasury Bills. As of March 31, 2009, the value of short-term investments totaled $3,996, consisting of original cost plus accrued interest on U.S. Treasury Bills and included $998 for an unsettled purchase of a U.S. Treasury bill resulting in a matching liability being recorded in current liabilities. We consider our short-term investments to be held-to-maturity, and therefore, are recorded at amortized cost.

We generally provide a one year warranty period for all of our products. We also provide coverage on certain of our surge products for “downstream” damage of products not manufactured by us. Our warranty provision represents management's best estimate of probable liabilities, calculated as a function of sales volume and historical repair experience for each product under warranty. A roll-forward of the activity in our warranty liability, included in accrued expenses, for the three months ended June 30, 2009 and 2008 is as follows:

The maturity date of the revolving credit agreement with our institutional lender is September 30, 2009. The agreement provides for borrowings up to $6.0 million. We have the option of borrowing at the lender's prime rate of interest minus 100 basis points or the 30-day London Interbank Offering Rate (“LIBOR”) plus 160 basis points. The loan is collateralized with a perfected first security interest which attaches to most of the our key assets including receivables, inventory, investments, demand deposit accounts maintained with the our lender, and 65% of the voting stock of our subsidiary in Honduras and requires us to maintain certain financial ratios. As of June 30, 2009 and March 31, 2009, we had no borrowings on this credit agreement and the full $6.0 million is available.

Our effective income tax rate was 28.7% and 28.4% for the three months ended June 30, 2009 and 2008, respectively. The effective income tax rate is based on the estimated income for the year and the composition of this income from the U.S. and from our subsidiary in Honduras. The income tax rate on income earned from Honduras is zero due to a tax holiday and, therefore, the effective rate is lower than the U.S. statutory rate due to the mix of income earned in the U.S. versus income earned in Honduras.

As of April 1, 2007, we adopted FASB Interpretation Number 48 (FIN 48), Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109. There was no effect recorded upon adoption and there were no unrecognized tax benefits as of March 31, 2007 and April 1, 2007. As of June 30, 2009 we have unrecognized tax benefits of $206, of which $16 is included in income taxes receivable and $190 is included in noncurrent income taxes payable. During the three months ended June 30, 2009 and 2008, we recorded $79 and $1 , respectively, of unrecognized tax benefits primarily related to transfer pricing. Interest expense related to uncertain tax positions amounted to $0 and $1 for the three months ended June 30, 2009 and 2008, respectively. Total accrued interest at June 30, 2009 and March 31, 2009 was $8 and $7, respectively, and was included in income taxes receivable. There are no accrued penalties. After adoption of FIN 48, our policy is to recognize interest and penalties in the provision for income taxes.

We adopted SFAS 123R using the modified prospective transition method under which the provisions of SFAS 123R apply to new awards, and to awards modified, repurchased, or cancelled after the adoption date. Under SFAS 123R, companies are required to estimate the fair value of share-based payment awards on the date of grant using an option pricing model. We adopted the Black Scholes model to estimate the fair value of stock options. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Condensed Statements of Income. SFAS 123R requires the cash flows resulting from tax benefits recognized for those options (excess tax benefits) to be classified as financing cash flows.

We have adopted stock plans that provide for the grant of equity based awards to employees and directors, including incentive stock options, non-qualified stock options and restricted stock awards (non-vested shares) of our common stock (the “Plans”). Employee stock options generally vested over a three year period and, until March 2008, director stock options vested over a two-year period. Beginning in March 2008 when directors were granted stock options for the fiscal 2009 year, our director options also vest over a three- year period. The exercise price of incentive stock options granted under the Plans will not be less than 100% of the fair market value of shares of common stock on the date of grant. For any participant owning stock representing more than 10% of the voting power of all classes of our stock, the exercise price will not be less than 110% of the fair market value of the shares of common stock on the date of grant. The term of stock options may not exceed ten years. Non-qualified stock options will be granted at the fair market value on the date of grant.

On March 24, 2000, our Board of Directors adopted the 2000 Long Term Incentive Plan and it was approved by our stockholders in August 2000 at its annual meeting. The 2000 Long Term Incentive Plan provides for the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code to employees and non-qualified stock options to either our employees or directors. The 2000 Long Term Incentive Plan also allows for the grant of restricted stock awards (non-vested shares) to officers and directors.

