<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
December 28, 1996 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) Idenitifcation 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 formal 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 January 29, 1997: 1,266,203.
<PAGE>
INDEX
Page
____
PART I Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets, as of
December 28, 1996 (unaudited) and September 28, 1996. 1
Condensed Consolidated Statements of Operations,
Three (3) months ended December 28, 1996 and December
30, 1995 (unaudited). 2
Condensed Consolidated Statements of Cash Flows,
Three (3) months ended December 28, 1996 and December
30, 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
<PAGE>
PART I. Financial Information - Item 1. Financial Statements
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 28, 1996 September 28, 1996
(Unaudited)
_________________ __________________
<S> <C> <C>
Assets
______
Current Assets: $ 4,531,905 $ 6,381,026
Cash and cash equivalents
Accounts receivable - trade, less
allowance for doubtful accounts of
$53,707 at 22/28/96 and 9/28/96 3,112,004 3,219,124
Inventories (Note 2) 3,271,625 2,615,772
Other current assets 180,548 199,122
____________ ____________
Total current assets $ 11,096,082 $ 12,415,044
____________ ____________
Equipment and leasehold improvements 4,246,909 4,223,816
Less: accumulated depreciation and
amortization 2,791,981 2,646,683
____________ ____________
1,454,928 1,577,133
____________ ____________
Goodwill 1,614,131 1,614,131
Less: accumulated amortization 340,351 286,623
____________ ____________
1,273,780 1,327,508
Other assets 731,483 680,348
____________ ____________
$ 14,556,273 $ 16,000,033
____________ ____________
Liabilities and Stockholders' Equity
____________________________________
Current Liabilities:
Accounts payable $ 1,245,155 $ 504,860
Long-term debt - current portion
(Note 3) 674,663 1,145,175
Accrued liabilities:
Compensation and related expenses 344,394 597,938
Other 1,690,281 2,019,303
____________ ____________
Total current liabilities $ 3,954,493 $ 4,267,276
____________ ____________
Long-term debt - current portion
(Note 3) --- 1,200,000
Stockholders' Equity
Common stock, par value $.10 per
share; authorized 3,500,000 shares;
issued and outstanding 1,266,203
shares at 12/28/96 and 1,264,496
shares at 9/28/96 126,620 126,450
Treasury stock at cost, 10,000 shares (80,000) (80,000)
Additional paid-in capital 1,486,033 1,473,643
ESOP deferred compensation (Note 3) (674,663) (695,175)
Retained earnings 9,743,790 9,707,839
____________ ____________
Total stockholders' equity $ 10,601,780 $ 10,532,757
____________ ____________
$ 14,556,273 $ 16,000,033
____________ ____________
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 1
<PAGE>
PART I. Financial Information - Item 1. Financial Statements
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended
______________
December 28, 1996 December 30, 1995
_________________ _________________
<S> <C> <C>
Net Sales $ 3,058,114 $ 2,140,840
Cost of Sales 1,204,752 989,914
___________ ___________
Gross Profit 1,853,362 1,150,926
___________ ___________
Operating Expenses:
Selling, general and
administrative expenses 1,388,367 1,060,610
Product development costs 445,711 465,816
___________ ___________
1,834,078 1,526,426
___________ ___________
Operating Profit (Loss) 19,284 (375,500)
___________ ___________
Other Income (Expense):
Interest income 48,029 54,220
Interest expense (30,174) (68,174)
Other income (expense) 10,918 5,168
___________ ___________
28,773 (8,786)
___________ ___________
Income (loss) before income taxes 48,057 (384,286)
Income Taxes 12,106 (96,072)
___________ ___________
Net Income (Loss) $ 35,951 $ (288,214)
___________ ___________
Earnings (Loss) Per
Common Share: (Note 1) $ .03 $ (.23)
Weighted Avg. Shares Used in Computation 1,266,203 1,254,426
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 2
<PAGE>
PART I. Financial Information - Item 1. Financial Statements
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
__________________
December 28, 1996 December 30, 1995
_________________ _________________
<S> <C> <C>
Operating Activities:
Net income (loss) $ 35,951 $ (288,214)
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 199,026 194,725
Non-cash compensation associated
with ESOP 20,511 61,534
__________ __________
255,488 (31,955)
Changes in assets and liabilities:
Decrease in accounts receivable 107,120 2,891,111
Increase in inventories (655,853) (389,329)
Decrease in other current assets 18,575 13,446
Decrease in accrued and deferred
income taxes (495,799) (322,184)
Increase in other assets (51,135) (1,797)
Increase (decrease) in accounts
payable and accrued liabilities 653,527 (354,732)
__________ __________
(423,565) 1,836,515
Net cash provided (used) by
operating activities (168,077) 1,804,560
Investing Activities:
Additions to equipment and leasehold
improvements (23,093) (39,580)
__________ __________
Net cash used by investing
activities (23,093) (39,580)
Financing Activities:
Proceeds from stock issuance 12,561 ---
Payment of debt (1,670,512) (174,035)
__________ __________
Net cash used by financing activities (1,657,951) (174,035)
Net increase (decrease) in cash and
cash equivalents (1,849,121) 1,590,945
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 $ 4,531,905 $ 5,468,735
__________ __________
Supplemental disclosures:
Interest paid $ 30,174 $ 68,174
Income taxes paid (net of refunds
received) 503,500 168,598
</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. Earnings Per Share
______ __________________
For the three months ended December 28, 1996 and December 30, 1995, 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.
