<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1923 for the quarterly period ended March 30, 1996 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act 1934 for the transition period ___________________ to
____________________
Commission File Number: 0-8588
TECHNICAL COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2295040
(State or other jurisdiction of IRS Employer Identification Number
100 Domino Drive, Concord, MA
(Address of principal executive offices 01742-2892
incorporation or organization) (Zip Code)
Registrant's telephone number, including area code: (508) 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Number of shares of Common
Stock, $.10 par value, outstanding as of May 1, 1996: 1,254,426.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Page
PART I Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets, March
30, 1996 (unaudited) and September 30, 1995 1
Condensed Consolidated Statements of
Operations, Three (3) months ended March 30,
1996 and April 1, 1995; Six (6) months ended
March 30, 1996 and April 1, 1995 (unaudited) 2
Condensed Consolidated Statements of Cash
Flows, Six (6) months ended March 30, 1996
and April 1, 1995 (unaudited) 3
Notes to Condensed Consolidated Financial
Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6
PART II. Other Information 8
Signatures 9
</TABLE>
<PAGE> 3
PART I. Financial Information - Item 1. Financial Statements
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 30, 1996 Sept. 30, 1995
Unaudited
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $4,136,389 $3,877,790
Accounts Receivable - trade less
allowance for doubtful accounts of
$44,332 at 3/30/96 and $48,692 at
9/30/95 3,713,861 5,011,966
Inventories (Note 2) 2,896,867 2,427,828
Refundable and prepaid income taxes 139,944 139,944
Other current assets 355,171 342,756
Total current assets $11,242,232 $11,800,284
Equipment and leasehold improvements 3,752,898 3,626,364
Less: accumulated depreciation and
amortization 2,258,765 1,984,631
1,494,133 1,641,733
Goodwill 1,569,620 1,569,620
Less: accumulated amortization 176,191 65,770
1,393,429 1,503,850
Other assets 404,621 402,568
$14,534,415 $15,348,435
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $417,213 $450,650
Long-term debt - current portion (Note 3) 696,136 696,136
Accrued liabilities:
Compensation and related expenses 268,687 429,146
Other 1,132,165 1,553,140
Total current liabilities $2,514,201 3,129,072
Long-term debt (Note 3) 1,997,107 2,345,175
Other long-term liabilities 205,437 205,437
Stockholder's Equity
Common stock, par value $.10 per share;
authorized 3,500,000 shares; issued and
outstanding 1,254,426 shares at 3/30/96
and 1,254,426 shares at 9/30/95 125,443 125,443
Treasury stock at cost, 10,000 shares (80,000) (80,000)
Additional paid in capital 1,388,927 1,388,927
ESOP deferred compensation (Note 3) (818,243) (941,311)
Retained earnings 9,201,543 9,175,692
Total stockholders' equity 9,817,670 9,668,751
$14,534,415 $15,348,435
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 4
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
March 30, April 1, March 30, April 1,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Sales $3,695,727 $789,489 $5,836,567 $1,923,565
Cost of Sales 1,679,756 693,683 2,669,671 1,337,615
Gross Profit 2,015,971 95,806 3,166,896 585,950
Operating Expenses:
Selling, general and
administrative expenses 1,114,092 741,996 2,174,702 1,460,675
Product Development 490,782 269,674 956,598 560,397
Costs 1,604,874 1,011,670 3,131,300 2,021,072
Operating Profit (Loss) 411,097 (915,864) 35,596 (1,435,122)
Other Income (Expense)
Interest Income 61,369 88,180 115,590 150,053
Interest Expense (61,421) (19,741) (129,595) (45,322)
Other Income 7,709 6,932 12,877 13,187
7,657 75,371 (1,128) 117,918
Income (Loss) Before
Income Taxes 418,754 (840,493) 34,468 (1,317,204)
Income Taxes 104,689 (210,499) 8,617 (329,306)
Net Income (Loss) $ 314,065 $(629,994) $ 25,851 $(987,898)
Earnings (Loss) Per
Common Share:
(Note 1) $ .25 $ (.50) $ .02 $ (.79)
Weighted Avg. Shares Used
in Computation 1,254,426 1,252,374 1,254,426 1,251,775
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 5
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 30, April 1,
1996 1995
<S> <C> <C>
Operating Activities:
Net Income (loss) $25,851 $(987,898)
Adjustments to reconcile
net loss to net cash provided
(used by operating activities):
Depreciation and amortization 384,555 154,422
Non-cash compensation associated with ESOP 123,068 123,068
533,474 (710,408)
Changes in assets and liabilities:
Decrease in accounts receivable 1,298,105 2,949,664
