SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended Commission File Number
September 28, 1996 0-8588
__________________ ______
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_______________TO_______________.
Technical Communications Corporation
____________________________________
(Exact name of registrant as specified in its charter)
Massachusetts 04-2295040
_____________________________________________ ___________________
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
100 Domino Drive, Concord, MA 01742-2892
_____________________________________________ ___________________
(Address of principal executive offices) (Zip code)
Registrant's telephone number,
including area code (508) 287-5100
Securities registered pursuant to Section 12 (b) of the Act:
None None
_____________________________________________ ______________________
(Title of each class) (Name of each exchange
on which registered)
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.10 Par Value
____________________________
(Title of Class)
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
[X]
Based on the closing price of the stock as of December 5, 1996, the
aggregate market value of the registrant's Common Stock, par value $ .10
per share, held by non-affiliates of the registrant as of December 5, 1996,
was approximately $11,700,000.
The number of shares of the registrant's Common Stock, par value $ .10
per share, outstanding as of December 12, 1996, was 1,264,496.
DOCUMENTS INCORPORATED BY REFERENCE
___________________________________
The registrant's proxy statement, which will be filed with the Securities
and Exchange Commission not later than December 31, 1996, is incorporated
herein by reference.
FORWARD-LOOKING STATEMENTS
THIS FORM 10-K 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 ARE
DISCUSSED IN THE SECTION ENTITLED "CERTAIN FACTORS AFFECTING FUTURE
OPERATING RESULTS" ON PAGE 7 OF THIS FORM 10-K.
PART I
Item 1. BUSINESS
(a) General
_______
Technical Communications Corporation (the "Company") was organized in
1961 as a Massachusetts corporation to engage primarily in consulting
activities. However, since the late 1960s its business has consisted
entirely of the design, development, manufacture, distribution, and sale of
communications security devices and systems.
(b) Information as to Industry Segments
___________________________________
The Company's business consists of only one industry segment, which is
the design, development, manufacture, distribution, and sale of
communications security devices and systems.
(c) Description of Business
_______________________
The Company's products consist of sophisticated electronic devices
which enable users to transmit information in a scrambled format and permit
receivers to reconstitute the information in an unscrambled format. The
Company's products can be used to protect confidentiality in communications
between radios, telephones, facsimile machines and data processing
equipment over wires, fiber optic cables, radio waves and microwave and
satellite links. A customer may order and receive equipment which is
specially programmed to scramble transmissions in accordance with a code to
which only the customer has access. The principal markets for the
Company's products are foreign and domestic governmental agencies, law
enforcement agencies, and multinational companies.
The Company has several competitors, including foreign-based
companies, in the communications security devices field. Many of these
competitors are companies which may have greater financial and other
resources than the Company. The Company competes based on its service, the
operational and technical features of its products, its sales expertise and
pricing. The Company sells directly to customers, original equipment
manufacturers, and value-added resellers using its in-house sales force as
well as domestic and international representatives and distributors.
In fiscal 1996, the Company had three customers, including the U.S.
Government as one customer, representing 54% (26%, 16%, and 12%) of net
sales. In fiscal 1995, the Company had three customers, including the U.S.
Government as one customer, representing 57% (24%, 20%, and 13%) of net
sales. In fiscal 1994, the Company had three customers, including the U.S.
Government as one customer, representing 52% (28%, 15% and 9%) of net
sales.
The Company's backlog of firm orders as of September 28, 1996 was
$4,756,845, compared to $2,868,787 as of September 30, 1995. The Company
expects to deliver substantially all of its backlog in the current fiscal
year.
The Company subcontracts a large portion of its manufacturing
operations. Many of the components used in the Company's products are
standard components available from more than one supplier. The Company
has, or believes that it could develop without significant delay,
alternative sources for almost all materials and components used in the
manufacture of its products. The Company's internal manufacturing process
consists primarily of adding critical components, final assembly, quality
control, testing and burn-in. Delivery time varies depending on the
products and options ordered.
