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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
  þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended December 25, 2010
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission
File Number: 001-34816
 TECHNICAL COMMUNICATIONS CORPORATION
  Massachusetts
    
    04-2295040(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)100 Domino Drive, Concord, MA
    
    01742-2892(Address of principal executive offices)
    
    (Zip Code)
 978) 287-5100
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ




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##### 



PagePART I Financial InformationItem 1. Financial Statements:Condensed Consolidated Balance Sheets as of
December 25, 2010 (unaudited) and September 25, 2010
    
    
    1Condensed Consolidated Income Statements for the
Three Months ended December 25, 2010 (unaudited) and December 26, 2009 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the
Three Months ended December 25, 2010 (unaudited) and December 26, 2009 (unaudited)
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    15PART II Other InformationItem 1. Legal Proceedings
    
    
    16Item 1A. Risk Factors
    
    
    16Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    16Item 3. Defaults Upon Senior Securities
    
    
    16Item 4. Reserved
    
    
    16Item 5. Other Information
    
    
    16Item 6. Exhibits
    
    
    16Signatures
    
    
    17Exhibit 31.1Exhibit 31.2Exhibit 32.1




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December 25, 2010
    
    
    September 25, 2010(Unaudited)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    8,129,257
    
    
    $
    11,033,542Accounts receivable  trade, less allowance of $332,748
at December 25, 2010 and September 25, 2010
    
    
    801,188
    
    
    
    131,043Inventories, net
    
    
    2,777,823
    
    
    
    2,613,286Deferred income taxes
    
    
    534,892
    
    
    
    468,501Other current assets
    
    
    181,564
    
    
    
    154,133Total current assets
    
    
    12,424,724
    
    
    
    14,400,505Equipment and leasehold improvements
    
    
    3,790,060
    
    
    
    3,626.493Less: accumulated depreciation and amortization
    
    
    (3,256,140
    )
    
    
    (3,201.056
    )Equipment and leasehold improvements, net
    
    
    533,920
    
    
    
    425,437Total Assets
    
    $
    12.958,644
    
    
    $
    14,825,942Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    178,945
    
    
    $
    313,932Customer deposits
    
    
    230,723
    
    
    
    206,114Accrued liabilities:Accrued compensation and related expenses
    
    
    317,195
    
    
    
    801,198Accrued income taxes
    
    
    
    
    
    
    1,634,880Accrued expenses
    
    
    315,333
    
    
    
    284,773Total current liabilities
    
    
    1,042,196
    
    
    
    3,240,897Stockholders Equity:Common stock, par value $0.10 per share;
7,000,000 shares authorized; 1,826,319 and 1,826,217
shares issued and outstanding at December 25, 2010 and
September 25, 2010, respectively
    
    
    182,632
    
    
    
    182,622Additional paid-in capital
    
    
    3,018,801
    
    
    
    3,003,509Retained earnings
    
    
    8,715,015
    
    
    
    8,398,914Total stockholders equity
    
    
    11,916,448
    
    
    
    11,585,045Total Liabilities and Stockholders Equity
    
    $
    12,958,644
    
    
    $
    14,825,942
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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Three Months EndedDecember 25, 2010
    
    
    December 26, 2009Net sales
    
    $
    2,735,245
    
    
    $
    4,764,015Cost of sales
    
    
    680,217
    
    
    
    1,207,800Gross profit
    
    
    2,055,028
    
    
    
    3,556,215Operating expenses:Selling, general and administrative
    
    
    675,519
    
    
    
    737,633Product development
    
    
    896,266
    
    
    
    527,429Total operating expenses
    
    
    1,571,785
    
    
    
    1,265,062Operating income
    
    
    483,243
    
    
    
    2,291,153Other income:Interest income
    
    
    775
    
    
    
    1,276Income before benefit for income taxes
    
    
    484,018
    
    
    
    2,292,429Benefit for income taxes
    
    
    14,693
    
    
    
    63,445Net income
    
    $
    498,711
    
    
    $
    2,355,874Net income per common share:Basic
    
    $
    0.27
    
    
    $
    1.62Diluted
    
    $
    0.27
    
    
    $
    1.45Weighted average shares:Basic
    
    
    1,820,438
    
    
    
    1,451,967Diluted
    
    
    1,870,774
    
    
    
    1,621,618Dividends paid per common share:
    
    $
    0.10
    
    
    
