-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L/VCHqvkoToK625CUOLx0vW8A0ONY7VOxHeYnXH0uMB/V7DSl5O28l4L4i2ox3xC NqyFMLguins60g4UJMP/sQ== 0000741556-97-000007.txt : 19970630 0000741556-97-000007.hdr.sgml : 19970630 ACCESSION NUMBER: 0000741556-97-000007 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970627 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TECHNOLOGY RESEARCH CORP CENTRAL INDEX KEY: 0000741556 STANDARD INDUSTRIAL CLASSIFICATION: SWITCHGEAR & SWITCHBOARD APPARATUS [3613] IRS NUMBER: 592095002 STATE OF INCORPORATION: FL FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-13763 FILM NUMBER: 97632039 BUSINESS ADDRESS: STREET 1: 5250 140TH AVE NORTH CITY: CLEARWATER STATE: FL ZIP: 34620 BUSINESS PHONE: 8135350572 MAIL ADDRESS: STREET 1: 5250 140TH AVENUE NORTH CITY: CLEARWATER STATE: FL ZIP: 34620 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1997 Commission file number 0-13763 TECHNOLOGY RESEARCH CORPORATION (Exact name of registrant as specified in its charter) Florida 59-2095002 (State or other jurisdiction of (I.R.S. Employer incorporation or Organization) Identification No.) 5250 140th Avenue North, Clearwater, Florida 33760 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (813) 535-0572 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered None None Securities registered pursuant to Section 12(g) of the Act: Common Stock $.51 par value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of May 30, 1997, the number of shares outstanding of the registrant's common stock, $.51 par value was 5,332,571, and based on the closing sale price on such date, the aggregate market value of the voting stock held by nonaffiliates of the registrant was $19,854,244. Part III of this Form 10K is incorporated by reference from the registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on August 22, 1997. TABLE OF CONTENTS PART I Page Item 1. Business .................................................... 3 Item 2. Properties .................................................. 13 Item 3. Legal Proceedings ........................................... 13 Item 4. Submission of Matters to a Vote of Security Holders ..........13 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ................................. 14 Item 6. Selected Financial Data ..................................... 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ......................... 16 Item 8. Financial Statements and Supplementary Data ................. 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...................... 20 PART III Item 10. Directors and Executive Officers of the Registrant .......... 20 Item 11. Executive Compensation ...................................... 20 Item 12. Security Ownership of Certain Beneficial Owners and Management ....................................... 20 Item 13. Certain Relationships and Related Transactions .............. 20 PART IV Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K ..................................... 21 SIGNATURES ........................................................... 24 Part I ITEM 1. BUSINESS General The Company was incorporated in Florida in June 1981 with the intended purpose of pursuing orders for products to be designed and manufactured for sale to the military engine generator set controls market, a segment with respect to which the Company's founders had acquired substantial experience. The Company currently designs, develops, manufactures and markets electronic control and measurement devices related to the distribution of electric power and specializes in electrical safety products that protect against shock, electrocution and fires. Such products include ground fault protective devices, fire prevention devices for fires caused by aging appliance and extension cords, controls for electrical power generating systems, transformers and magnetics. These products are used in providing safe and efficient utilization and controlled distribution of electricity and have consumer, commercial and governmental applications in the United States and throughout the world. Until the year ended March 31, 1989, a majority of the Company's revenues were derived from sales of military products. The Company believes that its successful design of ground fault devices for both personnel and equipment protection as well as meeting electrical safety requirements for personal care products, have formed the basis for the Company's success in the consumer/commercial, non-military markets. Net sales contributed by commercial and military products are as follows: Year Ended March 31 Commercial % Military % Total -------- ---------- ----- -------- ----- ---------- 1997 $ 12,803,181 85.3 $ 2,200,413 14.7 $ 15,003,594 1996 14,541,301 87.7 2,040,000 12.3 16,581,301 1995 18,095,134 86.4 2,840,423 13.6 20,935,557 1994 14,022,113 71.2 5,681,341 28.8 19,703,454 1993 8,786,733 73.5 3,162,054 26.5 11,948,787 Royalties from license agreements are as follows: Year Ended March 31 Royalties -------- --------- 1997 $ 381,977 1996 797,920 1995 837,399 1994 785,723 1993 925,800 The backlog of unshipped orders at March 31, 1997 was approximately $5,822,000. This backlog consists of approximately 44% commercial product orders and approximately 56% military product orders. Of the current backlog, approximately $5,102,000 or 88% of such backlog is expected to be shipped within the year ended March 31, 1998, and approximately $720,000 or 12% of such backlog, primarily consisting of military orders for the Tactical Quiet Generator Systems contract, will be shipped in periods commencing thereafter. -3- Commercial Products and Markets Ground fault protective devices protect equipment and people against power line conductor to ground faults which can damage equipment and seriously or fatally injure humans. Ground Fault Circuit Interrupters ("GFCI") and Appliance Leakage Circuit Interrupters ("ALCI") provide protection from dangerous electrical shock by sensing leakage of electricity and cutting off power. Equipment Leakage Current Interrupters ("ELCI") detect current leakage within machines such as copy machines, printers and computers. GFCIs are currently available in three types: circuit breaker, receptacle and portable. The Company specializes in the portable types of these products. A ground fault is essentially a small amount of electric current "leaking" to the exposed metal parts of an appliance or tool. Faults occur because of damage that causes internal wiring to touch these exposed metal parts or because an appliance or tool gets wet. Upon such occurrence, the entire device can become as electrically alive as the power line to which it is attached. If a person is touching such a live device while grounded (by being in contact with the ground or, for example, a metal cold water pipe, gas pipe, drain or any attached metal device), that person can be seriously or fatally injured by electric shock. Fuses or circuit breakers do not provide adequate protection against such shock, because the amount of current necessary to injure or kill a normal adult is far below the level of current required for the fuse to blow or the circuit breaker to trip. GFCIs constantly monitor electric current. As long as the amount of current returning from the appliance is equal to the amount that is directed to the device, the GFCI performs no activities. Conversely, if there is less current coming back than there is flowing into the device, some portion must be taking a path through a foreign body, thereby creating a hazard. Upon recognizing that condition, the GFCI terminates the flow of electricity instantaneously. An ELCI is a device intended to provide leakage current protection in appliances and utilization equipment whose function is to interrupt all ungrounded conductors of the supply circuit to electrical equipment in the event a current, in excess of the trip current, occurs between live parts and the grounded enclosure or other grounded parts. The basic standard used to investigate these products is the Standard for Ground Fault Circuit Interrupters, UL 943, excluding requirements concerning trip current and time. ELCIs are considered "equipment protection" devices. The Company has a unique versatile product called the "Electra Shield" which provides ELCI capability, three-mode surge suppression, power line filtering, and facsimile modem surge protection. This unique product offers multimedia protection for home and office personal computers, fax modems, TV and entertainment systems. An ALCI is a device intended to be used in conjunction with an electrical appliance whose function is to interrupt both conductors of the electric circuit to a load when a fault current to ground exceeds 4 - 6 mA and is less than that required to operate the overcurrent protection device of the circuit. The ALCI is intended to be used only in a circuit that has a solidly grounded neutral conductor, and is not intended to be used in place of a GFCI in applications where the GFCI is required. ALCIs are considered "personnel protection" devices. This product is intended for infrequent and short-time use, and used only while attended; for example, with electric knives, can openers, hair dryers, and the like, which are connected to a power supply circuit by means of a flexible cord terminating in an attachment plug. -4- Government and industry research into the major causes of fire has led to a search for new, cost-effective methods to prevent electrical fires. In response to this need, the Company developed and patented "Fire Shield", a product designed to prevent fires caused by damaged or aging appliance and extension cords, which have been identified as a leading cause of electrical fires. According to the United States Consumer Product Safety Commission (CPSC), these types of fires caused 149,900 residential structural fires involving electrical equipment, which resulted in 770 civilian deaths, more than 6,000 injuries and $1.2 billion in property losses. The CPSC estimates were based on 1990 fire service reports. The Company currently manufactures and markets to an emerging market for personnel protection devices for electric vehicle ("EV") charging circuits. The new Article 625 of the 1996 Edition of the National Electrical Code requires electric vehicle charging systems to include a system that will protect people against serious electric shock in the event of a ground fault. The Company has pilot-production product at the majority of the major automobile manufacturers and is active with various standards and safety bodies, relating to the electric vehicle, on a worldwide basis. The National Electrical Code (the "Code") requires GFCIs for the protection of receptacle outlets outdoors, as well as in bathrooms, garages and other risk areas, and in new residences, hotels and public buildings. The Code is followed by most local government building codes. There is increasing effort by certain groups such as the National Electric Manufacturers Association and Consumer Products Safety Commission to require GFCI protection in other locations and applications. The Company presently focuses its marketing efforts in certain spot markets which have developed in response to Code imposed requirements on contractors. For example, commencing in January 1989, high pressure sprayer manufacturers that desire Underwriter Laboratories ("UL") approval are required to include a GFCI and/or double-insulation protection on each electrically driven sprayer(see MD&A on page 16 for further discussion on this subject). The Company is a supplier to that original equipment manufacturer ("OEM") market. Another market that has developed in response to a Code requirement consists of contractors that use temporary power at a construction site. Although OSHA has required such contractors for several years to utilize GFCIs at their construction sites, compliance with this requirement has been sporadic due to the cost normally associated with GFCIs. In October 1988, the Company introduced an industrial quality GFCI extension cord at a safety show and has introduced a wide variety of new products over the ensuing years. A new line of high current GFCIs were introduced as the Company continues to pursue meeting requirements for electrical safety across a broad market. A Code requirement that became effective on January 1, 1991, requires that a protective device be incorporated into hair dryers, curling irons and crimpers to protect users from possible electrocution. In response to this Code change, the Company developed a smaller GFCI plug that incorporates its patented GFCI/ALCI technology. Additionally, the Company developed an Immersion Detection Circuit Interrupter ("IDCI") that can also be used to protect users of these products. The Company currently manufactures and markets various portable GFCI and ELCI products, such as plug-in portable adapters, several extension cord models in various lengths, various modules for OEM customers, and variations of such products for voltage differences in both the United States and foreign markets. The Company has been issued five domestic and sixteen foreign patents on its portable GFCI which incorporate design features not available on any -5- similar product known to the Company. The Company has entered into seven license agreements and three sales and marketing agreements concerning the portable GFCI, ALCI and ELCI. These agreements are with entities located in Australia, France, Germany, Italy, Japan, the United Kingdom and the United States and are for the purpose of market penetration in those areas where it would be difficult for the Company to compete on a direct basis. On April 24, 1997, the Company came to an amiable conclusion of its license agreement with Windmere Corporation (the "Windmere Agreement") which had been in effect since August 2, 1988. Windmere Corporation is a large Miami, Florida based manufacturer and distributor of a wide variety of, among other items, portable personal care and household products utilizing electric current (e.g. haircurlers, irons, food mixers and numerous other items), most of which are sold both domestically and internationally. Under the Agreement, Windmere was granted an exclusive license (subject