UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D. C. 20549




Form
10-Q





þQUARTERLY REPORT PURSUANT
TO SECTION13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


For the quarterly period
ended December 31, 2008





TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from
______ to ______




0-13763





(Commission file
No.)




TECHNOLOGY RESEARCH CORPORATION





(Exact
name of registrant as specified in its charter)




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




5250-140th
Avenue North Clearwater, Florida 33760





(Address
of principal executive offices)







(727)
535-0572





(Registrant’s
telephone number, including area code)






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  þ   No .




Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company
filer.  See definitions of “accelerated filer, “large accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.  (Check one):




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




Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).    
Yes   No þ

















FORM
10-Q




TABLE OF CONTENTS






PART I — FINANCIAL
      INFORMATIONItem 1.  Financial
      Statements  (Unaudited)Condensed Consolidated Balance
      SheetsCondensed Consolidated Statements
      ofIncomeCondensed Consolidated Statements
      of Cash FlowsNotes to the Condensed
      Consolidated Financial StatementsItem 2.  Management’s
      Discussion and Analysis of Financial Condition and Results of
      OperationsItem 3.  Quantitative
      and Qualitative Disclosures About Market
    RiskItem 4. 
      Controls and ProceduresPART II — OTHER
      INFORMATIONItem 1.  Legal
      ProceedingsItem 1A.  Risk
      FactorsItem 6. 
      ExhibitsSIGNATURESExhibit 31.1 — Certification of Chief
      Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of
      2002Exhibit 31.2 — Certification of Chief
      Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of
      2002Exhibit 32.1 — Certification of Chief
      Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of
      2002Exhibit 32.2 — Certification of Chief
      Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of
      2002









Item 1.  Financial
Statements.




TECHNOLOGY
RESEARCH CORPORATION AND SUBSIDIARY




Condensed Consolidated
Balance Sheets


(Unaudited)


(In
thousands, except share and per share data)




December
      31,
              
              
              March
      31,ASSETS
              
              2008
              
              
              2008Current
      assets:Cash
      and cash equivalents
              
              $
              1,131
              
              
              
              2,132Short-term investments
              
              
              4,001
              
              
              
              1,495Trade and other accounts receivable, net of allowance for doubtful
      accountsof
      $178 and $123 at December 31, 2008 and March 31, 2008,
      respectively
              
              
              4,740
              
              
              
              6,573Other
      receivable
              
              
              903
              
              
              
              869Income
      taxes receivable
              
              
              791
              
              
              
              197Inventories
              
              
              8,129
              
              
              
              7,788Deferred income taxes
              
              
              604
              
              
              
              1,446Prepaid
      expenses and other current assets
              
              
              451
              
              
              
              258Total
      current assets
              
              
              20,750
              
              
              
              20,758Property,
      plant and equipment, net of accumulated depreciation
      of$11,918
      and $11,604  at December 31, 2008 and March 31, 2008,
      respectively
              
              
              3,389
              
              
              
              3,684Intangible
      asset, net of accumulated amortization of $164 and $119,
      respectively
              
              
              419
              
              
              
              463Deferred
      income taxes
              
              
              55
              
              
              
              -Other
      assets
              
              
              37
              
              
              
              45Total
      assets
              
              $
              24,650
              
              
              
              24,950LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Trade accounts payable
              
              $
              1,825
              
              
              
              3,111Accrued expenses
              
              
              1,460
              
              
              
              1,781Accrued dividends
              
              
              132
              
              
              
              132Total current liabilities
              
              
              3,417
              
              
              
              5,024Income
      taxes payable
              
              
              137
              
              
              
              -Deferred
      income taxes
              
              
              -
              
              
              
              37Total
      liabilities
              
              
              3,554
              
              
              
              5,061Stockholders'
      equity:Common stock $0.51 par value; 10,000,000 shares
      authorized,5,912,328
      shares issued and 5,890,828 shares outstanding
              
              
              3,015
              
              
              
              3,015Additional paid-in capital
              
              
              9,879
              
              
              
              9,568Retained earnings
              
              
              8,242
              
              
              
              7,346Common stock held in treasury, 21,500 shares at cost
              
              
              (40
              )
              
              
              (40
              )Total stockholders' equity
              
              
              21,096
              
              
              
              19,889Total liabilities and stockholders' equity
              
              $
              24,650
              
              
              
              24,950







The
accompanying notes are an integral part of the condensed consolidated financial
statements.











TECHNOLOGY RESEARCH
CORPORATION AND SUBSIDIARY


Condensed
Consolidated Statements of Income


(Unaudited)


(In thousands, except share
and  per share data)








Three
      Months EndedDecember
      31,
            
            NineMonths
      EndedDecember
      31,2008
            
            
            2007
            
            
            2008
            
            
            2007Revenue:Commercial
            
            $
            4,047
            
            
            
            5,735
            
            
            
            15,290
            
            
            
            16,947Military
            
            
            3,774
            
            
            
            3,504
            
            
            
            10,459
            
            
            
            11,209Total revenue
            
            
            7,821
            
            
            
            9,239
            
            
            
            25,749
            
            
            
            28,156Cost
      of sales
            
            
            5,270
            
            
            
            6,606
            
            
            
            17,140
            
            
            
            19,831Gross
      profit
            
            
            2,551
            
            
            
            2,633
            
            
            
            8,609
            
            
            
            8,325Operating
      expenses:Selling and marketing
            
            
            701
            
            
            
            600
            
            
            
            2,212
            
            
            
            2,067General and administrative
            
            
            1,103
            
            
            
            1,130
            
            
            
            3,673
            
            
            
            3,247Research
      and development
            
            
            586
            
            
            
            527
            
            
            
            1,716
            
            
            
            1,430Total
      operating expenses
            
            
            2,390
            
            
            
            2,257
            
            
            
            7,601
            
            
            
            6,744Income  from
      operations
            
            
            161
            
            
            
            376
            
            
            
            1,008
            
            
            
            1,581Other
      income (expense):Other income, net
            
            
            165
            
            
            
            36
            
            
            
            545
            
            
            
            148Interest expense
            
            
            (6
            )
            
            
            -
            
            
            
            (10
            )
            
            
            (75
            )Other income, net
            
            
            159
            
            
            
            36
            
            
            
            535
            
            
            
            73Income  before
      income taxes
            
            
            320
            
            
            
            412
            
            
            
            1,543
            
            
            
            1,654Income
      tax expense
            
            
            65
            
            
            
            56
            
            
            
            292
            
            
            
            414Net income
            
            $
            255
            
            
            
            356
            
            
            
            1,251
            
            
            
            1,240Earnings  per
      share - basic
            
            $
            0.04
            
            
            
            0.06
            
            
            
            0.21
            
            
            
            0.21Earnings  per
      share - diluted
            
            $
            0.04
            
            
            
            0.06
            
            
            
            0.21
            
            
            
            0.21Shares
      outstanding - basic
            
            
            5,890,828
            
            
            
            5,888,828
            
            
            
            5,890,828
            
            
            
            5,888,828Shares
      outstanding - diluted
            
            
            5,897,310
            
            
            
            5,910,053
            
            
            
            5,902,647
            
            
            
            5,938,708






The
accompanying notes are an integral part of the condensed consolidated financial
statements.









