Table of contents


**UNITED
STATES**





**SECURITIES AND EXCHANGE COMMISSION**





**WASHINGTON, D. C. 20549**




**Form
10-QSB**


For the
quarterly period ended December 31, 2004

o TRANSITION REPORT UNDER 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 small business
issuer 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(Issuer’s telephone number, including area code)

Check whether the issuer (1) filed
all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  x   No o.

As of January 31, 2005 there
were 5,758,045 shares of the Company’s common stock outstanding.

Transitional Small Business
Disclosure Format     Yes o  No x









**TECHNOLOGY
RESEARCH CORPORATION**


TABLE OF CONTENTS

December 31, 2004

PART I — FINANCIAL INFORMATIONItem 1.  Financial StatementsConsolidated Balance SheetsConsolidated Statements of IncomeConsolidated Statements of Cash FlowsNotes to the Consolidated Financial
  StatementsItem 2.  Management’s Discussion and Analysis
      or Plan of OperationsItem 3.  Controls and ProceduresPART II — OTHER INFORMATIONItem 1.  Legal ProceedingsItem 2.  Unregistered Sales of Equity Securities and
      Use of ProceedsItem 3.  Defaults Upon Senior
  SecuritiesItem 4.  Submission of Matters to a Vote of Security
      HoldersItem 5.  Other InformationItem 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











**P****ART I — FINANCIAL
INFORMATION**


**Item 1.  Financial Statements**.





**TECHNOLOGY RESEARCH CORPORATION AND SUBSIDIARY**





Consolidated
Balance Sheets


(Unaudited)


**December 31,
    2004**
    
    **March 31,
      2004****ASSETS**
    ****
    
    ****Current assets:Cash and cash equivalents
    
    
    $
    1,294,821
    
    
    
    5,968,122Short-term investments
    
    
    
    483,879
    
    
    
    -Trade and other accounts receivable, net
      of allowance fordoubtful
      accounts of $25,348 and $31,010
    
    
    
    6,560,350
    
    
    
    3,420,701Income taxes receivable
    
    
    
    8,951
    
    
    
    -Inventories, net
    
    
    
    10,196,290
    
    
    
    5,633,177Deferred income taxes
    
    
    
    254,797
    
    
    
    239,169Prepaid expenses and other current
    assets
    
    
    
    490,196
    
    
    
    206,295Total current assets
    
    
    
    19,289,284
    
    
    
    15,467,464Property and equipment, net of accumulated depreciation
    of$7,819,356 and $7,203,205
    
    
    
    5,679,705
    
    
    
    3,065,771Other assets
    
    
    
    90,791
    
    
    
    38,633Total assets
    
    
    $
    25,059,780
    
    
    
    18,571,868


**LIABILITIES AND SHAREHOLDERS'
      EQUITY**Current
      liabilities:Short-term debt
    
    
    $
    2,000,000
    
    
    
    -Trade
      accounts payable
    
    
    
    5,489,111
    
    
    
    1,547,979Accrued expenses
    
    
    
    798,886
    
    
    
    767,185Accrued
      dividends
    
    
    
    99,900
    
    
    
    99,295Income taxes payable
    
    
    
    -
    
    
    
    431,093Deferred
      revenue
    
    
    
    10,525
    
    
    
    10,525Total
      current liabilities
    
    
    
    8,398,422
    
    
    
    2,856,077Deferred revenue
      - long term
    
    
    
    21,058
    
    
    
    28,951Deferred
      income taxes
    
    
    
    235,120
    
    
    
    235,120Total liabilities
    
    
    
    8,654,600
    
    
    
    3,120,148Shareholders'
      equity:Common stock $0.51 par value; 10,000,000 shares authorized, 5,779,292
      shares and5,749,758 shares issued and 5,757,792 shares and 5,728,258 shares
      outstanding
    
    
    
    2,947,439
    
    
    
    2,932,377Additional paid-in capital
    
    
    
    8,460,484
    
    
    
    8,417,686Common stock held in treasury, 21,500 shares at cost
    
    
    
    (40,145
    )
    
    
    (40,145
    )Retained earnings
    
    
    
    5,037,402
    
    
    
    4,141,802Total
      shareholders' equity
    
    
    
    16,405,180
    
    
    
    15,451,720Total
      liabilities and shareholders' equity
    
    
    $
    25,059,780
    
    
    
    18,571,868

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

**TECHNOLOGY RESEARCH CORPORATION AND
SUBSIDIARY** Consolidated
Statements of Income
 (Unaudited)


**Three Months Ended December 31,**
    
    **Nine Months Ended December 31,****2004******
    
    **2003**
    
    **2004******
    
    **2003******Revenues:Commercial
    
    
    $
    6,822,319
    
    
    
    2,775,534
    
    
    
    14,830,849
    
    
    
    9,016,873Military
    
    
    
    2,879,845
    
    
    
    2,996,805
    
    
    
    9,014,404
    
    
    
    8,574,762Royalties
    
    
    
    2,631
    
    
    
    33,217
    
    
    
    60,013
    
    
    
    86,490Total revenues
    
    
    
    9,704,795
    
    
    
    5,805,556
    
    
    
    23,905,266
    
    
    
    17,678,125Cost
      of sales
    
    
    
    7,652,981
    
    
    
    3,437,637
    
    
    
    17,088,245
    
    
    
    10,878,635Gross profit
    
    
    
