SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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 29, 2001 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 Identification Number)
incorporation or organization)
100 Domino Drive, Concord, MA 01742-2892
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (978) 287-5100
----------------
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _______
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Number of shares of Common
Stock, $.10 par value, outstanding as of January 25, 2002: 1,330,185.
INDEX
Page
----
PART I Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets,
as of December 29, 2001 (unaudited) and September 29, 2001 1
Condensed Consolidated Statements of Operations,
Three (3) months ended December 29, 2001 and December 30, 2000 (unaudited), 2
Condensed Consolidated Statements of Cash Flows,
Three (3) months ended December 29, 2001 and December 30, 2000 (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
PART I. Financial Information - Item 1. Financial Statements
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
December 29, 2001 September 29, 2001
----------------- ------------------
(unaudited)
Assets
------
Current Assets:
Cash and cash equivalents $ 918,226 $ 1,618,915
Accounts receivable - trade, less allowance for doubtful
accounts of $70,000 and $15,000, respectively 785,171 67,232
Inventories 1,198,573 1,261,608
Other current assets 345,658 355,837
----------- -----------
Total current assets 3,247,628 3,303,592
----------- -----------
Equipment and leasehold improvements 4,934,943 4,921,498
Less: accumulated depreciation and amortization 4,626,880 4,570,459
----------- -----------
308,063 351,039
----------- -----------
$ 3,555,691 $ 3,654,631
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Accounts payable $ 135,669 $ 231,208
Accrued liabilities
Compensation and related expenses 168,588 111,381
Other 543,820 635,070
----------- -----------
Total current liabilities 848,077 977,659
----------- -----------
Stockholders' Equity:
Common stock, par value $.10 per share; authorized
3,500,000 shares; issued 1,330,185 shares
and 1,323,328 shares 133,019 132,333
Treasury stock at cost, 232 shares (1,934) (1,934)
Additional paid-in capital 1,371,976 1,365,600
Retained earnings 1,204,553 1,180,973
----------- -----------
Total stockholders' equity 2,707,614 2,676,972
----------- -----------
$ 3,555,691 $ 3,654,631
=========== ===========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
------------------
December 29, 2001 December 30, 2000
----------------- -----------------
Net sales $ 1,318,357 $ 1,320,917
Cost of sales 501,524 423,638
----------- -----------
Gross profit 816,833 897,279
Operating expenses:
Selling, general and
administrative expenses 496,638 1,215,668
Product development costs 309,889 240,976
----------- -----------
Total operating expenses 806,527 1,456,644
----------- -----------
Operating income (loss) 10,306 (559,365)
----------- -----------
Other income (expense):
Interest income 7,224 35,843
Interest expense (369) (532)
Other 6,419 (78,630)
----------- -----------
Total other income (expense): 13,274 (43,319)
----------- -----------
Income (loss) before income taxes 23,580 (602,684)
Provision for income taxes - -
----------- -----------
Net income (loss) $ 23,580 $ (602,684)
=========== ===========
Net income (loss) per common share:
Basic $ .02 $ (0.46)
Diluted $ .02 $ (0.46)
Weighted average common shares outstanding
used in computation:
Basic 1,327,542 1,304,558
Diluted 1,335,110 1,304,558
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page 2
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
December 29, 2001 December 30, 2000
----------------- -----------------
Operating Activities:
Net income (loss) $ 23,580 $ (602,684)
Adjustments to reconcile net loss to net cash provided (used) by operating
activities:
Depreciation and amortization 56,421 131,450
Non-cash compensation - 300
Changes in assets and liabilities:
Accounts receivable (717,939) (588,932)
Inventories 63,035 (46,086)
Other current assets 10,179 (21,673)
Accounts payable and other accrued liabilities (129,582) (57,078)
----------- -----------
Net cash used by operating activities (694,306) (1,184,703)
----------- -----------
Investing Activities:
Additions to equipment and leasehold improvements (13,445) (34,900)
----------- -----------
Net cash used by investing activities (13,445) (34,900)
----------- -----------
Financing Activities:
Proceeds from stock issuance 7,062 24,976
----------- -----------
Net cash provided by financing activities 7,062 24,976
----------- -----------
Net decrease in cash and cash equivalents (700,689) (1,194,627)
Cash and cash equivalents at beginning of the period 1,618,915 3,121,617
----------- -----------
Cash and cash equivalents at the end of the period $ 918,226 $ 1,926,990
=========== ===========
Supplemental Disclosures:
Interest paid $ 246 $ 532
Income taxes paid 2,975 3,256
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 3
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
STATEMENT OF FAIR PRESENTATION
------------------------------
Interim Financial Statements. The accompanying unaudited condensed consolidated
----------------------------
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 disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have 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 29, 2001 as
filed with the Securities and Exchange Commission on Form 10-K.