to the rights of certain other preexisting licensees) to sell and distribute certain GFCI/ALCI or IDCI based electrical safety products in the United States, and to manufacture GFCI/ALCI and IDCI units (a) in the Far East (a defined term within the Agreement referencing most Asiatic countries) for incorporation into finished electrical safety products to be sold throughout the world directly or by way of Far East OEMs; or (b) in the United States for sale or distribution, at retail, in conjunction with personal care items and household appliances. The Company also agreed to purchase its requirements of Far East manufactured GFCI and IDCI products from Windmere and its affiliates as long as the Company can obtain the same in a reasonable period and at a competitive cost. Recently, the Company chose to start producing these products at its Honduran subsidiary, and this change along with the fact that Windmere's use of the Company's license would be limited going forward, brought about the termination of this agreement. To date, the Company has received a substantial portion of its royalty income from Windmere. Military Products and Markets The Company is currently a supplier of control equipment used in engine generator sets purchased by the United States military and its prime contractors. The term "control equipment" refers to the electrical controls used to control the electrical power output of the generating systems including the transducers for the indicating instruments. In general, the controls monitor and regulate the operation of generator mobile electric generating system sets. Electric generating systems are basic to all branches of the military, and demand has generally remained relatively constant, unlike products utilized in armaments and missiles. Sales are made either directly to the government for support parts or to prime contractors for new electric generator sets which incorporate the Company's products. The Company is a qualified supplier for 37 control equipment items as required by the Department of Defense and is a supplier of the following types of control equipment, among others: protective relays and relay assemblies, instrumentation transducer controls, fault locating panel indicators, current transformer assemblies for current sensing control and instrumentation, motor operated circuit breaker assemblies and electrical load board and voltage change board assemblies. These products are primarily furnished for spare parts support for existent systems in the military inventory. -6- In late 1989, the Company completed the redesign of 22 of its control items and provided prototype units to a prime contractor for testing, which was completed in the third fiscal quarter for the year ended March 31, 1992. Subsequently, the Company reported receiving a production contract in the approximate amount of $7,500,000 covering the time period August 1992 to October 1994 to provide these control devices for the new design Tactical Quiet Generator System from the U. S. Government's prime contractor. All deliveries have been completed under this contract, and an additional $4,300,000 contract for the Company's control devices was awarded to the Company by a prime contractor in March 1995. An additional $600,000 was added later to the contract bringing the total of the contract to $4,900,000, which covers approximately a two-year period. Deliveries began in the second quarter of Fiscal Year 1997. The Company has also designed and qualified various types of electrical power monitors for military Naval Shipboard requirements. The monitors are used on all types of class Naval surface vessels, such as minesweepers, destroyers guided missile cruisers and the aircraft carriers in addition to other types of Naval vessels. The monitors are furnished for both existent vessels requiring spare support parts for retrofit upgrades and for new vessel production. From 1993 through 1996, the Company designed and qualified electrical control devices for control and monitoring of the A.C. power self contained diesel generating system, which is part of the new configuration C2v armored electronic command post system that is mounted on the Bradley tracked chassis of the Bradley Fighting Vehicle and the newly developed armored ambulance, which will utilize the same components for the electrical power system. The control devices are the A.C. power monitor assemblies (which provide system protection and status display on the on-board computer), generator voltage regulator, power transformer, A.C. overcurrent and short circuit protection monitor assembly for vehicle A.C. power distribution circuits and the current sensing transformers. All devices have met the high shock and vibration and endurance testing requirements during both highly accelerated stress screening tests and vehicle road testing at Aberdeen Proving Grounds. The Company receives small quantity orders for these components. The Company has also completed the development and initial production contracts for the D.C. voltage regulator used on armored tracked recovery vehicles and intends to pursue additional production contracts for this military qualified product. The Company's contracts with the U.S. Government are on a fixed-price bid basis and are not subject to price renegotiation. As with all fixed-price contracts, should manufacturing costs exceed the selling price, the contract could result in a loss. All government contracts contain a provision that allows for cancellation by the government "for convenience." However, the government must pay for costs incurred and a percentage of profits expected if a contract is so canceled. On occasion, contract disputes arise which could result in a suspension of the contract or a reduction in the amounts claimed. -7- Testing and Qualification A number of the Company's commercial products must be tested and approved by UL. UL publishes certain "Standards of Safety" which various types of products must meet and performs specific tests to ascertain whether a product meets the prescribed standards. If a product passes the tests, it receives UL approval. Once the Company's products have been initially tested and qualified by UL, they are subject to regular field checks and quarterly reviews and evaluations. UL may withdraw its approval for such products if they fail to pass these tests and if prompt corrective action is not taken. The Company's portable electrical safety products have received UL approval. In addition, certain of the Company's portable GFCI, ALCI and ELCI products have successfully undergone similar testing procedures conducted by comparable governmental testing facilities in Europe, Canada and Japan. The Company's military products are subject to testing and qualification standards imposed by the United States government. The Company has established a quality control system which has been qualified by the United States Department of Defense to operate under the requirements of a particular specification (MIL-I-45208). To the extent the Company designs a product which it believes to meet those specifications, it submits the products to a government testing laboratory, such as that located at Ft. Belvoir, Virginia. If approved, the product is rarely subject to requalification; however, the military may disqualify a product if it is subject to frequent or excessive operational failures. Further, the current specifications and requirements could be changed at any time, which would require the Company to redesign its existing products or develop new products which would have to be submitted for testing and qualification prior to their approval for purchase by the military or its prime contractors. Certain contracts require testing and acceptance by government inspectors prior to shipment of the product. The Company is presently enhancing its quality processes with the objective to meet the ISO 9000 Series International Quality Standards. Design and Manufacturing The Company currently designs almost all of the products which it produces and generally will not undertake special design work for customers unless it receives a contract to produce the resulting products. The Company continues to work with foreign licensees to design products for foreign markets. A significant number of the Company's commercial and military electronic products are specialized in that they combine both electronic and magnetic features in design and production. The business of an electronic manufacturer, such as the Company, primarily involves assembly of component parts. The only products which the Company manufactures from raw materials are its transformers and magnetic products. The manufacture of such products primarily involves the winding of wire around magnetic steel cores. The remainder of the products which the Company manufactures are assembled from component parts produced by other manufacturers. -8- Since August 1988, the Company has purchased some of its circuit board assemblies and certain completed products from the Far East, and the Company will continue to do so throughout Fiscal Year 1998 but to a lesser extent as the fiscal year progresses. On February 3, 1997, the Company's Board of Directors approved the incorporation of TRC Honduras, S.A. de C.V., a wholly owned subsidiary of Technology Research Corporation, for the purpose of manufacturing the Company's high-volume products. This decision was made in line with the Company's goal of always striving to improve quality, profit margins and customer satisfaction. TRC Honduras, S.A. de C.V. will reside in a leased 42,000 square foot building located in ZIP San Jose, a free trade zone and industrial park, in San Pedro Sula, Honduras. The lease will be for a term of five years with an option to extend the lease for another five years. The benefits of being located in a free trade zone include no Honduran duties on imported raw materials or equipment, no sales or export tax on exported finished product, a twenty year Honduran federal income tax holiday and a ten year Honduran municipal income tax holiday for the profits generated by the Honduran subsidiary, and various other benefits. TRC Honduras, S.A. de C.V. will be funded by the Company with equity of $1,400,000 to be used for machinery, equipment and various start-up costs. The Company expects to receive significant benefit from this investment in the form of profits, as a result of lower product costs and higher manufacturing efficiency, and positive cash flow, as a result of higher inventory turns and income tax benefits. First product was shipped out of Honduras in May 1997, and full production is expected by the third quarter of Fiscal Year 1998. The Company's will continue to manufacture its military and low-volume commercial products in its 43,000 square foot facility in Clearwater, Florida. Patents, Licenses, and Trademarks The Company's President, Mr. Legatti, has designed for the Company and has been issued four U.S. patents and two British, Canadian, Italian and Australian patents with respect to its portable GFCIs that have features not presently available on any similar product known to the Company. Also, patents on the same device have been issued from France, Japan, Germany and three other countries. The patents will be valid for 20 years in the United States running from January 1986. Duration of patents in the other countries vary from 15 to 20 years. The Company licenses its technology for use by others in exchange for a royalty or product purchases. Licensees are located in Australia, France, Germany, Italy, Japan, the United Kingdom and the United States. Each licensee agrees to pay the Company a royalty or purchase product based on schedules set forth in the applicable agreement. The Company agrees to provide certain technical support and assistance to its licensees. The licensees have agreed to indemnify and hold the Company harmless against any liability associated with the manufacture and sale of products subject to the license agreement, including but not limited to defects in materials or workmanship. In 1988, the Company received a patent for a circuit utilized in the measurement of AC electric power. This circuit is used in products such as watt transducers. In 1990, the Company received a patent that allows its GFCI to sense arcing faults in power cables. Arcing faults are known to be a major contributor to electrical fires. -9- In 1996, the Company obtained an exclusive license to manufacture, market and sell all products inherent to U.S. Patents No. 4,911,654 and 5,299,951. These patents add to the Company's existing product lines a device for preventing disconnection of or damage to electrical connectors. The Company has no other patents on or licensee agreements with respect to its products or technology, but has registered its TRC trademark with the U.S. Office of Patents and Trademarks. Marketing The Company's products are sold throughout the world, primarily through an expanded in-house sales force, licenses and sales and marketing agreements. Although the Company will continue to market existing and new products through these mediums, the Company is looking for other viable mediums with which to market its products. The Company relies significantly upon the marketing skills and experience, as well as the business experience, of the management of the Company in marketing its products. The Company complements its marketing activity through the use of additional distributors and sales representative organizations. The Company's internal distribution division, TRC Distribution, is supported by 29 independent sales representatives who sell to 500 electrical distributors. The Company also markets through OEMs that sell the Company's GFCI products under their own brand label. Additionally, the Company has exhibited its GFCI products at numerous trade shows which have resulted in new commercial markets, including the recreational vehicle industry and stone and tile cutters. In Fiscal Year 1997, the Company implemented a direct sales program using independent distributors that specialize in selling products directly to the household consumer. This approach is being implemented by companies today as an economical way to reach the end