q10093009.htm

	September 30,				March 31,
ASSETS	2009				2009
Current assets:
Cash and cash equivalents	$	7,068				2,954
Short-term investments		4,000				3,996
Trade and other accounts receivable, net of allowance for doubtful
accounts of $135 at September 30, 2009 and $203 at March 31, 2009		5,421				5,372

Income taxes receivable		261				631
Inventories, net		6,306				8,013
Deferred income taxes		753				622
Prepaid expenses and other current assets		180				265
Total current assets		23,989				21,853

Property, plant and equipment, net of accumulated depreciation of
$10,105 and $9,852, respectively		2,736				3,189
Intangible asset, net of accumulated amortization of $207 and $178, respectively		375				404
Deferred income taxes – non-current		100				-
Other assets		33				33
Total assets	$	27,233				25,479

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable	$	1,351				1,309
Unsettled treasury obligation		-				998
Accrued expenses		1,507				1,422
Accrued dividends		121				121
Total current liabilities		2,979				3,850

Income taxes payable		330				111
Deferred income taxes		-				37
Total liabilities		3,309				3,998

Stockholders' equity:
Common stock $0.51 par value; 10,000,000 shares authorized,
5,913,328 shares issued and 5,891,828 shares outstanding and 5,912,328 shares issued and 5,890,828 outstanding, respectively		3,016				3,015
Additional paid-in capital		10,233				9,982
Retained earnings		10,715				8,524
Common stock held in treasury, 21,500 shares at cost		(40		)		(40	)
Total stockholders' equity		23,924				21,481
Total liabilities and stockholders' equity	$		27,233			25,479

Three Months Ended September 30,						Six Months Ended September 30,
	2009		2008			2009		2008
Revenue:
Commercial	$	3,679		5,526			7,044		11,088
Military		5,901		3,697			12,109		6,685
Royalty		47		74			173		155
Total revenue		9,627		9,297			19,326		17,928
Cost of sales		5,721		5,773			11,370		11,870
Gross profit		3,906		3,524			7,956		6,058

Operating expenses:
Selling and marketing		608		824			1,280		1,511
General and administrative		994		1,323			1,998		2,570
Research and development		658		593			1,331		1,130
Total operating expenses		2,260		2,740			4,609		5,211
Income from operations		1,646		784			3,347		847

Other income (expense):
Other income, net		2		362			5		380
Interest expense		-		(4	)		-		(4	)
Other income (expense), net		2		358			5		376
Income before income taxes		1,648		1,142			3,352		1,223
Income tax expense		431		204			920		227
Net income	$	1,217		938			2,432		996

Earnings per share - basic	$	0.20		0.16			0.41		0.17

Earnings per share - diluted	$	0.20		0.16			0.40		0.17

Shares outstanding - basic		5,891,828		5,890,828			5,891,828		5,890,828

Shares outstanding - diluted		5,985,691		5,899,593			5,944,280		5,901,197


			Six Months Ended September 30,
			2009			2008
Cash flows from operating activities:
Net income		$	2,432			996
Adjustments to reconcile net income
to net cash provided by operating activities:
Accretion of interest on short-term investments and other receivable			(8		)		(30		)
Bad debt expense			-				16
Depreciation			523				584
Accretion of interest on note receivable			-				(23		)
Amortization of intangible assets			29				29
Stock compensation expense			250				210
Deferred income taxes			(268		)		751
Loss on disposal of equipment			143				26

Changes in operating assets and liabilities:
Trade and other accounts receivable, net				(49	)			1,350
Inventories, net				1,707				(127		)
Prepaid expenses and other current assets				85				38
Other assets				-				8
Trade accounts payable				42				(496		)
Accrued expenses				85				(404		)
Income taxes receivable and income taxes payable				589				(524		)
Net cash provided by operating activities				5,560				2,404
Cash flows from investing activities:
Maturities of short-term investments				3,000				1,500
Purchase of short-term investments				(3,994	)			(3,967		)
Purchases of property and equipment				(213	)			(325		)
Net cash used in investing activities				(1,207	)			(2,792		)
Cash flows from financing activities:
Proceeds from exercise of stock options				2				-
Cash dividends paid				(241	)			(237		)
Net cash used in financing activities				(239	)			(237		)
Net increase (decrease) in cash and cash equivalents				4,114				(625		)
Cash and cash equivalents at beginning of period				2,954				2,132
Cash and cash equivalents at end of period	$			7,068				1,507

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 interim 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 Annual Report on Form 10-K for the year ended March 31, 2009. Operating results for the six-month period ended September 30, 2009 are not necessarily an indication of the results that may be expected for the fiscal year ending March 31, 2010.

