<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 March 29, 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 (I.R.S. Employer Identification Number)
of incorporation or organization)
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
May 8, 1997: 1,272,203.
<PAGE>
INDEX
Page
PART I Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets,
as of March 29, 1997 (unaudited) and September 28, 1996 1
Condensed Consolidated Statements of Operations,
Three (3) months ended Mar. 29, 1997 and Mar. 30, 1996
(unaudited)
Six (6) months ended Mar. 29, 1997 and Mar. 30, 1996
(unaudited) 2
Condensed Consolidated Statements of Cash Flows,
Six (6) months ended Mar. 29, 1997 and Mar. 30, 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>
March 29, 1997 September 28, 1996
(Unaudited)
______________ __________________
<S> <C> <C>
Assets
______
Current Assets:
Cash and cash equivalents $ 3,312,859 $ 6,381,026
Accounts receivable - trade, less
allowance for doubtful accounts of
$53,707 at 3/29/97 and 9/28/96 4,651,598 3,219,124
Inventories (Note 1) 3,099,305 2,615,772
Other current assets 149,082 199,122
______________ __________________
Total current assets $ 11,212,844 $ 12,415,044
______________ __________________
Equipment and leasehold improvements 4,366,867 4,223,816
Less: accumulated depreciation and
amortization 2,965,710 2,646,683
______________ __________________
1,401,157 1,577,133
______________ __________________
Goodwill 1,614,131 1,614,131
Less: accumulated amortization 394,078 286,623
______________ __________________
1,220,053 1,327,508
______________ __________________
Other assets 680,348 680,348
______________ __________________
$ 14,514,402 $ 16,000,033
______________ __________________
Liabilities and Stockholders' Equity
____________________________________
Current Liabilities:
Accounts payable $ 1,166,790 $ 504,860
Long-term debt - current portion (Note 2) 613,129 1,145,175
Accrued liabilities:
Compensation and related expenses 401,414 597,938
Other 1,519,706 2,019,303
______________ __________________
Total current liabilities $ 3,701,039 $ 4,267,276
______________ __________________
Long-term debt - current portion (Note 2) --- 1,200,000
Stockholders' Equity
Common stock, par value $.10 per share;
authorized 3,500,000 shares; issued and
outstanding 1,272,203 shares at 3/29/97
and 1,264,496 shares at 9/28/96 127,220 126,450
Treasury stock at cost, 10,000 shares (80,000) (80,000)
Additional paid-in capital 1,513,558 1,473,643
ESOP deferred compensation (Note 2) (613,129) (695,175)
Retained earnings 9,865,714 9,707,839
______________ __________________
$ 10,813,363 $ 10,532,757
______________ __________________
Total stockholders' equity $ 14,514,402 $ 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 Six Months Ended
________________________ ________________________
Mar. 29, Mar. 30, Mar. 29, Mar. 30,
1997 1996 1997 1996
___________ ___________ ___________ ___________
<S> <C> <C> <C> <C>
Net Sales $ 4,054,348 $ 3,695,727 $ 7,112,462 $ 5,836,567
Cost of Sales 1,389,811 1,679,756 2,594,563 2,669,671
___________ ___________ ___________ ___________
Gross Profit 2,664,537 2,015,971 4,517,899 3,166,896
___________ ___________ ___________ ___________
Operating Expenses:
Selling, general and ad-
ministrative expenses 1,967,513 1,114,092 3,355,880 2,174,702
Product development costs 556,629 490,782 1,002,340 956,598
___________ ___________ ___________ ___________
2,524,142 1,604,874 4,358,220 3,131,300
___________ ___________ ___________ ___________
Operating Profit 140,395 411,097 159,679 35,596
___________ ___________ ___________ ___________
Other Income (Expense):
Interest income 36,416 61,369 84,445 115,590
Interest expense (13,554) (61,421) (43,728) (129,595)
Other income (expense) (692) 7,709 10,226 12,877
___________ ___________ ___________ ___________
22,170 7,657 50,943 (1,128)
___________ ___________ ___________ ___________
Income before income
taxes 162,565 418,754 210,622 34,468
Income Taxes 40,641 104,689 52,747 8,617
___________ ___________ ___________ ___________
Net Income $ 121,924 $ 314,065 $ 157,875 $ 25,851
___________ ___________ ___________ ___________
Earnings Per Common Share:
(Note 3) $ .09 $ .25 $ .12 $ .02
Weighted Avg. Shares Used
in Computation 1,270,181 1,254,426 1,268,192 1,254,426
</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>
Six Months Ended
_________________
March 29, 1997 March 30, 1996
______________ ______________
<S> <C> <C>
Operating Activities:
Net income (loss) $ 157,875 $ 25,851
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 426,482 384,555
Non-cash compensation associated with ESOP 82,046 123,068
______________ ______________
666,403 533,474
