##### 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 27, 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: 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




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##### 



PagePART I Financial InformationItem 1. Financial Statements:Condensed Consolidated Balance Sheets as of

March 27, 2010 (unaudited) and September 26, 2009
    
    
    3Condensed Consolidated Income Statements for the

Three Months ended March 27, 2010 and March 28, 2009 (unaudited)
    
    
    4Condensed Consolidated Income Statements for the

Six Months ended March 27, 2010 and March 28, 2009 (unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows for the

Six Months ended March 27, 2010 and March 28, 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 10.1Exhibit 10.2Exhibit 10.3Exhibit 31.1Exhibit 31.2Exhibit 32.1
   Page 2




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##### Table of Contents



March 27, 2010
    
    
    September 26, 2009(Unaudited)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    4,639,612
    
    
    $
    5,418,419Accounts receivable  trade, less allowance of $332,748 at
March 27, 2010 and $232,748 at September 26, 2009
    
    
    385,115
    
    
    
    402,841Inventories, net
    
    
    2,287,833
    
    
    
    2,415,054Deferred income taxes
    
    
    837,570
    
    
    
    566,294Other current assets
    
    
    122,318
    
    
    
    180,161Total current assets
    
    
    8,272,448
    
    
    
    8,982,769Equipment and leasehold improvements
    
    
    3,436,360
    
    
    
    3,369,214Less: accumulated depreciation and amortization
    
    
    (3,105,421
    )
    
    
    (3,029,707
    )Equipment and leasehold improvements, net
    
    
    330,939
    
    
    
    339,507Total Assets
    
    $
    8,603,387
    
    
    $
    9,322,276Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    374,469
    
    
    $
    250,129Customer deposits
    
    
    39,742
    
    
    
    1,964,262Deferred revenue
    
    
    53,892
    
    
    
    Accrued liabilities:Accrued compensation and related expenses
    
    
    529,342
    
    
    
    280,651Accrued income taxes
    
    
    1,189,882
    
    
    
    Accrued expenses
    
    
    195,162
    
    
    
    114,576Total current liabilities
    
    
    2,382489
    
    
    
    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 March 27, 2010 and
September 26, 2009, respectively
    
    
    182,067
    
    
    
    145,220Additional paid-in capital
    
    
    2,875,046
    
    
    
    2,031,340Retained earnings
    
    
    3,163,785
    
    
    
    4,536,098Total stockholders equity
    
    
    6,220,898
    
    
    
    6,712,658Total Liabilities and Stockholders Equity
    
    $
    8,603,387
    
    
    $
    9,322,276
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  Page 3




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Three Months EndedMarch 27, 2010
    
    
    March 28, 2009Net sales
    
    $
    3,575,865
    
    
    $
    2,055,707Cost of sales
    
    
    1,429,298
    
    
    
    791,989Gross profit
    
    
    2,146,567
    
    
    
    1,263,718Operating expenses:Selling, general and administrative
    
    
    893,785
    
    
    
    598,809Product development
    
    
    330,849
    
    
    
    450,867Total operating expenses
    
    
    1,224,634
    
    
    
    1,049,676Operating income
    
    
    921,933
    
    
    
    214,042Other income:Interest income
    
    
    762
    
    
    
    11,089Total other income
    
    
    762
    
    
    
    11,089Income before provision for income taxes
    
    
    922,695
    
    
    
    225,131Provision for income taxes
    
    
    1,010,006
    
    
    
    Net income (loss)
    
    $
    (87,311
    )
    
    $
    225,131Net income (loss) per common share:Basic
    
    $
    (0.05
    )
    
    $
    0.16Diluted
    
    $
    (0.05
    )
    
    $
    0.14Weighted average shares:Basic
    
    
    1,623,811
    
    
    
    1,450,897Diluted
    
    
    1,623,811
    
    
    
    1,625,272Dividends paid per common share:Basic
    
    $
    2.24
    
    
    
    Diluted
    
    $
    2.24
    
    
    
    
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  Page 4




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##### Table of Contents



Six Months EndedMarch 27, 2010
    
    
    March 28, 2009Net sales
    
    $
    8,339,880
    
    
    $
    3,900,047Cost of sales
    
    
    2,637,098
    
    
    
    1,451,319Gross profit
    
    
    5,702,782
    
    
    
    2,448,728Operating expenses:Selling, general and administrative
    
    
    1,631,418
    
    
    
    1,257,202Product development
    
    
    858,278
    
    
    
    791,809Total operating expenses
    
    
    2,489,696
    
    
    
    2,049,011Operating income
    
    
    3,213,086
    
    
    
    399,717Other income:Interest income
    
    
    2,038
    
    
    
    31,164Total other income
    
    
    2,038
    
    
    