In June 2008, the Financial Accounting Standards Board (“the FASB”) issued guidance now codified as FASB Accounting Standards Codification (“ASC”) Topic 260, “Earnings Per Share.” Under FASB ASC Topic 260, unvested share-based payment awards that contain rights to receive non-forfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing earnings per share. As of April 1, 2009, we implemented FASB ASC Topic 260 which requires us 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. We had no shares of unvested restricted stock as of September 30, 2008 so the retrospective application of FASB ASC Topic 260 had no effect on our earnings per share for the quarter or six months ended September 30, 2008.

Three months ended September 30,						Six months ended September 30,
		2009			2008			2009		2008
Basic earnings per share computation:
Net income available to common shareholders	$		1,217	938			2,432		996
Less: dividend equivalents on unvested participating securities			2	-			4		-
Less: undistributed earnings allocated to unvested participating securities (1)			20	-			39		-
Undistributed earnings allocated to common shareholders	$		1,195	938			2,389		996
EPS Denominator:
Weighted average shares outstanding for basic earnings per share			5,891,828	5,890,828			5,891,828		5,890,828
Basic earnings per common share	$		0.20	0.16			0.41		0.17

		Three months ended September 30,		Six months ended September 30,
		2009	2008		2009	2008

Diluted earnings per common share computation (1)
Net income available to common shareholders	$	1,217	938		2,432	996
Less: dividend equivalents on unvested participating securities		2	-		4	-
Less: undistributed earnings allocated to unvested participating securities		20	-		39	-
Undistributed earnings allocated to common shareholders	$	1,195	938		2,389	996
EPS Denominator:
Weighted average shares outstanding for basic earnings per share		5,891,828	5,890,828		5,891,828	5,890,828
Dilutive common shares issuable upon exercise of stock options (2)		49,643	8,765		17,271	10,369
Dilutive unvested common shares associated with restricted stock awards		44,220	-		35,181	-
Weighted average shares outstanding - diluted		5,985,691	5,899,593		5,944,280	5,901,197

Diluted earnings per common share	$	0.20	0.16		0.40	0.17

(1) For the three and six months ended September 30, 2009, 106,999 of our issued but unvested shares of restricted stock are considered participating securities. For the three and six months ended September 30, 2008 there were no shares of restricted stock 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.

(2) For the six-month and three-month periods ended September 30, 2009 options to purchase 704,643 and 654,643 shares of common stock, respectively, were considered anti-dilutive for purposes of calculating earnings per share. For the six-month and three-month periods ended September 30, 2008 options to purchase 763,500 shares of common stock were considered anti-dilutive for the purposes of calculating earnings per share.

The value of our short-term investments totaled $4,000 as of September 30, 2009, consisting of original cost plus accrued interest on U.S. Treasury Bills. As of March 31, 2009, the value of our 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 all of our short-term investments to be held-to-maturity, and therefore, are recorded at amortized cost. The carrying amount approximates fair value because of the relative short maturity of these instruments.

We generally provide a one year warranty period for all of our commercial and military 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 reserve, included in accrued expenses, for the three and six month periods ended September 30, 2009 and 2008 is as follows:

Effective September 30, 2009, we entered into the First Amendment to Amended and Restated Loan Agreement (the “Loan Agreement”) and Promissory Note dated that same date (the “Replacement Note”) with Wachovia Bank, N.A. (“Wachovia”), our current institutional lender. The Replacement Note provides for an interest rate equal to the 30-day London Interbank Offering Rate (“LIBOR”) Market Index Rate plus 2.10%, through December 31, 2009. Thereafter, the interest rate will be reset quarterly as follows:

The Loan Agreement reduces our existing $6,000,000 credit facility to $3,000,000. As of September 30, 2009 and March 31, 2009, we had no borrowings on this credit facility. The revolving line of credit can be used for working capital and general corporate purposes. Revolving loans may be borrowed, repaid and re-borrowed until September 30, 2011, at which time all amounts borrowed must be repaid. Our Loan Agreement with Wachovia obligates us to pay a customary unused facility fee for a credit facility of this size. The revolving loans under the Loan Agreement are secured by a continuing security interest in most of our key assets, including accounts and notes receivable, inventory, investments, demand deposit accounts maintained with our lender and 65% of the voting stock of Technology Research Corporation/Honduras, S.A. DE C.V, our wholly-owned subsidiary.

Our effective income tax rate was 26.2% and 17.9% for the three months ended September 30, 2009 and 2008, respectively. For the six months ended September 30, 2009 and 2008, our effective income tax rate was 27.4% and 18.6%, 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 Honduran subsidiary. The income tax rate on income earned from Honduras is zero due to a tax holiday and, therefore, the corporate 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.

In accordance with FASB ASC Topic 740, “Income Taxes,” we provide for the recognition of deferred tax assets if realization of such assets is more likely than not. We have provided a valuation allowance against a portion of our net U.S. deferred tax assets due to uncertainties regarding their realization. We evaluate the reliability of our deferred tax assets on a quarterly basis by determining whether or not the anticipated pre-tax income for the upcoming twelve months is expected to be sufficient to utilize the deferred tax assets that we have recognized. As of September 30, 2009, we have unrecognized tax benefits of $346, of which $16 is included in income taxes receivable and $330 is included in noncurrent income taxes payable. During the three months ended September 30, 2009 and 2008, we recorded $139 and $0, respectively, of unrecognized tax benefits primarily related to transfer pricing. Interest expense related to uncertain tax positions amounted to $1 for the three months ended both September 30, 2009 and 2008, respectively. During the six month periods ended September 30, 2009 and 2008, we recorded $218 and $0-, respectively, of unrecognized tax benefits primarily related to transfer pricing. Interest expense related to uncertain tax positions amounted to $1 and $2 for the six months ended September 30, 2009 and 2008, respectively. Total accrued interest at September 30, 2009 and March 31, 2009 was $9 and $7, respectively, and was included in income taxes receivable. There are no accrued penalties for income taxes in our financial statements as of September 30, 2009. With the adoption of FASB ASC Topic 740, our policy is to recognize interest and penalties in the provision for income taxes in our financial statements.

For purposes of determining the variables used in the calculation of stock compensation expense under the provisions of FASB ASC Topic 505, “Equity” and FASB ASC Topic 718, “Compensation — Stock Compensation,” we perform an analysis of current market data and historical company data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. We use these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted, any fluctuations in these calculations could have a material effect on the results presented in our Consolidated Condensed Statement of Income. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our financial statements.

Cash received from the exercise of stock options under all share-based payment arrangements for the three months and six months ended September 30, 2009 was $2. No options were exercised during the three month and six month periods ended September 30, 2008. Currently, we expect to utilize authorized, but unissued shares that have been registered with the U.S. Securities and Exchange Commission on a Form S-8 when share-based restricted stock awards are granted.

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 that have been granted generally vest over a three year period and, until March 2008, director stock options were subject to a two-year vesting period. Beginning in March 2008 when directors were granted stock options for the fiscal 2009 year, our director options are subject to a three-year vesting period. The exercise price of any incentive stock options granted under the Plans will not be less than 100% of the fair market value of shares of our 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 any stock options that we grant may not exceed ten years. Non-qualified stock options will be granted at the fair market value of our common stock 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 our annual meeting of stockholders. 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 our employees and directors. The 2000 Long Term Incentive Plan also authorizes the grant of restricted stock awards (non-vested shares) to our 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. 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 376,107 shares remain available for awards as of September 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	14,299	(14,299)	-	9.92	-
Options granted	-	-	-	-	-
Options canceled	29,058	(29,058)	-	3.54	-
Options exercised	-	(1,000)	2	1.63	-
Balance as of September 30, 2009	376,107	911,229	$ 464	$ 4.39	7.46
Exercisable as of September 30, 2009		470,646	$ 69	$ 6.20	6.22
_________________