On June 24, 2008, our Board of Directors approved the Amended and Restated 2000 Long Term Incentive Plan and it was approved by our stockholders on August 27, 2008 at our annual meeting. The Amended and Restated 2000 Long Term Incentive Plan provides for the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code to employees and non-qualified stock options to either our employees or directors. The Amended and Restated 2000 Long Term Incentive Plan also allows for the grant of restricted stock awards (non-vested shares) to either our employees or directors. A total of 500,000 additional shares of our common stock have been reserved for issuance under the Amended and Restated 2000 Long Term Incentive Plan. A total of 1.6 million shares of our common stock have been reserved for issuance under the Amended and Restated 2000 Long Term Incentive Plan, of which 346,808 shares remain available for awards as of June 30, 2009.

			Aggregate	Weighted	Weighted
	Shares		intrinsic	average	average
	available	Options	value	exercise	remaining
	for grant	outstanding	(in thousands)	price	contractual life
Balance as of March 31, 2009	332,750	955,586	$ 1	$ 4.44	8.09
Options expired	-	-	-	-	-
Options granted	-	-	-	-	-
Options canceled	14,058	(14,058)	-	3.54	-
Options exercised	-	-	-	-	-
Balance as of June 30, 2009	346,808	941,528	$ 94	$ 4.45	7.72
Exercisable as of June 30, 2009		428,375	$ 12	$ 6.68	6.29
_________________

We estimated the fair value of stock-based payment awards on the date of grant using the Black-Scholes option pricing model, which is impacted by our stock price as well as assumptions regarding several subjective variables including our expected stock price volatility over the term of the awards, actual and projected employee option exercise experience, the risk free interest rate and expected dividends. The estimated expected term of options that have been granted was based on historical option exercise trends. Estimated volatility was based on historical volatility over the expected term and the risk free interest rate was based on U.S. Treasury Bills similar to the expected term. The expected dividend yield was based on our experience with paying dividends over the past 12 months. We are also required to estimate forfeitures at the time of the grant and to revise these estimates in later periods if actual forfeitures differ from those estimates. Historical data was used to estimate pre-vesting forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

We granted 81,999 shares of restricted stock awards (non-vested shares) in December 2008 at a grant date fair value of $1.70 per share. We granted 25,000 shares of restricted stock awards (non-vested shares) in February 2009 at a grant date fair value of $1.90 per share. The shares have a three-year vesting period. As of June 30, 2009, all 106,999 shares of restricted stock are non-vested and remain outstanding.

In September 2006, the Financial Accounting Standards Board (“the FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 establishes a single definition of fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements. In February 2008, FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157” (FSP 157-2) was issued delaying the effective date of SFAS 157 until fiscal years beginning after November 15, 2008 with respect to nonfinancial assets and nonfinancial liabilities that are not re-measured at fair value on a recurring basis (at least annually). The partial adoption of SFAS 157 had no impact on our financial condition, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities (“SFAS 159”). SFAS 159 allows companies to make an election to carry certain eligible financial assets and liabilities at fair value, even if fair value measurement has not historically been required for such assets and liabilities under U.S. generally accepted accounting principles. On April 1, 2008, SFAS 159 first became effective for us. The implementation of SFAS 159 had no impact on our consolidated financial statements because we have not adopted the fair value option.

On April 1, 2009, we adopted SFAS No. 141R, Business Combinations (“SFAS 141R”). SFAS 141R requires that business combinations will result in assets and liabilities of an acquired business being recorded at their fair values as of the acquisition date, with limited exceptions. Certain forms of contingent consideration and certain acquired contingencies will be recorded at fair value at the acquisition date. SFAS 141R also states acquisition costs will generally be expensed as incurred and restructuring costs will be expensed separately from the business combination in periods after the acquisition date. We will be required to apply this new standard prospectively to business combinations for which the acquisition date is on or after April 1, 2009. The adoption of SFAS No. 141 R did not have an impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 changes the accounting and reporting for minority interests, which will be recharacterized as non-controlling interests and classified as a component of equity. SFAS 160 is effective for us on a prospective basis for business combinations with an acquisition date beginning in the first quarter of fiscal year 2010. As of March 31 and June 30, 2009, we did not have any minority interests. The adoption of SFAS 160 did not have an impact on our consolidated financial statements.

