##### Table of Contents



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 March 26, 2011
 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 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)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




---



##### 



PagePART I Financial InformationItem 1. Financial Statements:Condensed Consolidated Balance Sheets as of 
March 26, 2011 (unaudited) and September 25, 2010
    
    
    3Condensed Consolidated Income Statements for the 

Three Months ended March 26, 2011 (unaudited) and March 27, 2010 (unaudited)
    
    
    4Condensed Consolidated Income Statements for the 

Six Months ended March 26, 2011 (unaudited) and March 27, 2010 (unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows for the 
Six Months ended March 26, 2011 (unaudited) and March 27, 2010 (unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    20PART II Other InformationItem 1. Legal Proceedings
    
    
    21Item 1A. Risk Factors
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3. Defaults Upon Senior Securities
    
    
    21Item 4. Reserved
    
    
    21Item 5. Other Information
    
    
    21Item 6. Exhibits
    
    
    21Signatures
    
    
    22Exhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




---



##### Table of Contents



March 26, 2011
    
    
    September 25, 2010(Unaudited)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    7,662,874
    
    
    $
    11,033,542Accounts receivable  trade, less allowance of $332,748 at
March 26, 2011 and September 25, 2010
    
    
    2,060,735
    
    
    
    131,043Inventories, net
    
    
    2,963,002
    
    
    
    2,613,286Deferred income taxes
    
    
    580,225
    
    
    
    468,501Other current assets
    
    
    135,193
    
    
    
    154,133Total current assets
    
    
    13,402,029
    
    
    
    14,400,505Equipment and leasehold improvements
    
    
    3,830,032
    
    
    
    3,626,493Less: accumulated depreciation and amortization
    
    
    (3,307,497
    )
    
    
    (3,201,056
    )Equipment and leasehold improvements, net
    
    
    522,535
    
    
    
    425,437Total Assets
    
    $
    13,924,564
    
    
    $
    14,825,942Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    236,962
    
    
    $
    313,932Customer deposits
    
    
    230,723
    
    
    
    206,114Accrued liabilities:Accrued compensation and related expenses
    
    
    499,498
    
    
    
    801,198Accrued income taxes
    
    
    265,351
    
    
    
    1,634,880Accrued expenses
    
    
    321,870
    
    
    
    284,773Total current liabilities
    
    
    1,554,404
    
    
    
    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 March 26, 2011 and
September 25, 2010, respectively
    
    
    182,632
    
    
    
    182,622Additional paid-in capital
    
    
    3,140,143
    
    
    
    3,003,509Retained earnings
    
    
    9,047,385
    
    
    
    8,398,914Total stockholders equity
    
    
    12,370,160
    
    
    
    11,585,045Total Liabilities and Stockholders Equity
    
    $
    13,924,564
    
    
    $
    14,825,942
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  3




---



##### Table of Contents



Three Months EndedMarch 26, 2011
    
    
    March 27, 2010Net sales
    
    $
    3,107,001
    
    
    $
    3,575,865Cost of sales
    
    
    479,673
    
    
    
    1,429,298Gross profit
    
    
    2,627,328
    
    
    
    2,146,567Operating expenses:Selling, general and administrative
    
    
    723,637
    
    
    
    893,785Product development
    
    
    960,835
    
    
    
    330,849Total operating expenses
    
    
    1,684,472
    
    
    
    1,224,634Operating income
    
    
    942,856
    
    
    
    921,933Other income:Interest income
    
    
    562
    
    
    
    762Income before provision for income taxes
    
    
    943,418
    
    
    
    922,695Provision for income taxes
    
    
    428,440
    
    
    
    1,010,006Net income (loss)
    
    $
    514,978
    
    
    $
    (87,311
    )Net income (loss) per common share:Basic
    
    $
    0.28
    
    
    $
    (0.05
    )Diluted
    
    $
    0.27
    
    
    $
    (0.05
    )Weighted average shares:Basic
    
    
    1,826,087
    
    
    
