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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 27, 2008
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Exchange Act
 For the transition period from  to
 Commission File Number: 0-8588
 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
  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 27, 2008 (unaudited) and September 27, 2008
    
    
    3Condensed Consolidated Income Statements for the
Three Months ended December 27, 2008 and December 29, 2007 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the
Three Months ended December 27, 2008 and December 29, 2007 (unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    17PART II Other InformationItem 1. Legal Proceedings
    
    
    19Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 3. Defaults Upon Senior Securities
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 5. Other Information
    
    
    19Item 6. Exhibits
    
    
    19Signatures
    
    
    20Exhibit 31.1Exhibit 31.2Exhibit 32.1
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December 27, 2008
    
    
    September 27, 2008(Unaudited)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    4,024,758
    
    
    $
    3,622,903Accounts receivable  trade, less allowance of $25,000
    
    
    1,401,488
    
    
    
    722,261Inventories, net
    
    
    2,096,414
    
    
    
    1,920,724Deferred income taxes
    
    
    75,000
    
    
    
    75,000Other current assets
    
    
    79,751
    
    
    
    105,666Total current assets
    
    
    7,677,411
    
    
    
    6,446,554Equipment and leasehold improvements
    
    
    3,217,975
    
    
    
    3,182,522Less: accumulated depreciation and amortization
    
    
    (2,936,347
    )
    
    
    (2,915,050
    )Equipment and leasehold improvements, net
    
    
    281,628
    
    
    
    267,472Total Assets
    
    $
    7,959,039
    
    
    $
    6,714,026Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    170,810
    
    
    $
    173,070Accrued liabilitiesAccrued compensation and related expenses
    
    
    240,211
    
    
    
    448,179Accrued expenses
    
    
    1,669,974
    
    
    
    415,090Total current liabilities
    
    
    2,080,995
    
    
    
    1,036,339Stockholders Equity:Common stock, par value $.10 per share;
7,000,000 shares authorized; 1,449,227 shares issued
and outstanding at December 27, 2008 and 1,433,767
at
September 27, 2008
    
    
    144,923
    
    
    
    143,377Additional paid-in capital
    
    
    1,934,081
    
    
    
    1,941,020Retained earnings
    
    
    3,799,040
    
    
    
    3,593,290Total stockholders equity
    
    
    5,878,044
    
    
    
    5,677,687Total Liabilities and Stockholders Equity
    
    $
    7,959,039
    
    
    $
    6,714,026
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  Page 3




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Three Months EndedDecember 27, 2008
    
    
    December 29, 2007Net sales
    
    $
    1,844,340
    
    
    $
    2,289,100Cost of sales
    
    
    659,330
    
    
    
    849,429Gross profit
    
    
    1,185,010
    
    
    
    1,439,671Operating expenses:Selling, general and
administrative expenses
    
    
    658,393
    
    
    
    435,431Product development costs
    
    
    340,942
    
    
    
    280,836Total operating expenses
    
    
    999,335
    
    
    
    716,267Operating income
    
    
    185,675
    
    
    
    723,404Other income:Interest income
    
    
    20,075
    
    
    
    28,870Total other income
    
    
    20,075
    
    
    
    28,870Net income before provision for income taxes
    
    
    205,750
    
    
    
    752,274Provision for income taxes
    
    
    
    
    
    
    Net income
    
    $
    205,750
    
    
    $
    752,274Net income per common share:Basic
    
    $
    0.14
    
    
    $
    0.54Diluted
    
    $
    0.12
    
    
    $
    0.48Weighted average shares:Basic
    
    
    1,441,309
    
    
    
    1,382,535Diluted
    
    
    1,697,366
    
    
    
    1,572,243
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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Three Months EndedDecember 27, 2008
    
    
    December 29, 2007Operating Activities:Net income
    
    $
    205,750
    
    
    $
    752,274Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    21,297
    
    
    
    10,737Stock-based compensation
    
    
    19,415
    
    
    
    13,875Changes in assets and liabilities:Accounts receivable
    
    
    (679,227
    )
    