TECHNOLOGY RESEARCH
CORPORATION AND SUBSIDIARY


Condensed
Consolidated Statements of Cash Flows


(Unaudited)




(In
thousands)





NineMonths
      EndedDecember
      31,2008
            
            
            
            2007Cash
      flows from operating activities:Net
      income
            
            $
            1,251
            
            
            
            1,240Adjustments
      to reconcile net incometo
      net cash provided by operating activities:Accretion
      of interest on short-term investments and other
      receivable
            
            
            (46
            )
            
            
            (8
            )Bad
      debt expense
            
            
            125
            
            
            
            30Depreciation
            
            
            850
            
            
            
            875Amortization
      of intangible assets
            
            
            44
            
            
            
            45Stock compensation expense
            
            
            311
            
            
            
            182Deferred income taxes
            
            
            750
            
            
            
            (155
            )Loss
      on disposal of property and equipment
            
            
            42
            
            
            
            -Changes in operating assets and
      liabilities:Trade and other accounts receivable
            
            
            1,708
            
            
            
            730Other
      receivable – current
            
            
            (34
            )
            
            
            (107
            )Inventories
            
            
            (341
            )
            
            
            (636
            )Prepaid expenses and other current assets
            
            
            (193
            )
            
            
            (111
            )Other assets
            
            
            8
            
            
            
            -Trade
      accounts payable
            
            
            (1,286
            )
            
            
            205Accrued
      expenses
            
            
            (321
            )
            
            
            (84
            )Accrued
      dividends
            
            
            -
            
            
            
            (1
            )Income
      taxes receivable/payable
            
            
            (457
            )
            
            
            (908
            )Net cash provided by operating activities
            
            
            2,411
            
            
            
            1,297Cash
      flows from investing activities:Maturities of short-term
      investments
            
            
            3,500
            
            
            
            1,000Purchase
      of short-term investments
            
            
            (5,960
            )
            
            
            (989
            )Purchases
      of property and equipment
            
            
            (597
            )
            
            
            (254
            )Net
      cash used in investing activities
            
            
            (3,057
            )
            
            
            (243
            )Cash
      flows from financing activities:Repayments of short-term and long-term debt
            
            
            -
            
            
            
            (3,000
            )Cash
      dividends paid
            
            
            (355
            )
            
            
            (355
            )Net
      cash used in financing activities
            
            
            (355
            )
            
            
            (3,355
            )Net decrease
      in cash and cash equivalents
            
            
            (1,001
            )
            
            
            (2,301
            )Cash
      and cash equivalents at beginning of period
            
            
            2,132
            
            
            
            3,471Cash
      and cash equivalents at end of period
            
            $
            1,131
            
            
            
            1,170










The
accompanying notes are an integral part of the condensed consolidated financial
statements.









TECHNOLOGY RESEARCH
CORPORATION AND SUBSIDIARY





Notes
to the Condensed Consolidated Financial Statements


(In
thousands, except share and per share data)







1.
 Basis of Presentation:




The unaudited interim condensed
consolidated financial statements and related notes have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly,
certain information and footnote disclosures normally included in complete
financial statements prepared in accordance with United States generally
accepted accounting principles have been omitted pursuant to such rules and
regulations.  The accompanying unaudited interim condensed consolidated
financial statements and related notes should be read in conjunction with the
consolidated financial statements and notes thereto included in the Technology
Research Corporation Annual Report on Form 10-K for the
year ended March 31, 2008.  Operating results for the nine-month
period ended December 31, 2008 are not necessarily an indication of the results
that may be expected for the fiscal year ending March 31, 2009.




The information furnished reflects, in
the opinion of our management, all adjustments necessary for a fair presentation
of the financial results for the interim periods presented. As used in this
interim report on Form 10-Q, “we”, “our”, “us”, the “Company” and “TRC” all refer to Technology Research
Corporation and its subsidiary unless the context otherwise requires.




2.  Earnings
Per Share:




Basic earnings per share
have been computed by dividing net income by the weighted average number of
common shares outstanding.




Diluted earnings
per share have been computed by dividing net income by the weighted average
number of common and common equivalent shares outstanding.  The weighted
average common and common equivalent shares outstanding has been adjusted to
include the number of shares that would have been outstanding if the stock
options had been exercised and nonvested shares had been vested, at the average
market price of the period, with the proceeds being used to buy shares from the
market, if dilutive.




The table below reconciles the
calculation of basic and diluted earnings per share:




Three
      months
      ended
              December
      31,
            
            
            Ninemonths
      ended
              December
      31,2008
            
            
            2007
            
            
            2008
            
            
            2007Net
      income
            
            $
            255
            
            
            
            356
            
            
            
            1,251
            
            
            
            1,240Weighted
      average shares outstanding - basic
            
            
            5,890,828
            
            
            
            5,888,828
            
            
            
            5,890,828
            
            
            
            5,888,828Dilutive
      effect of stock options and nonvested shares
            
            
            6,482
            
            
            
            21,225
            
            
            
            11,819
            
            
            
            49,880Weighted
      average shares outstanding - diluted
            
            
            5,897,310
            
            
            
            5,910,053
            
            
            
            5,902,647
            
            
            
            5,938,708Earnings
      per share:Basic
            
            $
            0.04
            
            
            
            0.06
            
            
            
            0.21
            
            
            
            0.21Diluted
            
            $
            0.04
            
            
            
            0.06
            
            
            
            0.21
            
            
            
            0.21




For both the three-month and
nine-month periods ended December 31, 2008, options to
purchase 698,000 shares of common stock were considered anti-dilutive for
the purposes of calculating earnings per share.  For the
three-month and nine-month periods ended December 31, 2007, options to
purchase 409,500 and 287,800 shares of common stock, respectively,
 were considered anti-dilutive for purposes of calculating earnings per
share.





3.  Short-term
Investments:





The value of short-term
investments totaled $4,001 as of December 31, 2008, consisting of
corporate securities in the amount of $1 and original cost plus accrued
interest on U.S. Treasury Bills in the amount of $4,000.  As of March
31, 2008, the value of short-term investments totaled $1,495, consisting of
corporate securities in the amount of $3 and original cost plus accrued
interest on U.S. Treasury Bills in the amount of $1,492.  We consider
all of our short-term investments to be held-to-maturity, and
therefore, are recorded at amortized cost.