    2,051,814
    
    
    
    2,367,919
    
    
    
    6,817,021
    
    
    
    6,799,490Operating
      expenses:Selling and marketing
    
    
    
    655,771
    
    
    
    662,933
    
    
    
    1,836,786
    
    
    
    1,716,264General and administrative
    
    
    
    667,165
    
    
    
    446,753
    
    
    
    1,817,162
    
    
    
    1,246,872Research and development
    
    
    
    565,433
    
    
    
    323,173
    
    
    
    1,533,327
    
    
    
    959,605Total
      operating expenses
    
    
    
    1,888,369
    
    
    
    1,432,859
    
    
    
    5,187,275
    
    
    
    3,922,741Income from operations
    
    
    
    163,445
    
    
    
    935,060
    
    
    
    1,629,746
    
    
    
    2,876,749Other
      income (expense):Interest expense
    
    
    
    (742
    )
    
    
    -
    
    
    
    (1,485
    )
    
    
    -Other income
    
    
    
    6,595
    
    
    
    4,416
    
    
    
    21,208
    
    
    
    9,439Other income, net
    
    
    
    5,853
    
    
    
    4,416
    
    
    
    19,723
    
    
    
    9,439Income
      before income taxes
    
    
    
    169,298
    
    
    
    939,476
    
    
    
    1,649,469
    
    
    
    2,886,188Income
      taxes
    
    
    
    6,385
    
    
    
    259,088
    
    
    
    494,841
    
    
    
    827,840Net income
    
    
    $
    162,913
    
    
    
    680,388
    
    
    
    1,154,628
    
    
    
    2,058,348Earnings per
      share - basic
    
    
    $
    0.03
    
    
    
    0.12
    
    
    
    0.20
    
    
    
    0.37Earnings per
      share - diluted
    
    
    $
    0.03
    
    
    
    0.11
    
    
    
    0.19
    
    
    
    0.36Cash
      dividends declared per share
    
    
    $
    0.015
    
    
    
    0.015
    
    
    
    0.045
    
    
    
    0.045Weighted
      average common sharesoutstanding
      - basic
    
    
    
    5,756,292
    
    
    
    5,664,032
    
    
    
    5,752,015
    
    
    
    5,549,324Weighted
      average common sharesoutstanding
      - diluted
    
    
    
    5,913,005
    
    
    
    5,974,485
    
    
    
    5,955,391
    
    
    
    5,763,281


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

**TECHNOLOGY RESEARCH CORPORATION AND
SUBSIDIARY** Consolidated
Statements of Cash Flows
 (Unaudited)


**Nine Months
      Ended December 31,****2004******
    **2003******Cash
      flows from operating activities:Net
      income
    
    
    $
    1,154,628
    
    
    
    2,058,348Adjustments to reconcile net income to net cash provided (used) by
      operating activities:Accretion
      of interest on short-term investments
    
    
    
    (3,879
    )
    
    
    -Tax benefit of stock options exercised
    
    
    
    8,612
    
    
    
    -Depreciation
    
    
    
    677,115
    
    
    
    623,930Gain on disposal of assets
    
    
    
    1,390
    
    
    
    148Changes
      in operating assets and liabilities:Trade
      and other accounts receivable, net
    
    
    
    (3,139,649
    )
    
    
    (269,561
    )Income taxes receivable
    
    
    
    (8,951
    )
    
    
    19,766Inventories, net
    
    
    
    (4,563,113
    )
    
    
    (259,898
    )Deferred income taxes
    
    
    
    (15,628
    )
    
    
    59,951Prepaid expenses and other current assets
    
    
    
    (283,901
    )
    
    
    (28,664
    )Other assets
    
    
    
    (52,158
    )
    
    
    (35,621
    )Trade
      accounts payable
    
    
    
    3,941,132
    
    
    
    17,874Accrued
      expenses
    
    
    
    31,701
    
    
    
    (35,880
    )Income
      taxes payable
    
    
    
    (431,093
    )
    
    
    693,389Deferred revenue
    
    
    
    (7,893
    )
    
    
    (7,893
    )Net
      cash provided (used) by operating activities
    
    
    
    (2,691,687
    )
    
    
    2,835,889Cash
      flows from investing activities:Purchase
      of capital expenditures
    
    
    
    (3,292,439
    )
    
    
    (370,050
    )Purchases
      of short-term investments
    
    
    
    (480,000
    )
    
    
    -Net
      cash used by investing activities
    
    
    
    (3,772,439
    )
    
    
    (370,050
    )Cash
      flows from financing activities:Borrowings
      of short-term debt
    
    
    
    2,000,000
    
    
    
    -Proceeds
      from the exercise of stock options
    
    
    
    49,248
    
    
    
    449,371Cash
      dividend paid
    
    
    
    (258,423
    )
    
    
    (249,346
    )Net
      cash provided by financing activities
    
    
    
    1,790,825
    
    
    
    200,025Net
      increase (decrease) in cash and cash equivalents
    
    
    
    (4,673,301
    )
    
    
    2,665,864Cash
      and cash equivalents at beginning of period
    
    
    
    5,968,122
    
    
    
    2,529,562Cash
      and cash equivalents at end of period
    
    
    $
    1,294,821
    
    
    
    5,195,426




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

****Notes to
the Consolidated Financial
Statements****


1.
Basis of Presentation:

The
unaudited interim consolidated financial statements and related notes have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission.  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 consolidated financial statements and related notes should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Technology Research Corporation (the “Company”) Annual
Report on Form
10-KSB for the year ended March 31, 2004.

