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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 28, 2013

 

¨ 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

(Exact name of registrant as specified in its charter)

 

 

 

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)

Registrant’s telephone number, including area code: (978) 287-5100

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date. 1,838,921 shares of Common Stock, $0.10 par value, outstanding as of February 7, 2014.

 

 

 


Table of Contents

INDEX

 

          Page  
PART I    Financial Information   

Item 1.

   Financial Statements:   
   Condensed Consolidated Balance Sheets as of
December 28, 2013 (unaudited) and September 28, 2013 (unaudited)
     1   
   Condensed Consolidated Statements of Operations for the
Three Months ended December 28, 2013 (unaudited) and December 29, 2012 (unaudited)
     2   
   Condensed Consolidated Statements of Comprehensive Income (Loss) for the
Three Months ended December 28, 2013 (unaudited) and December 29, 2012 (unaudited)
     3   
   Condensed Consolidated Statements of Cash Flows for the
Three Months ended December 28, 2013 (unaudited) and December 29, 2012 (unaudited)
     4   
   Notes to Condensed Consolidated Financial Statements      5   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      14   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      19   

Item 4.

   Controls and Procedures      19   
PART II    Other Information   

Item 1.

   Legal Proceedings      20   

Item 1A.

   Risk Factors      20   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      20   

Item 3.

   Defaults Upon Senior Securities      20   

Item 4.

   Mine Safety Disclosures      20   

Item 5.

   Other Information      20   

Item 6.

   Exhibits      20   
   Signatures      21   


Table of Contents

TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

 

     December 28,
2013
    September 28,
2013
 

Assets

    

Current Assets:

    

Cash and cash equivalents

   $ 3,929,989      $ 2,810,923   

Marketable securities

    

Available for sale securities

     1,741,614        1,247,384   

Held to maturity securities

     518,709        522,856   

Accounts receivable - trade, less allowance of $25,000 at December 28, 2013 and September 28, 2013

     293,680        1,375,764   

Inventories

     2,214,034        2,618,604   

Income taxes receivable

     651,508        723,988   

Deferred income taxes

     894,459        894,459   

Other current assets

     157,796        225,583   
  

 

 

   

 

 

 

Total current assets

     10,401,789        10,419,561   
  

 

 

   

 

 

 

Marketable securities

    

Held to maturity securities

     1,453,870        1,462,622   

Equipment and leasehold improvements

     4,315,701        4,300,304   

Less: accumulated depreciation and amortization

     (3,881,835     (3,831,402
  

 

 

   

 

 

 

Equipment and leasehold improvements, net

     433,866        468,902   
  

 

 

   

 

 

 

Total Assets

   $ 12,289,525      $ 12,351,085   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current Liabilities:

    

Accounts payable

   $ 213,604      $ 261,588   

Customer deposits

     48,766        259,602   

Accrued liabilities:

    

Accrued compensation and related expenses

     243,716        241,003   

Accrued expenses

     143,385        166,848   
  

 

 

   

 

 

 

Total current liabilities

     649,471        929,041   
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholders’ Equity:

    

Common stock, par value $0.10 per share;
7,000,000 shares authorized; 1,838,716 shares
issued and outstanding at December 28, 2013 and September 28, 2013

     183,872        183,872   

Additional paid-in capital

     3,813,033        3,774,759   

Accumulated other comprehensive loss

     (6,434     (2,020

Retained earnings

     7,649,583        7,465,433   
  

 

 

   

 

 

 

Total stockholders’ equity

     11,640,054        11,422,044   
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 12,289,525      $ 12.351,085   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

1


Table of Contents

TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

 

     Three Months Ended  
     December 28, 2013      December 29, 2012  

Net sales

   $ 2,508,720       $ 1,596,696   

Cost of sales

     788,860         494,964   
  

 

 

    

 

 

 

Gross profit

     1,719,860         1,101,732   

Operating expenses:

     

Selling, general and administrative

     707,118         777,897   

Product development

     761,885         855,411   
  

 

 

    

 

 

 

Total operating expenses

     1,469,003         1,633,308   
  

 

 

    

 

 

 

Operating income (loss)

     250,857         (531,576
  

 

 

    

 

 

 

Other income:

     

Interest income

     6,685         7,274   
  

 

 

    

 

 

 

Income (loss) before provision (benefit) for income taxes

     257,542         (524,302

Provision (benefit) for income taxes

     73,392         (214,112
  

 

 

    

 

 

 

Net income (loss)

   $ 184,150       $ (310,190
  

 

 

    

 

 

 

Net income (loss) per common share:

     

Basic

   $ 0.10       $ (0.17

Diluted

   $ 0.10       $ (0.17

Weighted average shares:

     

Basic

     1,838,716         1,838,716   

Diluted

     1,868,468         1,838,716   

Dividends paid per common share:

     —         $ 0.10   

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2


Table of Contents

TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

 

     Three Months Ended  
     December 28, 2013     December 29, 2012  

Net income (loss)

   $ 184,150      $ (310,190

Unrealized loss on available for sale securities, net of tax

     (4,414     (1,002
  

 

 

   

 

 

 

Comprehensive income (loss)

   $ 179,736      $ (311,192
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3


Table of Contents

TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

     Three Months Ended  
     December 28, 2013     December 29, 2012  

Operating Activities:

    

Net income (loss)

   $ 184,150      $ (310,190

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

    

