<PAGE>
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 1934 for the quarterly
period ended June 28, 1997 or
_______ Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 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 (I.R.S. Employer
incorporation or organization) Identification Number)
100 Domino Drive, Concord, MA 01742-2892
_____________________________________ ______________________
(Address of principal executive offices) (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 per share, outstanding as of August 8, 1997: 1,273,703.
<PAGE>
INDEX
Page
____
PART I Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets,
as of June 28, 1997 (unaudited) and September 28, 1996 1
Condensed Consolidated Statements of Operations,
Three (3) months ended June 28, 1997 and June 29, 1996 (unaudited)
Nine (9) months ended June 28, 1997 and June 29, 1996 (unaudited) 2
Condensed Consolidated Statements of Cash Flows,
Nine (9) months ended June 28, 1997 and June 29, 1996 (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 10
<PAGE>
PART I. Financial Information - Item 1. Financial Statements
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 28, 1997 September 28, 1996
(Unaudited)
_____________ __________________
<S> <C> <C>
Assets
______
Current Assets:
Cash and cash equivalents $ 1,331,107 $ 6,381,026
Accounts receivable - trade, less
allowance for doubtful accounts of
$53,445 and $53,707 at 6/28/97 and
9/28/96, respectively 6,037,089 3,219,124
Inventories (Note 1) 3,372,923 2,615,772
Other current assets 234,845 199,122
____________ ____________
Total current assets $ 10,975,964 $ 12,415,044
____________ ____________
Equipment and leasehold improvements 4,427,708 4,223,816
Less: accumulated depreciation and
amoritzation 3,133,166 2,646,683
____________ ____________
1,294,542 1,577,133
____________ ____________
Goodwill 1,614,131 1,614,131
Less: accumulated amortization 447,805 286,623
____________ ____________
1,166,326 1,327,508
Other assets 680,348 680,348
____________ ____________
$ 14,117,180 $ 16,000,033
Liabilities and Stockholders' Equity
____________________________________
Current Liabilities:
Accounts payable $ 1,632,597 $ 504,860
Long-term debt - current portion (Note 2) 991,111 1,145,175
Accrued liabilities:
Compensation and related expenses 443,982 597,938
Other 1,164,698 2,019,303
____________ ____________
Total current liabilities $ 4,232,388 $ 4,267,276
____________ ____________
Long-term debt (Note 2) --- 1,200,000
Stockholders' Equity
Common stock, par value $.10 per share;
authorized 3,500,000 shares; issued and
outstanding 1,273,703 shares at
6/28/97 and 1,264,496 shares at 9/28/96 127,370 126,450
Treasury stock at cost, 10,000 shares (80,000) (80,000)
Additional paid-in capital 1,526,111 1,473,643
ESOP deferred compensation (Note 2) (555,729) (695,175)
Retained earnings 8,867,040 9,707,839
____________ ____________
Total stockholders' equity $ 9,884,792 $ 10,532,757
____________ ____________
$ 14,117,180 $ 16,000,033
____________ ____________
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 1
<PAGE>
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
_____________ _________________
June 28, 1997 June 29, 1996 June 28, 1997 June 29, 1996
_____________ _____________ _____________ _____________
<S> <C> <C> <C> <C>
Net Sales $ 2,027,070 $ 3,889,148 $ 9,139,532 $ 9,725,715
Cost of Sales 1,223,660 1,640,294 3,818,223 4,309,965
____________ ____________ ____________ ____________
Gross Profit 803,410 2,248,854 5,321,309 5,415,750
____________ ____________ ____________ ____________
Operating Expenses:
Selling, general and
administrative expenses 1,400,167 1,470,366 4,756,047 3,645,068
Product development costs 763,785 463,775 1,766,125 1,420,373
____________ ___________ ____________ ____________
2,163,952 1,934,141 6,522,172 5,065,441
____________ ___________ ____________ ____________
Operating Profit (Loss) (1,360,542) 314,713 (1,200,863) 350,309
____________ ___________ ____________ ____________
Other Income (Expense):
Interest income 36,222 61,241 120,667 176,831
Interest expense (12,807) (58,530) (56,535) (188,126)