The
information furnished reflects, in the opinion of the management of the Company,
all adjustments necessary for a fair presentation of the financial results for
the interim period presented.

*2.  Earnings
per share:*

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





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





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





**Three months ended December
      31,**
    **Nine months ended December
      31,****2004**
    **2003**
    **2004**
    **2003******Net
      income
    
    
    $
    162,913
    
    
    680,388
    
    
    1,154,628
    
    
    2,058,348****
    
    
    ****
    
    
    ****
    
    
    ****Weighted
      average shares outstanding - basic
    
    
    
    5,756,292
    
    
    5,664,032
    
    
    5,752,015
    
    
    5,549,324Dilutive
      common shares issuable upon exercise of stock options
    
    
    
    156,713
    
    
    310,453
    
    
    203,376
    
    
    213,957Weighted
      average shares outstanding - diluted
    
    
    
    5,913,005
    
    
    5,974,485
    
    
    5,955,391
    
    
    5,763,281Earnings per share:Basic
    
    
    $
    0.03
    
    
    0.12
    
    
    0.20
    
    
    0.37Diluted
    
    
    $
    0.03
    
    
    0.11
    
    
    0.19
    
    
    0.36




For the three-month and nine-month periods ended December 31, 2004, options
to purchase 255,400 shares and 245,400 shares of common
stock, respectively, were considered anti-dilutive for the purposes of
calculating earnings
per share.  For the three-month and nine-month periods ended December 31, 2003,
no shares of common
stock were considered anti-dilutive for purposes of calculating earnings
per share.


3. Short-term investments:


In July
2004, the Company invested $480,000 in five six-month certificates of deposit
that are due to mature in February 2005.  The value of the short-term
investment totaled $483,879 as of December 31, 2004, which
consists of the original cost plus accrued interest.

*4. Inventories:*

Inventories
consist of the following:


**December 31,
      2004**
    ****
    **March 31,
      2004**Raw
      materials
    
    
    $
    7,515,692
    
    
    
    3,473,299Work-in-process
    
    
    
    845,272
    
    
    
    434,090Finished
      goods
    
    
    
    1,835,326
    
    
    
    1,725,799Total
    
    
    $
    10,196,290
    
    
    
    5,633,177


**
 **
 *5.
Warranty:*


The Company generally provides a one year warranty period for all of its
products.  The Company also provides coverage on certain of its surge
products for "downstream" damage of products not manufactured by the
Company.  The Company's warranty provision represents management's estimate
of probable liabilities, calculated as a function of sales volume and historical
repair experience for each product under warranty.  The Company record a
warranty provision of $20,000 in the quarter ended March 31, 2004 and had no
other warranty provision prior to that time.  A roll-forward of the
activity in the Company's warranty liability for the three and nine
months ended December 31, 2004 is as follows:

**Three
      months ended December 31, 2004**
    
    **Nine
      months ended****December 31, 2004**Beginning
      balance
    $
    40,219
    
    20,000Warranty expense
    
    47,741
    
    70,908Warranty claims
    
    (6,349
    )
    (9,297
    )Ending balance
    $
    81,611
    
    81,611




*6.
Vacation:*


The Company corrected an error in accounting for accrued vacation in which
it recorded vacation expense of $185,545 during the quarter ended
December 31, 2004.  The expense was charged to cost of sales ($49,110),
selling and marketing ($52,793), general and administrative ($47,346)
and research and development ($36,296).  Approximately $27,500 of
the vacation expense was earned in the nine months ended December 31, 2004,
$19,400 in the 2004 fiscal year, $8,300 in the 2003 fiscal year, $4,100 in the
2002 fiscal year and $126,200 in prior fiscal years.  The Company
analyzed the effect of the misstatement on prior periods in accordance with APB
Opinion No. 20 and No. 28 and SAB 99 and determined that while
the adjustment is significant with respect to the quarter ended December
31, 2004, it is not expected to be material with respect to the estimated income
for the 2005 fiscal year or to the trends on earnings among fiscal years or
the quarters within all affected fiscal years.  Accordingly,
following the guidance of APB Opinion No. 28, the Company recorded the full
amount of the vacation expense during the quarter ended December 31,
2004.
 **
 
 *7.
Short-term Debt:*
 **
 On December 20, 2004, the Company renegotiated the revolving
credit agreement with its institutional lender, extending the maturity date
to December 14, 2006.  The new facility also provides for borrowings up to
$6,000,000, as compared to $3,000,000 under the old facility.  The Company
has 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 Company is currently
borrowing under the LIBOR option at a 3.98% rate as of December
31, 2004.  The loan is collateralized with a perfected first security
interest which attaches to all of its accounts receivable and
inventories, and a blanket security interest attaching to all of its
assets.  The Company has the right to prepay any outstanding borrowings at
any time and intends to repay the $2,000,000 outstanding as of December 31, 2004
prior to December 31, 2005.  Accordingly, the Company has classified the
amount outstanding as of December 31, 2004 as a current liability.  The
agreement requires the Company to maintain $8,000,000 of working capital and
limits future borrowings if the Company has a net loss in excess of $1,000,000
for the preceding 12 months or pays dividends in excess of the greater of
(a) $360,000 in any year or (b) 50% of operating profits for the preceding 12
months.  The Company has no off-balance sheet arrangements and no debt
relationships other than noted above.