Depreciation and amortization

     50,433        53,995   

Share-based compensation

     38,274        44,915   

Deferred income taxes

     —          (67,505

Amortization of premium on held to maturity securities

     16,669        —     

Unrealized loss on available for sale securities

     (4,414     (1,002

Changes in certain operating assets and liabilities:

    

Accounts receivable

     1,082,084        295,868   

Inventories

     404,570        191,891   

Income taxes receivable

     72,480        (147,113

Other current assets

     67,787        4,697   

Customer deposits

     (210,836     108,818   

Accounts payable and other accrued liabilities

     (68,734     (71,866
  

 

 

   

 

 

 

Net cash provided by operating activities

     1,632,463        102,508   
  

 

 

   

 

 

 

Investing Activities:

    

Additions to equipment and leasehold improvements

     (15,397     (16,417

Proceeds from maturities of marketable securities

     498,000        23,536   

Purchases of marketable securities

     (996,000     (59,776
  

 

 

   

 

 

 

Net cash used in investing activities

     (513,397     (52,657
  

 

 

   

 

 

 

Financing Activities:

    

Dividends paid

     —          (183,872
  

 

 

   

 

 

 

Net cash used in financing activities

     —          (183,872
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     1,119,066        (134,021

Cash and cash equivalents at beginning of the period

     2,810,923        2,056,311   
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ 3,929,989      $ 1,922,290   
  

 

 

   

 

 

 

Supplemental Disclosures:

    

Interest paid

   $ —        $ —     

Income taxes paid

     942        506   

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


Table of Contents

TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

STATEMENT OF FAIR PRESENTATION

Interim Financial Statements. The accompanying interim unaudited condensed consolidated financial statements of Technical Communications Corporation (the “Company” or “TCC”) and its wholly-owned subsidiary include all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented and in order to make the financial statements not misleading. All such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of the results to be expected for the fiscal year ending September 27, 2014.

Certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as allowed by Securities and Exchange Commission (“SEC”) rules and regulations. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K for the fiscal year ended September 28, 2013 as filed with the SEC.

We follow accounting standards set by the Financial Accounting Standards Board, commonly referred to as the FASB. The FASB sets generally accepted accounting principles (“GAAP”) that we follow to ensure we consistently report our financial condition, results of operations, and cash flows. References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards CodificationTM - sometimes referred to as the Codification or ASC.

 

NOTE 1. Summary of Significant Accounting Policies and Significant Judgments and Estimates

Basis of Presentation. The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods.

On an ongoing basis, management evaluates its estimates and judgments, including but not limited to those related to revenue recognition, inventory reserves, receivable reserves, marketable securities, income taxes, fair value of financial instruments and share-based compensation. Management bases its estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature estimates are subject to an inherent degree of uncertainty. Actual results may differ from these estimates under different assumptions or conditions.

The accounting policies that management believes are most critical to aid in fully understanding and evaluating our reported financial results include the following:

Revenue Recognition

Product revenue is recognized when there is persuasive evidence of an arrangement, the fee is fixed or determinable, delivery of the product to the customer has occurred and we have determined that collection

 

5


Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

 

of the fee is probable. Title to the product generally passes upon shipment of the product, as the products are shipped FOB shipping point, except for certain foreign shipments for which title passes upon entry of the product into the first port in the buyer’s country. If the product requires installation to be performed by TCC, all revenue related to the product is deferred and recognized upon completion of the installation. We provide for a warranty reserve at the time the product revenue is recognized.

We perform funded research and development and technology development for commercial companies and government agencies under both cost reimbursement and fixed-price contracts. Cost reimbursement contracts provide for the reimbursement of allowable costs and, in some situations, the payment of a fee. These contracts may contain incentive clauses providing for increases or decreases in the fee depending on how actual costs compare with a budget. Revenue from reimbursement contracts is recognized as services are performed. On fixed-price contracts that are expected to exceed one year in duration, revenue is recognized pursuant to the proportional performance method based upon the proportion of actual costs incurred to the total estimated costs for the contract. In each type of contract, we receive periodic progress payments or payments upon reaching interim milestones, and we retain the rights to the intellectual property developed in government contracts. All payments to TCC for work performed on contracts with agencies of the U.S. government are subject to audit and adjustment by the Defense Contract Audit Agency. Adjustments are recognized in the period made. When current estimates of total contract revenue and contract costs for a product development contract indicate a loss, a provision for the entire loss on the contract is recorded. Any losses incurred in performing funded research and development projects are recognized as funded research and development expenses.

Cost of product revenue includes material, labor and overhead. Costs incurred in connection with funded research and development are included in cost of sales. Product development costs are charged to billable engineering services, bid and proposal efforts or support of business development activities as appropriate. Product development costs charged to billable projects are recorded as cost of sales; engineering costs charged to bid and proposal efforts are recorded as selling expenses; and product development costs charged to business development activities are recorded as marketing expenses. Product development costs consist primarily of personnel costs, outside contractor and engineering services, supplies and materials.

Inventory

We value our inventory at the lower of actual cost (based on first-in, first-out (FIFO)) to purchase and/or manufacture or the current estimated market value (based on the estimated selling prices, less the cost to sell) of the inventory. We periodically review inventory quantities on hand and record a provision for excess and/or obsolete inventory based primarily on our estimated forecast of product demand, as well as historical usage. Due to the custom and specific nature of certain of our products, demand and usage for products and materials can fluctuate significantly. A significant decrease in demand for our products could result in a short-term increase in the cost of inventory purchases and an increase in excess inventory quantities on hand. In addition, our industry is characterized by rapid technological change, frequent new product development and rapid product obsolescence, any of which could result in an increase in the amount of obsolete inventory quantities on hand. Therefore, although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a significant negative impact on the value of our inventory and would reduce our reported operating results.