    
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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Three Months EndedDecember 25, 2010
    
    
    December 26, 2009Operating Activities:Net income
    
    $
    498,711
    
    
    $
    2,355,874Adjustments to reconcile net income to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    55,084
    
    
    
    37,793Share-based compensation
    
    
    15,980
    
    
    
    18,979Deferred income taxes
    
    
    (66,391
    )
    
    
    (271,276
    )Bad debt expense
    
    
    
    
    
    
    100,000Changes in assets and liabilities:Accounts receivable
    
    
    (670,145
    )
    
    
    205,545Inventories
    
    
    (164,537
    )
    
    
    394,401Other current assets
    
    
    (27,431
    )
    
    
    59,096Customer deposits
    
    
    24,609
    
    
    
    (993,450
    )Accounts payable and other accrued liabilities
    
    
    (2,223,988
    )
    
    
    162,349Net cash provided by (used in) operating activities
    
    
    (2,558,108
    )
    
    
    2,069,311Investing Activities:Additions to equipment and leasehold improvements
    
    
    (163,567
    )
    
    
    (40,691
    )Net cash used in investing activities
    
    
    (163,567
    )
    
    
    (40,691
    )Financing Activities:Dividends paid
    
    
    (182,610
    )
    
    
    Net cash used in financing activities
    
    
    (182,610
    )
    
    
    Net (decrease) increase in cash and cash equivalents
    
    
    (2,904,285
    )
    
    
    2,028,620Cash and cash equivalents at beginning of the period
    
    
    11,033,542
    
    
    
    5,418,419Cash and cash equivalents at the end of the period
    
    $
    8,129,257
    
    
    $
    7,447,039Supplemental Disclosures:Interest paid
    
    $
    
    
    
    $
    Income taxes paid
    
    
    1,745,000
    
    
    
    
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 STATEMENT OF FAIR PRESENTATION
 Interim Financial Statements
  FASB Accounting Standards
Codification TM
 NOTE 1. Summary of Significant Accounting Policies and Significant Judgments and
Estimates
 Basis of Presentation
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  Revenue Recognition
    Inventory
  Accounts Receivable
   Page 5




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Accounting for Income Taxes
    Share-Based Compensation
   Three Months EndedDecember 25, 2010
    
    
    December 26, 2009(unaudited)
    
    
    (unaudited)Assumptions:Option life
    
    
    5 years
    
    
    
    5 yearsRisk-free interest rate
    
    
    1.3
    %
    
    
    2.8
    %Stock volatility
    
    
    73
    %
    
    
    79
    %Dividend yield
    
    
    -0-
    
    
    
    -0-
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  December 25, 2010
    
    
    December 26, 2009Cost of sales
    
    $
    62
    
    
    $
    1,791Selling, general and administrative expense
    
    
    1,479
    
    
    
    1,645Product development costs
    
    
    14,439
    
    
    
    15,543Total share-based compensation expense
before taxes
    
    $
    15,980
    
    
    $
    18,979
    Options OutstandingNumber of
    
    
    Weighted Average
    
    
    Weighted AverageShares
    
    
    Exercise Price
    
    
    Contractual LifeOutstanding at September 25, 2010
    
    
    115,288
    
    
    $
    5.23
    
    
    
    7.14 yearsGrants
    
    
    3,500Exercises
    
    
    (200
    )Cancellations
    
    
    (2,000
    )Outstanding at December 25, 2010
    
    
    116,588
    
    
    $
    5.43
    
    
    
    6.97 years
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  Weighted-Average
    
    
    
    
    
    
    
    
    
    
    ExercisableRemaining
    
    
    Weighted
    
    
    Exercisable
    
    
    Weighted-Range of
    
    Number of
    
    
    Contractual
    
    
    Average
    
    
    Number of
    
    
    AverageExercise Prices
    
    Shares
    
    
    Life (years)
    
    
    Exercise Price
    
    
    Shares
    
    
    Exercise Price$0.01  $1.00
    
    
    600
    
    
    
    2.38
    
    
    $
    0.99
    
    
    
    600
    
    
    $
    0.99$2.01  $3.00
    
    
    15,488
    
    
    
    4.70
    
    
    $
    3.00
    
    
    
    15,488
    
    
    $
    3.00$3.01  $4.00
    
    
    26,400
    
    
    
    5.60
    
    
    $
    3.69
    
    
    