    
    (735,410
    )Inventories
    
    
    (175,690
    )
    
    
    204,328Other current assets
    
    
    25,915
    
    
    
    11,894Accounts payable and other accrued liabilities
    
    
    1,018,264
    
    
    
    (501,046
    )Net cash provided by (used in) operating activities
    
    
    435,724
    
    
    
    (243,348
    )Investing Activities:Additions to equipment and leasehold improvements
    
    
    (35,453
    )
    
    
    (30,019
    )Net cash used in investing activities
    
    
    (35,453
    )
    
    
    (30,019
    )Financing Activities:Proceeds from stock issuance
    
    
    1,584
    
    
    
    Net cash provided by financing activities
    
    
    1,584
    
    
    
    Net increase in cash and cash equivalents
    
    
    401,855
    
    
    
    (273,367
    )Cash and cash equivalents at beginning of the period
    
    
    3,622,903
    
    
    
    2,622,288Cash and cash equivalents at the end of the period
    
    $
    4,024,758
    
    
    $
    2,348,921Supplemental Disclosures:Interest paid
    
    $
    
    
    
    $
    Income taxes paid
    
    
    500
    
    
    
    1,500
 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
  NOTE 1. Summary of Significant Accounting Policies and Significant Judgments and
Estimates
 Basis
of Presentation
    Revenue Recognition
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
   Inventory
  Accounts Receivable
  Accounting for Income Taxes
   Page 7




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
    Stock-Based Compensation
 Share-Based Payment
 Share-based
Payment
 Three Months EndedDecember 27, 2008
    
    
    December 29, 2007Assumptions:Option life
    
    
    5 years
    
    
    
    5 yearsRisk-free interest rate
    
    
    2.8
    %
    
    
    3.83
    %Stock volatility
    
    
    79
    %
    
    
    110
    %Dividend yield
    
    
    -0-
    
    
    
    -0-
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  December 27, 2008
    
    
    December 29, 2007Cost of sales
    
    $
    1,695
    
    
    $
    1,953Selling, general and administrative
    
    
    2,476
    
    
    
    3,192Product development costs
    
    
    15,245
    
    
    
    8,730Total share-based compensation expense
before taxes
    
    $
    19,415
    
    
    $
    13,875
    Options OutstandingNumber of
    
    
    Weighted Average
    
    
    Weighted AverageShares
    
    
    Exercise Price
    
    
    Contractual LifeOutstanding at September 27, 2008
    
    
    581,034
    
    
    $
    3.05Grants
    
    
    3,500Exercises
    
    
    (101,600
    )Cancellations
    
    
    (5,000
    )Outstanding at December 27, 2008
    
    
    477,934
    
    
    $
    2.86
    
    
    
    5.21 years
  Weighted-AverageRemaining
    
    
    Weighted
    
    
    Exercisable
    
    
    ExercisableRange of
    
    Number of
    
    
    Contractual
    
    
    Average
    
    
    Number of
    
    
    Weighted-AverageExercise Prices
    
    Shares
    
    
    Life (years)
    
    
    Exercise Price
    
    
    Shares
    
    
    Exercise Price$0.01  $1.00
    
    
    158,734
    
    
    
    3.80
    
    
    $
    0.96
    
    
    
    158,734
    
    
    $
    0.96$1.01  $2.00
    
    
    1,200
    
    
    
    3.06
    
    
    $
    1.27
    
    
    
    1,200
    
    
    $
    1.27$2.01  $3.00
    
    
    68,200
    
    
    
    4.12
    
    
    $
    2.56
    
    
    
    63,400
    
    
    $
    2.53$3.01  $4.00
    
    
    197,800
    
    
    
    5.78
    
    
    $
    3.58
    
    
    
    171,300
    
    
    $
    3.59$4.01  $5.00
    
    
    7,000
    
    
    
    7.17
    
    
    $
    4.83
    
    
    
    2,300
    
    
    $
    4.57$5.01  $10.00
    
    
    45,000
    
    
    
    9.12
    
    
    $
    6.62
    
    
    