Page 2 of 12
The Company's technological expertise and experience, including
certain proprietary rights which it has developed and maintains as trade
secrets, are crucial to the conduct of the Company's business. Management
is of the opinion that, while patent protection is desirable with respect
to certain of its products, none of the Company's patents are material to
the conduct of its business. Eight patents have been issued to the
Company. The Company has a number of trademarks for various products,
including TCC, KEYNET and CIPHER X. The Company does not deem any of its
trademarks to be material to the conduct of its business.
Research and development is undertaken by the Company on both its own
initiative and specific customer request. In order to develop the
technology needed to compete successfully, the Company must attract and
retain qualified personnel, improve existing products and develop new
products. During the twelve-month periods ended September 28, 1996,
September 30, 1995, and October 1, 1994, the Company spent $1,955,852,
$1,492,370, and $1,221,713, respectively, on product development costs.
As of September 28, 1996, the Company employed approximately 64
persons. The Company believes that its relationship with its employees is
good.
(d) Foreign Operations
__________________
The Company is dependent upon its foreign sales. Foreign sales were
more profitable than domestic sales during the fiscal year ended October 1,
1994, because the mix of products sold abroad included more products with
higher profit margins than the mix of products sold domestically. This
trend continued in fiscal year 1995, but in fiscal year 1996, foreign and
domestic sales were equally profitable. The Company does not believe that
this change necessarily indicates a trend. Sales to foreign markets have
been and will continue to be affected by the stability of foreign
governments, economic conditions, export and other governmental
regulations, and changes in technology. The Company attempts to minimize
the financial risks normally associated with foreign sales by utilizing
letters of credit confirmed by U.S. banks and by using foreign credit
insurance. With one exception, foreign sales have been in U.S. dollars.
The sale in foreign currency was hedged against fluctuations in exchange
rates to minimize financial risk.
Most of the Company's export sales are conducted through its wholly-
owned subsidiary, TCC Foreign Sales Corporation, which is qualified as a
Foreign Sales Corporation (FSC) under the Internal Revenue Code.
Export licenses are required from the federal government for the
export of the Company's products to foreign countries.
Information regarding the Company's revenue from export sales for the
past five years is set forth in Item 6, "SELECTED FINANCIAL DATA" (Page 5).
Item 2. PROPERTIES
The Company leases its headquarters and a branch sales office under
operating leases.
On October 16, 1992, the Company signed its current lease on its
headquarters. The future minimum lease payments are $146,160 per year for
calendar years 1995 through 1997. The lease expires on December 31, 1997,
but can be renewed for one or two additional two and one-half year terms
ending June 30, 2000, and December 31, 2002. The Company also retains an
option to purchase the building at fair market value but not to exceed
$2,262,000, exercisable at each two and one-half year interval during the
initial term of the lease or any renewals thereof.
Management believes the current facility is capable of meeting the
Company's anticipated needs for the foreseeable future.
Item 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
Page 3 of 12
PART II
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock, $.10 par value, is traded on the over-
the-counter market, on the NASDAQ National Market System, under the symbol
"TCCO". The following table presents low and high bid information for the
time periods specified. The over-the-counter market quotations reflect
inter-dealer prices, without retail markup, markdown or commission and may
not necessarily represent actual transactions. The over-the-counter market
quotations have been furnished by The NASDAQ Stock Market, Inc.
Price
________________
Title of Quarter
Class Ending Low High
____________ _________ ______ ______
Common Stock,
$.10 par value
12/31/94 $ 7.00 $ 9.25
04/01/95 6.75 8.50
07/01/95 6.25 8.25
09/30/95 6.25 11.00
12/30/95 7.25 10.25
03/30/96 6.75 9.00
06/29/96 7.50 32.00
09/28/96 8.75 18.00
The Company has paid no cash dividends in the past and has no plans to
pay cash dividends in the foreseeable future.
As of December 5, 1996, there were approximately 1,300 record holders
of Common Stock, $.10 par value. As of December 5, 1996, the low and high
prices of the Common Stock were $9.125 and $9.625.