4.
 Inventories:




Inventories consist of the
following:




December
      31,
      2008
            
            March 31,
      2008Raw
      materials
            
            $
            5,388
            
            
            
            4,976Work-in-process
            
            
            309
            
            
            
            663Finished
      goods
            
            
            2,432
            
            
            
            2,149Total
            
            $
            8,129
            
            
            
            7,788








5.
 Warranty:





We generally provide a one year
warranty period for all of our products.  We also provide limited coverage
on certain of its surge products for “downstream” damage of products not
manufactured by us.  Our warranty provision represents management's best
estimate of probable liabilities, calculated as a function of sales volume and
historical repair experience for each product under warranty.  A
roll-forward of the activity in our warranty liability, included in accrued
expenses, for the three and nine months ended December 31,
2008 and 2007 is as follows:




Three
      months endedDecember
      31,
            
            
            Ninemonths
      endedDecember
      31,2008
            
            
            2007
            
            
            2008
            
            
            2007Beginning
      balance
            
            $
            137
            
            
            
            121
            
            
            
            137
            
            
            
            90Warranty expense
            
            
            53
            
            
            
            27
            
            
            
            112
            
            
            
            135Warranty claims
            
            
            (26
            )
            
            
            (23
            )
            
            
            (85
            )
            
            
            (100
            )Ending
      balance
            
            $
            164
            
            
            
            125
            
            
            
            164
            
            
            
            125







6.
 Debt:




The maturity
date of the revolving credit agreement with our institutional
lender is September 30, 2009.  The agreement provides for
borrowings up to $6.0 million.  We have the option of borrowing at the
lender's prime rate of interest minus 100 basis points or the 30-day London
Interbank Offering Rate (“LIBOR”) plus 160 basis
points.   The loan is collateralized with a perfected first security
interest which attaches to most of our key assets including receivables,
inventories, short-term investments, demand deposit accounts maintained with our
lender, and 65% of the voting stock of our Honduran subsidiary and
requires us to maintain certain financial ratios.   As of
December 31, 2008 and March 31, 2008, we had no borrowings on this
credit agreement and the full $6.0 million is available.





7.  Income
taxes:




Our effective income tax rate was
20.3% and 13.6% for the three months ended December 31, 2008 and 2007,
respectively.  For the nine months ended December 31, 2008
and 2007, our effective income tax rate was 18.9% and 25.0%,
respectively.  The effective income tax rate is based on the estimated
income for the year and the composition of this income from the U.S. and from
our Honduran subsidiary.  The income tax rate on income earned from
Honduras is zero due to a tax holiday and, therefore, the corporate
effective rate is lower than the U.S. statutory rate due to the mix of income
earned in the U.S. versus income earned in Honduras.




As of April 1, 2007, we adopted
FASB Interpretation Number 48 (“FIN 48”), Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109.  The
interpretation contains a two step approach to recognizing and measuring
uncertain tax positions.  The first step is to evaluate the tax position
for recognition by determining if the weight of available evidence indicates it
is more likely than not that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any.  The second
step is to measure the tax benefit as the largest amount which is more than 50%
likely of being realized upon ultimate settlement.  As a result of
implementing FIN 48, we did not recognize any cumulative effect adjustment
impacting retained earnings as of the beginning of fiscal
2008.




As of April 1, 2008, we had
unrecognized tax benefits of $12, accrued interest of $4, and there are no
accrued penalties.  For the three-months ended December 31, 2008, we
recorded an additional $137 of unrecognized tax benefits related to transfer
pricing.  As of December 31, 2008, we have unrecognized tax
benefits of $152, accrued interest of $6, and there are no accrued
penalties.  After adoption of FIN 48, our policy is to recognize interest
and penalties in the provision for income taxes.




We file U.S. Federal and Florida
income tax returns.  We have concluded on all U.S. federal income tax
matters through the fiscal 2004 year.  Federal income tax returns for
fiscal years 2005 through 2008 and state income tax returns for fiscal years
2004 through 2008 remain subject to audit.





8.
 Stock-Based Compensation:




As of April 1, 2006, we adopted
the provisions of Statement of Financial Accounting Standards No. 123R,Share-Based
Payment, (“SFAS
123R”) for our share-based
compensation plans.  Previously, we accounted for these plans under the
principles of Accounting Principles Board Opinion No. 25,Accounting for
Stock issued to Employees(“APB
25”) and related
interpretations and disclosure requirements set by Statement of Financial
Accounting Standard No. 123,Accounting for
Stock-Based Compensation(“SFAS
123”), as amended by
Statement of Financial Accounting Standards No. 148,Accounting for
Stock-Based Compensation-Transition and Disclosure.




Since
stock compensation expense of $311 and $182, respectively, resulting from
SFAS 123R was included in earnings for the nine months ended December
31, 2008 and 2007, the consolidated statements of cash flows for the nine months
ended December 31, 2008 and 2007, include adjustments to reconcile net
income to net cash provided by operating activities of $311 and $182,
respectively, due to this non-cash stock compensation expense.





Cash received from the exercise
of stock options under all share-based payment arrangements for the nine
months ended December 31, 2008 and 2007 was zero.  We expect to
utilize available registered shares when share-based awards are
issued.




Stock Option
Plans





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




Our 1993 Incentive Stock Option
Plan and 1993 Amended and Restated Non-Qualified Stock Option Plan have expired,
and no options will be granted from these plans in the future.  Certain
options under these plans, however, are still outstanding and can be
exercised in the future.




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





On June
24, 2008, our Board of Directors approved the Amended and Restated 2000 Long
Term Incentive Plan and it was approved by our stockholders on August 27, 2008
at our annual meeting.  The Amended and Restated 2000 Long Term
Incentive Plan provides for the grant of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code to employees and
non-qualified stock options to either our employees or directors. The Amended
and Restated 2000 Long Term Incentive Plan also allows for the grant of
restricted stock awards (nonvested shares) to either our employees or directors.
A total of 500,000 additional shares of our common stock have been reserved for
issuance under the Amended and Restated 2000 Long Term Incentive
Plan.  A total of 1.6 million shares of our common stock have been
reserved for issuance under the Amended and Restated 2000 Long Term Incentive
Plan, of which 405,750 shares remain available for awards as of December
31, 2008.





We
granted 81,999 shares of restricted stock awards (nonvested shares) in December
2008 at a grant date fair value of $1.70 per share.  The shares have a
three-year vesting period.  As of December 31, 2008 all 81,999 shares
of restricted stock are non-vested and remain outstanding.