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 September 30, 2009, all 106,999 shares of restricted stock are non-vested and remain outstanding.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued guidance now codified as FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The pronouncement is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB released additional guidance now codified under FASB ASC Topic 820, which provides for delayed application of certain guidance related to non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those years. Pursuant to the requirements of FASB ASC Topic 820, we adopted the provisions of Topic 820 with respect to our non-financial assets and non-financial liabilities effective April 1, 2009. The implementation of this pronouncement had no impact on our consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued guidance now codified as FASB ASC Topic 810, “Consolidation.” FASB ASC Topic 810 changes the accounting and reporting for minority interests, which will be recharacterized as non-controlling interests and classified as a component of equity. FASB ASC Topic 810 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 September 30, 2009, we did not have any minority interests. The adoption of FASB ASC Topic 810 did not have an impact on our consolidated financial statements.

In June 2008, the FASB issued guidance now codified as FASB ASC Topic 260, “Earnings Per Share.” Under FASB ASC Topic 260, unvested share-based payment awards that contain rights to receive non-forfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing earnings per share. As of April 1, 2009, we implemented FASB ASC Topic 260 which requires us 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. We had no shares of unvested restricted stock as of September 30, 2008 so the retrospective application of FASB ASC Topic 260 had no effect on our earnings per share for the quarter or six months ended September 30, 2008.

In November 2008, the FASB issued guidance now codified as FASB ASC Topic 815, “Derivatives and Hedging.” that 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 FASB ASC Topic 815, 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 FASB ASC Topic 815 did not have an impact on our financial position, results of operations or cash flows.

In December 2008, the FASB issued guidance now codified as FASB ASC Topic 805, “Business Combinations” which 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. FASB ASC Topic 805 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 FASB ASC Topic 805 did not have an impact on our consolidated financial statements.

Effective January 1, 2009, we adopted FASB guidance now codified as FASB ASC Topic 718-740, “Compensation – Stock Compensation, Income Taxes.” FASB ASC Topic 718-740 requires us 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 FASB ASC Topic 718-740 did not have a material impact on our financial position, results of operations or cash flows.

In April 2009, the FASB issued guidance now codified as FASB ASC Topic 825, “Financial Instruments,” which amends previous Topic 825 guidance to require disclosures about fair value of financial instruments in interim as well as annual financial statements. This pronouncement is effective for periods ending after June 15, 2009. The adoption of this pronouncement did not have an impact on our consolidated financial position, results of operations or cash flows.

In May 2009, the FASB issued guidance now codified as FASB ASC Topic 855, “Subsequent Events,” which establishes general standards of accounting for, and disclosures of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This pronouncement is effective for interim or fiscal periods ending after June 15, 2009. Accordingly, the Company adopted these provisions of FASB ASC Topic 855 on March 29, 2009. The adoption of this pronouncement did not have a material impact on our consolidated financial position, results of operations or cash flows. However, the provisions of FASB ASC Topic 855 resulted in additional disclosures with respect to subsequent events. See Note 11, Subsequent Events, for this additional disclosure.

In June 2009, the FASB issued guidance now codified as FASB ASC Topic 105, “Generally Accepted Accounting Principles,” as the single source of authoritative non-governmental U.S. GAAP. FASB ASC Topic 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place. All existing accounting standard documents will be superseded and all other accounting literature not included in the FASB Codification will be considered non-authoritative. These provisions of FASB ASC Topic 105 are effective for interim and annual periods ending after September 15, 2009 and, accordingly, are effective for us for the current fiscal reporting period. The adoption of this pronouncement did not have an impact on our financial condition or results of operations, but will impact our financial reporting process by eliminating all references to pre-codification standards. On the effective date of this Statement, the Codification superseded all then-existing non-SEC accounting and reporting standards, and all other non-grandfathered non-SEC accounting literature not included in the Codification became non-authoritative.

