##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 (Mark One)
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended December 26, 2009
 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: 0-8588
 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,
 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
December 26, 2009 (unaudited) and September 26, 2009
    
    
    1Condensed Consolidated Income Statements for the 
Three Months ended December 26, 2009 and December 27, 2008 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the 
Three Months ended December 26, 2009 and December 27, 2008 (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. Submission of Matters to a Vote of Security Holders
    
    
    16Item 5. Other Information
    
    
    16Item 6. Exhibits
    
    
    16Signatures
    
    
    17Exhibit 31.1Exhibit 31.2Exhibit 32.1




---



##### Table of Contents



December 26, 2009
    
    
    September 26, 2009(Unaudited)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    7,447,039
    
    
    $
    5,418,419Accounts receivable  trade, less allowance of $333,000
at December 26, 2009 and $233,000 at September 26, 2009
    
    
    97,296
    
    
    
    402,841Inventories, net
    
    
    2,020,653
    
    
    
    2,415,054Deferred income taxes
    
    
    837,570
    
    
    
    566,294Other current assets
    
    
    121,065
    
    
    
    180,161Total current assets
    
    
    10,523,623
    
    
    
    8,982,769Equipment and leasehold improvements
    
    
    3,409,905
    
    
    
    3,369,214Less: accumulated depreciation and amortization
    
    
    (3,067,500
    )
    
    
    (3,029,707
    )Equipment and leasehold improvements, net
    
    
    342,405
    
    
    
    339,507Total Assets
    
    $
    10,866,028
    
    
    $
    9,322,276Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    151,030
    
    
    $
    250,129Customer deposits
    
    
    970,812
    
    
    
    1,964,262Deferred revenue
    
    
    53,892
    
    
    
    Accrued liabilities:Accrued compensation and related expenses
    
    
    261,825
    
    
    
    280,651Accrued income taxes
    
    
    179,876
    
    
    
    Accrued expenses
    
    
    161,082
    
    
    
    114,576Total current liabilities
    
    
    1,778,517
    
    
    
    2,609,618Stockholders Equity:Common stock, par value $0.10 per share; 7,000,000 shares
authorized; 1,452,199 shares issued and
outstanding at December 26, 2009 and September 26, 2009
    
    
    145,220
    
    
    
    145,220Additional paid-in capital
    
    
    2,050,319
    
    
    
    2,031,340Retained earnings
    
    
    6,891,972
    
    
    
    4,536,098Total stockholders equity
    
    
    9,087,511
    
    
    
    6,712,658Total Liabilities and Stockholders Equity
    
    $
    10,866,028
    
    
    $
    9,322,276
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  Page 1




---



##### Table of Contents



Three Months EndedDecember 26, 2009
    
    
    December 27, 2008Net sales
    
    $
    4,764,015
    
    
    $
    1,844,340Cost of sales
    
    
    1,207,800
    
    
    
    659,330Gross profit
    
    
    3,556,215
    
    
    
    1,185,010Operating expenses:Selling, general and administrative
    
    
    737,633
    
    
    
    658,393Product development
    
    
    527,429
    
    
    
    340,942Total operating expenses
    
    
    1,265,062
    
    
    
    999,335Operating income
    
    
    2,291,153
    
    
    
    185,675Other income:Interest income
    
    
    1,276
    
    
    
    20,075Total other income
    
    
    1,276
    
    
    
    20,075Income before provision (benefit) for income taxes
    
    
    2,292,429
    
    
    
    205,750Provision (benefit) for income taxes
    
    
    (63,445
    )
    
    
    Net income
    
    $
    2,355,874
    
    
    $
    205,750Net income per common share:Basic
    
    $
    1.62
    
    
    $
    0.14Diluted
    
    $
    1.45
    
    
    $
    0.12Weighted average shares:Basic
    
    
    1,451,967
    
    
    
    1,441,309Diluted
    
    
    1,621,618
    
    
    
    1,697,366
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  Page 2




---



##### Table of Contents



Three Months EndedDecember 26, 2009
    
    
    December 27, 2008Operating Activities:Net income
    
    $
    2,355,874
    
    
    $
    205,750Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    37,793
    
    
    
    21,297Share-based compensation
    
    
    18,979
    
    
    
    19,415Deferred income taxes
    
    
    (271,276
    )
    
    
    Bad debt expense
    
    
    100,000
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    205,545
    
    
    