Page 4 of 12
Item 6. SELECTED FINANCIAL DATA
Selected Financial Data:
Fiscal Years ended:
September 28, September 30, October 1, October 2, September 26,
1996 1995 1994 1993 1992
_____________ _____________ ____________ ___________ _____________
Net Sales:
Domestic $ 3,633,425 $ 1,535,015 $ 707,735 $ 3,043,963 $ 3,010,859
Foreign 10,379,377 8,692,550 8,357,980 6,679,220 11,515,348
_____________________________________________________________________________________
Total net
sales 14,012,802 (B) 10,227,565 (B) 9,065,715 9,723,183 14,526,207
Gross profit 8,231,388 5,351,882 5,294,825 5,056,996 9,073,433
Net income 532,147 88,745 116,046 83,440 1,258,057
Net income
per share
of common
stock
(Note A) $ .42 $ .07 $ .09 $ .07 $ 1.02
Weighted
average
shares out-
standing 1,257,384 1,252,567 1,245,410 1,238,211 1,236,362
As of:
September 28, September 30, October 1, October 2, September 26,
1996 1995 1994 1993 1992
_____________ _____________ ____________ ____________ _____________
Assets $ 16,000,033 $ 15,348,435 $ 12,088,955 $ 12,019,465 $ 13,443,913
Long-term
obligations $ 1,200,000 $ 2,550,612 $ 1,132,748 $ 550,386 $ 1,638,589
________________________________________________________________________________________
Notes to Selected Financial Data
(A) For fiscal years 1996, 1995, 1994, 1993, and 1992 the dilutive effect
of shares assumed to have been issued on exercise of stock options was
not material. The Company has not paid a cash dividend in the
past five years.
(B) Amounts include the sales since May 31, 1995 of Datotek, Inc. The
Company acquired the assets comprising the secure communications
business of Datotek, Inc. on May 31, 1995. See footnote 15 of
the Notes to Consolidated Financial Statements on Page AR 17.
_______________________________________________________________________________
Selected Quarterly Financial Data:
For the years ended September 28, 1996, and September 30, 1995.
First Quarter Second Quarter Third Quarter Fourth Quarter
Fiscal 1996 December 30, 1995 March 30, 1996 June 29, 1996 September 28, 1996
___________ _________________ ______________ _____________ __________________
Net sales $ 2,140,840 $ 3,695,727 $ 3,889,148 $ 4,287,087
Gross profit 1,150,926 2,015,971 2,248,854 2,815,637
Net income
(loss) 288,214) 314,065 284,637 221,659
Net income
(loss) per
share $ (.23) $ .25 $ .23 $ .17
First Quarter Second Quarter Third Quarter Fourth Quarter
Fiscal 1995 December 31, 1994 April 1, 1995 July 1, 1995 September 30, 1995
___________ _________________ ______________ _____________ __________________
Net sales $ 1,134,076 $ 789,489 $ 2,900,841 $ 5,403,159
Gross profit 490,144 95,806 1,865,881 2,900,051
Net income
(loss) (357,904) (629,994) 361,336 715,307
Net income
(loss) per
share $ (.29) $ (.50) $ .29 $ .57
Page 5 of 12
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain Factors Affecting Future Operating Results
__________________________________________________
This Form 10-K 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: future changes in export laws or
regulations, changes in technology, the effect of foreign political unrest,
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, the Company's
ability to renegotiate and extend its ESOP loans and its line of credit
with its banks, the correctness of management judgment that certain current
expenditures will benefit the Company in the future, and the accuracy of
management's estimates of the value of the Company's assets and of the
adequacy of its reserves.
Liquidity and Capital Resources
_______________________________
Cash and cash equivalents increased from $3,877,790 at September 30,
1995 to $6,381,026 at September 28, 1996. This increase was primarily due
to a decrease in accounts receivable. The current ratio of the Company, an
indication of its working capital strength, decreased from 3.8 to 1 as of
September 30, 1995 to 2.9 to 1 as of September 28, 1996. The decrease was
primarily caused by the full balance of the ESOP loans becoming current.