On April 1, 2009, we adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. We will be required to provide enhanced disclosures about (a) how and why derivative instruments are used, (b) how derivative instruments and related hedged items are accounted for under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Certain Hedging Activities (“SFAS 133”), and its related interpretations, and (c) how derivative instruments and related hedged items affect our financial position, financial performance, and cash flows. The adoption of SFAS 161 did not have an impact on our financial position, results of operations or cash flows.

Effective January 1, 2009, we adopted EITF Issue No. 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards (“EITF 06-11”). EITF 06-11 requires companies to recognize a realized income tax benefit associated with dividends or dividend equivalents paid on non-vested equity-classified employee share-based payment awards that are charged to retained earnings as an increase to additional paid-in capital. The adoption of EITF 06-11 did not have a material impact on our financial position, results of operations or cash flows.

On April 1, 2009, we adopted Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”). FSP EITF 03-6-1 states that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are “participating securities” as defined in EITF Issue No. 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128, and therefore such awards should be included in the earnings allocation in computing earnings per share using the two-class method as described in SFAS No. 128, Earnings per Share. According to FSP EITF 03-6-1, a share-based payment award is a participating security when the award includes nonforfeitable rights to dividends or dividend equivalents. The rights result in a noncontingent transfer of value each time an entity declares a dividend or dividend equivalent during the award’s vesting period. However, the award would not be considered a participating security if the holder forfeits the right to receive dividends or dividend equivalents in the event that the award does not vest. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. There was no impact on prior year EPS as there were no participating securities outstanding during the three months ended June 30, 2008.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS N0. 165). SFAS No. 165 establishes the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. SFAS No. 165 is effective for interim or annual periods ending after June 15, 2009 and should be applied prospectively. The adoption of SFAS No. 165 did not have a material impact on our financial statements.

In June 2009, the FASB issued SFAS No. 168, The “FASB Accounting Standards Codification” and the Hierarchy of Generally Accepted Accounting Principles. This standard replaces SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles, and establishes only two levels of U.S. generally accepted accounting principles (“GAAP”), authoritative and nonauthoritative. The FASB Accounting Standards Codification (the “Codification”) will become the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other nongrandfathered, non-SEC accounting literature not included in the Codification will become nonauthoritative. This standard is effective for financial statements for interim or annual reporting periods ending after September 15, 2009. We will begin to use the new guidelines and numbering system prescribed by the Codification when referring to GAAP in the third quarter of fiscal 2009. As the Codification was not intended to change or alter existing GAAP, it will not have any impact on our consolidated financial statements.

This interim report on Form 10-Q contains forward-looking statements, which are subject to the safe harbor provisions created by of the Private Securities Litigation Reform Act of 1995 and the Securities Exchange Act of 1934. Any forward looking statements made herein are based on our current expectations, involve a number of risks and uncertainties and should not be considered as guarantees of future performance. Such statements may be identified by terminology such as “may,” “will,” “should,” “expects,” “scheduled,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “potential,” or “continue,” or the negative of such terms, or other comparable terminology. These statements are only predictions, and actual events as well as results may differ materially.

The identification of certain statements as “forward-looking” is not intended to mean that other statements not specifically identified are not forward-looking. Forward-looking statements include, but are not limited to, statements that relate to our future revenue, product development, demand, acceptance and market share, competitiveness, gross margins, levels of research and development (R & D), outsourcing plans and operating expenses, tax expenses, our management’s plans and objectives for our current and future operations, the levels of customer spending or R & D activities, general economic conditions and the sufficiency of financial resources to support future operations, and capital expenditures. Such statements are based on current expectations and are subject to risks, uncertainties, and changes in condition, significance, value and effect, including those discussed below under the heading “Risk Factors” within the section of this report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other documents we file from time to time with the Securities and Exchange Commission (“SEC”), such as our last filed Annual Report on Form 10-K for the fiscal year ended March 31, 2009, our quarterly reports on Form 10-Q, and our current reports on Form 8-K. Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results to differ materially from those expressed herein and in ways not readily foreseeable. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based on information currently and reasonably known to us. We undertake no obligation to release the results of any revisions to these forward-looking statements, which may be made to reflect events or circumstances which occur after the date hereof or to reflect the occurrence or effect of anticipated or unanticipated events.