Increase in inventories (469,039) (691,069)
Decrease in prepaids and refundable income --- 45,396
taxes
Decrease (increase) in other current assets (12,415) 1,370
Decrease in accrued and deferred income taxes (151,584) (345,757)
Increase in other assets (2,053) (3,468)
Decrease in accounts payable and
accrued liabilities (463,287) (556,393)
199,727 2,512,529
Net cash provided by operating activities 733,201 1,802,121
Investing Activities:
Additions to equipment and leasehold (126,534) (116,806)
improvements
Net cash used by investing activities (126,534) (116,806)
Financing Activities:
Proceeds from exercise of stock options 8,300
Payment of debt (348,068) (123,068)
Net cash used by financing activities (348,068) (114,768)
Net increase (decrease) in cash and cash 258,599 1,570,547
equivalents
Cash and cash equivalents at beginning of year 3,877,790 6,460,887
Cash and cash equivalents at the
end of the second quarter $4,136,389 $8,031,434
Supplemental disclosures:
Interest paid $129,595 $19,741
Income taxes paid (net of refunds received) 169,598 1,400
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 6
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
STATEMENT OF FAIR PRESENTATION
Interim Financial Statements. The accompanying unaudited financial statements
include all adjustments (consisting only of normal recurring accruals) which
are, in the opinion of management, necessary for fair presentation of the
results of operations for the periods presented. Interim results are not
necessarily indicative of the results to be expected for a full year.
Certain information on footnote disclosures normally included in financial
statements, prepared in accordance with general accepted accounting principals,
has been condensed or omitted as allowed by Form 10-Q. The accompanying
unaudited consolidated financial statements should be read in conjunction with
Company's consolidated financial statements for the year ending September 30,
1995 is filed with the Securities and Exchange Commission on Form 10-K.
NOTE 1. Earnings Per Share
For the quarters and six months ended March 30, 1996 and April 1, 1995, net
earnings per common share were based on the weighted average number of shares
outstanding during the period, since the effect of assumed conversion of
dilutive employee stock options was not material.
NOTE 2. Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
March 30, 1996 September 30, 1995
<S> <C> <C>
Raw Materials $1,384,743 $1,386,393
Work in Process 1,097,704 667,388
Finished Goods 414,420 374,047
$2,896,867 $2,427,828
</TABLE>
NOTE 3. Long-Term Debt
As of March 30, 1996, the Company had a $2,500,000 line of credit at a rate of
prime plus 1/2 of 1%. This line of credit is secured by a pledge of
substantially all the assets of the Company and was due to mature on May 1,
1996 (The line of credit has since been extended through April 30,1997).
Availability under the line of credit had been reduced by $82,583 for
outstanding standby letters of credit (as of March 30, 1996). Other than these
standby letters of credit, the Company had no borrowings under the line of
credit at March 30, 1996.
On November 17, 1989, the Company established the Technical Communications
Corporation Employees' Stock Ownership Trust (the Trust) for the benefit of its
Employees. During 1990 and 1991, the Trust borrowed $1,212,500 and $1,287,488,
respectively, from two banks, and purchased 190,350 shares of the Company's
common stock at fair market value. The Company is acting as a guarantor on the
outstanding loans and, as a result, has recorded the principal balance of such
loans on its balance sheet as short-term and long-term debt with an offsetting
charge to "ESOP Deferred Compensation" within the Stockholders' Equity section.
<PAGE> 7
Notes to Condensed Consolidated Financial Statements (continued)
The 1990 loan to the Trust bears interest on the principal amount outstanding
at a rate equal to a) 7.25% to March 31, 1996, and b) 8.75% as of April 1,
1996, to March 31, 1997. The 1991 loan was renewed in August 1994 for a
further three-year term, and now bears interest at a rate of 8.77%. It
requires a balloon payment of approximately $490,000 in August 1997. Except
for the possibility of refinancing this balloon payment, the Company intends to
make contributions to the Trust sufficient to pay all principal and interest on
the loans when due. Because the payment of principal results in the release of
shares from collateral, which shares are then available for allocation to
employees, the principal portion of these payments is recorded as compensation
expense.