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (1,432,474) 1,298,105
Increase in inventories (483,533) (469,039)
Decrease (increase) in other current assets 50,040 (12,415)
Decrease in accrued and deferred income taxes (609,223) (151,584)
Increase in other assets --- (2,053)
Increase (decrease) in accounts payable and accrued
liabilities 575,032 (463,287)
______________ ______________
(1,900,158) 199,727
Net cash provided (used) by operating activities (1,233,755) 733,201
Investing Activities:
Additions to equipment and leasehold improvements (143,051) (126,534)
______________ ______________
Net cash used by investing activities (143,051) (126,534)
Financing Activities:
Proceeds from stock issuance 40,685 ---
Payment of debt (1,732,046) (348,068)
______________ ______________
Net cash used by financing activities (1,691,361) (348,068)
Net increase (decrease) in cash and cash
equivalents (3,068,167) 258,599
Cash and cash equivalents at beginning of the period 6,381,026 3,877,790
______________ ______________
Cash and cash equivalents at the end of the period $ 3,312,859 $ 4,136,389
______________ ______________
Supplemental disclosures:
Interest paid $ 41,778 $ 129,595
Income taxes paid (net of refunds received) 659,000 169,598
</TABLE>
The accompanying notes are an integral part of these condensed 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 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 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>
March 29, 1997 September 28, 1996
______________ __________________
<S> <C> <C>
Raw Materials $ 1,754,523 $ 1,751,793
Work in Process 1,244,029 853,422
Finished Goods 100,753 10,557
______________ __________________
$ 3,099,305 $ 2,615,772
______________ __________________
</TABLE>
NOTE 2. Long-term Debt
_______ ______________
As of March 29, 1997, 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 April 30, 1997. Availability under the line of credit had
been reduced by $68,926 for outstanding standby letters of credit (as of
March 29, 1997). Other than these standby letters of credit, the
Company had no borrowings under the line of credit at March 29, 1997.
During April 1997, the Company renewed and increased its line of credit
to $3,500,000 with an amended expiration date of May 1, 1998.
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 debt with an offsetting charge to
"ESOP Deferred Compensation" within the Stockholders' Equity section.
Page 4
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
________________________________________________________________
On May 1, 1997, the Company provided a loan of $104,836 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.
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 March 29, 1997 was $519,450. The Company
anticipates that it will refinance this loan to eliminate or postpone
the remaining balloon payment beyond fiscal year 1997.
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 six months ended March 29, 1997 and March 30, 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 March 29, 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 March 29, 1997 was
$2,610,009, representing a 45% decrease from the Company's backlog of
$4,756,845 as of September 28, 1996. The Company expects to deliver
most of its backlog in the current fiscal year.
Net sales for the quarter ended March 29, 1997 and March 30, 1996, were
$4,054,348 and $3,695,727, respectively. For the six months ended March
29, 1997 and March 30, 1996, net sales were $7,112,462 and $5,836,567,
respectively. This increase of 10% in second quarter net sales and 22%
in year-to-date net sales may be attributed to both an increasing
customer base and variability in revenue recognition as a result of the
timing of shipments associated with long-term contracts.
Gross profit for the second quarter of fiscal year 1997 was $2,664,537,
as compared to gross profit of $2,015,971 in the second quarter of
fiscal year 1996. For the first six months of 1997 gross profit totaled
$4,517,899, as compared with $3,166,896 for the first six months of
1996. This represented a 32% increase in gross profit for the quarter
and a 43% increase year-to-date. Gross profit expressed as a percentage
of sales was 66% in the second quarter and 64% in the first six months
of fiscal year 1997, as compared to 55% in the second quarter and 54%
for the first six months of fiscal year 1996. Since a considerable
portion of manufacturing cost is relatively fixed, increases in net
sales usually result in increases in margin percentage. In addition,
sales in the second quarter of fiscal 1997 included a high proportion of
higher-margin products.