The table below summarizes stock
option activity for the Plans from April 1 through December 31,
2008:




Aggregate(1)
            
            
            Weighted
            
            
            Weightedintrinsic
            
            
            average
            
            
            averageOptions
            
            
            value
            
            
            exercise
            
            
            remainingoutstanding
            
            
            (in
      thousands)
            
            
            price
            
            
            contractual
      lifeBalance as
      of March 31, 2008
            
            
            761,952
            
            
            $
            34
            
            
            $
            5.63
            
            
            
            8.35Options expired
            
            
            (3,117
            )
            
            
            
            
            
            
            -
            
            
            
            -Options granted
            
            
            224,001
            
            
            
            
            
            
            $
            1.93
            
            
            
            9.84Options canceled
            
            
            (75,250
            )
            
            
            
            
            
            
            -
            
            
            
            -Options exercised
            
            
            -
            
            
            
            
            
            
            
            -
            
            
            
            -Balance
      as of December 31, 2008
            
            
            907,586
            
            
            $
            1
            
            
            $
            4.58
            
            
            
            8.24Exercisable as
      of December 31, 2008
            
            
            346,253
            
            
            $
            1
            
            
            $
            7.50
            
            
            
            6.54Footnote:
              1The aggregate intrinsic value represents the total pretax
      intrinsic value, based on the closing stock price of our common
      stock of $2.85 as of March 31, 2008 and of $1.70 as of December
      31, 2008 and on the dates options were granted or exercised, which would
      have been received by the option holders had all option holders
      exercised their optionsas of that date, including only those
      options that are in-the-money.














The table below summarizes shares
available for grant under the Plans from April 1 through December 31,
2008:








Stock
      Options
            
            
            Restricted
      Stock
              (Nonvested
      shares)
            
            
            Shares
      available for grantBalance
      as of March 31, 2008
            
            
            
            
            
            
            
            
            136,500Shares
      authorized
            
            
            
            
            
            
            
            
            500,000Shares
      expired
            
            
            (3,117
            )
            
            
            -
            
            
            
            -Shares
      granted
            
            
            224,001
            
            
            
            81,999
            
            
            
            (306,000
            )Shares
      canceled
            
            
            (75,250
            )
            
            
            -
            
            
            
            75,250Shares
      exercisedBalance
      as of December 31, 2008
            
            
            
            
            
            
            
            
            
            
            405,750











The weighted average grant date
fair value of stock options granted during the nine months ended December
31, 2008 and 2007 was $1.09 per share and $3.53 per share,
respectively.  The total intrinsic value of stock options exercised during
the nine months ended December 31, 2008 and 2007
was zero.





As of December 31, 2008, there
was $893 of total unrecognized compensation cost related to nonvested
share-based compensation arrangements (including share options and nonvested
share awards) granted under the Plans  that is expected to be
recognized over a weighted average period of 2.17 years.  The total
fair value of stock options vested during the nine months ended
December 31, 2008 and 2007 was $29 and $35, respectively.




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









The weighted average assumptions
used to value option grants for the three and nine months ended December
31, 2008 and 2007 are as follows:




Three months
      ended
              December
      31,
            
            
            Ninemonths
      ended
              December
      31,2008
            
            
            2007
            
            
            2008
            
            
            2007Expected
      dividend yield
            
            
            3.23
            %
            
            
            1.87
            %
            
            
            3.05
            %
            
            
            1.86
            %Risk
      free interest rate
            
            
            1.92
            %
            
            
            4.45
            %
            
            
            2.14
            %
            
            
            4.51
            %Expected
      volatility
            
            
            75.60
            %
            
            
            86.86
            %
            
            
            76.48
            %
            
            
            86.76
            %Expected
      life (in yrs.)
            
            8.00
            
            
            7.54
            
            
            7.89
            
            
            7.43




9. 
Litigation:




We are involved in various claims
and legal actions arising in the ordinary course of business.  In our
opinion, the ultimate disposition of these matters will not have a material
adverse effect on our financial condition, results of operations or cash
flows.




10. 
Disposition of Inventory and Purchase Obligations:





On August
20, 2008, we received $310 from one of our contract manufacturers in full and
final settlement for the disposition of 310,000 kilograms of TRC’s FireShield® cable inventory
and settlement of other purchase obligations.  During the nine-months
ended December 31, 2008, we recognized a gain of $637 resulting from the
settlement of this FireShield® cable inventory
disposition, the satisfaction of contract purchase obligations, and other
inventory held with our contract manufacturer.  This gain is included
in our cost of sales.





11. 
New Accounting Standards:




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





In June
2006, the FASB ratified the Emerging Issues Task Force (“EITF”) consensus on
Issue No. 06-03, How Taxes
Collected from Customers and Remitted to Government Authorities Should Be
Presented in the Income Statement (That Is, Gross versus Net
Presentation) (“EITF No. 06-03”).  We adopted the provisions of EITF
No. 06-03 for the fiscal year beginning April 1, 2007, electing the net
basis of reporting.  The implementation of EITF No. 06-03 had no
material effect on our fiscal 2008 consolidated financial
statements.




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




In
December 2007, the FASB issued SFAS No. 141R, Business Combinations (“SFAS
141R”). SFAS 141R requires that business combinations will result in assets and
liabilities of an acquired business being recorded at their fair values as of
the acquisition date, with limited exceptions. Certain forms of contingent
consideration and certain acquired contingencies will be recorded at fair value
at the acquisition date. SFAS 141R also states acquisition costs will generally
be expensed as incurred and restructuring costs will be expensed separately from
the business combination in periods after the acquisition date. SFAS 141R is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. We are currently reviewing SFAS 141R’s requirements and
are assessing the impact that SFAS 141R may have on our consolidated financial
statements.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS
160”).  SFAS 160 changes the accounting and reporting for minority
interests, which will be recharacterized as non-controlling interests and
classified as a component of equity.  SFAS 160 is effective for us on
a prospective basis for business combinations with an acquisition date beginning
in the first quarter of fiscal year 2010.  As of December 31, 2008 and
March 31, 2008, we did not have any minority interests.  The adoption
of SFAS 160 is not expected to impact our consolidated financial
statements.





In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS 161”). SFAS 161 changes the
disclosure requirements for derivative instruments and hedging activities. We
will be required to provide enhanced disclosures about (a) how and why
derivative instruments are used, (b) how derivative instruments and related
hedged items are accounted for under Statement of Financial Accounting Standards
No. 133, Accounting for
Derivative Instruments and Certain Hedging Activities(“SFAS 133”), and
its related interpretations, and (c) how derivative instruments and related
hedged items affect our financial position, financial performance, and cash
flows. SFAS 161 is effective for financial statements issued for fiscal years
and interim periods beginning after November 15, 2008. We are currently
evaluating the requirements of SFAS 161 and have not yet determined the impact
of adoption, if any, on our financial position, results of operations or cash
flows.