Technology Research Corporation is an internationally recognized leader in the design, manufacture and marketing of electrical safety products that save lives, protect people against serious injury from electrical shock and/or prevent electrical fires in the home and workplace. Based on our core technology in ground fault sensing and leakage current detection, our products are designed to meet the needs of the consumer, commercial and industrial markets worldwide. TRC also designs and supplies power monitoring and control equipment to the United States military and its prime contractors for its tactical vehicles, naval vessels and mobile electric generators.

Our operating strategy is to grow revenue and improve operating margin in our military, recreational vehicle, industrial and consumer markets as well as closely aligned markets if they share similar products or have other synergies. We plan to achieve these growth goals through internal development of new products, acquisitions, strategic partnerships and licensing. We have undertaken a number of initiatives to lower cost, improve asset turnover and reduce our risk. These initiatives include, but are not limited to, product line simplification, establishing product platforms in design, greater utilization of our operations in Honduras, utilizing new designs and operations software to improve quality, accelerate product development and reduce the cost of redesigned products.

Revenue was $9.7 million in the first quarter of fiscal 2010, compared with $8.6 million reported in the same quarter last year, an increase of 12.4%. Military revenue increased by $3.2 million while commercial revenue decreased by $2.2 million. The increase in military revenue was primarily due to an accelerated delivery schedule from our largest customer and we anticipate that military revenue will be strong for the first half of fiscal year 2010 and then will return to historical levels for the remainder of fiscal year 2010. The recent extreme volatility and disruption of financial markets in the United States, Europe and Asia and depressed conditions in the real estate market have all contributed to weakening worldwide economic conditions and have contributed to a reduction in revenue in our commercial business. The decline in commercial revenue was principally a result of the impact of the recession on several of our major markets, including RV OEM and industrial construction and a continuing decline in RAC revenue due to competition from off-shore, low-cost manufacturers.

Gross profit increased $1.5 million due to a favorable shift in the mix of military and commercial business, higher overall revenue and the related favorable impact on factory overhead. As a result of the continued decline in RAC revenue we wrote-off the remaining inventory and tooling associated with this product line, which reduced gross margin by approximately $0.3 million. Operating expenses were down slightly for the quarter ended June 30, 2009 compared with the quarter ended June 30, 2008. Net income for the first fiscal quarter ended June 30, 2009 was $1.2 million compared with net income of $0.0 million for the first quarter of last year. Diluted earnings per share is $0.20 for the quarter ended June 30, 2009 compared with diluted earnings per share of $0.01 for last year’s first quarter.

We believe that our second quarter of fiscal year 2010 will continue to be favorably impacted by the timing of delivery requirements to our largest customer. We anticipate that our military revenue will return to more historical levels in the second half of fiscal year 2010. While we expect our earnings for the second half of fiscal year 2010 will be profitable, we do not anticipate that our earnings for the third and fourth fiscal quarters of fiscal 2010 will be at the same level as our earnings for the most recent quarter.

Revenue for the first quarter ended June 30, 2009 was $9.7 million, as compared to $8.6 million reported in the same quarter last year, an increase of 12.4%. Military revenue increased by $3.2 million while commercial revenue decreased by $2.2 million. The increase in military revenue was primarily due to an accelerated delivery schedule from our largest customer and we anticipate that military revenue will be strong for the first half of fiscal year 2010 and then will return to historical levels for the remainder of fiscal year 2010. The recent extreme volatility and disruption of financial markets in the United States, Europe and Asia and depressed conditions in the real estate market have all contributed to weakening worldwide economic conditions and have contributed to a reduction in revenue in our commercial business. The decline in commercial revenue was principally a result of the impact of the recession on several of our major markets, including RV OEM and industrial construction and a continuing decline in RAC revenue due to competition from off-shore, low-cost manufacturers.