user. Management believes that consumer sales represent a major growth opportunity for the Company. The Company sold its first distributorship in April 1997. The Company utilizes primarily foreign licenses and sales and marketing agreements to market its products internationally (see Patents, Licenses and Trademarks on page 9 for further information). The Company's products have world-wide application, and the Company believes that international demand for these products will contribute to the Company's future growth. The Company offers purchasers of its products no specific product liability protection. The Company does extend protection to purchasers in the event there is a claimed patent infringement that pertains to the Company's portion of the final product. The Company also carries product and general liability insurance for protection in such cases. -10- Major Customers Individual customers and aggregate exports which accounted for 10% or more of sales were: Year ended March 31 ------------------- Customer 1997 1996 1995 -------- ---- ---- ---- Xerox Corporation $ 2,529,398 1,686,421 1,895,587 Fleck Manufacturing (a Xerox Corporation supplier) 1,776,424 2,358,887 3,090,322 Other Xerox suppliers 802,800 2,474,142 1,407,704 --------- --------- --------- Total Xerox and suppliers $ 5,108,622 6,519,450 6,393,613 ========= ========= ========= Exports: Canada $ 1,831,898 2,367,890 3,168,677 Europe 1,396,823 1,750,257 5,748,882 Far East 1,057,605 1,967,494 725,368 Mexico 736,992 569,845 549,980 Australia 150,760 438,875 536,176 South America 82,838 - - Middle East 5,324 - - --------- --------- ---------- Total exports $ 5,262,240 7,094,361 10,729,083 ========= ========= ========== For the Company's current fiscal year, sales to Xerox Corporation and its suppliers, of the Company's Equipment Leakage Current Interrupter ("ELCI"), were down from the previous fiscal year due primarily to a reduction in selling price to Xerox and a licensee, "TEMIC", producing product (formerly produced by the Company) for Xerox's European market requirements. However, in the second half of Fiscal Year 1997, the Company again became the supplier of Xerox's European product requirements, which added to sales to Xerox and decreased royalty income from Temic. Xerox and its suppliers accounted for approximately 34% of the Company's sales for Fiscal Year 1997, and because they account for such a large percentage of the Company's sales, the loss of Xerox as a customer would have a material adverse effect on the Company's business. Lower exports to Canada, Europe and the Far East can primarily be attributed to Xerox's international suppliers. The Company's military product sales are primarily to OEM prime contractors and secondarily to military procurement depots for spare parts. Of the total military product sales for the Fiscal Year 1997, approximately 79% were to OEM contractors and 21% to military depots. In Fiscal Year 1997, military sales were approximately 15% of total sales, compared to 12% in the prior year. The Company has no relationship with any of its customers except as a supplier of product. -11- Competition The commercial and military business of the Company is highly competitive. In the commercial market, the Company has significant competition, except with respect to the "Fire Shield" products. The Company believes, however, that product knowledge, patented technology, ability to respond quickly to customer requirements, positive customer relations, price, technical background and industry experience are major competitive factors, and that it competes favorably with respect to these factors. In addition, the Company's patented GFCI technology utilizes, in certain adaptations, waterproofing, a retractable ground pin and "trip mechanism" techniques, each of which provides the Company, in the judgment of its management, with a current competitive advantage. In the military market, the Company's products must initially pass government specified tests. The Company must compete with other companies, some being larger and some smaller than the Company, acting as suppliers of similar products to prime government contractors. The Company believes that knowledge of the procurement process, price, delivery and technical support are major competitive factors in the military market. The Company believes that it has strength in all of these areas due to the involvement of senior management personnel of the Company in the government procurement process for up to 39 years in connection with products similar to those currently marketed by the Company. A substantial portion of spare part procurement is set aside for small business concerns, which are defined in general as entities with fewer than 1,000 employees. Because the Company is classified as a small business concern, it qualifies for such set aside procurements for which larger competitors are not qualified. The entry barriers to the military market are great because of the need, in most cases, for products to pass government tests and qualifications. Research, Development and Engineering The Company employs 23 persons in the Engineering Department, all of whom are engaged either full or part-time in research and development activities. This department is engaged in designing and developing new commercial and military products and improving presently existing products to meet the needs of the Company's customers. In connection with its efforts in developing the GFCI product, the Company believes that the increasing use of portable GFCI protection will provide new markets for its expansion into the commercial marketplace, and accordingly, the Company has modified its GFCI designs to fit these markets and new applications. There can be no assurance; however, that the Company can maintain its sales levels in the commercial market in view of the possibility that an increased level of competition may develop. The Company spent $1,147,630 in Fiscal Year 1997, $975,568 in Fiscal Year 1996 and $1,013,825 in Fiscal Year 1995 on research, development and engineering activities. None of these activities were sponsored or financed by customers, and all are expensed as incurred. The Company anticipates spending levels to remain constant in the new fiscal year. -12- Employees As of March 31, 1997, the Company employed 152 persons on a full time basis. Of that total, 98 employees, both permanent and temporary, were engaged in manufacturing operations, 23 in engineering, 19 in marketing and 12 in administration. None of the Company's employees are represented by a collective bargaining unit. The Company considers its relations with employees to be stable. TRC Honduras, S.A. de C.V., the Company's new wholly owned subsidiary, employed 8 persons on a full time basis as of March 31, 1997. The Company expects this subsidiary to employ approximately 250 persons by the end of Fiscal Year 1998. ITEM 2. PROPERTIES The Company's executive offices and manufacturing facilities are located on 4.7 acres of leased land in the St. Petersburg-Clearwater Airport Industrial Park. The lease, with options, extends for 40 years until 2021. The current annual rental of the land on which the building is located is approximately $25,000, subject to certain escalation provisions every five years. This leased land is adequate to enable the Company to expand its offices and manufacturing facilities to 60,000 square feet. The present facility provides a total of 43,000 square feet, including 10,000 square feet of offices and engineering areas, as well as 23,000 square feet of production areas and 10,000 square feet of warehouse space. In March 1997, the Company entered into a five year lease agreement with ZIP San Jose, an industrial park located in San Pedro Sula, Honduras, for a 42,000 square foot building in which the Company will manufacture its high-volume products. The Company has the option of extending the lease another five years if it wishes. Lease payments begin in May 1997 and continue through July 2002. ITEM 3. LEGAL PROCEEDINGS In March 1995, the Company, along with seven other defendants, was sued in Harris County, Texas. The suit claims, among other things, that the Company's GFCI product was defectively designed and manufactured and caused the death by electrocution of an individual. In January 1997, the 157th Judicial Court of Harris County, Texas approved the out of court settlement of this case. Although the Company's product liability insurance covered its portion of the settlement costs, the Company expressly denied any liability in the matter. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended March 31, 1996. -13- Part II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS The Company's shares of Common Stock are registered under 12(g) of the Securities Exchange Act of 1934 and are traded in the over-the-counter market utilizing the NASDAQ trading system, to which the Company gained admittance in December 1984, under the symbol "TRCI". In November 1995, NASDAQ approved the Company's application for listing on the National Market. The following tables set forth a range of high and low market prices for the Company's Common Stock for the fiscal year ended March 31, 1997 and 1996 and a range of high and low bid and ask quotations for the fiscal years ended March 31, 1995, as reported by the NASDAQ system. Market Price Cash Fiscal Year Ended High Low Dividends ---- ---- --------- March 31, 1997: First Quarter ................. 6 1/4 4 1/2 $ .06 Second Quarter ................. 5 3/8 3 7/8 .06 Third Quarter ................. 4 5/8 4 .06 Fourth Quarter ................. 4 9/16 3 13/16 .06 ----- $ .24 March 31, 1996: First Quarter ................. 5 1/4 3 $ .06 Second Quarter ................. 6 3/16 4 5/16 .06 Third Quarter ................. 5 1/2 3 3/4 .06 Fourth Quarter ................. 5 11/16 3 7/8 .06 ----- $ .24 Bid Price Ask Price High Low High Low March 31, 1995: ---- ---- ---- ---- First Quarter ................. 6 3/8 4 1/8 6 21/32 4 13/32 Second Quarter ................. 6 4 19/32 6 3/8 4 23/32 Third Quarter ................. 4 7/8 3 15/32 5 1/4 3 3/4 Fourth Quarter ................. 4 5/16 3 9/32 4 1/2 3 15/32 As of May 30, 1997, the approximate number of the Company's shareholders was 800. This number does not include any adjustment for shareholders owning common stock in the Depository Trust name or otherwise in "Street" name, which the Company believes represents an additional 3,000 shareholders. On August 23, 1995, at the Company's Annual Meeting, the shareholders approved a one share for three share reverse stock split, by a majority vote of 82.24%. The record date for the reverse stock split was September 15, 1995, and the Company's financial information now reflects the reverse split for all periods presented. The Company's authorized capital stock, as of May 30, 1997, consisted of 10,000,000 shares of authorized common stock, par value $.51, of which 5,332,571 shares were issued and outstanding. -14- The Company's fourth quarter dividend of $.06 per share was paid on April 15, 1997 to shareholders of record on March 31, 1997. The Company has declared dividends of $.24 per share during its Fiscal Years 1997 and 1996. ITEM 6. SELECTED FINANCIAL DATA 1997 1996 1995 1994 1993 ---- ---- ---- ---- ----
C> Year ended March 31: Operating revenues $ 15,385,571 17,379,221 21,772,956 20,489,177 12,874,587 Gross profit $ 4,747,997 5,895,687 5,246,105 5,618,096 3,117,299 Net income $ 566,658 2,038,785 1,867,957 2,296,778 1,655,023 Net income per common share $ .10 .38 .35 .45 .41 Cash dividends declared $ .24 .24 - - - Weighted average number of common and equivalent shares outstanding 5,441,620 5,404,885 5,339,953 5,083,007 4,066,724 March 31: Working capital $ 9,603,984 10,931,740 10,089,672 9,102,131 4,616,296 Total assets $ 15,637,949 15,380,590 14,813,938 13,443,899 8,709,221 Current liabilities $ 2,903,154 1,867,678 2,119,000 2,216,719 2,594,303 Long-term debt $ 206,250 281,350 356,350 831,350 1,421,829 Total liabilities $ 3,109,404 2,149,028 2,475,350 3,123,069 4,076,132 Retained earnings (accumulated deficit) $ 2,397,353 3,108,371 2,340,267 470,310 (1,824,468) Total stockholders' equity $ 12,528,545 13,231,562 12,338,588 10,320,830 4,633,089