Accounts Receivable

Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. The estimated allowance for uncollectible amounts is based primarily on a specific analysis of accounts in the receivable portfolio and historical write-off experience. While management believes the allowance to be adequate, if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required, which would reduce net income. The allowance recorded for accounts receivable at December 28, 2013 and September 28, 2013 was $25,000.

 

6


Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

 

Marketable Securities

The Company accounts for marketable securities in accordance with FASB ASC 320, Investments - Debt and Equity Securities. All marketable securities must be classified as one of the following: held to maturity, available for sale, or trading. The Company holds certain marketable securities classified as available for sale or held to maturity. The available for sale investments are valued at fair value, with unrealized holding gains and losses reported in stockholders’ equity as a separate component of accumulated other comprehensive income (loss). The cost of securities sold is determined based on the specific identification method. Realized gains and losses, and declines in value judged to be other than temporary, are included in investment income. The Company’s held to maturity securities, comprised of investments in municipal bonds, are valued at amortized cost. The purchase discount or premium is amortized to income or expense, respectively, over the life of the securities.

Accounting for Income Taxes

The preparation of our consolidated financial statements requires us to estimate our income taxes in each of the jurisdictions in which we operate, including those outside the United States, which may subject the Company to certain risks that ordinarily would not be expected in the United States. The income tax accounting process involves estimating our actual current exposure together with assessing temporary differences resulting from differing treatments of items, such as deferred revenue, for tax and accounting purposes. These differences result in the recognition of deferred tax assets and liabilities. We must then record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.

Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against deferred tax assets. We have recorded a valuation allowance against our deferred tax assets of approximately $1.1 million as of December 28, 2013 due to uncertainties related to our ability to utilize these assets. The valuation allowance is based on our estimates of taxable income by jurisdiction and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to adjust our valuation allowance, which could materially impact our financial position and results of operation.

Due to the nature of our current operations in foreign countries (selling products into these countries with the assistance of local representatives), the Company has not been subject to any foreign taxes in recent years, and it is not anticipated that we will be subject to foreign taxes in the near future.

Fair Value of Financial Instruments

In determining the fair value of financial instruments, the Company follows the provisions of FASB ASC 820, Fair Value Measurements and Disclosures. FASB ASC 820 defines fair value, establishes a framework for measuring fair value under GAAP and enhances disclosures about fair value measurements. The topic provides a consistent definition of fair value which focuses on an exit price, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The topic also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date. The three level hierarchy is as follows:

 

Level 1    -    Pricing inputs are quoted prices available in active markets for identical investments as of the reporting date.
Level 2    -    Pricing inputs are quoted prices for similar investments, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

 

Level 3    -    Pricing inputs are unobservable for the investment, that is, inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

The Company holds certain marketable securities classified as available for sale. These available for sale securities are comprised of certificates of deposit in U.S. banks and money market funds held in a brokerage account. The fair value of these investments is based on quoted prices from recognized pricing services (e.g. Standard & Poor’s, Bloomberg, etc.), or in the case of mutual funds, at their closing net asset value.

The Company assesses the levels of the investments at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with the Company’s accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. During the three months ended December 28, 2013, there were no transfers between levels.

The following table sets forth by level, within the fair value hierarchy, the financial instruments carried at fair value as of December 28, 2013 and September 28, 2013, in accordance with the fair value hierarchy as defined above. As of December 28, 2013 and September 28, 2013, the Company did not hold any assets classified as Level 3.

 

     Total      Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
 

December 28, 2013 (Unaudited)

        

Certificates of deposits:

        

Certificates of deposit

   $ 1,741,614       $ —         $ 1,741,614   
  

 

 

    

 

 

    

 

 

 

Total debt instruments

     1,741,614         —           1,741,614   
  

 

 

    

 

 

    

 

 

 

Mutual funds:

        

Money market funds

     1,398,279         1,398,279         —     
  

 

 

    

 

 

    

 

 

 

Total mutual funds

     1,398,279         1,398,279         —     
  

 

 

    

 

 

    

 

 

 

Total investments

   $ 3,139,893       $ 1,398,279       $ 1,741,614   
  

 

 

    

 

 

    

 

 

 

September 28, 2013

        

Certificates of deposits:

        

Certificates of deposit

   $ 1,247,384       $ —         $ 1,247,384   
  

 

 

    

 

 

    

 

 

 

Total debt instruments

     1,247,384         —           1,247,384   
  

 

 

    

 

 

    

 

 

 

Mutual funds:

        

Money market funds

     880,230         880,230         —     
  

 

 

    

 

 

    

 

 

 

Total mutual funds

     880,230         880,230         —     
  

 

 

    

 

 

    

 

 

 

Total investments

   $ 2,127,614       $ 880,230       $ 1,247,384   
  

 

 

    

 

 

    

 

 

 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

 

Assets and liabilities measured at fair value on a nonrecurring basis are recognized at fair value subsequent to initial recognition when they are deemed to be impaired. As of December 28, 2013 and September 28, 2013, the Company’s assets and liabilities subject to measurement at fair value on a nonrecurring basis are equipment and leasehold improvements. Neither was deemed to be impaired or measured at fair value on a nonrecurring basis.