Gross profit increased $1.5 million, or 59.8%, to $4.1 million for the quarter ended June 30, 2009, and as a percentage of revenue, gross profit increased to 41.8% for the quarter ended June 30, 2009 from 29.4% in the prior year quarter. Increased gross margin was due to a favorable shift in the mix of military and commercial business, higher overall revenue and the related favorable impact on factory overhead absorption. As a result of the continued decline in RAC revenue we wrote-off the remaining inventory and tooling associated with this product line, which reduced gross margin by approximately $0.3 million in the quarter ended June 30, 2009.

Selling and marketing expense of $0.7 million was unchanged for the quarter ended June 30, 2009, as compared to the prior year quarter. As a percentage of revenue, selling and marketing expense decreased to 6.9% from the 8.0% of revenue for the first quarter of last year. This decrease in selling and marketing expense as a percent of revenue was primarily due to the increase in revenue in the first quarter of the current year compared with the first quarter of the prior year.

General and administrative expense of $1.0 million, or 10.4% of revenue for the quarter ended June 30, 2009, decreased from $1.2 million, or 14.4% of revenue for the quarter ended June 30, 2008. The decrease of $0.2 million in the first quarter of fiscal 2009 is primarily due to lower professional fees as the prior year period included expenses related to the ELE patent litigation. The 4.0 percentage point decrease in general and administrative expense as a percent of revenue in the first quarter ended June 30, 2009, as compared to the quarter ended June 30, 2008 primarily results from the higher revenue for the current period.

Income tax expense was $0.5 million for the quarter ended June 30, 2009, compared with an expense of $0.0 million for the three months ended June 30, 2008. Income tax expense as a percentage of income before taxes was 28.7% for the quarter ended June 30, 2009, as compared to 28.4% in the prior year quarter. Our effective tax rate varies based primarily on the mix of income before income taxes derived from our subsidiary in Honduras, which is not subject to income taxes, and the balance of income before income taxes, which is subject to U.S. income taxes. At each reporting period, we make our best estimate of the effective tax rate expected for the full fiscal year and apply that rate to the current year-to-date income before income taxes. Any difference between the current and preceding estimated effective tax rate expected for the full fiscal year is reflected as an adjustment in the current quarter's income tax expense. In accordance with SFAS No.109, “Accounting for Income Taxes”, we do not record deferred income taxes on the foreign undistributed earnings of an investment in a foreign subsidiary that is essentially permanent in duration. If circumstances change, and it becomes apparent that some or all of the undistributed earnings of our subsidiary will be remitted in the foreseeable future, but U.S. income taxes have not been recognized, we will record as an expense of the current period the U.S. income taxes attributed to that remittance.

The maturity date of the revolving credit agreement with our institutional lender is September 30, 2009. The agreement provides for borrowings up to $6.0 million. We have the option of borrowing at the lender's prime rate of interest minus 100 basis points or the 30-day London Interbank Offering Rate (“LIBOR”) plus 160 basis points. The loan is collateralized with a perfected first security interest which attaches to most of our key assets including receivables, inventory, investments, demand deposit accounts maintained with our lender, and 65% of the voting stock of our subsidiary in Honduras, and requires us to maintain certain financial ratios. As of June 30, 2009 and March 31, 2009, we had no borrowings on this credit agreement.

We do not have financial partnerships with unconsolidated entities, such as entities often referred to as structured finance or variable interest entities, which are often established for the purposes of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As a result, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had such relationships.

A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: (i) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and (ii) different estimates that we could reasonably have used, or changes in the estimates actually used resulting from events that could be reasonably foreseen as likely to have a material effect on our financial condition or results of operations.

Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements once known. In addition, we are periodically faced with uncertainties, the outcomes of which are not within our control and will not be known for prolonged periods of time. These uncertainties are discussed in the section above entitled Disclosure Regarding Forward-Looking Statements and in section Item 1A below, entitled Risk Factors. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our consolidated financial statements are fairly stated in accordance with United States generally accepted accounting principles and present a meaningful presentation of our financial condition and results of operations.

Revenue Recognition/Allowance for Doubtful Accounts. We recognize revenue from commercial customers when an order has been received and accepted, pricing is fixed, delivery has occurred and title to the product has passed and collectability is reasonably assured. Title generally passes upon shipment to the customer; however, in a limited number of cases, title passes upon receipt of shipment by the customer. We have no installation obligation subsequent to product shipment. Similarly, revenue from sales to distributors is recognized as title passes to them without additional involvement or obligation. Collection of receivables related to distributor sales is not contingent upon subsequent sales to third parties. Royalty revenue is recognized as reported by licensees.