-15- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating Results: Fiscal Years 1997 and 1996 Comparison Operating revenues (net sales and royalties) for the Company's fiscal year ended March 31, 1997 ("Fiscal Year 1997") were $15,385,571, compared to $17,379,221 reported for the Company's fiscal year ended March 31, 1996 ("Fiscal Year 1996), a decrease of approximately 11%. The Company's net income for the Fiscal Year 1997 was $566,658, or $.10 per share, compared to $2,038,785, or $.38 per share, for the Fiscal Year 1996, a decrease of approximately 72%. Common and equivalent shares outstanding were comparable from year to year. Net sales of the Company's family of ground fault circuit interrupters for personnel and equipment protection products were approximately 85% of net sales for Fiscal Year 1997, compared to 88% in Fiscal Year 1996. U.S. sales and multinational accounts for the current year decreased by $1,738,121 from the previous year. Military sales increased by $160,414 from the previous year due to the Company now being in full production of the products related to the Tactical Quiet Generator Systems program, which has an expected value of $4,900,000 over approximately two years. The reduction in commercial sales was mainly due to the level of business with Xerox and, to a lesser extent, the sprayer/washer market. Revenues from the high pressure sprayer/washer market were negatively impacted in Fiscal Year 1997, as well as Fiscal Year 1996, by a provision in the National Electric Code permitting the use of double-insulation for certain sprayer/washer products to be sold without a GFCI provided they are used with a GFCI. This provision has been eliminated in the National Electric Code, effective January 1996; however, the Company has no certainty that it will recover its previous revenue level in that market. Nevertheless, the Company will have the opportunity to recover revenues in this market as UL enforces the change in the National Electric Code on the manufacturers. UL has not commented on how long this process will take. The revenues associated with Xerox were negatively impacted by a further price reduction on October 1, 1996 and by the transition period of the Company supplying Xerox with its European product requirements instead of Temic Telefunken, which had an impact on both royalties from Temic and shipments of piece parts to Temic which were used by Temic to manufacture finished product. The Company expects that sales to Xerox and its suppliers will remain under price pressure in Fiscal Year 1998. Xerox and its suppliers accounted for approximately 34% of the Company's sales for the current year, and because they account for such a large percentage of the Company's sales, the loss of Xerox as a customer would have a material adverse effect on the Company's business. -16- Royalty income for Fiscal Year 1997 was $381,977, compared to $797,920 for Fiscal Year 1996, a decrease of $415,943, or approximately 52%. The Company's royalties were down, as expected, due to less royalties received from Windmere Corporation and Temic(Telefunken Microelectronics)GmbH. The Company received less royalties from Windmere, because Windmere, in an effort to reduce their product cost because of competitive pressures, renegotiated a lower royalty agreement with the Company effective in Fiscal Year 1997. The Company further agreed in April 1997 to accept a final payment of $100,000 from Windmere to license the Company's products with the understanding that no future royalties would be paid to the Company. The Company received less royalties from Temic in Fiscal Year 1997 as a result of Xerox transferring their European product requirements back to TRC during Fiscal Year 1997. The Company believes that royalties for Fiscal Year 1998 will be less then those received in Fiscal Year 1997. On May 17, 1997, the Company granted an exclusive license to Yaskawa Controls of Japan for the Company's full line of commercial electrical protection devices and the Company's protective devices for the electric vehicle charging systems, and the Company expects to receive a combination of royalties, product orders and a licensing fee of $125,000 as a result of this agreement. The Company believes that this agreement will substantially offset the loss of royalty income from Windmere Corporation for Fiscal Year 1998. The Company's revenues rose steadily throughout Fiscal Year 1997 since its first quarter ended June 30, 1996, and the Company believes that revenues will continue to improve in Fiscal Year 1998. The Company did not, however, experience the anticipated revenues from the "Fire Shield" products and the consumer marketing initiative, which were needed, in addition to the Company's existing business, to achieve revenue growth over Fiscal Year 1996. The Company continues to believe that the market for "Fire Shield" is large and that the consumer market for the Company's products provide significant opportunities for growth. Total marketing expenses for the "Fire Shield" and consumer marketing areas were approximately $650,000 for Fiscal Year 1997, and although no significant orders have been received to date for the Company's "Fire Shield" products, the Company did ship product in April to its first consumer distributor who is located in the state of New Jersey. Cost of sales was approximately 68% of net sales for Fiscal Year 1997, compared to 64% incurred with respect to Fiscal Year 1996. The difference was primarily due to weaker profit margins resulting from a price reduction to Xerox Corporation, effective October 1, 1996, and due to the transition period of the Company shipping product directly to Xerox and its suppliers from China in the current quarter. This action will ultimately result in lower duty, freight and packaging costs to the Company, thus offsetting, in part, the effect of the price reductions. The Company, historically, has been successful in offsetting price reduction with product cost reductions in order to maintain acceptable margins with Xerox Corporation. -17- Selling, general and administrative expenses for Fiscal Year 1997 were $3,458,872, compared to $2,734,096 for the prior year, an increase of approximately 27%. Selling expenses were $2,257,128 for Fiscal Year 1997, compared to $1,747,194 for the prior year, an increase of approximately 29%, reflecting expenses related to the marketing of the "Fire Shield" products and the consumer marketing program. General and administrative expenses were $1,201,744, compared to $986,902 for the prior year, an increase of approximately 22%, reflecting primarily higher travel and salary related expenses of which the majority was attributed to those employees who spent 100% of their time promoting the Company's "Fire Shield" products. Research, development and engineering expenses for Fiscal Year 1997 were $1,147,630, compared to $975,568 for the prior year, an increase of approximately 18%, reflecting primarily higher salary expenses related to a a greater number of employees in the department. Interest and sundry income, net of interest expense, for Fiscal Year 1997 was $173,670, compared to $220,656 for the prior year, reflecting lower returns and average balances on the Company's short-term investments. Income tax expense as a percentage of net income before income taxes was approximately 19% for Fiscal Year 1997, compared to 36% in the prior year. The actual tax rate for Fiscal Year 1997 was less than the expected tax rate, primarily due to the Company receiving a favorable ruling from the State of Florida on August 20, 1996 regarding apportionment factors for state income tax purposes. As a result of this ruling, the Company amended previously filed state income tax returns. Accordingly, in the third quarter, the Company recorded a $240,000 state income tax credit, net of federal income taxes and adjustments in deferred taxes of $110,000, related to state income taxes paid in Fiscal Years 1993, 1994, 1995 and 1996. As long as the Company maintains "nexus" (doing business) outside the State of Florida, the Company's apportionment factors will result in a lower effective income tax rate. Fiscal Years 1996 and 1995 Comparison Operating revenues (net sales and royalties) for the Company's fiscal year ended March 31, 1996 ("Fiscal Year 1996") were $17,379,221, compared to the $21,772,956 reported for the Company's fiscal year ended March 31, 1995 ("Fiscal Year 1995"), a decrease of approximately 20%. The Company's net income for Fiscal Year 1996 was $2,038,785, or $.38 per share, compared to $1,867,957, or $.35 per share, for Fiscal Year 1995, an increase of approximately 9%. Common and equivalent shares outstanding were comparable from year to year. Net sales of the Company's family of ground fault circuit interrupters for personnel and equipment protection products were approximately 88% of net sales for Fiscal Year 1996, compared to 86% in Fiscal Year 1995. U.S. sales and multinational accounts for Fiscal Year 1996 decreased by $3,553,833 from the previous year. Military sales decreased by $800,424 from the previous year due primarily to the completion of the initial contract for the TQ Generator Set Program and subsequent delay in the awarding of the follow-on contract. The contract now has been awarded and TRC, as previously reported, has received a contract for approximately $4.9 million from the prime contractor, and shipments began in August 1996 following the successful completion of First Article testing by the prime contractor. -18- As expected, sales to Xerox and its suppliers were somewhat lower for Fiscal Year 1996 primarily due to Temic (Telefunken Microelectronics) GmbH, a TRC licensee, increasing its production for Xerox's European requirements. Xerox and its suppliers accounted for approximately 30% of the Company's revenue for Fiscal Year 1996. Although revenues were down $4,393,735 for the Fiscal Year 1996, the Company's pre-tax income of $3,204,599 was a record for the Company, which is attributed to the Company's continued efforts to control costs and improve profit margins. Royalty income for Fiscal Year 1996 was $797,920, compared to $837,399 in the prior year, a decrease of $39,479, or approximately 5%. Cost of sales was approximately 64% of net sales for Fiscal Year 1996, compared to approximately 75% incurred with respect to Fiscal Year 1995. The improvement in cost of sales was primarily due to better gross margins resulting from the additional products now being manufactured in the Far East and the cost control measures implemented at TRC's Clearwater facility. Selling, general and administrative expenses for Fiscal Year 1996 were $2,734,096, compared to $2,782,058 for the prior year. Selling expenses were $1,747,194 in the Fiscal Year 1996, compared to $1,749,459 in Fiscal Year 1995, reflecting comparable costs year to year. General and administrative expenses were $986,902, compared to $1,032,599 in the respective periods, reflecting a decrease in professional fees and operating costs year to year. Research, development and engineering expenses for Fiscal Year 1996 were $975,567, compared to $1,013,825 for the prior year, a decrease of approximately 4%, reflecting primarily lower salary related expenses. Interest and sundry income, net of interest expense, for Fiscal Year 1996 was $220,656, compared to $125,336 for the prior year, reflecting the Company's increased short term investments and reduced borrowings. Income tax expense as a percentage of net income before income tax was approximately 36% for Fiscal Year 1996, compared to 23% in the prior year. The actual tax rate for Fiscal Year 1995 was less than the expected tax rate primarily due to the reduction of the valuation allowance for deferred tax assets from $592,000 in Fiscal Year 1994 to $187,000 in Fiscal Year 1995. The reduction in the valuation allowance was attributable to management's increased estimates of future taxable income. Liquidity and Capital Resources As of March 31, 1997, the Company's cash and cash equivalents were $1,307,567, compared to the March 31, 1996 total of $341,601, and short term investments were $3,031,013, compared to the March 31, 1996 total of $4,084,698. Short term investments are comprised of U. S. Treasury Bills. -19- On August 22, 1995, the Company's institutional lender renewed its commercial line of credit at $2,500,000 and extended the maturity date to August 15, 1997. The lender continues to give the Company the option of borrowing at the lender's prime rate of interest or the 30-day London Interbank Offering Rate (L.I.B.O.R.) plus 200 basis points. The lender also continues to make available a Banker's Acceptance agreement which gives the Company the option of borrowing up to $750,000 under the line of credit with the interest rate being determined by the lender's International Division at the time of borrowing. The Company expects to renew its line of credit in August 1997. The Company began using its line of credit in the fourth quarter of Fiscal Year 1997 to fund the start-up of its Honduran subsidiary, expected to total $1,400,000 million dollars, and as of March 31, 1997, the Company has drawn $577,899 on its bank line for this purpose. The Company will pay down its line of credit as its Honduran subsidiary generates cash. The mortgage payable to the Company's institutional lender as of March 31, 1997 was $281,250, compared to $356,350 in the prior year, reflecting the Company's payments on principal during its fiscal year. The Company's working capital decreased by $1,327,756 to $9,603,984 at March 31, 1997, compared to $10,931,740 at March 31, 1996. The Company believes cash flows from operations, the available bank line, and its short term investments and current cash position will be sufficient to meet its working capital requirements for the immediate future. The Company declared dividends of $.24 per share, or $1,277,676 for Fiscal Year 1997, compared to $.24 per share, or $1,270,681 for Fiscal Year 1996. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Response to this item is submitted in a separate section of this report starting at Page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Part III of this Form 10-K is incorporated by reference from the registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on August 22, 1996. -20- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Page (A) 1. Independent Auditors' Report ................................ F-1 2. Consolidated Financial Statements: Consolidated Balance Sheets ............................... F-2 Consolidated Statements of Income ......................... F-3 Consolidated Statements of Stockholders' Equity ........... F-4 Consolidated Statements of Cash Flows ..................... F-5 Notes to Consolidated Financial Statements ................ F-6 3. Schedule II--Valuation and Qualifying Accounts ............. F-18 4. Exhibits included herein: (See Next Page) (B) Reports on Form 8K No reports on Form 8K have been filed by the registrant during the last quarter of the fiscal year. -21- INDEX TO EXHIBITS (Item 14(A)3) Exhibit (3) (a) Articles of Incorporation and By-Laws* (b) Certificate of Amendment to the Articles of Incorporation, dated September 24, 1990*** (c) Certificate of Amendment to the Articles of Incorporation, dated September 24, 1996*** (10) Material contracts: (a) License Agreement, dated as of January 1, 1985, between the Company and Societe BACO, a French corporation, granting BACO a non-exclusive right to manufacture the Company's GFCI products in France, and the non-exclusive right to sell GFCI products other than in North America.* (b) License Agreement between the Company and B & R Electrical Products, Ltd., an English corporation ("B & R") dated January 1, 1985, granting B & R a limited exclusive license to manufacture GFCI products within the United Kingdom and a non- exclusive license to market other such products other than in North America.* (c) License Agreement, dated as of January 8, 1987, between the Company and HPM INDUSTRIES PTY LTD, an Australian corporation ("HPM"), granting to HPM an exclusive license to manufacture and sell GFCI products in Australia, New Zealand, New Guinea, Papua and Fiji.