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




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









Item
2.   Management’s Discussion and Analysis of Financial Condition
and Results of Operations.









DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS




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




The identification of certain
statements as “forward-looking” is not intended to mean that other statements
not specifically identified are not forward-looking.  Forward-looking
statements include, but are not limited to, statements that relate to our future
revenue, product development, demand, acceptance and market share,
competitiveness, gross margins, levels of research and development (R & D),
outsourcing plans and operating expenses, tax expenses, our management’s plans
and objectives for our current and future operations, the levels of customer
spending or R & D activities, general economic conditions and the
sufficiency of financial resources to support future operations, and capital
expenditures.  Such statements are based on current expectations and are
subject to risks, uncertainties, and changes in condition, significance, value
and effect, including those discussed below under the heading “Risk Factors”
within the section of this report entitled “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and other documents we file
from time to time with the Securities and Exchange Commission (“SEC”), such as our last filed
Annual Report on Form
10-K for the fiscal year ended March 31, 2008, our quarterly reports
on Form 10-Q, and our current reports on Form 8-K.  Such risks,
uncertainties and changes in condition, significance, value and effect could
cause our actual results to differ materially from those expressed herein and in
ways not readily foreseeable.  Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof and are based on information currently and reasonably known to us.
 We undertake no obligation to release the results of any revisions to
these forward-looking statements, which may be made to reflect events or
circumstances which occur after the date hereof or to reflect the occurrence or
effect of anticipated or unanticipated events.




Actual
results could, however, differ materially from those projected or assumed
in any of our forward-looking statements within this report. Our
future financial condition and results of operations, as well as our
operational and financial expectations, are subject to inherent risks and
uncertainties.  See part Part II, Item 1A, entitled Risk Factors.








OVERVIEW





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




TRC was
incorporated in Florida in 1981.  Our principal offices are located at
5250-140th Avenue North, Clearwater, Florida 33760, our telephone number is
(727) 535-0572 and our website can be accessed at www.trci.net. 
Information contained or referenced on our website is not incorporated by
reference into, and does not form a part of, this Quarterly Report on Form
10-Q.





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





Revenue
was $1.4 million lower in the third quarter of fiscal 2009 compared with the
third quarter of the prior year. Gross profit as a percentage of revenue
increased to 32.6% for the quarter ended December 31, 2008 from 28.5% for the
prior year quarter due to the relative mix in revenue between military and
commercial business.  Net income for the third fiscal quarter ended
December 31, 2008 was $0.3 million compared with net income of $0.4 million for
the third quarter of last year.  Diluted earnings per share are $0.04
for the quarter ended December 31, 2008 compared with diluted earnings per share
of $0.06 for last year’s third quarter.




Through the nine months ended
December 31, 2008, net income of $1.3 million was substantially unchanged
compared with the first nine months of fiscal 2008. Diluted earnings per share
for the same period were unchanged at $0.21 per share.








RESULTS OF
OPERATIONS





Revenue for
the third quarter ended December 31, 2008 and 2007 was $7.8
million and $9.2 million, respectively. Commercial revenue, including
royalties, decreased by $1.7 million and military revenue increased $0.3
million. Revenue for the nine-month period ended December 31, 2008 was
$25.7 million compared to $28.2 million reported in the same
period of the prior year, a decrease of 8.5%.  The recent extreme
volatility and disruption of financial markets in the United States, Europe and
Asia and depressed conditions in the real estate market have all contributed to
weakening worldwide economic conditions and have contributed to a reduction in
revenue in our commercial business. Commercial revenue for the nine months ended
December 31, 2008 decreased $1.7 million from the same period last year while
military revenue decreased $0.8 million.  The decrease in commercial
revenue for the three and nine month periods ended December 31, 2008 compared
with the same periods in the prior year is principally due to lower revenue in
our RAC business.  The decrease in military revenue for the nine
months ended December 31, 2008 was largely due to the delay until June 30, 2008
in passage and signing of the Emergency Supplemental Spending bill.







Gross profitfor the quarter ended December 31, 2008 and 2007 was unchanged at
$2.6 million. Gross profit as a percentage of total revenue increased to 32.6%
for the three months ended December 31, 2008 from 28.5% for the three months
ended December 31, 2007 due to military revenue representing a larger
portion of total revenue this year.  Gross profit increased $0.3 million,
or 3.4%, to $8.6 million for the nine months ended December 31, 2008
compared to the same periods in the prior year.  Gross profit as a percent
of revenue increased to 33.4% for the nine months ended December 31, 2008
from 29.6% for the nine months ended December 31, 2007. The increase
in gross profit and gross profit as a percentage of revenue
for the nine months ended December 31, 2008 was primarily due to
the second quarter $0.6 million gain on disposition of inventory and settlement
of purchase obligations with one of our contract manufacturers.




Selling and
marketing expense of $0.7 million, or 9.0% of revenue, for the
quarter ended December 31, 2008 increased from $0.6 million or 6.5% of revenue
for the quarter ended December 31, 2007.  For the nine months ended
December 31, 2008, selling and marketing expense of $2.2 million or 8.6% of
revenue was $0.1 million higher from $2.1 million or 7.3% of revenue
compared with the prior year. The increase for the both the quarter and nine
months ended December 31, 2008 compared with the prior year is due primarily to
increased expenses related to additional personnel hired in 2008.




General and administrativeexpense of $1.1 million, or 14.1% of
revenue, for the quarter ended December 31, 2008 was unchanged from $1.1
million, or 12.2% of revenue for the quarter ended December 31, 2007. For
the nine months ended December 31, 2008, general
and administrative expense of $3.7 million, or 14.3% of revenue,
increased by $0.4 million compared to $3.2 million, or 11.5%
of revenue, for the same period last year.  The $0.4 million
increase over the prior year is due to second quarter obligations incurred from
the retirement of a Company officer and higher professional fees.




Research and developmentexpense of $0.6 million,
or 7.5% of revenue, for the quarter ended December 31, 2008 increased by
$0.1 million from the $0.5 million, or 5.7% of revenue, for the same
quarter last year.  For the nine months ended December 31,
2008, research and development expense was $1.7 million, or 6.7%
of revenue, compared to $1.4 million, or 5.1% of revenue, for the same
period last year. The increase in research and development expense from the
prior year periods is primarily due to an increased headcount in engineering
development and consulting related expenses as we added resources to improve our
engineering expertise.





Other income
(expense), netwas $0.1 million of income for the quarter ended
December 31, 2008, compared to $0.0 million in the same quarter last
year. The increase in other income for the quarter ended December 31, 2008
was primarily due to payments received from settlements with vendors. For the
nine months ended December 31, 2008, other income (expense) was income of
$0.5 million, compared to $0.0 million of income for the same period last
year.   The increase in other income for the nine months ended
December 31, 2008 was due primarily to payments received as part of a legal
settlement.