We may enter into government contracts that fall within the scope of Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts (SOP 81-1) (non-standard products) or fall outside the scope of SOP 81-1 (“standard” products). For government contracts within the scope of SOP 81-1, we record revenue under a units-of-delivery model with Revenue and costs equal to the average unit value times the number of units delivered. Any estimated loss on an overall contract would be recognized in the period determined in accordance with SOP 81-1. For government contracts outside the scope of SOP 81-1, we record revenue the same as for commercial customers discussed above and would record a loss in the event the costs to fulfill a government contract are in excess of the associated Revenue. We have not experienced past losses on government contracts, and currently, we do not have any transactions being accounted for within the scope of SOP 81-1.

We record an allowance for estimated losses resulting from the inability of customers to make timely payments of amounts due on account of product purchases. We assess the credit worthiness of our customers based on multiple sources of information, including publicly available credit data, subscription based credit reports, trade association data, and analyzes factors such as historical bad debt experience, changes in customer payment terms or payment patterns, credit risk related to industry and geographical location and economic trends. This assessment requires significant judgment. If the financial condition of our customers were to worsen, additional write-offs could be required, resulting in write-offs not included in our current allowance for doubtful accounts.

Inventories. Because of the lead times required to obtain certain raw materials, we must maintain sufficient quantities on hand to meet expected product demand for each of our many products. If actual demand is much lower than forecasted, we may not be able to dispose of our inventory at or above our cost. We write down our inventory for estimated excess and obsolete amounts to the lower of cost or market. We review the reasonableness of our estimates each quarter (or more frequently). A write-down is established for inventory that has had no activity for long periods of time or for which management believes is no longer salable. This write-down is reviewed and approved by the senior management team. In the future, based on our quarterly analysis, if we estimate that any remaining write-down for obsolescence is either inadequate or in excess of the inventory allowance required, we may need to adjust it. At present, based on our analysis, we believe the write-down amount is properly valued for the inventory held by us.

Income Taxes. Significant management judgment is required in developing our provision for income taxes, including the determination of any accrual for tax contingencies, any foreign withholding taxes or any United States income taxes on undistributed earnings of the foreign subsidiary, deferred tax assets and liabilities and any valuation allowances that might be required to be applied against the deferred tax assets. It had been management’s intention to reinvest undistributed earnings of our foreign subsidiary and thereby indefinitely postpone their repatriation. Accordingly, prior to fiscal 2005 no provision had been made for foreign withholding taxes or United States income taxes which would become payable if undistributed earnings of our foreign subsidiary are paid to us as dividends. In fiscal 2005 and fiscal 2006, pursuant to Sections 951 and 956 of the Internal Revenue Code, approximately $3.3 million of current year and prior undistributed earnings of our subsidiary in Honduras were deemed dividends to the parent company and subject to U.S. income tax. Accordingly a provision was recorded for all of the taxes attributable to these deemed dividends in fiscal 2005 and fiscal 2006. The circumstances that triggered the taxation of our foreign earnings no longer exist and it is our intention to reinvest future undistributed earnings of our foreign subsidiary and thereby indefinitely postpone their repatriation.

Warranty. We generally provide a one year warranty period for all of our products. We also provide coverage on certain of our surge products for “downstream” damage of products not manufactured by us. Our warranty provision represents our estimate of probable liabilities, calculated as a function of sales volume and historical repair experience for each product under warranty. Our warranty accrual represents our estimate of our liability for warranty repairs that we will incur over the warranty period.

Impairment of Long-Lived Assets. We review long-lived assets for possible impairment of carrying value whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with Statement of Financial Accounting Standards No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. In evaluating the fair value and future benefit of our assets, management performs an analysis of the anticipated undiscounted future net cash flows to be derived from the use of individual assets over their remaining amortization period. If the carrying amount of an asset exceeds its anticipated undiscounted cash flows, we recognize an impairment loss equal to the difference between its carrying value and its fair value.