* (d) License Agreement between the Company and Windmere Corporation, dated August 2, 1988, granting to Windmere an exclusive (subject to previously existing marketing rights held by others under separate license agreements) license to sell and distribute the Company's patented GFCI and Immersion Detector Circuit Interrupter ("IDCI") products within the United States, and to manufacture the GFCI and IDCI products in certain Asiatic countries.* (e) Incentive Stock Option Plan, dated October 15, 1981.* (f) The 1993 Incentive Stock Option Plan, which was previously filed with and as part of the Registrant's Registration Statement on Form S-8 (No. 33-62397). (g) Non-Qualified Stock Option Agreements, dated as of various dates, between the Company and each of its current directors and officers, as well as two independent consultants, an independent entity which had provided the Company with certain technology rights and certain former directors.* (h) The 1993 Amended and Restated Non-Qualified Stock Option Plan, which was previously filed with and as part of the Registrant's Registration Statement on Form S-8 (No. 33-62379). -22- (i) $600,000 Loan Agreement, dated January 8, 1993, between the Company and First Union National Bank of Florida.*** (j) License Agreement, dated November 23, 1992, between the Company and TEMIC Telefunken Microelectronic GmbH, a German corporation, granting Telefunken an exclusive right to manufacture the Company's ELCI product line in Europe for sale to Xerox Corporation, its European affiliates, or its authorized suppliers.*** (k) $2,500,000 Revolving Credit Agreement, dated November 12, 1993, between the Company and First Union National Bank of Florida.*** (l) $2,500,000 Revolving Credit Agreement renewal, dated August 22, 1995, between the Company and First Union National Bank of Florida.*** (m) License Agreement, dated May 17, 1997, between the Company and Yaskawa Controls Company, Ltd., a Japanese company, granting Yaskawa an exclusive right to market and manufacture the Company's products developed for use in electrical vehicle charging systems.***** (n) Sales and Marketing Agreement, dated May 17, 1997, between the Company and Yaskawa Controls Company, Ltd., a Japanese company, granting Yaskawa exclusive sales and marketing rights to the Company's full line of commercial electrical protection devices, including "Fire Shield", "Shock Shield" and "Electra Shield".***** (23) Consents of Experts and Counsel: (a) Consent of Independent Certified Public Accountants. *** * Previously filed with and as part of the Registrant's Registration Statement on Form S-1 (No. 33-24647). ** Previously filed with and as a part of the Registrant's Registration Statement on Form S-1 (No. 33-31967). *** Previously filed with and as part of the Registrant's Annual Report on Form 10-K. **** Previously filed with and as part of the Registrant's Post-Effective Amendment No. 1 to Form S-1 (No. 33-31967) ***** Filed herewith. -23- INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Technology Research Corporation: We have audited the consolidated financial statements of Technology Research Corporation and subsidiary as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Technology Research Corporation and subsidiary as of March 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 1997 in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP St. Petersburg, Florida May 2, 1997 F-1 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Consolidated Balance Sheets March 31, 1997 and 1996 ASSETS 1997 1996 Current assets: ---- ---- Cash and cash equivalents $ 1,307,567 341,601 Short-term investments (note 2) 3,031,013 4,084,698 Accounts receivable, less allowance for doubtful accounts of $69,500 in 1997 and $84,000 in 1996 (notes 6 and 9) 2,304,449 2,607,152 Income tax receivable 178,130 - Inventories (notes 3 and 6) 5,142,768 5,226,762 Prepaid expenses and other current assets 178,972 94,205 Deferred income taxes (note 4) 411,400 445,000 ---------- ---------- Total current assets 12,554,299 12,799,418 ---------- ---------- Property, plant and equipment (notes 5 and 6) 6,817,411 6,120,341 Less accumulated depreciation (3,859,909) (3,698,692) ---------- ---------- Net property, plant and equipment 2,957,502 2,421,649 ---------- ---------- Deferred income taxes (note 4) 102,120 159,000 Other assets 24,028 523 ---------- ---------- 126,148 159,523 ---------- ---------- $ 15,637,949 15,380,590 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current installments of debt (note 6) $ 652,999 75,000 Trade accounts payable 1,607,116 1,236,591 Accrued expenses: Compensation 260,261 164,070 Other 36,288 54,974 Dividends payable 346,490 336,052 Income taxes payable - 991 ---------- ---------- Total current liabilities 2,903,154 1,867,678 Debt, excluding current installments (note 6) 206,250 281,350 ---------- ---------- Total liabilities 3,109,404 2,149,028 ---------- ---------- Stockholders' equity (note 7): Common stock, $.51 par value. Authorized 10,000,000 shares; issued and outstanding 5,332,571 in 1997 and 5,318,902 in 1996 2,719,611 2,712,437 Additional paid-in capital 7,411,581 7,410,754 Retained earnings 2,397,353 3,108,371 ---------- ---------- Total stockholders' equity 12,528,545 13,231,562 Commitments and contingencies (notes 8, 10 and 11) ---------- ---------- $ 15,637,949 15,380,590 ========== ========== See accompanying notes to consolidated financial statements. F-2 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Consolidated Statements of Income Years ended March 31, 1997, 1996 and 1995 1997 1996 1995 Operating revenues: ---- ---- Net sales (note 9) $ 15,003,594 16,581,301 20,935,557 Royalties 381,977 797,920 837,399 ---------- ---------- ---------- 15,385,571 17,379,221 21,772,956 ---------- ---------- ---------- Operating expenses: Cost of sales 10,255,597 10,685,614 15,689,452 Selling, general, and administrative 3,458,872 2,734,096 2,782,058 Research, development, and engineering 1,147,630 975,568 1,013,825 ---------- ---------- ---------- 14,862,099 14,395,278 19,485,335 ---------- ---------- ---------- Operating income 523,472 2,983,943 2,287,621 ---------- ---------- ---------- Other income (deductions): Interest and sundry income 206,944 262,623 176,041 Interest expense (33,274) (41,967) (50,705) ---------- ---------- ---------- 173,670 220,656 125,336 ---------- ---------- ---------- Income before income taxes 697,142 3,204,599 2,412,957 Income taxes (note 4) 130,484 1,165,814 545,000 ---------- ---------- ---------- Net income $ 566,658 2,038,785 1,867,957 ========== ========== ========== Earnings per share $ .10 .38 .35 ========== ========== ========== Weighted average number of common and equivalent shares outstanding 5,441,620 5,404,885 5,339,953 ========== ========== ========== See accompanying notes to consolidated financial statements. F-3 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Consolidated Statements of Stockholders' Equity Years ended March 31, 1997, 1996 and 1995 RETAINED ADDITIONAL EARNINGS TOTAL COMMON STOCK PAID-IN (ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT) EQUITY ------ ------ ------- -------- ------ Balances at March 31, 1994 5,131,589 $ 2,616,907 7,231,613 472,310 10,320,830 Exercise of stock options via exchange of 6,874 common shares and cash of $149,801 for 121,563 new common shares 114,689 58,491 91,310 - 149,801 Net income - - - 1,867,957 1,867,957 ---------- ---------- --------- ---------- ---------- Balances at March 31, 1995 5,246,278 2,675,398 7,322,923 2,340,267 12,338,588 Exercise of stock options via exchange of 113 common shares and cash of $124,870 for 72,737 new common shares 72,624 37,039 87,831 - 124,870 Dividends - - - (1,270,681) (1,270,681) Net income - - - 2,038,785 2,038,785 ---------- ---------- --------- ---------- ---------- Balances at March 31, 1996 5,318,902 2,712,437 7,410,754 3,108,371 13,231,562 ---------- ---------- --------- ---------- ---------- Exercise of stock options via exchange of 667 common shares and cash of $8,001 for 14,336 new common shares 13,669 7,174 827 - 8,001 Dividends - - - (1,277,676) (1,277,676) Net income - - - 566,658 566,658 ---------- ---------- --------- ---------- ---------- Balances at March 31, 1997 5,332,571 $ 2,719,611 7,411,581 2,397,353 12,528,545 ========== ========== ========= ========== ========== See accompanying notes to consolidated financial statements. F-4 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Consolidated Statements of Cash Flows Years ended March 31, 1997, 1996 and 1995 1997 1996 1995 Cash flows from operating activities: ---- ---- ---- Net income $ 566,658 2,038,785 1,867,957 Adjustments to reconcile net income to net cash provided by operating activities: Accretion of interest (185,977) (216,814) (134,839) Allowance for doubtful accounts (14,500) (23,000) (21,000) Depreciation 494,292 493,201 472,245 Loss on sale of equipment - 107 - Decrease in accounts receivable 317,203 751,574 928,898 Decrease (increase) in inventories 83,994 (1,280,737) (251,079) Increase in prepaid expenses and other current assets (84,767) (57,342) (4,391) Increase in income taxes receivable (178,130) - - Decrease (increase) in deferred income taxes 90,480 64,000 (259,000) Decrease (increase) in other assets (23,505) 52,812 (33,983) Increase (decrease) in accounts payable 370,525 (491,741) 229,424 Increase (decrease) in accrued expenses 77,505 (11,133) (211,143) Decrease in income taxes payable (991) (84,500) (116,000) --------- --------- --------- Net cash provided by operating activities 1,512,787 1,235,212 2,467,089 --------- --------- --------- Cash flows from investing activities: Maturities of short-term investments 5,190,000 4,832,000 2,357,000 Purchases of short-term investments (3,950,338) (5,957,756) (4,197,107) Capital expenditures for property, plant and equipment $ (1,030,145) (599,028) (690,479) Proceeds from sale of equipment - 8,002 - --------- --------- --------- Net cash provided by (used by) investing activities 209,517 (1,716,782) (2,530,586) --------- --------- --------- Cash flows from financing activities: Net borrowings (repayments) under line-of-credit agreement 577,899 - (400,000) Principal payments on mortgage note payable (75,000) (75,000) (75,000) Proceeds from exercise of stock options and warrants 8,001 124,870 149,801 Dividends paid (1,267,238) (934,629) - --------- --------- --------- Net cash used by financing activities (756,338) (884,759) (325,199) --------- --------- --------- Net increase (decrease) in cash and cash equivalents 965,966 (1,366,329) (388,696) Cash and cash equivalents at beginning of year 341,601 1,707,930 2,096,626 --------- --------- --------- Cash and cash equivalents at end of year $ 1,307,567 341,601 1,707,930 ========= ========= ========= Supplemental cash flow information: Cash paid for interest $ 33,274 41,967 50,705 ========= ========= ========= Cash paid for income taxes $ 219,125 1,186,314 920,000 ========= ========= ========= See accompanying notes to consolidated financial statements. F-5 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements March 31, 1997, 1996 and 1995 (1) Summary of Significant Accounting Policies (a) Description of Business Technology Research Corporation and subsidiary (the Company) designs, develops, manufactures and markets electronic control and measurement devices related to the distribution of electric power. The Company's plant is located in Clearwater, Florida. The Company also has a contract manufacturer, Durable, in China that is headquartered in Hong Kong, which is a major supplier to the Company. During February 1997, the Company incorporated TRC Honduras, S.A. de C.V., a wholly-owned subsidiary, for the purpose of manufacturing the Company's high volume products in Honduras beginning in April 1997. The Company primarily sells its products to governmental entities and original equipment manufacturers involved in a variety of industries including business machinery and personal care appliances. The Company performs credit evaluations of all new customers and generally does not require collateral. Historically, the Company has experienced minimal losses related to receivables from individual customers or groups of customers in any particular industry or geographic area. The Company's customers are located throughout the world. See note 9 for further information on major customers. The Company also licenses its technology for use by others in exchange for a royalty or product purchases. Licensees are located in Australia, France, Germany, Italy, Japan, the United Kingdom and the United States. (b) Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results may differ from estimates. (c) Foreign Currency Translation The financial statements of the Honduran subsidiary are measured using the U.S. dollar as the functional currency. Assets and liabilities of this subsidiary will be translated at the rates of exchange at the balance sheet date. Any resultant translation adjustment is included in the accumulated translation adjustment, a separate component of stockholders' equity. Income and expense items are translated at average monthly rates of exchange. Gains and losses from foreign currency transactions of this subsidiary are included in net earnings. F-6 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (d) Financial Instruments The Company believes the book value of its financial instruments (short-term investments accounts receivable, trade accounts payable, accrued expenses, dividends payable, income taxes receivable and payable and debt) approximate their fair value due to their short-term nature or with respect to debt, the interest rate appropriately reflects the credit risk. (e) Cash Equivalents For purposes of the statements of cash flows, the Company considers all short- term investments purchased with a maturity of three months or less to be cash equivalents. There were no short-term investments considered cash equivalents at March 31, 1997 or 1996. (f) Short-Term Investments The Company considers all of its short-term investments to be "held-to- maturity," and therefore, are recorded at amortized cost. (g) Revenue Recognition Sales and cost of sales related to governmental contracts are recognized under the unit-of-delivery method, whereby sales and cost of sales are recorded as units are delivered. All other sales and cost of sales are recognized as product is shipped. The Company accrues minimum royalties due over the related royalty period. Royalties earned in excess of minimum royalties due are recognized as reported by the licensees. (h) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company reviews long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. (i) Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. F-7 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (j) Property, Plant and equipment Property, plant and equipment are stated at cost. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets. (k) Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (l) Stock-Based Compensation Prior to April 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On April 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS 123 also allows entities to continue to apply the provisions of APB 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS 123 had been applied. The Company has elected to continue to apply the provisions of APB 25 and provide the pro forma disclosure provisions of SFAS 123 (see note 7). (m) Earnings Per Share Earnings per share has been computed by dividing net income by the weighted average number of common and equivalent shares outstanding. Common share equivalents included in the computation represent shares issuable upon assumed exercise of stock options and convertible debt which would have a dilutive effect in years where there are earnings. F-8 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (2) Short-Term Investments The Company considers all of its investment securities to be held-to-maturity. These securities are all classified in short-term investments on the consolidated balance sheets and mature within one year. The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value for held-to-maturity securities at March 31, 1997 and 1996 were as follows: GROSS UNREALIZED AMORTIZED HOLDING FAIR COST GAINS LOSSES VALUE March 31, 1997 - U.S. Treasury securities $ 3,031,013 - - 3,031,013 ========== ====== ====== ========== March 31, 1996 - U.S. Treasury securities $ 4,084,698 - - 4,084,698 ========== ====== ====== ========== (3) Inventories Inventories at March 31, 1997 and 1996 consist of: 1997 1996 ---- ---- Raw materials $ 3,138,639 3,423,236 Work in process 1,309,312 945,795 Finished goods 694,817 857,731 ---------- ---------- $ 5,142,768 5,226,762 ========== ========== Approximately 16% of raw materials are located in China. F-9 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (4) Income Taxes The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 1997 and 1996 are presented below: 1997 1996 ---- ---- Deferred tax assets: Accounts receivable, principally due to allowance for doubtful accounts $ 25,000 32,000 Inventories, principally due to valuation allowance for financial reporting purposes and additional costs inventoried for tax purposes 281,000 316,000 Accrued expenses, principally due to accrual for financial reporting purposes 41,000 32,000 Net operating loss carryforwards 249,000 313,000 Tax credit carryforwards 214,000 214,000 -------- -------- Total gross deferred tax assets 810,000 907,000 Less valuation allowance (187,000) (187,000) -------- -------- 623,000 720,000 -------- -------- Deferred tax liabilities: Property, plant and equipment, principally due to differences in depreciation (106,000) (104,000) Other (3,480) (12,000) -------- -------- (109,480) (116,000) -------- -------- Net deferred tax assets $ 513,520 604,000 ======== ======== Net deferred tax assets are included in the accompanying balance sheets at March 31, 1997 and 1996 as: 1997 1996 ---- ---- Deferred income taxes, current asset $ 411,400 445,000 Deferred income taxes, noncurrent asset 102,120 159,000 -------- -------- $ 513,520 604,000 ======== ======== F-10 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements Management assesses the likelihood deferred tax assets will be realized which is dependent upon the generation of taxable income during the periods in which those temporary differences are deductible. Management considers historical taxable income, the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset related to net operating loss and tax credit carryforwards, the Company will need to generate future taxable income of approximately $170,000 each year prior to the expiration of the net operating loss and tax credit carryforwards in 2003 and 2002, respectively. Taxable income for the years ended March 31, 1997, 1996 and 1995 was approximately $600,000, $2,800,000 and $2,200,000, respectively. Based upon the level of historical taxable income and projections for future taxable income, management believes it will realize the benefits of these deductible differences, net of the existing valuation allowance at March 31, 1997. The valuation allowance at March 31, 1997 and 1996 relates to tax credit carryforwards which management expects to expire unused. At March 31, 1997, the Company has net operating loss carryforwards for Federal income tax purposes of approximately $654,000, which are available to offset future taxable income through 2003. The Company also has available tax credit carryforwards for Federal income tax purposes of approximately $214,000, which are available to offset future Federal income taxes through 2002. As a result of an ownership change in 1989, the Internal Revenue Code limits the income tax benefit of net operating loss and tax credit carryforwards to approximately $65,000 each year. Income tax expense for the years ended March 31, 1997, 1996 and 1995 consists of: 1997 1996 1995 ---- ---- ---- Current: Federal $ 156,748 936,214 669,000 State (116,744) 165,600 135,000 -------- --------- -------- 40,004 1,101,814 804,000 -------- --------- -------- Deferred: Federal 77,000 55,000 (222,000) State 13,480 9,000 (37,000) -------- --------- -------- 90,480 64,000 (259,000) -------- --------- -------- $ 130,484 1,165,814 545,000 ======== ========= ======== F-11 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements The significant components of deferred income tax expense (benefit) for the years ended March 31, 1997, 1996 and 1995 are as follows: 1997 1996 1995 ---- ---- ---- Deferred tax expense (benefit) (exclusive of the effects of other components listed below) $ 26,480 (1,000) 81,000 Benefits of net operating loss carryforwards 64,000 65,000 65,000 Decrease in valuation allowance for deferred tax assets - - (405,000) ------- ------- -------- $ 90,480 64,000 (259,000) ======= ======= ======== Income tax expense for the years ended March 31, 1997, 1996 and 1995 differs from the amounts computed by applying the Federal income tax rate of 34% to pretax income as a result of the following: 1997 1996 1995 ---- ---- ---- Computed expected tax expense $ 237,000 1,090,000 820,000 Increase (reduction) in income taxes resulting from: Change in valuation allowance for deferred tax assets - - (405,000) State income taxes, net of Federal income tax benefit (68,000) 115,000 65,000 Other (38,516) (39,186) 65,000 -------- --------- ------- $ 130,484 1,165,814 545,000 ======== ========= ======= (5) Property, Plant and Equipment Property, plant and equipment at March 31, 1997 and 1996 consists of: ESTIMATED 1997 1996 USEFUL LIVES Building and improvements $ 1,458,716 1,457,251 20 years Machinery and equipment 5,358,695 4,663,090 5 - 15 years --------- --------- ============ $ 6,817,411 6,120,341 ========= ========= Approximately 7% of property, plant and equipment is located in Honduras. F-12 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (6) Debt Debt at March 31, 1997 and 1996 consists of the following: 1997 1996 $2,500,000 line of credit, interest at LIBOR plus 200 basis points (7.5% at March 31, 1997); payable monthly, due August 1997; secured by receivables, inventories and equipment (subject to provisions stated below) $ 577,999 100 First mortgage note payable; interest at prime (7.69% at March 31, 1997); due in monthly installments of $6,250, plus interest, matures December 2000; secured by operating facility 281,250 356,250 -------- -------- Total debt 859,249 356,350 Less current installments (652,999) (75,000) -------- -------- Debt, excluding current installments $ 206,250 281,350 ======== ======== Borrowings under the line of credit are limited to 80% of eligible accounts receivable under 90 days, plus the lesser of 40% of eligible inventory or $450,000. The line of credit is secured by receivables, inventories, and equipment, and requires the Company to maintain certain financial ratios and a minimum tangible net worth amount. The aggregate maturities of long-term debt are: YEAR ENDING MARCH 31, --------------------- 1998 $ 652,999 1999 75,000 2000 75,000 2001 56,250 -------- $ 859,249 ======== F-13 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (7) Stock Options, Grants and Warrants The Company has two qualified incentive stock option plans, one performance incentive stock option plan, and one nonqualified stock option plan (the Plans). Options granted under the Plans are granted to directors, officers and employees at fair value and expire ten years after the date of grant. Except for the Performance Plan, options granted under the Plans generally vest over three years. Options granted under the Performance Plan vest at the end of year ten but are subject to accelerated vesting if certain targets are met. Options may be exercised by payment of cash or with stock of the Company owned by the officer or employee. Option transactions and other information relating to the Plans for the three years ended March 31, 1997 are as follows: QUALIFIED PERFORMANCE INCENTIVE INCENTIVE NONQUALIFIED WEIGHTED STOCK STOCK STOCK AVERAGE OPTION OPTION OPTION EXERCISE PLANS PLAN PLAN TOTAL PRICE -------- --------- ------- -------- --------- Outstanding at March 31, 1994 226,519 - 186,428 412,947 $ 2.16 Granted 116,167 - - 116,167 4.62 Exercised (121,563) - - (121,563) 1.57 Canceled (667) - (5,000) (5,667) 4.29 -------- -------- -------- -------- Outstanding at March 31, 1995 220,456 - 181,428 401,884 3.04 Granted 9,800 - 29,474 39,274 5.44 Exercised (58,737) - (14,000) (72,737) 1.64 Canceled (67,866) - - (67,866) 4.31 -------- -------- -------- -------- Outstanding at March 31, 1996 103,653 - 196,902 300,555 3.91 Granted 50,750 400,000 10,000 460,750 5.08 Exercised (6,002) - (8,334) (14,336) 0.75 Canceled (1,234) - - (1,234) 5.46 -------- -------- -------- -------- Outstanding at March 31, 1997 147,167 400,000 198,568 745,735 4.70 ======== ======== ======== ======== Total number of options available under the plans 713,334 400,000 333,333 1,446,667 ======== ======== ======== ========= Exercisable at March 31, 1997 70,936 - 183,377 254,313 3.72 ======== ======== ======== ========= Available for issue at March 31, 1997 9,384 - 28,541 37,925 ======== ======== ======== ========= F-14 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements The per share weighted average fair value of stock options granted during 1997 and 1996 was $2.14 and $2.61 on the date of grant using the Black Scholes option pricing model, with the following assumptions: (1) risk free interest rate - 6.17% to 6.85%, (2) expected life - 6.5 to 10 years, (3) expected volatility - 72% to 75%, and (4) expected dividends - 5.1% to 5.8%. At March 31, 1997, the range of exercise prices and weighted average remaining contractual life of options outstanding and exercisable was as follows: Options Outstanding Options Exercisable - ------------------------------------------------ ---------------------------- Number Weighted Number Weighted outstanding Weighted average average exercisable average Range of as of remaining exercise as of exercise exercise prices March 31, 1997 contractual life price March 31, 1997 price - --------------- -------------- ---------------- ------- -------------- ------ $4.13 - $5.53 147,167 7.84 5.21 70,936 5.50 $5.12 400,000 9.25 5.12 - - $ .75 8,334 4.61 .75 8,334 .75 $1.31 - $1.37 145,766 7.40 1.36 145,766 1.36 $4.88 - $5.53 44,468 9.59 5.33 29,277 5.28 The Company grants options at fair value and applies APB 25 in accounting for its Plans. Accordingly, no compensation cost has been recognized for stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS 123, the Company's net income at March 31, 1997 and 1996 would have been reduced to the pro forma amounts indicated below: 1997 1996 Net income: ---- ---- As reported $ 566,658 2,038,785 ======== ========= Pro forma $ 476,123 2,016,755 ======== ========= Income per common share: As reported $ .10 .38 === === Pro forma $ .09 .37 === === Pro forma net income reflects only options granted in 1997 and 1996. Therefore, the full impact of calculating compensation costs for stock options under SFAS 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' vesting period of three to ten years, and compensation costs for options granted prior to April 1, 1995 are not considered. The Company has also reserved 32,667 shares of its common stock for issuance to employees or prospective employees at the discretion of the Board of Directors of which 16,033 shares are available for future issue. There were no reserved shares issued during the years ended March 31, 1997, 1996 or 1995. F-15 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (8) Leases The Company leases the land on which its operating facility is located. This operating lease is for a period of twenty years through 2001 with options to renew for two additional ten-year periods. The lease provides for rent adjustments every five years. The Company is responsible for payment of taxes, insurance, and maintenance. In the event the Company elects to terminate the lease, title to all structures on the land reverts to the lessor. The Company's subsidiary leases its operating facility in Honduras. This operating lease is for five years through the year 2002, with an option to renew for an additional five-year term. The Company also leases certain office equipment under long-term operating lease agreements. Future minimum lease payments under noncancelable operating leases as of March 31, 1997 are: YEAR ENDING MARCH 31, --------------------- 1998 $ 177,000 1999 237,000 2000 243,000 2001 224,000 2002 