During the 1995 fiscal year, the Company and its bank renewed its
existing Revolving Line of Credit Agreement. The $2,500,000 line of credit
is available until May 1, 1997. Borrowings under the line of credit bear
interest at the bank's prime rate plus one-half percent per annum. The
line of credit is secured by a lien on substantially all of the Company's
assets and will be used for working capital requirements and to support
letters of credit. While there have been no borrowings under the line of
credit, availability under the line as of September 28, 1996, has been
reduced by $66,910 for outstanding letters of credit.
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 from two banks, respectively, 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
long-term debt with an offsetting charge to "ESOP Deferred Compensation"
within the Stockholders' Equity section.
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. Subject to the approval of the two banks, the Company anticipates
refinancing both loans to eliminate or postpone beyond fiscal 1997 the two
balloon payments.
On May 31, 1995, the Company completed an asset purchase of the secure
communications business of Datotek, Inc., a subsidiary of AT&T Corp., for
$3,687,000 (see footnote 15 of the Notes to Consolidated Financial
Statements on Page AR 17.). This acquisition was funded partly by the
Company's cash reserves 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%. However, as of November 8, 1996, the
Company paid off both loans in full.
Management anticipates no unusual capital expenditures and no
anticipated increases in the Company's requirements for capital resources
for fiscal 1996. Management believes that existing working capital will be
sufficient to meet contemplated operating and capital requirements in the
foreseeable future.
Page 6 of 12
Results of Operations
_____________________
1996 COMPARED TO 1995
_____________________
Consolidated net sales for the year ended September 28, 1996 were
$14,012,802 compared with sales of $10,227,565 for the prior fiscal year.
This increase of $3,785,237, or 37%, is attributed to the acquisition of
substantially all the assets comprising the secure communications business
of Datotek, Inc. from AT&T on May 31, 1995.
Domestic sales for fiscal 1996 amounted to $3,633,425, compared with
$1,535,015 for the previous fiscal year. The increase of 137% was due to
increased procurement from U.S. government agencies. Foreign sales
increased to $10,379,377 in fiscal 1996, from $8,692,550 in fiscal 1995, an
increase of 19%.
Gross profit for the fiscal year 1996 was $8,231,388, compared to
gross profit of $5,351,882 in fiscal year 1995. The 54% increase in gross
profit is primarily due to increased sales. Gross profit expressed as a
percentage of sales was 59% in fiscal 1996, compared to 52% in fiscal year
1995. Gross profit as a percentage of sales increased primarily due to the
resale of Datotek inventories that had been purchased at a discount. A
portion of these savings are expected to be non-recurring.
Engineering, design and product development costs in fiscal year 1996
were $1,955,852, compared to $1,492,370 in fiscal 1995. In fiscal 1996 a
higher proportion of development costs were for TCC's own products,
resulting in a lesser proportion of such cost being billed directly to
customers.
Selling, general and administrative expenses of $5,582,553 in fiscal
year 1996 increased by $1,755,775, or 46% greater than such expenses in
fiscal year 1995. This increase was accounted for primarily by increases
in selling and business development expenses. Management believes that
these increased expenditures are a necessary investment in the Company's
future.
Investment income earned during fiscal year 1996 was $239,142,
compared to $271,815 in fiscal year 1995. The decrease of $32,673 is due
to lower average cash balances (the Datotek acquisition of May 31, 1995 was
paid for partially from the Company's cash). Interest expense of $243,472
in fiscal year 1996 represented an increase of $84,902 from the fiscal 1995
level. This was due to a full year of interest expense on the $2,250,000
loan incurred in connection with the Datotek acquisition of May 31, 1995.
(The loans incurred in connection with the Datotek acquisition were paid
off as of November 8, 1996.)
The Company had net earnings of $532,147 or $.42 per share in fiscal
year 1996, compared to net earnings of $88,745 or $.07 per share in fiscal
year 1995. This represents an increase in net earnings of approximately
500%. This increase was the result of the $3,785,237 increase in sales
coupled with the improved gross profit percentage.