8.
Stock-Based Compensation:


The
Company accounts for stock options at intrinsic value in accordance with
Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued
to Employees”(“APB 25”),and related interpretations. Had
compensation cost for the Company’s stock options been determined based upon the
fair value at the grant date for awards under the plans consistent with the
methodology prescribed under Statement of Financial Accounting Standards
No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), the
Company’s net income would have been adjusted to the pro forma amounts indicated
below:

**Three
      months ended December 31,**
    **Nine months
      ended December 31,****2004******
    **2003******
    **2004******
    **2003******Net
      income - as reported
    
    
    $
    162,913
    
    
    680,388
    
    
    1,154,628
    
    
    2,058,348Deduct:
      Total stock-based compensationexpense
      determined under fairvalue
      based method, net of income taxes
    
    
    
    (189,956
    )
    
    (22,336
    )
    
    (575,634
    )
    
    (67,007
    )Net
      income (loss) - pro forma
    
    
    $
    (27,043
    )
    
    658,052
    
    
    578,994
    
    
    1,991,341Basic
      earnings per share:As
      reported
    
    
    $
    0.03
    
    
    0.12
    
    
    0.20
    
    
    0.37Pro
      forma
    
    
    $
    -
    
    
    0.12
    
    
    0.10
    
    
    0.36Diluted
      earnings per shareAs
      reported
    
    
    $
    0.03
    
    
    0.11
    
    
    0.19
    
    
    0.36Pro
      forma
    
    
    $
    -
    
    
    0.11
    
    
    0.10
    
    
    0.35


Item 2.  Management’s Discussion and Analysis
or Plan of Operations.


As used in this Quarterly Report on Form 10-QSB, unless the context otherwise
requires, “*we*,” “*our*,” “*us*,” the “Company” and “TRC”
refer to Technology Research Corporation and its Honduran
subsidiary.

**Forward-Looking
Statements**

Some
of the statements in this report constitute forward-looking statements, within
the meaning of the Private Securities Litigation Reform Act of 1995 and the
Securities Exchange Act of 1934, and any forward looking statements made herein
are based on current expectations of the Company, 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.  In evaluating these statements, you should specifically
consider the information described in the *Risk Factors*
section. Other key factors include, but are not limited to, the acceptance
of any new products, such as Fire Shield®, into the marketplace, the effective
utilization of the Company’s Honduran manufacturing facility and Far East
contract manufacturers, changes in manufacturing efficiencies and the impact of
competitive products and pricing. The Company cannot provide any assurance that
predicted future results, levels of activity, performance or goals will be
achieved, and the Company disclaims any obligation to revise any forward-looking
statements subsequent to events or circumstances or the occurrence of
unanticipated events.  The factors that could cause actual results to
differ materially include: interruptions or cancellation of existing contracts,
impact of competitive products and pricing, product demand and market
acceptance, risks, the presence of competitors with greater financial resources
than the Company, product development and commercialization risks, changing
economic conditions in developing countries, and an inability to arrange
additional debt or equity financing.  More information about factors that
potentially could affect the Company’s financial results is included in the
Company’s filings with the Securities and Exchange Commission, including its
Annual Report on Form
10-KSB for the year ended March 31, 2004.

***Overview***

TRC, a Florida corporation established in 1981, is an internationally
recognized leader in electrical safety products that are designed to reduce
the risk of electrical fires and protect against serious injury from
electrical shock. Based on its core technology in ground fault sensing, the
Company's products are designed to meet the needs of the consumer, commercial
and industrial markets worldwide. TRC also supplies power monitors and control
equipment to the United States Military and its prime contractors.





The Company's operating strategy is based on the following key
objectives:


- to strengthen and expand its proprietary technology
expertise;
- to broaden the applications within target markets for its existing
  products;
- to expand the scope of its product content;
- to expand its manufacturing capabilities;
- in increase its operating efficiencies;
- to maintain a conservative capital structure; and
- to pursue strategic acquisitions to the extent favorable
  opportunities are presented.

The Company's core commercial and military product applications form the
foundation upon which its technological expertise may be further refined and
applied to new product offerings and resulting business expansion.  The
Company's *Fire Shield*® and *Surge Guard Plus*TM product lines are
key examples of such a strategy, and the Company is now focused on developing
the markets for these products to a higher potential.  A
significant opportunity for the Company's commercial market expansion was
recently created by the adoption of the Underwriter's Laboratory ("UL")
requirement for cord fire protection on room air conditioners ("RAC")
manufactured for domestic sale after August 1, 2004.  The
Company's *Fire Shield*® LCDI Power Cord effectively responds
to such requirement, and the Company will aggressively pursue other like
opportunities.




The Company's revenues related to the emerging RAC market were
approximately $3,000,000 for the quarter ended December 31, 2004.
 The Company expects revenues to continue to increase significantly in
its fourth quarter of fiscal 2005.  Thereafter, revenues relating
to the RAC market are expected to be seasonal with the majority of
revenues being generated during the Company's third and fourth fiscal
quarters.  Through December 31, 2004, t he timing
and customization of RAC orders and the implementation and coordination of
bringing multiple manufacturing locations on line, in a compressed time frame,
have presented start up challenges that have negatively impacted operating
profits.  The Company believes it will be better positioned
to perform more efficiently for this application in the fourth quarter of fiscal
2005 and subsequent years.  In addition to the higher revenues
generated by the RAC market, the Company expects to achieve growth of
approximately 13% in its core business revenues for its 2005 fiscal
year as compared to the prior fiscal
year.