Share-Based Compensation

Share-based compensation cost is measured at the grant date based on the calculated fair value of the award. The expense is recognized over the employee’s requisite service period, generally the vesting period of the award. The related excess tax benefit received upon the exercise of stock options, if any, is reflected in the Company’s statement of cash flows as a financing activity rather than an operating activity. There were no excess tax benefits for the three month periods ended December 28, 2013 and December 29, 2012.

The Company selected the Black-Scholes option pricing model as the method for determining the estimated fair value of its stock awards. The Black-Scholes method of valuation requires several assumptions: (1) the expected term of the stock award, (2) the expected future stock price volatility over the expected term, (3) a risk-free interest rate and (4) the expected dividend rate. The expected term represents the expected period of time the Company believes the options will be outstanding based on historical information. Estimates of expected future stock price volatility are based on the historic volatility of the Company’s common stock and the risk free interest rate is based on the U.S. Treasury Note rate. The Company utilizes a forfeiture rate based on an analysis of its actual experience. The forfeiture rate is not material to the calculation of share-based compensation.

The fair value of options at date of grant was estimated with the following assumptions (unaudited):

 

     Three Months Ended  
     December 28, 2013     December 29, 2012  

Option term

     6.5 years        6.5 years   

Risk-free interest rate

     1.33     0.71 %

Stock price volatility

     65     66 %

Dividend yield

     —          —    

There were 200 options granted during the three months ended December 28, 2013, and 1,000 options granted during the three months ended December 29, 2012. The weighted average grant date fair value for the options granted for the three month periods ended December 28, 2013 and December 29, 2012 was $4.67 and $3.29, respectively.

The following table summarizes share-based compensation costs included in the Company’s condensed consolidated income statements for the three month periods ended December 28, 2013 and December 29, 2012 (unaudited):

 

     December 28, 2013      December 29, 2012  

Cost of sales

   $ 4,080       $ 4,074   

Selling, general and administrative expenses

     11,930         11,967   

Product development expenses

     22,264         28,874   
  

 

 

    

 

 

 

Total share-based compensation expense before taxes

   $ 38,274       $ 44,915   
  

 

 

    

 

 

 

As of December 28, 2013 and September 28, 2013, there was $252,498 and $289,838, respectively, of unrecognized compensation cost related to options granted. The unrecognized compensation cost will be recognized as the options vest. As of December 28, 2013, the weighted average period over which the compensation cost is expected to be recognized is 1.9 years.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

 

The Company had the following stock option plans outstanding as of December 28, 2013: the Technical Communications Corporation 2001 Stock Option Plan, the 2005 Non-Statutory Stock Option Plan and the 2010 Equity Incentive Plan. There were an aggregate 750,000 shares authorized for issuance under these plans, of which options to purchase 257,782 shares were outstanding at December 28, 2013. Vesting periods for options are at the discretion of the Board of Directors and typically range between zero and five years. Options under these plans are granted with an exercise price equal to fair market value at time of grant and have a term of ten years from the date of grant.

As of December 28, 2013, there were no shares available for new option grants under the 2001 Stock Option Plan; there were 33,028 shares available for grant under the 2005 Non-Statutory Stock Option Plan and 54,206 shares available for grant under the 2010 Equity Plan.

The following table summarizes stock option activity during the first three months of fiscal 2014 (unaudited):

 

     Options Outstanding
     Number of Shares      Weighted  Average
Exercise Price
     Weighted Average
Contractual Life
     Unvested     Vested      Total        

Outstanding, September 28, 2013

     60,488        197,094         257,582       $ 8.83       6.21 years

Grants

     200        —           200         7.65      

Vested

     (1,600     1,600         —           8.02      

Cancellations/forfeitures

     —          —           —           
  

 

 

   

 

 

    

 

 

       

Outstanding, December 28, 2013

     59,088        198,694         257,782       $ 8.83       5.96 years
  

 

 

   

 

 

    

 

 

       

Information related to the stock options vested and expected to vest as of December 28, 2013 is as follows (unaudited):

 

Range of Exercise Prices

   Number of
Shares
     Weighted-Average
Remaining
Contractual
Life (years)
     Weighted
Average
Exercise Price
     Exercisable
Number of
Shares
     Exercisable
Weighted-
Average
Exercise  Price
 

$2.01 - $3.00

     15,288         1.69       $ 3.00         15,288       $ 3.00   

$3.01 - $4.00

     16,600         2.58       $ 3.66         16,600       $ 3.66   

$4.01 - $5.00

     28,900         7.18       $ 4.79         27,000       $ 4.78   

$5.01 - $10.00

     54,600         5.51       $ 7.43         50,780       $ 7.38   

$10.01 - $15.00

     142,394         6.74       $ 11.41         89,026       $ 11.36   
  

 

 

          

 

 

    
     257,782         5.96       $ 8.83         198,694       $ 8.16   
  

 

 

          

 

 

    

The aggregate intrinsic value of the Company’s “in-the-money” outstanding and exercisable options as of December 28, 2013 and September 28, 2013 was $272,881 and $159,521, respectively. Unvested common stock options are subject to the risk of forfeiture until the fulfillment of specified conditions.