Operating expenses for the second quarter and first six months of fiscal
1997 were $2,524,142 and $4,358,220, respectively. For the second
quarter and first six months of fiscal 1996 operating expenses were
$1,604,874 and $3,131,300, respectively. This increase of 57% in the
quarter and 39% in the first six months was due primarily to increased
spending in sales, marketing, and product development.
Other income and expense for the second quarter and first six months of
fiscal 1997 were $22,170 and $50,943, respectively. For the second
quarter and first six months of fiscal 1996 other income and expense
were $7,657 and ($1,128), respectively. This increase in the quarter
and in the first six months was primarily due to the loan repayments
(described in Note 2 on Page 5 of this Form 10-Q) as a result of the
acquisition of the assets of Datotek, Inc. in May 1995.
After-tax income for the second quarter and first six months of fiscal
year 1997 was $121,924 or $.09 per share and $157,875 or $.12 per share,
respectively. The after-tax profits in the second quarter and first six
months of fiscal year 1996 were $314,065 or $.25 per share and $25,851
or $.02 per share, respectively. Earnings for the second fiscal quarter
were lower than for the previous equivalent period because of the
increased operating costs previously mentioned. Earnings for the six-
month period were substantially improved over the same period last year
due to increased revenue and the improved gross profit percentage
previously discussed.
Page 6
<PAGE>
Management's Discussion and Analysis (continued)
________________________________________________
Liquidity and Capital Resources
_______________________________
Cash and short-term investments decreased by $3,068,167 or 48% to
$3,312,859 as of March 29, 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 $1,432,474 net increase in trade receivables
stemming from a $2,400,000 sale late in the second quarter. The current
ratio was 3.0:1 at March 29, 1997, compared to 2.9:1 as of September 28,
1996. Inventories were $3,099,305 as of March 29, 1997, representing a
18% increase from the September 28, 1996 balance of $2,615,772 due to
inventory buildup 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 it
takes and the costs incurred to develop, market, sell, manufacture and
ship products, the Company's ability to refinance the 1991 ESOP loan,
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:
The Annual Meeting of Stockholders of the Company was held on
February 10, 1997. 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
_____________________ _________ ________ ___________ _________
<C> <C> <C> <C> <C>
To fix the number of
directors at eight 1,009,586 42,480 2,700 ---
___________________________________________________________________________
Election of Directors
Arnold M. McCalmont 971,082 83,684 --- ---
Roland S. Gerard 935,578 119,188 --- ---
Lawrence A. Kletter 952,871 101,895 --- ---
Herbert A. Lerner 972,855 81,911 --- ---
Robert T. Lessard 974,355 80,411 --- ---
James A. McCalmont 949,556 105,210 --- ---
Philip A. Phalon 983,725 71,041 --- ---
Victor Sabella 984,612 70,154 --- ---
___________________________________________________________________________
To increase the number
of shares reserved for
issuance of stock options
by 100,000 shares 849,203 197,463 8,100 ---
___________________________________________________________________________
To ratify the selection
of the firm of Arthur
Andersen LLP as the
Company's auditors 1,049,812 4,304 650 ---
</TABLE>
Page 8
<PAGE>
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 9
<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)
May 13, 1997 By: /s/ Roland S. Gerard
____________ ________________________________
Date ROLAND S. GERARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
May 13, 1997 By: /s/ Graham R. Briggs
____________ ________________________________
Date GRAHAM R. BRIGGS, VICE PRESIDENT
AND CHIEF ACCOUNTING OFFICER
Page 10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTERLY
REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> MAR-29-1997
<CASH> 3,312,859
<SECURITIES> 0
<RECEIVABLES> 4,705,305
<ALLOWANCES> 53,707
<INVENTORY> 3,099,305
<CURRENT-ASSETS> 11,212,844
<PP&E> 4,366,867
<DEPRECIATION> 2,965,710
<TOTAL-ASSETS> 14,514,402
<CURRENT-LIABILITIES> 3,701,039
<BONDS> 0
0
0
<COMMON> 127,220
<OTHER-SE> 10,686,143
<TOTAL-LIABILITY-AND-EQUITY> 14,514,402
<SALES> 4,054,348
<TOTAL-REVENUES> 4,054,348
<CGS> 1,389,811
<TOTAL-COSTS> 3,913,953
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,554
<INCOME-PRETAX> 162,565
<INCOME-TAX> 40,641
<INCOME-CONTINUING> 121,924
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121,924
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