The Company’s primary challenge for its 2005 fiscal year continues to
be to capture as much of the new RAC market as possible then leverage its
capital investment and expanded manufacturing capabilities to capture a greater
percent of the market in subsequent years.  In implementing its plan
to support this new market, particularly by ramping up its manufacturing plant
in Honduras and bringing on line several Far East contract manufacturers, the
Company has incurred additional operating expenses and start-up costs,
including those associated with manufacturing inefficiencies and freight
expense.





Although the Company believes that the expectations reflected in this
report are reasonable, actual results could differ materially from those
projected or assumed.  The Company’s future financial condition and results
of operations are subject to inherent risks and uncertainties.  Some, but
not necessarily all, of such factors are set forth below in the section on
“Risk Factors.”


***Risk
Factors***


Shareholders
and investors should carefully consider the following risk factors,
together with the other information contained in the Company's Annual
Report on Form 10-KSB for the year ended March 31, 2004, before making an
investment in the Company's securities:

- Failure
  to achieve our growth strategy.
- Unavailability
  and cost increases in raw materials and components.
- The
  loss of or significant decrease in sales to large customers.
- Adverse
  changes in the operations of global manufacturing facilities.
- Interruptions
  of manufacturing operations.
- Infringement
  or loss of proprietary rights.
- Seasonality.
- Competing
  with larger companies that produce similar products.
- Newly
  acquired businesses or product lines.
- Weaknesses in internal controls and financial reporting,
  currently unknown, which may be identified as the Company develops, test
  and assesses such controls over the next several months to
  comply with Section 404 of the Sarbanes-Oxley
Act.

The scope, complexity and timing of the emerging RAC market is
placing new and increased demands on the
Company's production capabilities, information technology systems and other
resources.  To manage the growth effectively, the Company must:
(i) maintain a high level of manufacturing quality and efficiency; (ii)
properly manage its third party suppliers and independent sub-contract
manufacturers; (iii) continue to enhance its operational, financial and
management systems, including its database management, inventory control and
distribution systems; (iv) expand, train and manage its employee base; (v)
compete with aggressive price cutting by competitors; and (vi) vigorously
protect and defend its Fire Shield® patents and intellectual property.  As
a result, the Company will be challenged to effectively capture,
manage and maintain the growth expected from this new market.


**





*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 the Company’s financial statements and requires management to
make difficult, subjective or complex judgments that could have a material
effect on the Company’s financial condition and results of operations. 
Specifically, critical accounting estimates have the following attributes: 
i) the Company is required to make assumptions about matters that are highly
uncertain at the time of the estimate; and ii) different estimates the Company
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 the Company’s financial condition or results of operations.





Estimates and assumptions about future events and their effects cannot be
determined with certainty.  The Company bases its 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 the Company’s
operating environment changes.  These changes have historically been minor
and have been included in the consolidated financial statements once
known.  In addition, management is periodically faced with uncertainties,
the outcomes of which are not within its control and will not be known for
prolonged periods of time.  These uncertainties are discussed in the
sections above entitled *Forward-Looking Statements* and *Risk
Factors*.  Based on a critical assessment of its accounting policies
and the underlying judgments and uncertainties affecting the application of
those policies, management believes that the Company’s consolidated financial
statements are fairly stated in accordance with United States generally accepted
accounting principles and present a meaningful presentation of the
Company’s financial condition and results of operations.

Management believes that the following are critical accounting
policies:

- ***Revenue
  Recognition.***  The Company recognizes revenue from
  commercial customers when an order has been received, pricing is
  fixed, title to the product has passed and collectibility 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.  There are no customer acceptance provisions
  included in the Company's sales contracts and the Company has 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.The
  Company 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, the Company records revenue
  under a units of delivery model with revenues 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 contract outside the scope of SOP 81-1,
  the Company records revenue the same as 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 revenues.  The Company has not
  experienced past losses on government contracts.  The Company accrues
  minimum royalties due from customers over the related royalty period. 
  Royalties earned in excess of minimum royalties due are recognized as reported
  by the licensees.  The Company enters into license agreements and
  receives nonrefundable license fees in exchange for the use of technology
  previously developed by the Company.  The licensee receives the right to
  manufacture and sell certain products within specified geographic areas. 
  The nonrefundable license fees are recorded as deferred revenue and recognized
  as income on a straight-line basis over the exclusivity period of the
  agreement.  A termination or change to the initial license agreement
  could result in an accelerated recognition of the deferred revenue. 
  License fees are included in royalty revenue.




