| TECHNOLOGY RESEARCH CORP “Item 1A Risk Factors |
| ” Executive Officers Set forth below is information related to our executive officers and their ages as of June 29, 2006 |
| Name Age Position Robert S Wiggins 76 Chairman of the Board, President, Chief Executive Officer and Secretary Raymond B Wood 71 Director, Senior Vice President and Director of Government Operations and Marketing Barry H Black 59 Vice President of Finance and Chief Financial Officer Robert S Wiggins has been Chief Executive Officer of the Company since August 2005 and previously from March 1988 through August 2004 |
| He has been a Director of the Company and Chairman of the Board since March 1988 |
| From 1974 to 1987, he was Chairman, Chief Executive Officer and President of Paradyne Corporation, Largo, Florida, a data communications company |
| Wiggins served as a consultant for Paradyne from 1987 to March 1988 |
| In addition, he spent three years with GTE Information Systems Division as a Vice President and 13 years in various sales and product development managerial positions with IBM Corporation |
| Wiggins earned his MA degree in mathematics from the University of Florida, and his BA degree from the University of Florida, majoring in mathematics with a minor in economics |
| Raymond B Wood, a founder of the Company, has been a Director, Senior Vice President and Director of Government Operations and Marketing of the Company since its inception in 1981 |
| He was employed by Electromagnetic Industries, Inc |
| for 20 years prior to its acquisition by Square D Company |
| During this time, he held the position of General Manager of Electromagnetic Industries of Georgia Inc, the systems manufacturing plant for military products such as diesel generating systems, generators, controls, semi-trailers, etc Previous assignments included service as Project and Design Engineer for military products produced by Electromagnetic Industries Inc |
| Wood is a charter member of the industries association, Electrical Generating Systems Association (“EGSA”), has served on its Board of Directors and has been the Chairman of the Government Liaison Committee for over 25 years |
| Wood is also a member of the US Naval Institute |
| For over 40 years, he has been involved in design, manufacture and qualification conformance evaluation for listing by the Department of Defense, marketing and product application concerning control and measurement of electric power for Mobile Ground Power Military Engine Generator Systems, and electrical power controls for Naval Shipboard and Military Armored Tracked Vehicle application |
| Wood has had extensive contact with the military procurement, contract administration, engineering and test qualifying locations, as well as with the government prime contractors to the Department of Defense |
| Wood has served on numerous ad hoc committees for military engine generator specification review requirements and is frequently consulted for solutions to problems encountered with military engine generator systems by both the military and prime contractors to the Department of Defense |
| Barry H Black has been Vice President of Finance and Chief Financial Officer of the Company since January 2006 |
| Black held various senior financial management positions with Paradyne Corporation and AT&T Paradyne |
| Black has a Bachelor of Arts in Economics from Bowdoin College, a Masters of Science in Accounting from Northeastern University and a Masters of Science in Taxation from Bentley College |
| Available Information We make available free of charge through our website at www |
| net, via a link to the SEC’s website at www |
| gov, our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the SEC You may also obtain free copies of these materials by contacting our Director of Investor Relations, Scott J Loucks, at our mailing address of 5250 - 140th Avenue North, Clearwater, Florida 33760, telephone (727) 535-0572 |
| ITEM 1A RISK FACTORS Shareholders and investors should carefully consider the risk factors described below, together with the other information contained in this Annual Report, before making any investment decision with respect to our securities |
| The risks and uncertainties described below are not the only ones we face |
| If any of the following risks occur, our business, financial condition, or results of operation could be significantly impacted and the trading price of our common stock could decline: Failure to achieve our growth strategy |
| We have adopted the following strategic objectives: * to increase profitability by improving operating efficiencies; * to strengthen and expand our markets and distribution channels; * to broaden the applications within target markets for our existing products; * to expand the scope of our product content; * to lower the cost per unit of our manufactured products by more fully utilizing our existing manufacturing capabilities; * to maintain a conservative capital structure; * to pursue strategic acquisitions to the extent favorable opportunities are presented; * to increase profitability by improving our cost structure via purchasing strategies aimed at procuring materials at the best possible price and the shortest possible lead times; * to utilize quality processes and standards for companywide continuous improvement; and * to implement a strategy of World Class Manufacturing |
| Any or all of these objectives may not be realized or, if realized, may not result in increased revenue, profitability or market presence |
| Executing our strategy may also place a strain on our production, information technology systems and other resources |