 

NOTE 2. Inventories

Inventories consisted of the following:

 

     December 28, 2013      September 28, 2013  
     (unaudited)         

Finished goods

   $ 10,295       $ 10,295   

Work in process

     696,102         1,110,169   

Raw materials

     1,507,637         1,498,140   
  

 

 

    

 

 

 
   $ 2,214,034       $ 2,618,604   
  

 

 

    

 

 

 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

 

NOTE 3. Income Taxes

During the three months ended December 28, 2013, the Company recorded an income tax provision based on its expected effective tax rate for its 2014 fiscal year. The effective tax rate for the first quarter of fiscal year 2014 was 28.5% as compared to 40.8% for the same period of fiscal 2013, primarily because of a reduction in state research tax credits in the first fiscal quarter of 2014 as compared to the same period in fiscal 2013.

Deferred tax assets consist of tax credits, inventory differences and other temporary differences. The Company’s valuation allowance is related to the temporary differences associated with its inventory. The Company has determined that the tax benefit related to its obsolete inventory will not likely be realized, and therefore has provided a full valuation allowance against the related deferred tax asset. It is the Company’s intention to maintain the related inventory items for the foreseeable future to support equipment in the field, and therefore cannot determine when the tax benefit, if any, will be realized.

 

NOTE 4. Earnings Per Share

Basic and diluted earnings per share were calculated as follows (unaudited):

 

     December 28, 2013      December 29, 2012  

Net income (loss)

   $ 184,150       $ (310,190
  

 

 

    

 

 

 

Weighted average shares outstanding - basic

     1,838,716         1,838,716   

Dilutive effect of stock options

     29,752         —     
  

 

 

    

 

 

 

Weighted average shares outstanding - diluted

     1,868,468         1,838,716   
  

 

 

    

 

 

 

Basic net income (loss) per share

   $ 0.10       $ (0.17

Diluted net income (loss) per share

   $ 0.10       $ (0.17

Outstanding potentially dilutive stock options, which were not included in the earnings per share calculations because their inclusion would have been anti-dilutive, were 166,794 at December 28, 2013 and 201,019 at December 29, 2012.

 

NOTE 5. Major Customers and Export Sales

During the quarter ended December 28, 2013, the Company had three customers that represented 92% (70%, 12% and 10%, respectively) of net sales as compared to the quarter ended December 29, 2012, during which two customers represented 90% (60% and 30%, respectively) of net sales.

A breakdown of foreign and domestic net sales is as follows (unaudited):

 

     December 28, 2013      December 29, 2012  

Domestic

   $ 2,262,754       $ 1,516,953   

Foreign

     245,966         79,743   
  

 

 

    

 

 

 

Total sales

   $ 2,508,720       $ 1,596,696   
  

 

 

    

 

 

 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

 

The Company sold products into one country during the three month period ended December 28, 2013 and two countries during the three month period ended December 29, 2012. A sale is attributed to a foreign country based on the location of the contracting party. Domestic revenue may include the sale of products shipped through domestic resellers or manufacturers to international destinations. The table below summarizes our foreign revenues by country as a percentage of total foreign revenue (unaudited).

 

     December 28, 2013     December 29, 2012  

Colombia

     100     —     

Saudi Arabia

     —          92

Jordan

     —          8

A summary of foreign revenue, as a percentage of total foreign revenue by geographic area, is as follows (unaudited):

 

     December 28, 2013     December 29, 2012  

North America (excluding the U.S.)

     —          —     

Central and South America

     100     —     

Europe

     —          —     

Mid-East and Africa

     —          100

Far East

     —          —     

 

NOTE 6. Cash Equivalents and Marketable Securities

The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents. Substantially all cash equivalents are invested in money market mutual funds. Money market mutual funds held in a brokerage account are considered available for sale. The Company accounts for marketable securities in accordance with FASB ASC 320, Investments - Debt and Equity Securities. All marketable securities must be classified as one of the following: held to maturity, available for sale, or trading. The Company classifies its marketable securities as either available for sale or held to maturity. Available for sale securities are carried at fair value, with unrealized holding gains and losses reported in stockholders’ equity as a separate component of accumulated other comprehensive income (loss). Held to maturity securities are carried at amortized cost. The cost of securities sold is determined based on the specific identification method. Realized gains and losses, and declines in value judged to be other than temporary, are included in investment income. During fiscal year 2013, the Company determined it would hold its investment in municipal bonds until maturity and subsequently reclassified these securities from available for sale to held to maturity. These securities are now carried at amortized cost.

As of December 28, 2013, available for sale securities consisted of the following (unaudited):

 

     Cost      Accrued
Interest
     Gross Unrealized      Estimated
Fair Value
 
           Gains      Losses     

Money market funds

   $ 1,398,279       $ —          $ —         $ —         $ 1,398,279   

Certificates of deposit

     1,746,031         2,017         —           6,434         1,741,614   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 3,144,310       $ 2,017       $ —         $ 6,434       $ 3,139,893   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

 

As of December 28, 2013, held to maturity securities consisted of the following (unaudited):

 

     Cost      Accrued
Interest
     Amortization
Bond Premium
     Amortized
Cost
     Unrealized
Gains
     Estimated
Fair Value
 

Municipal bonds

   $ 2,056,276       $ 28,046       $ 111,743       $ 1,972,579       $ 14,077       $ 1,986,656   

As of September 28, 2013, available for sale securities consisted of the following:

 

     Cost      Accrued
Interest
    

Gross Unrealized

     Estimated
Fair  Value
 
           Gains      Losses     

Money market funds

   $ 801,337       $ —         $ —         $ —         $ 801,337   

Certificates of deposit

     1,248,043         1,186         —           1,845         1,247,384   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 2,049,380       $ 1,186       $ —         $ 1,845       $ 2,048,721   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of September 28, 2013, held to maturity securities consisted of the following:

 

     Cost      Accrued
Interest
     Amortization
Bond Premium
     Amortized
Cost
     Unrealized
Gains
     Estimated
Fair Value
 

Municipal bonds

   $ 2,056,276       $ 24,087       $ 94,885       $ 1,985,478       $ 10,425       $ 1,995,903   

The contractual maturities of available for sale investments as of December 28, 2013 were all due within eighteen months. The contractual maturities of held to maturity investments as of December 28, 2013 were as follows (unaudited):

 

     Cost      Amortized Cost  

Within 1 year

   $ 549,623       $ 518,709   

After 1 year through 5 years

     1,506,653         1,453,870   
  

 

 

    

 

 

 
   $ 2,056,276       $ 1,972,579   
  

 

 

    

 

 

 

The Company’s available for sale securities were included in the following captions in the consolidated balance sheets:

 

     December 28, 2013      September 28, 2013  
     (unaudited)         

Cash and cash equivalents

   $ 1,398,279       $ 880,230   

Marketable securities

     1,741,614         1,247,384   
  

 

 

    

 

 

 
   $ 3,139,893       $ 2,127,614   
  

 

 

    

 

 

 

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain statements contained herein or as may otherwise be incorporated by reference herein that are not purely historical constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include but are not limited to statements regarding anticipated operating results, future earnings, and the Company’s ability to achieve growth and profitability. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, including but not limited to the effect of foreign political unrest; future changes in export laws or regulations; changes in technology; domestic and foreign government policies and economic conditions; the ability to hire, retain and motivate technical, management and sales personnel; the risks associated with the technical feasibility and market acceptance of new products; changes in telecommunications protocols; the effects of changing costs, exchange rates and interest rates; and the Company’s ability to secure adequate capital resources. Such risks, uncertainties and other factors could cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. For a more detailed discussion of the risks facing the Company, see the Company’s filings with the SEC, including its Annual Report on Form 10-K for the fiscal year ended September 28, 2013.

Overview

The Company designs, manufactures, markets and sells communications security equipment that utilizes various methods of encryption to protect the information being transmitted. Encryption is a technique for rendering information unintelligible, which information can then be reconstituted if the recipient possesses the right decryption “key”. The Company manufactures several standard secure communications products and also provides custom-designed, special-purpose secure communications products for both domestic and international customers. The Company’s products consist primarily of voice, data and facsimile encryptors. Revenue is generated principally from the sale of these products, which have traditionally been to foreign governments either through direct sale, pursuant to a U.S. government contract, or made as a sub-contractor to domestic corporations under contract with the U.S. government. We have also sold these products to commercial entities and U.S. government agencies. We generate additional revenues from contract engineering services performed for certain government agencies, both domestic and foreign, and commercial entities.

Critical Accounting Policies and Significant Judgments and Estimates

There have been no material changes in the Company’s critical accounting policies or critical accounting estimates since September 28, 2013, nor have we adopted any accounting policy that has or will have a material impact on our consolidated financial statements. For further discussion of our accounting policies see Note 1, Summary of Significant Accounting Policies and Significant Judgments and Estimates in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q and the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended September 28, 2013 as filed with the SEC.

 

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Results of Operations

Three Months ended December 28, 2013 as compared to Three Months ended December 29, 2012

Net Sales

Net sales for the quarter ended December 28, 2013 were $2,509,000, compared to $1,597,000 for the quarter ended December 29, 2012, an increase of 57%. Sales for the first quarter of fiscal 2014 consisted of $2,263,000, or 90%, from domestic sources and $246,000, or 10%, from international customers as compared to the same period in fiscal 2013, during which sales consisted of $1,517,000, or 95%, from domestic sources and $80,000, or 5%, from international customers.

Foreign sales consisted of shipments to one country during the quarter ended December 28, 2013 and two countries during the quarter ended December 29, 2012. A sale is attributed to a foreign country based on the location of the contracting party. Domestic revenue may include the sale of products shipped through domestic resellers or manufacturers to international destinations. The table below summarizes our principal foreign sales by country during the first quarters of fiscal 2014 and 2013:

 

     2014      2013  

Colombia

   $ 246,000       $ —     

Saudi Arabia

     —           74,000   

Jordan

     —           6,000   
  

 

 

    

 

 

 
   $ 246,000       $ 80.000   
  

 

 

    

 

 

 

For the three months ended December 28, 2013, product sales revenue was derived from the Company making additional shipments, amounting to $1,764,000, to the U.S. Army Communications and Electronics Command to upgrade the DSD 72A-SP military bulk encryption system currently in use by the Government of Egypt. In addition, we sold our secure telephone, fax, and data encryptors to a foreign customer amounting to $246,000. The Company made shipments of our narrowband radio encryptors to supply the secure radio and telephone encryption solutions, and supplied customized cryptographic services and tools, for a domestic prime contractor supporting a government customer in North Africa amounting to $249,000 during the quarter. The Company also made shipments of our narrowband radio encryptors to supply the secure radio and telephone encryption solutions for a domestic customer supporting a government customer in North Africa amounting to $130,000 during the period.