On May 31, 1995, the Company completed an asset purchase of the secure
communications business of Datotek, Inc. This acquisition was funded partly by
the Company's own capital and partly through loans amounting to $2,250,000
from two banks. These loans are payable in equal installments of principal
over a period of five years, plus interest at The First National Bank of
Boston's prime rate plus 1/2 of 1%.
NOTE 4. Commitments and Contingencies
The Company is not currently party to any lawsuit, and is not aware of any
pending legal proceedings. See Part II, "Other Information," Item 1, "Legal
Proceedings."
<PAGE> 8
PART I, Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
The Company is in the business of designing, manufacturing and marketing
communications security equipment. The Company receives orders for equipment
from customers which may take several months or longer to manufacture and ship.
Because the Company recognizes income on long-term contracts on a unit-of-
delivery basis, revenues may vary widely from quarter to quarter. Quarterly
comparisons of revenue may therefore not be indicative of any trend.
The Company's backlog of firm orders as of March 30, 1996 was $2,867,118
representing a decrease from $2,868,787 as of September 30, 1995. The Company
expects to deliver substantially all of its backlog in the current fiscal year.
Net sales for the quarter ended March 30, 1996 and April 1, 1995, were
$3,695,727 and $789,489, respectively. For the six months ended March 30, 1996
and April 1, 1995 net sales were $5,836,567 and $1,923,565. The increase in
the second quarter and six month net sales was primarily due to two large
shipments. Also, 50% and 43% of net sales for the three months and six months
ended March 30, 1996, respectively, represented additional sales as a result of
the acquisition of the assets of Datotek, Inc. in May 1995. The Company
anticipates that the pattern of uneven quarterly revenue generation will
continue in fiscal year 1996.
Gross profit for the second quarter of fiscal year 1996 was $2,015,971, as
compared to gross profit of $95,806 in the second quarter of fiscal year 1995.
Gross profit for the first six months of fiscal year 1996 was $3,166,896, as
compared to gross profit of $585,950 for the first six months of fiscal year
1995. This represented a 540% increase in gross profit. Gross profit
expressed as a percentage of sales was 55% in the second quarter and 54% for
the first six months of fiscal year 1996, as compared to 12% in the second
quarter and 30% for the first six months of fiscal year 1995. Since a
considerable portion of manufacturing costs is relatively fixed, increases in
net sales usually result in increases in margin percentage.
Operating expenses for the second quarter and first six months of fiscal 1996
were $1,604,874 and $3,131,300, respectively. This is in comparison to the
operating expenses in the second quarter and six months of fiscal 1995 which
were $1,011,670 and $2,021,072, respectively. This increase of 159% in the
quarter and 155% in the first six months was due to increased cost in customer
service, marketing and product development, plus additional depreciation and
amortization as a result of the acquisition of the assets of Datotek, Inc. in
May 1995.
Other income and expense for the second quarter and first six months of fiscal
1996 were $7,657 and ($1,128), respectively. Other income and expense in the
second quarter and six month of fiscal 1995 were $75,371 and $117,918,
respectively. This decrease of 90% in the quarter and 101% in the first six
months was primarily due to the loan repayments (described in footnote 3) as a
result of the acquisition of the assets of Datotek, Inc. in May 1995.
<PAGE> 9
Management's Discussion and Analysis (continued)
After-tax income for the second quarter and six months of fiscal year 1996 was
$314,065 or $.25 per share and $25,851 or $.02 per share, respectively. The
after-tax losses in the second quarter and first six months of fiscal year 1995
were $629,994 or $.50 per share and $987,898 or $.79 per share, respectively.
The improvement in operating results was a result of higher gross profit due to
increased sales compared to the same periods last fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments increased by $258,599 or 7% to $4,136,389 from
a balance of $3,877,790 at September 30, 1995. This increase was primarily as a
result of accounts receivable collections. The current ratio was 4.5:1 at March
30, 1996, compared to 3.8:1 as of September 30, 1995. Inventories were
$2,896,867 as of March 30, 1996, representing a 19% increase from the September
30, 1995 balance of $2,427,828 due to inventory buildup for future shipments.