206,000 Thereafter 17,000 --------- Total minimum lease payments $ 1,104,000 ========= Rental expense for all operating leases was approximately $80,000 in 1997, $56,000 in 1996 and $50,000 in 1995. (9) Major Customers The Company operates in one business segment - the design, development, manufacture and marketing of electronic control and measurement devices for the distribution of electric power. Significant customers which accounted for 10% or more of sales and aggregate exports were: YEAR ENDED MARCH 31, ------------------------------- CUSTOMER 1997 1996 1995 - -------------------------------- ---- ---- ---- Xerox Corporation $ 2,529,398 1,686,421 1,895,587 Fleck Manufacturing, Inc. (a Xerox Corporation supplier) 1,776,424 2,358,887 3,090,322 Other Xerox Corporation suppliers 802,800 2,474,142 1,407,704 --------- --------- --------- $ 5,108,622 6,519,450 6,393,613 ========= ========= ========= F-16 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements YEAR ENDED MARCH 31, -------------------------------- CUSTOMER 1997 1996 1995 - -------------------------------- ---- ---- ---- Exports: Canada $ 1,831,898 2,367,890 3,168,677 Far East 1,057,605 1,967,494 725,368 Europe 1,396,823 1,750,257 5,748,882 Mexico 736,992 569,845 549,980 Australia 150,760 438,875 536,176 South America 82,838 - - Middle East 5,324 - - --------- --------- ---------- Total exports $ 5,262,240 7,094,361 10,729,083 ========= ========= ========== (10) Benefit Plan The Company's 401(k) plan covers all employees with one year of service who are at least twenty-one years old. The Company matches employee contributions dollar-for-dollar up to $300. Total Company contributions were approximately $25,000 in 1997, $19,000 in 1996 and $13,000 in 1995. (11) Litigation In March 1995, the Company, along with seven other defendants, was sued in Harris County, Texas. The suit claims, among other things, that the Company's GFCI product was defectively designed and manufactured, and caused the death by electrocution of an individual. In January 1997, the 157th Judicial Court of Harris County, Texas approved the out of court settlement of this case. Although the Company's product liability insurance covered its portion of the settlement costs, the Company expressly denied any liability in the matter. F-17 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (12) Selected Quarterly Data (Unaudited) Information (unaudited) related to operating revenues, operating income, net income and earnings per share, by quarter, for the years ended March 31, 1997 and 1996 are: FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Year ended March 31, 1997: Operating revenues $ 3,377,467 3,688,927 3,879,627 4,439,550 ========= ========= ========= ========= Gross profit $ 1,072,536 1,327,453 1,150,334 1,579,651 ========= ========= ========= ========= Operating income $ 58,541 255,499 168,095 41,337 ========= ========= ========= ========= Net income $ 71,027 301,917 144,073 49,641 ========= ========= ========= ========= Earnings per share $ .01 .05 .03 .01 ========= ========= ========= ========= Year ended March 31, 1996: Operating revenues $ 4,415,990 4,385,585 4,353,880 4,223,766 ========= ========= ========= ========= Gross profit $ 1,819,962 1,605,535 1,597,411 1,670,699 ========= ========= ========= ========= Operating income $ 951,001 645,076 673,542 714,324 ========= ========= ========= ========= Net income $ 629,856 455,131 464,733 489,065 ========= ========= ========= ========= Earnings per share $ .12 .08 .09 .09 ========= ========= ========= ========= F-18 TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY Schedule II Valuation and Qualifying Accounts Years ended March 31, 1997, 1996 and 1995 ADDITIONS -------------------- BALANCES AT CHARGED TO CHARGED TO BALANCES BEGINNING COSTS AND OTHER AT END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD - --------------------- --------- -------- -------- ---------- --------- Allowance for doubtful accounts: Year ended March 31, 1997 $ 84,000 - - 14,500 69,500 ======= ===== ===== ======= ======= Year ended March 31, 1996 $ 107,000 - - 23,000 84,000 ======= ===== ===== ======= ======= Year ended March 31, 1995 $ 128,000 - - 21,000 107,000 ======= ===== ===== ======= ======= F-19 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TECHNOLOGY RESEARCH CORPORATION Dated: 6/25/97 By: /s/ Robert S. Wiggins Robert S. Wiggins Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated: Signature Title Date Chairman, Chief Executive Officer, and Director (Principal Executive /s/ Robert S. Wiggins Officer) 6/25/97 Robert S. Wiggins /s/ Raymond H. Legatti President and Director 6/25/97 Raymond H. Legatti _____________________ Director __/__/__ Edmund F. Murphy, Jr. /s/ Jerry T. Kendall Director 6/25/97 Jerry T. Kendall Senior Vice President Government Operations and Marketing and /s/ Raymond B. Wood Director 6/25/97 Raymond B. Wood -24- EX-10 2 EXHIBIT (10) LICENSE AGREEMENT THIS AGREEMENT is made this 17th day of May, 1997, between TECHNOLOGY RESEARCH CORPORATION, a corporation organized under the laws of the State of Florida, United States of America (herein "TRC"), having its registered office at: 5250 140th Avenue North, Clearwater, Florida 34620, and YASKAWA CONTROL COMPANY LIMITED (herein "YCC") organized under the laws of JAPAN, having its principal office at: KMM Bldg. 2-14-1 Asano, Kokurakita-ku, Kitakyushu 802 Japan. WITNESSETH THAT: WHEREAS, TRC has developed expertise in technology used in certain Personnel Protective Devices (PPD'S) and is the proprietor of such expertise and technology as defined in Exhibit "A" hereto in the Territories as defined herein. WHEREAS, TRC desires to extend to YCC certain rights in Territories listed in Exhibit "B" to manufacture using the TRC technology defined in Exhibit "A" hereto. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the parties hereto agree as follows: 1. Recitals The above recitals are true and correct and are incorporated herein by reference. 2. Grant and Scope of License TRC grants YCC an exclusive license subject to the terms and conditions of this Agreement for the use of the TRC patents, technology and/or proprietary expertise used in PPD products as set forth in Exhibit "A" hereto only in the products manufactured and sold to market areas specified in Exhibit "C" by YCC which products utilized the technology and expertise set forth in Exhibit "A" hereto during the term of this agreement and provided that YCC is not in default hereunder. 3. Term This Agreement shall be valid for the term of 10 years subject to termination as provided herein. 4. Initial Payment The amount of EIGHTY FIVE THOUSAND ($85,000) U.S. dollars will be paid by YCC to TRC according to the following schedule: 1 1st payment: Twenty Eight Thousand Three Hundred Thirty four US dollars. ($28,334) due Aug 1st 1997 2nd and 3rd payments. Twenty Eight Thousand Three Hundred Thirty Three US dollars. ($28,333) due 1st October and 1st December respectively. It is under stood by both parties that if Toyota does not honor YCC with orders for the level one adapter, that a portion of the initial payment will be applied to the initial payment of the next agreement between TRC and YCC. 5. Performance YCC agrees to provide to TRC, within a 30 day period, after the signing of this agreement, a business plan detailing the marketing resources and strategies to be used in developing sales for the products that are the subject of this agreement, YCC also agrees that the YCC performance measured against the aforementioned plan be reviewed at the end of the 1st, and subsequent years by both TRC and YCC. Failure of YCC to achieve the objectives outlined by the plan may result in the conversion of the agreement to a non-exclusive license. 6. Royalties for License YCC shall pay TRC the amount equal to Five Percent of the net sales price for every PPD unit manufactured or sold by YCC directly or indirectly to market areas specified in Exhibit "C" subject to the conditions set forth in Exhibit "D". This also applies if any other PPD technology is utilized. 7. Royalty Payments 1. YCC will make the royalty payments provided for herein in installments every 3 months, payments shall be made by wire transfer to a U.S. bank or other institution located in Japan as shall be designated by TRC by the 21st day following the end of the third month in the period in which payment of the units subject to this Agreement was made. 2. YCC will keep at its office at KMM Bldg. 2-14-1 Asano, Kokurakita-ku, Kitakyushu 802 Japan, a true and accurate account of all products which are the subject of this Agreement. Such records will show the total number of products manufactured, whether any such products have been disposed of other than by sale, and the number and manner of their disposition. This list shall include shipments to any other company or affiliate whether or not a normal invoice was prepared. TRC shall have and is hereby given right of access itself or through an authorized representative to those books of YCC related to these transactions which are the subject of this Agreement for the purpose of verifying statements received by it. Such access to be at reasonable business hours, upon 48 hours prior notice, and at TRC expense. 8. Support and Assistance TRC will provide YCC all detailed technical information concerning the manufacture of the PPD utilizing the technology set forth in Exhibit "A" which is available to it, or of which it is otherwise aware, with the exception of the internal construction of integrated circuit Part No. 10020. TRC shall provide YCC with basic operating parameters of integrated circuit Part No. 10020. 2 9. Manufacturing and Inspection Standards Products manufactured by YCC pursuant to this Agreement must meet all TRC manufacturing and inspection standards as reasonably specified from time to time. TRC shall have the right of access to YCC manufacturing facilities and relevant records at all times during normal business hours 9 am-5 PM Monday to Friday to assure compliance with such standards. 10. Confidentiality YCC will use its best endeavors during the terms of this Agreement so that YCC or its employees will not disclose any trade secrets, confidential information or data, processes or methods of production of same or any know-how with respect thereto obtained from TRC pursuant to this Agreement to any third party without prior written authorization of TRC except where necessary in the course of normal commercial practices. 11. Patents In the event that there are improvements developed by TRC or YCC to products or technology which are the subject of this Agreement, whether patented or not, both parties shall make such improvements available to the respective other party for no additional royalty. 12. Disclosure of Relationship TRC has the right, with the prior approval of YCC, which shall not be unreasonably withheld, to announce that YCC is utilizing the designs and technology of TRC in production of the Products which are the subject of this Agreement. 13. Termination of the Agreement 1. TRC shall have the right to terminate this Agreement upon the occurrence of any of the following events: a. YCC's failure to pay royalties as and when due where such failure is not remedied within 30 days of YCC receipt of written notice from TRC thereof. b. YCC's breach of or failure to perform any other material obligation under this Agreement where such failure is not remedied within 30 days of YCC receipt of written notice from TRC thereof. c. If any petition and bankruptcy is filed by or against YCC or if any other right or remedy sought by or against YCC under any bankruptcy or insolvency laws. 3 2. Upon the termination of this Agreement, all unpaid royalties shall become due and payable immediately. 3. Upon the termination of this Agreement, YCC shall return to TRC any and all parts, pieces, drawings and/or technical information which it obtained from TRC in connection with this Agreement. 14. Rights of Termination YCC shall have the right to terminate this Agreement upon the occurrence of: 1. Any material failure of TRC to comply with its obligations hereunder, in this event TRC will modify the amount of royalties payable pursuant to the agreement (past and future) to adequately account for such breach or violation by TRC that is not corrected within 60 days of TRC receipt of a written notice from YCC. 2. Any suit being successfully brought against either or both of YCC or TRC by any third party for infringement of any intellectual property right licenses pursuant to this Agreement, unless such situations are resolved to mutual satisfaction. 3. Any of the intellectual property rights licenses pursuant to this Agreement being held to be infringing the rights of any third party, or otherwise being invalid unless such situations are resolved to mutual satisfaction. 4. Any petition and bankruptcy filed by or against TRC, or any other right or remedy sought by or against TRC under any bankruptcy or insolvency laws, the rights of YCC to be protected to the maximum degree permitted by the aforementioned laws. 5. TRC being sold or acquired. The rights of YCC under this agreement shall be maintained. 15. Assignments of Rights TRC or YCC may not assign or transfer in any manner, including to any successor or assigns, the rights benefits, or obligations it has under this agreement without the express written permission of the other respective party which should not unreasonably be withheld. 16. Product Liability 1. YCC shall indemnify and hold TRC totally free and harmless from and against any liability whatsoever associated with the manufacture and sale of products subject to this Agreement (excepting such liability which may arise as a consequence of any claim of infringement of intellectual property rights of YCC following TRC's detailed information provided pursuant to Exhibit "A" or applying the processes set out in any TRC patent), including but not limited to defects in materials and workmanship. 