In May 2009, the FASB issued accounting guidance now codified as FASB ASC Topic 855, “Subsequent Events,” which establishes general standards of accounting for, and disclosures of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. FASB ASC Topic 855 is effective for interim or fiscal periods ending after June 15, 2009. Accordingly, we adopted the provisions of FASB ASC Topic 855 on June 30, 2009. We evaluated subsequent events for the period from September 30, 2009, the date of these financial statements, through November 4, 2009, which represents the date these financial statements are being filed with the Commission. Pursuant to the requirements of FASB ASC Topic 855, there were no events or transactions occurring during this subsequent event reporting period that require recognition or disclosure in the financial statements. With respect to this disclosure, we have not evaluated subsequent events occurring after November 4, 2009.

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 for the three months and six months ended September 30, 2009 increased $0.3 million and $1.4 million, respectively, compared with the comparable periods for the prior year. Military revenue increased by $2.2 million and $5.4 million over the comparable three month and six month periods for the prior year, respectively. The increase in military revenue was primarily due to an accelerated delivery schedule in our military business. Commercial revenue , including royalties, decreased by $1.9 million and $4.0 million for the three month and six month periods, ended September 30, 2009, respectively. 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 weakness in our traditional markets, including RV OEM and industrial construction, and a continuing decline in RAC revenue, a market that we exited as of June 30, 2009.

Gross profit improved by $0.4 million and $1.9 million over the three month and six month periods, for the prior year comparable periods, respectively. The increase in gross margin was due to a favorable shift in the mix of military and commercial business, higher overall revenue, and the related favorable impact in factory overhead absorption. The prior year gross profit margins for both the three and six month periods ended September 30, 2008 were favorably impacted by $0.6 million from the disposition of inventory held with one of our contract manufacturers. The current year margins for both the three and six month periods ended September 30, 2009 were negatively impacted by a $0.3 million increase in inventory reserves based on an analysis of the future utility of inventory, primarily in our commercial product lines, and an increased warranty provision of $0.1 million. Additionally, gross margin for the six month period ended September 30, 2009 was reduced by $0.3 million due to the write-off of RAC inventory and tooling.

Revenue for the second quarter ended September 30, 2009 and 2008 was $9.6 million and $9.3 million, respectively. Military revenue increased $2.2 million while commercial revenue, including royalties, decreased by $1.9 million. Revenue for the six-month period ended September 30, 2009 was $19.3 million compared to $17.9 million reported in the same period of the prior year, an increase of 7.8%. Military revenue increased $5.4 million while commercial revenue, including royalties, for the six months ended September 30, 2009 decreased $4.0 million from the same period last year. The increase in military revenue was primarily due to an accelerated delivery schedule in our military business. We anticipate that military revenue will return to prior year 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 weakness in our traditional markets, including RV OEM and industrial construction, and a continuing decline in RAC revenue, a market that we exited as of June 30, 2009.

Gross profit increased $0.4 million, or 10.8%, to $3.9 million for the quarter ended September 30, 2009, as compared to the same period in the prior year. Included in the current quarter results of operations was an increase in inventory reserves of $0.3 million based upon an analysis of the future utility of inventory, primarily in our commercial products lines, and an increased warranty provision of $0.1 million. The prior year period was favorably impacted by $0.6 million from the favorable disposition of inventory held with one of our contract manufacturers. The increase in gross margin for the quarter over and above the items discussed above 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. Gross profit increased $1.9 million or 31.3% to $8.0 million for the six months ended September 30, 2009. 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 $0.6 million, or 6.3% of revenue, for the quarter ended September 30, 2009 decreased from $0.8 million or 8.9% of revenue for the quarter ended September 30, 2008. For the six months ended September 30, 2009, selling and marketing expense of $1.3 million, or 6.6% of revenue, was $0.2 million lower than the $1.5 million, or 8.4% of revenue, compared with the prior year. This decrease in selling and marketing expense as a percent of revenue was primarily due to the increase in military revenue in the first two quarters of the current year compared with the first two quarters of the prior year.