As of March 30, 1995, the Company had a $2,500,000 line of credit at a rate of
prime plus 1/2 of 1%. This line of credit is secured by a pledge of
substantially all the assets of the Company and was due to mature on May 1,
1996 (The line has since been extended through April 30, 1997). Availability
under the line of credit had been reduced by $82,583 for outstanding standby
letters of credit (as of March 30, 1996). Other than these standby letters of
credit, the Company had no borrowings under the line of credit at March 30,
1996.
On November 17, 1989, the Company established the Technical Communications
Corporation Employees' Stock Ownership Trust (the Trust) for the benefit of its
Employees. During 1990 and 1991, the Trust borrowed $1,212,500 and $1,287,488,
respectively, from two banks, and purchased 190,350 shares of the Company's
common stock at fair market value. The Company is acting as a guarantor on the
outstanding loans and, as a result, has recorded the principal balance of such
loans on its balance sheet as short-term and long-term debt with an offsetting
charge to "ESOP Deferred Compensation" within the Stockholders' Equity section.
On May 31, 1995, the Company completed an asset purchase of the secure
communications business of Datotek, Inc. This acquisition was funded partly by
the Company's own capital and partly through loans amounting to $2,250,000 from
two banks. These loans are payable in equal installments of principal over a
period of five years, plus interest at The First National Bank of Boston's
prime rate plus 1/2 of 1%.
Management currently anticipates no unusual capital expenditures and no
increases in the Company's requirements for capital above its present resources
for fiscal year 1996.
<PAGE> 10
PART II. Other Information
Item 1. Legal Proceedings
No material legal proceedings are pending to which the Company is
a party or of which any of its property is the subject.
Item 2. Changes in Securities:
Not applicable
Item 3. Defaults Upon Senior Securities:
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders:
The Annual Meeting of Stockholders of the Company was held on February 12,
1996. Set forth below is a description of each matter voted upon at the
meeting as well as the number of votes cast for or against each such matter.
<TABLE>
<CAPTION>
Broker
Description For Against Abstentions Non-Votes
<S> <C> <C> <C> <C>
To fix the number of
directors at six 1,163,124 14,447 4,599 ---
Election of Directors:
Arnold M. McCalmont 1,172,599 4,146 5,425 ---
Lawrence A. Kletter 1,172,599 4,146 5,425 ---
Herbert A. Lerner 1,176,745 0 5,425 ---
James A. McCalmont 1,172,599 4,146 5,425 ---
Philip A. Phalon 1,170,199 6,546 5,425 ---
Victor Sabella 1,174,345 2,400 5,425 ---
To ratify the selection
of the firm of Arthur
Andersen LLP as the
Company's auditors 1,166,527 4,212 4,206 7,225
To adopt the 1995
Employee Stock Purchase
Plan 542,020 38,080 85,618 516,452
</TABLE>
Item 5. Exhibits and Reports on Form 8-K:
a. Exhibits - Statement regarding computation of per-share
earnings: reference is made to Note 1 of the Notes to the
Condensed Consolidated Financial Statements on page 4 of this
Quarterly Report on Form 10-Q.
b. Reports on Form 8-K: none.
<PAGE> 11
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)
Date: May 13, 1996 By: /s/ Roland S. Gerard
ROLAND S. GERARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Date: May 13, 1996 By: /s/ Graham R. Briggs
GRAHAM R. BRIGGS, VICE PRESIDENT
AND CHIEF ACCOUNTING OFFICER
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information wxtracted from the
Condensed Consolidated Balance Sheets at March 30, 1996 (Unaudited) and the
Condensed Consolidated Statement of Operations for the Six Months Ended March
30, 1996 (Unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> MAR-30-1996
<CASH> 4,136,389
<SECURITIES> 0
<RECEIVABLES> 3,713,861
<ALLOWANCES> 44,332
<INVENTORY> 2,896,867
<CURRENT-ASSETS> 11,242,232
<PP&E> 3,752,898
<DEPRECIATION> 2,258,765
<TOTAL-ASSETS> 14,534,415
<CURRENT-LIABILITIES> 2,514,201
<BONDS> 0
<COMMON> 125,443
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 5,836,567
<TOTAL-REVENUES> 5,965,034
<CGS> 2,669,671
<TOTAL-COSTS> 2,669,671
<OTHER-EXPENSES> 3,131,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (129,595)
<INCOME-PRETAX> 34,468
<INCOME-TAX> 8,617
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,851
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