    1,623,811Diluted
    
    
    1,880,632
    
    
    
    1,623,811Dividends paid per common share:
    
    $
    0.10
    
    
    $
    2.00
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  4




---



##### Table of Contents



Six Months EndedMarch 26, 2011
    
    
    March 27, 2010Net sales
    
    $
    5,842,246
    
    
    $
    8,339,880Cost of sales
    
    
    1,159,890
    
    
    
    2,637,098Gross profit
    
    
    4,682,356
    
    
    
    5,702,782Operating expenses:Selling, general and administrative
    
    
    1,399,156
    
    
    
    1,631,418Product development
    
    
    1,857,101
    
    
    
    858,278Total operating expenses
    
    
    3,256,257
    
    
    
    2,489,696Operating income
    
    
    1,426,099
    
    
    
    3,213,086Other income:Interest income
    
    
    1,337
    
    
    
    2,038Income before provision for income taxes
    
    
    1,427,436
    
    
    
    3,215,124Provision for income taxes
    
    
    413,747
    
    
    
    946,561Net income
    
    $
    1,013,689
    
    
    $
    2,268,563Net income per common share:Basic
    
    $
    0.56
    
    
    $
    1.48Diluted
    
    $
    0.54
    
    
    $
    1.31Weighted average shares:Basic
    
    
    1,826,053
    
    
    
    1,537,889Diluted
    
    
    1,879,186
    
    
    
    1,726,344Dividends paid per common share:
    
    $
    0.20
    
    
    $
    2.00
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  5




---



##### Table of Contents



Six Months EndedMarch 26, 2011
    
    
    March 27, 2010Operating Activities:Net income
    
    $
    1,013,689
    
    
    $
    2,268,563Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    106,441
    
    
    
    75,714Share-based compensation
    
    
    137,322
    
    
    
    99,569Deferred income taxes
    
    
    (111,724
    )
    
    
    (271,276
    )Bad debt expense
    
    
    
    
    
    
    100,000Changes in assets and liabilities:Accounts receivable
    
    
    (1,929,692
    )
    
    
    (82,274
    )Inventories
    
    
    (349,716
    )
    
    
    127,221Other current assets
    
    
    18,940
    
    
    
    57,843Customer deposits
    
    
    24,609
    
    
    
    (1,924,520
    )Accounts payable and other accrued liabilities
    
    
    (1,711,780
    )
    
    
    1,668,808Net cash provided by (used in) operating
activities
    
    
    (2,801,911
    )
    
    
    2,119,648Investing Activities:Additions to equipment and leasehold improvements
    
    
    (203,539
    )
    
    
    (67,146
    )Net cash used in investing activities
    
    
    (203,539
    )
    
    
    (67,146
    )Financing Activities:Proceeds from exercise of stock options
    
    
    
    
    
    
    809,567Dividends paid
    
    
    (365,218
    )
    
    
    (3,640,876
    )Net cash used in financing activities
    
    
    (365,218
    )
    
    
    (2,831,309
    )Net decrease in cash and cash equivalents
    
    
    (3,370,668
    )
    
    
    (778,807
    )Cash and cash equivalents at beginning of the period
    
    
    11,033,542
    
    
    
    5,418,419Cash and cash equivalents at the end of the period
    
    $
    7,662,874
    
    
    $
    4,639,612Supplemental Disclosures:Interest paid
    
    $
    
    
    
    $
    Income taxes paid
    
    
    1,745,000
    
    
    
    
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  6




---



##### Table of Contents



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
     7




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Revenue Recognition
    Inventory
  Accounts Receivable
   8




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Accounting for Income Taxes
    Share-Based Compensation
     9




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  Three and Six Months EndedMarch 26, 2011
    
    March 27, 2010(unaudited)
    