Other income 5,501 12,853 15,727 25,730
____________ ___________ ___________ ____________
28,916 15,564 79,859 14,435
____________ ___________ ___________ ____________
Income (loss) before income
taxes (1,331,626) 330,277 (1,121,004) 364,744
Income Taxes (332,952) 45,640 (280,205) 54,256
____________ ____________ ____________ ____________
Net Income (Loss) $ (998,674) $ 284,637 $ (840,799) $ 310,488
Earnings (Loss) Per Common
Share: (Note 3) $ (.78) $ .23 $ (.66) $ .25
Weighted Avg. Shares Used in
Computation 1,272,401 1,257,783 1,269,599 1,255,545
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 2
<PAGE>
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 28, 1997 June 29, 1996
_____________ _____________
<S> <C> <C>
Operating Activities:
Net income (loss) $ (840,799) $ 310,488
Adjustments to reconcile net income (loss) to net
cash
provided (used) by operating activities: 655,140 597,097
Depreciation and amortization 139,446 184,602
Non-cash compensation associated with ESOP
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (2,817,965) 1,878,387
Increase in inventories (757,151) (580,266)
(Increase) decrease in other current assets (35,723) 85,997
Increase in goodwill --- (44,511)
Increase in other assets --- (5,247)
Increase (decrease) in accrued and deferred income taxes (947,174) 22,156
Increase (decrease) in accounts payable and accrued
liabilities 1,066,350 (72,744)
_________ _________
Total adjustments (2,697,077) 2,065,471
Net cash provided (used) by operating activities (3,537,876) 2,375,959
Investing Activities:
Additions to equipment and leasehold improvements (211,367) (439,552)
________ ________
Net cash used by investing activities (211,367) (439,552)
Financing Activities:
Proceeds from stock issuance 53,388 85,723
Borrowings under line of credit 500,000 ---
Payment of debt (1,854,064) (522,103)
__________ ________
Net cash used by financing activities (1,300,676) (436,380)
Net increase (decrease) in cash and cash equivalents (5,049,919) 1,500,027
Cash and cash equivalents at beginning of the period 6,381,026 3,877,790
--------- ---------
Cash and cash equivalents at end of the period $ 1,331,107 $ 5,377,817
_________ _________
Supplemental disclosures:
Interest paid $ 56,535 $ 188,126
Income taxes paid (net of refunds received) 664,026 41,497
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3
<PAGE>
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 generally accepted accounting
principles has been condensed or omitted as allowed by Form 10-Q. The
accompanying unaudited consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements for the year
ending September 28, 1996 as filed with the Securities and Exchange Commission
on Form 10-K.
NOTE 1. Inventories
______ ___________
Inventories consisted of the following:
<TABLE>
<CAPTION>
June 28, 1997 September 28, 1996
_____________ __________________
<S> <C> <C>
Raw Materials $ 1,428,096 $ 1,751,793
Work in Process 1,750,277 853,422
Finished Goods 194,550 10,557
_________ _________
$ 3,372,923 $ 2,615,772
_________ _________
</TABLE>
NOTE 2. Long-term Debt
______ ______________
As of June 28, 1997, the Company had a $3,500,000 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 will mature on May 1, 1998.
Availability under the line of credit had been reduced by $47,066 for
outstanding standby letters of credit (as of June 28, 1997) and $500,000 in
borrowings obtained in June 1997. The Company intends to repay the $500,000
within the next fiscal year as certain trade receivables become due and funds
are received.
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 acts as a guarantor on
the outstanding loans and, as a result, recorded the principal balance of such
loans on its balance sheet as short-term debt with an offsetting charge to "ESOP
Deferred Compensation" within the Stockholders' Equity section.
On May 1, 1997, the Company provided a loan of $82,702 to the Trust in order to
pay off the remaining balance of the 1990 bank loan. This new loan, which bears
interest at 9% per annum, requires equal monthly payments of principal of
$9,000, commencing on June 15, 1997.