Revenue for the first quarter of fiscal 2013 was primarily derived from the sale of the Company’s narrowband radio encryptors to a U.S. radio manufacturer for deployment into Afghanistan amounting to $955,000. In addition, we sold engineering services amounting to $440,000 and we had sales of our link encryptor into the Middle East amounting to $73,000. Royalty income for the quarter amounted to $43,000.

Gross Profit

Gross profit for the first quarter of fiscal 2014 was $1,720,000, compared to gross profit of $1,102,000 for the same period of fiscal 2013. Gross profit expressed as a percentage of sales was 69% for each of the periods. The increase in gross profit was the result of the higher sales volume during the quarter ended December 28, 2013.

Operating Costs and Expenses

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the first quarter of fiscal 2014 were $707,000, compared to $778,000 for the same quarter in fiscal 2013. This decrease of 9% was attributable to a decrease in selling and marketing expenses of $92,000, partially offset by an increase in general and administrative expenses of $21,000 during the first quarter of the 2014 fiscal year.

 

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The decrease in selling and marketing expenses for the three months ended December 28, 2013 was primarily attributable to a decrease in product evaluation costs of $73,000, a decrease in engineering sales support expenses of $37,000, as well as a decrease in outside sales and marketing agreements of $19,000. These decreases were offset by increases in trade show and product demonstration costs of $22,000 and an increase in direct customer support efforts of $11,000 during the quarter.

The increase in general and administrative costs during the first quarter of 2014 was primarily attributable to increases in personnel-related costs of $46,000 and professional and other public company fees of $24,000 for the period. These increases were partially offset by a decrease in charitable contributions of $30,000 and recruiting costs of $21,000 during the quarter.

Product Development Costs

Product development costs for the quarter ended December 28, 2013 were $762,000, compared to $855,000 for the quarter ended December 29, 2012, a decrease of $93,000 or 11%. The decrease was attributable to project development cost decreases in outside contractor costs of $142,000, project material costs of $36,000 and personnel-related costs of $19,000. The decrease was partially offset by a decrease in engineering support of sales and business development activities, which resulted in increased product development costs of approximately $112,000.

Engineering department costs are charged to product development, billable engineering services, bid and proposal efforts or support of business development activities, as appropriate. Engineering department costs charged to billable projects are recorded as cost of sales; engineering department costs charged to bid and proposal efforts are recorded as selling expenses; and engineering department costs charged to business development activities are recorded as marketing expenses.

The Company actively sells its engineering services in support of funded research and development. The receipt of these orders is sporadic, although such programs can span over several months. In addition to these programs, the Company also invests in research and development to enhance its existing products or to develop new products, as it deems appropriate. There was no billable engineering services revenue generated during the first quarter of fiscal 2014 as compared with $440,000 of billable engineering services revenue which was generated during the first quarter of fiscal 2013.

Net Income

The Company generated net income of $184,000 for the first quarter of fiscal 2014, compared to a net loss of $310,000 for the same period of fiscal 2013. This 159% increase is primarily attributable to a 57% increase in sales volume and a 10% decrease in operating expenses during the first quarter of fiscal 2014. The Company recorded a tax provision of $73,000 based on its expected effective tax rate of 28.5% for the three month period ended December 28, 2013. This compares to an income tax benefit of $214,000 during the first quarter of fiscal 2013 based on an expected effective tax rate of 41% for the period.

The effects of inflation and changing costs have not had a significant impact on sales or earnings in recent years. As of December 28, 2013, none of the Company’s monetary assets or liabilities was subject to foreign exchange risks. The Company usually includes an inflation factor in its pricing when negotiating multi-year contracts with customers.

 

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Table of Contents

Liquidity and Capital Resources

We believe that our overall financial condition remains strong. Our cash, cash equivalents and marketable securities at December 28, 2013 totaled $7,644,000 compared with $6,044,000 at September 28, 2013. We continue to have no long-term debt and do not expect to have any significant indebtedness in the near future. It is anticipated that our cash balances and cash generated from operations will be sufficient to fund our near-term research and development and marketing activities.

Cash Requirements

We believe that the combination of existing cash, cash equivalents, and highly liquid short-term investments, together with future cash to be generated by operations, will be sufficient to meet our ongoing operating and capital expenditure requirements for the foreseeable future. We also believe that, in the long term, an anticipated improvement of business prospects, billable activities and cash from operations will be sufficient to fund the Company’s planned investment in product development, although we can give no assurances. Although expected to decrease in fiscal 2014, any increase in development activities - either billable or new product related - will require additional resources, which we may not be able to fund through cash from operations. In circumstances where resources will be insufficient, the Company will look to other sources of financing, including debt and/or equity investments.

Sources and Uses of Cash

The following table presents our abbreviated cash flows for the first quarters of fiscal years ended (unaudited):

 

     2014     2013  

Net income (loss)

   $ 184,000      $ (310,000

Changes not affecting cash

     101,000        32,000   

Changes in assets and liabilities

     1,347,000        382,000   
  

 

 

   

 

 

 

Cash provided by operating activities

     1,632,000        104,000   

Cash used in investing activities

     (513,000     (54,000

Cash used in financing activities

     —          (184,000
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     1,119,000        (134,000

Cash and cash equivalents - beginning of period

     2,811,000        2,056,000   
  

 

 

   

 

 

 

Cash and cash equivalents - end of period

   $ 3,930,000      $ 1,922,000   
  

 

 

   

 

 

 

Operating Activities

The Company generated approximately $1,528,000 more cash from operating activities in the first fiscal quarter fiscal 2014 compared to the same period in fiscal 2013. This increase was primarily attributable to higher collections of accounts and income taxes receivable as well as a reduction of inventories, offset by decreases in customer deposits, accounts payable and accrued expenses during the quarter.