Income tax
expensewas $0.1 million for both the quarter ended December 31, 2008 and
December 31, 2007.  For the nine months ended December 31, 2008,
income tax expense was $0.3 million compared to $0.4 million for the same
period last year.  Income taxes as a percent of income before income
taxes was 20.3% and 18.9% for the quarter and nine months
ended December 31, 2008, compared with 13.6% and 25.0% for
the quarter and nine months ended December 31, 2007.  The
reduction in the effective tax rate in fiscal 2009 is due to higher earnings of
our Honduran subsidiary. Our effective tax rate varies based primarily on
the mix of income before income taxes derived from our Honduran subsidiary,
which is not subject to income taxes, and the balance of income before income
taxes, which is subject to U.S. income taxes.  At each reporting
period, we make our best estimate of the effective tax rate expected
for the full fiscal year and apply that rate to the current year-to-date income
before income taxes.  Any difference between the current and preceding
estimated effective tax rate expected for the full fiscal year is reflected as
an adjustment in the current quarter's income tax expense.  In accordance
with SFAS 109, “Accounting for Income Taxes”, we do not record deferred
income taxes on the foreign undistributed earnings of an investment in a foreign
subsidiary that is essentially permanent in duration.  If circumstances
change, and it becomes apparent that some or all of the undistributed earnings
of our subsidiary will be remitted in the foreseeable future, but U.S.
income taxes have not been recognized, we will record as an expense of the
current period the U.S. income taxes attributed to that remittance.




Net incomefor the quarter ended December 31, 2008 was $0.3
million, compared to a $0.4 million in the same quarter last
year.  The basic and diluted earnings per share was
$0.04 for the quarter ended December 31, 2008, compared to basic and
diluted earnings per share of $0.06  for the same quarter last
year.  The net income for the nine-month period ended December
31, 2008 was $1.3 million, compared to net income of $1.2 million for the
same period in the prior year.  The basic and diluted earnings per
share were $0.21 for the nine-month periods ended December 31, 2008 and
2007.  The decrease in net income for the three-month period ended
December 31, 2008 was due primarily to lower gross profit on lower revenue and
slightly higher operating expenses partially offset by other income from
settlements.  The increase in net income for the nine-month periods
ended December 31, 2008, compared to the comparable prior year period, was
primarily the result of the favorable inventory and purchase obligations
settlement with one of our contract manufacturers, the increase in other income
from a legal settlement, and the reduction in income taxes substantially offset
by higher operating expenses.








LIQUIDITY
AND CAPITAL RESOURCES




Our total of cash and cash
equivalents and short-term investments at December 31, 2008 was $5.1 million, an
increase of $1.5 million from March 31, 2008.  Cash and cash
equivalents decreased from $2.1 million as of March 31, 2008 to $1.1 million as
of December 31, 2008, primarily reflecting an increase in short-term
investments.  Cash provided by operating activities was $2.4 million, cash
used in investing activities was $3.0 million and cash used in financing
activities was $0.4 million resulting in a total decrease in cash of $1.0
million for the nine-month period ended December 31, 2008.





Cash provided by operating
activities primarily resulted from net income of $1.3 million, a decrease in
trade accounts receivable of $1.7 million, depreciation expense of $0.9 million,
and a decrease in deferred income taxes of $0.8 million, partially offset by a
decrease in trade accounts payable of $1.2 million, an increase in income taxes
receivable of $0.5 million, an increase in inventories of $0.4 million, and
a decrease in accrued expenses of $0.3 million. The decrease in trade accounts
receivable was primarily due to improved collections from customers and lower
quarterly revenue in third quarter fiscal 2009 as compared to the same quarter
last year.  The decrease in trade accounts payable was principally due
to bringing our balances with vendors to a more current position.  The
increase in income taxes receivable primarily reflects the tax benefit resulting
from the disposition of inventory that had been written down for financial
statement purposes in prior periods.  The increase in inventories was
primarily due to higher finished goods inventory which is due to an economical
production of high volume parts in anticipation of forecasted customer demand in
the fourth quarter.   The decrease in accrued expenses was
primarily due to the settlement of purchase obligations with one of our contract
manufacturers.




Cash used in investing activities
was due to purchase of short-term investments in excess of maturing investments
and cash used for purchases of property and equipment.




Cash used in financing
activities was due to the payment of quarterly dividends.




The maturity date of the
revolving credit agreement with our institutional lender is
September 30, 2009.  The agreement provides for borrowings up to $6.0
million.  We have the option of borrowing at the lender's prime
rate of interest minus 100 basis points or the 30-day London Interbank
Offering Rate (“LIBOR”)
plus 160 basis points.   The loan is collateralized with a perfected
first security interest which attaches to most of our key assets including
receivables, inventory, investments, demand deposit accounts maintained with our
lender, and 65% of the voting stock of our Honduran subsidiary, and
requires us to maintain certain financial ratios.   As of
December 31, 2008 and March 31, 2008, we had no borrowings on this
credit agreement.





We believe cash flow from
operations, the available bank borrowings, current short-term
investments and cash and cash equivalents will be sufficient to
meet our working capital requirements for the next 12
months.








OFF-BALANCE
SHEET ARRANGEMENTS





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






NEW
ACCOUNTING STANDARDS




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




In June
2006, the FASB ratified the Emerging Issues Task Force (“EITF”) consensus on
Issue No. 06-03, How Taxes
Collected from Customers and Remitted to Government Authorities Should Be
Presented in the Income Statement (That Is, Gross versus Net
Presentation) (“EITF No. 06-03”).  We adopted the
provisions of EITF No. 06-03 for the fiscal year beginning April 1, 2007,
electing the net basis of reporting.  The implementation of EITF No.
06-03 had no material effect on our fiscal 2008 consolidated financial
statements.




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





In
December 2007, the FASB issued SFAS No. 141R, Business Combinations (“SFAS
141R”). SFAS 141R requires that business combinations will result in assets and
liabilities of an acquired business being recorded at their fair values as of
the acquisition date, with limited exceptions. Certain forms of contingent
consideration and certain acquired contingencies will be recorded at fair value
at the acquisition date. SFAS 141R also states acquisition costs will generally
be expensed as incurred and restructuring costs will be expensed separately from
the business combination in periods after the acquisition date. SFAS 141R is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. We are currently reviewing SFAS 141R’s requirements and
are assessing the impact SFAS 141R may have on our consolidated financial
statements.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51” (SFAS
160).  SFAS 160 changes the accounting and reporting for minority
interests, which will be recharacterized as non-controlling interests and
classified as a component of equity.  SFAS 160 is effective for us on
a prospective basis for business combinations with an acquisition date beginning
in the first quarter of fiscal year 2010.  As of December 31, 2008 and
March 31, 2008, we did not have any minority interests.  The adoption
of SFAS 160 is not expected to impact our consolidated financial
statements.