| To manage the growth effectively, we must maintain a high level of manufacturing quality and efficiency, properly manage our third party suppliers, continue to enhance our operational, financial and management systems, including our database management, inventory control and distribution systems, and expand, train and manage our employee base, especially as it relates to our manufacturing plans to service the emerging room air conditioning market |
| We may not be able to effectively manage our growth in any one or more of these areas |
| The scope, complexity and timing of the emerging RAC market is placing new and increased demands on our production capabilities, information technology systems and other resources |
| To manage the growth effectively, we must: (i) maintain a high level of manufacturing quality and efficiency; (ii) properly manage our third party suppliers and independent sub-contract manufacturers; (iii) continue to enhance our operational, financial and management systems, including our database management, inventory control and distribution systems; (iv) expand, train and manage our employee base; (v) compete with aggressive price cutting by competitors; and (vi) vigorously protect and defend our Fire Shield® patents and intellectual property |
| As a result, we will be challenged to effectively capture, manage and maintain the growth expected from this new market |
| Inability to finance our growth and meet our capital requirements |
| If we are unable to fund this growth, we may not be able to compete effectively |
| Our requirement for capital depends on the market’s acceptance of our products, the growth of our marketing effort, our ability to expand our customer base, our need for additional capital equipment to adopt new manufacturing methods and new products and for future acquisitions |
| We cannot be sure that additional financing, if needed, will be available or if such financing will be on favorable terms |
| Without access to these additional funds, we may not be able to remain competitive |
| Unavailability and cost increases in raw materials and components |
| Raw materials and components constitute a significant portion of our cost of goods |
| Factors that are largely beyond our control, such as movements in commodity prices for the specific materials required, may affect the future cost of raw materials and components |
| Because the primary resource used in manufactured plastics is petroleum, the cost and availability of plastic varies to a great extent with the price of petroleum |
| Recently, we have experienced increases in prices of plastic, as well as steel, aluminum and especially copper, which could continue in fiscal 2007 |
| In addition, the inability of our suppliers to timely deliver raw materials or components could be disruptive and costly |
| If we are unable to obtain raw materials on a timely basis at an affordable cost or if we experience any significant delays or interruptions of supply, our financial results could be significantly impacted |
| We purchase a significant volume of products from contract manufacturers in China |
| In fiscal 2006, for example, our purchases from Chinese vendors were more than dlra10 million |
| The purchase price for these products is set in US dollars |
| If the exchange rate between the US dollar and Chinese yuan changes so that the yuan appreciates significantly against the dollar, the cost of building our products could increase significantly |
| Dependence upon a limited number of key suppliers |
| We purchase a significant volume of products from contract manufacturers in China |
| In fiscal 2006, for example, our purchases from Chinese vendors were more than dlra10 million |
| The purchase price for these products is set in US dollars |
| If the exchange rate between the US dollar and Chinese yuan changes so that the yuan appreciates significantly against the dollar, the cost of building our products could increase significantly |
| We anticipate that outsource providers will play key roles in our manufacturing operations |
| Although we aim at selecting reputable providers, it is possible that one or more of these providers could fail to perform as we expect and such failure could have an adverse impact on our business |
| Any delay or failure in the implementation of our operational changes and monitoring of these relationships could adversely affect our customer relationships and/or have a negative effect on our operating results |
| The loss of or significant decrease in sales to large customers |
| We must receive a continuous flow of new orders from our large customers |
| Failure to obtain anticipated orders or delays or cancellations of orders or significant pressure to reduce prices from key customers could have a material adverse effect on us |
| In addition, as a result of the desire to more closely manage inventory levels, there is a growing trend in business, especially in our commercial markets, to make purchases on a “just-in-time” basis |
| This requires us to shorten our lead time for production in certain cases and more closely anticipate demand, which could in the future require the carrying of additional inventories or require additional expenses to expedite delivery |
| Adverse changes in the operations of global manufacturing facilities |
| We manufacture a significant number of products in Honduras and obtain a significant proportion of the raw materials and sub-assembly components used in the manufacturing of our products outside the United States |
| In fiscal 2005, we entered into additional contract manufacturing relationships in China and India to accommodate the requirements of the emerging room air conditioner market |