NOTE 2. Inventories
______ ___________
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 28, 1996 September 28, 1996
_________________ __________________
<S> <C> <C>
Raw Materials $ 2,158,395 $ 1,751,793
Work in Process 1,070,153 853,422
Finished Goods 43,077 10,557
__________ __________
$ 3,271,625 $ 2,615,772
__________ __________
</TABLE>
NOTE 3. Long-Term Debt
______ ______________
As of December 28, 1996, the Company had a $2,500,000 line of credit at a
rate of prime plus 1/2 of 1%. The line of credit is secured by a pledge of
substantially all the assets of the Company and is due to mature on April
30, 1997. Availability under the line of credit had been reduced by
$68,777 for outstanding standby letters of credit (as of December 28,
1996). Other than these standby letters of credit, the Company had no
borrowings under the line of credit at December 28, 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 4
<PAGE>
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 8.75%. It requires a balloon payment of
approximately $82,000 in April 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. The original balance due on these two loans as of 12/28/96 was
$674,663. Subject to the approval of the two banks in question, the
Company anticipates refinancing both loans to eliminate or postpone beyond
fiscal year 1997 these two balloon payments. 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%, were paid in full during the quarter
ended December 28, 1996.
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 I,
"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 must continue to maintain a
sufficient level of staff necessary for its product development, marketing
and manufacturing efforts. As a result, its expenses do not fluctuate in
tandem with revenues.
The Company's backlog of firm orders as of December 28, 1996 was
$5,740,319, representing an increase of 21% from $4,756,845 as of September
28, 1996. The Company expects to deliver most of this backlog in the
current fiscal year.
Net sales for the fiscal quarter ended December 28, 1996 and December 30,
1995, were $3,058,114 and $2,140,840, respectively. This increase of 43%
in first quarter net sales was primarily due to the quarterly variability
mentioned above.
Gross profit for the first quarter of fiscal year 1997 was $1,853,362, as
compared to gross profit of $1,150,926 in the first quarter of fiscal year
1996. This represented a 61% increase in gross profit. Gross profit
expressed as a percentage of sales was 61% in the first quarter of fiscal
year 1997, as compared to 54% in the first quarter 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 first quarter of fiscal 1997 included a high
proportion of higher-margin products than did the first quarter of fiscal
1996. Management does not believe that this difference in product mix
represents a trend.
Operating expenses for the first quarter of fiscal 1997 were $1,834,078
compared to operating expenses in the first quarter of fiscal 1996 of
$1,526,426. This increase of 20% in the quarter was primarily due to
higher selling and business development expenses. The higher business
development expenses relate primarily to the Company's efforts to develop
more business in the commercial sector, while the higher selling expenses
were incurred in both the commercial marketplace and the Company's more
traditional government business. Management intends to continue increased
expenditures for product development, selling and business development to
increase the growth-rate of the Company's sales. The Company is developing
a family of standardized platforms that can be economically adapted to
handle various communications protocols. While these standardized
platforms are intended primarily for the commercial marketplace, Management
expects these new products to be marketable to the government sector as
well. The Company is also enhancing certain existing products,
particularly its Keynet (Trademark) key and device management system.
After-tax income for the first quarter of fiscal year 1997 was $35,951 or
$.03 per share. This compared to an after-tax loss of ($288,214) or ($.23)
per share in the first quarter of fiscal year 1996. Earnings were
substantially improved over last year due to increased revenue and the
improved gross profit percentage mentioned above. This is the Company's
fourth consecutive profitable quarter and represents the first time it has
Keynet is a trademark of Technical Communications Corporation.
Page 6
<PAGE>
Management's Discussion and Analysis (continued)
________________________________________________
been profitable during its first fiscal quarter since fiscal 1993. Management
is striving to improve revenues and profitability on a quarterly, as well as
annual basis. Individual or even consecutive fiscal quarters may, however,
from time to time be unprofitable, due to the continuing wide variation in
revenues from quarter to quarter mentioned above.
Liquidity and Capital Resources
_______________________________
Cash and short-term investments decreased by $1,849,121 or 29% to
$4,531,905 as of December 28, 1996, from a balance of $6,381,026 at
September 28, 1996. This decrease was primarily due to the payoff of the
Datotek acquisition loans (see Note 3 on Page 4 of this Form 10-Q). The
current ratio declined to 2.8:1 at December 28, 1996, compared to 2.9:1 as
of September 28, 1996. Inventories were $3,271,625 as of December 28,
1996, representing a 25% increase from the September 28, 1996 balance of
$2,615,772 due to inventory build-up for future shipments.
Information on the Company's long-term debt is to be found on Page 4, Note
3, "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 cost
incurred to develop, market, sell, manufacture and ship products, the mix
of high-and low-margin products sold by the Company, the success of new
products under development, 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. 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 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)
February 7, 1997 By: /s/ Roland S. Gerard
________________ ________________________________
Date ROLAND S. GERARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
February 7, 1997 By: /s/ Graham R. Briggs
________________ ________________________________
Date GRAHAM R. BRIGGS, VICE PRESIDENT
OF FINANCE AND CHIEF ACCOUNTING
OFFICER
Page 9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> DEC-28-1996
<CASH> 4,531,905
<SECURITIES> 0
<RECEIVABLES> 3,165,711
<ALLOWANCES> 53,707
<INVENTORY> 3,271,625
<CURRENT-ASSETS> 11,096,082
<PP&E> 4,246,909
<DEPRECIATION> 2,791,981
<TOTAL-ASSETS> 14,556,273
<CURRENT-LIABILITIES> 3,954,493
<BONDS> 0
0
0
<COMMON> 126,620
<OTHER-SE> 10,475,160
<TOTAL-LIABILITY-AND-EQUITY> 14,556,273
<SALES> 3,058,114
<TOTAL-REVENUES> 3,058,114
<CGS> 1,204,752
<TOTAL-COSTS> 3,038,830
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,174
<INCOME-PRETAX> 48,057
<INCOME-TAX> 12,106
<INCOME-CONTINUING> 35,951
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,951
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