    (unaudited)Assumptions:Option life
    
    5 to 6.5 years
    
    5 yearsRisk-free interest rate
    
    1.3% to 2.4%
    
    2.44%Stock volatility
    
    72% to 73%
    
    77%Dividend yield
    
    4.0%
    
    -0-
   March 26, 2011
    
    
    March 27, 20103 months
    
    
    6 months
    
    
    3 months
    
    
    6 monthsCost of sales
    
    $
    8,601
    
    
    $
    8,663
    
    
    $
    1,695
    
    
    $
    3,486Selling, general and administrative expenses
    
    
    27,799
    
    
    
    29,278
    
    
    
    64,158
    
    
    
    65,803Product development expenses
    
    
    59,456
    
    
    
    73,896
    
    
    
    14,737
    
    
    
    30,280Total share-based compensation expense
before taxes
    
    $
    95,856
    
    
    $
    111,837
    
    
    $
    80,590
    
    
    $
    99,569
   Options OutstandingNumber of
    
    
    Weighted Average
    
    
    Weighted AverageShares
    
    
    Exercise Price
    
    
    Contractual LifeOutstanding at September 25, 2010
    
    
    115,288
    
    
    $
    5.23
    
    
    7.14 yearsGrants
    
    
    146,165Exercises
    
    
    (200
    )Cancellations
    
    
    (2,000
    )Outstanding at March 26, 2011
    
    
    259,253
    
    
    $
    8.78
    
    
    8.17 years
  10




---



##### Table of Contents



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
    
    
    
    2.13
    
    
    $
    0.99
    
    
    
    600
    
    
    $
    0.99$2.01 - $3.00
    
    
    15,488
    
    
    
    4.45
    
    
    $
    3.00
    
    
    
    15,488
    
    
    $
    3.00$3.01 - $4.00
    
    
    26,400
    
    
    
    5.35
    
    
    $
    3.69
    
    
    
    18,300
    
    
    $
    3.76$4.01 - $5.00
    
    
    20,400
    
    
    
    7.81
    
    
    $
    4.76
    
    
    
    13,600
    
    
    $
    4.86$5.01 - $10.00
    
    
    47,700
    
    
    
    7.46
    
    
    $
    6.74
    
    
    
    33,900
    
    
    $
    6.93$10.01 - $15.00
    
    
    148,665
    
    
    
    9.36
    
    
    $
    11.52
    
    
    
    
    
    
    
    259,253
    
    
    
    8.17
    
    
    $
    8.78
    
    
    
    81,888
    
    
    $
    5.09
  NOTE 2. Inventories
  March 26, 2011
    
    
    September 25, 2010(unaudited)Finished goods
    
    $
    206,062
    
    
    $
    297,636Work in process
    
    
    795,890
    
    
    
    282,996Raw materials
    
    
    1,961,050
    
    
    
    2,032,654$
    2,963,002
    
    
    $
    2,613,286
 NOTE 3. Income Taxes
     11




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 NOTE 4. Earnings Per Share
  March 26, 2011
    
    
    March 27, 20103 months
    
    
    6 months
    
    
    3 months
    
    
    6 monthsNet income
    
    $
    514,978
    
    
    $
    1,013,689
    
    
    $
    (87,311
    )
    
    $
    2,268,563Weighted average shares outstanding  basic
    
    
    1,826,087
    
    
    
    1,826,053
    
    
    
    1,623,811
    
    
    
    1,537,889Dilutive effect of stock options
    
    
    54,545
    
    
    
    53,133
    
    
    
    
    
    
    
    188,455Weighted average shares outstanding- diluted
    
    
    1,880,632
    
    
    
    1,879,186
    
    
    
    1,623,811
    
    
    
    1,726,344Basic net income per share
    
    $
    0.28
    
    
    $
    0.56
    
    
    $
    (0.05
    )
    
    $
    1.48Diluted net income per share
    
    $
    0.27
    
    
    $
    0.54
    
    
    $
    (0.05
    )
    