| International operations are subject to risks including, among others: * labor unrest; * political instability; * lack of developed infrastructure; * longer payment cycles and greater difficulty in collecting accounts; * import and export duties and quotas; * changes in domestic and international customs and tariffs; * unexpected changes in regulatory environments; * difficulty in complying with a variety of foreign laws; * difficulty in obtaining distribution and support; * potentially adverse tax consequences; and * changes in exchange rates between the US dollar and the foreign currency |
| Labor in Honduras has historically been readily available and at lower cost than available in other nations; however, we cannot be assured that labor will continue to be available in Honduras at costs consistent with historical levels |
| A substantial increase in labor costs could have a material adverse effect on our results of operation |
| Interruptions in manufacturing operations |
| Approximately 70prca of our revenues are derived from products manufactured or assembled at our manufacturing facility in Honduras and by contract manufacturers located in China |
| These manufacturing facilities are subject to hazards that could result in material damage to any such facilities |
| Such damage to or prolonged interruption in the operations of such facilities for repairs, labor disruption or other reasons, could have a material adverse effect on us |
| Infringement or loss of proprietary rights |
| We believe that our rights in owned and licensed names are of increasing importance to our business success and that our ability to create demand for our products is dependent to a large extent on our ability to exploit these trademarks, especially with regard to our Fire Shield® brand name |
| There can be no assurance as to the breadth or degree of protection that these trademarks may afford us, or that we will be able to successfully leverage our trademarks in the future |
| The costs associated with protecting our intellectual property rights, including litigation costs, may be material |
| We also cannot be sure that we will be able to successfully assert our intellectual property rights or that these rights will not be invalidated, circumvented or challenged |
| Any inability to do so, particularly with respect to names in which we have made significant capital investments, or a successful intellectual property challenge or infringement proceeding against us, could have a material adverse effect on us |
| Our success also depends in part on our proprietary technology and patent rights |
| If we fail to adequately protect this technology and our patent rights, we may lose our competitive position or face significant expense to protect or enforce our intellectual property rights |
| We intend to continue to protect our proprietary technology through patents, copyrights and trade secrets |
| Despite this intention, we may not be successful in achieving adequate protection |
| Claims allowed on any of our patents may not be sufficiently broad to protect our technology and any patents issued to us also may be challenged, invalidated or circumvented |
| With respect to our pending applications for patents, there can be no assurance that we will be successful in obtaining patents from these applications |
| Our industry is characterized by frequent claims regarding patents and intellectual property rights and resulting litigation arising from disputes over the scope of these rights |
| On August 3, 2005, we filed a lawsuit in the United States District Court, Middle District of Florida, Tampa Division, against Tower Manufacturing Corporation alleging willful infringement of our Fire Shield® patent for cord fire prevention |
| We are seeking damages for infringement, cost recovery and any other relief deemed just by the Court |
| On September 13, 2005, we added Fedders Corporation, a global manufacturer of air treatment products as a defendant to our previously filed lawsuit against Tower Manufacturing Corporation |
| On May 11, 2006, we received notice that a complaint had been filed against us by Tower Manufacturing Corporation in the United States District Court for the District of Rhode Island, alleging infringement of Tower’s Mini Appliance Current Interrupter |
| We intend to vigorously defend these patent infringement claims and believe that the allegations are without merit and that the suit was filed in direct response to our patent infringement lawsuit that was filed against Tower Manufacturing Corporation |
| There can be no assurance that, with respect to the claims made against us, that we will be able to resolve these claims under terms and conditions that would not have a material adverse affect on our business, or our financial results |
| Seasonality |
| Our business varies significantly from quarter to quarter due to the seasonal nature of our room air conditioner business |
| As a result, revenues may vary significantly from quarter to quarter |
| The normal manufacturing cycle for room air conditioners is typically from late fall through early spring which would result in higher revenues during our third and fourth quarters |
| This seasonality may also result in cash layouts or additional interest expense due to an increased need to borrow funds to maintain sufficient working capital to support such increased demand |
| Competition from companies that produce similar products |
| The markets for our products are highly competitive |
| We believe that competition is based upon several factors, including price, quality, access to retail shelf space, product features and enhancements, brand names, new product introductions, marketing support and distribution systems |
| We compete with established companies, a number of which have substantially greater facilities, personnel, financial and other resources |
| Some competitors may be willing to reduce prices and accept lower profit margins to compete with us |
| As a result of this competition, we could lose market share and sales, or be forced to reduce our prices to meet competition |