NOTE 1. Inventories
------ -----------
Inventories consisted of the following:
December 29, 2001 September 29, 2001
----------------- ------------------
Finished Goods $ 52,950 $ 140,962
Work in Process 666,348 493,947
Raw Materials 479,275 626,699
----------- -----------
$ 1,198,573 $ 1,261,608
=========== ===========
NOTE 2. Line of Credit
------ --------------
The Company has a $1 million asset-based credit facility with Coast Business
Credit ("Coast"). The line carries an interest rate of prime plus 1/2% (5.25% at
December 29, 2001). This revolving line of credit is collateralized by
substantially all the assets of the Company and requires no compensating
balances. There are financial covenants associated with the line, which call for
a minimum net tangible worth of $1,651,000 at December 29, 2001 and increasing
over time based on certain criteria. The agreement also contains a rolling six
month EBIT requirement. The amount of borrowings is limited to a percentage of
certain accounts receivable balances and the line of credit matures in December
2002. There were no outstanding borrowings during the quarter.
NOTE 3. Liquidity Matters
------ -----------------
The Company's revenues have historically included significant transactions with
foreign governments and other organizations. The Company expects this trend to
continue. The timing of these transactions has in the past and will in the
future have a significant impact on the cash flow of the Company. Delays in the
timing of significant expected sales transactions would cause a significant
negative effect on the Company's operations, however the Company has some
ability to mitigate this effect through further cost cutting measures. The
Company believes there are currently sufficient cash and available funds under
the line of credit to meet its working capital needs.
Page 4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
-------------------------------------------------------------
NOTE 4. Major Customers and Export Sales
------ --------------------------------
During the quarter ended December 29, 2002, the Company had four
customers, representing 80% (16%, 15%, 15% and 11%) of net sales.
During the quarter ended December 30, 2001, the Company had two
customers, representing 66% (52% and 14%) of net sales.
A breakdown of net sales is as follows:
December 29, December 30,
2001 2000
---- ----
Domestic $ 379,258 $ 199,985
Foreign 939,099 1,120,932
----------- -----------
Total sales $ 1,318,257 $ 1,320,917
=========== ===========
A summary of foreign sales by geographic area follows:
December 29, December 30,
2001 2000
---- ----
North America
(excluding the U.S.) 2.1% 10.2%
Central and South America 22.1% 61.6%
Europe 1.0% .8%
Mid-East and Africa 44.2% 26.0%
Far East 30.6% 1.4%
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FORWARD-LOOKING STATEMENTS
--------------------------
NOTE: THE DISCUSSIONS IN THIS FORM 10-Q, INCLUDING ANY DISCUSSION OF OR IMPACT,
EXPRESSED OR IMPLIED, ON TECHNICAL COMMUNICATIONS CORPORATION'S (THE COMPANY)
ANTICIPATED OPERATING RESULTS AND FUTURE EARNINGS, INCLUDING STATEMENTS ABOUT
THE COMPANY'S ABILITY TO ACHIEVE GROWTH AND PROFITABILITY, CONTAIN
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED. THE COMPANY'S OPERATING RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. THE
COMPANY'S OPERATING RESULTS MAY BE AFFECTED BY MANY FACTORS, INCLUDING BUT NOT
LIMITED TO 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 AND THE COMPANY'S ABILITY TO RENEGOTIATE ITS LINE OF CREDIT WITH
ITS BANK. THESE AND OTHER RISKS ARE DETAILED FROM TIME TO TIME IN THE COMPANY'S
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FORM 10-K FOR
THE FISCAL YEAR ENDED SEPTEMBER 29, 2001 AND THIS FORM 10-Q FOR THE QUARTER
ENDED DECEMBER 29, 2001.
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.
With the exception of long-term contracts where revenue is recognized under the
percentage of completion method, the Company generally recognizes income on a
unit-of-delivery basis. This latter method can cause revenues to vary widely
from quarter to quarter and therefore quarterly comparisons of revenue may not
be indicative of any trend.
Three Months ended December 29, 2001 as compared to the Three Months ended
--------------------------------------------------------------------------
December 30, 2000
-----------------
The Company showed net income of $24,000 for the first quarter of fiscal 2002 as
compared to a net loss of $603,000 for the same period in fiscal 2001. This
increase in profitability is primarily attributable to the significant decrease
in selling, general and administrative expenses.