Page 4
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
________________________________________________________________
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 $482,000 in August 1997. The outstanding balance on this loan
as of June 28, 1997 was $500,556. The Company anticipates that it will
provide a loan to the Trust enabling it to make 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
contributions is recorded as compensation expense. Such contributions are,
therefore, expensed to compensation and interest when they are made or
accrued.
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. The remaining principal balance of $1,650,000 on these loans, which
were 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%,
was paid in full during the quarter ended December 28, 1996.
NOTE 3. Earnings Per Share
______ __________________
For the nine months ended June 28, 1997 and June 29, 1996, net earnings per
common share were based on the weighted average number of shares outstanding
during the period. The effect of the assumed conversion of dilutive employee
stock options was not material.
On March 3, 1997, the FASB issued SFAS No. 128, "Earnings Per Share." This
Statement supersedes APB Opinion No. 15 regarding the presentation of earnings
per share ("EPS") on the face of the income statement. SFAS No. 128 replaces
the presentation of Primary EPS with a Basic EPS calculation that excludes
the dilutive effect of common stock equivalents. The Statement requires a dual
presentation of Basic and Diluted EPS, which is computed similarly to Fully
Diluted EPS pursuant to APB Opinion No. 15, for all entities with complex
capital structures. This Statement is effective for fiscal years ending after
December 15, 1997 and requires restatement of all prior-period EPS data
presented. The Company's earnings per share reported at June 28, 1997 would
not be affected by this new statement, since the dilutive effect of options was
not reported as noted above.
NOTE 4. Commitments and Contingencies
______ _____________________________
The Company is not currently party to any lawsuit, and is not aware of any
material pending legal proceedings. See Part II, "Other Information," Item 1,
"Legal Proceedings."
Page 5
<PAGE>
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 June 28, 1997 was $1,406,987,
representing a 70% decrease from the Company's backlog of $4,756,845 as of
September 28, 1996. This decrease in backlog is attributable to several large
orders that the Company had expected to receive before June 28, 1997. These
orders have been delayed and the Company now expects to receive them in the
fourth quarter of fiscal 1997 or in fiscal 1998. The Company expects to
deliver most of its backlog in the current fiscal year.
Net sales for the quarter ended June 28, 1997 and June 29, 1996, were $2,027,070
and $3,889,148, respectively. For the nine months ended June 28, 1997 and June
29, 1996, net sales were $9,139,532 and $9,725,715, respectively. This decrease
of 48% in third quarter net sales and 6% in year-to-date net sales may be
attributed to variability in revenue recognition as a result of the timing of
shipments associated with long-term contracts, and to delays in receipt of
orders noted above.
Gross profit for the third quarter of fiscal year 1997 was $803,410, as compared
to gross profit of $2,248,854 in the third quarter of fiscal year 1996. For the
first nine months of 1997 gross profit totaled $5,321,309, as compared with
$5,415,750 for the first nine months of 1996. This represented a 64% decrease
in gross profit for the quarter and a 2% decrease year-to-date. Gross profit
expressed as a percentage of sales was 40% in the third quarter and 58% in the
first nine months of fiscal year 1997, as compared to 58% in the third
quarter and 56% for the first nine months of fiscal year 1996. Since a
considerable portion of manufacturing cost is relatively fixed, lower net sales
usually result in a lower margin percentage. The increase in gross profit
percentage for the first nine months of fiscal year 1997 over the same period
last year is the result of a more favorable mix of higher margin product sales
during the current year.
Operating expenses for the third quarter and first nine months of fiscal 1997
were $2,163,952 and $6,522,172, respectively. For the third quarter and first
nine months of fiscal 1996 operating expenses were $1,934,141 and $5,065,441,
respectively. This increase of 12% in the third quarter was primarily the
result of the Company's increased expenditures to develop new products. The 29%
increase in operating expenses during the first nine months is attributed to
increased spending in new business and product development, as well as for
increased spending in sales and marketing.
Other income and expense for the third quarter and first nine months of fiscal
1997 were $28,916 and $79,859, respectively. For the third quarter and first
nine months of fiscal 1996 other income and expense were $15,564 and $14,435,
respectively. This increase in the quarter and in the first nine months was
primarily caused by lower interest expense due to the reduction in debt
(described in Note 2 on Page 5 of this Form 10-Q).