General and administrative expense of $1.0 million, or 10.3% of revenue, for the quarter ended September 30, 2009 decreased from $1.3 million, or 14.2% of revenue for the quarter ended September 30, 2008. For the six months ended September 30, 2009, general and administrative expense of $2.0 million, or 10.3% of revenue was $0.6 million lower than the $2.6 million or 14.3% of revenue for the prior year. The decrease of general and administrative expense for both the quarter and six months ended September 30, 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 two quarters of the current year, as compared to the first two quarters of the prior year, primarily results from the higher revenue for the current year.

Research and development expense of $0.7 million, or 6.8% of revenue, for the quarter ended September 30, 2009 increased by $0.1 million from the $0.6 million, or 6.4% of revenue, for the same quarter last year. For the six months ended September 30, 2009, research and development expense was $1.3 million, or 6.8% of revenue, compared to $1.1 million, or 6.3% of revenue, for the same period last year. The increase in research and development expense from the prior year periods is primarily due to higher salary costs and consulting related expenses as we added resources to improve our engineering expertise.

Income tax expense was $0.4 million for the quarter ended September 30, 2009 and $0.2 million for the quarter ended September 30, 2008. For the six months ended September 30, 2009, income tax expense was $0.9 million compared to $0.2 million for the same period last year. Income taxes as a percent of income before income taxes was 26.2% and 27.4% for the quarter and six months ended September 30, 2009, compared with 17.9% and 18.6% for the quarter and six months ended September 30, 2008. Our effective tax rate varies based primarily on the mix of income before income taxes derived from our Honduran subsidiary, 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 FASB ASC Topic 740, “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.

Net income for the quarter ended September 30, 2009 was $1.2 million, compared to a $0.9 million in the same quarter last year. The basic and diluted earnings per share was $0.21 for the quarter ended September 30, 2009, compared to basic and diluted earnings per share of $0.16 for the same quarter last year. The net income for the six-month period ended September 30, 2009 was $2.4 million, compared to net income of $1.0 million for the same period in the prior year. The basic and diluted earnings per share was $0.41 and $0.40, respectively, for the six-month period ended September 30, 2009, compared to basic and diluted earnings per share of $0.17 for the same period of the prior year.

Effective as of September 30, 2009, we entered into the Loan Agreement and Replacement Note with Wachovia, our current institutional lender. The Replacement Note provides for an interest rate equal to the 30-day London Interbank Offering Rate (“LIBOR”) Market Index Rate plus 2.10%, through December 31, 2009. Thereafter, the interest rate will be reset quarterly. As a result, effective for the quarter beginning on January 1, 2010 and continuing thereafter, the interest rate on the Replacement Note will be reset at a rate equal to the LIBOR Market Interest Rate plus the applicable LIBOR Spread for such quarter as follows:

The revolving line of credit can be used for working capital and general corporate purposes. Revolving loans may be borrowed, repaid and re-borrowed until September 30, 2011, at which time all amounts borrowed must be repaid. The Loan Agreement obligates us to pay a customary unused facility fee for a credit facility of this size. The revolving loans under the Loan Agreement are secured by a continuing security interest in most of our key assets including accounts and notes receivable, inventory, investments, demand deposit accounts maintained with our lender and 65% of the voting stock of our Honduran subsidiary, which require us to maintain certain financial ratios. As of September 30, 2009 and March 31, 2009 we had no borrowings on our Wachovia credit facility.

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 FASB ASC Topic 912-605, “Contractors-Federal Government Revenue Recognition”. Currently we do not have any transactions being accounted for within the scope of FASB ASC Topic 912-605. We may enter into government contracts that fall within the scope of FASB ASC Topic 605-35, “Revenue Recognition, Construction-Type and Production-Type Contracts”. For government contracts within the scope of FASB Topic 605-35, 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 FASB ASC Topic 605-35. We have not experienced past losses on government contracts.

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, is in excess of reasonable needs, 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 was 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 Honduras subsidiary were deemed to be dividends paid to the parent company and, therefore, subject to U.S. income tax. We recorded for all of the taxes attributable to these deemed dividends in fiscal 2005 and fiscal 2006 in our financial statements. 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 Honduras 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 evaluate the recoverability of property, plant and equipment and intangible assets in accordance with FASB ASC Topic 360, “Property, Plant, and Equipment,” and FASB ASC Topic 205, “Presentation of Financial Statements.” We test for impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. An impairment loss is recognized in the event the carrying value of these assets exceeds the fair value of the applicable assets. Impairment evaluations involve management estimates of asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management, which could have a material effect on our operating results and financial position.