    $
    1.31
  NOTE 5. Major Customers and Export Sales
   March 26, 2011
    
    
    March 27, 20103 months
    
    
    6 months
    
    
    3 months
    
    
    6 monthsDomestic
    
    $
    3,103,341
    
    
    $
    5,770,120
    
    
    $
    2,943,695
    
    
    $
    7,619,377Foreign
    
    
    3,660
    
    
    
    72,126
    
    
    
    632,170
    
    
    
    720,503Total sales
    
    $
    3,107,001
    
    
    $
    5,842,246
    
    
    $
    3,575,865
    
    
    $
    8,339,880
  March 26, 2011
    
    
    March 27, 20103 months
    
    
    6 months
    
    
    3 months
    
    
    6 monthsThailand
    
    
    
    
    
    
    
    
    
    
    93.6
    %
    
    
    82.2
    %Saudi Arabia
    
    
    23.0
    %
    
    
    83.2
    %
    
    
    3.8
    %
    
    
    3.4
    %Slovakia
    
    
    
    
    
    
    5.4
    %
    
    
    
    
    
    
    12.1
    %Bahrain
    
    
    77.0
    %
    
    
    6.9
    %
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    4.5
    %
    
    
    2.6
    %
    
    
    2.3
    %
  12




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  March 26, 2011
    
    
    March 27, 20103 months
    
    
    6 months
    
    
    3 months
    
    
    6 monthsNorth America

(excluding the U.S.)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Central and South America
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Europe
    
    
    
    
    
    
    5.0
    %
    
    
    
    
    
    
    12.1
    %Mid-East and Africa
    
    
    100
    %
    
    
    95.0
    %
    
    
    6.4
    %
    
    
    5.7
    %Far East
    
    
    
    
    
    
    
    
    
    
    93.6
    %
    
    
    82.2
    %
  13




---



##### Table of Contents



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
  14




---



##### Table of Contents



Results of Operations
 Three Months ended March 26, 2011 as compared to Three Months ended March 27, 2010
 Net Sales
   2011
    
    
    2010Thailand
    
    $
    
    
    
    $
    592,000Other
    
    
    4,000
    
    
    
    40,000$
    4,000
    
    
    $
    632,000
   Gross Profit
  Operating Costs and Expenses
 Selling, General and Administrative Expenses
   15




---



##### Table of Contents



Product Development Costs
    Net Income
   16




---



##### Table of Contents



Six Months ended March 26, 2011 as compared to Six Months ended March 27, 2010
 Net Sales
   2011
    
    
    2010Thailand
    
    
    
    
    
    $
    592,000Slovakia
    
    $
    4,000
    
    
    
    88,000Saudi Arabia
    
    
    60,000
    
    
    
    25,000Other
    
    
    8,000
    
    
    
    16,000$
    72,000
    
    
    $
    721,000
   Gross Profit
  Operating Costs and Expenses
 Selling, General and Administrative Expenses
   17




---



##### Table of Contents



Product Development Costs
    Net Income
     18




---



##### Table of Contents



Liquidity and Capital Resources
          19




---



##### Table of Contents



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
  20




---



##### Table of Contents



Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    Reserved
 
 Item 5.
    
    Other Information
 As a result of the annual meeting of stockholders held on February 7, 2011, at which
stockholders chose, on a non-binding and advisory basis, to vote annually on the
compensation of the Companys named executive officers, the Board has determined to hold
such say-on-pay vote annually.
 
 Item 6.
    
    Exhibits
 10.1
    
    
    Purchase Order from Datron World
Communications dated February 10, 2011 (Confidential
portions of this exhibit have been omitted and filed
separately with the Securities and Exchange Commission
pursuant to a request for confidential treatment.)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
  21




---



##### Table of Contents



TECHNICAL COMMUNICATIONS CORPORATION
(Registrant)May 10, 2011
    
    By:
    
    /s/ Carl H. Guild, Jr.Date
    
    
    
    Carl H. Guild, Jr., President and Chief
Executive OfficerMay 10, 2011
    
    By:
    
    /s/ Michael P. MaloneDate
    
    
    
    Michael P. Malone, Chief Financial Officer
  22