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities (SFAS 161). SFAS 161 changes the
disclosure requirements for derivative instruments and hedging activities. We
will be required to provide enhanced disclosures about (a) how and why
derivative instruments are used, (b) how derivative instruments and related
hedged items are accounted for under Statement of Financial Accounting Standards
No. 133, Accounting for
Derivative Instruments and Certain Hedging Activities(“SFAS 133”), and
its related interpretations, and (c) how derivative instruments and related
hedged items affect our financial position, financial performance, and cash
flows. SFAS 161 is effective for financial statements issued for fiscal years
and interim periods beginning after November 15, 2008. We are currently
evaluating the requirements of SFAS 161 and have not yet determined the impact
of adoption, if any, on our financial position, results of operations or cash
flows.





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




In June
2008, the FASB issued Staff Position EITF 03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities (“FSP EITF 03-6-1”). FSP EITF 03-6-1 states that unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents are “participating securities” as defined in EITF Issue No. 03-6,
Participating Securities and the Two-Class Method under FASB Statement
No. 128, and therefore such awards should be included in the earnings
allocation computing earnings per share using the two-class method as described
in SFAS No. 128, Earnings per Share. According to FSP EITF 03-6-1, a share-based
payment award is a participating security when the award includes nonforfeitable
rights to dividends or dividend equivalents. The rights result in a
noncontingent transfer of value each time an entity declares a dividend or
dividend equivalent during the award’s vesting period. However, the award would
not be considered a participating security if the holder forfeits the right to
receive dividends or dividend equivalents in the event that the award does not
vest. FSP EITF 03-6-1 is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those
years. When adopted, the requirements are applied by recasting previously
reported EPS. We are currently evaluating the requirements of FSP EITF 03-6-1
and have not yet determined the impact of adoption.











CRITICAL
ACCOUNTING POLICIES






The
preparation of financial statements and related disclosures, in conformity with
United States generally accepted accounting principles, requires management to
make judgments, assumptions and estimates that affect the amounts
reported.  Certain of these significant accounting policies are considered
to be critical accounting policies, as defined below.




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




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




We
believe that the following are critical accounting policies:




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




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




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




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




Income
Taxes. 
Significant management judgment is required in developing our provision for
income taxes, including the determination of any accrual for tax contingencies,
any foreign withholding taxes or any United States income taxes on undistributed
earnings of the foreign subsidiary, deferred tax assets and liabilities and any
valuation allowances that might be required to be applied against the deferred
tax assets.  It is our intention to reinvest undistributed earnings
of our foreign subsidiary and thereby indefinitely postpone their
repatriation.  Accordingly, prior to fiscal year 2005, no provision has
been made for foreign withholding taxes or United States income taxes which may
become payable if undistributed earnings of our foreign subsidiary are paid
to us as dividends.  We apply the Comparable Profits Method for
transfer pricing to determine the amounts our subsidiary charges to the
parent.




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




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





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










Item
3.  Quantitative and Qualitative Disclosures About Market
Risk.





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




As
of December 31, 2008, we had no debt.  If we borrow, our loans are
subject to changes in interest rates.  The rate of interest is based
on either the lender’s prime rate or on the 30-day LIBOR rate at our
option.  We have exposure to changes in interest rates from investments in
held-to-maturity securities.  With our current level and term of
investments, a 1% change in the market rate of interest would result in
a change in interest income of approximately $40 on an
annual basis.








Item
4.  Controls and Procedures.





Disclosure
Controls and Procedures




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




Changes
in Internal Control over Financial Reporting




Further,
there were no changes in our internal control over financial reporting
during our first three fiscal quarters that materially affected, or
are reasonably likely to materially affect, our internal control over
financial reporting.























PART
II — OTHER INFORMATION




Item
1.  Legal Proceedings.




We are involved in various
claims and legal actions arising in the ordinary course of business. 
In our opinion, the ultimate disposition of these matters will not have a
material adverse effect on our financial condition, results of operations
or cash flows.




Item
1A.  Risk Factors.




Stockholders
and investors should carefully consider the risk factors described below,
together with the other information contained in this Form 10-Q,
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:




Our growth is
subject to a number of economic risks.  As widely reported,
financial markets in the United States, Europe and Asia have been experiencing
extreme disruption in recent months, including, among other things, extreme
volatility in security prices, severely diminished liquidity and credit
availability, rating downgrades of certain investments and declining valuations
of others. Governments have taken unprecedented actions intended to address
extreme market conditions that include severely restricted credit and declines
in real estate values. While currently these conditions have not impaired our
ability to access credit markets and finance our operations, there can be no
assurance that there will not be a further deterioration in financial markets
and confidence in major economies. These economic developments affect businesses
such as ours in a number of ways. The current tightening of credit in financial
markets adversely affects the ability of customers and suppliers to obtain
financing for significant purchases and operations and could result in a
decrease in or cancellation of orders for our products and services. Our
business is also adversely affected by decreases in the general level of
economic activity, such as decreases in business and consumer spending, purchase
of electrical safety equipment by consumers and businesses and military
procurement.





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





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.




Inability
to finance our growth and meet our capital requirements.  Our
ability to continue the growth of our business requires a large amount of
working capital.  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 sales.
 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.  As an example, our products require
a substantial amount of plastic. 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.  We have experienced
fluctuations in prices of plastic, as well as steel, aluminum and especially
copper, which could continue in fiscal 2009.





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.




Dependence upon a
limited number of key suppliers.  We purchase a significant volume
of products from contract manufacturers in China.  In fiscal 2008, for
example, our purchases from Chinese vendors were more than $6 million but
we expect this amount to decrease in fiscal 2009 as our RAC business has
decreased and we have transferred some production to our facility in
Honduras.  The purchase price for these products is set in U.S.
dollars.  If the exchange rate between the U.S. 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.  Because of this expanded
role of our outsource providers, we will need to monitor the performance of
these suppliers and adopt new procedures to deal with and manage the performance
of these outsource providers.  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.





Long-term
contracts may not be renewed.  We currently have contracts with the
U.S. military to provide control equipment used in engine generator systems.
These contracts currently run through 2012.  We also are a key supplier of
control equipment to DRS, a prime contractor with the U.S. military.  As a
result of the war in Iraq, demand for these military products has remained
strong.  If the war ends or significantly winds down or if our contracts
with the military expire and are not renewed, demand for these products could be
greatly reduced.