    14,800
    
    
    $
    7.28477,934
    
    
    
    5.21
    
    
    $
    2.86
    
    
    
    411,734
    
    
    $
    2.54
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  Newly Issued Pronouncements
 Fair Value
Measurements (SFAS No. 157). SFAS 157
  The Fair
Value Option for Financial Assets and Financial Liabilities  Including an Amendment of Statement
of Financial Accounting Standards No. 115 (SFAS No. 159),
  NOTE 2 Inventories
  December 27, 2008
    
    
    September 27, 2008(unaudited)Finished goods
    
    $
    87,846
    
    
    $
    77,444Work in process
    
    
    836,458
    
    
    
    589,700Raw materials
    
    
    1,172,110
    
    
    
    1,253,580$
    2,096,414
    
    
    $
    1,920,724
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 NOTE 3. Income Taxes
  
  NOTE 4. Earnings Per Share
 Earnings Per Share
 December 27, 2008
    
    
    December 29, 2007Net income
    
    $
    205,750
    
    
    $
    752,274Weighted average shares  basic
    
    
    1,441,309
    
    
    
    1,382,535Dilutive effect of stock options
    
    
    256,057
    
    
    
    189,708Weighted average shares  diluted
    
    
    1,697,366
    
    
    
    1,572,243Basic income per share
    
    $
    0.14
    
    
    $
    0.54Diluted income per share
    
    $
    0.12
    
    
    $
    0.48
  NOTE 5. Major Customers and Export Sales
   December 27, 2008
    
    
    December 29, 2007Domestic
    
    $
    1,710,033
    
    
    $
    2,034,299Foreign
    
    
    134,307
    
    
    
    254,801Total sales
    
    $
    1,844,340
    
    
    $
    2,289,100
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 December 27, 2008
    
    
    December 29, 2007Saudi Arabia
    
    
    79.1
    %
    
    
    37.0
    %United Kingdom
    
    
    
    
    
    
    34.9
    %Colombia
    
    
    7.6
    %
    
    
    15.5
    %Thailand
    
    
    
    
    
    
    10.0
    %Other
    
    
    13.3
    %
    
    
    2.6
    %
  December 27, 2008
    
    
    December 29, 2007North America, excluding the U.S.
    
    
    
    
    
    
    Central and South America
    
    
    12.1
    %
    
    
    15.5
    %Europe
    
    
    
    
    
    
    37.4
    %Mid-East and Africa
    
    
    87.7
    %
    
    
    37.0
    %Far East
    
    
    0.2
    %
    
    
    10.1
    %
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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
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Results of Operations
 Three Months ended December 27, 2008 as compared to Three Months ended December 29, 2007
 Net Sales
   2009
    
    
    2008Saudi Arabia
    
    $
    106,000
    
    
    $
    94,000United Kingdom
    
    
    
    
    
    
    89,000Colombia
    
    
    10,000
    
    
    
    40,000Thailand
    
    
    
    
    
    
    25,000Other
    
    
    18,000
    
    
    
    7,000$
    134,000
    
    
    $
    255,000
   Gross Profit
   Page 14




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Operating Costs and Expenses
 Selling, General and Administrative Expenses
    Product Development Costs
    Net Income
  
  Page 15




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Liquidity and Capital Resources
          Page 16




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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.
 Report of Management on Internal Control over Financial Reporting:
 Internal ControlIntegrated Framework
  Page 17




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Changes in internal control over financial reporting
  Page 18




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Legal Proceedings
  
 Unregistered Sales of Equity Securities and Use of Proceeds
  
 Defaults Upon Senior Securities
  
 Submission of Matters to a Vote of Security Holders
  
 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 10, 2009
    By:
    /s/ Carl H. Guild, Jr.Date
    
    Carl H. Guild, Jr., President and
Chief Executive OfficerFebruary 10, 2009
    By:
    /s/ Michael P. MaloneDate
    
    Michael P. Malone, Chief Financial Officer  Page 20




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ExhibitNumber
    
    Description31.1
    
    
    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