The effects of inflation and changing costs have not had a significant
impact on sales or earnings in recent years. As of December 1, 1996, less
than one percent (1%) of the Company's monetary assets or liabilities were
subject to foreign exchange risks. The Company hedges foreign currency
transactions against price changes to minimize financial risk. The Company
attempts to minimize the financial risks normally associated with foreign
sales by utilizing letters of credit confirmed by U.S. banks in most cases
and using exporters insurance. The Company usually includes an inflation
factor into pricing when negotiating multi-year contracts with customers.
1995 COMPARED TO 1994
_____________________
Consolidated net sales for the year ended September 30, 1995, were
$10,227,565, compared with sales of $9,065,715 for the prior fiscal year.
This increase of $1,161,850 was attributed to increases in domestic sales
(71%) and foreign sales (29% ) from the previous year.
Domestic sales for fiscal 1995 amounted to $1,535,015, compared with
$707,735 for the previous fiscal year. The increase was due to increased
procurement from U.S. government agencies. Foreign sales increased to
$8,692,550 in fiscal 1995, from a level of $8,357,980 in fiscal 1994. A
significant portion of this increase resulted from sales of the Company's
DSD72A-SP bulk encryption equipment to protect missile control telemetry.
Gross profit for the fiscal year 1995 was $5,351,882, compared to
gross profit of $5,294,825 in fiscal year 1994. Gross profit increased
slightly due to increased sales. Gross profit expressed as a percentage of
sales was 52% in fiscal 1995, compared to 58% in fiscal year 1994. The
gross profit as a percentage of sales was reduced primarily as a result of
increased warranty and inventory obsolescence costs resulting from the
Datotek acquisition. A portion of these costs is expected to be non-
recurring.
Page 7 of 12
Engineering, design and product development costs in fiscal year 1995
were $1,492,370, compared to $1,221,713 in fiscal 1994. In fiscal 1995 a
higher proportion of development costs was for TCC's own products,
resulting in a lesser proportion of such costs being billed directly to
customers.
Selling, general and administrative expenses of $3,826,778 in fiscal
year 1995 decreased by $218,398, or 5% less than such expenses in fiscal
year 1994. This decrease was accounted for primarily by decreases in
administration and engineering expenses. These decreases were primarily
the result of lower salary costs and reduction in material usage in the
engineering department. The reduction in material usage in the engineering
department resulted from working on engineering development jobs that were
more software related.
Investment income earned during fiscal year 1995 was $271,815,
compared to $212,211 in fiscal year 1994. The increase of $59,604 is
primarily due to higher interest rates on our investments. Interest
expense of $158,570 in fiscal year 1995 represented an increase of $44,455
from the fiscal 1994 level. This was due to the addition of a $2,250,000
loan incurred in connection with the Datotek acquisition.
The Company had net earnings of $88,745 or $.07 per share in fiscal
year 1995, compared to net earnings of $116,046 or $.09 per share in fiscal
year 1994. This represents a decrease in net earnings of approximately
24%. This decrease was the direct result of additional costs incurred in
connection with the Datotek acquisition.
The Datotek acquisition has increased the Company's market share of
the secure communications business in which Datotek competed and will
create more visibility in the world market. Datotek's customer database
and contacts will be a valuable asset to the Company's long-range sales
objectives. The Company's distribution agreement with AT&T Corp. to sell
certain secure communications equipment will also positively affect sales.
1994 COMPARED TO 1993
_____________________
Consolidated net sales for the year ended October 1, 1994, were
$9,065,715, compared with sales of $9,723,183 for the prior fiscal year.
This decrease of $657,468 was caused by a reduction in domestic sales from
the previous year.
Because of the long lead-times associated with the acquisition of
orders, new products rarely contribute significantly to sales in the year
in which they are introduced.
Domestic sales for fiscal 1994 amounted to $707,735, compared with
$3,043,963 for the previous fiscal year. Two reasons contributed to this
reduction. The first was the General Services Administration's delay in
deploying already acquired TCC equipment on its FTS 2000 network. The
second reason stemmed from continuing uncertainty among our domestic
customers with regard to the "Clipper Chip" encryption algorithm. Foreign
sales increased 25% to $8,357,980 in fiscal 1994, from a level of
$6,679,220 in fiscal 1993. A significant portion of this increase resulted
from adopting the Company's existing DSD72A-SP bulk encryption equipment to
protect missile control telemetry.