Net sales for the quarter ended December 29, 2001 and December 30, 2000, were
$1,318,000 and $1,321,000, respectively. Gross profit for the first quarter of
fiscal 2002 was $817,000 as compared to gross profit of $897,000 for the same
period of fiscal 2001. This represented a decrease in gross profit of 9% for the
quarter. Gross profit expressed as a percentage of sales was 62% in 2002 as
compared to 68% for the same period in fiscal 2001. These decreases were
primarily attributable to lower margin sales in fiscal 2002.
Selling, general and administrative expenses for the first quarter of fiscal
2002 were $497,000 and $1,216,000 for the same quarter in fiscal 2001. This
decrease of 59% was primarily attributable to $246,000 reduction in general and
administrative expenses and a reduction of $473,000 in selling and marketing
costs.
The decrease in general and administrative costs were attributable to a $42,000
decrease in personnel related costs associated with a reduced headcount and
overall cost reductions of approximately $113,000 associated with a
restructuring program and the related workforce reductions. In addition the
write-off of
Page 6
amortizable assets in fiscal 2001 has resulted in a reduction of $58,000 in
amortization expense in the current fiscal quarter.
The decrease in selling costs was primarily attributable to decreased third
party sales commissions and marketing contracts totaling $152,000. The decrease
also included a reduction in travel, payroll and benefit related costs
associated with the lower sales volume, of approximately $65,000. During the
first quarter of fiscal 2001 the Company developed a major proposal, a marketing
study and a market research project. These efforts were not repeated in fiscal
2002 and resulted in lower expenditures of $231,000 in the current fiscal
quarter.
Product development costs for the quarter ended December 29, 2001 were $310,000
compared to $241,000 for the same period in fiscal 2001. This increase of 29%
was attributable to a shift away from billable product development in fiscal
2002, which increased product development cost in fiscal 2002 by approximately
$160,000. This was offset by a decrease associated with a reduced headcount of
approximately $82,000.
Recent Accounting Pronouncement
-------------------------------
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives. The Company is required to
apply the new rules on accounting for goodwill and other intangible assets by
fiscal year 2003. The Company currently does not have any goodwill or intangible
assets and does not expect a material impact from the adoption of these
standards.
In August 2001, the Financial Accounting Standards Board issued SFAS 144
Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144").
This Statement addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. This Statement supersedes FASB Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, and amends the accounting and reporting provisions of
APB Opinion No. 30. Reporting the Results of Operations -- Reporting the Effect
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment of
a business. The provisions of FAS 144 will be effective for fiscal years
beginning after December 15, 2001.
Liquidity and Capital Resources
-------------------------------
Cash and cash equivalents decreased by $701,000 or 43% to $918,000 as of
December 29, 2001, from a balance of $1,619,000 at September 29, 2001. This
decrease was primarily due to an increase of accounts receivable and a decrease
in accounts payable and accrued expenses, which were partially offset by
non-cash adjustments and a reduction in, inventories.
The Company has a $1 million asset-based credit facility with Coast Business
Credit ("Coast"). The line carries an interest rate of prime plus 1/2% (5.25% at
December 29, 2001). This revolving line of credit is collateralized by
substantially all the assets of the Company and requires no compensating
balances. There are financial covenants associated with the line, which call for
a minimum net tangible worth of $1,651,000 at December 29, 2001 and increasing
over time based on certain criteria. The agreement also contains a rolling six
month EBIT requirement. The amount of borrowings is limited to a percentage of
certain accounts receivable balances and the line of credit matures in December
2002. There were no outstanding borrowings during the quarter.
As of December 29, 2001, the Company has two outstanding standby letters of
credit amounting to $137,000, which are secured by compensating cash collateral.
The Company's revenues have historically included significant transactions with
foreign governments and other organizations. The Company expects this trend to
continue. The timing of these transactions has in the past and will in the
future have a significant impact on the cash flow of the Company. Delays in the
Page 7
timing of significant expected sales transactions would cause a significant
negative effect on the Company's operations, however the Company has some
ability to mitigate this effect through further cost cutting measures. The
Company believes there are currently sufficient cash and available funds under
the line of credit to meet its working capital needs.
PART II. Other Information
Item 1. Legal Proceedings:
There are no current matters pending.
Item 2. Changes in Securities and Use of Proceeds:
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:
None.
b. Reports on Form 8-K:
None.
Page 8
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 11, 2002 By: /s/ Carl H. Guild, Jr.
----------------- -----------------------------------
Date Carl H. Guild, Jr., President and
Chief Executive Officer
February 11, 2002 By: /s/ Michael P. Malone
----------------- -----------------------------------
Date Michael P. Malone, Chief Financial
Officer
Page 9