- ***Provision
  for Excess and Obsolete Inventories.***  The Company's
  financial statements include an estimate associated with a valuation allowance
  with respect to inventories. Various assumptions and other factors underlie
  the determination of this estimate. The process of determining this estimate
  is fact specific and takes into account primarily historical experience and
  expected economic conditions. The Company evaluates this estimate on a monthly
  basis and makes adjustments each quarter where facts and circumstances
  dictate. The Company evaluates all inventories which has not had activity
  for the most recent 12 months.
- ***Provision
  for Income Taxes.***  Significant management judgment is
  required in developing the Company’s 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 the Company's intention to reinvest undistributed earnings
  of its foreign subsidiary and thereby indefinitely postpone their
  repatriation.  Accordingly, no provision has been made for foreign
  withholding taxes or United States income taxes which may become payable if
  undistributed earnings of its foreign subsidiary are paid as dividends to
  the Company.  The Company applies the Comparable Profits Method for
  transfer pricing to determine the amounts its subsidiary charges to the
  parent.
- ***Allowance for Doubtful Accounts.***The Company
  records an allowance for estimated losses resulting from the inability
  of isolated customers to make timely payments of amounts due on
  account of product purchases.  The Company assess the credit
  worthiness of its customers based on multiple sources of information,
  including publicly available credit data, subscription based credit
  reports, trade association data, and analyze 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 the Company's customers were to worsen, additional
  write-offs could be required, resulting in write-offs not included
  in the Company's current allowance for doubtful
  accounts.
- ***Impairment of Long-Lived Assets.***  The Company
  reviews 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 the Company's 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, the Company recognizes an impairment loss equal
  to the difference between its carrying value and its fair
  value.

**Results
of Operations**

R***evenues*** for the third quarter ended December 31, 2004
were $9,704,795, compared to $5,805,556 reported in the same quarter last year,
an increase of 67%.  Commercial revenues increased by $4,046,785 and
military revenues and royalty income decreased slightly by $116,960 and $30,586,
respectively.  Revenues for the nine-month period ended December 31,
2004 were $23,905,266, compared to $17,678,125 reported in the same period of
the prior year, an increase of 35%.  For the nine-month period ended
December 31, 2004, commercial and military revenues increased by $5,813,976 and
$439,642, respectively, and royalty income was down $26,477, compared to the
same period of the prior year.  The increase in commercial revenues for the
quarter and the nine-month period ended December 31, 2004 was primarily
attributed to RAC product shipments and strong growth in the Company’s core
commercial business.  Military revenues remain steady due to solid demand
for its control devices related to the Tactical Quiet Generator programs for
both existing and new systems.  The decrease in royalty income was due
to non-recurring royalties, which were recorded in the prior year's
quarter from Applica Inc. for their use of the Company's Fire
Shield® technology on a line of portable heaters.



***Gross profit***was 21.1% of total revenues for the
three months ended December 31, 2004, compared to 40.8% in the same
quarter last year. The major factors impacting the Company’s gross
profit during the quarter were (i) higher than planned startup
expenses at its Honduran manufacturing facility and at its three Far
East contract manufacturers to produce the new *Fire Shield®* LCDI
Power Cords for use on room air conditioners; (ii) significant additional
freight costs, which the Company incurred to meet its RAC customers’ delivery
requirements; and (iii) competitive pricing required to capture market share in
the new RAC market.  See also Footnote No. 6 *Vacation*. 
Gross profit was 28.5% for the nine-month period ended December
31, 2004, compared to 38.5% for the same period last year.  The
decrease was primarily related to those factors mentioned above, which
impacted gross profit for both the second and third quarters. 
The Company expects to improve manufacturing productivity during
the fourth quarter as it works through the start-up phase of meeting the
rigid demands of this new market.
 ***Selling and marketing*** expense was $655,771 for the
three months ended December 31, 2004, compared to $662,933 in the same quarter
last year, a decrease of $7,162, or 1%.  Although expenses were similar
quarter to quarter, salary expense increased $123,534 primarily due to
additional personnel, and advertising expense decreased $123,933 due
to non-recurring expenses of $137,923 for new account setup and the
promotion of the Company's Fire Shield® products in retail stores in the prior
year's quarter.  For the nine-month period ended December 31,
2004,  selling and marketing expense was $1,836,786, compared to $1,716,264
in the same period last year, an increase of $120,522, or 7%.  The
increase over the comparable prior nine-month period was due to $207,059 of
salary expense primarily for additional personnel, $34,096 in travel expense and
$16,012 for marketing product samples, offset to some extent by lower
advertising expenses of $146,787.  All other selling and marketing
expenses increased by $10,142 over the comparable prior nine-month
period.  See also Footnote No. 6 *Vacation*.

General and administrative expensewas $667,165 for the three
months ended December 31, 2004, compared to $446,753 in the same quarter last
year, an increase of $220,412, or 49%.  The increase quarter to
quarter was due to $132,208 of salary expense primarily for additional
personnel, $32,419 of shareholder/board of director expenses,
$49,260 for audit and legal fees and $15,355
for D&O insurance.  All other general and administrative
expenses decreased by $8,830 quarter over quarter.  For the nine-month
period ended December 31, 2004, general and administrative expense was
$1,817,162, compared to $1,246,872 for the same period last year, an
increase of $570,290, or 46%.  The increase over the comparable
prior nine-month period was due to $269,695 of salary expense primarily for
additional personnel, $103,527 of shareholder/board of director expenses,
$109,769 for audit and legal fees, $40,542
for D&O insurance and $31,646 for educational,
charitable and employee relations expenses.  All other general and
administrative expenses increased by $15,111 over the comparable prior
nine-month period.  See also Footnote No. 6
*Vacation*.
  Research
and development expensewas $565,433 for the three months ended December
31, 2004, compared to $323,173 in the same quarter last year, an increase of
$242,260, or 75%.  The increase quarter to quarter was due
to $133,207 of salary expense primarily for additional personnel, $99,458
for UL fees and $12,337 of expense for additional outside testing
services, all of which were related to the support of the new room air
conditioner market.  All other research and development expenses decreased
by $2,742 quarter over quarter.  For the nine-month period ended
December 31, 2004,  research and development expense was
$1,533,327 for the nine month period ended December 31, 2004,
compared to $959,605 for the same period last year, an increase
of $573,722, or 60%.  The increase over the comparable prior
nine-month period was due to $431,081 of salary expense primarily for additional
personnel, $50,504 of expense for additional outside testing services and
$91,839 of UL fees, all of which were related to the support of the new
room air conditioner market.  All other research and development expenses
increased by $298 over the comparable prior nine-month period.  See
also Footnote No. 6 *Vacation*.