Gross profit for the fiscal year 1994 was $5,294,825, compared to
gross profit of $5,056,996 in fiscal year 1993. Gross profit increased
despite the decrease in sales. Gross profit expressed as a percentage of
sales was 58% in fiscal 1994, compared to 52% in fiscal year 1993. The
gross profit improved primarily as a result of a higher proportion of
foreign sales, as compared to domestic, in the product mix. As a rule, the
gross margins on foreign sales tend to be higher than those on domestic
sales.
Engineering, design and product development costs in fiscal year 1994
were $1,221,713, compared to $1,856,785 in fiscal 1993. This apparent drop
in product development expenditures is primarily the result of the
Company's ability to charge more of its development effort to its customers
than in the previous year. Total engineering, design and development
expenses in fiscal 1994 were $1,793,161, compared to $2,084,970 in fiscal
1993. However, in fiscal 1994, the Company transferred $571,448 of
development expenses to inventory or cost of sales, compared to $228,185 in
the previous fiscal year. The remaining $291,809 decrease in total
engineering costs from fiscal 1993 to fiscal 1994 resulted entirely from
reductions in outside consulting costs, project material expenses and
facilities allocation.
Selling, general and administrative expenses of $4,045,176 in fiscal
year 1994 exceeded those of fiscal year 1993 by $863,434, or 27%. This
increase was accounted for by increases in sales, marketing and customer
service expenses. Management believes these increases are necessary in
order to assure a secure and profitable future for the Company.
Page 8 of 12
Investment income earned during fiscal year 1994 was $212,211, almost
exactly equal to $211,168 in fiscal year 1993. Interest expense of
$114,115 in fiscal year 1994 represented a decrease of $36,382 from the
fiscal 1993 level. This was due to a lower outstanding average balance on
the ESOP loan (see Note 5 on page AR10).
The Company had net earnings of $116,046 or $.09 per share in fiscal
year 1994, compared to net earnings of $83,440 or $.07 per share in fiscal
year 1993. This represents an increase in net earnings of approximately
39%. This increase was the direct result of the increased gross margin,
partially offset by higher operating expenses referred to above.
Equipment and leasehold improvements as of October 1, 1994 increased
by $185,284 (gross) but declined by $106,706 (net), to $2,256,684 and
$707,133 respectively, compared to the equivalent figures for the end of
the previous fiscal year. The net declined because the amount of
depreciation taken during fiscal year 1994 exceeded the cost of new
equipment and leasehold improvements added during the fiscal year.
Accounts payable were $223,638 as of October 1, 1994, compared to
$416,235 as of October 2, 1993. The decrease was due to differences in the
timing of receipt of materials between the two year-ends. The current
portion of long-term debt of $246,136 as of October 1, 1994, decreased
compared to the October 2, 1993, balance of $1,088,203 because the Company
refinanced a portion of its ESOP loan in August 1994. Accrued compensation
and related expenses as of October 1, 1994, were $307,388 at the end of
fiscal year 1994 compared to $382,862 at the end of the previous year. The
decrease resulted from lower commissions payable at year-end, due to lower
sales during September 1994 as compared to sales during September 1993.
Other accrued liabilities increased from $701,760 at October 2, 1993, to
$859,675 as of October 1, 1994, primarily because of increased sales
commissions payable to distributors. Commission amounts due to
distributors are accrued at the time the sale is made, but are generally
not payable until payment is received by the Company.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the index to the Financial Statements and Schedules on Page 10
hereof.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Items 10, 11 and 12 are incorporated by reference from the proxy
statement for the Annual Meeting of Shareholders to be held on February 10,
1997, which will be filed with the Commission not later than December 31,
1996.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1995 the Company purchased a minority interest in
Net2Net Corporation, purchased certain products, and entered into a
distribution agreement with Net2Net Corporation. The President of Net2Net
is related to Arnold M. McCalmont, the Chairman of the Board of Directors
of the Company, and to James McCalmont, one of the Company's directors.