We may
face cancellations, reductions or delays in our product orders that could
adversely affect our operating results.  From time to time we receive
commercial orders from customers that require us to manufacture products on
short notice and have such products available for shipment, even though the
order may be reduced, cancelled or delayed.  Some orders may be
designed to meet the unique needs of a particular customer.  As a
result, changes, delays or cancellations of orders could result in an inventory
of unsalable products and possible inventory write-downs that could adversely
affect our operating results.





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. 
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 U.S. dollar and the foreign
currency.




Labor in
Honduras has historically been readily available and at lower cost
than available in many 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 60% of our revenue are
derived from products manufactured or assembled at our manufacturing
facility in Honduras and by contract manufacturers located in China. 
These manufacturing operations, as well as our manufacturing plant in
Clearwater, Florida, 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, hurricanes, typhoons or other reasons, could have a material
adverse effect on us.  In addition, our contract manufacturing agreements
can be terminated on short notice.  If our contract manufacturers
located in China are unable or unwilling to manufacture and deliver products to
enable us to meet the delivery schedules and quality that we require, we could
be forced to seek additional suppliers, thereby resulting in further delays and
additional expenses in shipping products to our customers.





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, such as our SurgeGuard and 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.




Loss of patent
protection could impact our operating results.We currently hold
patents on several products, the main patent being the ‘337 patent underlying
our Fire Shield ® technology for cord fire prevention.  This patent
provides legal protection against competitors who could unlawfully copy our
technology.  Once these patents expire, competitors will be able to legally
utilize our technology and competition could increase, resulting in lower prices
in the marketplace.  If we are unable to develop new patented technologies
we may be unable to maintain our profit margins and we could lose our
technological advantage in the marketplace.





Inability to
effectively compete due to competitors’ patents.Competitors may
register new patents on products that make it very difficult for us to
effectively compete in certain markets. As a result, our current products could
become obsolete or uneconomical. For example, our products could become
difficult to market as a result of a competitor’s patented products that
provides equal or superior performance at a lower cost. If we are not able to
meet these competitive challenges, we could lose revenue or be forced to write
down the value of our inventory.




Seasonality.  Our
business can vary significantly from quarter to quarter.  This
seasonality may also result in cash outlays 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.  In such cases, we
could be required to write down our inventory to market value.




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.




Our design and
manufacture of products for sale to the United States military, combined with
our international supply chain, subjects us to certain governmental
regulations, such as the International Traffic in Arms Regulations
("ITAR").Certain of our products that we sell to the United States
military are subject to ITAR, which is administered by the U.S. Department
of State. ITAR regulates the export of related technical data and defense
services as well as foreign production.  Given the current global
political climate, there is increased focus by regulators and companies such as
ours on ITAR and the actions that it regulates.  We are currently
enhancing our ITAR controls and implementing improvements in our internal
compliance program.  As we implement these enhancements and
improvements, we are addressing certain of our business practices, which could
lead to an increase in our costs.  In October 2008 we received
approval from the U.S. government for our manufacturing license agreement
between the Company and our Honduran subsidiary and we have begun to transfer
work to our facility in Honduras. Also, if we discover issues that are
sufficiently material, the U.S. Department of State could impose fines on us,
investigate our business practices or impose other remedies upon us which could
have a material adverse effect on our business.  Furthermore, the
conduct and resolution of any such issues that are sufficiently material could
be time consuming, expensive and distracting from the conduct of our
business.  In addition, if our ITAR-related enhancements and
improvements were to fail or be ineffective for a prolonged period of time, it
could have a materially adverse effect on our operating results.





Our business may
be affected bygovernment
contracting risks.  U.S.
government contracts are subject to termination by the government, either for
the convenience of the government or for default as a result of our failure to
perform under the applicable contract. If terminated by the government as a
result of our default, we could be liable for additional costs the government
incurs in acquiring undelivered goods or services from another source and any
other damages it suffers.  If we or one of our business units were
charged with wrongdoing as a result of any U.S. government investigation
(including violation of certain environmental or export laws), the U.S.
government could suspend us from bidding on or receiving awards of new U.S.
government contracts pending the completion of legal proceedings. If convicted
or found liable, the U.S. government could subject us to fines, penalties,
repayments and treble and other damages. The U.S. government could void any
contracts found to be tainted by fraud. The U.S. government also reserves the
right to debar a contractor from receiving new government contracts for
fraudulent, criminal or other seriously improper conduct. Debarment generally
does not exceed three years. Independently, failure to comply with U.S. laws and
regulations related to the export of goods and technology outside the United
States could result in civil or criminal penalties and suspension or termination
of our export privileges.





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 that are technical in nature.Our products are technical
in nature and require significant engineering in order to develop.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 we are unable to develop sufficient new
products to remain competitive, or if our products experience reliability
problems, our business could be impacted.  Although products are
tested prior to being sold, unanticipated or latent performance issues could be
experienced subsequent to release. If new products have reliability or quality
problems, our performance may be impacted by reduced orders, higher
manufacturing costs, and additional service and warranty
expenses.  Additionally, if we incur significant numbers of quality
issues, we could initiate a formal product recall which could result in
significant additional costs. 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;


 material
differences 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 were 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 design effectiveness of our internal control over financial
reporting as well as the operating effectiveness of our internal control
over financial reporting.  Although we will devote significant resources
into developing and updating 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 audit the operating
effectiveness of our internal control over financial reporting as of March 31,
2010.  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.





In
addition to the other information set forth in this Form
10-Q, you should carefully consider the factors discussed in “Part I, Item
1A. Risk Factors” in our Annual Report on Form 10-K for
the year ended March 31, 2008, which could materially affect our business,
financial condition or future results.  As of the date of the filing of
this third quarter Form 10-Q, there are no changes to these Risk Factors of
which we are aware.  The risks described in our Annual Report on Form 10-K
are not the only risks that we face.  Additional risks and uncertainties
that are not currently known to us or that we currently
deem to be immaterial also may materially adversely affect
our business, financial condition and/or operating
results.







Item
6.  Exhibits.




Exhibit
      31.1 — Certification of the CEO pursuant to Rule 13a-14(a) or Rule
      15(d)-14(a).Exhibit
      31.2 — Certification of the CFO pursuant to Rule 13a-14(a) or Rule
      15(d)-14(a).Exhibit
      32.1 — Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to
      Section 906 of the
              Sarbanes-Oxley
      Act of 2002.Exhibit
      32.2 — Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to
      Section 906 of the
              Sarbanes-Oxley Act of 2002.













SIGNATURES






Pursuant to the requirements
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 CORPORATIONFebruary
      6, 2009
            By:      
      /s/ Owen FarrenOwen
      FarrenPresident and Chief Executive Officer(Principal Executive Officer)February
      6, 2009
            By:      
      /s/ Thomas G.
      ArchboldThomas
      G. ArchboldChief Financial Officer(Principal Financial and Accounting
Officer)