4 2. TRC hereby indemnifies and holds YCC harmless from and against any liability arising from any actions, claims, or demands commenced or made by any persons that any technology, patent, or other intellectual property right licenses by TRC pursuant to the Agreement infringes the intellectual property rights of any other person. Or from any material defect arising from the product design, or from materials or workmanship if the parts for the products subject to this agreement are supplied by TRC. 17. Notices and Consents Any notice, certification or consent required by this Agreement shall not be deemed given to a party unless it is in writing and mailed by registered post, such notice shall be deemed to be received five (5) days after posting, delivered to such party at the address specified in the preamble to this Agreement or sent by telex or facsimile to such party. 18. Modifications and Waivers This instrument constitutes the sole agreement between the parties with respect to the subject matter hereof, supersedes all prior agreements, oral or written, is enforceable in accordance with its terms and is binding upon the successors and assigns hereof. Neither this Agreement nor any provision hereof may be modified, waived, discharged, or terminated except by a writing signed by the parties hereto. Any waiver or any provision or requirement of this Agreement shall be valid only in the instance for which given, shall not be deemed continuing and shall not constitute a waiver of any other provision hereof. 19. Severability If any provision of this Agreement is found to be invalid, the remainder of this Agreement shall be valid and not affected thereby. 20. Governing Law This Agreement shall be governed and construed under the laws of the party to the Agreement bringing the action for default. In the case of TRC the laws of the State of Florida, United States of America and in the case of YCC the laws of Japan. 21. Annual Meetings Annual Meetings will be arranged between the principals of YCC and TRC, the first to take place within twelve (12) months of the day of this Agreement and subsequently to be held within twelve (12) months of the previous meeting. The above meetings shall rotate alternately each year between TRC and YCC main offices. 22. Captions The captions of the paragraphs hereof have no effect in interpreting this Agreement. 5 IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the date first written above. TECHNOLOGY RESEARCH CORPORATION By: /S/ Raymond H. Legatti _____________________________ Raymond H. Legatti President Witness: /S/ Edmund F. Murphy, Jr. _________________________ Edmund F. Murphy, Jr. YASKAWA CONTROL COMPANY LIMITED. By: /S/ Masaki Komiyama ______________________________ Masaki Komiyama President Witness: /S/ Y. Nakamara ________________________ Y. Nakamara 6 EXHIBIT A Under the terms and conditions of this Agreement it is recognized that TRC possesses Experience and Know-How relating to the technology in Design and Manufacture of Personnel Protective Devices(1) (PPD) products, that are designed by TRC to meet the requirements for electric vehicle charging systems. Specifically the products listed below: 1. Level One, and Level Two Electric Vehicle Charging Adapters. (Part numbers to be assigned) 2. Specific TRC products listed below such as: 1 34470-001 100v 15/20amp (Honda Inline) 2 34480-001 200v 15/20amp (Honda Inline) 3 32160 208/240v 32amp Circuit board assembly (level 2) 3. Other Electric Vehicle products as requirements develop, subject to approval by both TRC and YCC. The TRC experience and Know How related to the aforementioned products, includes but is not restricted to: Patents, manufacturing procedures, test criteria, schematics, design and support documentation, to facilitate manufacture of PPD products, e.g.: Plughead, Inline and Panel mount devices. (1) Personnel protective devices are devices that provide protection for personnel against the hazards of electric shock. 7 EXHIBIT B TERRITORY: JAPAN 8 EXHIBIT C MARKET AREA: ELECTRIC VEHICLES Japanese electric vehicle manufactures, their Japanese affiliates, or authorized suppliers. NOTE: "ELECTRIC VEHICLES" Means for products associated with battery charging systems intended for use with electric vehicles. 9 EXHIBIT D ROYALTIES: Depending on the percentage of a total given product purchased by YCC from TRC, the royalty rate will be adjusted based on the following: K = 1-(A/B) A = TRC cost for the product (partial or total) sold to YCC B = The TRC cost for the same total product C = Royalty rate (clause 6) ADJUSTED ROYALTY RATE C times K The purpose of the above equation is to adjust the royalty rate in proportion to the total or partial product sold by TRC to YCC. For example: For a given product assume B = 10. To calculate the factor K a. TRC supplies YCC with none of the total product (YCC manufactures complete product), therefor A = 0, then K=1-(0/10) = 1, YCC pays full royalty b. TRC supplies YCC with 50% of the total product , therefor A = 5 then K=1-(5/10) = 0.5, YCC pays 50% of royalty c. TRC supplies YCC with 100% of the total product therefor A = 10 then K=1-(10/10) = 0, YCC pays no royalty 10 MARKETING AND SALES AGREEMENT THIS AGREEMENT is made this 17th Day of May, 1997, between TECHNOLOGY RESEARCH CORPORATION, a corporation organized under the laws of the State of Florida, United States of America (herein "TRC"), having its registered office at 5250 140th Avenue North, Clearwater, Florida 34620, and YASKAWA CONTROL COMPANY LIMITED (herein YCC) a limited company organized under the laws of JAPAN, having its principal offices at: KMM Bldg. 2-14-1 Asano, Kokurakita-ku, Kitakyushu 802 Japan. WITNESSETH THAT: WHEREAS, TRC has developed certain products designed to protect against fire and electric shock namely: all TRC products listed under the trade names "Electra Shield", "Shock Shield", and "Fire Shield", which include GFCI, ALCI, ELCI, PPD, CCID products; and any future products that may evolve under the category of electric shock protection. (herein after called "Products"). WHEREAS, TRC desires to extend to YCC certain rights to sell "Products" in territories and markets described herein. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the parties hereto agree as follows: 1. Recitals The above recitals are true and correct and are incorporated herein by reference. 2. Grant and Scope of Agreement TRC grants YCC exclusive sales and marketing rights subject to the terms and conditions of this Agreement for the use of the TRC patents, technology and expertise used in the "Products". During the term of this agreement and provided that YCC is not in default hereunder, TRC agrees not to grant any other organization located in Territories the marketing rights with respect to the "Products". YCC agrees that they will not offer, represent or sell, any other products that compete with the "Products". 3. Term and Initial payment This Agreement shall be for a term of five (5) years subject to termination as provided herein. The agreement will be automatically renewed for additional five (5) year periods. All other conditions will remain as before. Notice of intent not to renew the agreement must be given six (6) months prior to the next renewal date. The amount of Fifty Thousand ($50,000.00) U.S. dollars is to be paid on the signing of the agreement. 4. Performance to Maintain Exclusivity The minimum annual purchase requirement (YCC orders to TRC for products covered under this agreement) to maintain exclusivity under the terms and conditions of this agreement are as follows: YCC attains a minimum of Five Million US Dollars ($5,000,000) annual sales within a three year period commencing on the date of signing of the agreement. After eighteen months the parties may review this requirement in view of YCC actual performance, and may mutually agree to adjust the minimum number as appropriate. Any failure by YCC to market and support the sale of the "Products". will provide TRC the option of converting the sales and marketing rights described in Clause 2 from exclusive to non-exclusive rights. 5. Territories and Markets Territory: Japan Markets: All Japanese market areas for the "Products". 6. Disclosure of Relationship with YCC TRC has the right, with the prior approval of YCC which shall not be unreasonably withheld, to divulge to any of its customers that YCC is utilizing the designs and technology of TRC in production of the Products which are the subject of this Agreement. 7. Guarantee 7.1 TRC guarantees under the TRC standard terms and conditions of sale, that the products delivered to YCC comply with the pertinent TRC specifications for the product(s) in question. 7.2 YCC shall notify in writing to TRC any incident of possible defect and non conformity of the products within 30 days from their discovery, but however not later than one year after the date they have been put in the market and, in any case not later than 18 months after the date of delivery to YCC. 7.3 TRC shall furthermore regularly perform all controls that are necessary for ensuring the quality of the manufacturing process, the compliance with the agreed technical specifications, and with the requirements concerning the function and aspects of the products. 8. Industrial Property Rights TRC guarantees that the products supplied to YCC do not infringe any industrial property right of third parties and agrees to hold YCC harmless from any claim of third parties concerning such matter. 9. Manufacturer's Liability Any liability arising from defective products which are the subject of the Agreement, included any damages to persons or goods, shall be at the exclusive charge of TRC, who shall therefore keep YCC harmless from any claim of third parties, and shall adequately insure himself against any such risks, excluding damage created by transportation shipment, or damage to mentioned product created by misuse. 10. Force Majeure 10.1 In case of force majeure, neither party shall be responsible for delays, or for failure to perform, in whole or in part, under the terms of the present contract. The term "force majeure" shall mean any event which is independent from the will or the power of the parties, and which is beyond their control, it being absolutely unforeseeable and not surmountable. Force majeure shall include, but is shall not be limited to the following events: natural disasters, war, riots. 10.2 In case of force majeure, the performance of the contract shall be suspended, but solely for the duration of the force majeure event. The party invoking force majeure shall immediately notify the other party by means of registered letter with advice of receipt. However, should force majeure cause the suspension of the contract for a period exceeding 3 months, each party shall have the right to terminate the contract, by means of registered letter with advice of receipt. 11. Prohibition of Assignment Neither party shall have the right to assign the rights or obligations under the present contract, without the previous written consent of the other party. 12. Termination of the Agreement TRC shall have the right to terminate this Agreement upon the occurrence of any of the following events: YCC's breach of or failure to perform any material obligation under this Agreement where such failure is not remedied within 30 days of YCC receipt of written notice from TRC thereof. If any petition and bankruptcy is filed by or against YCC or if any other right or remedy sought by or against YCC under any bankruptcy or insolvency laws of JAPAN. 13. Rights of Termination YCC shall have the right to terminate this Agreement upon the occurrence of: (a) any material failure of TRC to comply with its obligations hereunder which is not cured within thirty (30) days of TRC's written receipt of notice from YCC thereof. (b) any suit being successfully brought against either or both of YCC or TRC by any third party for infringement of any intellectual property right licenses pursuant to this Agreement. (c) any of the intellectual property rights licenses pursuant to this Agreement being held to be infringing the rights of any third party, or otherwise being invalid. 14. Modifications and Waivers This instrument constitutes the sole agreement between the parties with respect to the subject matter thereof supersedes all prior agreements, oral or written, is enforceable in accordance with its terms and is binding upon the successors and assigns hereof. Neither this Agreement nor any provision hereof may be modified, waived, discharged, or terminated except by a writing signed by the parties hereto. Any waiver or any provision or requirement of this Agreement shall be valid only in the instance for which given, shall not be deemed continuing and shall not constitute a waiver of any other provision hereof. 15. Severability If any provision of this Agreement is found to be invalid, the remainder of this Agreement shall be valid and not affected thereby. 16. Governing Law This Agreement shall be governed and construed under the laws of the party to the Agreement bringing the action for default. This is in the case of TRC, the laws of the State of Florida, United States of America: in the case of YCC the laws of JAPAN. 17. Annual Meetings Annual Meetings will be arranged between principals of YCC and TRC, the first to take place within twelve (12) months of the day of this Agreement and subsequently to be held within twelve (12) months of the previous meeting. The above meetings shall rotate alternately each year between TRC and YCC main offices. 18. Captions The captions of the paragraphs hereof have no effect in interpreting this Agreement. IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the date first written above. TECHNOLOGY RESEARCH CORPORATION, a corporation organized under the laws of the State of Florida. By: /S/ Raymond H. Legatti ______________________________ Raymond H. Legatti President Witness: /S/ Edmund F. Murphy, Jr. _________________________ Edmund F. Murphy, Jr. YASKAWA CONTROL COMPANY LIMITED By: /S/ Masaki Komiyama ______________________________ Masaki Komiyama President Witness: /S/ Y. Nakamura __________________________ Y. Nakamura EX-27 3 ARTICLE 5 FDS FOR FISCAL YEAR 1997 10-K
5 1 12-MOS Mar-31-1997 Mar-31-1997 1307567 3031013 2304449 0 5142768 12507138 6864572 3859909 15637949 2903154 0 2719611 0 0 9808934 15637949 15003594 15385571 10255597 10255597 1147630 0 33274 697142 130484 566658 0 0 0 566658 .10 0
-----END PRIVACY-ENHANCED MESSAGE-----