Stock-Based Compensation. We account for stock-based compensation in accordance with the provisions of SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123(R)”). Under the fair value recognition provisions of SFAS 123(R), stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period of the award. Determining the appropriate fair value model and calculating the fair value of stock-based awards at the grant date requires judgment, including estimating stock price volatility and expected option life. If actual forfeitures differ significantly from our estimates, adjustments to compensation cost may be required in future periods.

We do not engage in investing in or trading market risk sensitive instruments. We also do not purchase, for investing, hedging, or for purposes “other than trading,” instruments that are likely to expose us to market risk, whether interest rate, foreign currency exchange, commodity price or equity price risk, except as noted in the following paragraph. We have not entered into any forward or futures contracts, purchased any options or entered into any interest rate swaps. Additionally, we do not currently engage in foreign currency hedging transactions to manage exposure for transactions denominated in currencies other than U.S. dollars.

As of June 30, 2009, we had no debt. If we borrow, our loans are subject to changes in interest rates. The rate of interest is based on either the lender’s prime rate or on the 30-day LIBOR rate at our option. We have exposure to changes in interest rates from investments in held-to-maturity securities. With our current level and term of investments, a 1% change in the market rate of interest would result in a change in interest income of approximately $50 thousand on an annual basis.

As of the end of the period covered by this interim report on Form 10-Q, we carried out, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”), an evaluation of the effectiveness of our “disclosure controls and procedures” (as the term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 as amended). Based on this evaluation, the Certifying Officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, the reader should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our annual Report on Form 10-K for the fiscal year ended March 31, 2009. With the exception of the risk factor discussed below, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2009.

Due to the political instability in Honduras, we are closely monitoring events there as authorities seek to stabilize the country in response to the events that occurred on June 28, 2009. On that date, soldiers of the Honduran military removed President Manuel Zelaya from office and exiled him to Costa Rica. These actions occurred in the midst of a constitutional crisis that arose in connection with President Zelaya’s efforts to amend the constitution of Honduras to permit him to seek re-election and potentially expand his powers. The current political crisis in Honduras has resulted in international tensions for the existing government, and the country is currently experiencing a period of political unrest, street demonstrations and government mandated curfews.

To date, there has been no disruption in our manufacturing operations and we continue to ship components into and our products out of Honduras. In addition, there has been no impact on our ability to make and receive payments and conduct routine banking and financial transactions. However, the political situation in Honduras remains uncertain and could result in disruption of our manufacturing operations which could have a material adverse effect on our manufacturing operations and results of operations.

	Exhibit 31.1 — Certification of the CEO pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).

	Exhibit 31.2 — Certification of the CFO pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).

	Exhibit 32.1 — Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	Exhibit 32.2 — Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

FLORIDA	59-2095002
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company þ

PART I — FINANCIAL INFORMATION

	Item 1. Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets
	Condensed Consolidated Statements of Income
	Condensed Consolidated Statements of Cash Flows
	Notes to the Condensed Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures

PART II — OTHER INFORMATION

	Item 1. Legal Proceedings
	Item 1A. Risk Factors
	Item 6. Exhibits

SIGNATURES

Exhibit 31.1— Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2— Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1— Certification of Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2— Certification of Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002

June 30, 2009			March 31, 2009


Raw materials	$	4,803	5,084
Work-in-process		684	766
Finished goods		1,565	2,163
Total	$	7,052	8,013

	Three months ended June 30,

	2009			2008
Beginning balance	$	164			137
Warranty expense		42			27
Warranty claims		(44	)		(27	)
Ending balance	$	162			137

		Weighted-average
		Grant-Date
	Shares	Fair Value
Non-vested balance at March 31, 2009	106,999	$ 1.75
Restricted stock granted	-
Restricted stock vested	-
Restricted stock forfeited	-
Non-vested balance as of June 30, 2009	106,999	$ 1.75

	TECHNOLOGY RESEARCH CORPORATION

August 6, 2009	By: /s/ Owen Farren
	Owen Farren
	President and Chief Executive Officer
	(Principal Executive Officer)


August 6, 2009	By: /s/ Thomas G. Archbold
	Thomas G. Archbold
	Chief Financial Officer
	(Principal Financial and Accounting Officer)