| Additionally, our current products could become obsolete as a result of new customer demands or competitors’ new products |
| For example, our products could become unmarketable as a result of a new product that provides superior performance at a lower cost |
| If we cannot adapt to these competitive challenges, we may not be able to effectively compete |
| Newly acquired businesses or product lines |
| We may acquire partial or full ownership in businesses or may acquire rights to market and distribute particular products or lines of products |
| The acquisition of a business or of the rights to market specific products or use specific product names may involve a financial commitment, either in the form of cash or stock consideration |
| There is no guarantee that the acquired businesses or product lines will contribute positively to earnings |
| The anticipated synergies may not materialize, cost savings may be less than expected, sales of products may not meet expectations, and acquired businesses may carry unexpected liabilities |
| Because we have a small management team, we may not be able to effectively assimilate the operations, technologies, personnel and products from the acquired company or our management team may be diverted from our other business concerns |
| Dependence on new products |
| Rapid technological changes in our industry subject us to increased pressure to develop technological advances in our products |
| We believe that our future success depends in part upon our ability to develop and offer new products with improved capabilities and add additional features and adaptations of our existing products for new uses |
| If new products have reliability or quality problems, our performance may be impacted by reduced orders, higher manufacturing costs, additional service and warranty expenses |
| Our failure to complete commercialization of these products in a timely manner could result in unanticipated costs and inventory obsolescence, which would adversely affect our financial results |
| Volatility of our stock price |
| In recent years, the price of our common stock has fluctuated greatly |
| The price of our common stock could continue to be volatile and fluctuate in response to a variety of factors including, but not limited to, the following: * general and global economic fluctuation; * quarter-to-quarter variations in our operating results; * shortfalls in revenue or earnings from levels expected by investors; * announcements of restructurings, technological innovations, reductions in force, departure of key employees, consolidations of operations or introduction of new products; * development in, or claims relating to, patent or other proprietary rights; * success or failure of our new and existing products; * disruptions with key customers or suppliers; or * political, economic or environmental events occurring globally |
| Government regulations could adversely impact our operations |
| Throughout the world, most federal, state, provincial and local authorities require Underwriters Laboratory, Inc |
| or other safety regulation certification prior to marketing electrical products in those jurisdictions |
| Most of our products have such certifications; however, there can be no assurance that our products will continue to meet such specifications |
| Many foreign, federal, state and local governments also have enacted laws and regulations that govern the labeling and packaging of products and limit the sale of product containing certain materials deemed to be environmentally sensitive |
| A determination that our products are not in compliance with such rules and regulations could result in the imposition of fines or an award of damages to private litigants |
| Our business and results of operations could be impacted by the implementation of Sarbanes Oxley |
| Under current rules, we will be required to complete our initial assessment of the adequacy of internal control over financial reporting under Section 404 of the Sarbanes Oxley Act of 2002 as of March 31, 2008 |
| We also must include in our assessment, a report detailing management’s assessment of the effectiveness of our internal control over financial reporting as well as the operating effectiveness of our internal control over financial reporting |
| If we are unable to complete our assessment as required, or if upon completion of our assessment material weaknesses are uncovered and reported, investors could lose confidence in the reliability of our financial statements, which in turn, could result in the decrease in value of our common stock |
| Although we will devote significant resources into developing the required documentation and perform the required testing, there can be no assurance that we will be able to comply with all of Section 404’s requirements |
| Additionally, our independent registered public accounting firm must also attest to and report on management’s assessment of the effectiveness of our internal control over financial reporting as well as the operating effectiveness of our internal control over financial reporting |
| If we are unable to effectively complete our assessment or if our internal control over financial reporting is not designed or operating effectively, our independent registered public accounting firm may either disclaim an opinion or may issue a qualified opinion as to the effectiveness of our internal control over financial reporting |
| If this should occur, there could be a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements, which in turn, could cause a decline in the market price of our common stock |
| The risks listed above are not the only risks that we face |
| Additional risks that are not yet known or that we believe to be immaterial may also impair business operations |