    (679,227
    )Inventories
    
    
    394,401
    
    
    
    (175,690
    )Other current assets
    
    
    59,096
    
    
    
    25,915Customer deposits
    
    
    (993,450
    )
    
    
    1,238,565Accounts payable and other accrued liabilities
    
    
    162,349
    
    
    
    (220,301
    )Net cash provided by operating activities
    
    
    2,069,311
    
    
    
    435,724Investing Activities:Additions to equipment and leasehold improvements
    
    
    (40,691
    )
    
    
    (35,453
    )Net cash used in investing activities
    
    
    (40,691
    )
    
    
    (35,453
    )Financing Activities:Proceeds from stock issuance
    
    
    
    
    
    
    1,584Net cash provided by financing activities
    
    
    
    
    
    
    1,584Net increase in cash and cash equivalents
    
    
    2,028,620
    
    
    
    401,855Cash and cash equivalents at beginning of the period
    
    
    5,418,419
    
    
    
    3,622,903Cash and cash equivalents at the end of the period
    
    $
    7,447,039
    
    
    $
    4,024,758Supplemental Disclosures:Interest paid
    
    $
    
    
    
    $
    Income taxes paid
    
    
    
    
    
    
    500
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  Page 3




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 STATEMENT OF FAIR PRESENTATION
 Interim Financial Statements
  NOTE 1. Summary of Significant Accounting Policies and Significant Judgments and
Estimates
 Basis of Presentation
    Revenue Recognition
   Page 4




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
   Inventory
  Accounts Receivable
  Accounting for Income Taxes
   Page 5




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
    Share-Based Compensation
   Three Months EndedDecember 27, 2008Assumptions:Option life
    
    
    5 yearsRisk-free interest rate
    
    
    2.8%Stock volatility
    
    
    79%Dividend yield
    
    
    -0-
  Page 6




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  2009
    
    
    2008Cost of sales
    
    $
    1,791
    
    
    $
    1,695Selling, general and administrative
    
    
    1,645
    
    
    
    2,475Product development
    
    
    15,543
    
    
    
    15,245Total share-based compensation expense before taxes
    
    $
    18,979
    
    
    $
    19,415
    Options OutstandingNumber of
    
    
    Weighted Average
    
    
    Weighted AverageShares
    
    
    Exercise Price
    
    
    Contractual LifeOutstanding at September 26, 2009
    
    
    492,700
    
    
    $
    2.95
    
    
    4.72 yearsGrants
    
    
    
    
    
    
    Exercises
    
    
    
    
    
    
    Cancellations
    
    
    
    
    
    
    Outstanding at December 26, 2009
    
    
    492,700
    
    
    $
    2.95
    
    
    4.47 years
  Weighted-Average
    
    
    
    
    
    
    
    
    
    
    ExercisableRemaining
    
    
    
    
    
    
    Exercisable
    
    
    Weighted-Range of
    
    Number of
    
    
    Contractual
    
    
    Weighted-Average
    
    
    Number of
    
    
    AverageExercise Prices
    
    Shares
    
    
    Life (years)
    
    
    Exercise Price
    
    
    Shares
    
    
    Exercise Price$0.01  $1.00
    
    
    158,000
    
    
    
    2.80
    
    
    $
    0.96
    
    
    
    158,000
    
    
    $
    0.96$1.01  $2.00
    
    
    1,200
    
    
    
    2.06
    
    
    
    1.27
    
    
    
    1,200
    
    
    
    1.27$2.01  $3.00
    
    
    65,700
    
    
    
    3.03
    
    
    
    2.54
    
    
    
    63,300
    
    
    
    2.53$3.01  $4.00
    
    
    193,800
    
    
    
    4.89
    
    
    
    3.59
    
    
    
    177,600
    
    
    
    3.60$4.01  $5.00
    
    
    29,000
    
    
    
    8.44
    
    
    
    4.79
    
    
    
    17,300
    
    
    
    4.86$5.01  $10.00
    
    
    45,000
    
    
    
    8.12
    
    
    
    6.62
    
    
    
    21,000
    
    
    
    6.98492,700
    
    
    
    4.47
    
    
    
    2.95
    
    
    
    438,400
    
    
    
    2.69
  Page 7




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  NOTE 2. Inventories
  December 26, 2009
    
    
    September 26, 2009(unaudited)Finished goods
    
    $
    100,618
    
    
    $
    5,829Work in process
    
    
    900,851
    
    
    