Other
incomewas $5,853 and $19,723 for the three and nine months
ended December 31, 2004, compared to $4,416 and $9,439 for the
comparable periods last year. The increase was attributed to interest
income associated with higher cash and cash equivalent and short-term
investment balances.


Income
taxes as a percent of income before income taxes were 3.8% and
30.0% for the three and nine months ended December 31, 2004, compared to
27.6% and 28.7%, respectively, for the three and nine months
ended December 31, 2003.  The Company's effective tax rate varies
based on the mix of income before income taxes derived from the Company's
Honduran subsidiary, which is not subject to income taxes, and the balance of
income before income taxes, which is subject to income taxes.  At each
reporting period, the Company makes its best estimate of the effective tax rate
expected for the full fiscal year and applies 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.  The Company's best estimate of the effective tax rate expected
for its 2005 fiscal year as of September 30, 2004 was 33.0% and as of
December 31, 2004 was 30.0%.In
accordance with SFAS 109, “Accounting for Income Taxes”, the Company does not
record deferred income taxes on the foreign undistributed earnings of an
investment in a foreign subsidiary that is essentially permanent in
duration.  The Company’s Honduran subsidiary is profitable which decreases
the effective tax rate of the Company. If circumstances change, and it becomes
apparent that some or all of the undistributed earnings of the subsidiary will
be remitted in the foreseeable future, but U.S. income taxes have not been
recognized by the Company, the Company will record as an expense of the current
period the U.S. income taxes attributed to that remittance.

***Net income*** for the current quarter was $162,913,
compared to $680,388, for the same quarter last year, a decrease of 76%. 
Basic and diluted earnings were $.03 per share for the current quarter compared
to basic earnings of $.12 per share and diluted earnings of $.11 per share for
the same quarter last year.  Net income for the nine-month period was
$1,154,628, compared to $2,058,348, for the same period in the prior year, a
decrease of 44%. Basic earnings were $.20 per share and diluted earnings were
$.19 per share for the nine-month period ended December 31, 2004 compared to
basic earnings of $.37 per share and diluted earnings of $.36 per share for the
same period of the prior year.  Net income was negatively impacted during
the quarter and for the nine-month period ended December 31, 2004 by higher
operating expenses and lower gross profit margins as described above.


****
 **Liquidity
and Capital Resources**


As of December 31, 2004, the Company's cash and cash equivalents decreased to
$1,294,821 from the March 31, 2004 total of $5,968,122. 
Cash used by operating activities was $2,691,687, cash
used by investing activities was $3,772,439 and cash provided by
financing activities was $1,790,825, resulting in a total decrease of
$4,673,301 for the nine-month period ended December 31,
2004.

Cash used by operating activities was primarily due to an increase in
accounts receivable, inventories and prepaid expense of $3,139,649, $4,563,113
and $283,901, respectively, and a decrease in income taxes payable of
$431,093, offset to some extent by net income of $1,154,628, depreciation in the
amount of $677,115 and an increase in accounts payable of $3,941,132. The
increase in accounts receivable, inventories and accounts payable was primarily
the result of the Company’s increased business.  The increase in prepaid
expenses was the result of the advance payments by the Company for its one year
Honduran facility lease and for its commercial property and casualty
insurances.  The decrease in income taxes payable reflected lower net
income.  The use of cash for operating activities is primarily attributed
to the new RAC market.

Cash used by investing activities was related to the Company’s investment
in short-term certificates of deposit in the amount of $480,000 and
purchases of capital equipment in preparation of the Company’s Honduran
subsidiary and its Far East contract manufacturers to build product to support
the new RAC market.  The Company’s capital expenditures were
$3,292,439 for the nine-month period ended December 31, 2004
compared to $370,050 for the same prior year period.







Cash provided by financing activities was due to borrowings
of short-term debt in the amount of $2,000,000 and proceeds from exercises of
stock options in the amount of $49,248, offset to some extent by the payment of
$258,423 in cash dividends.





On December 20, 2004, the Company renegotiated the revolving
credit agreement with its institutional lender, extending the maturity date
to December 14, 2006.  The new facility also provides for borrowings up to
$6,000,000, as compared to $3,000,000 under the old facility.  The Company
has 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 Company is currently
borrowing under the LIBOR option at a 3.98% rate as of December
31, 2004.  The loan is collateralized with a perfected first security
interest which attaches to all of its accounts receivable and
inventories, and a blanket security interest attaching to all of its
assets.  The Company has the right to prepay any outstanding borrowings at
any time and intends to repay the $2,000,000 outstanding as of December 31, 2004
prior to December 31, 2005.  Accordingly, the Company has classified the
amount outstanding as of December 31, 2004 as a current liability.  The
agreement requires the Company to maintain $8,000,000 of working capital and
limits future borrowings if the Company has a net loss in excess of $1,000,000
for the preceding 12 months or pays dividends in excess of the greater of
(a) $360,000 in any year or (b) 50% of operating profits for the preceding 12
months.  The Company has no off-balance sheet arrangements and no debt
relationships other than noted above.