Arnold and James McCalmont, as well as Herbert Lerner, are also investors
in Net2Net Corporation.
Lawrence A. Kletter, Esq., a Director of the Company, is a member of a
law firm which provides legal services to the Company.
During 1996, 1995, and 1994, the Company leased a sales office from a
related party; lease payments were $1.00 in each year. The fair market
value of such rent is estimated to be below $5,000 per year.
Lawrence A. Kletter, a Director of the Company and a partner in the
law firm of Eckert Seamans Cherin & Mellott (securities law counsel for the
Company) and James A. McCalmont, a Director and employee of the Company,
are Trustees of the Trust.
Page 9 of 12
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
__________________________________
The financial statements and schedules listed in the accompanying index to
Financial Statements and Schedules are filed as part of this Annual Report
on Consolidated Form 10-K.
Index to Financial Statements and Schedules
___________________________________________
Page No. in
Annual Report
("AR") or
(a)1 Financial Statements Form 10-K
____________________ _________
Consolidated Balance Sheets: AR 6
September 28, 1996 and
September 30, 1995
Consolidated Statements of Income: AR 7
Years Ended September 28, 1996,
September 30, 1995 and October 1, 1994
Consolidated Statements of Cash Flows: AR 8
Years Ended September 28, 1996,
September 30, 1995 and October 1, 1994
Consolidated Statements of Stockholders' Equity: AR 9
Years Ended September 28, 1996,
September 30, 1995 and October 1, 1994
Notes to Consolidated Financial Statements AR 10
Report of Independent Public Accountants AR 19
(a)2 Financial Statement Schedules
_____________________________
Report of Independent Public Accountants on Supplemental
Schedules to the Consolidated Financial Statements and
Schedule II- Valuation and Qualifying Accounts 12
(a)3 List of Exhibits
________________
3.3(a) Articles of Organization of the Company
3.3(b) By-laws of the Company
3.22 List of Subsidiaries of the Company
(b) Reports on Form 8-K
___________________
None.
(c) Exhibits
________
All exhibits required by this Item 14 (c) were previously filed
with the Commission.
Page 10 of 12
SIGNATURES
__________
Pursuant to the requirements of Section 13 or 15 (d) 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
By: /s/ Roland S. Gerard
____________________
Roland S. Gerard
President and Chief Executive Officer
December 19, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
/s/ Arnold M. McCalmont
_______________________
Arnold M. McCalmont
Chairman of the Board, Director
December 19, 1996
/s/ James A. McCalmont
______________________
James A. McCalmont
Director
December 19, 1996
/s/ Victor Sabella
__________________
Victor Sabella
Director
December 19, 1996
/s/ Philip A. Phalon
____________________
Philip A. Phalon
Director
December 19, 1996
/s/ Lawrence A. Kletter
_______________________
Lawrence A. Kletter
Director
December 19, 1996
/s/ Herbert A. Lerner
_____________________
Herbert A. Lerner
Treasurer, Director
December 19, 1996
/s/ Graham R. Briggs
____________________
Graham R. Briggs
Vice President - Finance and
Administration
December 19, 1996
Page 11 of 12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
To Technical Communications Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in Technical Communications
Corporation's 1996 annual report to shareholders incorporated by reference
in the Form 10-K, and have issued our report thereon dated November 6,
1996. Our audit was made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The supplemental
schedule to the consolidated financial statements listed as Item 14 (a) 2
in the Form 10-K is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This supplemental schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states, in all material respects,
the financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.
Boston, Massachusetts
November 6, 1996
Technical Communications Corporation Schedule II
Valuation and Qualifying Accounts
Balance at Additions Deductions Balance at
Beginning Charged to from End
of year Expense Reserves of Year
__________ __________ __________ __________
Description
Allowance for doubtful accounts-
Year Ended September 28, 1996 $ 48,692 $ 10,000 $ 4,985 $ 53,707
Year Ended September 30, 1995 15,000 34,217 525 48,692
Year Ended October 1, 1994 15,000 -- -- 15,000
Page 12 of 12