Investing Activities

Cash used in investing activities during the first quarter of fiscal 2014 increased by approximately $459,000 to $513,000 as compared to $55,000 during the same period in fiscal 2013. This change is primarily attributable to the purchase in the first fiscal quarter of 2014 of short-term investments in marketable securities, partially offset by the maturity of marketable securities.

 

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Financing Activities

Cash used for financing activities during the first quarter of fiscal 2013 was $184,000 compared to no activity during the first quarter of fiscal 2014. The reduction in activity is due to the suspension of dividend payments following the first quarter of fiscal 2013.

Debt Instruments and Related Covenants

The Company maintains a line of credit agreement with Bank of America (the “Bank”) for a line of credit not to exceed the principal amount of $600,000. The line is supported by a financing promissory note. The loan is a demand loan with interest payable at the Bank’s prime rate plus 2.75% on all outstanding balances. The loan is secured by all assets of the Company (excluding consumer goods) and requires the Company to maintain its deposit accounts with the Bank, as well as comply with certain other covenants. The line is available to support new letters of credit issued by the Company, however any standby letters of credit will be required to be secured with cash. There were no cash borrowings against the line during the quarter ended December 28, 2013 or the fiscal year ended September 28, 2013. A standby letter of credit in the amount of $14,903 was issued in December 2012 and is secured by the line of credit with the Bank.

Backlog

Backlog at December 28, 2013 and September 28, 2013 amounted to $1,011,000 and $2,285,000, respectively. The orders in backlog at December 28, 2013 are expected to ship over the next nine months depending on customer requirements and product availability.

Performance guaranties

Certain foreign customers require the Company to guarantee bid bonds and performance of products sold. These guaranties typically take the form of standby letters of credit. Guaranties are generally required in amounts of 5% to 10% of the purchase price and last in duration from three months to one year. At December 28, 2013, the Company had two outstanding letters of credit amounting to $32,786, one of which is secured by a cash certificate of deposit amounting to $17,883. The second in the amount of $14,903 is secured by the Company’s line of credit.

Research and development

Research and development efforts are undertaken by the Company primarily on its own initiative. In order to compete successfully, the Company must attract and retain qualified personnel, improve existing products and develop new products. No assurances can be given that the Company will be able to hire and train such technical management and sales personnel or successfully improve and develop its products.

During the three months ended December 28, 2013 and December 29, 2012, the Company spent $762,000 and $855,000, respectively, on internal product development. In the fiscal first quarter of 2014, the Company’s internal product development expenses were lower than the same period of fiscal 2013 but in line with the Company’s planned commitment to research and development, and reflected the costs of product testing and production readiness efforts. It is expected that development expenses, including funded programs, will decrease approximately 15% for fiscal year 2014 as compared with fiscal 2013 levels.

During fiscal 2014 the Company expects to focus technical efforts on three principal areas: development of solutions that meet the needs of original equipment manufacturers (OEM); product enhancements that include expanded features, planned capability and applications growth; and custom solutions that tailor our products to meet the unique needs of our customers.

The Company began pursuing OEM technical partnerships in 2012, and these relationships continue to develop albeit at a slower pace than originally projected. TCC believes that the resulting products will be embedded proprietary encryption solutions that will significantly enhance the value of the OEMs’ products and allow TCC encryption to be carried to the market by major equipment providers.

 

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Other than those stated above, there are no plans for significant internal product development during the remainder of fiscal 2014 and the Company does not anticipate any significant capital expenditures during the year.

New Accounting Pronouncements

ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force)

In July 2013, the FASB issued guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This guidance requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability and not combined with deferred tax assets. This guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2014, with early adoption permitted. The Company is currently evaluating the impact of this amendment on the consolidated financial statements. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements. This guidance will become effective for us as of the beginning of our 2015 fiscal year and is consistent with our present practice.

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. The Company’s chief executive officer and chief financial officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report. Based on that review and evaluation, the chief executive officer and chief financial officer have concluded that the Company’s current disclosure controls and procedures, as designed and implemented, are effective to ensure that such officers are provided with information relating to the Company required to be disclosed in the reports the Company files or submits under the Exchange Act and that such information is recorded, processed, summarized and reported within the specified time periods.

Changes in internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended December 28, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II. Other Information

 

Item 1. Legal Proceedings

There were no legal proceedings pending against or involving the Company or its subsidiary during the period covered by this quarterly report.

 

Item 1A. Risk Factors

Not applicable.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

 

Item 3. Defaults Upon Senior Securities

Not applicable.

 

Item 4. Mine Safety Disclosures

Not applicable.

 

Item 5. Other Information

Not applicable.

 

Item 6. Exhibits

 

31.1    Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2    Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS    XBRL Report Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Calculation Linkbase Document
101.LAB    XBRL Taxonomy Label Linkbase Document
101.PRE    XBRL Presentation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document

 

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  TECHNICAL COMMUNICATIONS CORPORATION
 

(Registrant)

February 11, 2014

  By:  

    /s/ Carl H. Guild, Jr.

Date

    Carl H. Guild, Jr., President and Chief Executive Officer

February 11, 2014

  By:  

    /s/ Michael P. Malone

Date

    Michael P. Malone, Chief Financial Officer

 

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