    18,300
    
    
    $
    3.76$4.01  $5.00
    
    
    20,400
    
    
    
    8.06
    
    
    $
    4.76
    
    
    
    13,300
    
    
    $
    4.86$5.01  $10.00
    
    
    47,700
    
    
    
    7.71
    
    
    $
    6.74
    
    
    
    29,900
    
    
    $
    6.99$10.01  $15.00
    
    
    6,000
    
    
    
    9.8
    
    
    $
    11.70
    
    
    
    
    
    
    
    116,588
    
    
    
    6.97
    
    
    $
    5.43
    
    
    
    77,588
    
    
    $
    5.02
  NOTE 2. Inventories
  December 25, 2010
    
    
    September 25, 2010(unaudited)Finished goods
    
    $
    5,184
    
    
    $
    297,636Work in process
    
    
    750,004
    
    
    
    282,996Raw materials
    
    
    2,022,635
    
    
    
    2,032,654$
    2,777,823
    
    
    $
    2,613,286
 NOTE 3. Income Taxes
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 NOTE 4. Earnings Per Share
  December 25, 2010
    
    
    December 26, 2009Net income
    
    $
    498,711
    
    
    $
    2,355,874Weighted average shares outstanding  basic
    
    
    1,820,438
    
    
    
    1,451,967Dilutive effect of stock options
    
    
    50,336
    
    
    
    169,651Weighted
average shares outstanding  diluted
    
    
    1,870,774
    
    
    
    1,621,618Basic net income per share
    
    $
    0.27
    
    
    $
    1.62Diluted net income per share
    
    $
    0.27
    
    
    $
    1.45
  NOTE 5. Major Customers and Export Sales
   Three months ended
    
    
    Three months endedDecember 25, 2010
    
    
    December 26, 2009Domestic
    
    $
    2,666,779
    
    
    $
    4,675,682Foreign
    
    
    68,466
    
    
    
    88,333Total sales
    
    $
    2,735,245
    
    
    $
    4,764,015
  Three months ended
    
    
    Three months endedDecember 25, 2010
    
    
    December 26, 2009Saudi Arabia
    
    
    86.4
    %
    
    
    99.0
    %Slovakia
    
    
    5.7
    %
    
    
    1.0
    %Other
    
    
    7.9
    %
    
    
    
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  Three months ended
    
    
    Three months endedDecember 25, 2010
    
    
    December 26, 2009North America
(excluding the U.S.)
    
    
    
    
    
    
    Central and South America
    
    
    
    
    
    
    Europe
    
    
    5.7
    
    
    
    99.0
    %Mid-East and Africa
    
    
    94.3
    %
    
    
    1.0
    %Far East
    
    
    
    
    
    
    
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
  Overview
  Critical Accounting Policies and Significant Judgments and Estimates
 Summary of Significant Accounting Policies and Significant
Judgments and Estimates
  Page 11




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Results of Operations
 Three Months ended December 25, 2010 as compared to Three Months ended December 26, 2009
 Net Sales
   2011
    
    
    2010Saudi Arabia
    
    $
    59,000
    
    
    $
    1,000Slovakia
    
    
    4,000
    
    
    
    87,000Other
    
    
    5,000
    
    
    
    $
    68,000
    
    
    $
    88,000
   Gross Profit
  Operating Costs and Expenses
 Selling, General and Administrative Expenses
   Page 12




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Product Development Costs
    Net Income
   Page 13




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Liquidity and Capital Resources
          Page 14




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Off-Balance Sheet Arrangements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures.
 Changes
in internal control over financial reporting
  Page 15




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Legal Proceedings
  
 Risk Factors
  
 Unregistered Sales of Equity Securities and Use of Proceeds
  
 Defaults Upon Senior Securities
  
 Reserved
 
 Other Information
  
 Exhibits
 31.1
    
    
    Certification of principal executive officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification of principal financial officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certifications of Chief Executive and Chief
Financial Officers pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
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TECHNICAL COMMUNICATIONS CORPORATION
(Registrant)February 8, 2011
    
    
    
    By:
    
    /s/ Carl H. Guild, Jr.Date
    
    
    
    
    
    Carl H. Guild, Jr., President and Chief
Executive OfficerFebruary 8, 2011
    
    
    
    By:
    
    /s/ Michael P. MaloneDate
    
    
    
    
    
    Michael P. Malone, Chief Financial Officer
  Page 17