Page 6
<PAGE>
Management's Discussion and Analysis (continued)
________________________________________________
After-tax losses for the third quarter and first nine months of fiscal year 1997
were $(998,674) or $(.78) per share and $(840,799) or $(.66) per share,
respectively. The after-tax profits in the third quarter and first nine months
of fiscal year 1996 were $284,637 or $.23 per share and$310,488 or $.25 per
share, respectively. The losses for both the third quarter and year-to-date
periods as compared to the profits reported for the same periods in 1996 were
the result of the lower sales and increased expenditures for new product
development, sales and marketing, as previously discussed.
Liquidity and Capital Resources
_______________________________
Cash and short-term investments decreased by $5,049,919 or 79% to $1,331,107 as
of June 28, 1997, from a balance of $6,381,026 at September 28, 1996. This
decrease was primarily due to the Company's early payoff of the Datotek
acquisition loans (see Note 2 on Page 5 of this Form 10-Q) and a $2,817,965 net
increase in trade receivables stemming from a $2,400,000 sale late in the second
quarter. Payment on this receivable is expected during the Company's fourth
quarter. The current ratio was 2.6:1 at June 28, 1997, compared to 2.9:1 as of
September 28, 1996. Inventories were $3,372,923 as of June 28, 1997,
representing a 29% increase from the September 28, 1996 balance of $2,615,772.
In particular, work in process and finished goods inventory have increased by
$1,080,848 to $1,944,827 from a balance of $863,979 as the Company acquired
inventory for future shipments.
Information on the Company's long-term debt is to be found on Page 4, Note 2,
"Long-Term Debt" of this Form 10-Q.
Management currently anticipates no unusual capital expenditures and no
increases in the Company's requirements for capital above its present resources
for fiscal year 1997.
Certain Factors Affecting Future Operating Results
__________________________________________________
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The Company's actual results could differ
materially from those set forth in the forward-looking statements. Certain
factors that might cause such a difference include, but are not limited to the
following: the time and costs required to develop, market, sell, manufacture
and ship products, and those factors discussed in the section entitled
"Certain Factors Affecting Future Operating Results" on page 6 of the Company's
Form 10-K for the fiscal year
ended September 28, 1996.
Page 7
<PAGE>
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:
None.
Item 5. Other Information:
None.
Item 6. Exhibits and Reports on Form 8-K:
a. Exhibits - Statement regarding computation of per-share earnings:
reference is made to Note 3 of the Notes to Condensed
Consolidated Financial Statements on Page 5 of this Quarterly
Report on Form 10-Q.
b. Reports on Form 8-K: None.
Page 8
<PAGE>
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)
August 11, 1997 By: /s/ Roland S. Gerard
_______________ _________________________________
Date ROLAND S. GERARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
August 11, 1997 By: /s/ Graham R. Briggs
_______________ _________________________________
Date GRAHAM R. BRIGGS, VICE PRESIDENT
AND CHIEF ACCOUNTING OFFICER
Page 9
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> JUN-28-1997
<CASH> 1,331,107
<SECURITIES> 0
<RECEIVABLES> 6,090,534
<ALLOWANCES> 53,445
<INVENTORY> 3,372,923
<CURRENT-ASSETS> 10,975,964
<PP&E> 4,427,708
<DEPRECIATION> 3,133,166
<TOTAL-ASSETS> 14,117,180
<CURRENT-LIABILITIES> 4,232,388
<BONDS> 0
0
0
<COMMON> 127,370
<OTHER-SE> 9,757,422
<TOTAL-LIABILITY-AND-EQUITY> 14,117,180
<SALES> 9,139,532
<TOTAL-REVENUES> 9,139,532
<CGS> 3,818,223
<TOTAL-COSTS> 10,340,395
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,535
<INCOME-PRETAX> (1,121,004)
<INCOME-TAX> (280,205)
<INCOME-CONTINUING> (840,799)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (840,799)
<EPS-PRIMARY> (.66)
<EPS-DILUTED> (.66)
</TABLE>
