##### 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 June 26, 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 
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




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##### 



PagePART I Financial InformationItem 1. Financial Statements:Condensed Consolidated Balance Sheets as ofJune 26, 2010 (unaudited) and September 26, 2009
    
    
    3Condensed Consolidated Income Statements for theThree Months ended June 26, 2010 and June 27, 2009 (unaudited)
    
    
    4Condensed Consolidated Income Statements for theNine Months ended June 26, 2010 and June 27, 2009 (unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows for theNine Months ended June 26, 2010 and June 27, 2009 (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 31.1Exhibit 31.2Exhibit 32.1
   2




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June 26, 2010
    
    
    September 26, 2009(Unaudited)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    5,547,500
    
    
    $
    5,418,419Accounts receivable  trade, less allowance of $332,748 at
June 26, 2010 and $232,748 at September 26, 2009
    
    
    2,388,394
    
    
    
    402,841Inventories, net
    
    
    2,438,719
    
    
    
    2,415,054Deferred income taxes
    
    
    546,384
    
    
    
    566,294Other current assets
    
    
    257,105
    
    
    
    180,161Total current assets
    
    
    11,178,102
    
    
    
    8,982,769Equipment and leasehold improvements
    
    
    3,493,070
    
    
    
    3,369,214Less: accumulated depreciation and amortization
    
    
    (3,146,420
    )
    
    
    (3,029,707
    )Equipment and leasehold improvements, net
    
    
    346,650
    
    
    
    339,507Total Assets
    
    $
    11,524,752
    
    
    $
    9,322,276Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    447,141
    
    
    $
    250,129Customer deposits
    
    
    32,431
    
    
    
    1,964,262Deferred revenue
    
    
    53,892
    
    
    
    Accrued liabilities:Accrued compensation and related expenses
    
    
    730,987
    
    
    
    280,651Accrued income taxes
    
    
    1,488,910
    
    
    
    Accrued expenses
    
    
    292,204
    
    
    
    114,576Total current liabilities
    
    
    3,045,565
    
    
    
    2,609,618Stockholders Equity:Common stock, par value $0.10 per share;
7,000,000 shares authorized; 1,820,670 and 1,452,199
shares issued and outstanding at June 26, 2010 and
September 26, 2009, respectively
    
    
    182,067
    
    
    
    145,220Additional paid-in capital
    
    
    2,892,094
    
    
    
    2,031,340Retained earnings
    
    
    5,405,026
    
    
    
    4,536,098Total stockholders equity
    
    
    8,479,187
    
    
    
    6,712,658Total Liabilities and Stockholders Equity
    
    $
    11,524,752
    
    
    $
    9,322,276
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  3




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Three Months EndedJune 26, 2010
    
    
    June 27, 2009Net sales
    
    $
    6,350,133
    
    
    $
    2,087,083Cost of sales
    
    
    1,860,961
    
    
    
    803,714Gross profit
    
    
    4,489,172
    
    
    
    1,283,369Operating expenses:Selling, general and administrative
    
    
    695,868
    
    
    
    526,524Product development
    
    
    780,848
    
    
    
    485,679Total operating expenses
    
    
    1,476,716
    
    
    
    1,012,203Operating income
    
    
    3,012,456
    
    
    
    271,166Other income:Interest income
    
    
    1,043
    
    
    
    5.808Total other income
    
    
    1,043
    
    
    
    5,808Income before provision for income taxes
    
    
    3,013,499
    
    
    
    276,974Provision for income taxes
    
    
    590,214
    
    
    
    Net income
    
    $
    2,423,285
    
    
    $
    276,974Net income per common share:Basic
    
    $
    1.33
    
    
    $
    0.19Diluted
    
    $
    1.29
    
    
    $
    0.17Weighted average shares:Basic
    
    
    1,820,438
    
    
    
    1,451,967Diluted
    
    
    1,874,960
    
    
    
    1,621,671Dividends paid per common share:Basic
    
    $
    0.10
    
    
    
    Diluted
    
    $
    0.10
    
    
    
    
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  4




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Nine Months EndedJune 26, 2010
    
    
    June 27, 2009Net sales
    
    $
    14,690,013
    
    
    $
    5,987,130Cost of sales
    
    
    4,498,059
    
    
    
    2,255,033Gross profit
    
    
    10,191,954
    
    
    
    3,732,097Operating expenses:Selling, general and administrative
    
    
    2,327,286
    
    
    
    1,783,726Product development
    
    
    1,639,126
    
    
    
    1,277,488Total operating expenses
    
    
    3,966,412
    
    
    
    3,061,214Operating income
    
    
    6,225,542
    
    
    
    670,883Other income:Interest income
    
    
    3,081
    
    
    
    36,972Total other income
    
    
    3,081
    
    
    
    36,972Income before provision for income taxes
    
    
    6,228,623
    
    
    
    707,855Provision for income taxes
    
    
    1,536,775
    
    
    