The Company's working capital decreased by $1,720,525 to $10,890,862 at December
31, 2004, compared to $12,611,387 at March 31, 2004. The Company believes cash
flow from operations, the available bank borrowings and current short-term
investments and cash and cash equivalents will be sufficient to meet its working
capital requirements for the next 12 months.  ******
 
 ***New
Accounting Standards***





In January 2003, the Financial Accounting Standards Board ("FASB")
 issued Interpretation No. 46 - *Consolidation of Variable
Interest Entities*.  This Interpretation clarifies the application of
Accounting Research Bulletin No. 51, Consolidated Financial Statements, to
certain entities in which the equity investors do not have the characteristics
of a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial
support from other parties.  A variable interest entity is required to be
consolidated by the company that has a majority of the exposure to expected
losses of the variable interest entity.  The Interpretation is effective
immediately for variable interest entities created after January 31, 2003. 
For variable interest entities in which an enterprise holds a variable interest
that was acquired before February 1, 2003, the Interpretation applies to the
first fiscal year or interim period ending after December 15, 2003.  In
December 2003, the FASB issued a revision to the Interpretation , Interpretation
46R.  The revised Interpretation clarifies portions of the original
Interpretation and exempts certain entities from the requirements. The revised
Interpretation is effective for any fiscal period ending after
December 15, 2004.  The application of this Interpretation did not
have an effect on the Company’s financial condition, results of operations or
cash flows.





In May 2003, the FASB issued SFAS No. 150 - *Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity*.  This statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity.  It requires that an issuer classify a
financial instrument that is within its scope as a liability.  When issued,
this statement was effective for financial instruments entered into or modified
after May 31, 2003, and otherwise for interim periods beginning after June 15,
2003.  Initially, the statement required that all financial
instruments meeting its criteria be presented as liabilities rather than as
minority interest between the liabilities and equity sections of the balance
sheet.  On October 29, 2003, the FASB announced that it had deferred
certain provisions of SFAS No. 150.  The Company does not currently have
any instruments subject to SFAS No. 150.  Accordingly, final adoption is
not expected to have a material effect on the Company’s financial condition,
results of operations or cash flows.





In
November 2004, the FASB issued SFAS No. 151 - *Inventory Costs*, to amend
the guidance in Chapter 4, "Inventory Pricing", of FASB Accounting Research
Bulletin No. 43, *Restatement and Revision of Accounting Research
Bulletins*.  SFAS No. 151 clarifies the accounting for abnormal amounts
of idle facility expense, freight, handling costs and waste material
(spoilage).  The Statement requires that items be recognized as
current-period charges.  Additionally, SFAS No. 151 requires that
allocation of fixed production overheads to the costs of conversion be based on
the normal capacity of the production facilities.  The adoption of SFAS No.
151 is not expected to have a material effect on the Company's financial
condition, results of operations and cash flows.





In December 2004, the FASB issued SFAS No. 123(R)
- *Accounting for Stock-Based Compensation*.  SFAS No. 123(R)
is a revision of SFAS No. 123 and supersedes APB Opinion No. 25, *Accounting
for Stock issued to Employees*, and its related implementation
guidance.  This statement establishes standards for the accounting for
transactions in which an entity exchanges its equity for goods and
services.  It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair market
value of the entity's equity instruments or that may be settled by the issuance
of those equity instruments.  The statement requires a public entity to
measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award.  That
cost is recognized over the period during which an employee is required to
provide service in exchange for the award.  This statement is effective for
small business issuers as of the beginning of the first interim or annual period
that begins after December 15, 2005.  The application of SFAS No.
123(R) may have a material effect on the Company's financial condition,
results of operations and cash flows.








Item 3.  Controls and Procedures.


As
of the end of the period covered by this interim report on Form 10-QSB, the
Company carried out, under the supervision and with the participation of the
Company’s Chief Executive Officer and Chief Financial Officer, an evaluation of
the effectiveness of its “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 the Company’s disclosure controls and procedures
were effective.

Further,
there were no significant changes in the Company’s internal control over
financial reporting during the Company’s third fiscal quarter that materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.

**PART II — OTHER INFORMATION******

**Item 1.  Legal Proceedings.**


The Company is involved in various claims and legal actions arising in the
ordinary course of business.  In the opinion of the Company, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or cash flows.

****Item 2.  Unregistered Sales of Equity Securities and
Use of Proceeds.****

Not applicable.

****Item 3.  Defaults Upon Senior
Securities.****

Not applicable.

****Item 4.  Submission of Matters to a Vote of
Security Holders.****

Not applicable.

****Item 5.  Other
information.****















********Item 6. 
Exhibits.********





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**


In
accordance with 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 14,
      2005
    By:      
      /s/ Jerry
      T. KendallJerry T. KendallPresident and Chief Executive Officer(Principal Executive Officer)February 14,
      2005
    By:      
      /s/ Scott
      J. LoucksScott
      J. LoucksChief Financial Officer(Principal Financial and Accounting Officer)