    31,164Income before provision for income taxes
    
    
    3,215,124
    
    
    
    430,881Provision for income taxes
    
    
    946,561
    
    
    
    Net income
    
    $
    2,268,563
    
    
    $
    430,881Net income per common share:Basic
    
    $
    1.48
    
    
    $
    0.30Diluted
    
    $
    1.31
    
    
    $
    0.26Weighted average shares:Basic
    
    
    1,537,889
    
    
    
    1,446,103Diluted
    
    
    1,726,344
    
    
    
    1,633,150Dividends paid per common share:Basic
    
    $
    2.37
    
    
    
    Diluted
    
    $
    2.11
    
    
    
    
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  Page 5




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Six Months EndedMarch 27, 2010
    
    
    March 28, 2009Operating Activities:Net income
    
    $
    2,268,563
    
    
    $
    430,881Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    75,714
    
    
    
    46,528Share-based compensation
    
    
    99,569
    
    
    
    81,071Deferred income taxes
    
    
    (271,276
    )
    
    
    Bad debt expense
    
    
    100,000
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (82,274
    )
    
    
    (375,792
    )Inventories
    
    
    127,221
    
    
    
    (295,776
    )Other current assets
    
    
    57,843
    
    
    
    (19,241
    )Customer deposits
    
    
    (1,924,520
    )
    
    
    1,238,565Accounts payable and other accrued liabilities
    
    
    1,668,808
    
    
    
    506,954Net cash provided by operating activities
    
    
    2,119,648
    
    
    
    374,625Investing Activities:Additions to equipment and leasehold improvements
    
    
    (67,146
    )
    
    
    (123,662
    )Net cash used in investing activities
    
    
    (67,146
    )
    
    
    (123,662
    )Financing Activities:Proceeds from exercise of stock options
    
    
    809,567
    
    
    
    2,311Dividends paid
    
    
    (3,640,876
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (2,831,309
    )
    
    
    2,311Net increase (decrease) in cash and cash equivalents
    
    
    (778,807
    )
    
    
    253,274Cash and cash equivalents at beginning of the period
    
    
    5,418,419
    
    
    
    3,622,903Cash and cash equivalents at the end of the period
    
    $
    4,639,612
    
    
    $
    3,876,177Supplemental Disclosures:Interest paid
    
    $
    
    
    
    $
    Income taxes paid
    
    
    
    
    
    
    500
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  Page 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
    Page 7




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




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Accounting for Income Taxes
    Share-Based Compensation
 S
  Three and Six Months EndedMarch 27, 2010
    
    
    March 28, 2009Assumptions:Option life
    
    5 years
    
    
    5 yearsRisk-free interest rate
    
    
    2.44
    %
    
    1.8% to 2.8
    %Stock volatility
    
    
    77
    %
    
    79% to 80
    %Dividend yield
    
    
    -0-
    
    
    
    -0-
   Page 9




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  March 27, 2010
    
    
    March 28, 20093 months
    
    
    6 months
    
    
    3 months
    
    
    6 monthsCost of sales
    
    $
    1,695
    
    
    $
    3,486
    
    
    $
    1,675
    
    
    $
    3,370Selling, general and administrative
    
    
    64,158
    
    
    
    65,803
    
    
    
    45,776
    
    
    
    48,312Product development costs
    
    
    14,737
    
    
    
    30,280
    
    
    
    14,205
    
    
    
    29,389Total share-based compensation expense
before taxes
    
    $
    80,590
    
    
    $
    99,569
    
    
    $
    61,656
    
    
    $
    81,071
     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 March 27, 2010
    
    
    125,188
    
    
    $
    4.96
    
    
    7.36 years
  Page 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
    
    
    
    13,088
    
    
    $
    3.00$3.01 - $4.00
    
    
    36,400
    
    
    
    6.34
    
    
    $
    3.65
    
    
    
    20,200
    
    
    $
    3.75$4.01 - $5.00
    
    
    24,400
    
    
    
    8.11
    
    
    $
    4.76
    
    
    
    13,500
    
    
    $
    4.85$5.01 - $10.00
    
    
    48,100
    
    
    
    8.46
    
    
    $
    6.74
    
    
    
    28,100
    
    
    $
    7.07125,188
    
    
    
    7.36
    
    
    $
    4.96
    
    
    
    75,688
    
    
    $
    5.02
  NOTE 2. Inventories
  March 27, 2010
    
    
    September 26, 2009(unaudited)Finished goods
    
    $
    121,550
    
    
    $
    5,829Work in process
    
    
    914,302
    
    
    
    511,514Raw materials
    
    
    1,251,981
    
    
    
    1,897,711$
    2,287,833
    
    
    $
    2,415,054
 NOTE 3. Income Taxes
      Page 11




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 NOTE 4. Earnings Per Share
  March 27, 2010
    