    Net income
    
    $
    4,691,848
    
    
    $
    707,855Net income per common share:Basic
    
    $
    2.87
    
    
    $
    0.49Diluted
    
    $
    2.72
    
    
    $
    0.43Weighted average shares:Basic
    
    
    1,633,401
    
    
    
    1,455,319Diluted
    
    
    1,726,070
    
    
    
    1,642,188Dividends paid per common share:Basic
    
    $
    2.34
    
    
    
    Diluted
    
    $
    2.21
    
    
    
    
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  5




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Nine Months EndedJune 26, 2010
    
    
    June 27, 2009Operating Activities:Net income
    
    $
    4,691,848
    
    
    $
    707,855Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    116,713
    
    
    
    78,268Share-based compensation
    
    
    116,618
    
    
    
    98,795Deferred income taxes
    
    
    19,910
    
    
    
    Bad debt expense
    
    
    100,000
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (2,085,553
    )
    
    
    (393,529
    )Inventories
    
    
    (23,665
    )
    
    
    (440,106
    )Other current assets
    
    
    (76,944
    )
    
    
    (41,859
    )Customer deposits
    
    
    (1,931,831
    )
    
    
    (623,371
    )Accounts payable and other accrued liabilities
    
    
    2,339,194
    
    
    
    1,112,236Net cash provided by operating activities
    
    
    3,266,290
    
    
    
    498,289Investing Activities:Additions to equipment and leasehold improvements
    
    
    (123,856
    )
    
    
    (157,407
    )Net cash used in investing activities
    
    
    (123,856
    )
    
    
    (157,407
    )Financing Activities:Proceeds from exercise of stock options
    
    
    809,567
    
    
    
    2,311Dividends paid
    
    
    (3,822,920
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (3,013,353
    )
    
    
    2,311Net increase in cash and cash equivalents
    
    
    129,081
    
    
    
    343,193Cash and cash equivalents at beginning of the period
    
    
    5,418,419
    
    
    
    3,622,903Cash and cash equivalents at the end of the period
    
    $
    5,547,500
    
    
    $
    3,966,096Supplemental Disclosures:Interest paid
    
    $
    
    
    
    $
    Income taxes paid
    
    
    
    
    
    
    16,200
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  6




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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
    7




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




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Accounting for Income Taxes
    Share-Based Compensation
   Three and Nine Months EndedJune 26, 2010
    
    
    June 27, 2009Assumptions:Option life
    
    5 years
    
    
    5 yearsRisk-free interest rate
    
    
    2.44
    %
    
    1.8% to 2.8
    %Stock volatility
    
    
    77
    %
    
    77% to  80
    %Dividend yield
    
    
    -0-
    
    
    
    -0-
   9




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  June 26, 2010
    
    
    June 27, 20093 months
    
    
    9 months
    
    
    3 months
    
    
    9 monthsCost of sales
    
    $
    739
    
    
    $
    4,226
    
    
    $
    1,692
    
    
    $
    5,062Selling, general and administrative
    
    
    1,562
    
    
    
    67,365
    
    
    
    1,558
    
    
    
    49,870Product development costs
    
    
    14,748
    
    
    
    45,027
    
    
    
    14,474
    
    
    
    43,863Total share-based compensation expense
before taxes
    
    $
    17,049
    
    
    $
    116,618
    
    
    $
    17,724
    
    
    $
    98,795
     Options OutstandingNumber of
    
    
    Weighted Average
    
    
    Weighted AverageShares
    
    
    Exercise Price
    
    
    Contractual LifeOutstanding at September 26, 2009
    
    
    492,700
    
    
    $
    2.95
    
    
    4.72 yearsGrants
    
    
    14,000Exercises
    
    
    (381,512
    )Cancellations
    
    
    Outstanding at June 26, 2010
    
    
    125,188
    
    
    $
    4.96
    
    
    7.12 years
  10




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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
    
    
    
    3.13
    
    
    $
    0.99
    
    
    
    600
    
    
    $
    0.99$1.01 - $2.00
    
    
    200
    
    
    
    0.67
    
    
    $
    1.88
    
    
    
    200
    
    
    $
    1.88$2.01 - $3.00
    
    
    15,488
    
    
    
    5.45
    
    
    $
    3.00
    
    
    
    15,288
    
    
    $
    3.00$3.01 - $4.00
    
    
    36,400
    
    
    
    6.34
    
    
    $
    3.65
    
    
    
    20,900
    
    
    $
    3.74$4.01 - $5.00
    
    
    24,400
    
    
    
    8.11
    
    
    $
    4.76
    
    
    
    14,600
    
    
    $
    4.81$5.01 - $10.00
    
    
    48,100
    
    
    
    8.46
    
    
    $
    6.74
    
    
    
    28,900
    
    
    $
    7.01125,188
    
    
    
    7.36
    
    
    $
    4.96
    
    
    