    511,514Raw materials
    
    
    1,019,184
    
    
    
    1,897,711$
    2,020,653
    
    
    $
    2,415,054
 NOTE 3. Income Taxes
  December 26, 2009Current:Federal
    
    $
    38,205State
    
    
    169,626Total current taxes
    
    
    207,831Deferred:Federal
    
    
    (271,276
    )State
    
    
    Total deferred taxes
    
    
    (271,276
    )Total (benefit) provision
    
    $
    (63,445
    )
  December 26, 2009
    
    

September 26, 2009NOL carryforward
    
    $
    499,811
    
    
    $
    1,285,289Inventory differences
    
    
    1,126,027
    
    
    
    1,135,742Goodwill
    
    
    10,274
    
    
    
    13,699Warranty accruals
    
    
    31,364
    
    
    
    18,796Payroll related accruals
    
    
    25,764
    
    
    
    12,111Tax credits
    
    
    337,759
    
    
    
    384,553Other
    
    
    320,955
    
    
    
    259,064Total
    
    
    2,351,954
    
    
    
    3,109,254Less: valuation
allowance
    
    
    (1,514,384
    )
    
    
    (2,542,960
    )Total
    
    $
    837,570
    
    
    $
    566,294
  Page 8




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
   NOTE 4. Earnings Per Share (EPS)
  December 26, 2009
    
    
    December 27, 2008Net income
    
    $
    2,355,874
    
    
    $
    205,750Weighted average shares outstanding  basic
    
    
    1,451,967
    
    
    
    1,441,309Dilutive effect of stock options
    
    
    169,651
    
    
    
    256,057Weighted average shares outstanding  diluted
    
    
    1,621,618
    
    
    
    1,697,366Basic net income per share
    
    $
    1.62
    
    
    $
    0.14Diluted net income per share
    
    $
    1.45
    
    
    $
    0.12
  NOTE 5. Major Customers and Export Sales
   December 26, 2009
    
    
    December 27, 2008Domestic
    
    $
    4,675,682
    
    
    $
    1,710,033Foreign
    
    
    88,333
    
    
    
    134,307Total sales
    
    $
    4,764,015
    
    
    $
    1,844,340
   Page 9




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  December 26, 2009
    
    
    December 27, 2008Slovakia
    
    
    99.0
    %
    
    
    Saudi Arabia
    
    
    1.0
    %
    
    
    79.1
    %Other
    
    
    
    
    
    
    20.9
    %
  December 26, 2009
    
    
    December 27, 2008North America (excluding the U.S.)
    
    
    
    
    
    
    Central and South America
    
    
    
    
    
    
    12.1
    %Europe
    
    
    99.0
    %
    
    
    Mid-East and Africa
    
    
    1.0
    %
    
    
    87.7
    %Far East
    
    
    
    
    
    
    0.2
    %
 NOTE 6. Subsequent Events
   Page 10




---



##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Forward-Looking Statements
  Overview
  Critical Accounting and Significant Judgments and Estimates
 Summary of Significant Accounting Policies and Significant
Judgments and Estimates
  Page 11




---



##### Table of Contents



Results of Operations
 Three Months ended December 26, 2009 as compared to Three Months ended December 27, 2008
 Net Sales
   2010
    
    
    2009Slovakia
    
    $
    87,000
    
    
    
    Saudi Arabia
    
    
    1,000
    
    
    $
    106,000Other
    
    
    
    
    
    
    28,000$
    88,000
    
    
    $
    134,000
   Gross Profit
   Page 12




---



##### Table of Contents



Operating Costs and Expenses
 Selling, General and Administrative Expenses
    Product Development Costs
    Net Income
    Page 13




---



##### Table of Contents



Liquidity and Capital Resources
        Page 14




---



##### 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
  Page 15




---



##### 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.
    
    Submission of Matters to a Vote of Security Holders
  
 Item 5.
    
    Other Information
  
 Item 6.
    
    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
  Page 16




---



##### Table of Contents



TECHNICAL COMMUNICATIONS CORPORATION
(Registrant)February 8, 2010

Date
    
    
    
    By:
    
    /s/ Carl H. Guild, Jr.

Carl H. Guild, Jr., President and ChiefExecutive OfficerFebruary 8, 2010

Date
    
    
    
    By:
    
    /s/ Michael P. Malone

Michael P. Malone, Chief Financial Officer
  Page 17