    
    March 28, 20093 months
    
    
    6 months
    
    
    3 months
    
    
    6 monthsNet income
    
    $
    (87,311
    )
    
    $
    2,268,563
    
    
    $
    225,131
    
    
    $
    430,881Weighted average shares outstanding  basic
    
    
    1,623,811
    
    
    
    1,537,889
    
    
    
    1,450,897
    
    
    
    1,446,103Dilutive effect of stock options
    
    
    
    
    
    
    188,455
    
    
    
    174,375
    
    
    
    187,047Weighted average shares outstanding  diluted
    
    
    1,623,811
    
    
    
    1,726,344
    
    
    
    1,625,272
    
    
    
    1,633,150Basic net income per share
    
    $
    (0.05
    )
    
    $
    1.48
    
    
    $
    0.16
    
    
    $
    0.30Diluted net income per share
    
    $
    (0.05
    )
    
    $
    1.31
    
    
    $
    0.14
    
    
    $
    0.26
  NOTE 5. Major Customers and Export Sales
   March 27, 2010
    
    
    March 28, 20093 months
    
    
    6 months
    
    
    3 months
    
    
    6 monthsDomestic
    
    $
    2,943,695
    
    
    $
    7,619,377
    
    
    $
    2,012,627
    
    
    $
    3,722,660Foreign
    
    
    632,170
    
    
    
    720,503
    
    
    
    43,080
    
    
    
    177,387Total sales
    
    $
    3,575,865
    
    
    $
    8,339,880
    
    
    $
    2,055,707
    
    
    $
    3,900,047
  March 27, 2010
    
    
    March 28, 20093 months
    
    
    6 months
    
    
    3 months
    
    
    6 monthsThailand
    
    
    93.6
    %
    
    
    82.2
    %
    
    
    
    
    
    
    Saudi Arabia
    
    
    3.8
    %
    
    
    3.4
    %
    
    
    62.3
    %
    
    
    75.0
    %Slovakia
    
    
    
    
    
    
    12.1
    %
    
    
    30.1
    %
    
    
    7.3
    %Other
    
    
    2.6
    %
    
    
    2.3
    %
    
    
    7.6
    %
    
    
    17.7
    %
  Page 12




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  March 27, 2010
    
    
    March 28, 20093 months
    
    
    6 months
    
    
    3 months
    
    
    6 monthsNorth America
(excluding the U.S.)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Central and South America
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.2
    %Europe
    
    
    
    
    
    
    12.1
    %
    
    
    20.0
    %
    
    
    7.6
    %Mid-East and Africa
    
    
    6.4
    %
    
    
    5.7
    %
    
    
    40.0
    %
    
    
    81.5
    %Far East
    
    
    93.6
    %
    
    
    82.2
    %
    
    
    40.0
    %
    
    
    1.7
    %
  Page 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
  Page 14




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Results of Operations
 Three Months ended March 27, 2010 as compared to Three Months ended March 28, 2009
 Net Sales
   2010
    
    
    2009Thailand
    
    $
    592,000
    
    
    $
    Saudi Arabia
    
    
    24,000
    
    
    
    27,000Slovakia
    
    
    
    
    
    
    13,000Other
    
    
    16,000
    
    
    
    3,000$
    632,000
    
    
    $
    43,000
   Gross Profit
   Page 15




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




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Six Months ended March 27, 2010 as compared to Six Months ended March 28, 2009
 Net Sales
   2010
    
    
    2009Thailand
    
    $
    592,000
    
    
    $
    Slovakia
    
    
    88,000
    
    
    
    13,000Saudi Arabia
    
    
    25,000
    
    
    
    133,000Other
    
    
    16,000
    
    
    
    31,000$
    721,000
    
    
    $
    177,000
   Gross Profit
  Operating Costs and Expenses
 Selling, General and Administrative Expenses
   Page 17




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Product Development Costs
    Net Income
    Liquidity and Capital Resources
   Page 18




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Page 19




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##### 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 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
 10.1
    
    
    Purchase Order from Datron World Communications dated April 16, 2010
110.2
    
    
    Purchase Order from Datron World Communications dated April 16, 2010
110.3
    
    
    Purchase Order from Datron World Communications dated April 21, 2010
131.1
    
    
    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
 
 1
    

(Confidential portions of this exhibit have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment.)
  Page 21




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TECHNICAL COMMUNICATIONS CORPORATION(Registrant)May 11, 2010
    By:
    /s/ Carl H. Guild, Jr.Date
    
    Carl H. Guild, Jr., President and ChiefExecutive OfficerMay 11, 2010
    By:
    /s/ Michael P. MaloneDate
    
    Michael P. Malone, Chief Financial Officer  Page 22