    80,488
    
    
    $
    4.94
  NOTE 2. Inventories
  June 26, 2010
    
    
    September 26, 2009(unaudited)Finished goods
    
    $
    10,138
    
    
    $
    5,829Work in process
    
    
    890,850
    
    
    
    511,514Raw materials
    
    
    1,537,731
    
    
    
    1,897,711$
    2,438,719
    
    
    $
    2,415,054
 NOTE 3. Income Taxes
      11




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 NOTE 4. Earnings Per Share
  June 26, 2010
    
    
    June 27, 20093 months
    
    
    9 months
    
    
    3 months
    
    
    9 monthsNet income
    
    $
    2,423,285
    
    
    $
    4,691,848
    
    
    $
    276,974
    
    
    $
    707,855Weighted average shares outstanding  basic
    
    
    1,820,438
    
    
    
    1,633,401
    
    
    
    1,451,967
    
    
    
    1,455,319Dilutive effect of stock options
    
    
    54,522
    
    
    
    92,669
    
    
    
    169,704
    
    
    
    186,869Weighted average shares outstanding  diluted
    
    
    1,874,960
    
    
    
    1,726,070
    
    
    
    1,621,671
    
    
    
    1,642,188Basic net income per share
    
    $
    1.33
    
    
    $
    2.87
    
    
    $
    0.19
    
    
    $
    0.49Diluted net income per share
    
    $
    1.29
    
    
    $
    2.72
    
    
    $
    0.17
    
    
    $
    0.43
  NOTE 5. Major Customers and Export Sales
   June 26, 2010
    
    
    June 27, 20093 months
    
    
    9 months
    
    
    3 months
    
    
    9 monthsDomestic
    
    $
    6,346,794
    
    
    $
    13,966,171
    
    
    $
    1,926,608
    
    
    $
    5,649,269Foreign
    
    
    3,339
    
    
    
    723,842
    
    
    
    160,475
    
    
    
    337,861Total sales
    
    $
    6,350,133
    
    
    $
    14,690,013
    
    
    $
    2,087,083
    
    
    $
    5,987,130
  June 26, 2010
    
    
    June 27, 20093 months
    
    
    9 months
    
    
    3 months
    
    
    9 monthsThailand
    
    
    
    
    
    
    81.8
    %
    
    
    47.6
    %
    
    
    22.6
    %Saudi Arabia
    
    
    88.8
    %
    
    
    3.8
    %
    
    
    35.8
    %
    
    
    56.4
    %Slovakia
    
    
    
    
    
    
    12.1
    %
    
    
    1.6
    %
    
    
    4.6
    %Colombia
    
    
    
    
    
    
    
    
    
    
    13.4
    %
    
    
    9.4
    %Other
    
    
    11.2
    %
    
    
    2.3
    %
    
    
    1.6
    %
    
    
    7.0
    %
  12




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  June 26, 2010
    
    
    June 27, 20093 months
    
    
    9 months
    
    
    3 months
    
    
    9 monthsNorth America
(excluding the U.S.)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Central and South America
    
    
    
    
    
    
    
    
    
    
    13.4
    %
    
    
    11.2
    %Europe
    
    
    
    
    
    
    12.1
    %
    
    
    1.7
    %
    
    
    4.8
    %Mid-East and Africa
    
    
    94.9
    %
    
    
    6.1
    %
    
    
    37.3
    %
    
    
    60.5
    %Far East
    
    
    5.1
    %
    
    
    81.8
    %
    
    
    47.6
    %
    
    
    23.5
    %
  13




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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
  14




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Results of Operations
 Three Months ended June 26, 2010 as compared to Three Months ended June 27, 2009
 Net Sales
   2010
    
    
    2009Saudi Arabia
    
    $
    3,000
    
    
    $
    57,000Thailand
    
    
    
    
    
    
    76,000Colombia
    
    
    
    
    
    
    22,000Other
    
    
    
    
    
    
    5,000$
    3,000
    
    
    $
    160,000
   Gross Profit
   15




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Operating Costs and Expenses
 Selling, General and Administrative Expenses
    Product Development Costs
    Net Income
   16




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Nine Months ended June 26, 2010 as compared to Nine Months ended June 27, 2009
 Net Sales
   2010
    
    
    2009Thailand
    
    $
    592,000
    
    
    $
    76,000Slovakia
    
    
    88,000
    
    
    
    16,000Saudi Arabia
    
    
    28,000
    
    
    
    190,000Other
    
    
    16,000
    
    
    
    56,000$
    724,000
    
    
    $
    338,000
   Gross Profit
  Operating Costs and Expenses
 Selling, General and Administrative Expenses
   17




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Product Development Costs
    Net Income
   Liquidity and Capital Resources
   18




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19




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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
  20




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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
  21




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TECHNICAL COMMUNICATIONS CORPORATION(Registrant)August 9, 2010

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

Carl H. Guild, Jr., President and ChiefExecutive OfficerAugust 9, 2010

Date
    
    By:
    
    /s/ Michael P. Malone

Michael P. Malone, Chief Financial Officer
  22