The Company evaluates goodwill and other intangible assets in accordance with FASB ASC Topic 350, “Intangibles — Goodwill and Other.” Goodwill is recorded at the time of an acquisition and is calculated as the difference between the total consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired. Accounting for acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired, including in-process research and development (“IPR&D”). Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. If the assumptions and estimates used to allocate the purchase price are not correct, or if business conditions change, purchase price adjustments or future asset impairment charges could be required. We have no goodwill recorded. The value of our intangible assets could be impacted by future adverse changes such as: (i) any future declines in our operating results, (ii) a decline in the valuation of technology company stocks, including the valuation of our common stock, (iii) a significant slowdown in the worldwide economy and the semiconductor industry or (iv) any failure to meet the performance projections included in our forecasts of future operating results. In accordance with FASB ASC Topic 350, we test intangible assets for impairment on an annual basis or more frequently if we believe indicators of impairment exist. Impairment evaluations involve management estimates of asset useful lives and future cash flows. Significant management judgment is required in the forecasts of future operating results that are used in the evaluations. It is possible, however, that the plans and estimates used may be incorrect. If our actual results, or the plans and estimates used in future impairment analysis, are lower than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges in a future period.

Stock-Based Compensation. For purposes of determining the variables used in the calculation of stock compensation expense under the provisions of FASB ASC Topic 505, “Equity” and FASB ASC Topic 718, “Compensation — Stock Compensation,” we perform an analysis of current market data and historical company data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, we use these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted, any fluctuations in these calculations could have a material effect on the results presented in our Consolidated Condensed Statement of Operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our financial statements.

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 September 30, 2009, we had no borrowings. If we borrow under our Wachovia credit facility, our borrowing costs will be affected by changes in interest rates. We also 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 $40 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 talks continue over conflicting proposals for restoring ousted President Manuel Zelaya to office. On June 28, 2009soldiers of the Honduran military removed President Manuel Zelaya from office after he defied court orders to cancel a referendum that sought 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.

To date, there has been no significant disruption in our manufacturing operations since the political crisis in Honduras commenced 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.

Effective as of September 2, 2009, the Audit Committee approved the engagement of Kirkland, Russ, Murphy & Tapp, P.A., an independent member of the BDO Seidman Alliance, as our independent registered public accounting firm for the year ending March 31, 2010, and informed KPMG LLP that it was dismissed as the Company’s independent registered public accounting firm. The Board of Directors of the Company also approved the change in our independent registered public accounting firm for the year ending on March 31, 2010.

	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 4. Submission of Matters to a Vote of Security Holders
	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

September 30, 2009			March 31, 2009

Raw materials	$	4,543	5,084
Work-in-process		605	766
Finished goods		1,158	2,163
Total	$	6,306	8,013

	Three months ended September 30,						Six months ended September 30,

		2009		2008		2009			2008
Beginning balance		162		137		164			137
Warranty expense		153		32		195			59
Warranty claims		(75	)	(32	)	(119		)	(59	)
Ending balance		240		137		240			137

If Funded Debt/EBITDA Ratio Is:	The LIBOR Spread (basis points) will be:

< 1.50:1.00	210
≥ 1.50:1.00 < 2.00:1.00	240
≥ 2.00:1.00	270

		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 September 30, 2009	106,999	$ 1.75

	Shares Voted FOR	Shares WITHHELD
Owen Farren	5,042,341	216,453
Raymond B. Wood	5,045,441	213,353
Gerry Chastelet	4,813,483	445,311
Patrick M. Murphy	5,014,877	243,917
David F. Walker	5,045,798	212,996
Raymond V. Malpocher	5,014,510	244,284
N. John Simmons, Jr.	5,045,699	213,095

Shares Voted FOR	Shares WITHHELD	Shares ABSTAINED
5,070,227	177,746	10,822

	TECHNOLOGY RESEARCH CORPORATION

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


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